Court Opinion

ID: 9447414
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:34:35.963822+00
Date Added: 2024-06-11T17:31:02.072620
License: Public Domain

HAYNSWORTH, Circuit Judge
(dissenting) .
There are implications in the decisions of the Supreme Court which support the view of my brothers, but I find in those decisions no clear command which governs us here. Since we enter upon a new, judicially-untilled field over which Congress has exercised its right of control, it seems appropriate to consider the meaning of the statute which directs us to prefer prior mortgagees to the United States claiming under a tax lien.1 If the question be not foreclosed by decisions of the Supreme Court, and I think it is not, we should not transplant rules developed for the classification of interests which enjoy no statutory preference into a new field to restrict recognition of the preference of interests that do, unless, of course, there is reason to attribute to Congress an intention that the preferred and unpreferred interests should be classified under the same rules in order to determine their standing in relation - to the tax lien.
When the Supreme Court adopted the rule of “the first in time is the first in right”2 for the purpose of classifying liens competing, without the benefit of a statutory preference, with the tax lien, substantial qualification was essential if the tax lien was not to be emasculated. Among the many liens and priorities recognized by the laws of the states, most were far from the standing of those interests which Congress had selected for preferential treatment. Without substantial qualification of a simple rule of priority in time and a reserved right of federal classification, such interests, created and controlled by the states, would threaten frustration of the tax lien.
A state’s provisional remedies may provide a number of interlocutory liens,, but the possessor of such a lien need not be classified with the judgment creditor whom the statute prefers. The litigant who commences his action by attachment entertains some hope of becoming a judgment creditor, but he may encounter-many a pitfall along the way. As a judgment creditor, he is in the embryonic stage. His attachment may be perfected', in itself, but, viewed as a first step-toward ascent to the preferential status of a judgment creditor, it is neither perfected nor completed.
The Supreme Court might have said,, as Mr. Justice Jackson did say,3 that all' interests should be deferred to the tax lien save only those which Congress chose to prefer. Resort to the inchoate test,. *849applied to the competing lien,4 approached the same result. At least, it avoided the necessity of treating the lien products of a state’s provisional remedies as judgments.5
In a series of cases,6 the Supreme Court held that antecedent mechanic’s liens, which are supported by no statutory preference, were deferred to the tax lien. We may infer that a majority of that Court regarded the mechanic’s liens as inchoate within the meaning of the rule developed for the classification of deferred interests. It is difficult to understand how a mechanic’s lien, duly filed and recorded and presently in the process of being foreclosed, a specific lien against specific property for a specific amount, may be said to be inchoate, unless it is viewed as an interim step in the lienor’s progress toward the status of a judgment creditor and the foreclosure of all possible defenses to his claim. Such a view may not be inappropriate, however, in light of the fact that Congress has selected certain interests for preferential treatment, among them those of a judgment creditor, not those of a mechanic’s lienor.7 In such a view, there is apparent analogy between the mechanic’s lien and the lien product of provisional remedies.8
In only two cases in the Supreme Court is there any intimation that the inchoate test has any place in the classification of preferred interests.
In New Britain,9 the immediate conflict was between the tax lien and a municipality’s liens for ad valorem taxes and water rents. There was no statutory basis for preferment of the municipality’s claims, but the Supreme Court held those which were fully accrued when the tax lien attached should be preferred while those which were not then accrued were inchoate and should be deferred. In its rule of distribution, however, funds allocable to a mortgage debt were directed to be applied first to those claims of the municipality which were deferred to the tax lien but, under state law, preferred to the mortgage lien. The result of the rule of distribution was a recognition of the preference of the mortgage lien, but only secondarily for the benefit of the mortgagee, to whom the statutory *850preference is granted, and primarily for the benefit of a lienor having no statutory claim to preferment.
If it may be said that New Britain’s rule of distribution withholds full recognition of the mortgagee’s statutory preference, there is no answer to the problem which would not be open to similar criticism. If the claims for accruing taxes and water rents had been subordinated to the mortgage debt, they would have been deprived of recognition of the priority to which they were entitled under state law. If they had been preferred over the tax lien, the tax lien would have been denied the priority which the Supreme Court had held it to have. There was inconsistency in the relative priorities of the multiple claims which no rule of distribution could eliminate.
That the Supreme Court made the choice it did, under those circumstances, does not lead to the conclusion that, under other circumstances, in which there is no necessity for arbitrary selection, it would narrowly construe the congressional command or restrict it by the importation of judicially developed rules for the classification of unpreferred interests.
In New Britain, reference was made to the situation with which we now deal, but decision upon it was expressly reserved. The reservation, in light of the dissimilarity of the problem in New Britain, leads to the conclusion that the decision in New Britain in no way settles the question here.
In Ball Construction Co.,10 it is clear that the lower courts11 and the four dissenters regarded the assignment, as collateral security for the payment of future indebtedness, of the account receivable as tantamount to a mortgage and were of the opinion that the assignee should be treated as a mortgagee within the meaning of the preference statute. I understand my brothers to attribute the same opinion to the majority and to construe Ball Construction as a holding that a mortgagee is not entitled to the preferential treatment the statute commands to the extent the mortgage debt is inchoate when the tax lien is recorded.
Theirs is a not unreasonable interpretation of the brief per curiam opinion. A different interpretation, however, seems equally reasonable and more likely. The very fact that the views of the majority were unelaborated in their summary disposition of the issue suggests an absence of an intention to effect a novel extension of a particular rule devised to meet dissimilar conditions. One would suppose that, had the majority intended to decide an important question never before considered by the Supreme Court, it would have stated the considerations which led to its resolution of the issue.
