The appellant, Local Realty Company, brought this action to foreclose a mortgage on realty, joining the Industrial Commission which had a judgment against Steele Co. for premiums for compensation insurance carried by the commission. The only facts necessary to understand the questions involved are: That J.R. Steele and B.W. Steele, his wife, in October of 1930 mortgaged the piece of real estate, on which it now is sought to foreclose the said mortgage, to the Tracy Loan Trust Company. This company transferred *Page 470 the mortgage in November, 1933, to the plaintiff, Local Realty Company. In the meantime, in May, 1932, the Steeles, mortgagors, conveyed the said real estate to Steele Co., Inc., who took subject to the mortgage but did not assume the debt. On August 31, 1933, long after the mortgage was made, the Industrial Commission obtained a judgment against Steele Co., Inc., for the insurance premium. In the suit to foreclose, the Industrial Commission claimed its judgment should be considered as a prior lien to the mortgage even though the mortgage was placed on the property and on record nearly three years before its judgment was obtained and even though at said time the mortgage was in the hands of the original mortgagee. The commission makes this claim by virtue of section 42-1-59, R.S. Utah 1933 (same as section 3135, Comp. Laws Utah 1917, except for the words "now have" following the last word "taxes"), reading as follows:
"All judgments obtained in any action prosecuted by the commission or by the state under the authority of this title shall have the same preference against the assets of the employer as claims for taxes."
The lower court concluded that the commission's judgment must be paid out of the proceeds of the sale of the real estate before the mortgage holder could have recourse to them. Plaintiff appeals from this decreed order of payment, claiming that its mortgage note should first be paid from such proceeds. Appellant contends: (1) that the "asset" of Steele Co., as meant by this section, was the value of the real estate less what was due on the mortgage and not the value of the real estate clear. (2) That a judgment meeting the requirements of that section is only given a preference equal to the preference of tax claims in the distribution of assets and not given the same status as a tax lien. (3) That if it is construed as giving the judgment the same status as a tax lien, it is unconstitutional because (a) special legislation discriminatory in character, and (b) not due process of law. *Page 471
We shall first take up question (2) above which involves a construction of the statute. Respondent contends that we must treat the commission judgment as if it occupied the position of a tax lien in determining the order of payment out of any piece of real estate sold on foreclosure. That is the logical outcome of a contention that the statute meant to give the commission the status of a tax lien claimant rather than lay down a mere order of preference of payment, because the judgment already stands as a lien against all the debtor's real estate in the county where it is recorded and as such lien would have preference over unsecured claims and all liens which were subsequent in time.
The proposition immediately provokes a collateral series of interesting questions concerning selection of property against which the lien should be asserted if there are mortgaged and unmortgaged properties and whether the mortgagees could force or require a selection in equity in order to preserve their liens. The respondent would logically answer that if the judgment creditor has a prior lien on all real estate, he may take all of it out of any part or all, as to which it might be commented that it was unfortunate for this mortgagee that it could not wait to foreclose its mortgage in the hopes that the commission would find some other piece of property out of which to satisfy the judgment lien before the mortgagee was forced to start foreclosure proceedings. What really happens, if the respondent's contention is correct, is that the mortgagee by bringing the foreclosure action and in order to join all lienholders, simply "awakens a sleeping dog."
Unless there is ample equity in the mortgaged property, a foreclosure by the mortgagee would produce no beneficial result to itself, but would produce the very favorable situation for which this alleged special judgment creditor might earnestly hope, to wit, just the opportunity to defend 1 affirmatively and obtain a decree giving it first recourse to the proceeds of the sale. That is not a reason for holding the contention of the respondent unsound, *Page 472 but a consequence which would follow if it were sound. But where consequences involving oddities or unfairness or fortuitous benefits follow from one construction and can be avoided by another at least equally as tenable, the consequence should be taken into account. Appellant also points out that a conventional lien would be subject to uncertainty and to circumstances against which the mortgagee could not anticipate, in that, wholly without fault of the latter and without power of control, the mortgaged property through conveyances by the mortgagor might go through the hands of a person or corporation who might suffer or had suffered a judgment to be had against him or it in favor of the commission, as in the instant case, and thus collect a lien during mere passage of title which would displace a mortgage which had previously attached.
Reverting to the actual language of section 42-1-59, it says, "Judgments [of the nature specified] shall have the same preference * * * as claims for taxes [now have]." (Italics supplied.) It does not say the same lien status. Counsel for the respondent answer that the judgment 2 docketed being already a lien against all real estate, makes the statute meaningless unless we construe it as intending to give the same priority as a tax lien. But this is not true. The section could have a distinct office aside from fixing priority as to liens, in that it provides for preference in the distribution of estates whether insolvent or otherwise. Where all is personal property, that is, nothing to which an ordinary judgment lien can attach, the section directs that this judgment be paid pari passu with taxes. In all cases where a claim for taxes takes precedence, there also will a judgment of this nature take equal precedence.
