Court Opinion

ID: 9461329
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:11:41.312321+00
Date Added: 2024-06-11T17:37:00.333203
License: Public Domain

GURFEIN, Circuit Judge
(dissenting) :
This seems to me to be a case where an honest shopkeeper would have given the customer his money back. While public officials may not dispense such largesse, the intriguing question is whether courts may not compel them to do so in the interest of fairness.
I respectfully dissent from the opinion of my colleagues to the contrary. While I agree with a good deal of what Judge Smith has written about impossibility and frustration, I approach the case from the view that there has been a failure of consideration based on a mutual mistake of law which justifies rescission.
A local property tax lien arises from a failure to pay taxes. The failure is *383also a breach of a covenant in the mortgage. Everyone knows as a matter of law that such tax lien comes ahead of the mortgage, R.P.A. & P.L. § 1354(2), McKinney’s Consol.Laws, c. 81, subject to a right of redemption in the mortgagor. R.P.T.L. § 1010. When the county or village sells a tax lien it says that this is a tax we ourselves could have collected ahead of the mortgage, subject only to a right of redemption, if we had not sold the lien to you. In this case, however, the county or village itself could not have collected the tax ahead of the mortgage. It was not selling a tax lien with characteristics legitimately and reasonably expected of a local property tax lien.
The reason the county or village was not selling a tax lien with these known characteristics is that the mortgage on the particular property, MacArthur Village, was held by the United States. On the earlier appeal, this Court held that the lien of the United States on MacArthur Village could not be defeated by tax liens of local governmental units. United States v. General Douglas MacArthur Senior Village, Inc., 470 F.2d 675 (2 Cir. 1972), cert. denied sub nom., County of Nassau et al. v. United States, 412 U.S. 922, 93 S.Ct. 2732, 37 L.Ed,2d 149 (1973).1 The lien of the United States owned mortgage would not have been defeated by the local tax lien even if it had remained in the hands of the County of Nassau or the village, as the case may be.
This case does not involve priorities as such.. There is a difference in kind between an ordinary type of federal tax lien such as one arising out of an income tax assessment or judgment and a federal mortgage lien. The former has no relation to the property but becomes a lien upon it to enforce a separate right of the federal government. The latter relates to the property itself. For that reason, in the earlier case involving MacArthur Village, this Court was not content to rely on the familiar rule applicable to priorities between ordinary federal tax liens and local property tax liens — the rule of United States v. New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954), “first in time is first in right.” Under that rule the appeal could have been decided by simply applying it to sanction the priority of the federal mortgage on MacArthur Village which was concededly “first in time.” 470 F.2d at 677 2 This Court went further, however, to hold that under S. R. A. Inc. v. Minnesota, 327 U.S. 558, 66 S.Ct. 749, 90 L.Ed. 851 (1946), and New Brunswick v. United States, 276 U.S. 547, 48 S.Ct. 371, 72 L.Ed. 693 (1928), “local governments cannot take any action to collect unpaid taxes assessed against property which would have the effect of reducing or destroying the value of a federally held purchase-money mortgage lien.” 470 F.2d 679, 680.
Judge Kaufman (now Chief Judge) noted:
“In short, the land is not immune from local taxation, but .the federal interest is, and the local governments cannot enforce their liens until the federal debt is satisfied.” Id.
The unenforceability is not what we normally describe in terms of relative priority. It is rather an infirmity'imposed by implication from the federal constitution in the absence of Congressional consent. McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819).3 The *384tax lien imposed upon property on which the federal government holds a mortgage is not a true tax lien but is, at best, a hybrid. In New Brunswick v. United States, supra, 276 U.S. at 556, 48 S.Ct. 371, 373, 72 L.Ed. 693, the Court concluded that where the United States had a lien equivalent to a mortgage, the City could impose taxes on the equitable owner provided that the rights of the United States “are expressly excluded from such sales [tax sales] and they are made, by express terms, subject to all such prior rights, liens, and interests” (emphasis added). No statute of New York could constitutionally make the federal mortgage subject to the enforcement of the local tax lien.4 The constitutional validity of the imposition of the local property tax is conditioned upon an implied agreement of the locality to exclude such tax liens from tax sales and also to state “by express terms” that such liens are subject to the prior rights of the United States.5 The County of Nassau and the Village took advantage of this limited right to tax property subject to a federal mortgage lien but failed to live up to the second part of the constitutional dispensation — to exclude the tax lien arising from the tax lien sale.