It seems more likely than not that the majority in Ball Construction were of the opinion that the assignee was not a mortgagee within the meaning of the statute. While it was contended that, under the laws of Texas, the assignee was a mortgagee, a similar contention had been rejected in Gilbert Associates.12 There, the Town had contended that its liens, under the law of New Hampshire, gave it the status of a judgment creditor. The court held, however, that the words of the statute should be given their ordinary, common-law meaning. It concluded that one who held no judgment was not a judgment creditor, within the meaning of the statute, though, under state law, he had the rights of one. So, the majority in Ball Construction may well have been of the opinion that an assignee, as collateral security, of an account receivable is not a mortgagee within the meaning of the statute, though, under state law, the assignee has the rights of a mortgagee.
The majority in Ball Construction did not characterize the assignment as a *851mortgage. It simply said that the “instrument” being inchoate, the statute preferring specific claimants did not apply.
This is consistent with the entire course of decision in the Supreme Court. Attachment liens, mechanic’s liens and other liens, in themselves perfected and complete, had consistently been characterized as inchoate because they had not matured into judgments, and, therefore, had not been brought within the protection of a statute granting a preference to judgment creditors. If the conditional assignee of a receivable is not a “mortgagee” within the ordinary, common-law meaning of that word, he held a security interest which might have ripened into a judgment. In this view, it was appropriate for the majority to say that the unripened interest was inchoate and beyond the protection of a statute preferring judgment creditors.
The supporting citations13 have nothing to do with the question whether rules devised for the classification of congressionally unpreferred interests should be applied to defer congressionally preferred interests. Each of the two cited cases dealt with congressionally unpreferred interests. Their citation suggests the majority thought the interest of the assignee comparable to that of the attaching creditor and the municipal lienor, whose only claim to statutory preferment was that their interests, in the future, might ripen into judgments.
If the decision in Ball Construction has not foreclosed the present question, and it seems to me far from certain that it has, it is incumbent upon us to focus our attention upon the statute which confers a preference upon a “mortgagee” and to inquire whether the statute should be so construed as to withhold preferential treatment from one, indisputably a mortgagee, to the extent the mortgage debt is uncertain in amount or not fully accrued when the tax lien is recorded.
This, the crucial question, need not detain us long. If our view of the statute be not obscured by rules developed for the deferment of unpreferred interests, it seems clear that the words of the statute were used in their “usual, conventional sense.” 14 The Congress did not prefer the principal of the mortgage debt; it preferred the mortgagee. If the word is to be given its usual meaning the preference cannot be limited to the mortgagee’s right to repayment of the principal of the mortgage debt. It extends to all those rights which the Congress must have known the mortgagee commonly and usually possesses.
Provisions in mortgages requiring or’ permitting the mortgagee to discharge ad valorem tax liens and extending the mortgage lien to such disbursements, as well as to the expense of enforcement of the mortgagee’s rights, are commonplace. There is nothing novel in recognition of the fact that the protection of the mortgage lien extends to such disbursements and expenses, made pursuant to such provisions, as fully as to the principal of the mortgage debt itself. It is a usual and conventional right of a mortgagee. When Congress created the preference, such rights of the mortgagee were generally recognized in commerce and in law. If we are to give the language of the statute its usual and ordinary meaning, we cannot deny to the mortgagee his usual and ordinary rights. Since the statute confers the preference upon the mortgagee, it seems to require us to recognize the preference, at the least, to the extent that his preference has been traditionally and commonly recognized in the state courts. I see no reason to suppose that Congress intended the preference it commanded to differ in kind and quality from the preference the selected classes have enjoyed historically and, in *852commercial circles, are generally thought to have.
While the question is novel in this court, and, I believe, open in the Supreme Court, there are analogies that bear mention.
A mortgagee’s collection out of the security of attorney’s fees incurred after the mortgagor’s adjudication in bankruptcy was resisted upon the ground that the claim was contingent at the time of adjudication and, therefore, not provable. The Supreme Court held there was no need to prove the claim for the right to attorney’s fees was fully protected by the mortgage lien from the time that lien first attached.15 In the opinion it was said, “The lien was not inchoate at the time of the adjudication.”
This Court dealt with a similar problem when attorney’s fees were incurred by a mortgagee after forfeiture of the mortgaged vehicle to the United States.16 We held the right to attorney’s fees fully protected from the date the mortgage lien attached, saying, “The lien for attorney’s fees was not inchoate at the time of the offense.”
As the rules have been developed in the tax lien cases, the claim for attorney's fees was inchoate when the tax lien attached. Perhaps we may say as the Supreme Court said in the bankruptcy case that the lien which supports the claim was not inchoate. Whether we do or not, we should reach a similar result here, for no valid reason appears for reading limitations into the preference statute which the language of the statute does not contemplate.
The specific question has arisen in other courts.
The mortgagee has been held preferred with respect to attorney’s fees and similar expenses incurred after the tax lien was recorded,17 and with respect to state taxes paid by the mortgagee.18 The mortgagee’s preference with respect to accruing interest has been generally recognized.19 Perhaps the right to interest accruing at an agreed rate could pass the inchoate test, but to a substantive recognition of the mortgagee’s preference, his right to be secure in his income is hardly so important as his right to be secure in making disbursements necessary for the protection or preservation of the mortgage lien and for the collection of the principal of the mortgage debt.
*853Believing, as I do, that the statute should govern our decision and that it requires a recognition of the preference the mortgagee has enjoyed generally and historieally, I would affirm.

