Frances E. Hoare, Surviving Widow of Joseph A. Hoare, Deceased v. United States

The question here presented is whether under the circumstances of this case a government tax lien has priority over a chattel mortgage given by the tax debtors as security for the performance of a lease.

The referee in bankruptcy held that the tax lien had priority. The district court confirmed that determination. The surviving widow representing the lessors-mortgagees has appealed. For the reasons indicated below we hold that the chattel mortgagees had priority with respect to rent due and other arrearages prior to the time notice was given of the tax lien.

On October 16, 1957, Joseph A. Hoare and his wife leased the ground floor of a business building in Port Angeles, Washington, to Alfred P. Conrad and wife. The term of the lease was five years, and the lessors, fulfilling an obligation assumed under the lease, expended $29,-496.62 in remodeling the premises for use as a restaurant and cocktail lounge.

The rental was fixed at $660 a month, the lease providing for an increased rental in any month that six per cent of gross monthly sales should exceed that figure. Only that part of the $660 monthly rent which equaled six per cent of gross sales for the month was required to be…