United States v. Brosnan – Oral Argument – March 22, 1960

Media for United States v. Brosnan

Audio Transcription for Oral Argument – March 21, 1960 in United States v. Brosnan

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Earl Warren:

Bank America National Trust and Savings Association, Petitioner versus the United States.

Mr. Stewart?

Samuel B. Stewart:

Mr. Chief Justice, may it please the Court.

This case is here on writ of certiorari to the Ninth Circuit.

It is an action pursuant to Title 28 of the United States Code, Section 2410, about which the Court heard something in the argument of the Brosnan case yesterday.

It is an action by The Bank of America, a National Bank, doing business in California against the United States to quiet title of the bank in and to certain land and chattels, specifically a sawmill and the equipment of it, in Calaveras County, California.

The action was started in the Superior Court of the State of California as permitted by California law and was removed to Federal District Court on the motion of the United States.

Both sides moved for summary judgment.

The District Court granted the motion of the plaintiff bank, denied the motion of the defendant Government and decreed that the bank is the owner of the land, the buildings, and the equipment in question and that the Government is barred from asserting any adverse claim.

The Ninth Circuit Court of Appeals reversed and this Court last October granted certiorari.

The bank’s title was acquired by purchase at a foreclosure sale held pursuant to a power sale of in a first deed of trust on the land and the power of sale in chattel mortgages on the personal property.

The Government was made a defendant because it holds tax liens against the former owner of the land and chattels and the Government claimed that its tax liens attached to the land and chattels and are still effective in spite of the fact that the taxpayer no longer held a free and unencumbered title to the land and chattels at the time when the tax lien attached.

The deed of trust, and I may from this point on refer simply to the deed of trust without elaborating to include the chattel mortgage because I think the principles are the same on both types of documents, the deed of trust given in connection with the bank loan and the chattel mortgages had been executed by the taxpayer or a predecessor in title some time before the tax lien attached.

Legal title to the real-estate was actually in the trustee under the deed of trust when the government acquired its tax lien.

When the taxpayer defaulted in the payment of his indebtedness, the land and chattels were sold at public auction in accordance with the contract powers of sale and the bank became the purchaser at that sale at public auction.

All notices required by California law were given, but these did not include in a special notice to the Government which had failed to request special notice as it might have done under California law.

The primary question presented here is —

How does the Government (Inaudible)

Samuel B. Stewart:

Well if Your Honors please, the Government initiates its proceedings by filing a notice of tax lien.

Presumably with due diligence it would investigate the assets of the taxpayer to see what the means of collection might be.

It would discover that the property was subject to an outstanding lien and could then request the notice even though no default had occurred, in the event of default or in the event of sale and it would then receive the notice automatically.

Also these things are recorded in the public offices and there are any number of services and publications which most people subscribe to, which reveal them.

It would be a kind of a telling what you (Inaudible)

Samuel B. Stewart:

Yes sir.

In fact you don’t even have to send it to the holder of the first lien.

You merely filed with in the — in the Registrar of Records Office and this takes care of the situation.

The primary question here is —

William J. Brennan, Jr.:

Excuse me — if you knew the meaning? Merely they filed a notice of tax lien, is that it?

Samuel B. Stewart:

Well they filed a notice of tax lien and then if they want a special notice of any further proceeding, they file a request.

William J. Brennan, Jr.:

Well where is the notice of tax lien filed?

Samuel B. Stewart:

In the County where the property is located, sir.

William J. Brennan, Jr.:

And then in addition to that there is —

Samuel B. Stewart:

There is this proceeding, this optional procedure which may or may not be valid and was not valid here of requesting special notice.

Of course the general notice is given by publication in the usual legal publications which are followed by most people interested in these things anyway.

William J. Brennan, Jr.:

At this time that — at the time that — the contract right for sale that you described for us, is executed was there a notice of record of the Government’s tax lien —

Samuel B. Stewart:

No sir, no sir that came in subsequently.

Charles E. Whittaker:

Is this special statute Mr. Stewart that you referred to one applicable to any junior lien or — or just the Government?

Samuel B. Stewart:

Any junior lien or sir.

Hugo L. Black:

But if —

Samuel B. Stewart:

— Yes Mr. Justice?

Hugo L. Black:

Where is it in your brief?

Samuel B. Stewart:

The statute — the state statute, I think we have cited and I think we did not quote it sir.

It is cited just below the middle of page three of our brief, its California Civil Code, Section 2924 (b), just at the end of the first full paragraph on page three of our main brief.

The primary question presented to the Court is, does the purchaser of land and chattels that a foreclosure sale held pursuant to a power of sale and the first deed of trust and chattel mortgages, acquire title free of subordinate tax liens of the United States?

There’s no question about these liens being subordinate and then there is the secondary question, may such a purchaser establish his clear title by a quiet title suit against the United States?

The Government has stated the question somewhat differently and I pause here momentarily to emphasize the correctness of the question as we have stated it because as Mr. Justice Frankfurter said in the events in the Vanston Committee case in 329 United States, “putting the wrong questions is not likely to beget right answers even in law.”

The Government says that the question is whether a junior federal tax lien maybe extinguished through a non-judicial sale of the property by a mortgagee under a contractual power of sale.

It is my view that there is no issue in this case about extinguishment.

No suit was brought to extinguish.

The statute, Section 3670 of the Internal Revenue Code, says that the Government’s lien is, “Upon all property and rights to property, whether real or personal, belonging to such person” that is the taxpayer.

In our view the taxpayer’s right out or to which the Government lien attached was a defeasible right which subsequently dissolved or evaporated.

Hugo L. Black:

I don’t quite get your distinction there between you and the Government.

Samuel B. Stewart:

This is —

Hugo L. Black:

It’s my fault but I don’t —

Samuel B. Stewart:

But I know Mr. Justice I sympathize with you because it’s — it’s one that has caused trouble all the way in this case and if — if you’ll bear with me just a few moments, I — I’m going to address the next few minutes of my — my argument right to this point and — and then if I don’t clarify it I’ll try to do it again.

This suit assumes that the Government lien against the taxpayer is still just as valid as it ever was as to any property and rights to property belonging to the taxpayer.

But it asserts that the taxpayer no longer has any right to property insofar as the land and chattels in this action are concerned.

And —

Hugo L. Black:

And that — pardon me, but I don’t see the — quite the difference.

It seems to me this is vague — maybe it’s a difference in the use of the word, they’re saying that it extinguished that lien on this particular piece of property.

Samuel B. Stewart:

If you say it that way sir there is no difference in practical results at all.

The importance of the point is that you do not extinguish a general federal tax lien by this method because the tax lien is applicable to all property of the taxpayer.

We’re dealing here only with specific property and we say this specific property is no longer subject to the lien although the lien may still be in effect as to all the properties that the taxpayer may own.

Hugo L. Black:

But does the Government differ from that?

I — I don’t gather that that’s the difference.

Samuel B. Stewart:

Well they stated differently and I think that difference in statement has caused confusion in the fact.

Hugo L. Black:

You used the word extinguished and you read that as meaning extinguish the lien it would have to be nothing else.

When in reality I — I gather it correctly, they’re saying it is extinguished, that lien is drawn so far as that particular piece of property is concerned.

Samuel B. Stewart:

And if you —

Hugo L. Black:

Under these proceedings.

Samuel B. Stewart:

If it is stated that way sir, we have no disagreement.

If the taxpayer had no other property; it would be extinction in every sense of the word.

Samuel B. Stewart:

That’s correct, sir.

Now, the same federal statutes are involved in this case as were involved in the Brosnan case, which was argued to Your Honors yesterday.

However, as this Court reaffirmed in the Best case in 357 United States, Section 3670 of the Internal Revenue Code creates no property rights.

All it does is attach consequences to such right as are created under state law.

I think it maybe worth a few moments without over emphasizing it therefore to discuss the nature of a deed of trust under California law, as well as to go into a little more detail about the alternative procedures that are available both to lienholders such as the bank and lienholders such as the Government.

The clearest statement that I have found of the nature of a deed of trust in California is found in a 1933 case of the California Supreme Court entitled Bank of Italy against Bentley and I’d like to read just a sentence or two from that opinion which states it, I think quite clearly.

The Court there said “Although this State, California, at an early date adopted the lien theory of mortgages, it adopted the title theory in reference to deeds of trust.”

In the early case of Koch against Briggs it was held that the mortgages and deeds of trust were fundamentally different in that, in a mortgage, only a lien was created while in a deed of trust, the title actually passed to the trustee.

This distinction although frequently attacked by counsel and often criticized by the courts has become well settled in our law and cannot now be disturbed.

What’s the citation to that case, Mr. Stewart?

Samuel B. Stewart:

That is 217 California 644, Your Honor and certiorari was denied in 290 U.S.

That’s in your supplemental brief.

Samuel B. Stewart:

That is — that is in our — our supplemental memorandum, yes, sir.

The deed of trust given as here in connection with a bank loan conveys legal title to the trustee for the benefit of the bank.

It also contains the power of sale which authorizes the trustee to sell the real-estate in the event of the default.

Now the trustor borrower retains certain rights.

He retains the right to possession and he retains the right to reacquire the legal title, if he pays his debt when due.

And of course this bundle of rights has been called by various names, but I think there is no dispute that whatever you call it.

Samuel B. Stewart:

This bundle of rights retained by the trustor is — is clearly not a free and unencumbered fee title.

The trustor-borrower cannot convey to any third party, any greater right than those he retains.

And if he has an attempt — if he attempts to convey to a third party, X let’s say, such a conveyance subtracts nothing from the rights of the trustee under the deed of trust and the power of sale.

On default by trustee, may sell, free and unencumbered title, fee title and no one claiming under the trustor-borrower may attack that title of the purchaser at such a trustee sale and that’s California property law, and there’s no dispute about it.

