United States v. Menier Hardware No. 1, Inc.

• Decision Date: 10 June 1963
• Docket Number: Civ. No. 3151.
• Citation: 219 F. Supp. 448
• Parties: UNITED STATES of America, Plaintiff, v. MENIER HARDWARE NO. 1, INC., Vincent J. Menier, Allena Village Community Center and Border Distributing Company, Defendants.
• Court: U.S. District Court — Western District of Texas

219 F. Supp. 448

UNITED STATES of America, Plaintiff, v. MENIER HARDWARE NO. 1, INC., Vincent J. Menier, Allena Village Community Center and Border Distributing Company, Defendants.

Civ. No. 3151.

United States District Court W. D. Texas, San Antonio Division.

June 10, 1963.

COPYRIGHT MATERIAL OMITTED

William O. Murray, Jr., Asst. U. S. Dist. Atty., and Bailey Rankin, Dallas, Tex., Atty., Small Business Administration, for plaintiff.

Harry A. Nass, Jr., San Antonio, Tex., for defendant, Allena Village Community Center.

Marvin C. Beck, San Antonio, Tex., for defendant, Border Distributing Co.

GRAVEN, Senior District Judge.

This litigation involves the conflicting claims of the plaintiff and the defendants, Allena Village Community Center and Border Distributing Company, to the proceeds of the sale of merchandise originally in the possession of the defendant, Menier Hardware No. 1, Inc.

The defendant, Menier Hardware No. 1, Inc., is a Texas corporation. For several years prior to March 7, 1961, and continuing up into July, 1962, it was engaged in the retail hardware business in Bexar County, Texas. It was the business lessee of the defendant, Allena Village Community Center, a Texas corporation. The defendant, Border Distributing Company, is a partnership located at Laredo, Texas, which, among other activities, distributes motor bikes imported by it. For convenience in reference, the defendant Menier Hardware No. 1, Inc., will be frequently referred to as Menier, the defendant Allena Village Community Center as Allena, and the Border Distributing Company as Border.

On March 7, 1961, Menier secured a loan of $20,000 from the North Side State Bank of San Antonio, Texas. The loan was made under the provisions of Chapter 14A, Title 15 U.S.C.A., relating to Aid To Small Business. Loans made under the provisions of that Chapter are handled by the Small Business Administration. That Administration is an agency of the United States. The loan note was secured by a chattel mortgage upon certain personal property of Menier.¹ The chattel mortgage did not include the stock of merchandise of Menier. Menier became delinquent in its loan payments. On May 23, 1962, the note and mortgage were transferred by the North Side State Bank to the Small Business Administration and by the latter transferred to the plaintiff.

On August 22, 1962, the plaintiff commenced the present action. In its complaint the plaintiff asked judgment against Menier on the loan note upon which there was a balance due of approximately $15,000. It also asked foreclosure of the chattel mortgage securing the note. It also asked that a writ of attachment issue against the property of Menier. In its Affidavit For Attachment, a representative of the plaintiff alleged that Menier had disposed of its property, in whole or in part, with intent to defraud its creditors. A writ of attachment was issued and on August 31, 1962, the stock of merchandise in the possession of Menier was attached. Included in the merchandise attached were sixteen motor bikes which had been received by Menier from Border.

Either by court order or by agreement of the parties, the attached merchandise was sold. The proceeds thereof are now within the jurisdiction of this Court. The parties are agreed that they have the same relationship to the proceeds as they had in relation thereto prior to the sale. The issues between the parties as framed in the Pretrial Order are as next set forth.² The plaintiff claims priority over Allena and Border as to all of the proceeds under the United States priority statute, Section 191, Title 31 U.S. C.A. It also claims priority over Border as an existing creditor and attaching creditor. At the time the merchandise was attached in August, 1962, Menier was indebted to Allena in the sum of $1,200, which was the rent for the months of May, June, and July, 1962. Allena claims priority over the plaintiff in the proceeds to the extent of that rent. It claims priority over the plaintiff by virtue of the landlord's lien given it by a Texas statute. It also claims priority over the plaintiff by virtue of a contract lien for rent contained in the lease. Border claims that the motor bikes seized under the attachment were sent to Menier on consignment and that it was the owner of them. Border asks that the proceeds of the sale of the motor bikes be paid to it. The plaintiff controverts that claim of Border. The defendants Menier Hardware No. 1, Inc., and Vincent J. Menier did not appear in the action.

The conflicting claims of the plaintiff and Allena will be first considered. Section 191, Title 31 U.S.C.A., provides:

"Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; and the priority established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed."

