United States v. Eisinger Mill & Lumber Co.

Collins, J., delivered the opinion of the Court. This is an appeal from the ratification of an amended auditor’s report preferring certain mechanic’s liens over tax liens of the United States of America, (United States), appellant. On July 17, 1951, Frank C. Bates, III, and Wayne E. Bates executed a deed of trust on a parcel of real estate to secure the payment of a note of $2,490.00. Default having occurred in the payment of this indebtedness the trustees on March 10, 1952, sold the property at public sale for $4,200.00 and on May 1, 1952, that sale was ratified by the court.

This trustee’s sale was made subject to a prior deed of trust in the amount of $8,302.13. The case having been submitted to the auditor, he filed his report. This report showed that after payment of costs and expenses and the balance due on the second deed of trust, which was foreclosed, there remained a balance of $1,119.50. In distributing this sum the auditor in his report allowed payment in full of the claim of the United States, appellant, in the amount of $951.08, filed by the Collector of Internal Revenue, He apportioned the balance of $168.42 among the mechanic’s lien holders, recorded on the liens docket of Montgomery County.

As stipulated these liens follow: A. Lien filed on February 6, 1952, by Edward F. Reifsnyder, et al., against Frank C. Bates, III, et al., in the amount of $495.00. B. Lien filed on January 26, 1952, by Eisinger Mill & Lumber Co., Inc., against Frank C. Bates, III, et al., in the amount of $3,010.27. C. Lien filed on January 19, 1952, by Eisinger Builders Supply Co., Inc., against Frank C. Bates, III, et al., in the amount of $414.52. It was stipulated that these liens were filed in accordance with the laws of the State of Maryland, no objection being made as to time of filing, for the amounts contained therein and that all of these liens were for material or labor furnished’ to the owners of the property and used in the construction of a house ⁶¹⁶ thereon on the- dates set forth in the liens by the owners who were the makers of the deed of trust which was foreclosed.

It was also stipulated and agreed that a Federal Tax Lien was filed December 28, 1951, in folio 43, Federal Tax Lien docket in the Office of the Clerk of the Circuit Court for Montgomery County, Maryland, said lien being dated December 17,1951, against Frank C. Bates, III and Wayne E. Bates, trading as Bates Bros., in the total amount of $923.38, said total claim of $923.38 represented the following individual claims: Unpaid withholding taxes for April, May and June 1951 in the amount of $409.64. Withholding taxes for July, August and September 1951 in the amount of $513.74. The records of the Collector of Internal Revenue, Baltimore, Maryland, disclose that the assessment of $409.64 for unpaid withholding taxes for April, May and June 1951 was pursuant to an assessment list received by the Collector from the Commissioner of Internal Revenue on October 29, 1951; that the first demand upon the debtors for payment of that amount was made on October 31, 1951, and that second' demand for payment on the debtors was made on November 30, 1951. The- records of the Collector of Internal Revenue, Baltimore, Maryland, disclose that the assessment of $513.74 for unpaid withholding taxes for July, August and September 1951 was pursuant to an assessment list received by the Collector from the Commissioner of Internal Revenue on November .23, 1951; that the first demand upon the debtors for payment of that amount was made on November 30, 195Í, and that second demand for payment on the debtors was made on December 28, 1951.

It Is stipulated and agreed that in this case the Bates, although insolvent debtors, were not bankrupt or persons who had made assignments for benefit of creditors. It is further stipulated and agreed that the second deed of trust foreclosed in this case was recorded prior to commencement of work on the house constructed on the« property involved in the proceedings. The chancellor ⁶¹⁷ held that the above mentioned mechanic’s liens were entitled to priority, in payment of the sum of $1,119.50 aforesaid, over the unpaid tax liens of the United States. As a result thereof an amended report was filed by the auditor and a final order of ratification of that report was signed by the chancellor on November 21, 1952, and an appeal therefrom taken to this Court by the appellant on December 4, 1952.

The chancellor found that all labor and materials had been furnished, except cellotex sheathing in the amount of $136.08 furnished on November 21, 1951, covered by lien B above, and this labor and these materials had gone into the house on the property here in question before the lien of the appellant attached either on December 28, 1951, when the lien was filed, or on October 29 or November 23, 1951, when the Collector received the assessment list. We find nothing in the record to dispute these facts. We also agree with the chancellor that the mechanic’s liens had not been “perfected”, that is, filed as required by Code, 1951, Article 63, Sections 17 and 19, when the lien of the United States attached. The chancellor held, although these liens had not been “perfected”, that the unrecorded mechanic’s liens were more than a potential right of contingent lien, but were an absolute lien on the specific property for six months after the work had been finished or the material furnished although no claim was filed, and claimant only loses his lien by failing to file it within the time limited.

