State v. Wynne, 7404.

• Decision Date: 06 December 1939
• Docket Number: No. 7404.,7404.
• Citation: 133 S.W.2d 951
• Parties: STATE v. WYNNE et al.
• Court: Texas Supreme Court

133 S.W.2d 951

STATE v. WYNNE et al.

No. 7404.

Supreme Court of Texas.

December 6, 1939.

Error to Court of Civil Appeals of Second Supreme Judicial District.

Suit by B. J. Wynne and others against the Star Refining & Producing Company to recover on a note and to foreclose a mortgage lien, wherein the State of Texas, the United States, and others intervened. The judgment therein was affirmed by the Court of Civil Appeals, 113 S.W.2d 325, and the State of Texas brings error.

Judgment of the trial court and that of the Court of Civil Appeals reversed, and cause remanded to the trial court for further proceedings.

Wm. McCraw, Former Atty. Gen., Gerald C. Mann, Atty. Gen., and Pat M. Neff, Jr., Asst. Atty. Gen., for plaintiff in error.

A. M. Herman and Samuels, Foster, Brown & McGee, all of Fort Worth, for defendant in error Lewis.

Massingill & Belew, Homa S. Hill, and Burton B. Paddock, all of Fort Worth, for defendant in error Harrison.

Julius H. Runge, of Dallas, and George M. Conner, of Fort Worth, for Milam, trustee.

Wynne & Wynne, of Dallas, for defendant in error Wynne.

Clyde O. Eastus, U. S. Atty., and James L. Backstrom, Sp. Atty., both of Dallas Robert Sansom and Frank B. Potter, Asst. U. S. Attys., both of Fort Worth, for the United States, intervener.

SHARP, Justice.

This case presents the question of the priority of the payment of debts due holders of liens over the payment of taxes due the United States and the State of Texas, and also presents the question of the priority of the payment of taxes due the United States over those due the State of Texas, out of the same fund—under Section 3466 and section 3186 of the Revised Statutes of the United States, 31 U.S.C.A. § 191; 26 U.S.C.A. §§ 1560-1562, and under Article 7065a—7, Vernon's Ann.Civ.St.

B. J. Wynne filed this suit on May 1, 1935, in the District Court of Van Zandt County, against the Star Refining & Producing Company, alleging a cause of action on a promissory note for the sum of $2,000, executed by the defendant, Star Refining & Producing Company, and for foreclosure of a deed of trust lien executed by the defendant to secure its certain bond issue, of which issue twenty Five Year First Mortgage 8% bonds of par value of $100 each were transferred and delivered to plaintiff by defendant as a pledge of collateral security on such note.

Plaintiff alleged that defendant was insolvent or threatened with insolvency, that its capital stock and surplus had been exhausted and depleted, and that it owed various sums of money to various individuals and had no cash assets with which to pay its debts, including certain Federal and State taxes, and upon these and similar allegations the appointment of a receiver was sought. The trial court appointed, ex parte, a receiver of and for the assets and properties of the defendant, and the receiver duly qualified and took possession of such properties. The defendant entered its appearance, and waived further notice of hearing on the application for receivership, adopting the allegations of plaintiff's bill, and consenting to the appointment of a receiver of its properties.

Numerous claims were filed with the receiver, and many of such claimants filed formal interventions in the cause. The United States of America intervened for certain gasoline, capital stock, and income taxes, accruing from September, 1932, to June 30, 1935, with penalties and interest thereon, for the sum of $15,125.93, and asserted a right to prior and preferential payment from the proceeds of the receivership estate under the terms of Section 3466, Revised Statutes U.S., Section 191, Title 31, U.S.C.A. The United States also asserted a lien for such taxes, penalties, and interest, under the terms of Section 3186, Revised Statutes U.S., 26 U.S.C.A. §§ 1560-1562, paramount and superior to other liens, particularly that asserted by the State of Texas.

For convenience and brevity, we will refer to the United States of America as the United States, and to the State of Texas as the State.

The State intervened for motor fuel taxes, penalties, and interest accruing against defendant as distributor of motor fuel during the years 1932, 1933, 1934, and 1935, in the total amount of $25,068.60, and asserted, to secure such taxes, penalties and interest, a statutory tax lien under Article 7065—7, Vernon's Ann.Civ.St., prior and paramount to all other liens.