. 26 U.S.C.A. § 6323(a).

. United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 370, 98 L.Ed. 520.

. United States v. Security Trust & Say. Bank, 340 U.S. 47, 71 S.Ct. Ill, 95 L.. Ed. 53.

. The test seems never to have been directed to the tax lien. Here the tax lien was recorded when the taxpayer’s substantive tax liabilities were being litigated in this Court. See Bond v. Commissioner, 4 Cir., 232 F.2d 822. It may issue upon a jeopardy assessment long before a determination of the substantive tax liability. 26 U.S.C.A. § 6861.

. United States v. Security Trust & Sav. Bank, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53; United States v. Acri, 348 U.S. 211, 75 S.Ct. 239, 99 L.Ed. 264; United States v. Liverpool & London & Globe Insurance Co., Ltd., 348 U.S. 215, 75 S.Ct. 247, 99 L.Ed. 268; United States v. Scovil, 348 U.S. 218, 75 S.Ct. 244, 99 L.Ed. 271.

. United States v. Colotta, 350 U.S. 808, 76 S.Ct. 82, 100 L.Ed. 725; United States v. White Bear Brewing Co., 350 U.S. 1010, 76 S.Ct. 646, 100 L.Ed. 871; United States v. Vorreiter, 355 U.S. 15, 78 S.Ct. 19, 2 L.Ed.2d 23.