If that is so, it seems to me that the county was not in a position to sell something that is commonly regarded as a proper 'tax lien. It owned no such lien on these premises, for while it could tax in a measure that included the federal mortgage interest, S. R. A. Inc. v. Minnesota, supra, it simply could not enforce the tax against the federal mortgage interest. Yet a buyer without notice would, I think, be justified in believing that a failure to announce that this was not an ordinary tax lien meant that it was precisely that.
This justified belief is strengthened by the circumstance that notice was given that the lien was subject to superior tax liens of such sovereignties but nothing was said of such mortgage liens. The majority acknowledges that “[t]his express contractual reservation does not decide the issue against the appellants because their interest was superseded by a mortgage, rather than tax lien, held by a sovereignty.”
I venture to say that the logical extension of this is that since warning was given it should have been given correctly. The majority glean from this limited notice the inference that an implied exception in R.P.T.L. § 1464(3) “for [all] federal liens . . . would comport with custom and usage and the basic business understanding.” 6
If this case is one of first impression, I do not see how we can find either “custom and usage” or a “basic business understanding” that there was one particularNtype of mortgage to which the tax lien would not be superior. So unclear was “custom and usage” that the scholarly District Judge decided, on that very question, that the lien of United States was not superior to the localHax lien. United States v. General Douglas *385MacArthur Senior Village, Inc., 337 F.Supp. 955 (E.D.N.Y.1972), and for this appeal to come to us now, that decision had to be reversed by this Court. 470 F.2d 675 (2 Cir.) (MacArthur I).
A failure to deliver a tax lien enforcible by the seller itself is thus joined to a mutual mistake of law. Neither the seller nor the buyers knew that the tax lien did not possess the normal legal characteristics of a tax lien.7 The seller was unjustly enriched when it was paid for a lien it could not itself enforce against the federal mortgage interest. See Rosenblum v. Manufacturers Trust Co., 270 N.Y. 79, 85, 200 N.E. 587 (1936).
While a benevolent casuistry may have been necessary in earlier days to convert a mistake of law into a mistake of fact in order to justify rescission, 3 Corbin, Contracts § 620; 13 Williston, Contracts § 1589, the New York Legislature has taken the forward step long urged by scholars. C.P.L.R. § 3005 provides:
“When relief against mistake is sought in an action or by way of defense or counterclaim, relief shall not be denied merely because the mistake is one of law rather than of fact.”
When the mistake of law is a part of the fundamental basis of the transaction, rescission is permitted because there is present the further element of failure of consideration. Williston, supra, § 1584.8 For an application of the modern view, see Ryan v. Vickers, 158 Colo. 274, 406 P.2d 794 (1965), cert. denied, 383 U.S. 944, 86 S.Ct. 1201, 16 L.Ed.2d 208 (1966).9
Thus, if we apply New York law under Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), we find no decisional law on rescission involving a federal mortgage.10 Nor, since we are not dealing with priorities, is any statute specifically in point.11
The suggestion of the majority that since the Legislature has listed specific equitable exceptions to the doctrine of caveat emptor, R.P.T.L. § 1464(6), no others may be held to exist assumes an exclusivity in derogation of the general equitable powers of courts.12 While I *386recognize that generally a court should not add to a statute, see Iselin v. United States, 270 U.S. 245, 250-251, 46 S.Ct. 248, 70 L.Ed. 566 (1926) (Brandéis, J.), it is not a valid generalization that the statute must be taken to defeat any judicial remedy which exists independent of the statute.
In short, I do not think the loose generalization, originally made when caveat emptor still reigned, that one buys a tax lien at his peril applies to this situation which involves an unusual interplay of federal and state power arising from our dual system of government.
Incidentally, a refund to the purchasers here, as Judge Weinstein perceptively recognized, would help the local units of government to sell their tax liens, because it would eliminate a trap for the unwary which the wary might seek to escape by abstaining entirely from attendance at tax sales.
I would reverse the summary judgment on behalf of the appellees and grant it on behalf of appellants.

