U.S. v. Vorreiter, 17917

• Decision Date: 18 February 1957
• Docket Number: No. 17917,17917
• Parties: , 57-1 USTC P 9415, 50 A.F.T.R. 1561 UNITED STATES of America, Plaintiff in Error, v. W. H. VORREITER, Defendant in Error.
• Court: Colorado Supreme Court

Page 475

307 P.2d 475

134 Colo. 543, 57-1 USTC P 9415, 50

A.F.T.R. 1561

UNITED STATES of America, Plaintiff in Error, v. W. H. VORREITER, Defendant in Error.

No. 17917.

Supreme Court of Colorado, En Banc.

Feb. 18, 1957.

Rehearing Denied March 11, 1957.

Charles K. Rice, Asst. U. S. Atty. Gen., Lee A. Jackson, Harry Baum, Sander W. Shapiro, Attys., Dept. of Justice, Washington, D. C., Donald E. Kelley, U. S. Atty., Denver, Colo., for plaintiff in error.

Herman W. Seaman, Conrad L. Ball, Loveland, for defendant in error.

FRANTZ, Justice.

This case involves the relative priority between mechanics' liens and the liens of the United States for unpaid income taxes. The trial court adjudged priority in favor of the mechanics' liens over the liens of the United States. We are asked to reverse this judgment on the ground that the United States has been denied priority.

From the undisputed facts it appears that Eldridge S. Price, a resident of Ballinger Texas, owned improved property on the north fork of the Big Thompson River in Larimer County, Colorado. While such owner, the United States assessed income taxes against Price and his wife, totaling at the time of trial $310,794.36. On July 23, 1953 the Collector of Internal Revenue at Austin, Texas received income tax assessment lists against the Prices in the amount of $94,901.93.

Between August 6, 1953 and August 14, 1953 the plaintiff and six other workmen and materialmen entered into individual contracts under the terms of which they were to perform services for, or furnish materials to, Price in connection with contemplated improvements of his property in Colorado. Pursuant to their contracts, performance was commenced by these several workmen and materialmen on various dates starting with August 6, 1953 and ending on August 20, 1953. The completion date was sometime in October 1953.

Lien statements for labor performed and materials furnished were filed by the several claimants in the office of the County Clerk and Recorder of Larimer County between October 30, 1953 and December 5, 1953. In all, they amounted to $4,455.85.

Other income tax assessment lists were received by the same Collector on August 27, 1953, December 3 and 31, 1953. Notices of liens for these taxes were not recorded in the office of the County Clerk and Recorder of Larimer County until December 16, 1953 and December 31, 1953.

On February 18, 1954 Vorreiter, for himself and as assignee of the duly assigned claims of the other lien claimants, brought this action to foreclose his several lien claims. In the trial no question was raised as to the validity of mechanics' liens or the government tax lien; the only issue requiring resolution by the trial court was that of priority.

The assessment lists set forth the names of Eldridge S. and Edith Wynn Price, their residence as Box 387, Ballinger, Texas, classified the debt as unpaid income taxes, giving the dates thereof, and included some remarks not pertinent to the question here to be resolved, but contained no description of the property affected.

The government contends that its liens are prior and superior for two reasons:

1. 'Vorreiter's liens, being inchoate, imperfected liens, are inferior to the tax liens of the United States which arose and were recorded before Vorreiter's liens were reduced to judgment.'

2. 'The tax lien of the United States which arose under Section 3671 on July 23, 1953, is first in time and therefore superior to Vorreiter's liens arising under contracts the earliest of which was executed August 6, 1953, or for work performed, commencing at the earliest on August 6, 1953.'

Necessary to a determination of the questions raised by the government are certain sections of the Internal Revenue Code of 1939 as amended and a portion of the mechanics' lien statute of this state. The following provisions of the Internal Revenue Code are pertinent to our inquiry:

' § 3670. Property subject to lien

'If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may acrue 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.' 26 U.S.C.A. § 3670.

' § 3671. Period of lien

'Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.' (Emphasis supplied.) 26 U.S.C.A. § 3671.

' § 3672. Validity against mortgagees, pledgees, purchasers, and judgment creditors

'(a) Invalidity of lien without notice. Such lien shall not be valid as against any mortgagee, pledge, purchaser or judgment creditor until notice thereof his been filed by the collector----

'(1) Under State or Territorial laws. In the office in which the filing of such notice is authorized by the law of the State or Territory in which the property subject to the lien is situated, * * *' 26 U.S.C.A. § 3672.

C.R.S.1953, 86-3-6, in part provides:

'All liens, established by virtue of this article shall relate back to the time of the commencement of work under the contract between the owner and the first contractor, or * * * as of the time of the commencement of the work upon the structure or improvement, and shall have priority over any and every lien or encumbrance subsequently intervening, or which may have been created prior thereto, but which was not then recorded, and of which, the licenor, under this article did not have actual notice. Nothing herein contained, however, shall be construed as impairing any valid encumbrance upon any such land, duly made and recorded prior to the signing of such contract, or the commencement of work upon such improvements or structure. * * *' (Emphasis supplied.)

It is the contention of the United States that the mechanics' liens in this case were inchoate and that we must therefore invert the order of priority decreed by the lower court. According to the federal decisions relied upon involving questions of priority as between liens of various kinds and federal tax liens, it is necessary that the firstmentioned liens be certain and perfected before the federal lien attaches ere they can be said to be superior to the federal liens.

The contention of the federal government, if applied to liens in Colorado, would upset long established rules of property in this state. 'It is also well settled that where a course of decisions, whether founded upon statues or not, have become rules of property as laid down by the highest courts of the estate, by which is meant those rules governing the descent, transfer, or sale of property, and the rules which affect the title and possession thereto, they are to be treated as laws of that state by the federal courts.' Bucher v. Cheshire R. Co., 125 U.S. 555, 8 S.Ct. 974, 978, 31 L.Ed. 795.

A hypothetical situation, set forth in Vorreiter's brief, shows how the above quoted portions of the Internal Revenue Code, and the law construing them, overturn settled rules of property of this state. Richard Roe of Miami, Florida owns a summer residence at Evergreen, Colorado. He has not paid his federal income taxes. The Collector of Internal Revenue at Miami receives an assessment list on June 1, 1955. During July, Roe undertakes extensive improvements on his summer residence amounting to $7,500. These improvements are completed on October 1st and on November 15th lien statements are filed in the office of the Clerk and Recorder. In August, Roe obtains a $500 loan from his friend, John Doe, and gives John Doe a deed of trust on the summer residence, which deed of trust is properly recorded. On October 15th a judgment creditor of Roe's levies an execution on the summer residence. On December 10th the government files its notice of tax lien in the sum of $7,500 in the office of the Clerk and Recorder. There are, therefore, the following claims of liens listed in the order in which they arose:

1. Claim of the United States for income taxes;

2. Claim of mechanics' lienholders;

3. Lien of the deed of trust;

4. Lien of the judgment creditor.

How is the priority of these liens to be fixed in the event the government's lien is prior to the mechanics' liens? The mortgagee and the judgment creditor are within the exception mentioned under Section 3672, supra, and, therefore, have priority over the government's lien; yet, under state law, the mechanics' liens are prior to the liens of the mortgagee and the...