. In this sense, the tax lien would appear to be always inchoate. It is not self-enforcing. It protects and fixes the property rights of the United States, but is enforceable by a civil action. See 26 U.S.C.A. § 7403.

. What is most troublesome about the mechanic’s lien cases is really a different question: Whether Congress ever intended the tax lien to appropriate, without compensation, the property and interests of others than the taxpayer, others who have no legal or moral obligation to pay the tax debt. When the tax lien seizes property, the real value of which has been largely enhanced by the lienor’s labor and materials, it appropriates values which the mechanic had created and which are his, in an economic sense, until he is compensated and his lien or right to a lien is discharged. The se'zure of such values seems an unjust enrichment of the United States at the expense of the mechanic, not that of the taxpayer. As suggested, this is a different question. Its answer perhaps should come from the Congress. In any event, the mechanic’s lien cases in no way suggest that the rule applied in the classification of deferred interests should be employed to classify preferred interests.

. United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520.

. United States v. R. F. Bail Construction Co., 355 U.S. 587, 78 S.Ct. 442, 2 L.Ed.2d 510.

. R. F. Ball Construction Co. v. Jacobs, D.C.W.D.Tex., 140 F.Supp. 60, affirmed sub nom. United States v. R. F. Ball Construction Co., 5 Cir., 239 F.2d 384.

. United States v. Gilbert Associates, Inc., 345 U.S. 361, 73 S.Ct. 701, 97 L.Ed. 1071.

. United States v. Security Trust & Sav. Bank, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53; United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520.

. United States v. Gilbert Associates, Inc., 345 U.S. 361, 73 S.Ct. 701, 703, 97 L.Ed. 1071.

. Security Mortgage Co. v. Powers, 278 U.S. 149, 49 S.Ct. 84, 73 L.Ed. 236.

. United States v. Seaboard Citizens Nat’l Bank of Norfolk, 4 Cir., 206 F.2d 62.

. United States v. Halton Tractor Co., 9 Cir., 258 F.2d 612; United States v. Sampsell, 9 Cir., 153 E.2d 731; Smith v. United States, D.C.Hawaii, 113 F.Supp. 702; Bank of America Nat’l Trust & Savings Ass’n v. United States, D.C.S.D.Cal., 84 F.Supp. 387; Ormsbee v. United States, D.C.S.D.Fla., 23 F.2d 926; cf. in re New Haven Clock & Watch Co., 2 Cir., 253 F.2d 577, in which the inchoate test was used to deny priority for a similar disbursement.

. United States v. Miller, D.C.S.D.Fla., 55-1 USTC, par. 9484; cf. United States v. Christensen, 9 Cir., 269 F.2d 624 and United States v. Lord, D.C.N.H., 155 F.Supp. 105. The result in Christensen, preferring the tax lien to the extent the mortgage secured disbursements for state taxes, was reached on the basis of a generalized notion of federal supremacy. Such a notion seems out of place when Congress, itself, has decided to prefer the mortgagee over the United States claiming under its tax lien.
See also, Peoples Bank v. United States, D.C.N.D.Ga., 98 F.Supp. 874, extending the priority of the mortgagee to subsequent advances under an open-end mortgage, reversed upon the ground that the subsequent advance was a separate transaction unsecured by the lien of the first mortgage. United States v. Peoples Bank, 5 Cir., 197 F.2d 898.

. United States v. Halton Tractor Co., 9 Cir., 258 F.2d 612; Jefferson Standard Life Insurance Co. v. United States, 9 Cir., 247 F.2d 777; United States v. Sampsell, 9 Cir., 153 F.2d 731; Glenn v. American Surety Co., 6 Cir., 160 F.2d 977; United States v. Lord, D.C.N.H., 155 F.Supp. 105; Bank of America Natl Trust & Savings Ass’n v. United States, D.C.S.D.Cal., 84 F.Supp. 387; Ormsbee v. United States, D.C.S.D.Fla., 23 F.23 926.