The opinion of the court was delivered by: LA Buy, District Judge.
Seeking to enforce and foreclose various purported asserted
federal tax liens*fn1 against the realty and personal property of
United States Chain Company, one of the defendants,*fn2 the
government filed a civil complaint in this court joining numerous
parties as defendants.*fn3
That complaint states a cause of action and from the evidence
it is established that Chain owes the government the following
amounts:
Withholding Tax $4,818.88 $2,204.11 $7,023.99
Federal Unemployment Tax 1,171.80 400.79 1,572.59
Miscellaneous Excise Tax 12,949.56 5,029.04 17,978.60
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Total Amount Owed By Chain $26,575.18
Lien priorities warrant some detailed discussion in an opinion,
but such a presentation of my views is unnecessary for other
parts of the case. Therefore, in addition to this opinion I am
making some other and separate findings of fact and conclusions
of law on points and issues unrelated to the lien problems. To
avoid misunderstandings, I also point out that my additional
findings of fact do, however, reflect some factual data
concerning the assessments underlying the liens involved, and I
have simply pursued such a course with the idea of keeping this
opinion relatively uncluttered. Of course, the findings of fact,
separately stated, referring to the government's assessments are
an integral part of this opinion.
"3. This defendant is willing that the court order
said real estate sold, provided (a) the court enters
judgment as prayed in paragraphs 1 and 2 of this
defendant's prayer for relief, (b) said real estate
can be sold for at least $3,200.00, and (c) the court
orders the first $3,200.00 out of the proceeds of any
such sale to be paid to Interstate Bond Company in
full payment for its interest in said real
estate."
Subsequently, Bond moved for an order granting it leave to
amend the answer by striking the aforesaid third paragraph. I
allowed that motion, leaving Bond pressing its tax deed against
all rights and liens claimed by the government and Chain, and
Kahn.
It must be borne uppermost in mind that this is unlike those
cases where opposing lien holders lay claim against funds in the
hands of a stakeholder. A stipulation of facts entered into by
and between the government, Chain and Bond brings into focus some
salient facts as follows:
"It is hereby stipulated by and between United
States of America, plaintiff, and United States Chain
Company and Interstate Bond Company, two of the
defendants, by their respective counsel, that:
"1. The general taxes for the year 1950 on the real
estate described in paragraph VI of the complaint
were not paid when due, and on the application of the
County Treasurer and ex-officio County Collector of
Cook County judgment was entered by the County Court
of Cook County in November, 1951, ordering said real
estate to be sold to satisfy the amount of taxes due
thereon, interest, penalties, and costs.
"2. Interstate Bond Company purchased said real
estate on April 21, 1952, at the sale of said real
estate duly held and conducted pursuant to said order
of the County Court by paying therefor the sum of
$1069.11, and a certificate of purchase was duly
issued to Interstate Bond Company therefor.
"3. In addition to the amount paid by Interstate
Bond Company for said real estate at said tax sale as
set forth in paragraph 2 of this stipulation,
Interstate Bond Company also paid the general real
estate taxes on said real estate for the years 1951,
1952, and 1953, as set forth below:
"Taxes For Year Date of Payment Amount Paid
"1951 July 20, 1954 $734.05
"1952 July 20, 1954 728.80
"1953 July 20, 1954 657.09
"4. Said real estate was not redeemed from said tax
sale, and upon petition of Interstate Bond Company
the County Court of Cook County, on March 25, 1955,
entered an order directing the County Clerk of Cook
County to issue a tax deed conveying said real estate
to Interstate Bond Company, a copy of which order is
attached hereto as Exhibit A and made a part hereof.
"6. The notices of federal tax liens set forth in
paragraph III(a) of the complaint were filed with the
Recorder of Deeds of Cook County, Illinois, upon the
dates respectively set forth in said paragraph III(a)
under the column heading `Dates on which Notices of
liens filed'.
"7. The notices of federal tax liens set forth in
paragraph IV(a) of the complaint were filed with the
Recorder of Deeds of Cook County, Illinois, upon the
dates respectively set forth in said paragraph IV(a)
under the column heading `Dates on Which Notices of
Liens were Filed'.
