Exchange Bank & Trust Co. v. Tubbs Manufacturing Co.

• Decision Date: 05 August 1957
• Docket Number: No. 16565.,16565.
• Citation: 246 F.2d 141
• Parties: EXCHANGE BANK & TRUST COMPANY and Briggs Weaver Machinery Co., First National Bank in Dallas and City of Dallas, Texas, Intervenors, Appellants, v. TUBBS MANUFACTURING COMPANY, Inc., and United States of America, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

246 F.2d 141 (1957)

EXCHANGE BANK & TRUST COMPANY and Briggs Weaver Machinery Co., First National Bank in Dallas and City of Dallas, Texas, Intervenors, Appellants, v. TUBBS MANUFACTURING COMPANY, Inc., and United States of America, Appellees.

No. 16565.

United States Court of Appeals Fifth Circuit.

June 29, 1957.

Rehearing Denied August 5, 1957.

H. P. Kucera, City Atty., Robert A. Wilson, Clinton Foshee, Robert S. Trotti, James H. Walker, Melvin A. Bruck, R. A. McBean, Ted P. MacMaster, Asst. City Attys., Addison M. Bradford, Jr., Dallas, Tex., for other appellants.

Blakley & Walker, Dallas, Tex., for appellant Exchange Bank & Trust Co.

Coke & Coke, Dallas, Tex., for appellant First Nat. Bank in Dallas.

Bradford & Pritchard, Dallas, Tex., for appellant Briggs Weaver Machinery Co.

John C. Ford, Asst. U. S. Atty., Dallas, Tex., Charles K. Rice, Asst. Atty., Ellis N. Slack, Atty., Dept. of Justice, Washington, D. C., Heard L. Floore, U. S. Atty., Fort Worth, Tex., for appellee.

Before HUTCHESON, Chief Judge, and TUTTLE and CAMERON, Circuit Judges.

HUTCHESON, Chief Judge.

Submitted on stipulated facts,¹ this case presented below, it presents here a single question. This is whether under the priority statute, Rev.Stat. 3466, 31 U.S.C.A. § 191, the United States, the appellee, was entitled to have its debt for taxes first satisfied out of the proceeds of the sale of all of the assets of Tubbs Manufacturing Co., an insolvent taxpayer corporation, ahead of the tax lien claims of the City of Dallas and the mortgage lien claims of the Exchange Bank & Trust Co., the First National Bank, and the Briggs Weaver Machinery Co., the appellants herein.

The district court, after a trial, held that under the provisions of the priority statute,² the claim of the United States was prior and superior to all the other claims and gave judgment for the United States.

Appealing from that judgment, the mortgage lien claimants are here contending that the liens created by their chattel mortgages were valid first liens on the respective properties covered, that they attached to the proceeds received from the sale of the respective properties and that they are, therefore, entitled to have applied to their claims the amount of such respective proceeds necessary to satisfy their claims in full.

The appellant, City of Dallas, contends that under the provisions of Sec. 194 of its charter, its claim for taxes is secured by a lien prior and superior to all other claims and it is therefore entitled to be paid ahead of everyone else.

On its part, the appellee, the United States of America, is here contending that the holding of the trial court was correct, and insisting that the judgment should be affirmed.

In support of their claims, the lien claimants invoke and rely strongly on the decision of this court in United States v. Atlantic Municipal Corporation, 5 Cir., 212 F.2d 709, 711, in which, holding that the priority statute has no application to a valid, specific and perfected, a fully choate lien, the court declared:

"* * * This statute applies only as against unsecured debts, that is, debts not secured by a specific and perfected lien. It has never been, we think it will never be, applied as it is sought to be applied here, to accord payment to a debt due the United States in preference to a claim secured by a lien which is prior in time and superior in law to the lien of the United States securing the debt for which preferential payment is sought."

Urging upon us that under that decision and Sec. 6323 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 6323, formerly Sec. 3672, I.R.C.1939, mortgage liens cannot, under a claim of priority, be postponed to a federal tax debt, they insist that the judgment was wrong and must be reversed.

The United States, on its part, urging upon us that the claim of the United States, by virtue of the provisions of Sec. 3466 of the Revenue Statutes, the priority section, will be accorded priority over the unperfected, the inchoate tax claim of the City of Dallas, and that it in turn is clearly superior to the chattel mortgage lien claims of the other appellants, insist that of necessity its claim must be prior to those claims, since it is admitted that their claims are subject to the City's tax lien. In addition, arguing that the Supreme Court has never held that even a specific and perfected lien would defeat a Sec. 3466 priority claim and that if the liens of the claimants are specific and perfected, this would not avail them, it insists that under federal law appellants' liens are not so specific and perfected since the debtor had not on the date of insolvency been divested either of title or possession of the mortgaged property.

We cannot agree with these views. On the contrary, for the reasons stated by us in the Atlantic case, supra, and for the additional reason that in this case the mortgage liens are within Sec. 6323. I.R.C. of 1954 (formerly Sec. 3672) and are specifically preserved by that statute against federal tax liens, United States v. Security Trust Co., 340 U.S. 47, concurring opinion page 51, 71 S.Ct. 111, 114, 95 L.Ed. 53, and United States v. Scovil, 348 U.S. 218, 75 S.Ct. 244, 99 L. Ed. 271, we are in no doubt that the claim of the United States to priority over the mortgage claims is without foundation.

We will not, therefore, contribute to the confusion arising from the decisions dealing with the relative standing as to priority of federal tax debts and liens and the numerous and unavailing attempts³ to rationalize and reconcile them. We will content ourselves with saying that upon a consideration of the relevant facts and a review of the authorities now extant, we are of the clear opinion that the claim of the United States to priority over the mortgage lien claims is unfounded, and that, on the appeal of the mortgage lien claimants, the judgment must be reversed with directions to provide for the payment of the claim of each out of the proceeds of the property on which its lien was fixed, subject, however, to first payment thereout of the City's tax claims.

We thus, while affording protection to the City's claims for taxes by directing their payment, reject both the claim of the City that, under In re Brannon, 5 Cir., 62 F.2d 959 and City of Dallas v. Crippen, 5 Cir., 171 F.2d 526, "its general lien"⁴ defeats the priority claim of the United States and the contention of the United States that, because we have concluded that its claim is entitled to priority over the City's claim and the City's claim is entitled to payment ahead of the mortgage lien claims, the circuity problem presented thereby compels the solution adopted in State v. Nix, Tex.Civ.App., 159 S.W.2d 214, putting the claim of the United States ahead of them both.

We do this, as to the City's claim, which is admittedly not within Section 6323, on the authority of the cases relied on by the United States.⁵ We do this as to the claim of the United States, both on the ground that the invoked decision in the Nix case, supra, while correct, indeed inevitable under its facts and the decisions of the Supreme Courts of...