Continental Finance, Inc. v. Cambridge Lee Metal Co.
| Citation | 241 A.2d 853,100 N.J.Super. 327 |
| Decision Date | 05 April 1968 |
| Docket Number | No. L--1023,L--1023 |
| Parties | , 22 A.F.T.R.2d 5382, 68-1 USTC P 9334, 5 UCC Rep.Serv. 317 CONTINENTAL FINANCE, INC., a Corporation of the State of New Jersey, Plaintiff, v. CAMBRIDGE LEE METAL CO., Inc., a Corporation of the State of New Jersey andUnited States of America, Defendants. |
| Court | Superior Court of New Jersey |
William S. Katchen, Newark, for plaintiff (Ravin & Ravin, Newark, attorneys, David N. Ravin, Newark, of counsel).
Donald A. Resnikoff, Asst. U.S. Atty., for defendant United States (Matthew J. Scola, Asst. U.S. Atty., on the brief, David M. Satz, Jr., U.S. Atty.).
This case involves a determination as to the relative priorities between Continental Finance, Inc., and the United States, to an available fund of $10,812 in the above-entitled case. Continental Finance is basing its claim to a first priority upon a security agreement, dated December 19, 1962, between it and Centre Trucking Co., Inc., Newark, New Jersey, providing for the assignment of accounts receivable now in existence or hereafter created or coming into existence for advances to be made by Continental and the filing, on January 11, 1963, of a financing statement executed in connection with the aforementioned security agreement. The United States is basing its claim to priority under the lien accorded it under Title 26 United States Code, Section 6321. The date on which the earliest tax assessments arose was February 4, 1964. Notices of Federal Tax Liens were recorded with the Register of Deeds, Essex County, Newark, New Jersey on February 10, 1964.
The following facts have been stipulated by the parties:
1. On or about December 19, 1962, Continental Finance, Inc. (herein 'Continental') entered into a financing arrangement with Centre Trucking Co., Inc. (herein 'Centre'), whereby Continental purchased certain accounts receivable and choses in action of Centre.
2. Subsequently, and for valuable consideration, on January 10, 1963, Continental obtained a security interest, as defined under the Uniform Commercial Code, N.J.S.A. 12A:1--201(37), in all accounts receivable, all claims against third parties then in existence or thereafter created, together with all personal property, then owned or Thereafter acquired, belong to Centre.
3. A financing Statement, covering said collateral, was filed by Continental with the office of the Secretary of State of New Jersey on January 11, 1963.
4. Relying on its security interest in all of the personal property aforesaid, Continental, after January 10, 1963, continued to advance additional sums of money to Centre.
5. Among the contract rights 1 collateralizing Centre's indebtedness to Continental, were the proceeds of an executory contract made on or about October 17, 1962 between Centre and Garden State Steel Company (later named Cambridge Lee Metal Co., Inc.), for the trucking, warehousing, and storage of materials by Centre in consideration for Garden State Steel Company's promise to pay at a fixed rate per ton.
6. All of the contract rights and proceeds, thereof, to be earned by Centre became the property of Continental by virtue of Continental's security interest in said collateral and default under said agreement by Centre.
7. The parties stipulated that prior to the filing of the Federal Tax Lien, February 10, 1964, Continental Finance entered into and obtained a perfected security interest in the aforementioned collateral of Centre.
8. The proceeds of the contract between Centre and Garden State Steel aggregating $10,812 were earned by Centre after the date of filing of the tax lien, to the extent of Continental's liens, were secured by virtue of the said Security Agreement.
9. Pursuant to its Security Agreement Continental continued to advance money to Centre; as of the date of the filing of government tax lien Continental was owed a sum in excess of $50,000, exclusive of interest.
10. The filed tax liens indicate unpaid taxes due to the government from Centre in an amount in excess of $59,000.
11. As of February 4, 1964 and continuing to the present date Continental is owed a sum in excess of the available funds of $10,812 from Centre.