"8. The notices of federal tax liens set forth in
paragraph V(a) of the complaint were filed with the
Recorder of Deeds of Cook County, Illinois, upon the
dates respectively set forth in said paragraph V(a)
under the column heading `Dates on which Notice of
Federal Liens were Filed'."
By statute in Illinois, real estate taxes became a prior and
first lien on the real estate, involved here, from and including
"the first day of April in the year in which the taxes were
levied." The general real estate taxes, on the property in
question, for the year 1950 were not paid when due (Stipulation,
¶ 1). The initial struggle for relative priority between
competing liens commences with the lien stemming from the unpaid
1950 Illinois real estate taxes and the government lien
authorized*fn5 by § 3671 of the Internal Revenue Code of 1939 and
based upon receipt by the collector of the federal assessment
list on December 17, 1951. Bond paid the Illinois real estate
taxes for the years 1951, 1952 and 1953. Accordingly, the lien
springing from the 1950 local Illinois taxes is significant for
Bond's theory of its case.
Bond relies heavily on United States v. New Britain,
347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954). There, the City of New
Britain was asserting its liens for delinquent real estate taxes,
for 1947 through 1951, and water rents, against funds realized
from a judgment sale following foreclosure of two mortgages on
the real property against which both Federal and local tax liens
had attached. Or, as Mr. Justice Minton put it, the question
presented involved "* * * the relative priority of statutory
federal and municipal liens to the proceeds of a mortgage
foreclosure sale of the property to which the liens attached."
(Id. at 82, 74 S.Ct. at 368). But New Britain did not involve the
facts or contention here urged by Bond that the judgment sale in
the Illinois County Court extinguished all federal liens, leaving
Bond tax title holder in fee simple, free and clear of all
federal liens. Extinguishment of liens is absent from New Britain
and the court treated solely with the problem of lien
priorities.*fn6
But when treating with the problem of priorities the New
Britain court observed (id. at 86, 74 S.Ct. at 370): "Thus, the
priority of each statutory lien contested here must depend on the
time it attached to the property in question and became choate."
Quickly stated, the basic teaching of federal case law is that
a lien becomes choate when there is certainty as to amount,
identity of the lienor, and property subject to the lien. United
States v. New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520
(1954). Save for some bare facts in the stipulation now before
me, I find the record devoid of any proof as to when the County
Clerk of Cook County computed the tax rates and extensions for
the use of local tax collectors, or when the books showing the
amount of taxes were delivered to the collectors. All that
appears in Bond's brief are some Illinois statutory citations of
the various procedural steps laid down by the Illinois General
Assembly. Of course, it is presumed that public officials do
their duty, but when this court is called upon to determine
relative priorities between liens relevant evidence becomes
indispensable. I refrain from assuming that the amount of the
local real estate tax lien was established "by December 31,
1950." (Bond's brief at page 7).
However, during November, 1951 (Stip., par. 1) on application
of the Cook County Treasurer and ex-officio County Collector
judgment was entered by the County Court, ordering the real
estate to be sold to satisfy the real estate taxes, interest,
penalties and costs. This judgment was not offered in evidence
and all that is now before me is found in the first paragraph of
the stipulation. (Bond's Exhibit 1). However, see also S.H.A.,
chap. 120, § 747 and § 751, discussed elsewhere in this opinion.
Since the government joined in the stipulation I will, however,
assume that the County Court order was in due form and hold that
at the County Court stage the lien for general real estate taxes
levied and assessed for the year 1950 was choate. I think, by
leaving this point uncontroverted, the government has conceded
the validity and specificity of this local lien, at least, in
November 1951. From this point on it is readily apparent that the
initial government lien under I.R.C. of 1939 purportedly arose on
December 17, 1951 [when the assessment lists were received by the
United States Collector] — after the County Court judgment was
entered.
Based upon the rule adopted in United States v. New Britain,
347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954), that:
"`the first in time is the first in right,'" plainly the Illinois
lien for unpaid general real estate taxes, which attached to the
real estate on April 1, 1950 and which became payable during the
spring and summer of 1951, is superior to the federal lien which
arose on December 17, 1951.