It’s been reaffirmed in the subsequent Carpenter against Small Claims Committe in the California Supreme Court which is cited in our brief and it was recently restated by the Federal Court in California, in the Northern District of California and the Higley case against the City of Sacramento cited in our brief.

One sentence there may be worth repeating.

The Federal Court said the “The general rule in California is that a sale by the trustee under the power of sale and the deed of trust has the effect of vesting the purchaser with title as of the date when the trust deed was executed”, which results in the extinguishment, if I may use the word extinguishment, results in the extinguishment of all liens on the property attaching subsequently to the trustee.

Potter Stewart:

There’s no equity of redemption thereafter or anything —

Samuel B. Stewart:

Not on the sale pursuant to a trust deed Mr. Justice.

Now, yesterday inquiries were made in the course of the Brosnan argument as to state procedures which were available and how the Government might protect itself and I’m anticipating Your Honors’ interest in similar questions as to California, I’d like to take a few moments just to outline those.

There are several loan alternatives, some of which maybe initiated by the Government and some by the holder of the deed of trust.

The first step as I said a moment ago is that the Government files notice of its tax lien.

Then exercising reasonable prudence presumably it investigates the taxpayer’s assets.

I — it’s a matter of public record of which I assume this Court can take judicial notice that the Internal Revenue Service has a budget of $128,000,000 a year for tax audits and $18,000,000 a year for investigation of tax frauds and do special services and if this isn’t enough to cover it they can get a title report for $25 which will show them the entire status of the — of the property.

So having determined this, if the taxpayer is shown to be trustor as this one was of a real-estate deed of trust, the Government records a simple request or notice of default and notice of sale in the event that there is one.

This may happen before default.

It will thereafter receive notice and be able to protect its interest by bidding it to public auction or by a suit if one should be indicated to enjoin any sale under of the power of sale, this is if the Government questions the validity of the deed of trust which of course it does not do in this case.

Now, alternative, the Government may sue under section 7403 of Title 26 U.S. code which was mentioned yesterday to foreclose its lien.

That is to subject the taxpayer’s property whatever it may be, whatever he’s interest in property maybe to the payment of the tax.

It doesn’t have to wait for action by the holder of the deed of trust; it can take this action itself or a third alternative, if it does not choose to follow either of those two, the Government may levy and (Inaudible) for taxes under Section 6331 in following of Title 26.

This is an administrative procedure which results in a sale of public auction at the instance of the Government.

So there are at least three methods which the Government may pursue to protect its rights or if it chooses not to do that, it may wait as it did here, for a prior action by the prior lienholder and in that event the holder of the deed of trust has at least three alternatives.

In the first place, he may request an administrative partial discharge of the Government lien from the property in question.

And this is normally accompanied by appraisals of value of the property showing the amount of the equity, if any, and offering to pay to the extent that any equity is shown, tells the — this excess and then go through the normal procedures.

And this I might say, it’s not in the record but if Your Honors are interested in the practical procedures that are followed, this is what’s normally done.

This is one reason we don’t have any more of these cases.

At least it’s — it’s what the Bank of America normally does — it does and I’m sure a great many others do the same thing and that this results in the — in the disposition of a good many of the cases where this problem arises.

However, where this doesn’t work, if there’s a disagreement about values and or for some other reasons the Government doesn’t choose to give it’s administrative consent and of course it’s free to do this, if there is no way of compelling it then the holder of the prior lien has two more alternatives.

He may sue to foreclose the deed of trust as a mortgage.

This is effective, it’s cumbersome, it’s expensive.

Samuel B. Stewart:

It normally takes two to three years to clear a title when this procedure is followed.

It is not warranted in a practical business world unless there is a need and desire for a deficiency judgment.

Under state law you — you have to go through this procedure if you seek a deficiency of judgment against the — the borrower, but you don’t have to do it if you don’t care about the deficiency of judgment and this brings us to the third alternative which is the one followed in this case.

The holder the deed of trust may sell under the power of sale.

A sale of public auction which there is a 90-day notice filed of default followed by 21 days of publication in the legal newspapers of the county where the — where the property is situated and normally the whole procedure is finished in 120 days.

It is simple, it is inexpensive, it makes possible prompt liquidation which is for the benefit of all concerned because you don’t run up a lot of costs to depreciation the value.

If there is likely to be any excess, it — it develops better this way and it leads to results in a discharge of the obligation without the possible deficiency of judgment which might lead them to further assets of the borrower.

Then if the Government still after this procedure has gone through, if the Government still is stubborn about its lien, still stubbornly asserts its lien as it did here, having it ignored its numerous other means of protecting itself which I’ve outlined the purchaser of the deed of trust sale may sue as this purchaser, the bank did here to quiet title.

Now —

Hugo L. Black:

Is there any dispute between you about the propriety of that remedy?

Samuel B. Stewart:

Yes, sir, yes, sir, indeed.

This — this is the real issue in this case whether this remedy is an appropriate one and although it has come up for adjudication in the lower courts, this is the first time I believe that it has reached this Court.

And this is the main reason we’re here, to determine the effectiveness of — of this remedy, this simple inexpensive remedy as against Government tax liens.

Felix Frankfurter:

How could —

William J. Brennan, Jr.:

And you’ve got 2410?

Samuel B. Stewart:

That is correct, sir.

Now one thing I noticed in yesterday’s argument, I think I might turn you to right now.

I planned to bring it up later but this is probably as good a time as any.

The 2410 was spoken off yesterday as if it offered a single procedure for obtaining a clear title against Government tax liens.

This is not correct.

Section 2410 offers two alternative procedures.

The first is by a suit to quiet title.

The second is by a suit to foreclose the mortgage.

Now many procedural details to be followed in such suits are spelled out in Subdivision (d) and (c) of that section, but there is nothing in the language of that section to indicate that a suit to foreclose is essential or whether the suit to foreclose is a prerequisite to a suit to quiet title or that a quiet-title action is dependent in any way upon the prior completion of a foreclosure action and the legislative history of this amendment is quite interesting.

It is totally inconsistent in my judgment with any notion that a foreclosure is necessary if the quiet-title procedure is followed.

It is — it seems to me that it shows quite clearly that the purpose of the amendment was to provide an expedient procedure for clearing the title (Inaudible) Government’s claim in respect the property of which no valid lien is attached in lieu of the complex, expensive, dilatory procedure by action to foreclose.

And I would like to direct the Court’s specific attention to the most important element of that legislative history.

It is set out on page 10 of petitioner’s main brief.

This amendment was adopted in response to a request made by the then Attorney General Jackson in a letter which the relevant part of which I’ve quoted at the bottom of page 10 and I think that’s worth reading.

Attorney General Jackson said, “It should be observed in this connection that under existing law”, this is back 1942, “Under existing law there is no provision whereby the owner of real-estate may clear his titles in such real-estate of the cloud of a Government mortgage or lien.

Samuel B. Stewart:

In many instances persons acting in good faith have purchased real-estate without knowledge of the Government lien or in the belief that the lien had been extinguished and then this important language, in other instances mortgagees have foreclosed on property and have failed to join the United States.

It appears that justice and fair dealing would require that a method would be provided to clear real-estate titles of questionable or worthless Government liens.

Accordingly I suggest that the bill be amended by inserting the phrase “to quiet title or” between the words matter, “and for the foreclosure of” in line 4 in phase II of the bill and the Congress did it.

And it is our view, that that set up a completely independent alternative procedure in which the Congress specifically intended to approve the procedure which has been followed in this case.

It is here of Your Honors’ interpretation for the first time.

Now this brings me to —

Felix Frankfurter:

When the — was the second —

Samuel B. Stewart:

Yes Mr. Justice Frankfurter.

Felix Frankfurter:

— of the disjunctive quiet title or I haven’t yet addressed the technical connection —

Samuel B. Stewart:

Yes sir —

Felix Frankfurter:

Or 2410 for the —

Samuel B. Stewart:

Yes sir.

If the —

Felix Frankfurter:

Or —

Samuel B. Stewart:

It appears at page two of the appendix Your —

Felix Frankfurter:

I believe that you ought to read but that the course of your plan that I had in mind —

Samuel B. Stewart:

Yes.

Felix Frankfurter:

Or —

Samuel B. Stewart:

To — to quiet title to or for the foreclosure of a mortgage or other lien.

Felix Frankfurter:

Now the problem that we had in — in the prior case or the foreclosure of those mortgages is not present in your case, is it?

Samuel B. Stewart:

Not — not in this technical interpretation because that was not a suit to quiet title in the Brosnan case.

Felix Frankfurter:

No, no, but that — leave that out for the moment.

Go for the foreclosure of the mortgage, that is not the present in your case, does that commission not have to be satisfied?

Samuel B. Stewart:

That is my view, sir.

My view is that the title effectively passed by the power of sale which is a foreclosure sale but a different procedure for it than a foreclosure suit and that therefore no further foreclosure is necessary but all that is now necessary is a decree quieting the title and the purchaser.

Felix Frankfurter:

But if that is to be regarded as a foreclosure of the mortgage, then they would have the same problem we have in the prior case namely you noticed that the Government and it’s present in the procedure, what other proceeding may be?

Samuel B. Stewart:

Well you have the same problem to those extents Mr. Justice Frankfurter.

If you read that 2410 as providing only one procedure instead of two alternative procedures, then obviously we would have to comply with all of the conditions that set forth in 2410 with respect to a foreclosure suit.

But it is our view that if that were the interpretation, the 1942 amendment would be utterly meaningless.

There would have been no point in putting it in because if you go through all that complicated foreclosure proceeding you have clear title anyhow and there is — but with no quiet-title action is needed.

Felix Frankfurter:

No, but you have to get in to the — the protection to the Government which was sought to be accomplished I don’t know what it is by the — for the foreclosure of the mortgage, the consideration which require the Government’s earliest participation in any aspect of the proceeding which is a foreclosure of a mortgage would be equally applicable to whatever the proceedings maybe, to whatever steps there may be to what eventually is a quiet quieting the title proceeding.

