84

Opinion of the Court.

a State could affect the standing of federal liens, contrary to the established doctrine, simply by causing an inchoate lien to attach at some arbitrary time even before the amount of the tax, assessment, etc., is determined." United States v. New Britain, supra, at 86. The federal rule is that liens are "perfected in the sense that there is nothing more to be done to have a choate lien-when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." Id., at 84. We reject respondents' contention that the choateness rule has no place when a mortgage under § 6323 (a) iş involved. The predecessor to § 6323 was first enacted by Congress in 1912 in order to protect mortgagees, purchasers and judgment creditors against a secret lien for assessed taxes and to postpone the effectiveness of the tax lien as against these interests until the tax lien was filed. H. R. Rep. No. 1018, 62d Cong., 2d Sess. The section dealt with the federal lien only and it did not purport to affect the time at which local liens were deemed to arise or to become choate or to subordinate the tax lien to tentative, conditional or imperfect state liens. Rather, we believe Congress intended that if out of the whole spectrum of state-created liens, certain liens are to enjoy the preferred status granted by § 6323, they should at least have attained the degree of perfection required of other liens and be choate for the purposes of the federal rule.

The Court has never held that mortgagees face a less demanding test of perfection than other interests when competing with the federal lien. Indeed United States v. Ball Constr. Co., 355 U. S. 587, stands for just the contrary. There the state law creditor, asserting that the

340 U. S. 47, 49-50; see also, United States v. Acri, 348 U. S. 211; United States v. Vorreiter, 355 U. S. 15. Thus the fact that, under Arkansas law, the claim for attorney's fees becomes enforceable upon default as a contract of indemnity does not foreclose inquiry by this Court into the degree the claim is choate at that time.

Opinion of the Court.

374 U.S.

assignment under which he claimed was a mortgage within the predecessor to § 6323, insisted upon priority over the federal lien by virtue of the previously executed assignment. A majority of the Court, although not expressly declaring the assignment to be a mortgage, held that § 6323 (a) afforded the creditor no protection since his interest was "inchoate and unperfected." The four dissenters thought the assignment was a mortgage and that it was "completely perfected" and "in all respects choate." While disagreeing on the choateness of the particular assignment involved there, the Court was unanimous in applying the choateness test to those seeking the protection of § 6323 (a). We follow that lead here and therefore proceed to measure against the rule the choateness of the mortgagee's lien for reasonable attorney's fees before us.

Clearly the identity of the lienholder and the property subject to the lien are definite here, but it is equally apparent that the amount of the lien for attorney's fees was undetermined and indefinite when the federal tax liens in question were filed. The mortgage held by respondents secured a promissory note which obligated the mortgagor maker to pay a "reasonable attorney's fee" "in the event of default" and "of the placing of this note in the hands of an attorney for collection." By the time the federal liens subordinated by the Arkansas courts were placed of public record, default had occurred, the mortgagee had elected to declare the note due and payable, an attorney had been engaged and a suit to foreclose the mortgage had been filed. But the "reasonable attorney's fee"-reasonable in relation to the service to be performed by the

There is nothing in Security Mortgage Co. v. Powers, 278 U. S. 149, which compels us to hold the lien choate, since the issue there was the status of an attorney's fee clause, fixed in amount, in bankruptcy proceedings where the rigorous federal lien choateness test was not necessarily applicable.

84

Opinion of the Court.

attorney-had not been reduced to a liquidated amount. The final amount was to be established by court decree and the Chancery Court set the fee considerably below the sum requested. Moreover, there is no showing in this record that the mortgagee had become obligated to pay and had paid any sum of money for services performed prior to the filing of the federal tax lien.