Under Illinois statutory provisions, governing orders of the
County Court on the county collector's annual application for
judgment and sale for delinquent taxes, the proceedings are in
rem. It is analogous to a civil suit for the collection of debt.
Keokuk & Hamilton Bridge Co. v. Salm, 258 U.S. 122, 42 S.Ct. 207,
66 L.Ed. 496 (1922). Without any conflict in the evidence before
me regarding critical dates, which I have already mentioned, it
is plain that the government's junior lien hardly improved its
status once the Illinois taxing machinery commenced operating,
predicated upon the senior lien for non-payment of general real
estate taxes levied and assessed for year 1950. Certainly, when
Bond purchased the real estate on April
21, 1952 at the sale held and conducted under the earlier order
of the County Court, the initial junior federal lien was
extinguished.
There is still another matter requiring some attention when
considering extinguishment of the federal junior lien. It must be
constantly borne in mind that the proceeding in this court was
commenced by the government and, indeed, it sought, inter alia,
"That the interests, claims and liens of the United States be
foreclosed." (Complaint, par. 3). The sovereign itself asked for
the adjudication and Bond resisted.
Under the decision of the basic issue, spelled out by Mr.
Justice Harlan when delivering the opinion of a sharply divided
court in United States v. Brosnan, 363 U.S. 237, 238, 80 S.Ct.
1108, 1110, 4 L.Ed.2d 1192, (1960): "* * * [w]hether the federal
lien was effectively extinguished by state proceedings to which
the United States was not, nor was required under state law to
be, a party." I believe the County Court proceedings could
legally, and in fact did, extinguish the federal junior lien. If
private foreclosure could extinguish federal liens in Brosnan
there is little doubt that Illinois local government can achieve
the same end when its real estate tax lien primes a federal lien.
At least up to and at the County Collector's application for
judgment of sale of the real estate for 1950 delinquent real
estate taxes we are treating with competing statutory tax liens
of two sovereigns, the United States and the People of the State
of Illinois (for the local taxing bodies). This is significant
because from and after November 1951 (when the County Court
entered judgment) assessment lists were being received by the
United States Collector or District Director (e.g., January 2,
1952 and March 3, 1952). The Illinois real estate tax delinquency
was satisfied by the County Court sale when Bond paid the local
collector $1,069.11 and a certificate of purchase was issued to
it on April 21, 1952. (Stipulation, par. 2). Other than the 1950
Illinois real estate tax lien there are no other liens competing
with the government liens in this case.
Within the novel factual framework of this case the next
question is what rights, if any, the government has under the
numerous liens it claims, other than the one already disposed of
and referred to as arising on December 17, 1951. For example, on
January 2, 1952, January 23, 1952 and on March 3, 1952,
assessment lists were received by the United States Collector or
District Director. But, the County Court had already entered its
judgment, in November 1951, ordering the real estate sold for
taxes, and that local court retained jurisdiction. What is said
below, in this opinion, concerning redemption, is applicable to
this group of liens.
According to the second paragraph of the stipulation, Bond
"purchased" the real estate on April 21, 1952 at the sale held
pursuant to the County Court's order. If, on that date, Bond
occupied the technical status of a "purchaser" within the meaning
and purview of I.R.C. § 3672(a), then any federal lien to have
validity against Bond's position must be based upon a prior
notice of such lien. The government first filed its notice of
lien on June 2, 1953. But Bond apparently falls short of the
yardstick provided by United States v. Scovil, 348 U.S. 218, 221,
75 S.Ct. 244, 247, 99 L.Ed. 271 (1955): "A purchaser within the
meaning of § 3672 usually means one who acquires title for a
valuable consideration in the manner of vendor and vendee."
(Emphasis supplied). After all, on April 21, 1952 Bond simply
held a certificate of purchase which, under Illinois statutes,
could be eradicated by a redemption any time within a two year
period. S.H.A., chap. 120, § 734.