The chancellor cited as authority Code, 1951, Article 63, Section 23, which provides: “Every such debt shall be a lien until after the expiration of six months after the work has been finished or the materials furnished, although no claim has been filed therefor, but no longer, unless a claim shall be filed at or before the expiration of that period.” These tax liens of the United States arose by virtue of Title 26, Internal Revenue Code, Section 3670, which provides that, if any person who is liable to pay any ⁶¹⁸ tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. By Section 3671, unless another date is specifically provided by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time. An exception to the provision that the tax shall be a lien in favor of the appellant upon all property and rights to property, as provided in Section 3670, is that contained in Section 3672 which states in part: “(a) Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector * * It is well established law that the meaning of a federal statute is ultimately for the Federal Courts to decide. United States v. Security Trust & Savings Bank, 340 U. S. 47 , 71 S. Ct. 111 , 95 L. Ed. 53 ; United States v. Waddill, Holland & Flinn, Inc., 323 U. S. 353 , 65 S. Ct. 304 , 89 L. Ed. 294 ; United States v. Gilbert Associates, Inc., 345 U. S. 361 , 73 S. Ct. 701 .

The tax lien in this case was filed on December 28, 1951, before the mechanic’s liens were filed. Mr. Justice Jackson said in his concurring opinion in United States v. Security Trust & Savings Bank, swpra: “My conclusion from this history is that the statute excludes from the provisions of this secret lien those types of interests which it specifically included in the statute and no others.” The single question before us in this case is whether, under the Federal decisions, the recorded lien of the United States, appellant, for unpaid federal taxes is entitled to priority in payment over these mechanic’s liens which were not recorded at the time of the recordation of the Federal lien. ⁶¹⁹ At the time that the case of United States v. Snyder, 149 U. S. 210 , 13 S. Ct. 846 , 37 L. Ed. 705 , was decided on May 1, 1893, the Internal Revenue Code contained no protection for third parties against the secret unrecorded tax lien of the United States. In that case the Supreme Court held that the tax lien of the United States was preferred over even an innocent purchaser for value, in good faith, and in ignorance of the secret, tax assessment against the owner. Therefore “Congress enacted Section 3672 to meet the harsh condition created by the holding in United States v. Snyder, 149 U. S. 210 , 13 S. Ct. 846 , 37 L. Ed. 705 , when federal liens were few, that a secret federal tax lien was good against a purchaser for value without notice.” United States v. Gilbert Associates, supra.

The amendment, aforesaid, excluding “mortgagees”, “purchasers” and “judgment creditors”, and the further amendment as the result of the decision in United States v. Rosenfield, D. C., 26 F. Supp. 433 , excluding “pledgees” is persuasive that only those particular interests are excluded from this secret federal lien. See also Detroit Bank v. United States, 317 U. S. 329 , 63 S. Ct. 297 , 87 L. Ed. 304 , and Michigan v. United States, 317 U. S. 338 , 63 S. Ct. 302 , 87 L. Ed. 312 . Code, 1951, Article 63, Section 28, provides for enforcement of the lien in equity. It is well settled in this State that a mechanic’s lien is purely statutory.

McLaughlin v. Reinhart, 54 Md. 71, 76 . It was said by this Court in Maryland Cas. Co. v. Lacios, 121 Md. 686 , at page 690, 89 A. 323 , at page 324: “It is settled by numerous decisions of this Court, that the right to a mechanic’s lien for labor, work done and materials furnished under the law, is not a vested right, but is a remedy only created by positive statutory enactment. The right to the lien depends entirely upon the statute, and the party seeking the remedy for the lien must come within the provisions of the statute.” Also in the recent case of Goldberg v. Ford, 188 Md. 658 , 53 A. 2d 665 , it was pointed out “* * * where labor and material is ⁶²⁰ furnished by a sub-contractor for improvements to property, it is only by virtue of statute (Code, Art. 63) that a remedy is available.

Maryland Cas. Co. v. Lacios, 121 Md. 686, 690 , 89 A. 323 . If recovery could be had in Equity in such a case, there would have been no need for such legislation.” As above set forth these liens, although filed within the period of six months, had not been filed and recorded previous to the filing of the federal tax lien. Subsequent steps were necessary to proceed against the property as in United States v. Security Trust Savings Bank, supra.

In State v. Woodroof, 253 Ala. 620 , 46 So. 2d 553 , it was held by the Supreme Court of Alabama that the state’s claim for taxes was a specific and perfected lien and as such held priority over Section 3466 of the Revised Statutes of the United States, 31 U. S. C. A. Section 191, which provided that the debts due the United States should be first satisfied where the debtor was insolvent or bankrupt. In United States v. Griffin-Moore Lumber Co., Supreme Court of Florida, 62 So. 2d 589 , it was held that a mechanic’s lien recorded prior to the recording of a federal tax lien was to be preferred over that federal tax lien. Apparently no petitions for certiorari were filed to the United States Supreme Court in these cases. This last decision was based on In Re Taylorcraft Aviation Corporation, 6 Cir., 168 F. 2d 808 , and Cranford Co., Inc. v. L. Leopold, 189 Misc. 388 , 70 N. Y. S. 2d 183, affirmed by the Court of Appeals of New York without,