U.S. v. General Douglas MacArthur Senior Village, Inc.

• Decision Date: 11 November 1974
• Docket Number: Nos. 23,s. 23
• Citation: 508 F.2d 377
• Parties: UNITED STATES of America, Plaintiff, v. GENERAL DOUGLAS MacARTHUR SENIOR VILLAGE, INC., et al., Defendants-Appellees, D.C.R. Holding Corp., et al., Defendants-Appellants. to 25, Dockets 74-1065, 74-1066, and 74-1314
• Court: U.S. Court of Appeals — Second Circuit

Page 377

508 F.2d 377

UNITED STATES of America, Plaintiff, v. GENERAL DOUGLAS MacARTHUR SENIOR VILLAGE, INC., et al Defendants-Appellees, D.C.R. Holding Corp., et al., Defendants-Appellants.

Nos. 23 to 25, Dockets 74-1065, 74-1066, and 74-1314.

United States Court of Appeals, Second Circuit

Argued Sept. 9, 1974.

Decided Nov. 11, 1974.

Stanley Beals, Jericho, N.Y., for defendant-appellant Schwartz.

John M. Farrell, Jr., Great Neck, N.Y. (Schiffmacher, Cullen, Rochford & Farrell, Great Neck, N.Y.), for defendant-appellant D.C.R. Holding Corp.

William S. Norden, Deputy County Atty. (Joseph Jaspan, County Atty. of Nassau County, Natale C. Tedone, Sr. Deputy County Atty., Mineola, N.Y., of counsel), for defendant-appellee County of Nassau.

Matthew Feinberg, Hempstead (Saul Horowitz, Corp. Counsel, Village of Hempstead, Hempstead, N.Y., of counsel), for defendant-appellee Village of Hempstead.

Michael P. Gurlides, Mineola, N.Y., on the brief for defendant-appellant Estate of David Rand.

John F. O'Shaughnessy, Town Atty. of the Town of Hempstead (Daniel P. McCarthy, Asst. Town Atty., of counsel), on the brief for defendant-appellee Town of Hempstead.

Before SMITH, TIMBERS and GURFEIN, ^* Circuit Judges.

J. JOSEPH SMITH, Circuit Judge:

This appeal involves cross-claims raised in an action reported as United States v. General Douglas MacArthur Senior Village, inc., 337 F.Supp. 955 (E.D.N.Y.), rev'd, 470 F.2d 675 (2d Cir. 1972), cert. denied sub nom. County of Nassau et al. v. United States, 412 U.S. 922, 93 S.Ct. 2732, 37 L.Ed.2d 149 (1973). In the principal action, the United States, as the holder of a mortgage superior in interest to the tax liens purchased on the same property by the appellants, was permitted to foreclose upon that property of General Douglas MacArthur Senior Village, Inc.; there had been a breach of the mortgage agreement. The cross-claims presently under review constitute attempts by the defendant tax lienors, D.C.R. Holding Corporation and four individual parties, to secure a refund of their purchase price for the liens from Nassau County, the Village of Hempstead and Town of Hempstead. Since the amount due on the government's mortgage exceeded the proceeds of the foreclosure sale, the liens are now totally worthless. Judge Jack B. Weinstein of the Eastern District of New York dismissed the cross-claims on a motion for summary judgment. 366 F.Supp. 302 (1973). By reason of jurisdiction of the principal claim, jurisdiction over these ancillary claims obtains without independent jurisdictional basis. See, R. M. Smythe & Co. v. Chase National Bank of City of New York ,291 F.2d 721, 724 (2d Cir. 1961); United States v. Championship Sports, Inc., 284 F.Supp. 501, 509 (S.D.N.Y.1968); United States v. Manufacturers Hanover Trust Co., 231 F.Supp. 160, 162 (S.D.N.Y.1964); 3 J. W. Moore, Federal Practice P13.36, at 13-925 (2d ed. 1974). After consideration of the New York law governing these state law claims, Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), we conclude that these cross-claims are without merit and affirm the judgment.

The appellants' several briefs basically expound three alternative grounds for reversal. One, predicated on the taxexempt character of the MacArthur property, fails by reason of collateral estoppel, for we held in resolving the principal claim that the property was in fact taxable. United States v. General Douglas MacArthur Senior Village, Inc., supra, 470 F.2d 675 at 680. The appellants' two other objections will require more detailed discussion; they are: under the New York Real Property Tax law (RPTL), McKinney's Consol.Laws, c. 50-a, a subdivision of the state selling a tax lien necessarily warrants the lien's priority; and under the common law of contractual obligation, the sale of worthless tax liens gives rise to an action for rescission.