. This Court specifically rejected the contention that in enacting the statute under which HUD made the loan to MacArthur Village, 12 U.S.C. § 1701q, Congress waived the immunity mandated by New Brunswick v. United States, 276 U.S. 547, 48 S.Ct. 371, 72 L.Ed. 693 (1928), discussed infra. 470 F.2d at 680; see 12 U.S.C. § 1733.

. The Court held that the 1966 Tax Lien Act, 26 U.S.C. § 6323(b)(6)(A), giving certain priorities to local property tax liens over federal tax liens did not apply in the case of federal mortgage liens.

. Thus, New York could not provide by statute (C.P.A. § 1087) that local property tax liens achieve priority over federal liens- by being deemed “expenses of the sale” in foreclosure by the mortgagee. United States v. Buffalo Savings Bank, 371 U.S. 228, 83 S.Ct. 314, 9 L.Ed.2d 283 (1963), reversing Buffalo Savings Bank v. Victory, 11 N.Y.2d 31 (1962). And see United States v. Equitable Life As*384surance Society, 384 U.S. 323, 86 S.Ct. 1061, 16 L.Ed.2d 093 (1966).

. The New York Legislature may have recognized this in a limited way when it provided that parcels listed in a notice of tax sale “mortgaged to the commissioners of the land office for loaning certain moneys of the United States” shall be withdrawn from sale or bid in by the State Comptroller. R.P.T.L. § 1004.

. - .Yno Brunneirl;. xupra, was apparently not cited to the District Court. There is no reference to it in its opinion.

. R.P.T.L. § 1464(3) reads:
“If the real property described in such notice is not redeemed within the time limited, the village treasurer shall, upon written application and the surrender of the certificate of sale together with proof of service by mail of the notice to redeem, or upon application by the board of trustees of the village with such proof of service, execute and deliver to the purchaser or village a conveyance of the real property so sold, the description of which shall include a specific statement of whose title or interest is thereby conveyed, as appears on the record, which conveyance shall vest in the grantee an absolute estate in fee, subject, however, to all claims the village, county or state may have thereon for taxes, liens or encumbrances.”

. R.P.T.L. § 1006 provides that the certificate which the purchaser receives on a tax sale shall “contain a statement to the effect that if lands described thereon are not redeemed, the purchaser may complete the purchase and take a conveyance of the lands as provided in title one of article ten of this chapter, or, at his option, foreclose his lien pursuant to title two of article eleven thereof.”
Here, although there was no redemption, a deed was not forthcoming as promised.

. The Real Property Tax Law itself, pro • vides that any conveyance to a tax certificate purchaser “shall be subject to cancellation by reason of . . . (c) any defect in the proceedings affecting jurisdiction upon constitutional grounds . . . R.P.T.L. § 1020(3).

. In Ryan, the parties had contracted upon the assumption that a lien held by plaintiff’s assignor on defendant’s equipment was superior to all other liens, including one held by the Small Business Administration. A federal court subsequently held that the S. B.A. lien was superior. In the state court action, defendant raised mistake of law as a defense to an action on the contract and was granted rescission. The court characterized the situation as a “mutual mistake as to the applicability of existing law to the factual situation here at hand.” 406 P.2d at 797.

. Nor would the New York courts have complete freedom to declare “New York law” in view of the explicit limitations imposed by New Brunswick v. United States, supra. Cf. Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960) ; id. at 516 (Harlan, </., dissenting) ; Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943).

. As Justice Frankfurter has written: “The underlying assumptions of our dual form of government, and the consequent presumptions of a legislative draftsmanship which are expressive of our history and habits, cut across what ’might otherwise be the implied range of legislation.” Some Reflections on the Reading of Statutes, Cardozo Memorial Lectures, (Ass’n of the Bar of the City of New York) 215, 232.

. Section 1464(6) reads:
“In the event that any grantee under such conveyance is unable to obtain possession of the real property conveyed to him by reason of any error or irregularity in the assessment thereof, in the levying of a tax, or in any proceedings for the collection of any tax, the board of trustees shall refund to the purchaser the money so paid with interest, the same to be audited and paid as other village charges.”