Appeal by defendant from the City Court of East St. Louis; the
Hon. JOSEPH E. FLEMING, Judge, presiding. Heard in this court at
the May term, 1953. Decree modified and affirmed as modified.
Opinion filed October 7, 1953. Rehearing denied November 19,
1953. Released for publication December 1, 1953.
MR. JUSTICE BARDENS DELIVERED THE OPINION OF THE COURT.
Rehearing denied November 19, 1953
The controversy in this case is between the United States of America, defendant-appellant, claiming a lien for unpaid internal revenue taxes, and certain defendant-appellee subcontractors, claiming priority under mechanics' lien claims. The lower court held that the liens of the subcontractors were entitled to payment prior to the internal revenue liens and entered a decree accordingly, from which the United States of America has taken this appeal.
On or about December 8, 1949, the plaintiffs in the suit, namely, John Robertson and Emma Robertson, owners of certain real estate, entered into a contract with Central States Lumber & Supply Company, hereinafter referred to as contractor, for the construction of a one story, frame dwelling on the real estate owned by them. The cost of the house was to be $6,025 of which $2,025 was to be paid when the roof was on the house and the balance, or $4,000, was to be paid on completion of the contract. Plaintiffs paid the $2,025, but before completion of the house the contractor was adjudicated a bankrupt, necessitating the expenditure by plaintiffs of $67.40 for wiring and electrical equipment to complete the house. Plaintiffs admitted owing the balance of $3,932.60 and, knowing that this sum was not sufficient to pay the subcontractors and the government tax liens, commenced this suit and made all lien claimants parties defendant and by leave of court deposited the balance into court for disposition.
The five lien claimants who were named as defendants were all subcontractors who had entered into agreements with the bankrupt contractor to furnish labor and materials in connection with the construction of the dwelling house on the premises owned by plaintiffs. The amounts claimed, the dates on which the last work was done or last material furnished, the dates of notices served on the owners and the dates on which notices of liens were filed are as follows:
Date Notice Amount Served Notice Name Amount Became Due on Owner Filed Huntley & Blaizer
Co. $ 500.00 May 14, 1951 July 11, 1951 Aug. 3, 1951 Gauen Lumber Co. 1552.25 Aug. 30, 1951 Sept. 7, 1951 Oct. 22, 1951 Steve Tomic 44.00 Aug. 10, 1951 Oct. 3, 1951 Oct. 29, 1951 M.J. Kickham 831.18 Aug. 27, 1951 Sept. 12, 1951 Nov. 7, 1951 Welco Supply Co. 398.00 Aug. 30, 1951 Oct. 8, 1951 Nov. 5, 1951
The Collector of Internal Revenue filed notices of tax liens against the contractor with the recorder of St. Clair county, Illinois, covering assessment of income tax for the fiscal year ended June 30, 1950, assessments of income withholding taxes and federal insurance contributions for the last three quarter-year periods of 1950 and the first quarter-year period of 1951, and assessments of Federal Unemployment Tax Act taxes for the calendar year 1950, as follows:
Date Assessment List Amount of Date Notice of Received by Collector Assessments Lien Filed
Oct. 2, Dec. 11, and 14, 1950 $13,562.94 Jan. 29, 1951 March 7, 1951 3,159.91 March 12, 1951 May 15, 1951 2,587.38 May 21, 1951 June 8, 1951 1,668.59 June 14, 1951 March 26, 1951 472.98 June 25, 1951
As a result of subsequent collections, there remained an unpaid balance of $14,049.64 due on these assessments at the time of trial.
On August 15, 1951, the Collector of Internal Revenue issued a notice of levy, directed to John T. Robertson, one of the plaintiffs, notifying him of the amount due from the contractor to the United States and further notifying him that any sums of money owed to the contractor were thereby seized and levied upon. The contractor was adjudicated bankrupt on August 31, 1951.
The validity and amounts of the subcontractors' claims and the validity and amount of the federal tax liens are not in question, but the Government insists that under the above stated facts it is entitled to priority over the subcontractors. If its contention is sustained there would be nothing left for the subcontractors. The lower court decreed that the subcontractors should first be paid and that the balance of $378.34 be paid to the trustee in bankruptcy. The Government also insists that even if the subcontractors' liens are held to be prior and entitled to payment first, the lower court erred in decreeing the balance to the trustee in bankruptcy instead of ordering it paid to the United States.
[1-4] It is the contention of the Government that tax liens of the United States were specific and perfected, attached to all property and rights to property of the contractor on the dates when they arose and that the question of whether a lien under state law is sufficiently specific and perfected to take priority over a lien of the United States is a federal question. These contentions are not questioned by appellees. The Government next insists that the mechanics' and materialmen's liens were inchoate when the tax liens of the United States attached and that under the authority of People ex rel. Gordon v. Campbell, 329 U.S. 362, 91 L.Ed. 348, 67 S.Ct. 340, the characterization by the state courts of a lien as inchoate is practically conclusive upon the federal courts; therefore, the lien of the United States is entitled to priority. The lien claimant-appellees vigorously contest the contention that their liens are inchoate. The Government cites a number of Illinois cases to sustain its position in this respect but, upon reading these cases, we find that the specific question has not been passed upon. It is true that several of the decisions, namely: W.W. Brown Construction Co. v. Central Illinois Construction Co., 234 Ill. 397; Decatur ...