I. WARRANTY OF PRIORITY

RPTL 1464(6) in corporates a warranty of lien validity into every sale of a tax lien by municipalities. ¹ A tax lien may be valid, however, yet prove to be worthless because a superior lien on the property leaves no residue to which the inferior lien may attach. To protect against this latter possibility-- one realized in the case under review-- it would be necessary for a tax lien purchaser to require of the seller a warranty of priority. The risk of loss for sale of a lien rendered less valuable, or valueless, by a prior interest would then remain with the seller; the purchaser would be entitled to rescission.

Foreclosed by our prior decision in this case from impugning the lien's validity, supra, and not the beneficiaries of an express warranty of priority, the appellants thus seek to establish that a statutorily implied warranty of priority accompanied their transactions. Specifically, they rely on RPTL 1464(3), (5), for the proposition that a municipality selling a tax lien implicitly warrants that it can transfer title and possession, subject only to claims of the village, county or state. These provisions are set out in the margin. ² The encumbrance at issue which rendered the tax liens valueless belonged to the federal government. As such, it was admittedly outside the express exceptions to the conveyance of a fee simple absolute required by these provisions.

Three considerations, however, counsel against the application in this instance of expressio unius, exclusio alterius, for which the appellants in effect contend. First, the certificate of sale received by each appellant made the lien purchased subject to superior tax liens of 'Sovereignties' and other municipalities. This express contractual reservation does not decide the issue against the appellants because their interest was superseded by a mortgage, rather than tax lien, held by a sovereignty. On the other hand, this recognition of sovereign claims does infer that an implied exception in RPTL 1464(3) for federal liens-- clearly, liens of a 'sovereignty'-- would comport with custom and usage and the basic business understanding.

Secondly, one cannot ignore the broader context within which the statute must operate: a federal system in which supremacy resides with the center. U.S. Const. art. VI. Since the state plainly lacks the power to subordinate a federal interest superior under federal law, New Brunswick v. United States, 276 U.S. 547, 48 S.Ct. 371, 72 L.Ed. 693 (1928); cf. McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), the legislature undoubtedly assumed that an exception in subsection (3) for the United States was understood. The inference, then, that the United State is implicitly included among the superior interestholders listed in 1464(3) follows. We would hesitate to find it excluded on less than express terms. Cf. In re Gruner, 295 N.Y. 510, 524, 68 N.E.2d 514 (1946); Riverhead Estates Civic Ass'n v. Gobron, 134 N.Y.S.2d 13, 16, 206 Misc. 405 (Suffolk County Ct.1954).

Finally, in RPTL 1464(6), supra, fn. 1, the New York legislature specified various conditions (errors or irregularities in assessment, levy or collection proceedings) justifying a refund. Recognition of these circumstances of lien invalidity as a basis for rescission may seem no more than equity would require. In fact, however, this provision represents sents a notable advance from the governing law of caveat emptor. See the opinion below, 366 F.Supp. 302 at 305-306. If the New York legislature intended to make the even greater departure form the common law of creating a warranty of priority, we must assume that they would have done so with no less clarity. ³

In sum, contrary to the appellants' assertion, RPTL 1464(3), (5), require a municipality to warrant that the real property conveyed in consideration of the purchase of the tax lien represents all within the state's power to convey. Since the appellees were powerless to overcome the federal government's mortgage, their failure to convey anything of value to the appellants was not a breach of the duty imposed by 1464. The statute offers no basis for rescission of the contested purchases.

II. CONTRACTUAL FRUSTRATION AND IMPOSSIBILITY

The common law of contract excuses a party from performing his contractual obligations because of 'impossibility of performance' or 'frustration of purpose.' See generally, 6 A. Corbin, Contracts 1322 (1962). In general impossibility may be equated with an inability to perform as promised due to intervening events, such as an act of state or destruction of the subject matter of the contract. The doctrine comes into play where (1) the contract does not expressly allocate the risk of the event's occurrence to either party, and (2) to discharge the contractual duties (and, hence, obligation to pay damages for breach) of the party rendered incapable of performing would comport with the customary risk allocation. Essentially, then, discharge by reason of impossibility-- as well as the concomitant remedy (to the discharge) of rescission-- enforces what can reasonably be inferred to be the intent of the parties at the time of contract.

Frustration of purpose, on the other hand, focuses on events which materially affect the consideration received by one party for his performance. Both parties can perform but, as a result of unforeseeable events, performance by party X would no longer give party Y what induced him to make the bargain in the first place. Thus frustrated, Y may rescind the contract. Discharge under this doctrine has been limited to instances where a virtually cataclysmic, wholly unforeseeable event renders the contract valueless to one party. See, Alfred Marks Realty Co. v. Hotel Hermitage Co., 170 App.Div. 484, 156 N.Y.S. 179 (2d Dept. 1915); Krell v. Henry (1903) 2 K.B. 740 (C.A.); 6 A. Corbin, Contracts, supra, at 1355.

Against the backdrop of this basic doctrinal distinction between impossibility and frustration, the lack of foundation for the appellants' invocation of common law becomes apparent. Their argument may...