De Laney v. City and County of Denver

• Citation: 185 F.2d 246
• Decision Date: 07 December 1950
• Docket Number: No. 4103.,4103.
• Parties: DE LANEY et al. v. CITY AND COUNTY OF DENVER et al. In re WHITE et al.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

185 F.2d 246 (1950)

DE LANEY et al. v. CITY AND COUNTY OF DENVER et al. In re WHITE et al.

No. 4103.

United States Court of Appeals Tenth Circuit.

November 1, 1950.

Rehearing Denied December 7, 1950.

COPYRIGHT MATERIAL OMITTED

Samuel S. Ginsberg and Julius F. Seeman, Denver, Colo., for appellant.

Charles H. Haines, Denver, Colo., (J. Glenn Donaldson, Denver, Colo., on the brief), for appellees.

Before PHILLIPS, Chief Judge, and BRATTON and MURRAH, Circuit Judges.

PHILLIPS, Chief Judge.

This appeal involves the enforceability of two tax liens asserted by the City and County of Denver, Colorado,¹ on certain personal property which passed into the hands of the trustee in bankruptcy and was sold by him free of liens.

The facts are stipulated. The Whites owned store fixtures and a stock of merchandise and operated a retail furniture business in Denver, Colorado, from prior to March 1, 1946, until August 25, 1948. On the latter date, on an involuntary petition filed April 30, 1948, they were adjudged bankrupts and the matter was referred to Honorable Frank McLaughlin, Referee in Bankruptcy. On October 13, 1948, DeLaney was appointed trustee and duly qualified as such. He immediately took possession of, and, in accordance with an order of the court, sold such fixtures and merchandise free and clear of liens and incumbrances for $2,099.68. The sale was confirmed October 29, 1948.

On March 1, 1947, the Whites filed their joint tax schedule for 1947 showing merchandise of the value of $18,000, being the average value for the preceding 12 months, and fixtures of the value of $410. A tax was duly assessed against such property by an ordinance enacted by the City on December 11, 1947, at the rate of 49.62 mills on the dollar, or a total tax of $913.67. On March 1, 1948, a tax schedule for 1948 was filed for the Whites, showing merchandise of the value of $8,900, being the average value for the preceding 12 months, and fixtures of the value of $410. A tax was duly assessed against such property by an ordinance enacted by the City on December 11, 1948, at the rate of 50.019 mills on the dollar, or a total tax of $475.73. The taxes assessed for each of such years remain unpaid. No distraint warrant for the collection of such taxes was ever issued and the City did not take possession of any of such fixtures and merchandise prior to adjudication, or at all.

Notice of the first meeting of creditors to be held on October 13, 1948, was duly given, and the Manager of Revenue of the City received a copy of such notice. The City did not file a notice of its liens "with the court," in accordance with the provisions of § 67, sub. b of the Act of June 22, 1938,² 11 U.S.C.A. § 107 sub. b. No wage claims were filed against the bankrupt estate.

The City did not file a claim for taxes. However, on June 2, 1949, the City, acting through its Manager of Revenue, filed an intervening petition in the bankruptcy court in which it asserted its liens for such taxes against the proceeds derived from the sale of the fixtures and stock of merchandise. In such petition it disclaimed any claim against the general assets of the Whites and prayed for an order directing the trustee to satisfy out of the proceeds of the sale its tax liens, with interest. The referee denied that petition. On petition for review, the United States District Court for the District of Colorado, Judge Carl A. Hatch, sitting by assignment, reversed the order of the referee and directed the trustee to satisfy the tax liens, with interest accruing thereon, after first paying the debts specified in clauses (1) and (2) of subdivision a of § 64 of the Chandler Act, 11 U.S.C.A. § 104, sub. a (1, 2).

The trustee has appealed.

Section 57, subs. e, h, and n of the Chandler Act, 11 U.S.C.A. §§ 93, subs. e, h, and n, provide:

"e Claims of secured creditors and those who have priority may be temporarily allowed to enable such creditors to participate in the proceedings at creditors' meetings held prior to the determination of the value of their securities or priorities, but shall be thus temporarily allowed for such sums only as to the courts seem to be owing over and above the value of their securities or priorities."

