Capitol Bank & Trust Co. v. City of Waterville

Decision Date13 August 1975
Citation343 A.2d 213
PartiesCAPITOL BANK & TRUST COMPANY v. CITY OF WATERVILLE and Federal Trust Company.
CourtMaine Supreme Court

Sanborn, moreshead, Schade & Dawson, by Peter T. Dawson, Augusta, for plaintiff.

Shiro & Jabar, by John P. Jabar, Waterville, for defendants.

Before DUFRESNE, C. J., and WEATHERBEE, POMEROY, ARCHIBALD and DELAHANTY, JJ.

DUFRESNE, Chief Justice.

Capitol Bank & Trust Company (the Bank), pursuant to the terms of an escrow agreement entered into with the defendant City of Waterville (the City), deposited with the defendant Federal Trust Company the sum of $15,701.42 to guarantee the payment of certain taxes for the years 1968, 1969, and 1970 which the City claimed one Phil J. Gullifer, doing business as Phil's Auto Sales, owed it on his stock in trade consisting of mobile homes. Thereafter, the Bank instituted an action wherein it sought a judicial determination of the rights of the parties by way of declaratory The events leading to the escrow agreement may be summarized as follows:

judgment and a return of its escrow deposit with interest and costs. The Superior Court (Kennebec County) found for the Defendant, City of Waterville, and ordered the escrow moneys turned over to the City. The Bank appealed the Superior Court judgment. We sustain the appeal.

Gullifer was in the business of selling mobile homes in the City of Waterville. On March 17, 1969 he entered into a floor-plan financing agreement with the plaintiff Bank. The security instrument was recorded on July 14, 1970. Claiming that Gullifer was in default in his obligations under the terms of the agreement, the Bank, on August 17, 1970, commenced repossession proceedings through the writ of replevin and bond. Ancillary proceedings in aid of the replevin action resulted in a temporary restraining order issued on August 18, 1970 to forestall interference from Gullifer and his employees. Robert W. Palmer, Jr., in his capacity of Administrator, Director of Finance and Tax Collector for the City of Waterville, was also interested in seeing that the Gullifer stock in trade be not removed from the sales lot of Phil's Auto Sales for fear that the taxes owed to the City might not be collectable. Early on the morning of August 18, 1970 two cruisers of Waterville police officers pulled up and blocked the entrance to the lot. Following instructions from Mr. Palmer, the officers advised the Bank's representative and the deputy sheriff executing the replevin writ that no more trailers would be permitted to be removed from the lot. The Bank was then given notice that the City of Watervile contemplated the distraint of Gullifer's property in satisfaction of past due taxes.

This confrontation led to the execution of the following agreement between the Bank and the City:

'WHEREAS, the City of Waterville has personal property taxes against Phil's Auto Sales, (Philip J. Gullifer, Proprietor) in the amount of $15,701.42 made up of 1968 taxes of $2,233.65, audit number 348, interest $30.02; 1969 taxes of $5,658.75, audit number 347, interest $362.10 and 1970 taxes in the amount of $7,416.90, audit number 364.

WHEREAS, the Capital Bank and Trust Company is now repossessing certain mobile homes from said Phil's Auto Sales pursuant to replevin.

WHEREAS, the City contemplates distraining said property and the parties wish to permit the bank to have possession of said property without affecting in any way the city's rights of distrain.

NOW THEREFORE, the parties covenant and agree as follows:

1. The city foregoes its right to distrain and sell under Title 36, Section 996 in order to permit the bank to take possession under said replevin.

2. The bank agrees that the city shall not be prejudiced by the fact the bank has taken possession of said property pursuant to said replevin.

3. The bank agrees to guarantee to the city the payment of whatever of the above taxes, if any, determined to be due and otherwise collectable from said distraint process.

IN WITNESS WHEREOF the parties have hereunto set their hands this eighteenth day of August, 1970.

CITY OF WATERVILLE

By /s Robert W. Palmer, Jr.

Its

Director of Finance

CAPITAL BANK AND TRUST COMPANY

By /s Raymond R. Rourke

Its

(1st) Vice President and Auditor' The deputy sheriff, thereafter, was permitted to resume the discharge of the Bank's replevin writ and complete the same without further interruption, no tax collector's warrant being served on Gullifer nor on the Bank.

While it may be the ultimate beneficiary of tax revenue, the City as such has no statutory power of distraint and has no direct control over the tax collection process. The power to distrain the property of delinquent taxpayers is statutorily vested in the tax collector under 36 M.R.S.A. §§ 991 and 996.

Section 996, which the tax collector of the City of Waterville could have invoked in the instant case provides in pertinent part:

'When a tax collector has reason to believe that there is danger of losing, by delay, a tax assessed upon any taxpayer, at any time after commitment:

4. Distrain or arrest. He may himself demand immediate payment and upon failure he may distrain the property or arrest the person of such taxpayer.' 1

The existence of the plaintiff's security instrument covering Gullifer's property did not immunize it from distraint, since 36 M.R.S.A. § 604 provides:

'When personal property is mortgaged, pledged or conveyed with the seller retaining title for security purposes, it shall, for the purposes of taxation, be deemed the property of the person who has it in possession, and it may be distrained for the tax thereon.'

The escrow agreement guarantees to the City 'the payment of whatever of the above taxes, if any, (are) determined to be due and otherwise collectable from said distraint process,' in consideration of the City's foregoing of its right to distrain. We note that this right by statute is vested in the tax collector and not in the City. Could the City by such an agreement dispense with the tax collector's distraint process and displace the Bank's priority position in favor of the City's collection of overdue taxes? We think not.