In other —

Samuel B. Stewart:

I’m not — I’m not sure of it —

Felix Frankfurter:

In order words — in order words, a state provision for the change of property interest can’t make a difference so far as the protection of the Government is concerned in being in, in the proceeding from the very beginning, whatever the nature of the proceeding maybe?

Samuel B. Stewart:

Well it seems to me sir that it may make a difference if the Congress has specifically said that it does make a difference and it seems to me that that is the effect of the 1942 amendment.

Felix Frankfurter:

Because it described as to quiet —

Samuel B. Stewart:

“To a quiet title or.”

It seems to me there would have been no point in that amendment if you still had to go through the same old procedure anyway.

Felix Frankfurter:

No I’m not suggesting that you have to go through the same old procedure, but I am suggesting that the Government might have to be a participant in the alternative procedure in each of them —

Samuel B. Stewart:

Oh, oh well then to that extent Your Honor, I — I would agree with you that the Government is entitled to be a participant in the alternative procedures to be — the same — same extent as any other junior lienholder entitled to be and I’ve outlined the various —

Felix Frankfurter:

May — maybe not.

It was the same as any other junior title — junior lienholder, maybe not and there maybe a different view of the Government.

In other words if the Government is out of it, the State has large powers of cutting off interest or deeming it unnecessary to give even notice of the cutting of interest if the consideration that satisfied you cut through if you cut them off as to caps later —

Samuel B. Stewart:

I think that is (Inaudible) yes and I —

Felix Frankfurter:

But the question is — the question is whether the State has the same power with reference to — if junior lienholder, who is the lienholder, decided you are a lienholder that is held in against the Government in the — in light of that statute depending upon its construction of course.

Samuel B. Stewart:

I would make this observation on — on that comment by Your Honor.

If the Government knew that — the Federal Government has adequate power through the Congress to protect its tax — its tax liens.

The sole purpose of putting in this procedure for quieting title was a recognition by the Federal Congress that this was an alternative means which would provide adequate protection for the Government and I think I have indicated by the various proceedings which are available that there is more than adequate means of protection for the Government.

Hugo L. Black:

Well if that’s it — might it not be construed as required — if notice was required for you to extinguish the lien whether you do it by attempted foreclosure or by an action to quiet title?

Samuel B. Stewart:

Well I think they might have required that sir but I don’t think they did.

Hugo L. Black:

But you say this statute doesn’t do this?

Samuel B. Stewart:

I say this statute doesn’t do it in the light of the legislative history as to the meaning of the amendment, and as to the purpose of the amendment.

Hugo L. Black:

I confess I haven’t been able to get from the legislative history that the — you find that in that part.

In other words if — if they wanted to amend it by giving them the right to quiet title, it might have wanted them to have — do a way with the Government lien by — build a quiet title or by foreclosure?

Samuel B. Stewart:

May I just call Your Honors’ attention again to the italicized language on page 10 in Attorney General Jackson’s letter which requested this amendment.

In which he referred to other instances in which mortgagees have foreclosed on property and have failed to join the United States.

It appeared —

Hugo L. Black:

What was the object to that have failed to join, so that the United States would get notice?

Samuel B. Stewart:

That would be the only purpose sir of joining.

I say this expressly contemplated a procedure in which they would not be notice and in which there would not be a judicial proceeding on it.

Hugo L. Black:

Why does it — I — I don’t quite get why you have to — go, quite go that far in inference.

Why did they give opportunity here to bring a suit against the Government if not in order that there might be someway the Government can get notice whatever title proceeding there was.

Samuel B. Stewart:

Now the only rationalization of course — I — I have to speculate about this because this is all the records shows Your Honor, the only rationalization I can give you is that it was a matter of common knowledge that this simple inexpensive procedures for quieting of title by a prior lienholders are available in many states of the United States and a feeling that — this procedure should be recognized by the Federal Government that it had adequate means to protect itself in these procedures and that it would be advantaged by the adoption of a simple procedure as well as what others subsequent liensholders.

That’s the only rationalization I can give —

Hugo L. Black:

You are — you’re inferring from the fact that the Congress saw fit to give the right to sue the Government, make them a party of this case, means that Congress intended to leave open to this day the procedures whereby they could extinguish the lien without or at least on that company, without notice.

Samuel B. Stewart:

Yes sir.

Potter Stewart:

Further now in this suit to quiet title, this was brought under section 2410, was it not?

Samuel B. Stewart:

Yes sir, under the first alternative procedure, the quiet title.

Potter Stewart:

Right what you understand to be the first alternative procedure.

Samuel B. Stewart:

That’s correct sir.

Potter Stewart:

And actual notice was given to the Government.

Samuel B. Stewart:

Oh in the quiet-title suit, yes sir.

Potter Stewart:

That suit and the government removed it to the Federal Distinct Court.

Samuel B. Stewart:

That’s right.

Potter Stewart:

Had notice from the word go about this suit, is it not?

Samuel B. Stewart:

That’s correct.

The suit is against the Government.

The government is the only defendant in this quiet title actually.

William J. Brennan, Jr.:

But Mr. Stewart, what — what’ the — what is this that the Government now in a position to vindicate after, as I understand — the foreclosure or whatever those procedures are that’s been described for us is having second place here that is the sale pursuant to the contract or probation?

I thought you told us that this has the effect under California law of releasing the property from many junior lien.

Samuel B. Stewart:

That’s correct sir.

William J. Brennan, Jr.:

Now when you bring this quiet-title action, what proof does the Government — what position is the government in, in that circumstance to vindicate any claim it may have in the quiet-title action that its lien still attaches to the property which you now say has by reason of the sale has been released from mortgage.

Samuel B. Stewart:

They claim I’m wrong sir.

They claim —

William J. Brennan, Jr.:

Well let’s suppose you’re right —

Samuel B. Stewart:

— in that procedure, if this were procedure, it had the effect of clearing title of everybody else’s lien but not our lien.

William J. Brennan, Jr.:

Now, that’s suppose you’re right on your approach to it, what is — what —

Samuel B. Stewart:

If — if I’m right then all this proceeding does is give me a judicial declaration that what I say is totally so.

William J. Brennan, Jr.:

And that you have a —

Samuel B. Stewart:

That we have clear title.

William J. Brennan, Jr.:

That you perfected under California procedures —

Samuel B. Stewart:

That’s correct.

William J. Brennan, Jr.:

— the method by which you could acquire the title free of any junior liens, including the Government.

Samuel B. Stewart:

That’s correct sir.

Felix Frankfurter:

In proceedings during the — I am not sure if I can call this proceeding you can correct me, in proceeding in which — to which the Government was not a party and for which it was not brought before the determining body, is that right?

Samuel B. Stewart:

That is correct sir.

Felix Frankfurter:

It’s good for further understanding —

Samuel B. Stewart:

Yes.

Hugo L. Black:

As I understand it that – here is what I would have like to have an answer to — on — as I read this, it shows the purpose of Congress on its face to get — allowed the suit to be filed and I would assume so if they would get notice.

And of course you could have filed to build the quiet title before this state procedure would you say extinguished the lien.

There’s no reason you shouldn’t have filed it before, isn’t it?

Samuel B. Stewart:

Well I think we could not have successfully maintained it before.

Hugo L. Black:

Why?

Samuel B. Stewart:

Because the lien was still effective and we didn’t have a clear title then.

Hugo L. Black:

What you’re saying is that you have a right to take away any defense the Government has after it’s made a party about proceedings of which it never has notice before.

Samuel B. Stewart:

That is correct, it’s really a proceeding to remove the cloud on time, and anytime the Government has filed a lien, this is the cloud which bothers the purchasers.

It impairs the marketability of the property.

And that is the purpose of — of this quiet-title proceeding, it’s the purpose of quiet-title proceedings of the country over.

I think it may clarify our position — just a bit if I may run quickly through some chart of the —

Earl Warren:

Mr. Stewart, before you get to your charts may — may I ask you this question?

Samuel B. Stewart:

Yes, Mr. Chief Justice.

Earl Warren:

You were, in the bank you must have had many thousands over a period of the years of sales of this kind, sales of the deeds of trust.

Is this a normal procedure that you have followed in that regard or is this — is this a novel procedure that you are — are trying to establish in the law?

Samuel B. Stewart:

I have to answer this — that question this way Mr. Chief Justice.

There have not been so many thousands in the period since this — well went on the books in 1942.

There were some thousands back in the Depression Years.

Earl Warren:

Yes.

Now the foreclosure —

Samuel B. Stewart:

The foreclosure — there — there have not been too many foreclosure proceedings in the year since 1942.

The normal procedure which is followed is the one I mentioned first of seeking by negotiation with the Government an administrative partial discharge of this property supported by appraisals indicating that there is no equity and that when we go through our procedure we will have the whole thing anyhow.

Samuel B. Stewart:

The — t

William J. Brennan, Jr.:

Is that the federal statute?

It is, isn’t it?

Samuel B. Stewart:

There is authorization under the federal statute; I don’t have that citation readily available, may be Mr. Friedman can give it to me, but — now this is a — a I recognized — yes, it’s — it’s in the — it’s in the Government’s brief on page 22, Section 6325 authorizes release through in and by administrative procedure, and they’ve been quite cooperative on this, we have no complaint about that at all.

But human beings do disagree at times, and where you disagree you have to have some other procedure.

Now, we have sometime, brought the procedure to — to foreclose the long way.

We — we’ve tried our hand at it and found it a very poor hand because of the time that’s consumed by it and frankly we have attempted this in civil cases.

We’ve never gotten up here with it before and there’s been uncertainty about it because the — the lower courts have disagreed about it and that’s the reason we’re here, to have a — a conflict of the Circuits resolved as to the effect of it.

Earl Warren:

What is the general practice in the — in the State, in this regard, do — do you know?

