Court Opinion

ID: 3613692
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:57:20.212332+00
Date Added: 2024-06-11T14:24:28.353954
License: Public Domain

I agree with Judge CONWAY'S opinion except that I think the State, for its unpaid income taxes, is entitled to priority over the New York Trust Company. It is undisputable that the State of New York, as a sovereign, has a common-law right of priority, with respect to the payment of taxes, over all other creditors of the taxpayer except the United States (Matter of Smith v.Meader Pen Corp., 255 App. Div. 397, 399, affd. 280 N.Y. 554;N.Y. Terminal Co. v. Gaus, 204 N.Y. 512; Central Trust Co.
v. N.Y.C.  N.R.R. Co., 110 N.Y. 250, 259; Matter of CenturySteel Co. of America, 17 F.2d 78; Matter of Lincoln Chair Novelty Co., 274 N.Y. 353, 356; Matter of Carnegie TrustCompany, 206 N.Y. 390, 399). This prerogative right of the State does not depend on statutes and so we do not have to examine into the difference between, for instance, section 219-c of the Tax Law (as to franchise taxes) and section 377 of that Law (with respect to income taxes). Nor can the State be defeated by reference to section 380 of the Tax Law, which provides for the filing of a warrant, etc.
Even if it be the law that this sovereign right of the State must give way to a perfected lien of another creditor, I do not see how the trust company's lien can be considered to have been perfected as against the State of New York any more than against the United States of America. Both the trust company and the State came into the Surrogate's Court to assert their alleged priorities to payment out of a fund which was in the hands of the administrator of the debtor's estate. Neither the State nor the trust company had reduced the property to possession, and no part of the property had been set off to either. The trust company had no "specific prior lien", by attachment, execution or otherwise (see Wise v. Wise Company, 153 N.Y. 507, 511). Even if the trust company's equitable lien could be considered to have been "perfected" when the proceeds of the sale of the seat became available, that time was subsequent to the accrual of the State's tax claim. Thus we had an insolvency *Page 527 
proceeding with a claim filed by the trust company, as holder of an inchoate lien, and another claim filed by the State of New York for past due income taxes. I do not see anything in all that to defeat the State's undoubted sovereign right to priority over all creditors (except the United States, which has its own special, and paramount, statutory right to first payment).
LOUGHRAN, Ch. J., LEWIS and THACHER, JJ., concur with CONWAY, J.; DESMOND, J., dissents in part in memorandum; DYE and FULD, JJ., taking no part.
Ordered accordingly.