City of Winston-Salem v. Powell Paving Co.
| Decision Date | 15 June 1934 |
| Docket Number | No. 107.,107. |
| Citation | 7 F. Supp. 424 |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | CITY OF WINSTON-SALEM v. POWELL PAVING CO. OF NORTH CAROLINA, Inc., et al. |
Parrish & Deal, of Winston-Salem, N. C., for plaintiff.
Dennis G. Brummitt, Atty. Gen., and A. A. F. Seawell and T. W. Bruton, Asst. Attys. Gen., for the state of North Carolina.
J. R. McCrary, U. S. Atty., of Greensboro, N. C.
This is a civil action commenced in the state court by the plaintiff against the Powell Paving Company and others for the sale of the property to satisfy street assessments, taxes due the city, state and federal governments, and other lienholders, and to establish the order of priority in the distribution of the proceeds of the sale. The cause was removed to this court at the instance of the United States, and answers were filed by the state of North Carolina and by the United States of America.
The facts were set out in a written stipulation, from which it appears that the Powell Paving Company was a corporation owning three lots of land in the city of Winston-Salem, the sale of which is asked in this suit. Against one of these lots are two street assessments: Hawthorne Road street assessment, $454.26, date of lien, September 12, 1924; and an assessment on Angelo street, $661.96, date of lien, October 9, 1925. The other tax liens are as follows:
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Claimant | Claim | Amount | Time lien attached
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City of Winston Salem | Ad Valorem | |
City of Winston Salem | 1929 tax | $ 472.99 | June 1, 1929, all 3 lots
City of Winston Salem | 1930 tax | 614.27 | June 1, 1930, all 3 lots
City of Winston Salem | 1931 tax | 211.31 | July 1, 1931, all 3 lots
City of Winston Salem | 1932 tax | 157.34 | July 1, 1932, all 3 lots
City of Winston Salem | 1933 tax | 94.08 | July 1, 1933, all 3 lots
Forsyth County | 1930 tax | 325.14 | June 1, 1900, all 3 lots
Forsyth County | 1931 tax | 86.47 | July 1, 1931, all 3 lots
Forsyth County | 1932 tax | 55.50 | July 1, 1932, all 3 lots
Forsyth County | 1933 tax | 29.40 | July 1, 1933, all 3 lots
North Carolina State | 1928 income tax | 487.71 | March 15, 1929, all 3 lots
North Carolina State | 1929 income tax | 293.63 | March 15, 1930, all 3 lots
United States Government | 1926-27 add inc. tax | 5,431.22 | April 29, 1930, all 3 lots
United States Government | 1928-29 add inc. tax | 669.07 | May 27, 1930, all 3 lots
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It was agreed that Powell Paving Company was not in bankruptcy or in the hands of a receiver; that George Hiatt has a judgment of record, duly docketed in the office of the clerk of the superior court of Forsyth county on October 10, 1927, for the sum of $200, plus $70.85 cost. The validity of the liens is conceded, and the sole controversy is the order of priorities.
The tax lien of the United States is governed by the provisions of 26 USCA § 115, Rev. St. § 3186,1 while liens of the state arose under North Carolina Code 1931, §§ 7880 (147), 7880 (150) and 7880 (174).2 The ad valorem tax liens of the county and city arose under North Carolina Code 1931, § 7987,3 and the street assessment lien arose under North Carolina Code 1931, § 2713.4
The Supreme Court of North Carolina, in construing the statute creating the assessment lien, holds that a lien amounts to a statutory mortgage, having preference over any and all liens and incumbrances, existent or otherwise, and to be enforced by a decree of sale of the property. Kinston v. Railroad, 183 N. C. 14, 24, 110 S. E. 645. It is an incumbrance within the meaning of the warranty clause against incumbrances. Coble v. Dick, 194 N. C. 732, 140 S. E. 745. It is a lien superior to all other liens and incumbrances continuing, until paid, against the title of successive owners, Merchants' Bank, etc., v. Watson, 187 N. C. 107, 121 S. E. 181. It is a lien against the land and not a debt against the owner, and cannot be proved against his estate. Carawan v. Barnett, 197 N. C. 511, 149 S. E. 740.
When street improvement is made, the city, in effect, lends the property owner the money necessary to pay his part of the improvement, while the city, in turn, sells its credit to obtain the fund for the improvement. It was the manifest purpose of the Legislature to give these claims for street improvement priority over all liens, and the Supreme Court of the state has been liberal in the construction of the statute to the end that the intended priority shall be given its proper force and effect. While there are decisions from other states to the contrary, the law in this state is well settled that such a claim is entitled to priority over subsequent liens. North Carolina Code 1931, § 7987, quoted in the margin, gives a lien to the state and county for ad valorem taxes against all real estate of the taxpayer within the county, and the same is preferred to any other liens upon the real estate of the taxpayer within the county, "whether the same shall have attached prior or subsequent to the said first day of June." It is from these taxes that the municipality and the county must depend for the expense of maintaining their governments. Persons who hold liens of any character against real estate hold them subject to a lien of the city and county for the ad valorem taxes. The fact that a lien may exist against the property should not, and does not, operate to remove such property from an ad valorem tax levied annually for the purpose of obtaining revenue to operate the city and county governments. Governments cannot exist or be maintained without revenue.
The legislative policy in this state manifested an intention on the part of the state to abandon ad valorem taxes in order that the counties and municipalities may have that revenue for the purpose of operating these governments.
The court has been unable to find any decision in North Carolina which has passed on the question of priority of a tax for street assessment over a lien of ad valorem taxes due to the municipality or county. A comparison of North Carolina Code 1931, § 7987, and North Carolina Code 1931, § 2713, indicates the intention of the Legislature to give the ad valorem tax liens preference over any other liens, whether the same shall have attached prior or subsequent to the 1st day of June of the taxable year. The lien for street assessment, while superior to all other liens, whether existent or otherwise, does not defeat the right of the municipality or county to collect the annual ad valorem general taxes accruing on the same property. Both sections should be construed in such way as to effectuate the intention of the Legislature. It is manifestly the intention of the Legislature that the general ad valorem tax shall accrue annually, and shall constitute a prior lien to any other lien, whether the same attaches prior or subsequent to the 1st day of June in each year. The Legislature, recognizing that annual ad valorem taxes constitute the principal source of revenue for the operation of municipal and county governments, decided that a lien for this purpose should take priority over any other lien, which, of course, in its proper interpretation, means preference over a special tax, such as street assessment. The lien for street assessment is superior to all other liens except the annual general property tax. This construction gives force and effect to both statutes...
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