Source: http://www.chanrobles.com/usa/us_supremecourt/440/715/case.php
Timestamp: 2019-07-22 02:28:55
Document Index: 481308811

Matched Legal Cases: ['§ 67', '§ 1921', '§ 1921', '§ 1802', '§ 9', '§ 6321', '§ 636', '§ 120', '§ 1833', '§ 6323', '§ 9312', '§ 1921', '§ 631', '§ 1921', '§ 1941', '§ 6323', '§ 6323', '§ 6323', '§ 6323']

In 1968, O.K. Super Markets borrowed $27,000 from chanroblesvirtualawlibrary
Shortly before Kimbell filed suit, O.K. Super Markets had defaulted on the SBA-guaranteed loan. Republic assigned its security interest to the SBA in late December, 1970, and recorded the assignment with Texas authorities on January 21, 1971. The United States then honored its guarantee and paid chanroblesvirtualawlibrary
Kimbell thereafter brought the instant action to foreclose on its lien, claiming that its security interest in the escrow fund was superior to the SBA's. [Footnote 5] The District Court held for the Government. On determining that federal law controlled the controversy, the court applied principles developed by this Court to afford federal statutory tax liens special priority over state and private liens where the governing statute does not specify priorities. Kimbell Foods, Inc. v. Republic Nat. Bank of Dallas, 401 F.Supp. 316, 321-322 (ND Tex.1975). See, e.g., United States v. Security Trust & Sav. Bank, 340 U. S. 47 (1950); United States v. Pioneer American Ins. Co., 374 U. S. 84 (1963). [Footnote 6] Under these rules, the lien "first in time" is "first in right." [Footnote 7] However, to be chanroblesvirtualawlibrary
Because Kimbell did not reduce its lien to judgment until February, 1972, and the federal lien had been created either in 1969, when Republic filed its financing statement, or in 1971, when Republic recorded its assignment, the District chanroblesvirtualawlibrary
The Court of Appeals then considered which lien qualified as first perfected. Disagreeing with the District Court, the court determined that, under Texas law, the 1968 security agreements covered Kimbell's future advances, and that the liens securing those advances dated from the filing of the security agreements before the federal lien arose. Id. at 491 198, 503. But the Court of Appeals did not adopt Texas law. Rather, it proceeded to decide whether the future advances should receive the same treatment under federal common chanroblesvirtualawlibrary
At issue in No. 77-1644 is whether a federal contractual security interest in a tractor is superior to a subsequent repairman's lien in the same property. From 1970 to 1972, Ralph Bridges obtained several loans from the Farmers Home Administration (FHA), under the Consolidated Farmers Home Administration Act of 1961. [Footnote 11] Like the Small Business Act, this statute does not establish rules of priority. To secure the FHA loans, the agency obtained a security interest in Bridges' crops and farm equipment, which it perfected by filing a standard FHA financing statement with Georgia officials on February 2, 1972. Bridges subsequently took his tractor to respondent Crittenden for repairs on numerous occasions, accumulating unpaid repair bills of over $1,600. On December 21, 1973, Bridges again had respondent repair the tractor, at a cost of $543.81. When Bridges could not pay the balance of $2,151.28, respondent retained the tractor and acquired a lien therein under Georgia law. Ga.Code § 67-2003 (1978). chanroblesvirtualawlibrary
563 F.2d 678, 680-681 (CA5 1977) (footnotes omitted). See Clearfield Trust Co. v. United States, 318 U. S. 363 (1943). In fashioning a federal rule for assessing the sufficiency of the FHA's financing statement, the court elected to follow the Model UCC, rather than to incorporate Georgia law. 563 F.2d 681-682. And it determined that the description of the collateral was adequate under the Model UCC to perfect the FHA's security interest. Id. at 682-683.
