Court Opinion

ID: 9697042
Source: CourtListenerOpinion
Date Created: 2023-08-25 19:04:31.84318+00
Date Added: 2024-06-11T18:20:28.759769
License: Public Domain

MORRIS, Chief Justice
(dissenting).
On July 17, 1953, Martin Hoyer and his wife executed a mortgage on certain lands in favor of the Federal Land Bank of Saint Paul. This mortgage was recorded July 20, 1953, and assigned to the plaintiff, Fischer, on April 29, 1958. The assignment was recorded May 3, 1958. On October 13, 1958, the assignee Fischer paid past due real estate taxes levied against the land.
On April 2, 1954, the United States filed in the office of the register of deeds of the county wherein the land was situated a federal tax lien pursuant to the provisions of Sections 6321, 6322, and 6323(a), Title 26, U.S.C., based upon the assessment of federal taxes against the landowner and mortgagor, Martin Hoyer.
Subsequent to the recording of the federal lien, taxes were levied pursuant to the laws of the State of North Dakota, which remained a lien on the land until they were paid by Fischer on October 13, 1958. Section 57-02-40, NDCC, provides that:
“Taxes upon real property are a perpetual paramount lien thereon against all persons, except the United States and this state.”
Section 35-01-07, NDCC, provides that:
“When the holder of a special lien is compelled to satisfy a prior lien for his own protection, he may enforce payment of the amount so paid by him as a part of the claim for which his own lien exists.”
The mortgage in question contained a provision that in event the mortgager failed to pay lawful taxes when due, the mortgagee might make the payment and the amount thereof would become a part of the indebtedness secured by the mortgage. The right vested in the mortgagee by the statute and by the provision in the mortgage is in accord with the general rule that where the mortgagor neglects to pay taxes that are a paramount lien on the property, the mortgagee may pay them and add them to the principal as a part of the sum secured by the mortgage. 59 C.J.S. Mortgages § 178e; 36 Am.Jur., Mortgages, Sections 341, 342. The reason for the rule is that the taxes being a paramount lien, the protection of the security by the payment of taxes benefits not only the mortgagee but also the mortgagor who owns the property and has a right of redemption and junior lienholders who also rely upon the property as security for their liens. In 36 *796Am.Jur., Mortgages, Section 346, it is said:
“Some authorities even uphold the view that the junior mortgagee is entitled to reimbursement in such case in preference to the claim of the senior mortgagee. Other authorities hold that the junior mortgagee, by paying taxes on the mortgaged premises, acquires a lien of the same rank and dignity as that of his mortgage lien.”
In the case before us, the taxes levied by state authority which were paid by the mortgagee were subject and inferior to the tax lien of the United States. As against the United States they never became a paramount lien. The majority opinion holds that when the mortgagee paid the state taxes, the lien therefor was extinguished and the amount so paid became a part of the principal debt secured by the mortgage and was therefore a part of the prior mortgage lien and as such became superior to the federal lien. I cannot agree with that conclusion.
At the time the United States acquired its superior tax lien, the mortgage was for a definite amount and if we consider interest, it secured an amount that could be calculated to any certain date pursuant to the terms of the mortgage. While it is true that the mortgagee had the right to pay past due taxes which could as against the mortgagor and inferior lienholders be added to the principal debt, this right permitted the addition of an amount that was uncertain, indefinite and impossible of calculation or determination under the terms of the mortgage. Valuations of property and tax levies to which they are applied vary from year to year. The mortgagee’s right was to pay and add to the principal of the mortgage debt such amount or amounts as might result in the various years from the application of the taxing process. At the time the lien of the United States was filed the taxes involved in this controversy were not determinable. All that then existed was a right to tax in an indefinite amount which would be determined from year to year. Insofar as such amounts might be paid by the mortgagee under the terms of the mortgage they were inconsummate as against the mortgagor and as a lien against the land. In both aspects they were definitely inchoate.
In United States v. Security Trust and Savings Bank, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53, the court held that a federal tax lien was superior to an inchoate attachment lien obtained under California law. In United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520, the court referred to the inchoate attachment lien involved in the Security Trust and Savings Bank case, and said:
“Such inchoate liens may become certain as to amount, identity of the lienor, or the property subject thereto only at some time subsequent to the date the federal liens attach and cannot then be permitted to displace such federal liens. Otherwise, a State could affect the standing of federal liens, contrary to the established doctrine, simply by causing an inchoate lien to attach at some arbitrary time even before the amount of the tax, assessment, etc., is determined.”
Questions similar to the one now before us have been considered by federal and state courts. In United States v. Christensen, 9 Cir., 269 F.2d 624, it is said:
“Payment of state taxes on mortgaged property by a prior mortgagee after federal tax liens are recorded does not give the mortgagee a lien for such local taxes superior to the appellant’s prior tax liens.”
In United States v. Bond, 4 Cir., 279 F.2d 837, the court considered a claim by a mortgagee for reimbursement for real estate taxes paid to the county. These taxes had accrued after federal tax liens had been recorded. It was held that the federal tax liens were superior to the claim of the *797mortgagee for real estate taxes paid to the county. The court states:
“We have derived an indelible impression from the cases (involving determination of priority of federal tax liens over competing liens) decided by the Supreme Court, which reveal the persistent application of the choate lien test, first in insolvency caseSj then in statutory lien cases, and finally in nonstahitory contractual lien cases.”
Among the cases in state courts applying the choate lien test in determining the priority of federal tax liens over state taxes paid by a mortgagee are the following: Metropolitan Life Insurance Co. v. United States, 9 A.D.2d 356, 194 N.Y.S.2d 168, and Union Central Life Insurance Co. v. Peters, 361 Mich. 283, 105 N.W.2d 196.
If the taxes paid by the mortgagee be considered advances under the terms of the mortgage, the mortgage lien to the extent of the sum advanced was not perfected until payment. There was no certainty as to payment or the amount until after the federal lien attached. The rule of priority enunciated by the cases above cited is applicable to advances. American Surety Company of New York v. Sundberg, 58 Wash.2d 337, 363 P.2d 99. It is a rule of the federal courts and should be followed in this case. I would reverse the judgment.
BURKE, J., concurs.