Van Huffel v. Harkelrode, Nos. 54

• Court: United States Supreme Court
• Writing for the Court: BRANDEIS
• Citation: 78 A. L.R. 453,76 L.Ed. 256,284 U.S. 225,52 S.Ct. 115
• Parties: VAN HUFFEL v. HARKELRODE, County Treasurer
• Docket Number: 55,Nos. 54
• Decision Date: 07 December 1931

284 U.S. 225 52 S.Ct. 115 76 L.Ed. 256 VAN HUFFEL

v.

HARKELRODE, County Treasurer.

Nos. 54, 55. Argued Oct. 28, 1931. Decided Dec. 7, 1931.

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Messrs. H. H. Hoppe and Alonzo M. Snyder, both of Cleveland, Ohio, for petitioner.

Messrs. Gilbert Bettman, of Cincinnati, Ohio, and G. H. Birrell, of Warren, Ohio, for respondent.

Mr. Justice BRANDEIS delivered the opinion of the Court.

Van Huffel brought this suit in the court of common pleas of Trumbull county, Ohio, to quiet his title to two parcels of real estate acquired from the purchaser at a sale made by the bankruptcy court for that district. The defendant, the county treasurer, asserts a lien for unpaid state taxes which had accrued prior to the bankruptcy. The sale was made pursuant to an order of the bankruptcy court which directed that all liens be marshaled; that the property be sold free of all incumbrances; and that the rights of all lienholders be transferred to the proceeds of the sale. The trial court entered a decree quieting the title. Its judgment was reversed by the Court of Appeals of the county. The Supreme Court of the state declined to review the case. 177 N. E. 587. This Court granted certiorari. 283 U. S. 817, 51 S. Ct. 649, 75 L. Ed. 1433.

Section 5671 of the Ohio General Code provides: 'The lien of the state for taxes levied for all purposes, in each year, shall attach to all real property subject to such taxes

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on the day preceding the second Monday of April, annually, and continue until such taxes, with any penalties accruing thereon, are paid.' The bankruptcy court, having held two mortgages executed by the bankrupt to be prior in lien to the taxes, applied all of the proceeds of the sale toward the satisfaction of one of them; and left the state taxes unpaid. The treasurer did not by any proceeding in that court question the propriety of such action. Van Huffel admits that the decision of the bankruptcy court was erroneous in denying priority to the taxes, but insists that it is res judicata. The treasurer contends that the judgment of the bankruptcy court authorizing and confirming the sale free from the tax lien is a nullity, because the court was without power to sell property of the bankrupt free from the existing lien for taxes; and also because it did not acquire jurisdiction over the State in that proceeding.

First. The present Bankruptcy Act (July 1, 1898, 30 Stat. 544, c. 541 (11 USCA § 1 et seq.)), unlike the Act of 1867,¹ contains no provision which in terms confers upon bankruptcy courts the power to sell property of the bankrupt free from incumbrances. We think it clear that the power was granted by implication. Like power had long been exercised by federal courts sitting in equity when ordering sales by receives or on foreclosure.² First National Bank v. Shedd, 121 U. S. 74, 87, 7 S. Ct. 807, 30 L. Ed. 877; Mellen v. Moline Malleable Iron Works, 131 U. S. 352, 367, 9 S. Ct. 781, 33 L. Ed. 178. The lower federal courts have consistently held that the bankruptcy court possesses the

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power, stating that it must be implied from the general equity powers of the court and the duty imposed by section 2 of the Bankruptcy Act (11 USCA § 11) to collect, reduce to money and distribute the estates of bankrupts, and to determine controversies with relation thereto.³

No good reason is suggested why liens for state taxes should be deemed to have been excluded from the scope of this general power to sell free from incumbrances. Section 64 of the Bankruptcy Act (11 USCA § 104) grants to the court express authority to determine 'the amount or legality' of any tax. To transfer the lien from the property to the proceeds of its sale is the exercise of a lesser power; and legislation conferring it is obviously constitutional. Realization upon the lien created by the state law must yield to the requirements of bankruptcy administration. Compare International Shoe Co. v. Pinkus, 278 U. S. 261, 49 S. Ct. 108, 73 L. Ed. 318; Isaacs v. Hobbs Tie & Timber Co., 282 U. S. 734, 51 S. Ct. 270, 75 L. Ed. 645; Straton v. New, 283 U. S. 318, 51 S. Ct. 465, 75 L. Ed. 1060. In many of the cases in the lower federal courts the order of sale entered was broad enough to authorize a sale free from tax liens as well as from others;⁴ and in some of them it appears affirmatively that liens for taxes were treated as discharged by the order. ⁵

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No case has been found in which the power to sell free from the lien of state taxes was denied.

Second. The treasurer contends that the order authorizing a sale free from incumbrances was void as against the state for lack of notice and opportunity to be heard. He asserts that he had no knowledge of the ruling of the court determining the priority of the liens; that neither he nor his counsel, the prosecuting attorney, was present at any of the proceedings; and that the notice of the public sale, mailed to him after the order of...