United States v. Waddill

Decision Date24 January 1944
Citation28 S.E.2d 741,182 Va. 351
CourtVirginia Supreme Court
PartiesUNITED STATES et al. v. WADDILL, HOLLAND & FLINN, Inc., et al.

Appeal from Corporation Court of Danville; Henry C. Leigh, Judge.

Oeland R. Roman delivered to Earle Garrett, as trustee, a deed of assignment for benefit of assignor's creditors. Thereafter Waddill, Holland & Flinn, Incorporated, levied a distress warrant on the assignor's personal property, and on the same day levied an attachment on the same personal property. Thereafter the collector of taxes for the city of Danville, distrained personal property on the premises for personal property taxes assessed thereon. The trustees sold the property and filed a bill in chancery asking the guidance of the court in determining the priority of payment of the several claims. From a decree, the United States appeals, and. the Virginia Unemployment Compensation Commission assigns cross-error.

Affirmed.

Before CAMPBELL, C. J, and HUDGINS, GREGORY, BROWNING, EGGLESTON, and SPRATLEY, JJ.

F. S. Tavenner, Jr., of Woodstock, and Henry T. Clement, of Chatham, for appellant.

Crews & Clement and E. Walton Brown, all of Danville, and Abram P. Staples, Atty. Gen, and Kenneth C. Patty, Asst. Atty. Gen, for appellees.

EGGLESTON, Justice.

On June 19, 1941, Oeland R. Roman, who operated a restaurant in the city of Danville, executed and delivered to Earle Garrett, as trustee, a deed of assignment for the benefit of the assignor's creditors. The deed conveyed to the trustee all of the personal property and fixtures which had been used by the assignor in the conduct of the business and which were then located on the premises. It authorized the trustee to sell such personal property and out of the proceeds thereof to "pay as preferred claims such creditors as are given a lien or preference by law, or those having a valid lien upon the property conveyed or some part thereof".

On July 1, 1941, Waddill, Holland & Flinn, Incorporated, the owner of the premises which had been occupied by the assignor, under a written lease for a five-year term, commencing January 1, 1937, and reserving a rental of $250 per month, levied a distress warrant on the assignor's personal property on the premises for accrued rent of $850 for three and two-fifths months. On the same day it levied an attachment on the same personal property for future instalments of rent for two and three-fifths months in the sum of $650.

On July 2, 1941, the Collector of Taxes for the city of Danville distrained the personal property on the premises for personal property taxes assessed thereon for the years 1939, 1940, and 1941, amounting in all to the sum of $222.31.

No sale was held under the distress warrant, attachment, or distraint for taxes, but pursuant to the terms of the deed of trust, the trustee sold the property of the assignor for the sum of $1,680.80, which is conceded to have been the fair value thereof. He then filed in the court below a bill in chancery asking the guidance of the court in determining the priority of payment of the following claims filed with him:

(1) The city of Danville, for the stated taxes due, in the sum of $222.31;

(2) Waddill, Holland & Flinn, Incorporated, for six months' rent due and to become due, amounting to $1,500;

(3) The United States, for debts due it by the assignor, amounting to $1,559.63, with interest;

(4) The Virginia Unemployment Compensation Commission, for unemployment compensation taxes due it by the assignor, in the sum of $66.38.

The lower court held that the creditors mentioned were entitled to priority in the order listed, and from a decree distributing the fund in that manner, the United States has appealed. It claims that it is entitled to priority of payment of its claim before those of any of the creditors mentioned.

The Virginia Unemployment Compensation Commission assigns cross-error. While it admits that its claim is subordinate to that of the United States, it contends that it should be paid ahead of the city of Danville and Waddill, Holland & Flinn, Incorporated.

Waddill, Holland & Flinn, Incorporated, has filed no cross-assignment of error to the action of the court in subordinating its claim to that of the city of Danville. Hence, the main question before us is whether the lower court was correct in holding that the rent claim of $1,500 was entitled to priority over that of the United States. If that holding is correct, then, admittedly, after the allowance of reasonable costs of administration, the fund will be exhausted. In that case neither the United States nor the Virginia Unemployment Compensation Commission will be interested in the relative priority of the claims of the city of Danville and those of the landlord.

The basis for the contention of the United States is section 3466 of the Revised Statutes, 31 U.S.C.A. § 191, which is copied in the margin.1

It is settled that this statute creates no lien upon the debtor's property in favor of the United States. It merely confers upon the Government a right of pri-ority of payment out of such property in the hands of the debtor's assignees, or their representatives, under the conditions specified in the statute. United States v. State of Oklahoma, 261 U.S. 253, 259, 43 S.Ct. 295, 67 L.Ed. 638.

The right of the United States, if any, to priority, became fixed at the date of the delivery of the deed of assignment. United States v. State of Oklahoma, supra. Thereafter none of the other creditors could obtain preference over the United States. If not preferred at that time, their claims are subordinate to those of the Government. People of State of New York v. Maclay, 288 U.S. 290, 292, 53 S. Ct. 323, 324, 77 L.Ed. 754. Hence, the rights of the landlord and the city of Danville must be determined irrespective of the attachment and distraint levied on the debtor's property after the delivery of the deed of assignment.

