Suit was instituted in the Essex County District Court on October 2, 1957 by Textile Products against the defendants Feldan and Schwartz, individually and trading as Shari Steckler Co., for the sum of $728.30. An answer and counterclaim raising equitable issues was filed by the defendants, and the matter was transferred to this court by order of the district court dated November 1, 1957. While this order is of doubtful validity (R.R. 7:6-1), subsequent proceedings in this court have rectified any error in the original order of transfer.
Plaintiff sued as an assignee of New Jersey Quilting Company, Inc. for goods sold and delivered. The answer admitted the debt, but by way of counterclaim alleged that on September 17, 1957, 15 days before the district court suit was started, a levy had been made by the United States
of America upon the defendants for all moneys due from them to New Jersey Quilting Company, Inc. The defendants tendered themselves ready to pay the sum involved, but alleged that they did not know to whom it should be paid, in view of the tax levy. By way of amended answer they alleged that they had paid $250 on account to the plaintiff on September 16, 1957.
When the proceedings were transferred to this court a motion was made by the defendant-counterclaimants to join the United States and New Jersey Quilting Company, Inc. as parties defendant to the counterclaim. An order was entered permitting such joinder, but that order, on motion of the United States, was subsequently vacated as to it, and it was given leave, pursuant to R.R. 4:37, to assert its claim by way of a complaint in intervention. This, the government did, and the matter came on for a pretrial conference.
At that time, it was stipulated and agreed that the case be heard on the pleadings and briefs, since there was no dispute as to any material fact, and the question was one of law only. It was conceded that, of the $728.30 originally owed by the defendants to New Jersey Quilting Company, Inc., $250 had been paid before the levy, leaving a balance of $478.30 in the hands of the defendants. The government, in its claim for intervention, alleged that it was entitled to the full sum of $728.30 -- $250 from Textile Products, representing the money it received from the defendants, and $478.30 from the defendants. The government's theory was that the filing of its lien on October 21, 1955 against New Jersey Quilting Company, Inc., in a sum in excess of $6,300, established its priority under 26 U.S.C.A. §§ 6321-6323, and was a lien on all of New Jersey Quilting Company's account at the time the $250 was paid.
At the pretrial conference I directed the defendants to pay into court the sum of $478.30 and allowed a counsel fee of $100 to counsel for the defendant-counterclaimants, together with taxed costs. This allowance was objected to by the United States and, after examining the law, I am
convinced that the allowance was erroneous and must be reversed.
I. THE CLAIM OF THE UNITED STATES.
There is no dispute that the claim of the Internal Revenue Service was properly filed on October 21, 1955, as required by 26 U.S.C.A. § 6323. The assignment by New Jersey Quilting Company, Inc. to the plaintiff of the account payable by the defendants, in the sum of $728.30, occurred July 16, 1957.
A federal lien arises on property of a taxpayer when his taxes are unpaid and a demand for payment has been made. 26 U.S.C.A. § 6321. It is valid as against subsequent mortgagees, pledgees, purchasers or judgment creditors, after filing, under section 6323. The Textile Products' assignment, therefore, is subject to the lien of the government. See Beeghly v. Wilson , 152 F. Supp. 726 (D.C. Iowa 1957); Bank of Nevada v. United States , 251 F.2d 820 (9 Cir. 1957). The claim of Textile Products is subordinate to the government's lien, whether or not Textile paid a valuable ...