At this juncture, United States v. Meyer, 199 F. Supp. 508
(D.C.Ill. 1961), cited to me by Bond, deserves some attention.
The underlying Madison County Court judgment was made part of the
record in the Meyer case, and "This is the judgment under which
the lands * * * described in the Complaint were sold to defendant
Paul Meyer on January 18, 1955, and under which certificate or
certificates of purchase were issued on said date, and which
certificates ripened into tax deeds on October 24, 1957 * * *."
(Id. at 510). The United States made its assessments on April 19,
1955 and "on June 28, 1955, filed notices of liens for the
assessed federal tax liabilities with the Recorder of Deeds of
Madison County, Illinois * * *." (Id. at 511). On August 21, 1956
Meyer petitioned for the issuance of tax deeds and notice of this
application was served on the United States Attorney and District
Director of Internal Revenue. That notice appears in the Meyer
opinion. In short, Meyer had already acquired his certificates of
purchase when the federal tax lien attached. While at bar, Bond
purchased the real estate on April 21, 1952 at the sale held by
the County Court after the first federal lien purportedly
attached to the real estate on December 17, 1951, and before
notices of several other government liens were filed, during the
year 1953, for example.
United States v. Meyer, 199 F. Supp. 508, 520-521 (D.C.Ill.
1961) also presents some views on Wells v. Glos, 277 Ill. 516,
115 N.E. 658 (1917), culminating in the following statement:
"This case [Wells v. Glos] does not hold that an
intervening lien-holder, junior in point of time, can
defeat the issuance of a deed by merely filing a lien
prior to the expiration of the period of redemption.
It [Wells v. Glos] does hold that unless a junior
lienor redeems before the expiration [sic] period
expires, his rights will be cut off by the expiration
of the statutory period of redemption and issuance of
the deed in accordance with the terms of the
Statute." (Emphasis supplied).
But, with all due deference, close examination of the opinion
in Wells v. Glos, 277 Ill. 516, 115 N.E. 658 (1917), reveals that
the Illinois Supreme Court stated at the outset: "The question to
be determined in this case is whether a quitclaim deed executed
during the period of redemption by the holder of a certificate of
purchase for lands sold for taxes conveys any existing legal or
equitable right or title to the grantee." This is all that was
decided by the Illinois Court, and that Court has repeatedly
quoted the following admonition: "We have frequently held that a
decision of this court must be read in connection with what was
actually decided, and to what the language used applied to."
People ex rel. Schlaeger v. W.J. Dennis & Co., 397 Ill. 381, 385,
74 N.E.2d 542, 544 (1947). The Wells case omits any mention of a
"junior lienor." Actually, under the holding in Wells v. Glos,
277 Ill. 516, 115 N.E. 658, Bond had nothing but a certificate of
purchase from April 21, 1952 to March 25, 1955. (Stipulation,
pars. 2 and 4).
United States v. Atlantic Municipal Corp., 212 F.2d 709 (5th
Cir. 1954), relied upon by Bond, allowed priority to the holder
of a local tax lien certificate acquired before a lien of the
United States had attached, in point of time. By its reasoning in
Atlantic the Fifth Circuit permitted the tax certificate
purchaser to hold the same priority status enjoyed by the real
estate tax lien underlying the certificate. Atlantic was decided
squarely on the theory of lien priority, and leaves unmentioned
the federal statutory (I.R.C. of 1939, § 3672) requirements for
first filing lien notices
in order to achieve validity as against any "purchaser." At bar,
this means Bond is entitled to continuous priority, commencing
from the time when the general real estate taxes for the year
1950 became a choate lien, since its certificate of purchase
stems from that particular prior local lien. Thus, it could be
said Bond and Atlantic, respectively, purchased liens which were
superior to government claims. Nothing is said in Atlantic about
redemption periods, if any there be, under Florida law when real
estate tax liens are sold by local county governments.
Under Illinois law only redemption within the statutory period
could defeat Bond's ultimate tax deed, and the parties have
agreed there was no redemption. (Stipulation, par. 2). I think it
is not what might have happened, but what in fact did happen that
governs this case since redemption*fn7 was left undone.