that General is to receive from the fund remaining its costs
in the amount of $69.26. At the same time, the cause was taken
under advisement upon the several pending motions for summary
The competing claims remaining for consideration are: (1)
the claim of the United States upon its tax liens; (2) the
claim of the Pekin bank as assignee of United; and (3) the
claims of E-Z, Brill and Automatic as materialmen.
The single issue for decision is the question of the
relative preference of those several competing claims.
The lien for federal taxes, under 26 U.S.C. § 6321 et seq.,
is entitled to priority over all other liens against the
subject property which had not attached to the property and
become choate prior to the time when the federal lien was
perfected. United States v. Hulley, 358 U.S. 66, 79 S.Ct. 117,
3 L.Ed.2d 106; United States v. R. F. Ball Construction Co.,
355 U.S. 587, 78 S.Ct. 442, 2 L.Ed. 2d 510; United States v.
Vorreiter, 355 U.S. 15, 78 S.Ct. 19, 2 L.Ed.2d 23; United
States v. New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520.
The general principle applied to the priority question is the
maxim of first in time, first in right.
Thus, the critical question is whether a perfected, choate
lien existed in favor of either of the materialmen or the
Pekin bank prior to the time when the lien claims were filed
by the District Director. We look to state law to determine
whether United had property or property rights to which the
federal lien could attach, and to determine whether a choate
lien had been perfected prior to that time against the
property in favor of those contesting the Government's claim
of priority. Aquilino v. United States, 363 U.S. 509, 512-513,
80 S.Ct. 1277, 4 L.Ed.2d 1365. As the Court there said,
Section 6321 does not create any property rights, but merely
attaches federally defined consequences to rights existing
under state law.
I conclude that neither Brill, Automatic Electric nor E-Z
Plumbing has a right to the funds in issue entitled to a
preference over the liens of the United States. The Illinois
Mechanics' Lien Act, Ill.Rev.Stat. 1959, c. 82, § 1 et seq.,
must be strictly construed with reference to requirements upon
which the right to claim a lien depends. Hoier v. Kaplan,
313 Ill. 448, 145 N.E. 243; NorthSide Sash & Door Co. v. Goldstein,
286 Ill. 209, 121 N.E. 563. As the Act applied to
subcontractors, the furnishing of labor and materials merely
creates a right to claim a lien by compliance with the
conditions expressed in the Act. Decatur Bridge Co. v.
Standart, 208 Ill. App. 592. A prerequisite to perfecting a
lien is the giving of notice of the lien claim to the landowner
as required by Section 24 of the Act. Western Plumbing Supply
Co. v. Horn, 269 Ill.App. 612. No such notice was given by
either of these claimants. Since those claimants had not
perfected a lien in accordance with the Illinois Act, no choate
lien existed in favor of either of them at the time when the
liens of the United States attached.
The claim of the Pekin Bank falls in a different category.
Notice of the assignments was given to General, and Illinois
law does not require that the assignment of a chose in action
be recorded. The lien of such an assignment is perfected and
valid against third person when made, without recordation.
United States v. Crest Finance Co., 7 Cir., 302 F.2d 568,
modified in other respects, 7 Cir., 305 F.2d 332; Siegel for
Use of American Glass Co. v. Liberty Trust & Savings Bank,
272 Ill. App.? 43; Hoffman for Use of Keithley v. New York Life Ins.
Co., 230 Ill.App. 533.
In my opinion, the Crest case controls the question of
priority between the competing claims of the United States and
the Pekin Bank. In that case, a subcontractor assigned its
accounts receivable from the principal contractor to Crest to
secure the payment of promissory notes given to Crest. Such
antedated the government's claim of a lien for taxes due. The
trial court held the lien of the government prior in right to
the Crest assignment. The Court of Appeals affirmed, holding
that the assignment was inchoate and not perfected. United
States v. Crest Finance Co., 7 Cir., 291 F.2d 1. For that
decision, the court cited United States v. R. F. Ball
Construction Co., 355 U.S. 587, 78 S.Ct. 442, 2 L.Ed.2d 510,
as controlling. Upon certiorari to the United States Supreme
Court, the Solicitor General conceded that the Crest
assignment created a choate lien under Illinois law. The
Court, per curiam, reversed the cause and remanded it to the
Court of Appeals for further proceedings. Crest Finance Co. v.
United States, 368 U.S. 347, 82 S.Ct. 384, 7 L.Ed.2d 342. When
the case was heard on remand, the government argued that the
lien of the Crest assignment was not choate in the federal
sense. The court rejected that argument, holding that the lien
was choate under state law and prior in date to the federal
claim of lien and thus entitled to priority over the claim of
the United States. United States v. Crest Finance Co., 7 Cir.,
302 F.2d 568.
I can see no distinction whatsoever between the factual
background of the Crest case and the situation which exists
here as between the Pekin Bank and the United States.
In accordance with the views hereinabove expressed, judgment
will be entered denying the motions for summary judgment of
Automatic Electric Sales Corporation, E-Z Plumbing, Heating &
Supply Company and Theodore J. Brill, d/b/a Brill Electric
Motor Service, and the United States of America. Summary
judgment will be entered in favor of First National Bank and
Trust Company of Pekin, directing that the Clerk pay out of
the fund in his hands the sum of $69.26 to the plaintiff,
General Telephone Company of Illinois, for its costs of suit,
and pay the balance of such fund in the amount of $5,802.68,
to the First National Bank and Trust Company of Pekin.
© 1992-2003 VersusLaw Inc.