Board of Sup'rs of La. State University v. Hart

• Decision Date: 22 April 1946
• Docket Number: 37897.
• Citation: 210 La. 78,26 So.2d 361
• Parties: BOARD OF SUP'RS OF LOUISIANA STATE UNIVERSITY et al. v. HART et al. (UNITED STATES, Intervener).
• Court: Louisiana Supreme Court

26 So.2d 361

210 La. 78

BOARD OF SUP'RS OF LOUISIANA STATE UNIVERSITY et al. v. HART et al. (UNITED STATES, Intervener).

No. 37897.

Supreme Court of Louisiana

April 22, 1946

Appeal from Nineteenth Judicial District Court Parish of East Baton Rouge; Charles A. Holcombe Judge.

Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key A. F. Prescott, and Leonard Sarner, Sp. Assts. to Atty. Gen. (Herbert W. Christenberry, U. S. Atty., and Edward J. Boyle, Asst. U. S. Atty., both of New Orleans, of counsel), for the United States.

Benj. B. Taylor, of Baton Rouge, and John H. Tucker, Jr., of Shreveport (Taylor, Porter, Brooks & Fuller, of Baton Rouge, and Tucker, Bronson & Martin, of Shreveport, of counsel), for appellee.

ROGERS Justice.

This suit was brought by the Louisiana State University to recover $75,000 allegedly overpaid for the purchase of the furniture and fixtures in the Bienville Hotel in the City of New Orleans. Among the defendants is James Monroe Smith, President of the University, when the sale took place. The suit was filed on July 25, 1939, and, on the same day, a writ of attachment was issued under which considerable property of Smith was seized by the sheriff. Subsequent to the filing of the suit, settlements were effected with certain defendants, as a result of which the original claim of the University was reduced from $75,000 to $25,600.

On February 13, 1940, the United States Commissioner of Internal Revenue assessed against the defendant Smith and his wife income taxes, penalties and interest for the years 1936, 1937 and 1938, amounting in all to the sum of $305,756.31. On February 15, 1940, the list containing the assessments against Smith and his wife was received from the Commissioner of Internal Revenue by the Collector of Internal Revenue for the District of Louisiana who, on the same day, served notice and demand for payment upon Smith and his wife. On February 16, 1940, notices of the tax liens covering the assessments were filed in the offices of the clerks of the United States District Courts for the Eastern and Western Districts of Louisiana and also in the offices of the clerks of Court and exofficio recorders of mortgages for the Parishes of East Baton Rouge, Lafayette, St. James and Assumption, State of Louisiana.

On January 20, 1943, the United States intervened in the suit, alleging that Smith and his wife were indebted to it for income taxes and penalties covered by the assessments and notices of liens referred to. The United States claimed that it should be paid by preference and priority over the Louisiana State University and all other persons out of the proceeds of the sale of the property seized under the writ of attachment. On November 22, 1944, a preliminary default was entered on behalf of the United States against Smith. On December 12, 1944, answering the suit, Smith admitted an indebtedness to plaintiff of $25,600. On the same day, the United States introduced evidence in confirmation of its preliminary default. On April 10, 1945, the judge of the District Court rendered judgment in favor of the Louisiana State University for $25,600, maintained its writ of attachment, and recognized its lien and privilege on the property seized. The judgment further ordered that the Louisiana State University be paid the amount of its claim by preference and priority over all other persons, including the United States. From this judgment the United States appealed.

The only question presented for decision on this appeal is whether the liens of the United States for income taxes and penalties are entitled to priority and payment over the lien and privilege of the Louisiana State University resulting from an earlier attachment maintained by a subsequent judgment.

The income tax liens of the United States arose after the attachment of the Louisiana State University was levied but before judgment was rendered maintaining the attachment. It is the position of the United States that at the time its liens attached the University had at most an inchoate, unperfected title by virtue of its attachment, and that as between the University, as the holder of a prior inchoate lien, and the United States, as a tax claimant, the United States has priority regardless of whether the inchoate lien was subsequently perfected. In support of its position, the United States relies on Sections 3670 and 3671 of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code �� 3670, 3671. Section 3670 provides: 'If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or additional to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.' Section 3671 provides: 'Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.'