The Court of Appeals then addressed the priority question, and concluded that neither state law nor the first-in-time, first-in-right and choateness doctrines were appropriate to resolve the conflicting claims. Id. at 683-689. In their place, the court devised a special "federal commercial law rule," using chanroblesvirtualawlibrary
the Model UCC and the Tax Lien Act of 1966 as guides. Id. at 679, 688-690. [Footnote 14] This rule would give priority to repairman' liens over the Government' previously perfected consensual security interests when the repairman continuously possesses the property from the time his lien arises. Id. at 690-691. [Footnote 15] Applying its rule, the Court of Appeals concluded that Crittenden's lien for only the final $543.81 repair bill took precedence over the FHA's security interest. Id. at 692. [Footnote 16] chanroblesvirtualawlibrary
Guided by these principles, we think it clear that the priority of liens stemming from federal lending programs must be determined with reference to federal law. The SBA and FHA unquestionably perform federal functions within the meaning of Clearfield. Since the agencies derive their authority to effectuate loan transactions from specific Acts of Congress passed in the exercise of a "constitutional function or power," Clearfield Trust Co. v. United States, supra at 318 U. S. 366, their rights, as well, should derive from a federal source. [Footnote 17] When chanroblesvirtualawlibrary
Controversies directly affecting the operations of federal programs, although governed by federal law, do not inevitably chanroblesvirtualawlibrary
United States v. Standard Oil Co., 332 U. S. 301, 332 U. S. 310 (1947). [Footnote 21] Undoubtedly, federal programs that, "by their nature, are and must be uniform in character throughout the Nation" necessitate formulation of controlling federal rules. United States v. Yazell, 382 U. S. 341, 382 U. S. 354 (1966); see Clearfield Trust Co. v. United States, supra at 318 U. S. 367; United Sates v. Standard Oil Co., supra, at 332 U. S. 311; Illinois v. Milwaukee, 406 U. S. 91, 406 U. S. 105 n. 6 (1972). Conversely, when there is little need for a nationally uniform body of law, state law may be incorporated as the federal rule of decision. [Footnote 22] Apart from considerations of uniformity, we must also determine whether application of state law would frustrate specific objectives of the federal programs. If so, we must fashion special rules solicitous of those federal interests. [Footnote 23] Finally, our choice of chanroblesvirtualawlibrary
Incorporating state law to determine the rights of the United States as against private creditors would in no way hinder administration of the SBA and FHA loan programs. In United States v. Yazell, supra, this Court rejected the argument, similar to the Government's here, that a need for uniformity precluded application of state coverture rules to an SBA loan contract. Because SBA operations were "specifically and in great detail adapted to state law," 382 U.S. at 382 U. S. 357, the federal interest in supplanting "important chanroblesvirtualawlibrary
Although the SBA Financial Assistance Manual on which this Court relied in Yazell is no longer "replete with admonitions to follow state law carefully," id. at 382 U. S. 357 n. 35, SBA employees are still instructed to, and indeed do, follow state law. [Footnote 25] In fact, a fair reading of the SBA Financial Assistance Manual, SOP 510 (SBA Manual), indicates that the agency assumes its security interests are controlled to a large extent by the commercial law of each State. [Footnote 26] Similarly, FHA regulations chanroblesvirtualawlibrary
exspressly incorporate state law. They mandate compliance with state procedures for perfecting and maintaining valid security interests, and highlight those rules that differ from State to State. E.g., 7 CFR §§ 1921.104(c)(1), 1921.105, 1921.106, 1921.107, 1921.10, 1921.111, 1930.5, 1930.8, 1930.9, 1930.14, 1930.17, 1930.27 (1978). [Footnote 27] To ensure that employees are aware of new developments, the FHA also issues "State supplements" to "reflect any State statutory changes in its version of the UCC." § 1921.111(c); see, e.g., §§ 1802.80, 1904.108(d), 1930.46(d)(3). Contrary to the Government's claim that the FHA complies only with state procedural rules, Reply Brief for United States in No 77-1644, p. 7, the agency's reliance on state law extends to substantive requirements as well. Indeed, applicable regulations chanroblesvirtualawlibrary
Nevertheless, the Government maintains that requiring the agencies to assess security arrangements under local law would dictate close scrutiny of each transaction, and thereby impede expeditious processing of loans. We disagree. Choosing responsible debtors necessarily requires individualized selection procedures, which the agencies have already implemented in considerable detail. Each applicant's financial condition is evaluated under rigorous standards in a lengthy process. [Footnote 30] Agency employees negotiate personally with borrowers, investigate property offered as collateral for encumbrances, and chanroblesvirtualawlibrary
That collection of taxes is vital to the functioning, indeed existence, of government cannot be denied. 17 U. S. 425, 428, 17 U. S. 431 (1819); Springer v. United States,@ 102 U. S. 586, 102 U. S. 594 (1881). Congress recognized as much over 100 years ago when it authorized creation of federal tax liens. Act of July 13, 1866, ch. 184, § 9, 14 Stat. 107, recodified as amended in 26 U.S.C. §§ 6321-6323. The importance of securing adequate revenues to discharge national obligations justifies the extraordinary priority accorded federal tax liens through the choateness and first-in-time doctrines. By contrast, when the United States operates as a money-lending institution under carefully circumscribed programs, its interest in recouping the limited sums advanced is of a different order. Thus, there is less need here than in the tax lien area to invoke protective measures against defaulting debtors in a manner disruptive of existing credit markets.
