In re Burch

• Decision Date: 05 January 1948
• Docket Number: No. 5239.,5239.
• Citation: 89 F. Supp. 249
• Court: U.S. District Court — District of Kansas
• Parties: In re BURCH.

89 F. Supp. 249

In re BURCH.

No. 5239.

United States District Court D. Kansas.

January 5, 1948.

Philip Dergance, Assistant District Attorney for the United States, Topeka, Kan., for the United States.

Harold A. Zelinkoff and H. W. Goodwin, Wichita, Kan., for trustees.

SLOAN, Referee.

An agreed statement of fact has been entered into between the trustee and the United States, which sets forth in detail the nature of the tax, the principal amount, penalties and interest, together with the dates the assessments were made and the date the notice of tax lien was filed with the Register of Deeds.

The total amount claimed is $45,024.87, including penalties, with interest from divers dates. It is admitted that no sale or seizure was made of any of the property of the bankrupt prior to the filing of the petition.

The debtor filed his petition under Chapter XI, 11 U.S.C.A. § 701 et seq., on June 10, 1946, and was adjudged a bankrupt October 8, 1946. The first meeting of the creditors was held November 11, 1946, at which meeting trustees were elected who have since been in possession and control of the property.

The United States contends that it has valid and subsisting tax liens superior to all other claims, except the first mortgage lien, which is not disputed. On the other hand, the trustee contends that the liens of the United States, if any they have, are postponed in payment to the debts specified in Clauses (1) and (2) of subdivision a of 11 U.S.C.A. § 104; that the claimant should not be allowed penalties and are entitled to interest only to the date of the filing of the petition.

The trustee, upon his appointment and qualification, takes the title to the property of the bankrupt, subject to valid and subsisting liens that are not affected by the adjudication. United States v. Sampsell, 9 Cir., 153 F.2d 731; In re Erie Ry. Co., D.C., 37 F.Supp. 237; Commercial Credit Co. v. Davidson, 5 Cir., 112 F.2d 54. The court is controlled by Federal law in determining what liens are preserved in bankruptcy; what character of title to the debtor's property is vested in the trustee in bankruptcy and as to such property, what rights, remedies and powers are deemed vested in the trustee. We look to state law and appropriate Federal law to ascertain what property the debtor owned immediately preceding the time of bankruptcy; what liens thereon, if any, then existing, the character thereof and the order of priority among the creditors holding such liens.

11 U.S.C.A. § 107, sub. c came into the Bankruptcy Act through the Chandler Act. It is all inclusive and had for its purpose the postponement in payment of all statutory liens, including liens for taxes or debts owing the United States or any state on personal property not enforced by sale or seizure before the filing of the petition. There is no room for doubt in the construction of this statute. The courts have commented on it in the following cases: City of New Orleans v. Harrell, 5 Cir., 134 F. 2d 399; In re Empire Granite Company, D.C., 42 F.Supp. 450; Commercial Credit Co. v. Davidson, 5 Cir., 112 F.2d 54; City of New York v. Hall, 2 Cir., 139 F.2d 935; In re Pennsylvania Central Brewing Co., 3 Cir., 114 F.2d 1010.

The consequence is that all of the liens claimed herein, if otherwise established, are subject to the provisions of this statute since it is admitted that the personal property was not seized or sold prior to the filing of the petition.

11 U.S.C.A. § 96, sub. b grants to statutory lienholders, where the lien arises before the filing of the petition but is not perfected until after bankruptcy, a valid lien if perfected within the time prescribed by the statute under which it arose, except where seizure of the property is required. It is therefore clear that so far as property other than personal is concerned the statutory lien may be valid if it arises prior to and is perfected after bankruptcy and is binding on the trustee.

We must therefore determine when a statutory lien arises and when it is perfected. The answer to this question must be found in the statute, whether federal or state, which creates the lien.

It is provided by statute that where a person fails to pay taxes on demand the United States shall have a lien on the property belonging to such person. 26 U. S.C.A. § 3670. Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector. 26 U.S.C.A. § 3671. Such lien shall not be valid against certain creditors until it is filed in accordance with the law of the state. 26 U.S.C.A. § 3672.

It has been held by the Supreme Court that the lien created by this statute is a continuing lien covering all property or rights to property owned by the tax delinquent, including property acquired after the lien arose. Glass City Bank of Jeanette v. United States, 326 U.S. 265, 66 S.Ct. 108, 90 L.Ed. 56.

