U.S. v. State, 17001

• Decision Date: 12 May 1955
• Docket Number: No. 17001,17001
• Citation: 227 S.C. 187,87 S.E.2d 577
• Court: South Carolina Supreme Court
• Parties: , 55-2 USTC P 9656 UNITED STATES of America, Appellant, v. STATE of South Carolina et al., Respondents.

Page 577

87 S.E.2d 577

227 S.C. 187, 55-2 USTC P 9656

UNITED STATES of America, Appellant, v. STATE of South Carolina et al., Respondents.

No. 17001.

Supreme Court of South Carolina.

May 12, 1955.

N. Welch Morrisette, Jr., Columbia, Arthur G. Howe, Charleston, for appellant.

T. C. Callison, Atty. Gen., J. M. Windham, Asst. Atty Gen., D. L. Odom, Columbia, Sam Rogol, Darlington, Tison & Tison, Joseph P. Edens, Jr., W. A. Rogers, Bennettsville, for respondents.

OXNER, Justice.

The principal question to be decided on this appeal is whether in the distribution of the assets of an insolvent debtor in the hands of a receiver, claims of the United States for income taxes have priority over a judgment held by the Darlington County Bank & Trust Company, four income tax liens held by the State of South Carolina, and certain taxes owed to the County of Marlboro and the Town of Bennettsville. Also presented is a subsidiary question as to the proper method to be used in determining the value of the inchoate dower interest of the debtor's wife.

As a result of an action commenced on June 24, 1953, in the Court of Common Pleas for Marlboro County, a receiver was appointed on August 18, 1953, to take charge of all the assets of Edmond Caulk, a resident of Marlboro County who was formerly engaged in the retail clothing business and, also, operated a restaurant in Marlboro County. The usual notice to creditors was published and a number of claims, both secured and unsecured, were filed with the receiver. On October 10, 1953, the Court ordered the sale of all property belonging to the insolvent debtor. By an order issued on October 17, 1953, Fannie Q. Caulk, the debtor's wife, was, on her petition, made a party to the proceeding and the value of her inchoate dower interest in the real property was, by agreement of her attorney and the attorney for the receiver, fixed at one-sixth of the amount to be realized from the sale of the real estate, said sum to be set aside and held in a separate account subject to the final determination of her dower rights as against the claim of the United States which had not then been filed. Later on October 30th, the claim of the United States was filed with the receiver.

Pursuant to the order of October 10th, a sale was held by the receiver on November 2, 1953. By agreement of the parties, the property was sold free and clear of all encumbrances and Mrs. Caulk's right of dower, and all claims transferred to the proceeds of sale. The real estate brought $42,235 and the personal property $5,015. It clearly appeared after the sale that there would be nothing for unsecured creditors. The secured claims were as follows:

1. Judgment held by the Darlington County Bank & Trust Company for $2356.67, dated October 8, 1947, and filed on the same day in the office of the Clerk of Court for Marlboro County.

2. Mortgage held by S. J. T. Quick, for $4,000, dated November 3, 1947, and recorded on the same day in the office of the Clerk of Court.

3. Mortgage held by Jack Land, for $3,000, dated July 29, 1950, and recorded on the same day in the Clerk's office.

4. Four income tax warrants by the State of South Carolina, aggregating $15,466.53, which were filed with the Clerk of Court of Marlboro County and entered in the judgment docket on February 24, 1950.

5. Two income tax liens by the United States. The first, in the sum of $86,562.61, was filed in the Clerk's office on February 28, 1951, and the other, for $4233, was entered in said office on December 20, 1951.

6. Taxes due the County of Marlboro for the years 1945, 1946, 1948, 1950, 1951, 1952 and 1953, totaling $2,534.38.

7. Taxes due the Town of Bennettsville for the years 1949 to 1953, inclusive, aggregating $1,305.35.

The Court below was called upon to determine the relative priority of these liens and also the dower rights of Mrs. Caulk. Pursuant to notice, a hearing was held on February 27, 1954, for the purpose of taking testimony and determining all issues in the case. At this hearing all parties agreed that there should first be paid the costs of the receivership and from the proceeds of the sale of the real estate, there should also be paid the mortgages held by Land and Quick. The United States contended that its income tax liens were superior to all other secured claims and to Mrs. Caulk's claim of dower.