Is just this a — is this a novel procedure that you’re trying to establish or — or is it in such circumstances, the circumstances of this case the normal procedure that is — is used in such effect?

Samuel B. Stewart:

I think Mr. Chief Justice that — I could hardly say it is the normal procedure because people have been afraid of it, because the Government hasn’t recognized it.

I know there is a — a wide-spread hope that it will be the normal procedure for the number of requests and telephone calls I’ve had about this case.

Everybody is — is much interested in having this procedure available, but I can only judge from the — the record which does not indicate a large number of cases in which it has been tried and the fact that it has just now reached this Court.

Earl Warren:

But the reason — reason I was asking you was because if this was the practice, I was going to ask what the attitude of the Government has been when it was used.

Have they taken an exception to —

Samuel B. Stewart:

Yes sir.

Earl Warren:

— always or, always or — they’ve just done it occasionally?

Samuel B. Stewart:

No, they — they have not recognized it as well.

Earl Warren:

They never recognized — never recognized it.

Samuel B. Stewart:

Not to my knowledge, sir.

Earl Warren:

Yes.

Samuel B. Stewart:

Except as a threat that may have induced them to give us an administrative partial discharge in some case.

Earl Warren:

Yes.

Samuel B. Stewart:

It may have been effective there.

I can’t judge their mental operations on that.

Earl Warren:

Yes.

But did you seek partial discharge here?

Samuel B. Stewart:

This is not in the record, sir.

The — the fact is that there — there were discussions of it.

Earl Warren:

There were discussions of it.

Samuel B. Stewart:

Yes, but the record does not show —

Earl Warren:

Yes.

Samuel B. Stewart:

— what that was.

William J. Brennan, Jr.:

Mr. Stewart, may I get one other thing clear in my mind?

I gather that if the Government had filed this request for notice, before you exercise the contract rights, now the Government would have participated in something, what would that something have been in the state courts?

Samuel B. Stewart:

They would have received notice of the default.

They would have received notice of the sale.

They would have had the right to appear at the sale and bid and if they thought there was an excess value to pay us off and take the property.

William J. Brennan, Jr.:

Now suppose they challenged the validity or wanted to challenge to validity of the trustee?

Samuel B. Stewart:

Then they could have brought a proceeding for an injunction to restrain the sale and this is done when — we don’t have it done too often frankedly — frankly but this — this is done, where people do challenge that.

William J. Brennan, Jr.:

Well now suppose — suppose that without their filing a request for notice, you had decided voluntarily to give them a notice, you could have done this I take it?

Samuel B. Stewart:

Yes.

William J. Brennan, Jr.:

And then would all of the things you’ve just described have occurred?

Samuel B. Stewart:

They would all have been available to them, yes, sir and we would then be in the same posture that we are now.

William J. Brennan, Jr.:

I see.

Samuel B. Stewart:

I see my time is running short.

I think we can charge any help that — just clarify the situation.

As I see we have four successive — five postures here.

In the first situation the taxpayer holds unencumbered legal title to his (Inaudible).

Then the taxpayer borrows money from the bank and executes a (Inaudible) which is duly recorded.

This creates situation number two which the trustee under the deed of trust holds legal title and a power of sale.

The taxpayer has a right to reacquire if he pays his obligation when due, but that right is subject to dissolution by the trustee if exercised of the power sale.

Then we have situation number three, this being chronologically indicated in which the Government acquires a tax lien on the taxpayer’s right to reacquire but no lien on the legal title if the taxpayer does not default.

But if the taxpayer defaults on his deed of trust obligation, the trustee (Inaudible) his legal title then you have the contract right to do under a state law and this preempts our fourth and final situation in which the buyer of the deed of trust sale has unencumbered legal title to the real-estate, the taxpayer’s right to reacquire had expired by the term and no property right exists to which the Government lien can attach.

And then to summarize the whole thing in a few words as I can put it in, in the first place the taxpayer is entitled to a house.

Then the trustees they’re entitled to a house for the benefit of the bank.

The taxpayer has the right to reacquire.

The Government acquires a lien on the taxpayer’s right to reaquire but the Government has no liens against the trustee or the bank.

If the taxpayer defaults, the trustee sells, the bank buys the trustee’s title, the taxpayer’s right to reacquire dissolves, is gone forever, and the Government lien remains firmly attached in that.

Charles E. Whittaker:

May I ask you Mr. Stewart in that hypothesis, sir.

Samuel B. Stewart:

Yes Mr. Justice Whittaker.

Charles E. Whittaker:

Is it possible to make this, or might desire to convey and create a second lien junior to the first one?

Samuel B. Stewart:

Yes sir.

Charles E. Whittaker:

Didn’t it then completely encumbered his right to reacquire?

Samuel B. Stewart:

Yes sir, if — he encumbers whatever this bundle of rights is that he has left and as I analyze them, the legal effects of it is, it’s a right to possession until he’s in default and it’s a right to reacquire if he faces debt.

Now you can call it anything you want.

Some people have called it illegal estate.

Some people have called it an equity of redemption.

It’s been called all kinds of things.

But —

Charles E. Whittaker:

What does it convey if he sells he conveys subject to both the first and the second deed of trust?

Samuel B. Stewart:

He conveys whatever he has left after that sir.

Charles E. Whittaker:

But not, isn’t that to fee?

Samuel B. Stewart:

No, sir.

Charles E. Whittaker:

Beg your pardon?

Samuel B. Stewart:

No, sir because the legal title is in the trustee.

The legal title is in the trustee under the deed of trust and he conveys the right to reacquire that legal title by paying off his debts.

Charles E. Whittaker:

(Inaudible) equity (Inaudible)

Samuel B. Stewart:

That’s right, sir.

Hugo L. Black:

By accepting all that as being an absolutely valid law as between people and the State of California, do you challenge the power of the Government to say that before a lien — had its liens of the (Inaudible) that it must be given notice by being made a party to an action either to quiet title or foreclosure?

Samuel B. Stewart:

Oh not quiet title.

No, no, sir I do not challenge its — its right to be made a party to some action but I say there are alternatives in the statute and maybe either an action is required.

Hugo L. Black:

I’m not saying that these are all fixed in the State laws.

The Government we will assume now has (Inaudible) saying before you take away our right under that state law, you must make us a party.

Do you challenge its power, Constitutional power of Congress pass such a law?

Samuel B. Stewart:

No sir.

My time is about to expire, I would like to reserve — whatever few minutes I have left for the rebuttal.

There are numerous situations in which this problem has been dealt with in the lower courts.

I believe they’re all set out in our briefs and if I may reserve the remainder of my time.

Earl Warren:

Your time has just expired Mr. —

Samuel B. Stewart:

I’m sorry, sir.

Earl Warren:

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

At the outset I would like to advert to a question which the Chief Justice asked yesterday and which was reiterated today which is the extent to which Section 2410 has been used in situations where the Government claims a lien on the property.

And I’ve gotten some statistics together, they — I cannot vouch completely for their accuracy, they’re obtaining in a hurry, but I think they will demonstrate quite clearly that the general practice appears to be to use Section 2410 in situations where in fact the Government does claim a lien or an interest upon property.

Now the cases are broken down into two categories because of the fact that 2410 is not limited to tax liens.

It also covers other Government liens and the tax lien figures are available from the tax division and the other lien figures from the other divisions and they’re both civil divisions.

They’re broken down some what.

Now in the fiscal year 1959, our statistics show that the Government was named as a defendant in proceedings under Section 2410 in tax cases, in 2939 cases.

In other words there are almost 3,000 cases during the last fiscal year in which in one form or another a suit was brought against the Government under Section 2410 either for foreclosure of a mortgage or to quiet title in which the Government claimed a tax lien against the property and a number of those cases has been ascending back in 19 fiscal, 1956 was 1808.

Now I also have some figures from the civil division.

Of course as I indicated in the civil division cases, they entail not only tax liens but a wide variety of other Government liens and those figures show that during fiscal year 1958, there were 737 cases in which the United States was named as a party defendant in a proceeding under Section 2410 either to quiet title, or their foreclosure and mortgage.

Now the majority of those cases were cases which were determined in the state courts.

I want to emphasize this that these proceedings do not flood the federal courts because the United States has the right to removal and then the majority of cases, the right to removal is not exercised.

William J. Brennan, Jr.:

Well do you have the figure showing how many have been removed?

Daniel M. Friedman:

No I’m afraid I don’t have that Mr. —

William J. Brennan, Jr.:

Can you give us any idea of the percentage?

Daniel M. Friedman:

I don’t, except to say that’s a very small percentage, I will endeavor to obtain those figures.

I’m not sure if they are available.

So that we think this indicates clearly the large number of this cases — one — one further figure that — in the civil field, the non-tax field, since this statute was first passed in 1931, I have a slight breakdown as to some judicial districts.

For example Mr. Justice Brennan, in the District of New Jersey, in the civil field there have been 2758 cases in which suits were brought against the United States.

William J. Brennan, Jr.:

And those should be in the New Jersey State Court?

Daniel M. Friedman:

Those would be in the New Jersey State Court.

There may have been a few that were tried initially in the District Court.

The vast majority have been in the state courts.

And we think this wide-spread practice indicates quite clearly the understanding both by now is that the bar and by the real-estate community that if there is a situation where the Government has a tax lien on the property or claims a tax lien, the procedure generally followed is to proceed under 2410.

Potter Stewart:

But why does —

Felix Frankfurter:

As a matter of curiosity —

Potter Stewart:

Well I don’t follow that at all because — that is I don’t follow your conclusion at all because this very suit was brought under 2410 in a suit of quiet title and the Government was given notice and yet you opposed this all the way, this is what your — there’s no community of understanding here.

Daniel M. Friedman:

Well we — we have previously below (Inaudible) but we now do not question the right of the bank to maintain the quiet title acts and we do not question if this is an appropriate way for the bank to have determined whether or not the Government’s lien was extinguished from this property as a result to the state court proceedings.