To equate tax liens with these consensual liens also misperceives the principal congressional concerns underlying the respective statutes. The overriding purpose of the tax lien chanroblesvirtualawlibrary
The Government's ability to safeguard its interests in commercial dealings further reveals that the rules developed in the tax lien area are unnecessary here, and that state priority rules would not conflict with federal lending objectives. [Footnote 37] chanroblesvirtualawlibrary
The United States is an involuntary creditor of delinquent taxpayers, unable to control the factors that make tax collection likely. In contrast, when the United States acts as a lender or guarantor, it does so voluntarily, with detailed knowledge of the borrower's financial status. The agencies evaluate the risks associated with each loan, examine the interests of other creditors, choose the security believed necessary to assure repayment, and set the terms of every agreement. [Footnote 38] By carefully selecting loan recipients and tailoring each transaction with state law in mind, the agencies are fully capable of establishing terms that will secure repayment. [Footnote 39] chanroblesvirtualawlibrary
The Government nonetheless argues that its opportunity to evaluate the credit worthiness of loan applicants provides minimal safety. Because the SBA and FHA make loans only when private lenders will not, the United States believes that its security interests demand greater protection than ordinary commercial arrangements. We find this argument unconvincing. The lending agencies do not indiscriminately distribute public funds and hope that reimbursement will follow. SBA loans must be "of such sound value or so secured as reasonably to assure repayment." 15 U.S.C. § 636(a) (7); see 13 CFR § 120.2(c)(1) (1978). The FHA operates under a similar restriction. 7 CFR § 1833.35 (1978). Both agencies have promulgated exhaustive instructions to ensure that loan recipients are financially reliable and to prevent improvident loans. [Footnote 40] The Government therefore is in substantially the same position as private lenders, and the special status it seeks is unnecessary to safeguard the public fisc. Moreover, Congress' admonitions to extend loans judiciously supports the view that it did not intend to confer special privileges on agencies that enter the commercial field. Accordingly, we agree with the Court of Appeals in No. 77-1359 that, "[a]s a quasi-commercial lender, [the Government] does not require . . . chanroblesvirtualawlibrary
the special priority which it compels as sovereign" in its tax-collecting capacity. 557 F.2d 500.
