Appeal from the United States District Court for the Central District of Illinois, Danville Division, No. C 84-2055 -- Robert J. Kauffman, Magistrate.
Cummings, Cudahy and Manion, Circuit Judges.
This appeal involves competing claims to a 1979 Excalibur automobile. Appellant Patrick Rotherham claims he has a security interest in the car that should have priority over the government's tax liens. The Internal Revenue Service (the "IRS"), not surprisingly, disagrees. The district court found for the government. We affirm.
The factual setting is rather complex. We will only discuss those facts relevant to this appeal. The central character is Robert Edwards. In 1973, Edwards' mother conveyed some farmland to her son, retaining a life estate. In 1977, Mrs. Edwards passed away; Robert thereafter owned the land in fee simple. In 1980, the land was sold for $375,000. In December 1980, Edwards used $38,353 of the proceeds to buy a 1979 silver and black Excalibur automobile, the heart of this litigation. He placed title in the name of Bryan Briggs as trustee.
Unfortunately for Edwards, his mother's estate owed federal estate taxes of over $70,000. The estate failed to pay the tax when due. Under 26 U.S.C. § 6324(a)(2) (1982),*fn1 the tax was owed by Edwards and a lien automatically attached to the land. When the land was sold, a "like lien" attached to all Edwards' remaining property; so, he could not avoid the estate tax simply by transferring the land. Id.
Meanwhile, Edwards was running into more tax trouble on another front. In June 1981, the IRS assessed federal income tax, interest and penalties against Edwards. The IRS alleged an unpaid balance of almost $8,000 in 1978, 1979 and 1980 income taxes. On January 12, 1982, the government mailed Edwards notice of a federal income tax lien under 26 U.S.C. § 6321 (1982).*fn2 On January 24, the IRS filed notice of the lien with the Coles County Recorder of Deeds, pursuant to 26 U.S.C. § 6323 (1982).*fn3
On February 12, Edwards, realizing his precious automobile was threatened by these liens, had Briggs transfer title to Edith Henry, Edwards' companion and roommate. Henry paid nothing for the vehicle; in fact, she did not consider herself owner of the car. Edwards retained possession and held the only set of keys. Edwards remained the principal user of the vehicle. He also continued to insure the car. The only incident of ownership not in Edwards was the title.
At this point Rotherham, the appellant, entered the picture. Some time prior to May 12, 1982, Rotherham was contacted by Mervin Beal, an attorney who had represented Edwards in obtaining several loans in the past. Beal was a longtime acquaintance of Rotherham. On May 12, Rotherham met with Edwards, Henry and Beal, and Rotherham made an $8,000 loan. Although Henry initially received the cash, she apparently passed it on to Edwards and never knew the amount of the loan. Rotherham believed he was making a loan to both Edwards and Henry.
In exchange for the money, Rotherham attempted to take a security interest in the Excalibur. Henry signed a blank piece of paper, which was later filled in to resemble a promissory note.*fn4 She also assigned title to Rotherham to secure the debt. Rotherham did not immediately file any record of this assignment with the Illinois Secretary of State.
On August 12, 1982, the IRS seized the car from Edwards. On August 13, Rotherham contacted the government and demanded release of the car to him. The IRS declined his request because he presented no evidence that he owned the car. Only at that point, the day after the seizure, did Rotherham file notice of his interest in the Excalibur with the Secretary of State. He applied for transfer of title to him as "owner" of the vehicle. The transfer was approved on August 24, twelve days after the seizure.
In 1984, the government brought this action asking the court to order foreclosure of the tax liens. Rotherham, still claiming an interest in the car, was named a defendant. After hearing testimony from the principal players, the district court found for the IRS, holding that notice of the income tax lien was adequate to bind Rotherham and that, in any event, the government prevailed with respect to both liens because Rotherham perfected ...