City of New York v. Hall, 227.

• Decision Date: 19 January 1944
• Docket Number: No. 227.,227.
• Citation: 139 F.2d 935
• Parties: CITY OF NEW YORK v. HALL.
• Court: U.S. Court of Appeals — Second Circuit

139 F.2d 935 (1944)

CITY OF NEW YORK v. HALL.

No. 227.

Circuit Court of Appeals, Second Circuit.

January 19, 1944.

Murray M. Weinstein, and Ignatius M. Wilkinson, Corp. Counsel, both of New York City (Arthur H. Goldberg, Sol Charles Levine, and Bernard H. Sherris, all of New York City, of counsel), for appellant.

David M. Schwartz, and Jules Shank, both of New York City (Samuel Newfield

and David M. Schwartz, both of New York City, of counsel), for appellee.

Before SWAN, CLARK, and FRANK, Circuit Judges.

FRANK, Circuit Judge.

Enough has been done here to bring the City's claims within Section 67, sub. b, 11 U.S.C.A. § 107, sub. b. The sole issue is whether they came within Section 67, sub. c, so that they are subordinated to the administration expenses covered by clauses (1) and (2) of Section 64, sub. a, 11 U.S. C.A. § 104, sub. a. And that depends on whether the lien was "accompanied by possession" of the property, which, in turn, depends on the answer to the question whether "possession", as used in Section 67, sub. c, means merely "constructive" possession, for obviously there was not actual possession by the City at the time of the filing of the bankruptcy petition.

Davis v. City of New York, 2 Cir., 119 F.2d 559, does not answer that question, for there the warrant officer had completed the levy and, therefore, had actually seized the property under the warrant before the filing of the petition. The City in its brief concedes that here "the levy and inventory of the bankrupt's property * * * did not occur until an hour or two after the bankruptcy."

The word "possession" drips with ambiguity.² It is not a single purpose word³ and must be contextually construed. That for some purposes, under some sections of the act, it may include "constructive" possession gives us no answer to our question. We are convinced that Section 67, sub. c, meant something more. The aim of that amendment is well discussed in 4 Moore's Collier on Bankruptcy (14th Ed.) 163-164: "As a result of long inaction of tax authorities, liens for taxes which accumulated over a number of years often consumed a bankrupt's entire estate, even to the exclusion of costs and expenses of the bankruptcy proceedings".⁴ The facts here are illustrative: the City's claims are for taxes which had accumulated for seven or eight years respectively. Notwithstanding the admonition of Section 67, sub. c, the City chose to slumber on its rights. Congress intended to penalize such somnolence.

In Section 67, sub. c, Congress obviously had uniformity in mind. Consequently, New York decisions concerning the effect on other creditors of such action as that, here taken by the City,⁵ are not controlling. Whether a lien exists within Section 67, sub. b, is a question of State "law". Whether steps taken pursuant to State "law" are sufficient to constitute "possession" under 67, sub. c, is a question of Federal "law".⁶ That conduct must adequately warn potential petitioning creditors of the existence of the lien. The City's action did not satisfy that test.

Affirmed.

Appendix

Section 67, subdivisions b and c, of the Bankruptcy Act as amended in 1938, 11 U.S.C.A. § 107, reads as follows:

"b. The provisions of section 60 of this Act to the contrary notwithstanding * * * statutory liens for taxes and debts owing to the United States or any State or subdivision thereof, created or recognized by the laws of the United States or of any State may be valid against the trustee, even though arising or perfected while the debtor is insolvent and within four months prior to the filing of the petition in bankruptcy * * *. Where by such laws such liens are required to be perfected and arise but are not perfected before bankruptcy, they may nevertheless be valid, if perfected within the time permitted by and in accordance with the requirements of such laws, except that if such laws require the liens to be perfected by the seizure of property, they shall instead be perfected by filing notice thereof with the court.

"c. Where not enforced by sale before the filing of a petition in bankruptcy * * * though valid under subdivision b of this section, statutory liens, including liens for taxes or debts owing to the United States or to any State or subdivision thereof, on personal property not accompanied by possession of such property * * * shall be postponed in payment to the debts specified in clauses (1) and (2) of subdivision a of section 64 of this Act * * *" Clauses (1) and (2) of Section 64, sub. a follows:

"* * * (1) the actual and necessary costs and expenses of preserving the estate subsequent to filing the petition; * * * the costs and expenses of administration * * *; (2) wages * * *."

The provisions pertaining to the City's tax lien, the docketing of warrants and the execution and enforcement thereof are contained in the local laws imposing the sales and business taxes. The relevant portion of the sales tax law is subdivision b of Section N41 — 11.0 of the Administrative Code of the City, entitled: "Proceedings to...