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Bank Trust Co. v. Bolce

Court of Appeals of Ohio
Jan 24, 1955
101 Ohio App. 21 (Ohio Ct. App. 1955)

Opinion

Nos. 7932 and 7953

Decided January 24, 1955.

Judicial sales — Proceeds insufficient to pay all encumbrances — Distribution of proceeds — Payment of costs — Taxation — Priority of liens — Federal tax lien — State tax lien — Conflict between federal and state statute — Statutory construction — Intrastate liens — Mortgage and judgment liens — Proportional factor employed — Equitable formula — Effect of state legislation.

1. In distributing the proceeds of a judicial sale as the result of a foreclosure proceeding, the court first orders the payment of costs of such litigation.

2. By virtue of the provisions of the Constitution of the United States and of Section 3672, Title 26, U.S. Code, a lien of the United States for taxes imposed by the federal government is given priority over all other liens, except those of mortgagees and judgment-lien holders.

3. By virtue of the provisions of Section 5719.25, Revised Code (Section 5692, General Code), the lien of the state of Ohio for taxes is given priority over all other liens, without exception.

4. When apparent conflict appears between an act of Congress and a state statute, it is the duty of a court to give effect to each enactment insofar as is consistent with the dominant character of federal legislation under the Constitution of the United States.

5. The United States has no concern with the arrangement of priorities among liens recognized by the state intra state.

6. To give effect to the provisions of Section 5719.25, Revised Code (Section 5692, General Code), in distributing the proceeds of such judicial sale, the court must order the payment of state taxes to the extent that such payment does not impair the lien of the United States for federal taxes on such fund to be so distributed.

7. To give unconditional priority to such state taxes, however, would require that the court completely ignore the provisions of the act of Congress giving priority to the United States over all liens except those of mortgagees and judgment-lien holders for federal taxes. Thus, if the amount of state taxes was large enough to completely exhaust the proceeds of such judicial sale, excluding the payment of a mortgage lien and that of a judgment-lien holder, the effect would be to give priority to state taxes over the lien of the United States for federal taxes, which would do violence to the provisions of the acts of Congress.

8. To give effect to the provisions of such state statute, as well as to the acts of Congress, the court shall total the amounts of the mortgage liens and those of judgment-lien holders, deducting from such total the amount of state taxes. The proportional amount of each mortgage lien, and the lien of each judgment-lien holder, to the total amount of all such liens is then determined, and such proportional factor so obtained is then employed to determine the proportional amount of the state taxes to be deducted from each of such liens.

9. In distributing the proceeds of such judicial sale not sufficient to pay all liens, an equitable formula, consistent with the obligation of the court to give effect to each type of legislation, so far as possible, is thus evolved. Under such formula, the court shall first, order the payment of costs; second, the payment of state taxes (unless the fund is insufficient to pay federal taxes); third, the payment of the lien of the mortgagee, after the deduction of the prorata part of the state taxes so obtained; fourth, the payment of the lien of judgment-lien holders, after deducting a prorata part of such state taxes so obtained; and fifth, the payment of the lien of the United States for federal taxes, or so much thereof as remains undistributed in the proceeds of such judicial sale.

10. The fact that the employment of such a formula may impair the liens of mortgagees and judgment-lien holders is due to the operation of the act of the state Legislature in giving unlimited priority to state taxes, not to the operation of the acts of Congress.

APPEALS: Court of Appeals for Hamilton County.

Mr. George Johnson, for appellee The Southern Ohio Savings Bank Trust Co.

Mr. C. Watson Hover, prosecuting attorney, Mr. Francis X. Schwegmann and Mr. Carl B. Rubin, for appellees Paul A. O'Brien, Treasurer of Hamilton County, and John M. Renner, Treasurer of Hamilton County.

Mr. Albert D. Castellini, for appellee Joseph P. Dorney.

Mr. T. Gordon Gutting, for appellee The Lockland Building Loan Association.

Mr. Hugh K. Martin, United States Attorney, and Mr. Richard H. Pennington, for appellant United States of America.