It seems clear from these statutes that the lien arises when the assessment list is received by the collector, but it is not perfected until the notice of the tax lien is filed with the register of deeds in accordance with the laws of the state of Kansas. Therefore all claimed tax liens, the assessment of which was received by the collector prior to the filing of the petition and thereafter perfected by filing the notice with the register of deeds, are valid against the trustee on all property except personal property. Where, however, the assessment does not reach the collector until after the filing of the petition, no lien is created and the claim must be assigned to the tax classification.

The trustee contends that the United States is entitled to interest only until the date of the filing of the petition. The general rule with reference to interest is stated in Ticonic Bank v. Sprague, 303 U.S. 406, 58 S.Ct. 612, 82 L.Ed. 926, as follows: "With respect to analogous liquidations the rule just announced has long been in force. The Court has already held that lienholder may look to his lien not only for the principal but also for interest accruing up to the date of payment, though his debtor has gone into bankruptcy (Coder v. Arts, 213 U.S. 223, 245, 29 S.Ct. 436, 53 L.Ed. 772, 16 Ann.Cas. 1008, affirming, 8 Cir., 152 F. 943, 950, 15 L.R.A., N.S., 372) or into equity receivership (American Iron & Steel Mfg. Co. v. Seaboard Air Line Ry., 233 U.S. 261, 34 S.Ct. 502, 58 L.Ed. 949), and though interest will be denied the unsecured creditors if the assets are insufficient to pay all claims in full. Compare In re Humber Ironworks & Shipbuilding Co., IV Ch.App.Cas. 643, with In re Humber Ironworks & Shipbuilding Co., V Ch.App.Cas. 88. The same rule was applied to state banks in Washington-Alaska Bank v. Dexter Horton National Bank, 9 Cir., 263 F. 304, 306." 303 U.S. at page 413, 58 S.Ct. at page 615, 82 L.Ed. 926.

The theory has been advanced that since the adoption of the Chandler Act, which requires the United States to file its claim on the same basis as other creditors, it is only entitled to interest to the date of the filing of the petition. I think there is much force in this argument, which was discussed by the First Circuit in Davie v. Green, 133 F.2d 451. The court, however, reached the conclusion that under the statute, 11 U.S.C.A. § 93, sub. j, interest should be allowed. I agree with this conclusion. The statute appears to be specific on the question that the United States on its claims may recover "such interest as may have accrued thereon according to law."

It is the contention of the United States that where a tax lien is established as provided by law that the penalty included therein is allowable notwithstanding Section 57, sub. j of the Bankruptcy Act. 11 U.S.C.A. 93, sub. j.

This contention is based upon the decision of the Ninth Circuit, which was followed by the Sixth Circuit. In re Knox Powell Stockton Co., 100 F.2d 979; Commonwealth of Kentucky v. Farmers Bank and Trust Co., 139 F.2d 266.

The Ninth Circuit case involved the claim of the state of California for taxes and penalties payable under the provision of the California Oil and Gas Conservation Act. The California law provides a lien for the assessment and charges levied under the provision of the act, including a penalty for delinquency. The lien had been established before bankruptcy. The court said: "It may be conceded that section 57, sub. j of the Bankruptcy Act (11 U.S.C.A. § 93, sub. j), precludes the `allowance' of a claim for penalties, but as pointed out earlier, adjudication in bankruptcy does not affect a valid and existing lien, consequently where a lien exists to support a penalty at the time of adjudication, section 57j does not come into operation. Hiscock v. Varick Bank, 206 U.S. 28, 29, 27 S.Ct. 681, 51 L.Ed. 945, supra; see, also, State of California v. Moore, 9 Cir., 1937, 88 F. 2d 564. In People of State of New York v. Jersawit, 263 U.S. 493, 44 S.Ct. 167, 68 L.Ed. 405, cited by appellant, there was a simple claim for priority unsupported by a lien." 100 F.2d at page 983.

It will be noted that this decision was rendered on the statute as it existed prior to the Chandler Act. The statute referred to in the opinion and quoted at length 100 F.2d at page 982 of the opinion was repealed by the Chandler Act. This, to my mind, nullifies the effect of the opinion.

The court in the Sixth Circuit, supra, followed the...