The liens created by Sections 3670 and 3671 of the Internal Revenue Code are general and not priority liens. But it is argued on behalf of the United States that those statutory liens are analogous to the priority rights established by Section 3466 of the Revised Statutes, 31 U.S.C.A. � 191. And it is said that the analogy irrefutably leads to the conclusion that the lien of the United States for income taxes must be satisfied before the judgment obtained by the Louisiana State University. But the analogy is not complete. Section 3466 of the Revised Statute does not create a lien. It merely establishes priority which is limited to the particular state of things specified. Section 3466 is not applicable to this case because none of the conditions therein specified as giving rise to the priority are present here. There have been no insolvency proceedings, voluntary assignment or proceedings of any nature whatever whereby the debtor has been found insolvent and his estate 'given to any person charged with the duty of applying it to the payment of the debts of the insolvent, as the rights and priorities of creditors may be made to appear.' Bramwell v. U. S. Fidelity Co., 269 U.S. 483, 46 S.Ct. 176, 178, 70 L.Ed. 368; United States v. State of Oklahoma, 261 U.S. 253, 43 S.Ct. 295, 67 L.Ed. 638; Equitable Trust Co. v. Connecticut Brass & Manufacturing Co., 2 Cir., 290 F. 712; United States v. City of Greenville, 4 Cir., 118 F.2d 963.

Section 3672, 26 U.S.C.A. Int.Rev.Code, provides with respect to the liens referred to in Sections 3670 and 3671 as follows:

'(a) Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector----

(1) * * * In accordance with the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law provided for the filing of such notice; * * *.'

Under the provisions of Section 3671 of the Internal Revenue Code hereinabove quoted, the lien of the United States in this case arose on February 15, 1940, the date upon which the Collector of Internal Revenue at New Orleans received from the Commissioner of Internal Revenue in Washington the list of assessments made against Smith and his wife. It is the contention of the United States that on February 15, 1940, when its lien arose, the Louisiana State University was not a mortgagee, a pledgee, a purchaser or a judgment creditor, and that, therefore, whatever lien and privilege it might have resulting from its attachment is subordinate to the lien of the United States.

The United States relies on the case of MacKenzie v. United States, 9 Cir., 109 F.2d 540, but a reference to that case shows that the lien of the government arose prior to the issuance of the attachment, while in this case it arose subsequent to the attachment.

In the case of United States v. Snyder, 149 U.S. 210, 13 S.Ct. 846, 37 L.Ed. 705, which arose in the Eastern District of Louisiana, the Supreme Court of the United States held that innocent third persons, dealing with immovable property of the tax debtor to the United States after the assessment list of the Commissioner of Internal Revenue had been filed and certified to the Collector of Internal Revenue at New Orleans, were not protected by the laws of registry of Louisiana governing liens, mortgages and privileges affecting such property. But that decision was rendered before the amendment of Section 3186 of the Revised Statutes, now Section 3672 of the Internal Revenue Code, adopted in 1913. Subsequently, the section was amended so as to add pledgees to the class of persons protected by the provisions of the section. The purpose of those amendments was to protect innocent third persons within the classes mentioned from the effect of liens, the existence of which could be ascertained only from the Collector of Internal Revenue. To that extent the amendments relaxed the rule announced in the Snyder case.

It has been said that the lien created by Section 3670 of the Internal Revenue Code is a general lien, in many respects resembling a mortgage. City of Winston-Salem v. Powell Paving Co., D.C., 7 F.Supp. 424. It has also been stated that it is in the nature of a judgment. United States v. Canfield, D.C., 29 F.Supp. 734.

It has often been held that the lien of the United States, under Sections 3670 and 3471, is subordinate to a prior mortgage. This has been the consistent ruling of the Federal courts. Detroit Bank v. United States, 317 U.S. 329, 63 S.Ct 297, 87 L.Ed. 304; United States v. Beaver Run Coal Co., 3...