Daniel M. Friedman:

Our position is basically, and if we think this is what the Court of Appeals held here that the bank’s title was not quieted.

The bank couldn’t quiet its title because the theory on which the bank filed was a complaint, why that the previous state nonjudicial sale had the effect of wiping out the Government’s lien on this property.

That was the theory and they came in and said, “Quiet the title because the Government’s lien is out” and as we understand and it’s our position, the Court of Appeals said, “No your title is not quiet because the Government’s lien is has not been wiped out.”

Felix Frankfurter:

But you would have taken the same position if the state Court — if the court had found that — that under California law this was a good action to the quiet title and title was quieted, wouldn’t you?

Suppose — suppose there had been a controlling state court decision, Mr. Stewart says there is, and suppose the federal court had followed the state court’s decision, you would have taken that you would still be here, wouldn’t you?

Daniel M. Friedman:

Yes we would Mr. Justice because we don’t think that the State even though it may quiet title with respect to private entities and quiet title as to the Government.

Felix Frankfurter:

Those are the facts that a particular decision says the title wasn’t quieted.

It doesn’t deal with the problem.

There may be other reasons why state courts are interpreting the state law, you may not allow an action for quiet title.

Daniel M. Friedman:

Yes, but I would —

Felix Frankfurter:

But the real grievance is the one that you’ve stated back.

It couldn’t quiet title.

Daniel M. Friedman:

That’s precisely —

Felix Frankfurter:

And so when it comes into the Court to quiet title that is merely to formalize something as to which you have no say

Daniel M. Friedman:

Precisely.

Felix Frankfurter:

I mean that’s your position.

Daniel M. Friedman:

That — that is our position that the — the proceedings which were followed in the California — under the California law, the sale of the property under the deed of trust —

William J. Brennan, Jr.:

Lock the barn door, and (Inaudible) rest of the horses, though.

Daniel M. Friedman:

That’s precisely, and therefore, while they can maintain this action to have ascertained whether or not the Government lien had been wiped out the fact is that the Government lien had not been wiped because California cannot through those procedures eliminate the federal lien.

Potter Stewart:

You don’t differ with Mr. Stewart, do ask to what the California law is with respect to private junior lienholders?

Daniel M. Friedman:

No, but we — we do differ with — with respect to Mr. Stewart on one point which is on this question of notice.

We don’t think that the state can say to the federal government, if — if you want to protect your lien you have to come in and file a notice in the state court.

And indeed the federal statute was recent, was specifically amended to make it clear that the most that the federal state court could do would be to provide under section 2410 the place where a lien maybe filed in order that the state could not impose conditions but not state what information is required to be included in the lien that the Government filed.

Felix Frankfurter:

It’s definitely excuse me —

William J. Brennan, Jr.:

Is the — is the Government in a habit of filing a tax lien so that a mortgagee which has to be or the case maybe will know that there is an outstanding tax lien —

Daniel M. Friedman:

Oh yes —

William J. Brennan, Jr.:

— of some kind?

Daniel M. Friedman:

— that is the general practice.

The lien is received.

William J. Brennan, Jr.:

Well isn’t there a special fact that if you don’t do it is that there’s another one of these types of in special to the —

Daniel M. Friedman:

Yes to the statute, Section 6323 of the code which provides that in the event it has not been recorded, it’s not valid as against mortgagees, pledgees, purchasers and judgment credit.

The general practice is to file these liens and that was done in this case the — at least the two first liens were filed approximately few months or two after they have been received in the collector’s office.

Felix Frankfurter:

Mr. Friedman, I’m still bothered by the opaque history that we have of this legislation and let me ask you this specific question.

Prior to the existence of 2410 or prior to the act of 1924, was it?

Daniel M. Friedman:

1924.

Felix Frankfurter:

Alright, so prior to that no statute was dealing with the problem at all.

Daniel M. Friedman:

That’s correct.

Felix Frankfurter:

California could have created its own property law cutting off junior lienors in the way it does cut them off and that do they apply it to the United States?

Daniel M. Friedman:

I don’t believe so Mr. —

Felix Frankfurter:

Well then how and why not if you have no — you couldn’t — now you can go out with this statute, what would you have resorted to then?

Daniel M. Friedman:

Well I think it’s — it’s clear.

The — the legislative history indicates that the reason for these provisions was because there was no other way of dealing with this problem.

Felix Frankfurter:

Well when you say you don’t think so, you mean there was no way of —

Daniel M. Friedman:

Deriving it, there was no other way.

Felix Frankfurter:

— there is a local property law the local law dealing with enforcement of lienor rights, or mortgagee rights, or mortgagor rights was controlling as against any interest of that United States could have said.

Is that right?

The local law, the local property law what interest were conveyed by a mortgage whether it is or not conveyed, how to enforce them, apply to interest of the United States.

Daniel M. Friedman:

Well now I would think — think —

Felix Frankfurter:

Prior to 2410.

Daniel M. Friedman:

Prior to 2410, I don’t believe that the State could do anything.

Felix Frankfurter:

The State couldn’t touch him.

Daniel M. Friedman:

Couldn’t touch the federal lien and in 2410, Congress stated in one specific instance where a proceeding to foreclose is brought and where there has been a judicial sale at that foreclosure then the effect of that sale upon the junior lien is to be determined by state law but it does —

Felix Frankfurter:

Now did some — usually legislation likes that is a consequence of some — some decision which adversely affect somebody that some acts of Congress solution, is that what happened?

Daniel M. Friedman:

Well I don’t know that the specific decision but we — what have —

Felix Frankfurter:

But usually that’s the way — but I’m not saying it all has it happened that way.

Daniel M. Friedman:

We have some history here that as early as 1913 the American bar —

Felix Frankfurter:

I see the dark ages, doesn’t it?

In 1913 of the known —

Daniel M. Friedman:

That the — I don’t know of any specific decision but at least as far back as 1913.

Felix Frankfurter:

And what happened in those dark ages?

Daniel M. Friedman:

The American Bar Association urged that legislation should be passed to permit the elimination of these federal liens.

But it was always in the context of eliminating a federal lien that was worthless.

The very quotation from Attorney General Jackson that has been read to this Court, spoke in terms of eliminating worthless liens.

This means the situation where the Government has a lien but for one reason or other the lien is not worth anything.

Felix Frankfurter:

You mean in dollars and cents it isn’t worth anything?

Daniel M. Friedman:

In dollars and cents or –.

Felix Frankfurter:

But how can you tell that it is or it isn’t.

You can’t have law depend on that kind of a guess work.

Daniel M. Friedman:

Well it maybe more than dollars and cents.

It may be that the tax is no longer collectible.

The period of the tax has been voided.

There are variety of situations but the critical case in all of those situations is that it was unfair that the people having the real interest in the property that even though the Government’s lien was valued there was no way they could get rid of it.

It was a cloud on title would hang over the property, they couldn’t sell it.

Now this is a different situation.

This is not a situation were the lien is worthless in the sense of a tax can’t be collected.

This is a situation in which the claim is that the lien has been wiped out, it has been wiped out because of the state proceeding and in that situation, we don’t think they can come in and say, “Quiet our title, quiet our title merely because we’ve going through this previous state proceeding.”

It seems to us the quiet title action is a method for testing the effect of the state sale but it is not a means of itself wiping out the lien.

William J. Brennan, Jr.:

Well, what — what do you concede in the present posture of these facts the government could do in — in this 2410 proceeding that was (Inaudible)

Daniel M. Friedman:

Well the Government specifically, and we requested in an alternative that the property, that its lien be foreclosed and that the property be sold and the proceeds be distributed in accordance with its lien.

In other words it will result, and if a greater amount were obtained in the amount of the first mortgage the — that would be paid off on our lien, if nothing more where it can.

William J. Brennan, Jr.:

In other words this is the relief which had you been made party to that the original proceeding, whatever that proceeding was you could (Inaudible)

Daniel M. Friedman:

Yes, and of course the original proceeding in this case wasn’t a court proceeding at all.

All that is done on the California law if you have a power of sale under a deed of trust is to file a notice in the recorder’s office indicating that there has been a default and after 90 days —

William J. Brennan, Jr.:

Yes, my point is that if — if I understand it, if I understand Mr. Stewart had notice been given you whether pursuant to a request for notice or otherwise you then would have done what you’re now asking be done in this proceeding namely that the property be sold under some proceeding that you would then have brought in the California courts, isn’t that true?

Daniel M. Friedman:

Well I think it would have been more likely we might have brought a proceeding in the federal court under 7403 to foreclose our lien.

The fact of the matter is the first notice we had of this proceeding was when we were served in the quiet title action with a —

William J. Brennan, Jr.:

Well my hypothesis is that — if notice had been given you before that sale under contract, what would you then have done?

Probably you say bring in 7403 Act in the federal court.

Daniel M. Friedman:

I would have assumed that we would have done that rather than going —

William J. Brennan, Jr.:

But you would not have had to do that.

William J. Brennan, Jr.:

I take it you could have gone into the state court.

Daniel M. Friedman:

We might have, yes.

I — I’m not — I don’t know what we would have done in that situation.

Felix Frankfurter:

But you could give them any — could you have given notice to these administrative procedures to proper — is recorded, where is it filed?

Daniel M. Friedman:

In the county clerks with the county clerk records for the (Inaudible)

Felix Frankfurter:

With the county clerk at recorder’s office, could you — suppose you have and tried to give me notice we got a — we are filing this.

So there it is.

Doesn’t it become effective for what 90 days?

Daniel M. Friedman:

90 days.

Felix Frankfurter:

And you’ve go in there before the 90 days on the 60th day, as the California — would that have stopped anything?

Daniel M. Friedman:

No we would have had to initiate it as Mr. Stewart said we would have had to bring to suit to enjoin the sale or something.

This is — this is the proceeding merely to give notice and I take it basically to give the people an opportunity to bid on this property.