A. M. Lockett & Company, Ltd., intervened for the balance due on a chattel mortgage note, executed on March 12, 1932, in its favor by defendant, and secured by a chattel mortgage lien on certain described machinery and equipment sold by said intervenor to defendant on said date. This intervenor alleged, as additional security on such note for purchase money, the delivery and transfer by defendant, under pledge or collateral agreement, of certain eighteen bonds of the par value of $100 each, secured by deed of trust of date June 1, 1928, upon certain refining property of the defendant, which deed of trust and bond issue were alleged to be the third successive renewal and extension of an original bond issue and deed of trust made October 7, 1921. Foreclosure of its lien upon such bonds and its deed of trust lien was sought in addition to its chattel mortgage lien.

James Harrison intervened for the balance due on a certain promissory note in the principal sum of $14,000, executed by defendant in his favor on or about June 1, 1928, and secured by a chattel mortgage of even date upon certain nineteen tank cars, the property of defendant. Certain of such cars having been released from such chattel mortgage, foreclosure was sought on nine of said cars. It was alleged in the alternative by this intervenor that prior to the institution of this suit, and after the maturity and default of such note it was agreed between him and defendant that the remaining nine tank cars would be delivered to and accepted by him in satisfaction of his debt; but such cars were left on the properties and in the possession of defendant, under agreement it would deliver same to intervenor upon demand, or to such purchaser as defendant might procure, subject to the approval of such intervenor.

Numerous interventions were filed by the holders of certain bonds of defendant, secured by a deed of trust upon certain described properties of defendant, praying that such lien be declared first and superior against such property, for foreclosure of same, and for payment ratably of such bond holders from the proceeds. The names of the bond holders and the amounts claimed by each are more fully shown in paragraph 16 of the court's judgment.

The case was tried before the court without a jury. The trial court in its final judgment held:

(a) That A. M. Lockett & Company, Ltd., was entitled to judgment against the defendant and receiver for the amount sued for, with foreclosure of both its chattel mortgage lien and its pledgee's lien upon the described bonds, provided the proceeds from the mortgaged property were insufficient.

(b) That as to the property covered by the chattel mortgage held by intervenor James Harrison, title to such property passed to and vested in such intervenor prior to receivership, under agreement to that effect, and the receiver and other parties had no right or interest in same.

(c) That the intervening bondholders named in paragraph 16 of the court's judgment had a first and prior deed of trust lien upon the property described in the deed of trust of date June 1, 1933, in renewal and extension of prior deeds of trust, and directed the sale of such property and the application of the proceeds to the payment ratably of such bondholders, after the payment of court costs. Certain three intervening bondholders named in paragraph 18 of the court's judgment were not given such priority, but were subordinated to the liens of the State and the United States.

(d) The trial court also held that such lien interest given by Article 7065a—7 was inferior to the chattel mortgage liens of A. M. Lockett & Company, Ltd., and James Harrison and the deed of trust liens of certain intervening bondholders. The trial court further held that such statutory lien was inferior to both the right of preferential payment and the right of lien asserted by the United States.

(e) As between the State and the United States, the court held that the lien of the United States was prior to the claim of the State against the property of the defendant— subject, of course, to the other priorities therein adjudicated, and that the United States was entitled to full payment of its claim before any sum of money should be paid to the State on its claim. Judgment was rendered for the United States and the State in the amounts sued for.

(f) The trial court gave judgment in favor of certain unsecured creditors, who either filed claims with the receiver or intervened, the names and amounts more particularly appearing in paragraph 26 of the trial court's judgment. The State alone appealed the case to the Court of Civil Appeals, and the judgment of the trial court was affirmed by that court.

The Court of Civil Appeals upheld the judgment of the trial court, and also construed, article 7065a—7, supra, and held that such statute was invalid in the following respects: (1) That the motor fuel tax and the lien securing same on the land on which the refinery is located and the tax and lien on the machinery and other personalty were essentially an ad valorem tax, and such lien must fail, since it applies to real estate described in the decree as well as assets of a personal character, without any separate assessment in the matter of fixing liens thereon, as required by statute and Article 8, Section 15, of the Constitution of Texas, Vernon's Ann.St.; (2) that the levy of the occupation tax in question on the machinery and other equipment on the premises of defendant, in addition to ad valorem taxes due thereon under general laws, is violative of...