12. Continental nor any of its officers, agents or servants had actual notice of the filed government tax lien prior to the advancement of funds from Continental to Centre, pursuant to the said Security Agreement.
Title 26, United States Code, Section 6321, states the following:
'If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, 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.' August 16, 1954, c. 736, 68A Stat. 779.
The Federal Tax Lien Act was amended in 1966. The pertinent provisions of the amendment are as follows:
6323 VALIDITY AND PRIORITY AGAINST CERTAIN PERSONS
'(a) PURCHASES, HOLDERS OF SECURITY INTERESTS, MECHANIC'S LIENORS AND JUDGMENT LIEN CREDITORS.--The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary or his delegate.
(c) PROTECTION FOR CERTAIN COMMERCIAL TRANSACTIONS FINANCING AGREEMENTS, ETC.--
(1) IN GENERAL--To the extent provided in this subsection, even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid with respect to a security interest which came into existence after tax lien filing but which--
(i) a commercial transactions financing agreement,
(ii) a real property construction or improvement financing agreement, or
(iii) an obligatory disbursement agreement, and
(2) COMMERCIAL TRANSACTIONS FINANCING AGREEMENT.--For purposes of this subsection--
(A) DEFINITION.--The term 'commercial transactions financing agreement' means an agreement (entered into by a person in the course of his trade or business)--
(i) to make loans to the taxpayer to be secured by commercial financing security acquired by the taxpayer in the ordinary course of his trade of business, or
(ii) to purchase commercial financing security (other than inventory) acquired by the taxpayer in the ordinary course of his trade or business; but such an agreement shall be treated as coming within the term only to the extent that such loan or purchase is made before the 46th day after the date of tax lien filing or (if earlier) before the lender or purchaser had actual notice or knowledge of such tax lien filing.
(B) LIMITATION ON QUALIFIED PROPERTY--The term 'qualified property', when used with respect to a commercial transactions financing agreement, includes only commercial financing security acquired by the taxpayer before the 46th day after the date of tax lien filing.
(h) DEFINITIONS--For purposes of this section and section 6324--
(1) SECURITY INTEREST--The term 'security interest' means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time (A) if, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation, and (B) to the extent that, at such time, the holder has parted with money or money's worth.
Section 114 of Public Law 89--719, 80 Stat. 1146, provides that Section 6323, as amended, shall apply after November 2, 1966 regardless of when a lien or a title of the United States arose or when the lien or interest of any other person was acquired. This general rule as to the effective date of the 1966 Amendment has several exceptions which are not applicable to the case Sub judice.
Perfected Federal Tax Liens attach to all after-acquired property of the taxpayer. Sea Board Sur. Co. v. United States, 306 F.2d 855 (9th Cir. 1962). Under Section 6321, which provides for a Federal Tax Lien upon all property and rights to property, whether real or personal, the government has a lien upon the intangible property of a delinquent taxpayer and the tax lien is a continuing lien and will attach to obligations which come into existence thereafter. Beeghly v. Wilson, 152 F.Supp. 726 (D.C.Iowa 1957); see also Edison Bank v. Mayer, 202 F.Supp. 620 (D.C.N.J.1962); United States v. Bailey, 137 F.Supp. 578 (D.C.Conn.1955). As in the case Sub judice, a Federal Tax Lien attaches to a claim for work and labor. Citizens State Bank v. Vidal, 114 F.2d 380 (10th Cir.1940). A property right of a delinquent taxpayer may be born with a Federal Tax Lien on it, but it is necessary that a property right be born to the delinquent taxpayer before there is anything to which the Federal Tax Lien can attach. Wolverine Ins. Co. v. Phillips, 165 F.Supp. 335 (D.C.Iowa 1958), appeal dismissed 283 F.2d 518 (1960). The rights of the Federal Government can rise no higher than the rights of the delinquent taxpayer and state law determines whether the taxpayer has any property or right to property to which the Federal Tax Lien can attach. Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960); United States v. Brosnan et al., 363 U.S. 237, 80...
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