And I might mention that the United States, if we have been given notice in this situation we have no power to bid in this kind of a foreclosure sale in that situation where foreclosure is sought by other party.

Felix Frankfurter:

You mean there’s no statutory power?

Daniel M. Friedman:

That’s correct.

Earl Warren:

Mr. Friedman, suppose you prevail in this case and you go back to the district court, under your present argument there will be a trial on that quiet title action, would it not?

Daniel M. Friedman:

No Mr. Justice, I think if we prevail in this action the complaint to quiet title would be dismissed.

There were — there were of course motions for summary judgment.

I think if we prevail in this action what happens is that the bank now owns the property subject to our tax lien and at this point whatever further proceedings are appropriate may be taken.

We may initiate the proceeding.

They may wish to initiate a further proceeding under section 7424.

We —

Charles E. Whittaker:

Do we, what for?

Why would the bank give — you — I understood you say that if you win here the result would be that the bank would own the property, but subject to your lien.

Daniel M. Friedman:

Yes.

Charles E. Whittaker:

Which would then be a first lien, isn’t that right?

Daniel M. Friedman:

Correct.

Charles E. Whittaker:

And that means that the bank though it’s foreclosed at the first lien and that as a matter of fact, assumed and bound itself to pay the second one, is that right?

Daniel M. Friedman:

That is correct Mr. Justice because at the time of the foreclosure the interest which the bank had has already with the bank received was already encumbered by this federal lien, junior admittedly to the bank claim, but nonetheless a valid lien.

And that I’d like to repeat what I said yesterday emphasizing this situation, all we’re contending for is that we want an opportunity to protect our rights so that if — if in fact this property is worth more than the amount of the mortgage we will have the right to apply the excess to our lien.

Charles E. Whittaker:

But don’t you realize that what that means is that the bank’s act in foreclosing is admittedly first mortgaged is simply to release it so far as the Government’s tax lien is concerned, wouldn’t it be?

Daniel M. Friedman:

I’m not sure that I understand your question Mr. Justice.

Charles E. Whittaker:

If what is the first lien by foreclosure of it makes the second tax lien of the government a first one, the effect is to satisfy the bank’s first lien, isn’t it?

Daniel M. Friedman:

Yes, the bank’s first lien would be satisfied, but that would not eliminate, we don’t think the federal lien on the property.

Charles E. Whittaker:

Where did the bank get for its first lien which is foreclosed in this way?

Daniel M. Friedman:

But it would get whatever the property is worth over the first or second lien in the — in the same way that in any situation I think if there is a first lien which is foreclosed and it’s subject to a prior lien.

In other words as far as the bank is concerned what it received at the time of this foreclosure, it took subject to the Government’s lien because the State while it may create the interest in the bank when it creates the junior lien and it says how they can be eliminated, we don’t think the State has the power to say that a federal lien created by an act of Congress can be eliminated from real property merely because you follow certain state procedure.

In other words Congress has decided the way in which federal liens maybe released from real property.

William J. Brennan, Jr.:

Well Mr. Friedman the way I thought is that as the bank was the lender here was it not?

Daniel M. Friedman:

That’s correct.

William J. Brennan, Jr.:

Let’s do some figures.

Suppose the bank had loaned $25,000.00 and the government junior lien was for $5,000.00.

They’ve gone through this proceeding and the property has never been worth more than $15,000.00.

Do I now understand you to say that because the bank’s gone through this, it now has a first lien on the property which means that the bank collect — or the government collects its $5,000.00 out of the property?

Daniel M. Friedman:

Oh no if there — if there were another foreclosure and the property is worth only $15,000.00 that would wipe our lien out.

William J. Brennan, Jr.:

Well that’s —

Daniel M. Friedman:

And furthermore, if the property were worth only $15,000.00 and owes the $25,000.00 debt, I’d feel certain that in that situation there would be an administrative relief.

William J. Brennan, Jr.:

Oh I thought — I thought —

Daniel M. Friedman:

Oh no, we’re not fining a penny until the first mortgage has been fully paid.

William J. Brennan, Jr.:

Not — not in this case either.

If this case now goes back, if you prevail and this goes back but as you said this bank’s title encumbered with the Government’s lien nevertheless accept as the property would you bring more than the bank’s original loan with the expense and everything else without it — the Government gets nothing.

Daniel M. Friedman:

That’s precisely correct.

Earl Warren:

And if on the — on the second sale the property brought more money than — than the original lien plus your lien the surplus would go back to the first lienholder.

Daniel M. Friedman:

To the — yes — (Voice overlap) — to the — to the owner of the property, to the owner of the property.

Earl Warren:

Well I thought you recognized that the State had the right to wipe out the — to wipe out rights of the — of the owner of the property under — under state law.

I thought you were only interested in your lien.

Daniel M. Friedman:

Then they write — wipe out the rights of the owner in the state law but as I understand state law if there is any excess over and above the amount necessary to satisfy all the prior claims that then goes back to the owner of the property.

That’s —

Earl Warren:

But I — I did not understand — at least Mr. Stewart — I’m — I’m going to give Mr. Steward five minutes to — to respond.

When this is over and you make take five minutes more too Mr. Friedman —

Daniel M. Friedman:

Thank you.

Earl Warren:

— because I think there are some things that we’d like to hear from him.

Daniel M. Friedman:

To my understanding —

Earl Warren:

But I thought that when one may when — on the original sale I — I thought so far as private lienholders were concerned that those were wiped out and the State according to the state’s procedure and you — you agreed to that.

It’s only your — your only objection as to wiping out the government’s lien.

Now if you come in and have a second — a second sale, are you going to reestablish the rights of the junior lienholders?

Daniel M. Friedman:

Well I’m not clear to your question Mr. Chief Justice.

Earl Warren:

Well let me put it — let me put it this way, take the — the case that — that Mr. — Mr. Justice Brennan submitted to you.

Suppose that the — the bank loaned $25,000.00.

The tax due is $5,000.00.

They first foreclose the — the property and wiped you out.

Then they bring this action to quiet title as against the — the Government.

On the — on the resale of the property, there is a bid of $50,000.00.

That would give you back or give the bank back its $25,000.00, it would give the Government its $5,000.00 and make $30,000.00 — where would the other $20,000.00 go?

Daniel M. Friedman:

I would think it would go back to the original owner Mr. Chief Justice because the whole purpose of these interests are security interest.

Earl Warren:

Well — But —

Daniel M. Friedman:

Now if the property were sold for less than the principal amount —

Earl Warren:

The interest I — it’s clear too.

Daniel M. Friedman:

That’s not — there’s nothing left.

I would think that if there was — and the property would sell to more than the principle amount of the indebtedness plus all liens, any additional amount would revert to the owner of the property.

Earl Warren:

Yes.

Well I do not want to prolong it but I — my — my only confusion was this.

I thought — I thought that you recognized that through this power of sale and the — and the sale itself that the state had the right to wipe out the interest of the owner and — and all junior liens with the exception of the United States Government and — and because the Government is the Government they can’t do — do that, but now, if — if that is true and if they didn’t wipe out those rights, why should you, through this kind of an action, reestablish their rights?

Daniel M. Friedman:

Well we — we’re — whatever effect this would have on their right under the state law is a matter which is not a concern of ours.

Earl Warren:

Well — well that’s the point that I’m trying to put before this Court in respect of lien.(Laughter)

Daniel M. Friedman:

When I — I think — trying to ask you a question — when — when —

Earl Warren:

But you’re always trying to get a —

Daniel M. Friedman:

Your Honor —

Felix Frankfurter:

It’s not — not your worry.

Daniel M. Friedman:

Yes but —

Felix Frankfurter:

Although I have it the Chief Justice is understanding of what Mr. Stewart told us or told me in regards to California law.

Daniel M. Friedman:

Well it — I may be in error in California law.

Mr. Stewart knows more about it than I do.

Hugo L. Black:

They’re not a part of this suit are they?

You only represent the United States.

Daniel M. Friedman:

That’s correct.

Charles E. Whittaker:

May I ask you one more question?

Daniel M. Friedman:

Yes.

Charles E. Whittaker:

Is it your position that this exercise of the power to sale (Inaudible) and what it did not satisfy or displace any liens.

Now they have to go back and start all over under Section 7424 or 7403 to foreclose, is that your idea?

Daniel M. Friedman:

No — no, Mr. Justice.

We don’t claim that the exercise of the power to sale under state law is void.

We claim that the exercise of the power of sale whatever its effect maybe as between the private parties does not have the effect of eliminating our lien on the property.

Charles E. Whittaker:

But it didn’t eliminate the lien foreclosed and all other liens?

Daniel M. Friedman:

That is as far as state law provides, yes.

Charles E. Whittaker:

And that’s then you say leaves your lien (Inaudible)

Daniel M. Friedman:

That is correct.

Hugo L. Black:

But you don’t — I think that you declared that as a — did that sound like you are saying that if you win this lawsuit, the bank is going to lose money and can’t collect its mortgage and debt, you don’t mean that.

Daniel M. Friedman:

Of course not Mr. Justice.

Hugo L. Black:

What you mean as I understand is that the Government is that you’re right on the statute, it authorizes a suit to quiet title, you say that they’re authorized to file that the procedure that in the merits they shouldn’t win because that you interpret the federal statute, they can’t take away the Government’s right without a notice, by making it a party to a lawsuit.

Daniel M. Friedman:

Precisely.

Hugo L. Black:

And so if you get it back and nobody else try to litigate but you and them that you — that you’re engaged, you said a while ago that you have no interest in them – (Inaudible).

What you want is a chance to see whether or not the Government has been injured by having it foreclosed without notice.

Daniel M. Friedman:

Precisely.

Hugo L. Black:

As you say the statute requires.

Daniel M. Friedman:

And —

Hugo L. Black:

And is there anything else in it except whether the statute requires it.

