United States v. Beaver Run Coal Co., 6637.

• Decision Date: 28 October 1938
• Docket Number: No. 6637.,6637.
• Citation: 99 F.2d 610
• Parties: UNITED STATES v. BEAVER RUN COAL CO.
• Court: U.S. Court of Appeals — Third Circuit

99 F.2d 610 (1938)

UNITED STATES v. BEAVER RUN COAL CO.

No. 6637.

Circuit Court of Appeals, Third Circuit.

October 28, 1938.

James W. Morris, Asst. Atty. Gen., and Sewall Key, Norman D. Keller, and Wm. B. Waldo, Sp. Assts. to Atty. Gen., and Charles F. Uhl, U. S. Atty., and Orris Bennett, Sp. Asst. to U. S. Atty., both of Pittsburgh, Pa.

Charles S. Evans, of Ebensburg, Pa., and John Harper, of Philadelphia, Pa., for appellee.

Before DAVIS and BIGGS, Circuit Judges, and WATSON, District Judge.

DAVIS, Circuit Judge.

The question here at issue is whether or not, under the facts of this case, the appellee's mortgage lien upon certain property belonging to the Boucher-Cortright Coal Company (hereinafter referred to as the Coal Company) is entitled to priority over the government's tax lien upon the same property.

The District Court answered this question in the affirmative and the government appealed to this court.

On June 9, 1928 taxes, plus interest amounting to $9,093.57, were assessed against the Coal Company. Ten days later written notice of assessment and a written demand for payment were served upon that company.

On July 16, 1928, in consideration of a loan of $50,000 from the appellee, the Coal Company executed a mortgage in that amount to the appellee upon certain mining property in Cambria County, Pennsylvania. The testimony indicates that the mines covered by this mortgage were subject to flooding; that unless this flooding could be controlled, the mines would be totally destroyed; that if flooded, over two hundred miners would be thrown out of work; that the Coal Company was without available funds at that time to perform the necessary work to prevent the flooding of these mines; and that it was for this purpose and in order to continue operation, that the loan of $50,000 was made. It also appears from the testimony that at the time this loan was made and the mortgage was recorded, no tax lien or other encumbrance stood against the property and that the officers of the appellee, who were also officers of the Coal Company, were under the impression that a settlement of the tax liability of the Coal Company had been satisfactorily arranged.

On August 9, 1928, sometime after the money had been loaned and the mortgage recorded, the collector of internal revenue filed notice of the government's tax lien in the District Court for the Eastern District of Pennsylvania and not for the Western District, in which the mines are situated. On January 22, 1931, approximately two and a half years later, the collector filed a like notice with the Prothonotary of Cambria County.

In 1935, the appellee started proceedings to foreclose its mortgage in the Court of Common Pleas of Cambria County. The United States was made a party defendant and upon its motion the proceedings were removed to the District Court. As stated above, the District Court held that the appellee's mortgage lien is entitled to priority over the government's tax lien and this appeal was thereupon taken.

The United States contends that its lien is entitled to priority over appellee's mortgage on the ground that, at the time the loan was negotiated and the mortgage executed, the appellee knew that the Coal Company owed the taxes in question.

Ever since the Act of July 13, 1866 (14 Stat. 107) the United States has been given a lien for unpaid taxes. Section 3186, Revised Statutes, 26 U.S.C.A. §§ 1560, 1561, 1562. As amended in 1879, and prior thereto, Section 3186 contained no provisions for the recording or filing of the lien, but merely provided as follows: "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States from the time when the assessment list was received by the collector, except when otherwise provided, until paid, with the interest, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to such person." 20 Stat. 331, 26 U.S.C.A. § 1560 note.

On May 1, 1893, the United States Supreme Court, in the case of United States v. Snyder, 149 U.S. 210, 13 S.Ct. 846, 37 L.Ed. 705, held that the lien created by the above section was not subject to the recording laws of the states, and that it was enforceable even against a subsequent bona fide purchaser for value without notice. This decision cast a cloud of uncertainty upon titles to land throughout the United States and, before long, under the leadership of the American Bar Association, agitation for remedial legislation began. By the Act of March 4, 1913, Congress amended section 3186 by adding thereto a provision "that such lien shall not be valid as against any mortgagee, purchaser, or judgment creditor until" certain recording and filing requirements, thereafter set forth, had been fulfilled. 37 Stat. 1016, 26 U.S.C.A. § 1560 note.

This section, with minor amendments, has ever since been retained on the statute books. The latest amendment, made by the Act of May 29, 1928, 45 Stat. 875, 26 U.S.C.A. § 1560 et seq., sets forth the provisions applicable to this case and the relevant requirements of recording and filing are as follows:

"Such lien shall not be valid as against any mortgagee, purchaser, or judgment creditor until notice thereof has been filed by the collector —

"(a) Under State or Territorial laws. In accordance with the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law provided for the filing of such notice; or

"(b) With clerk of district court. In the office of the clerk of the United States district court for the judicial district in which the property subject to the lien is situated, whenever the State or Territory has not by law provided for the filing of such notice." 26 U.S.C.A. § 1562.

It is to be noted that the requirements of subsection (a) were not fulfilled until approximately two and one-half years after the assessment was made, which was long after the mortgage had been executed and recorded. Furthermore, the requirements of subsection (b) were never complied with for the only notice filed in the District Court was filed in the wrong district.

Notwithstanding its failure to comply with the requirements of the very act creating its lien, the United States contends its lien is entitled to priority in this case.

This contention can not be sustained. Whether a statute creating a lien is to be given a liberal or a strict construction, it is well established that "the character, operation and extent of the lien must be ascertained from the terms of the statute which creates and defines it, and the lien will extend only to persons or conditions provided for by statute, and then only where there has been at least a substantial compliance with all the statutory requirements." 37 C.J. 309, 322, 323; In re Brunquest, 4 Fed.Cas. p. 482, No. 2,055; The Suelco, D.C., 286 F. 286; Gile v. Atkins, 93 Me. 223, 44 A. 896, 74 Am.St.Rep. 341....