Section 191 is frequently cited in opinions as Section 3466 R.S. It is derived from Section 5 of the Act of March 3, 1797, c. 20, 1 Stat. 515, and has been in force as enacted without significant modification. See United States v. Saidman (C.A.D.C.1956), 231 F.2d 503, 505. Section 3466 does not create a lien; it establishes a priority in favor of the United States in the distribution of the property of an insolvent debtor. United States v. O'Dell (6th Cir. 1947), 160 F.2d 304, 306. The United States Supreme Court in cases having to do with liens which are in competition with claims asserted by the United States under the priority statute has applied certain rules. Those rules are similar to those applied by it in cases having to do with liens which are in competition with claims asserted by the United States under the federal tax lien statute. That statute is Section 6321, Title 26 U.S.C.A.

In more recent decades there have been a multitude of cases dealing with the question of the priority of federal tax liens over competing non-federal liens. Non-federal liens have fared badly in that competition. See cases listed in Mason City and Clear Lake R. Co. v. Imperial Seed Co. (D.C.1957), 152 F.Supp. 145, 153, 154. The competing non-federal liens have generally lost out because of the application of the so-called "specific and perfected lien" tests applied by the United States Supreme Court. See Kennedy, The Relative Priority Of The Federal Government: The Pernicious Career Of The Inchoate and General Lien, 62 Yale Law Journal 905 (1954).³ See, also, the report of study in book form of Plumb & Wright on federal tax liens under sponsorship of the American Law Institute and American Bar Association (July, 1961). See, also, cases cited in Wolverine Insurance Company v. Phillips (D.C. 1958), 165 F.Supp. 335, 345, and Beeghly v. Wilson (D.C.1957), 152 F.Supp. 726, 734. In the present case, as heretofore noted, the plaintiff as against Allena asserts priority under the priority statute. Allena, in the first instance, asserts priority over the plaintiff by virtue of its statutory landlord's lien.

Article 5238, Vernon's Civil Statutes of Texas, provides, in part:

"All persons leasing or renting any residence, storehouse or other building, shall have a preference lien upon all property of the tenant * * * for the payment of rents due and to become due * * *."

The rent owing from Menier to Allena at the time the levy was made under the plaintiff's attachment was for the months of May, June, and July, 1962. Allena did not at any time prior to the levy of the attachment take possession of any of the Menier merchandise or take any other steps to enforce its statutory lien. Allena cites the cases of In re Cardwell (D.C. Texas 1931), 52 F.2d 158; In re Allen (D.C.Texas 1950), 92 F.Supp. 717; and Shwiff v. City of Dallas (Tex.Civ.App. 1959), 327 S.W.2d 598, as bearing upon its statutory lien. In the case of In re Cardwell, supra, the Court stated (52 F.2d p. 159):

"Article 5238, Revised Statutes of Texas, gives a landlord a preference lien upon the property of the tenant for the payment of rents due and to become due. This lien is fixed by the statutes and is independent of any levy or compulsory proceedings, Marsalis v. Pitman, 68 Tex. 624, 5 S.W. 404; Livingston v. Wright, 68 Tex. 706, 5 S.W. 407, * * *."

In the case of In re Allen, supra, the Court stated (92 F.Supp. p. 721):

"* * * Article 5238 * * * gives landlords a preference lien, as distinguished from the laws of some of the other States which give landlords only a right to fix or acquire such a lien. * * *"

In the case of Shwiff v. City of Dallas, supra, the Court stated (327 S.W.2d p. 601):

"Art. 5238, V.A.C.S., gives to a landlord a lien on property of the tenant located in a leased building. All other claimants of interest in the tenant's property are held to have constructive notice of this statutory lien in behalf of the landlord. Lehman v. Stone, 4 Willson Civ.Cas.Ct. App. § 121, 16 S.W. 784; Stoma v. Filgo, Tex.Civ.App., 26 S.W.2d 1100; 27 Tex.Jur. 170. * * *"

In the present case there is first presented the situation of a state statutory lien being in competition with a claim of the United States based upon the priority statute. That same situation was presented to the United States Supreme Court in the case of United States v. Waddill, Holland & Flinn, Inc. (1945), 323 U.S. 353, 65 S.Ct. 304, 89 L.Ed. 294, where the contest was between a claim of the United States based on the priority statute and a Virginia statutory landlord's lien in the distribution of the property of a debtor who had made an assignment for the benefit of creditors. The Court upheld the priority claim of the...