Daniel M. Friedman:

We don’t think so we — and I want to emphasize that the bank cannot possibly be hurt financially because we don’t claim a penny until the mortgage has been fully satisfied.

If there’s not enough in this property to produce anything more than the amount of the bank’s indebtedness, we don’t get anything.

No one is hurt.

Daniel M. Friedman:

All that we say is we’d like to have an opportunity as Congress has provided to give us a chance to make that determination.

Hugo L. Black:

But you don’t say that by their attempting to display surely and as you say wrongfully they thereby forfeited their mortgage or any part of it.

Daniel M. Friedman:

Oh no, of course not.

Felix Frankfurter:

On the other hand you mustn’t — you mustn’t belittle their claim because they don’t lose anything.

The point is that they have certain interest which they think they have acquired under state law on which they stand and the right to the property is also — maybe allowed by state law and that maybe a right which is what they are asserting here.

Daniel M. Friedman:

Surely.

Felix Frankfurter:

It has nothing to do with your claim.

All I’m saying is you — you must have been to appear that the act — Mr. Stewart here is representing an abstract proposition of law.

Daniel M. Friedman:

No I — I — all I was suggesting is that there is no — in — unfairness to the bank.

Felix Frankfurter:

So that’s it.

This all depends what their rights were on — what their rights were when (Inaudible)

Daniel M. Friedman:

I was going to suggest there is no unfairness to the bank in holding that the federal lien is not eliminated by exercise of the power of sale since the bank — since the United States cannot realize any of the proceeds until the bank’s prior claim has been paid in full.

Hugo L. Black:

I suppose that practically speaking from the Government standpoint or any other there are many instances in which foreclosure sails ahead rather just bring totally and completely inadequate amount and that if it’s sold for what they were worth they would pay off the mortgage and pay off the other liens and you are claiming that the federal statute provides that you should be given notice in order to protect your right that you may have.

Daniel M. Friedman:

Yes in any of the — any access over and above the value.

Charles E. Whittaker:

Could I ask you a question at this point?

Supposing the conclusion has come to the federal statutes do not prohibit what was done here, what is your position at that point?

Daniel M. Friedman:

You mean that the federal statute permits —

Charles E. Whittaker:

That this federal statute does not make this as an exclusive procedure which is the basis of your argument.

Have you got a constitutional first to your argument then that if the state law governs and if the state law purports to take away the Government’s lien hereby extinguish them and then whatever words you want to call it, that — that violates due process or —

Daniel M. Friedman:

No, we are not making a constitution —

Charles E. Whittaker:

You are not making a constitutional argument.

Daniel M. Friedman:

No, because if — if this Court concludes that Congress determined that the validity to continued existence of federal liens is to be determined by state court procedures that’s the end of our position.

And indeed Mr. Justice I want to repeat once again that Congress specifically so decided in one provision of 2410 where it said, that in the event there is a judicial sale, a foreclosure at a judicial sale then the effect of all liens will be determined as they are under local law, but for that to happen there must be a — the United States must be made a party to a foreclosure suit and there must be a judicial foreclosure.

Charles E. Whittaker:

So your — your whole position as it stands on the – stems from your argument that the federal statutes are the exclusive means of destroying a Government lien.

Daniel M. Friedman:

Precisely that.

Charles E. Whittaker:

That’s all there is.

Daniel M. Friedman:

That — that is our basic claim.

Felix Frankfurter:

Mr. Stewart is going to say yes to that proposition too?

Daniel M. Friedman:

Well I’d like —

Felix Frankfurter:

Because you’re constructing what — construing what the federal statute says as any question exclusiveness.

Daniel M. Friedman:

Its — it’s exclusiveness in the sense that Congress has determined the procedures for the discharge of federal liens and has not permitted the States by the exercise of their own procedures affecting State interest also to wipe out federal —

Felix Frankfurter:

I could sense that answer of yours and not answer your problem at all because you have to go on to the next step what is it that Congress has provided?

Daniel M. Friedman:

What Congress has provided —

Felix Frankfurter:

Because how big your argument — I know what it is.

All I’m saying is you’re speaking — maybe answered yes I believe by Mr. Stewart and come out just the opposite.

Daniel M. Friedman:

Well I think the — the answer in the following —

Felix Frankfurter:

In other words it means that the question of what 2410 means and what it is saying is it’s quite within the statute is whether to choose to quiet title etcetera, etcetera and you say that a suit to quiet title can — can start with the answer which Congress only to have answered by the litigation.

Daniel M. Friedman:

The suit if I may suggest Mr. Justice, the suit to quiet title cannot prevail because the title isn’t quieted that the Congress had said that you cannot use these state procedures to eliminate the federal lien.

Hugo L. Black:

You’re saying in effect that 2410 means if they can’t take away the Government’s title to that lien without notice to the Government making it a party under 2410?

Daniel M. Friedman:

Precisely and I cannot —

Hugo L. Black:

Whatever else they can do if they can’t do that.

Daniel M. Friedman:

That’s precisely —

William J. Brennan, Jr.:

Well now one other thing so if this gets back to the question I asked you yesterday, the discussion you and I had yesterday.

I gather and may I use the example I did yesterday the foreclosure of the suit so you’ve got my own state policy to know what I’m really familiar with I gather is in a New Jersey foreclosure procedure the government is given notice and is made a party in circumstances like this.

Then except for that the procedure is there’s the notice for the Government must be those described by 2410.

Daniel M. Friedman:

Yes.

William J. Brennan, Jr.:

And the Government will have the right to remove that action to the federal court —

Daniel M. Friedman:

Yes.

William J. Brennan, Jr.:

— if they desire but the judicial sale which eventually then satisfies 2410.

Daniel M. Friedman:

That’s right.

William J. Brennan, Jr.:

But it’s — and where they have different forms of procedures as apparently California and the one we heard yesterday, Pennsylvania have, are not there the lienholders the prior lienholders almost forced into bringing a procedure under 2410?

Daniel M. Friedman:

They may well be and I think that for that — that as I’ve indicated the statistics show that this is a usual form in which that is done.

That’s right, that the — the prior lienholder cannot hope to eliminate the federal lien merely by going through the state procedure.

William J. Brennan, Jr.:

Well this bank for example could not under this kind of contract arrangement any longer protect its rights under the trust deed by the existing procedures for that it would have to bring the — a litigation either in the California court or in the federal court to accomplish it, would they not?

Daniel M. Friedman:

Do you mean at this time after this or before?

William J. Brennan, Jr.:

If you’re right, if you’re are right in this case, if you’re right in this case can Mr. Stewart any longer affect titles under trust deeds for his client and no matter what he did here?

Daniel M. Friedman:

No.

William J. Brennan, Jr.:

It’ll mean you’ll have to bring a suit either in the California court or in the Federal District Court if he is not to follow the cumbersome foreclosure procedure that the State provides and such a suit will have to bring — be one under 2410, would it not?

Daniel M. Friedman:

That’s right.

You — you would have to follow these requirements.

Daniel M. Friedman:

You could either bring — bring suit to foreclose.

Felix Frankfurter:

Well, Mr. Friedman there wouldn’t be — there wouldn’t be even by the most fanatic of the finder of constitutional question in anything and everything in the law, there wouldn’t be a constitutional issue if Congress tomorrow but is there if you taking a little time off and it legislates — legislative day passed a statute in effect that the state law and state procedure governing the disposition and satisfaction and displacement of junior lien shall apply to junior lien of the United States.

Daniel M. Friedman:

Oh no.

Felix Frankfurter:

Is there any — there couldn’t be one?

Daniel M. Friedman:

No.

Felix Frankfurter:

So the only question we have here is to interpret, is to define the content for — what Mr. Stewart insists on quiet — proceeding to quiet title, is that right?

Daniel M. Friedman:

Well just to put it at how I put it —

Felix Frankfurter:

You can put it differently, but isn’t that — isn’t that the issue before us?

Daniel M. Friedman:

Well it —

Felix Frankfurter:

Whether because this is an honest to God prior to title proceeding cutting off junior lien from California, it governs junior liens of the United States.

Daniel M. Friedman:

If I may that a little differently, Mr. Justice.

I think the question is whether the title can be quieted now because of what happened before.

In other words — I — their claim is not that in this suit the liens can be cut off.

Felix Frankfurter:

I know I understand that.

Whether this is a quiet title proceeding within the meaning of 2410, you accept that?

Daniel M. Friedman:

No I can’t Mr. Justice because this is a quiet title proceeding under 2410.

Felix Frankfurter:

It is on the California law but not under 2410 under your argument.

Daniel M. Friedman:

Mr. Justice I think it’s a — an unsuccessful quiet title proceeding.

Felix Frankfurter:

You’re right.

Hugo L. Black:

May I ask you, I think understand what you mean.

What you are saying is that they — they do have a right to file a bill to quiet title which means that if they can win if it means you have no longer in a lien —

Daniel M. Friedman:

That’s right.

Hugo L. Black:

— on the merits.

You say on the merits, you still have a lien because they didn’t give you the note — make you a party as the statute required and therefore they lose their suit to quiet title on the merits.

Daniel M. Friedman:

That’s right.

Hugo L. Black:

Not because they’re not authorized to file a suit, isn’t that —

Daniel M. Friedman:

That’s right.

Felix Frankfurter:

They’re authorized to file a suit something that the quiet procedure — quiet title from the California law may not satisfy the requirement implied or explicit of a federal statute where federal liens are involved —

Daniel M. Friedman:

Well I — I would equate in terms, Mr. Justice, these terms that the question is whether a quiet title suit may succeed on the basis of what has previously happened.

Felix Frankfurter:

Well of course if the United States can not file a quiet –and object to any kind of piece of paper being filed on a California court.

Charles E. Whittaker:

You say that the procedure implied here by the bank was alright but it hasn’t any substance on merits as such.

Daniel M. Friedman:

That is right.

