APPEAL from the Circuit Court of Cook County; the Hon. RAYMOND
K. BERG, Judge, presiding.
MR. JUSTICE MEJDA DELIVERED THE OPINION OF THE COURT:
Defendant, United States of America (U.S.A.), appeals from orders granting summary judgment to co-defendant, Chicago Federation of Musicians, Local 10-208 (Union), and approving a decree for private sale of certain real estate. On appeal, U.S.A. contends that the trial court erroneously declared a Federal tax lien void and thereby subordinated it to a subsequent judgment lien on either of two grounds: (1) because Rule 601 of the Rules of Bankruptcy Procedure (11 U.S.C. (1976)) prohibits perfection of a tax lien after filing of a voluntary petition for bankruptcy; or (2) because the underlying tax liability had been discharged in bankruptcy.
On December 13, 1977, plaintiff, Schaumburg State Bank, brought suit against Walter J. and Ruby A. Seyffert to foreclose a mortgage executed by them on May 15, 1976, and recorded on May 24, 1976. U.S.A., American National Bank and Trust Company of Chicago (American National), the Union, Western Illinois University (Western), Woodfield Bank (Woodfield), and Unknown Owners were named as defendants who might have some right, title, interest or lien in the subject real estate. The complaint also stated that U.S.A. had filed a notice of tax lien against Walter J. Seyffert in the amount of $14,747.84. From a later amendment to the complaint, it appears that this notice was filed in the recorder's office on February 25, 1977, as document number 23831506.
Woodfield did not admit or deny the allegations of the complaint but claimed to be judgment lien creditor of Ruby A. Seyffert in the amount of $2,079.16 by filing a copy of the judgment in the recorder's office on February 25, 1977, as document number 23832210.
Western claimed to be a judgment lien creditor of Ruby A. Seyffert in the amount of $474.25, a copy of which was filed with the recorder's office as document number 24121942.
U.S.A. answered that it claimed an interest in the property by reason of the assessment, demand, and notice of tax lien filed as alleged in Schaumburg's complaint. It denied that its claim was subordinate to plaintiff's claim and sought to have the property sold and the funds distributed to the competing parties according to their priorities as the court would determine.
An order of default was entered against the Seyfferts, American National, and the unknown owners for their failure to answer. Schaumburg then moved for summary judgment against the U.S.A. contending that since it had recorded first, its lien was superior to U.S.A.'s. Summary judgment was granted. That order is not challenged in this appeal.
The Union then answered Schaumburg's complaint, claiming to be a judgment lien creditor of Walter J. Seyffert in the amount of $49,691.25 by reason of non-dischargeable judgment entered on July 21, 1977, by the bankruptcy court in Walter Seyffert's bankruptcy proceeding. *fn1 A memorandum of this judgment was filed with the recorder of deeds on July 21, 1977, as document number 24023209. The Union also moved for summary judgment against U.S.A. contending that: (1) the filing of the notice of Federal tax lien after Walter Seyffert's filing of a voluntary petition for bankruptcy violated Rule 601(a) of the Rules of Bankruptcy Procedure (11 U.S.C. (1976)), and the tax lien was of no force; and (2) the tax indebtedness of Walter Seyffert was discharged in the prior bankruptcy proceeding, citing In re Sotelo (7th Cir. 1977), 551 F.2d 1090.
The trial court entered an order granting Union's motion for summary judgment on March 30, 1978, finding that: "The filing of the notice of lien on February 25, 1977, without authorization of the Bankruptcy Court, was a void act in violation of Bankruptcy Rule 601" and declaring the lien void and thereby discharged. A motion to reconsider and set aside this order was denied on April 28, 1978.
On May 26, 1978, Schaumburg filed a motion for a decree approving a private sale in lieu of foreclosure and attached a copy of a real estate contract entered into by the Seyfferts and certain purchasers. An order was entered June 5, 1978, denying U.S.A.'s motion for the trial court to reconsider the order of summary judgment for the Union, deny the decree for a private sale, and declare the real estate contract void.
On June 5, 1978, the trial court then entered a decree approving the private sale, that the U.S.A. had no lien upon the real estate *fn2 and that the sale proceeds be disbursed to plaintiff and the lien creditors as set forth in plaintiff's motion. U.S.A. brings this appeal seeking to have: (1) the private sale set aside; (2) the priorities of all parties reestablished; and (3) a judicial sale of the property and dismissal of Schaumburg's complaint. *fn3
U.S.A. attacks the two apparent bases for the trial court's order granting summary judgment for Union: (1) that the tax liability of the debtor had been discharged in bankruptcy; and (2) Rule 601(a) of the Rules of Bankruptcy Procedure prohibits perfection of the tax lien after the filing of the petition for bankruptcy.
1 Although there may have been support for the trial court's order on the basis that Seyffert's tax liability had been discharged in bankruptcy, it is clear that this is not now the law. At the time of the order, In re Sotelo (7th Cir. 1977), 551 F.2d 1090, held that the taxpayer's liability under Internal Revenue Code section 6672 (26 U.S.C. § 6672 (1976)), the section under which Mr. Seyffert's liability arose, was a penalty and not a tax, and was therefore discharged under section 17a(1) of the Bankruptcy Act. (11 U.S.C. § 35(a)(1) (1976).) The Supreme Court reversed the court of appeals, holding that the tax liability was not dischargeable under Bankruptcy Act § 17a(1)(e). (United States v. Sotelo ...