Court Opinion

ID: 9859106
Source: CourtListenerOpinion
Date Created: 2023-09-24 18:42:02.737813+00
Date Added: 2024-06-11T10:06:13.561185
License: Public Domain

REES, Justice
(dissenting).
I cannot agree with the conclusions reached by the majority and respectfully dissent.
I. The issue on which this appeal rests is the nature and character of the insurance proceeds as property. If the proceeds are property acquired after the attachment of the liens (that is, on the date of the fire which destroyed the building) the federal law primes the simultaneously attached state lien. United States v. New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954). If the liens survive the conversion of form of the property, the date of the attachment of the liens to the original property would be determinative, and the State’s lien, being first in time, would also be first in right. United States v. Vermont, 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370 (1964).
II. The statutes involved here are, as the majority asserts, 26 U.S.C. § 6321 and § 422.26, The Code (Iowa) 1973.
The United States Department of Revenue concedes that the extent and nature of the taxpayer’s interest in property is determined by reference to state law. Aquilino v. United States, 363 U.S. 509, 514, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960); United States v. Durham Lumber Co., 363 U.S. 522, 80 S.Ct. 1282, 4 L.Ed.2d 1371 (1960); United States v. Hunt, 513 F.2d 129 (10th Cir. 1975).
The law respecting insurance clearly addresses the issue of the right of a mortgagee to proceeds of a policy obtained by and for the benefit of the mortgagor, who has no obligation to insure. The proceeds are not subject to the mortgage, and the mortgagee must secure his debt through judicial proceedings. See 46 C.J.S. Insurance § 1140 at 19, and see cases collected in the Annotation at 9 A.L.R.2d 299. This doctrine has developed from situations in which the creditor has a mortgage or lien on a certain item of property. In the instant case, the situation may not be analogous in that the tax liens attached to all property of the taxpayer, including property acquired subsequent to the filing of the lien. Tax liens are super-priority liens which prime the liens of all unperfected creditors.
III.I am persuaded the tax liens are more analogous to perfected security interests under the Uniform Commercial Code than to the interests of mortgagees or lien creditors on specific property. The provisions of § 554.9306, The Code (Iowa) allows a secured party to continue a security interest in insurance proceeds. The date of perfection of the interest in the proceeds is the date of perfection of the interest in the collateral. The proceeds are collateral under the Uniform Commercial Code, not after-acquired property. See U.C.C. 9-306(1); 68 Am. Jur. 2d, Secured Transactions § 186 at 1044.
Even prior to the adoption of the Uniform Commercial Code, a conversion of property might permit the lien to attach to proceeds. “Unless there is an agreement to the contrary, it [a lien] sometimes attaches to money or other property into which such property has been changed , or converted, provided it is ascertainable.” 53 C.J.S. Liens § 7 at 852. See Application of Diaz, 192 Misc. 212, 80 N.Y.S.2d 504, 506 (1948), where the court said:
“(A)n award made in a condemnation proceeding is deemed personal property into which real property taken has been converted by operation of law (citations), and is subject to attachment.
“ ‘The general rule is that a lien upon property attaches to whatever the property is converted into, and is not destroyed by changing thé nature _of the subject * * * it follows its subject, *631and cannot be shaken off by a change of form or substance. It clings to any property or money into which the subject can be traced * * *(citation).”
There is still another context wherein, under the law of this jurisdiction, I find insurance proceeds take the place of insured property. The exemption from execution survives the destruction of exempt property, and continues for a reasonable time in the proceeds of an insurance policy. Reynolds, et al. v. Haines, 83 Iowa 342, 49 N.W. 851 (1891).
I also note that in United States v. Bess, 357 U.S. 51, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958), the federal government advanced a surviving lien theory in argument, and the United States Supreme Court accepted the government’s position that a tax lien continued through the conversion of a life insurance policy with cash surrender value to proceeds after taxpayer’s death. The court held that taxpayer had the right to enjoy the cash surrender value of the policy during his life, thus subjecting it to the federal tax lien. After the death of the taxpayer the beneficiary argued that the property right was extinguished. The Supreme Court found that the portion of the proceeds equal to the cash surrender value at the taxpayer’s death remained subject to the federal tax lien, even though it was converted from a contractual interest to the policy proceeds.
IV. In this case the insured (Gerhart) had a right to enjoy the property, to sell it, or to borrow against it. He had no duty to insure it, just as the taxpayer in Bess, supra, had no duty to insure his life. The insured protected his property by purchasing insurance with loss payable to the mortgagee in the event of its destruction in keeping with a standard mortgage clause appended to the policy.
I would hold that the tax liens survived the involuntary conversion of Gerhart’s property from a building and contents and attached to the identifiable insurance proceeds. In my judgment the trial court properly found the tax lien of the Department of Revenue of the State of Iowa was prior to the lien of the Internal Revenue Department of the United States in the proceeds of the insurance from the fire loss of the building insured.
I would affirm the trial court.
MOORE, C. J., and UHLENHOPP and HARRIS, JJ., join this dissent.