These two appeals on questions of law are considered together. In each case the appellant is the United States of America, a defendant in the Court of Common Pleas of Hamilton County.

The first case was an action for a money judgment, the marshalling of liens and the foreclosure of a mortgage. A decree of confirmation and distribution was entered therein after confirmation of sale and order for deed. It is from this decree of confirmation and distribution of the proceeds of sale that the appeal is taken. Such proceeds, amounting to $15,900, were distributed as follows:

1. Payment of costs . . . . . . . . . . . . . . . $ 311.07 2. To Treasurer of Hamilton County for taxes . . . 338.39 3. To the plaintiff mortgagee . . . . . . . . . . 6,649.95 4. To Joseph Dorney, a judgment lienholder . . . . 846.88 5. To United States of America for federal taxes . 7,753.71

The court ordered that $338.39 of the amount ordered paid to Joseph P. Dorney be held in escrow with the Sheriff of Hamilton County. The funds thus being exhausted, other lien holders took nothing.

The second action was brought by the Treasurer of Hamilton County for the collection of delinquent taxes, assessments, penalties and interest, and for equitable relief. A decree of confirmation and distribution was entered therein after confirmation of sale and order for deed. It is from such decree of confirmation and distribution of the proceeds of the sale that the appeal was taken. Such proceeds, amounting to $4,000, were distributed as follows:

1. Payment of costs . . . . . . . . . . . . . . . $ 147.85 2. Treasurer of Hamilton County for taxes . . . . 614.36 3. To the mortgagee . . . . . . . . . . . . . . . 2,536.31 4. To United States of America for federal taxes . 701.48

The funds being thus exhausted, other lienholders took nothing.

Upon the hearing to confirm the sale and distribute the proceeds, the trial court found in substance the following facts:

1. That there was due the clerk of courts for costs, $147.85.

2. That the amount due on the mortgage was $2,536.31.

3. That the United States of America duly filed on April 11, 1949, a lien for federal taxes in the amount of $457.10. Assessment dates — May 14, 1948, through November 19, 1948.

4. That the United States of America duly filed on June 6, 1951, a lien for federal taxes, in amount of $1,215.53. Assessment date — February 5, 1951.

5. That the balance due the United States of America for taxes (withholding) and accrued interest to February 1954, is $317.91, plus interest at 6 per cent from February 1, 1954; and that the balance on unpaid income taxes, with interest to February 1, 1954, is $571.64, plus interest at 6 per cent thereafter.

6. That the United States of America recorded with the Clerk of Courts of Hamilton County, on November 17, 1949, a certificate of judgment in the amount of $1,342.90 plus interest at 6 per cent from January 14, 1949; that another certificate of judgment was so filed on November 17, 1949, in the amount of $672.52 with interest at 6 per cent from January 14, 1949; and that the total sum due on such judgments is $2,015.42 plus interest at 6 per cent from January 14, 1949.

7. That real estate taxes and penalties due the Treasurer of Hamilton County in 1948 were $286.23; that taxes and penalties so due the Treasurer of Hamilton County for the period 1949-1950 were $175.31; that the amount due therefor for 1951-1952 was $275.64, less $85.74 paid in 1953; and that the total delinquent taxes due through the year 1953, with penalties, were $614.36.

The principal contest in each of these cases is between the Treasurer of Hamilton County and the United States of America, the first claiming for state taxes and the latter for federal taxes.

The law covering this dispute is found in the Constitution of the United States and the acts of Congress, and the statutes of Ohio, and as interpreted in the case of United States v. City of New Britain, 347 U.S. 81, 98 L.Ed. 520, 74 S.Ct. 367. The net result of this law is that the lien of the state for taxes takes priority over all other liens, while the lien of the federal government for federal liens takes priority over all liens except those of mortgagees and judgment creditors. As applied to the instant situations this presents an apparent impasse. It is the duty of courts wherever possible to give effect to all constitutional legislation, and where there is an apparent conflict between state and federal laws to harmonize such legislation to give effect to both.