"h The value of securities held by secured creditors shall be determined by converting the same into money according to the terms of the agreement pursuant to which such securities were delivered to such creditors, or by such creditors and the trustee by agreement, arbitration, compromise or litigation, as the court may direct, and the amount of such value shall be credited upon such claims, and a dividend shall be paid only on the unpaid balance. Such determination shall be under the supervision and control of the court."

"n Except as otherwise provided in this Act, all claims provable under this Act, including all claims of the United States and of any State or subdivision thereof, shall be proved and filed in the manner provided in this section. Claims which are not filed within six months after the first date set for the first meeting of creditors shall not be allowed: Provided, however, That the court may, upon application before the expiration of such period and for cause shown, grant a reasonable fixed extension of time for the filing of claims by the United States or any State or subdivision thereof: * * * And provided further, That a claim arising in favor of a person by reason of * * * the avoidance by the trustee of a lien held by such person, may be filed within thirty days from the date of such * * * avoidance, * * *."

The trustee contends that the City was required to file a proof of claim for taxes under the provisions of § 57, sub. n, supra, within the time limited by such section, or an extension of such time granted by the court, and having failed to so file its claim, lost its liens for taxes.

Prior to the enactment of § 57, sub. n of the Chandler Act, claims for taxes did not need to be proved and filed, but were governed by § 64, sub. a, 11 U.S.C.A. § 104, sub. a, which required the trustee to pay all taxes legally due and owing without distinction between the state and federal government. However, the bankruptcy court could issue a bar order requiring a state or the United States to file its tax claims within a certain period or be barred from participating in the estate.³ By § 57, sub. n of the Chandler Act, tax claims were removed from their former favored position and tax claims, as distinguished from tax liens, must now be proved and filed in the manner provided in § 57 of the Chandler Act.⁴

Section 64 of the Chandler Act, as amended, 11 U.S.C.A. § 104, in part provides:

"§ 104. Debts which have priority

"(a) The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment, shall be (1) the actual and necessary costs and expenses of preserving the estate subsequent to filing the petition; the fees for the referees' salary fund and for the referees' expense fund; the filing fees paid by creditors in involuntary cases; where property of the bankrupt, transferred or concealed by him either before or after the filing of the petition, shall have been recovered for the benefit of the estate of the bankrupt by the efforts and at the cost and expense of one or more creditors, the reasonable costs and expenses of such recovery; the costs and expenses of administration, including the trustee's expenses in opposing the bankrupt's discharge, the fees and mileage payable to witnesses as now or hereafter provided by the laws of the United States, and one reasonable attorney's fee, for the professional services actually rendered, irrespective of the number of attorneys employed, to the petitioning creditors in involuntary cases and to the bankrupt in voluntary and involuntary cases, as the court may allow; (2) wages not to exceed $600 to each claimant, which have been earned within three months before the date of the commencement of the proceeding, due to workmen, servants, clerks, or traveling or city salesmen on salary or commission basis, whole or part time, whether or not selling exclusively for the bankrupt; * * * (4) taxes legally due and owing by the bankrupt to the United States or any State or any subdivision thereof: * * *."

But, priority under that section does not refer to liens existing on the bankrupt's property, nor to the order of payment of such liens, but to the order of payment of debts out of the general assets of the estate after the satisfaction of valid liens.⁵ Claims for taxes secured by valid liens, like other valid liens, must be satisfied out of bankrupt's estate before any distribution begins under § 64, supra, subject however, to the provisions of § 67, sub. c of the Chandler Act, which provides for postponement in payment of certain tax liens to the debts specified in clauses (1) and (2) of subdivision a of § 64, supra.⁶

Section 67, subs. b and c of the Chandler Act, 11 U.S.C.A. § 107, subs. b and c, read as follows:

"b. The provisions of section 60 of this Act to the contrary notwithstanding, statutory liens in favor of employees, contractors, mechanics, landlords, or other classes of persons, and 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 or of the original petition under chapter 10, 11, 12, or 13 of this Act, by or against him. 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...