The Federal Tax Lien Act of 1966, 80 Stat. 1125, as amended, 26 U.S.C. § 6323, provides further evidence that treating the United States like any other lender would not undermine federal interests. These amendments modified the Federal Government's preferred position under the choateness and first-in-time doctrines, and recognized the priority of many state claims over federal tax liens. [Footnote 41] In enacting this legislation, Congress sought to "improv[e] the status of private secured creditors" and prevent impairment of commercial financing transactions by "moderniz[ing] . . . the relationship of Federal tax liens to the interests of other creditors." S.Rep. No. 1708, 89th Cong., 2d Sess., 1-2 (1966); see also H.R.Rep. No. 1884, 89th Cong., 2d Sess., 35 (1966). This rationale has even greater force when the Government acts as a moneylender. We do not suggest that Congress' actions in the tax lien area control our choice of law in the commercial lien context. But in fashioning federal principles to govern areas left open by Congress, our function is to effectuate congressional policy. E.g., RFC v. Beaver Count, 328 U. S. 204, 328 U. S. 209-210 (1946). To ignore Congress' disapproval of unrestricted federal priority in an area as important to the Nation's stability as taxation would be inconsistent with this function. Thus, without a showing that application of state laws would impair federal operations, we decline to extend to new contexts extraordinary safeguards largely rejected by Congress. chanroblesvirtualawlibrary
Because the ultimate consequences of altering settled commercial practices are so difficult to foresee, [Footnote 43] we hesitate to chanroblesvirtualawlibrary
This well accepted common law principle for resolving lien priority disputes, see 25 U. S. 179 (1827); United States v. New Britain, 347 U. S. 81, 347 U. S. 85-86 (1954), also underlies the Uniform Commercial Code's priority structure. [email protected] Uniform Commercial Code § 9312(5), 3 U.L.A. 85 (1979 pamphlet) (hereinafter Model UCC); J. White & R. Summers, Uniform Commercial Code 905 (1972).
In so holding, the Court of Appeals refused to formulate a federal doctrine of general applicability, "leav[ing] for another day" questions involving the priority of other nonfederal liens, such as state tax and mechanic's liens. 557 F.2d 503 n. 15.
The court found it unnecessary to determine whether the same result would obtain under Georgia's Commercial Code. 563 F.2d 688 n. 17, 689.
The Court of Appeals in No. 77-1644 believed that a uniform federal law was necessary to determine the sufficiency of the FHA's financing statement in part because the agency uses standard forms with preprinted descriptions of collateral commonly taken as security. 563 F.2d 682. However, the form also has a blank space for listing specific property. See App. in No. 77-1644, p. 12 (Form FHA 440-25). And the FHA regulations advise that individual descriptions be made, specifically when "major items of equipment" are involved. 7 CFR §§ 1921.105(e)(1), (2) (1978). Since the standard FHA forms leave spaces for recording the details of each loan, the agency can take account of local law without altering these materials. See, e.g., App. in No. 77-1644, p. 8 (Form FHA 4404).
Congress did not delineate specific priority rules in either the tax lien statute prior to 1966, the insolvency statute, or the statutes authorizing these lending programs. See nn. 6 and < a>| 6 and < a>S. 715fn8|>8, supra. Accordingly, the Government urges that we establish identical priority rules for all three situations. This argument overlooks the evident distinction between lending programs for needy farmers and businesses and statutes created to guarantee receipt of debts due the United States. We, of course, express no view on the proper priority rules to govern federal consensual liens in the context of statutes other than those at issue here.
See nn. 3 and < a>| 3 and < a>S. 715fn11|>11, supra; 15 U.S.C. § 631 (1976 ed. and Supp. III) (declaration of policy); 7 U.S.C. § 1921 (congressional findings); 43 Fed.Reg. 55883 (1978) (to be codified in 7 CFR § 1941.2); S.Rep. No. 566, 87th Cong., 1st Sess., 1, 64 (1961); Hearings on H.R. 4384 before the House Committee on Agriculture, 78th Cong., 2d Sess., 435 (1944).
See nn. 6 and < a>| 6 and < a>S. 715fn8|>8, supra. Of particular relevance here, the Act added mechanic's liens to the list of private interests already protected against unrecorded tax liens. 26 U.S.C. § 6323(a). Holders of consensual security interests also receive priority over unrecorded tax liens. Ibid. Moreover, the Act gives priority to many types of nonfederal liens even when the Government has filed notice of the tax lien. § 6323(b). Included in this group are repairman's liens in personal property, § 6323(b)(5), see 6 and < a>S. 715fn14|>n. 14, supra, and in limited situations, liens securing future advances. § 6323(c).
For example, the decision below in No. 77-1359 noted that priority rules favoring the Government could inhibit private lenders' extension of credit to the very people for whom Congress created these programs. 557 F.2d 500. See MacLachlan, Improving the Law of Federal Lien and Priorities, 1 B.C.Ind. and Com.L.Rev. 73, 74-76 (1959).