An order was filed on April 13, 1954, in which the Court held that since the personal property had never been seized under execution, the proceeds from the sale thereof should be paid to the United States by virtue of the priority given the Government by Section 3466 of the Revised Statutes, 31 U.S.C.A. § 191. As to the proceeds from the sale of the real estate, the Court concluded (1) that there should be paid to Mrs. Caulk one sixth thereof, or $7039.17, which had previously been set apart and held subject to a final determination of her right of dower; (2) that the judgment held by the Darlington County Bank & Trust Company and the income tax liens held by the State of South Carolina were senior the income tax liens filed by the United States; and (3) that with respect to the taxes due the County of Marlboro and the Town of Bennettsville, the liens of the United States were superior 'as to all amounts due for such taxes subsequent to the date of the receipt of the assessment list by the Collector of Internal Revenue, or the filing of the judgment, or either', but as to all taxes accrued prior to this time, the claim of the United States was inferior. From this order, the United States has appealed.

On the question of dower, the position now taken by the Government is entirely different from that advanced in the Court below. At the hearing before the Circuit Judge, the Government asserted both in open court and in its brief 'that the only question concerning the dower of Fannie Q. Caulk was whether an inchoate dower right in South Carolina was a property right or a lien.' If the former, it was conceded that one-sixth of the proceeds of the sale of real estate previously set aside should be paid to Mrs. Caulk. But it was argued that if her inchoate dower right was an encumbrance or lien, the United States would be entitled to priority of payment by virtue of the provisions of Section 3466 of the Revised Statutes, 31 U.S.C.A. § 191. The Circuit Judge held that dower was a substantial right of property, citing Shell v. Duncan, 31 S.C. 547, 10 S.E. 330, 5 L.R.A. 821; Elder v. McIntosh, 88 S.C. 286, 70 S.E. 807; Brown v. Brown, 94 S.C. 492, 78 S.E. 447. To these cases may be added the recent case of Shelton v. Shelton, 225 S.C. 502, 83 S.E.2d 176. On this appeal, it is expressly stated that this ruling by the Court below is not contested and that objection is made only to the amount awarded Mrs. Caulk for her dower interest. It is now argued that she is only entitled to the present value of her contingent right of dower computed according to the formula laid down in Ladshaw v. Drake, 183 S.C. 536, 191 S.E. 713, and that the Court erred in awarding an amount equal to that assigned a widow after the death of her husband. The question now raised having not been presented in the lower Court cannot be urged for the first time here. Hall v. Equitable Life Assurance Society of the United States, 177 S.C. 148, 181 S.E. 33; Trotter v. Merchants & Farmers Bank, 180 S.C. 449, 186 S.E. 371, 105 A.L.R. 1512; Croft v. Faust, 209 S.C. 477, 40 S.E.2d 801, and other cases too numerous to mention.

As to the other claims mentioned, the Government bases its claim of priority primarily upon Section 3466 of the Revised Statutes, 31 U.S.C.A. § 191, which provides, in pertinent part, that 'whenever any person indebted to the United States is insolvent, * * * the debts due to the United States shall be first satisfied.' In substantially its present form, this section has been the law of the United States since a very early period of its history.

In a number of cases the United States Supreme Court has held that under some circumstances debts due the United States take precedence over antedating liens for taxes due a state or municipality where the latter are general and inchoate. Spokane County v. United States, 279 U.S. 80, 49 S.Ct. 321, 73 L.Ed. 621; People of State of New York v. Maclay, 288 U.S. 290, 53 S.Ct. 323, 77 L.Ed. 754; United States v. Texas, 314 U.S. 480, 62 S.Ct. 350, 86 L.Ed. 356; Illinois ex rel. Gordon v. Campbell, 329 U.S. 362 67 S.Ct. 340, 91 L.Ed. 348. All of these cases were decided under Section 3466, supra. But it has never held that the priority given the United States by this statute applies to a specific and perfected lien. This question has been consistently reserved. As stated in Evans v. Stewart, Iowa, 66 N.W.2d 442, 445: 'The fact that the United States Supreme Court has so often decided such controversies by resolving debatable questions of specificity and perfection of the lien when the decision would be simplified by holding the federal priority superseded a lien, leads one to believe that, when the question is squarely presented, the decision will not result in a subordination of the lien to the priority.' We feel justified, therefore, in acting on the assumption that the United States Supreme Court would hold that the priority set up in Section 3466 would not supersede a lien which was specific and perfected at the time the receiver was appointed. It was so held in United States v. Atlantic Municipal Corporation, 5 Cir., 212 F.2d 709, 711. The Court there said: 'This statute applies only as against unsecured debts, that is, debts not secured by a specific and perfected lien. It has never been, we think it will never be, applied as it is sought to be applied here, to accord payment to a debt due the United States in preference to a claim secured by a lien which is prior in time and superior in law to the lien of the United States securing the debt for which preferential payment is sought.' This decision...