Ball once again provides a parallel. Sums due the contractor-taxpayer under a particular construction contract were assigned to the surety as security for any future indebtedness of the contractor to the surety arising under that contract or any other. After the filing of the federal tax lien against the contractor, the surety made advances to complete another contract of the taxpayer, as the surety was obligated to do under its bond issued on that contract, and the taxpayer thereby became indebted to the surety. The majority held the surety's interest "inchoate and unperfected" at the time of the filing of the federal tax liens. Ball therefore rejects as inchoate an assignee's or mortgagee's lien to secure future indebtedness of the taxpayer-debtor. The creditor holds merely "a caveat of a more perfect lien to come." New York v. Maclay, 288 U. S. 290, 294. Likewise, when a mortgagee has a lien for an attorney's fee which is uncertain in amount and yet to be incurred and paid, such a lien is inchoate and is subordinate to the intervening federal tax lien filed before the mortgagee's lien for the attorney's fee matures.10

• Contrast Crest Finance Co. v. Umed States, 368 U. S. 347, where the assignment and the loans were consummated prior to the accrual and filing of the federal tax liens.

10 See in accord, with respect to attorney's fees, United States v. Bond, 279 F. 2d 837 (C. A. 4th Cir.); In re New Haven Clock & Watch Co., 253 F. 2d 577 (C. A. 2d Cir.); Bank of America v. Embry, 188 Cal. App. 2d 425, 10 Cal. Rptr. 602; with respect to payments of subsequently attaching local taxes, United States v. Bond, supra; United States v. Christensen, 269 F. 2d 624 (C. A. 9th Cir.); and

Opinion of the Court.

374 U.S.

But, it is said, the principal and interest of the mortgage were definite in amount, the attorney's fee later became certain by court order 11 and if the tax lien were to prevail the preference of the mortgagee given by § 6323 will be frustrated since payment of the attorney's fee will reduce the net amount realized from the mortgage. Aside from the fact that the mortgagee here will experience no such reduction, this argument would subordinate federal tax liens to inchoate liens and in both United States v. New Britain, supra, and United States v. Buffalo Savings Bank, 371 U. S. 228, the Court denied priority to local tax liens which were imperfect when the federal tax lien was filed even though the former had priority over the mortgage and would reduce the recovery of the mortgagee.13

The court below was in error and its judgment is reversed and the cause remanded for further proceedings not inconsistent with this opinion.

Reversed and remanded.

MR. JUSTICE DOUGLAS dissents.

with respect to future advance clause transactions, American Surety Co. v. Sundberg, 58 Wash. 2d 337, 363 P. 2d 99; Rev. Rule 56-41, 1956-1 Cum. Bull. 562; cf. United States v. Peoples Bank, 197 F. 2d 898 (C. A. 5th Cir.); Hoare v. United States, 294 F. 2d 823 (C. Ą. 9th Cir.).

11 This argument would require us to revitalize the long since rejected relation-back doctrine. See United States v. Security Tr. & Sav. Bank, 340 U. S. 47, 50.

12 See note 5, supra.

13 By the same token respondents' contention that the rules against "unjust enrichment" are violated by preferring the tax lien to the claim for attorney's fees is without merit. Both New Britain and Buffalo Savings Bank prefer the federal lien even though the mortgagee's interest in the proceeds will be reduced by later-arising local taxes having priority under state law over the mortgagee. The attorney's services, moreover, were rendered for the benefit of the mortgagee to protect his interest in the property, and the United States, holding an adverse interest, received no such benefit from them that its interest is to be charged therefor.

374 U.S.

June 10, 1963.

BALDWIN ET AL. v. MOSS et al.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA.

Appeal dismissed.

No. 864. Decided June 10, 1963.

Reported below:

F. Supp.

Walt Allen, Jim A. Rinehart, Leon S. Hirsh and James C. Harkin for appellants.

PER CURIAM.

The appeal is dismissed.

MR. JUSTICE HARLAN would postpone consideration of the question of jurisdiction until after argument on the merits.

ALLEN ET AL. v. VIRGINIA.

ON PETITION FOR WRIT OF CERTIORARI TO THE CIRCUIT COURT OF HOPEWELL, VIRGINIA,

No. 264, Misc. Decided June 10, 1963.

Certiorari granted; judgment vacated; and case remanded.

Leonard W. Holt and Simon Lawrence Cain for petitioners.

Sol Goodman for respondent.

PER CURIAM.

The motion for leave to proceed in forma pauperis and the petition for writ of certiorari are granted. The judgment is vacated and the case is remanded to the Circuit Court of Hopewell, Virginia, for reconsideration in light of Griffin v. Illinois, 351 U. S. 12.