The opinion of the court was delivered by: WILLSON
This civil action is before this Court on the petition of the United States for the discharge of all claims and liens upon real and personal property sold by the Marshal on a mortgage foreclosure and for distribution of the proceeds of the Marshal's sale.
It is agreed in this case that on April 11, 1962, the Small Business Administration, a direct agency of the government of the United States, took a plant mortgage on the physical assets, real and personal, of the defendant, Oswald & Hess Company, situate in the City of Pittsburgh, in the sum of $ 350,000.00. The mortgage was duly recorded on the same date in the Recorder's Office of Allegheny County. Thereafter, the obligation became in default. A judgment by confession was entered against the defendant on January 25, 1963, and a writ of execution issued and a public sale by the Marshal was held on April 25, 1963. At that time the Small Business Administration purchased the real and personal property for the sum of $ 175,000.00.
The City of Pittsburgh, having notice of the petition for discharge of the claims and liens, has made claim for unpaid water and sewage charges which had been assessed and are unpaid and remain outstanding. In this case the issue is whether such charges, though not filed of record in the Court of Common Pleas of Allegheny County, are liens upon the real estate which is described in the mortgage to the Small Business Administration. At the Marshal's sale, as the Court understands it, the City made an oral statement concerning the outstanding water and sewage claims. The government's contention in the instant case is that the mortgage is a first lien on the real property, and that the City's claims not filed of record prior to the mortgage, regardless of when created, must be held to be subsequent in time to the lien of the federal government acquired under the mortgage. Since the date of the sale all water and sewage charges have been paid on the property. In passing, it may be noted that on January 21, 1961, Oswald & Hess petitioned for an arrangement under Chapter 11 of the Bankruptcy Act. However, the arrangement was not consummated, but, in the meantime, the mortgage to the Small Business Administration was recorded on April 11, 1962, and, thereafter, on August 31, 1962, the corporation was adjudicated a bankrupt. The City's claim for unpaid water and sewage charges prior to the recording of the mortgage amounts to $ 26,252.85. Its claim for the charges subsequent to the mortgage amounts to $ 11,739.24, including interest and penalty. Counsel for the City in his supplemental brief, has succinctly indicated the two questions which must be decided. As the Court sees it, he has made a correct statement of the issues. He says:
'1. Whether Section 191 of Title 31 is applicable to this case; and
'2. Whether the liens of the CITY are choate.'
The issues will be discussed in the order presented.
FIRST -- Section 191 of Title 31, United States Code, is not applicable to this civil action.
In any event Section 191 has been watered down considerably by the Supreme Court cases, all to the effect that it does not confer priority upon the United States over prior choate liens. See United States v. Waddill Co., 323 U.S. 353, 65 S. Ct. 304, 89 L. Ed. 294 (1945); People of State of Illinois ex rel. Gordon v. Campbell, 329 U.S. 362, 67 S. Ct. 340, 91 L. Ed. 348 (1946); United States v. Vermont, 317 F.2d 446 (2nd Cir., 1963); and United States v. Bond, 279 F.2d 837 (4th Cir., 1960).
SECOND -- The liens of the City of Pittsburgh are choate.
It seems to this Court that we have a situation parallel to that which confronted the court in United States v. City of New Britain, 347 U.S. 81, 74 S. Ct. 367, 98 L. Ed. 520 (1954). In the New Britain case a state law gave water rent liens precedence over all other liens or encumbrances except taxes on the property subject to the liens. In the instant case the City points to Pennsylvania state law, Section 7106 of 53 Purdon's Statutes, which declares that municipal claims are liens from the date they are imposed by the municipality. That section is part of the general municipal law of the State. Chapter 25 of 53 P.S. § 7101 is entitled 'Municipal Claims And Tax Liens'. Under that heading is 'Article 1. -- Liens And Claims Authorized'. Sections 7102, 7103, 7104, and 7105, refer to taxes as being first liens on any property in the State, and direct that such liens have priority and are to be fully paid and satisfied out of the proceeds of any judicial sale before any obligation, judgment, etc., is to be paid. It is provided, also, in Section 7104 that a tax lien is divested by a judicial sale, but provided that the purchase money shall equal the amount of the taxes. In Section 7106 municipal claims are given the status of liens. It is directed that said liens shall have priority to and be fully paid and satisfied out of the proceeds of any judicial sale before any obligation, judgment or claims, etc., are paid. It is to be emphasized and especially noted that the statute, Section 7101, defines municipal claims to include claims for water and sewage rates. In this case the City points to four ordinances approved during four years preceding 1962 which specify the water rates to be charged during each year here involved.
In this case the Court understands that the government has conceded that the water bills were sent and received by Oswald & Hess at the end of each quarter. It is also uncontested by the government that the sewage rates as charged were lawful and properly imposed by the City.
An appellate decision of the Superior Court of Pennsylvania, Township of Lower Merion v. Manning, 95 Pa.Super. 322 (1928), holds that the lien of the City arises when the charge is imposed, rather than when the claim is filed. In Philadelphia v. Charleston, 8 Pa.Dist. & Co.R.2d 689 (1956), it is held that the lien for a water bill arises when the water bill is payable.
As the Court understands it, the government does not dispute any of the foregoing factors which have bearing on the claim of the City of Pittsburgh. The government simply says, however, that under the applicable decisions, the lien of the City is not choate. Counsel for the government point to the applicable Pennsylvania statute, 53 P.S. § 7143, which requires that the claim for water rents or rates, and sewer rates, must be filed in the Court of Common Pleas in the county in which the property is situate -- as showing on its face that the lien must be held to be inchoate in the sense that that term is used in the federal decisions. The government points to the choate lien test and the decisions thereunder which have developed exacting requirements, the substance of which is to require that the state created liens be specific to the point that nothing more need be done to make the lien enforceable. It is noticed that in the Bond case Circuit Judge Boreman reviews in considerable detail the 'first in time, first in right' principle approved by the court in the New Britain case. At p. 844 of 279 F.2d he indicated in three instances ...