Question

The state of Georgia filed a tax lien against Oil Drilling Inc., claiming unpaid taxes. Six months later, Oil Drilling Inc bought a powerful drill from WalleSupply, making a down payment of $11,500 and signing a security agreement for the remaining debt of $220,000. Walle perfected the next day. Oil Drilling Inc defaulted. Walle sold the drill for $58,000, leaving a deficiency of just over $100,000. The state filed suit, seeking the $58,000 proceeds. The trial court gave summary judgment to the state and Walle appealed. Who gets the $58,000? (State who gets the $58,000 and why based on the information in your text).

Answer 1

In this case Walle will get the $58,000 proceeds. This is because this is a case of ‘tax lien’ and the law says that such a lien is choate and valid against the interest of the taxpayer in question.

However in this case Walle perfected the next day and the law says that tax lien is not valid against a holder of a security interest as the rule of ‘first in time, first in right’ will become applicable in such cases.

In this case Walle has parted with money’s worth in the form of drill and hence a properly filed and recorded Georgia security deed will have priority over a federal or a state tax lien as per the law.