Charles E. Whittaker:

Now, you do admit that they foreclosed their mortgage — the bank did foreclose its mortgage in accordance with the California law.

Daniel M. Friedman:

Yes.

Charles E. Whittaker:

Well, that mortgage then became a spent instrument once that power of sale was exercised, didn’t it?

Daniel M. Friedman:

As far as the mortgages, as far as the mortgagor and the mortgagee, yes.

Charles E. Whittaker:

Now, you say that while you’ve argued that your lien is now to become a first lien you don’t really mean that in answer to others of my brothers, but I want you to tell me now if you can how the bank’s going about to get its money without first paying off what you say is now your first lien.

Daniel M. Friedman:

Well that it could too, the one thing the bank could do is to bring a proceeding under 7424, which will be to have a validity of the Government’s lien determined or on this proceeding I suppose, although the Court granted summary judgment, they might go back to the District Court and ask the District Court itself in accordance with alternative prayer for relief to decree a sale of the property, sale under the authorization of the Marshal.

Now if at that sale, if at that sale the property brings no more than the amount of their debt we’re out.

We have no claim to anything more.

Felix Frankfurter:

Or should the federal court go through a procedure — same procedure between the central and local authorities even though the Government has an interest.

Daniel M. Friedman:

Well I suppose because Congress has given us the right to move these cases into the federal court.

Felix Frankfurter:

But did it — alright —

Daniel M. Friedman:

Now I just like to very briefly in closing point out that what we had here was the trust deed conveyed title to the trustee, but the California courts have said that this is a security title that’s all they said and it’s — as a case it was developed in California.

Now the courts have treated it as a practical matter a mortgage and a deed of trust is very similar and what we really had here analytically I think is what we had yesterday in the Brosnan case that is, the indebtedness was created and in order to secure the payment of this indebtedness the debtor, the mortgagor gave to the mortgagee or the trustee or the beneficiary the power to apply the property, to sell the property and to apply the proceeds to the proceeds towards the discharge of his indebtedness, but they’re attached to this property prior to the time of sale, this federal lien and this attached basically to the mortgagor or the taxpayer’s interest in the property.

And under well established principles once the lien attaches to property when the property is sold and transferred it passes with the lien unless the act of sale itself operates to discharge the lien from the property.

As I’ve indicated we think it is clear that Congress has said that except when you — or comply with the strict requirements of 2410, the State nonjudicial sales to which the United States is a party do not operate to eliminate and wipe out the federal liens on this real property and we therefore believe the judgment should be affirmed.

Earl Warren:

Mr. Stewart.

Samuel B. Stewart:

Mr. Chief Justice I thank you for the additional five minutes.

I should like to direct your attention to one reference which it seems to me demonstrates the utter inconsistency of the Government’s position here and then I’ll devote the rest of the five minutes to an effort to answer some of the questions that that were asked of my friend on the other side.

The reference is to a revenue ruling which is quoted on page 6 of the petitioner’s main brief which is rather short and it seems to me feels directly with the question involved here.

It says, “Federal tax liens attach to property only to the extent of the delinquent taxpayer’s interest therein where a taxpayer has only an option to purchase real estate” and this deals with an option now but it seems to me closely analogous to our situation here, “where the taxpayer has only an option to purchase real property at the time the federal tax lien arises, the lien attaches to the option, that is, to the interest of the taxpayer not to the real estate.

Where his rights under the option are terminable the Government’s right by virtue of its lien upon the taxpayer’s interest, are likewise terminable, being no greater than those of the taxpayer.”

Accordingly, when the taxpayer’s rights under an option terminate after the federal tax lien has arisen the rights of the United States in the option also terminates since there is no longer any property in the option to which a lien may attach.

It seems to me sir you can apply that word for word, syllable for syllable to the situation here, the Government’s lien attaches to the taxpayer’s interest, a defeasible interest, something less than a total, free, and unencumbered fee title of the property and when that title is gone so is the Government’s tax lien gone with it.

And now to go to the question that was asked of Mr. Friedman I believe by Mr. Justice Frankfurter, what could you do before 1924?

You couldn’t do anything except buy the Government off because there was no procedure that was authorized.

Then came 2410, originally in a form, that authorized only a foreclosure suit.

Then we could get rid of them if we wanted to go three years, through three years of trouble and expense to do it.

Then came the amendment in 1942 to 2410 which if Your Honors agree with my contention here has simplified the procedure which was the only excuse for having that amendment, to permit another method not this complicated three-year proceeding but a simple method of going through the simple procedure recognized by most of the States.

Samuel B. Stewart:

Yes sir?

William J. Brennan, Jr.:

If — if your view does not prevail, getting back to the question I ask Mr. Friedman —

Samuel B. Stewart:

Yes sir.

William J. Brennan, Jr.:

— your only alternative in the future in cases like this to follow that cumbersome three-year procedure you’ve described?

Samuel B. Stewart:

Unless we can deal with it administratively, sir, that’s the only legal option we have.

William J. Brennan, Jr.:

But I don’t quite follow that.

Now this — this cumbersome procedure I gather is your state foreclosure proceeding.

Samuel B. Stewart:

That’s — that’s correct sir.

William J. Brennan, Jr.:

And 2410 doesn’t provide a —

Samuel B. Stewart:

Well 2410 is the same thing sir.

All 2410 does is prescribe certain standards of state foreclosure proceedings.

In other words, your state foreclosure proceeding must meet these tests of notice, right to redeem, and all the other things that that —

William J. Brennan, Jr.:

Why does it take three years?

I don’t follow that.

Samuel B. Stewart:

I can’t tell you why sir except that it does, that this is our experience.

It has been a two years minimum, three years more normal.

Felix Frankfurter:

You mean court congestion?

Samuel B. Stewart:

No sir it’s the — it’s the — well this is part of it, yes sir court congestion plus the year of right of redemption on the end of it.

William J. Brennan, Jr.:

Well if this be so if you went — if you were in the federal court out there?

Samuel B. Stewart:

Yes sir.

William J. Brennan, Jr.:

The same thing.

Samuel B. Stewart:

Of course we have no right to go to the federal court.

William J. Brennan, Jr.:

No I know you have to — to move.

Samuel B. Stewart:

We have to start on the state court.

It is only when the — when the Government removes us to the federal court that we get into the federal court.

Hugo L. Black:

Why did you say you have to foreclose the statute which specifically authorizes you to file a bill to quiet title?

You don’t have to wait until you have sold it without notice.

You can file a bill to quiet title and give — give a notice to the Government and test out its lien.

Samuel B. Stewart:

But if you’ll get —

Hugo L. Black:

And if you’re saying that they didn’t have any remedy and then they give them a remedy to foreclose then they gave them foreclose, but they had to have the title (Inaudible) then they give him a remedy by quieting title and now you say that despite those things although they never had any before you can take the third remedy and let the state foreclose without notice, under the state law.

Hugo L. Black:

That’s the same —

Samuel B. Stewart:

No Mr. Justice Black I — I have to think I’ve not made my self clear, let me try.

The remedy to quiet title is not a procedure for settling liens and for determining who has what rights one against another.

It is a proceeding for determining what has been done heretofore.

Hugo L. Black:

Why isn’t that they have given you here in this statute where you did have a right to proceed by foreclosing, if they wanted to add to that so that you’d have another remedy, it’s a federally created remedy to quiet title that this is in fact attacking this lien.

I — I’ve had those kind of cases.

I don’t see why you say that’s not a legitimate kind of a lawsuit.

Samuel B. Stewart:

Well, Mr. Justice Black perhaps — perhaps I’m wrong, perhaps — perhaps the Court can straighten me off, but my interpretation of that is this that the approval of a quiet title procedure was necessarily an approval of quiet title procedure which exists under state law.

This is the only procedure to which we have access.

We could not get jurisdiction in the federal court on the ground that this involved a federal statute or — or suit against the Government.

We have to sue in the state court we have a quiet title procedure in the State as most States do and our quiet title procedure in the State of California is a procedure to determine that title should be quieted because no rights exist.

Now, this we have followed —

Hugo L. Black:

What about 7024?

Samuel B. Stewart:

This again sir is — is a — a different proceeding.

It is not a proceeding to quiet title.

It’s — it’s a — an equally complex proceeding with the foreclosure procedure.

The — you see the issue here is not one of whether we could do something else.

We could do several other things.

The issue here is whether the Congress by adopting this amendment intended to expedite proceedings, intended to make it possible to follow a simple remedy that save the cumbersomeness and the expense and do things in the way that business is ordinarily transacted in spite of the fact that the Government is a party.

That’s — that’s our purpose.

Hugo L. Black:

As I read — as l read the statute your issues here I thought (Inaudible) a very simple one as Mr. Justice Franckfruter suggests that this statute to provide that the Government liens are not be destroyed without making it a party, it means some kind of litigation.

It is not the only issue under the construction of the statute and maybe you’re right.

Samuel B. Stewart:

If it is —

Hugo L. Black:

I’m — I’m not saying if you’re not right.

Samuel B. Stewart:

I — I think sir that that is the issue except there’s a question of interpretation on what kind of litigation.

Now we say the kind we brought here —

Hugo L. Black:

Well the —

Samuel B. Stewart:

— is the only kind that will —

Hugo L. Black:

You say the kind of litigation that doesn’t require notice to the Government to make them a party.

Samuel B. Stewart:

But not the quiet title, sir.

Samuel B. Stewart:

The quiet title —

Hugo L. Black:

I’m not — I’m talking about the — the — if the statute means that the Government’s lien shall not be destroyed without making it a party, then you have violated the statute, haven’t you?

Samuel B. Stewart:

That’s right sir.

Hugo L. Black:

And that’s if —

Samuel B. Stewart:

If it means the —

Hugo L. Black:

That’s right.

Samuel B. Stewart:

Then I say it does not make it right.

Hugo L. Black:

And I don’t say which —

Samuel B. Stewart:

Thank you, Your Honors.