The United States District Court for the District of Maine did consider a similar problem of priority on two occasions. In United States v. Town of Pittsfield, 1969, D.Me., 302 F.Supp. 316, the Small Business Administration, an agency of the United States Government, held a chattel mortgage on certain items of personal property. After the mortgagor's default, the mortgagee (SBA) proceeded to foreclose its mortgage by auction sale, but, before the sale was commenced, the Town of Pittsfield notified the mortgagee that the municipality claimed a paramount lien on the property by virtue of the provisions of 36 M.R.S.A. § 604. Pursuant to an agreement between the parties, the sale was held and a sum representing the taxes due was placed in escrow subject to a determination of the rights of the parties. The District Court, interpreting Maine law, observed that our statutes did not establish a corresponding lien for taxes assessed against personal property as existed for taxes assessed against real estate and, since at common law taxes did not constitute a lien, none existed. The Court then decided that the public right to satisfy past due taxes by proceeding against such personal property does not take priority over prior recorded security interests until such public right has been perfected by distraint. Once a mortgagor or secured party legally gains possession of the mortgaged property, the power of the tax collector to distrain is lost. In Pittsfield, since the power to distrain for delinquent taxes was never exercised, the mortgagee, having gained possession for foreclosure purposes, prevailed.

The converse situation was presented in Hunter v. United States, 1972, D.Me. 352 F.Supp. 5. In that case, the Small Business Administration, the owner of the chattel mortgage and supplemental security agreement, of January 13, 1972 gave notice of default and of an intended private sale of the collateral to take place on January 31, 1972. On the date of the planned sale, but before its occurrence, a constable of the City of Auburn, acting under a distress warrant from the tax collector of the City of Auburn, seized and physically took possession of the collateral to satisfy the taxpayer's unpaid taxes. By agreement, the seized property was released pending a judicial determination of the rights of the parties. In Hunter, the action for declaratory judgment was by the tax collector and the Court ruled that the Maine Legislature intended to provide municipal tax collectors with all the rights of a common law distress such as possessed by a landlord. The result was that the lien acquired by the taking of possession under the tax collector's distress warrant was superior to that of the prior chattel mortgage and security instrument held by the Small Business Administration which had not taken possession at the time of the seizure under the distress warrant.

In the instant case as in United States v. Town of Pittsfield, supra, the tax collector of the City of Waterville did not take the necessary steps under the statutes to establish a lien on the Gullifer property. The plaintiff Bank took possession for purposes of foreclosure as it had a right to do, absent a prior distraint by the tax collector. The agreement with the City possibly may have lulled the tax collector into inaction, but the City as such had no right to interfere with the plaintiff's foreclosure proceedings. 2

It is elementary that tax statutes are to be construed strictly against the taxing authority. Depositors Trust Company v. City of Belfast, 1972, Me., 295 A.2d 28, 30; Inhabitants of East Livermore v. The Livermore Falls Trust & Banking Company, 1907, 103 Me. 418, 424, 69 A. 306, 308-309. See also Camp Walden v. Johnson, 1960, 156 Me. 160, 165, 163 A.2d 356, 358. This rule of strict...

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4 cases
  • Community Telecommunications Corp. v. State Tax Assessor
    • United States
    • Maine Supreme Court
    • November 1, 1996
    ...the government and may not be extended by implication beyond the clear import of the language used. Capitol Bank & Trust Co. v. City of Waterville, 343 A.2d 213, 218 (Me.1975); see Camp Walden v. Johnson, 156 Me. 160, 165, 163 A.2d 356, 358 (1960); see also Blaney v. Town of Shapleigh, 455 ......
  • BCN Telecom, Inc. v. State Tax Assessor
    • United States
    • Maine Supreme Court
    • November 8, 2016
    ...clear import of the language used." Camp Walden v. Johnson, 156 Me. 160, 165, 163 A.2d 356 (1960); see also Capitol Bank & Tr. Co. v. City of Waterville, 343 A.2d 213, 218 (Me. 1975) ("[T]ax statutes are to be construed strictly against the taxing authority."). During the audit period, the ......
  • City of Augusta v. Allen
    • United States
    • Maine Supreme Court
    • December 18, 1981
    ...requirement in the taxing process from beginning to end is essential to the validity of such proceedings. Capitol Bank & Trust Co. v. City of Waterville, Me., 343 A.2d 213, 218 (1975). To be a valid lien, the certificate must comply with the provisions of R.S.1954, ch. 91-A, § 88 (enacted b......
  • First Nat. Bank of Boston v. City of Lewiston
    • United States
    • Maine Supreme Court
    • December 18, 1992
    ...the Bank did not join the tax collector in the present action, the City has not questioned his absence. See Capitol Bank & Trust Co. v. City of Waterville, 343 A.2d 213 (Me.1975). II. The City argues that this is an appeal from an interlocutory order, not a final judgment, and is thus barre......
1 books & journal articles
  • Foreclosure Cases: the Reawakening of Strict Pleading
    • United States
    • Maine State Bar Association Maine Bar Journal No. 27-1, January 2012
    • Invalid date
    ...Hann v. Merrill, 305 A.2d 545, 547 (Me. 1972); Rubin v. Josephson, 478 A.2d 665, 670 (Me. 1984); Capitol Bank and Trust Co. v. Waterville, 343 A.2d 213, 218 (Me. 1975). ...

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