Is a distraint for personal property taxes assessed before and after the recording of a chattel mortgage superior to the lien of the chattel mortgage? This is the issue raised by plaintiff's motion for summary judgment.
On January 26, 1962 the taxpayer, Mayflower Plymouth, Inc. (trading as Fletcher Motors, in Paramus, New Jersey) executed a chattel mortgage in favor of plaintiff mortgagee, Universal C.I.T. Credit Corporation. As security for its obligation to Universal, Mayflower pledged various items of personal property, such as furniture, fixtures, machinery, shop equipment, parts and accessories, and used vehicles, then owned or thereafter acquired. The mortgage was recorded on January 30, 1962 in the Bergen County Clerk's office.
In August 1963 the Borough of Paramus sought to collect from Mayflower $3,893.80 in personal property taxes and interest for the years 1960 through 1963. The assessments for these taxes were against Mayflower Plymouth Sales, Inc. in 1960, 1961 and 1962, and against Fletcher Motors in 1963, with the principal owner, Edwin Fletcher, also named in 1961 and 1962. Mayflower Plymouth Sales, Inc. had changed its name to Mayflower Plymouth, Inc. on August 24, 1956. For the purpose of this motion it will be assumed
that if the borough would otherwise prevail, the misnomer will not defeat recovery. See R.S. 54:4-54 and 54:4-58.
To enforce its claim for unpaid taxes the borough levied upon Mayflower's personal property. Notice was given and the distraint sale was set for August 14, 1963. Universal learned about the sale and protested to the tax officials, asserting that its chattel mortgage lien had priority over the tax claim. Notwithstanding this protest, the tax collector proceeded with the sale. To protect its interests Universal purchased the chattels for $4,700. The borough has held this money in escrow by agreement with plaintiff, pending determination of the priority claim presented here.
Universal then foreclosed its mortgage on August 23, 1963, and was the highest bidder at the foreclosure sale. At that time Mayflower owed Universal over $25,000. Universal thereafter demanded a return of the $4,700 paid on the tax sale, but the borough refused, and this action for its recovery followed. Mayflower is apparently in a state of insolvency, leaving obligations to Universal in excess of the disputed amount.
It has long been the rule in New Jersey that the assessment of taxes does not impose a lien on property in the absence of a statute giving the assessment that effect. Johnson v. Van Horn, 45 N.J.L. 136 (Sup. Ct. 1883); Linn v. O'Neil, 55 N.J.L. 58 (Sup. Ct. 1892); R.C. Stanhope, Inc. v. Township of North Bergen, 129 N.J.L. 513 (E. & A. 1943); Newark Steel Warehouse, Inc. v. Pearl Metal Products, Inc., 78 N.J. Super. 335, 346 (Ch. Div. 1962). The Legislature has made taxes on real property a lien on the property assessed (N.J.S.A. 54:5-6) and has provided that such lien shall be "paramount to all prior or subsequent alienations and descents of such lands or encumbrances thereon * * *." R.S. 54:5-9. No comparable provision has been made as to personal property taxes. As a result, the assessment of personal property taxes does not automatically impose a lien on the taxpayer's property. R.C. Stanhope, Inc. v. Township of North Bergen, and Newark Steel Warehouse,
Inc. v. Pearl Metal Products, Inc., supra; Keith Machinery Corp. v. Borough of South Plainfield, 89 N.J. Super. 584 (Law Div. 1965). The Legislature has provided other methods for the collection of personal property taxes.
By statute personal property taxes are made the personal obligation of the property owner. N.J.S.A. 54:4-1; and see N.J.S.A. 54:4-9, as amended, L. 1960, c. 51, § 7, p. 434. The assets of the taxpayer may be reached to meet the delinquency, and the taxpayer may be imprisoned to compel payment of the personal property tax. R.S. 54:4-79. But the usual course of collection is by distress and sale of "any of the goods and chattels of the delinquent in the State." N.J.S.A. 54:4-78. It is the distraint which is frequently said to give rise to the municipality's "lien" on the property of the taxpayer, although the statute does not use that term. See R.C. Stanhope, Inc. case, supra, 129 N.J.L., at p. 517, where the court said, "a personal property tax or assessment does not become a lien until the statutory proceeding to enforce same is taken by levy under a distress warrant." See also Murphy v. Jos. Hollander, Inc., 131 N.J.L. 165, 169 (Sup. Ct. 1943), where the court said, "A lien arises only by virtue of a levy made under a distress warrant * * *."
The question is whether the lien arising by distraint is paramount to the chattel mortgage lien. Embraced in this issue is the significance, if any, of the fact that some taxes accrued before the chattel mortgage was recorded and some accrued thereafter, and that the ...