The landlord does not dispute this principle, but contends that before the right of priority of the United States accrued under U.S.Rev.Stat. § 3466, by the delivery of the deed of assignment, it (the landlord), by virtue of Virginia Code, § 5524, as amended, had acquired a fixed and specific lien upon the property located on the premises for six months' rent, and that, therefore, its claim is superior to that of the Government.

There are expressions in recent opinions of the Supreme Court, the final arbiter in the interpretation of an Act of Congress, which support the view that the rights of a creditor who holds a "specific perfected lien" on the property of an insolvent, at the time the rights of the Government attach, under Rev.Stat. § 3466, are superior to those of the Government.

In United States v. Knott, 298 U.S. 544, 549, 550, 56 S.Ct. 902, 905, 80 L.Ed. 1321, 104 A.L.R. 741, speaking through Mr. Justice Brandeis, the court said: "* * * But it is settled that an inchoate lien is not enough to defeat the priority. United States v. [State of] Oklahoma, 261 U.S. 253, 43 S.Ct. 295, 67 L.Ed. 638; 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. Unless the law of Florida effected, at least as early as the date of insolvency, either a transfer of title from the company, or a specific perfected lien in favor of the Florida creditors, the United States is entitled to priority." (Italics supplied.)

In that case it was held (298 U.S. at pages 550, 551, 56 S.Ct. at page 905, 80 L. Ed. 1321, 104 A.L.R. 741) that the deposit by a foreign surety company of securities with the State Treasurer, as a condition precedent to its right to do business in the State of Florida, while creating a "trust fund" for the benefit of Florida creditors, constituted "an inchoate general lien" for such purpose, and lacked "the characteristics of a specific perfected lien which alone bars the priority of the United States." See, also, United States v. State of Texas, 314 U.S. 480, 62 S.Ct. 350, 86 L.Ed. 356.

It is true, as argued by the Government, that the Supreme Court has reserved the question as to whether the holder of a specific and perfected lien, without a "change of title or possession, " is entitled to priority over the United States Government in the distribution of the estate of an insolvent. See People of the State of New York v. Maclay, supra, 288 U.S. at pages 293, 294, 53 S.Ct. at page 324, 77 L.Ed. 754; United States v. Texas, supra, 314 U.S. at page 488, 62 S.Ct. at page 354, 86 L.Ed. 356.

However, it seems to us that if before the Government's right of priority attaches, a creditor acquires a specific and perfected lien on the property of the insolvent debtor, the estate of the latter is, for all practical purposes, diminished to the extent of the claim secured by such lien, and the Government's right attaches only to the residue. See Brent v. Bank of Washington, 10 Pet. 596, 611, 9 L.Ed. 547.

In Ernst, Director, v. Guarantee Millwork, Inc., 200 Wash. 195, 93 P.2d 404, it was held that where the statute gave the county a "specific lien" on personal property for taxes assessed thereon, such claim was prior to the claim of the United States when the taxpayer thereafter became insolvent.

In Spokane County v. United States, supra, 279 U.S. at page 94, 49 S.Ct. at page 325, 73 L.Ed. 621, Mr. Chief Justice Taft said that whether the lien of State taxes on property of the taxpayer was "specific", is properly "a State question." See, also, United States v. Knott, supra, 298 U.S. at page 548, 56 S.Ct. at page 904, 80 L.Ed. 1321, 104 A.L.R. 741.

The main question for decision, then, is whether, under the law of Virginia, the landlord is given a specific and perfected lien for six months' rent accrued and to accrue, or whether he is given an inchoate lien which becomes specific and perfected only after the levy of a distress warrant or attachment.

At common law the landlord had no lien upon any property of his tenant as...

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8 cases
  • United States v. Waddill, Holland Flinn
    • United States
    • United States Supreme Court
    • January 2, 1945
    ...the sum of $222.31. On appeal by the United States, the Supreme Court of Appeals of Virginia affirmed this order of distribution. 182 Va. 351, 28 S.E.2d 741. We granted certiorari because of the importance of the problems raised and because of asserted conflict with this Court's decisions i......
  • United States v. Melchiorre, Civ. A. No. 5431.
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    • August 16, 1968
    ...the same as that in United States v. Waddill, Holland, & Flinn, Inc. (1945), 323 U.S. 353, 65 S.Ct. 304, 89 L.Ed. 294 (182 Va. 351, 28 S.E.2d 741). In this case Mrs. Oeland Roman operated a restaurant in Danville, Virginia, on premises leased from defendant landlords Waddill, Holland & Flin......
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    ...government, based upon the lien given him by statute on the goods of the insolvent debtor. The Supreme Court of Virginia, 182 Va. 351, 28 S.E.2d 741, 746, held that the provisions of the statute of that State, referred to, ‘give the landlord a lien which is fixed and specific, and not one w......
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