The facts in these cases are not in dispute, only contrary interpretations of the law are involved. The United States of America is the only appellant. We are here concerned with the allocation of priorities in funds which are not sufficient to satisfy the claims of a number of lien holders. In neither case is the fund sufficient to satisfy the claims of the state and federal government if the mortgagees and judgment creditors are paid in full. If the latter (mortgagees and judgment creditors) and the state are paid in full, then the United States will not receive its full payment. Such distribution was made effective in these cases in the trial court.

Such an interpretation of the law ignores the effect of Section 3672, Title 26, U.S. Code, which gives federal liens priority over all other liens except those of mortgagees and judgment creditors and full effect to Section 5719.25, Revised Code (Section 5692, General Code), giving state taxes priority over all other liens, without exception. It is admitted by all concerned that the costs of litigation must be paid first out of the funds for distribution. The holding of the New Britain case is that the federal government has no concern with how the state allocates the priority of state liens. On the other hand, it is the obvious conclusion in this case that state liens, with the exception noted, cannot take priority over federal liens. Now it is apparent that when the federal government steps aside in favor of the mortgagees and judgment creditors, the state steps in and asserts its priority over these same preferred lien holders, and it does so at the expense of the federal liens, which are thus, in effect, surrendered in favor of the state liens. It is the state law which may cause an impairment of mortgagees and judgment lien holder's claims. With this situation, the federal government has no concern. The logical result of this then giving effect to all the law is to permit the state to have its priority over state created liens, those of the mortgagees' and judgment-lien holders, deduct from the total of all these the amount of the state taxes, pro-rate such total deduction among the mortgagees and judgment-lien holders, pay the remaining amounts to such mortgagees and judgment-lien holders, then, pay what remains of the fund to the United States for the federal lien for taxes. Naturally, the mortgagees and judgment-lien holders will complain, but their complaint must be directed to the state and not the federal government, for it is the former which advances the state claim for taxes over their claims, not the law of the United States.

The mortgagees in these cases may claim that, being first in priority, they should be paid in full at the expense of the later lien holders. Just the opposite conclusion could be asserted, since, if they are first, they should first satisfy the claim of the state. Neither proposal is equitable. A prorata allocation of the state taxes does justice to all.

Taking distribution in the first case then, the result would be as follows:

1. Payment of costs . . . . . . . . . . . . . . . $ 311.07 2. Payment of state taxes, deducted from the total of claims of the mortgagee and judgment creditors (If there were none such, then the federal liens would be paid next, followed by state taxes) . . . . . . . . . . . . . . . . . . . . 338.39 3. Payment to the mortgagee of the amount left after deducting the prorata amount of state taxes ($6,649.95-$300.36) . . . . . . . . . . . 6,349.59 4. Payment to judgment lienholder ($846.88- $38.03) . . . . . . . . . . . . . . . . . . . . 808.85 5. Balance to the United States . . . . . . . . . 8,092.10 $15,900.00

In the first case (the Bolce case) there is no question that the federal lien antedated that of the state tax lien.

In the second case, the United States admits that some of its liens were subsequent, in the dates of assessment, to the attaching of the state's liens. The above formula may be applied in the same manner, allowing for priority of state liens.

The judgments of the trial court are modified accordingly.

Judgments modified.

MATTHEWS, P. J., and HILDEBRANT, J., concur.


Summaries of

Bank Trust Co. v. Bolce

Court of Appeals of Ohio
Jan 24, 1955
101 Ohio App. 21 (Ohio Ct. App. 1955)
Case details for

Bank Trust Co. v. Bolce

Case Details

Full title:THE SOUTHERN OHIO SAVINGS BANK TRUST CO., APPELLEE v. BOLCE ET AL.…

Court:Court of Appeals of Ohio

Date published: Jan 24, 1955

Citations

101 Ohio App. 21 (Ohio Ct. App. 1955)
125 N.E.2d 217