To the contention of respondent that there would be no object in giving a commission judgment a preference right only in assets when even without section 42-1-59 it would be a lien against real estate in the county where docketed and thus would have the preference which a judgment lien would give it, appellant replies that a preference claim may *Page 473 be asserted anywhere where assets are in the process of distribution or administration, whereas the preference which arises by reason of a judgment lien comes only in that county where the real estate is located and the judgment docketed and then only against real estate. See section 104-30-15, R.S. 1933. Thus appellant argues that there was this objective to section 42-1-59 as well as that of giving the commission judgment the preference a tax claim would have against personal property.
A close scrutiny of appellant's and respondent's respective contentions reveals with increasing clarity as the true implications from them are understood that the difference comes in the aspect with which section 42-1-59 is viewed. Respondent and the court below read it as if it 3 controlled the preference by which a commission judgment would be satisfied out of a particular asset. Thus, if a certain piece of real estate were in litigation by foreclosure of a mortgage, the court would have to determine, in such action, the order of preference in satisfying the commission judgment and the mortgage debt out of this particular piece of real estate on which the mortgagee resided. Appellant, on the other hand, reads the section as applying to "assets of the employer" as collective or in their entirety. We believe the latter construction correct. The section does not say, "shall have the same preference against any `asset' of the employer" or "against any piece of real estate of the employer." It uses the word "assets." Nor does it say, "shall have the same preference against the assets of the employer as a `tax' or `as a lien for taxes,'" but "as claims for taxes." In other words, the section contemplated a preference against the judgment debtor's "assets" as collectively used in their entirety considered as an estate for payment of claims or for distribution. "Claims for taxes" means a claim against the total assets. Thus, the phrase should be read as saying, "shall have the same preference against the assets of the employer as a claim for taxes has against the assets of the employer." Now a "claim for taxes" in this sense *Page 474 only occurs when assets are considered in their entirety as an estate for liquidation of debts or for distribution. While there is a claim for taxes because of taxes owing, the claim against a single piece of realty would be asserted in the form of a lien and the preference against such single asset would grow out of this lien right. But when all assets subject to claims or distribution are considered in their aspect as a whole subject to debts or as an estate subject to distribution, the tribunal or party charged with administering these assets in liquidation of debts or for distribution among creditors or beneficiaries must consider the preference of claims in respect to the "assets" in entirety treated as a fund. He must give taxes a preference out of this fund. In probate, he must pay these taxes "out of the funds of the estate." Debts secured by real property which is a homestead must be paid after employees' wages and debts having preference by the laws of the United States or this state. And next after that, debts secured by liens on the property of the decedent at the time of his death. See sections 102-9-22 and 102-9-23, R.S. 1933. The reason was to free these encumbered assets of their clinging debts. Naturally, they would also have to be freed from tax liens. Thus, in the aspect of the "assets" of the decedent, looked at in its entirety as an estate, certain claims were preferred. This was an order of priority. And in any case where there are "assets" viewed in the aspect of an estate for distribution among creditors or legatees or heirs, or assembled or marshaled by a receiver, conservator, trustee, or assignee for creditors, there is a preference of one sort of claim over another. In such a case, section 42-1-59 applies. But it was never meant to be applied so that the commission as a judgment creditor could intervene in any foreclosure of a lien and put itself ahead of the luckless lienholder who had the misfortune to foreclose. It could not say: "Pay me first out of this property as you would a tax lien even though it create a deficiency for the lien holder and force *Page 475 him to collect as a general creditor against remaining assets."
Even if the "assets" are a single piece of real estate, the situation is the same. If the real estate is subject to foreclosure, the commission judgment takes its place in the sharing of the proceeds of sale according to its priority of lien as in the case of any other judgment. If, however, the real estate is being handled as an estate for liquidation of claims, then the commission judgment gets the same preference as a tax claim put in as a claim. The tax may also be a lien and such lien takes precedence over a mortgage lien, but that is a preference by virtue of the lien and not by virtue of the tax treated as a claim against the estate. The test is to determine in the administration of assets what preference the tax claim takes in the order of payment as provided by law as applied to such estates and when that is once determined to give the commission judgment the same preference.
In view of the hardships arising from situations mentioned in this opinion, we are disinclined to widen the construction of the terms. We will not give the term "assets" the meaning as if it read "each individual asset" and thus read the phrase as if it read, "shall have the same preference against `each single asset' of the employer as a claim for taxes `has against such asset.'" From what has been said, it is unnecessary to consider questions (1) and (3) posed at the beginning of this opinion.
We have not placed our decision on the ground contended for by appellant that the "asset" of Steele Co., as meant by the section herein construed, should be construed as the value of the real estate clear of the mortgage, because (a) the statute does not read, "any asset," but reads, "assets"; (b) even in accounting, a mortgaged property is most generally placed on the asset side of a statement of assets and liabilities at its full value and the mortgage debt on the liability side. If the property is taken subject to the mortgage, but without assuming liability for the debt, we believe *Page 476 good accounting practice would condone putting the full value of the real estate on the asset side and the contingent liabilityagainst the real estate on the other; (c) we think such conception contrary to that contained in Larson v. MacMiller,56 Utah 84, 189 P. 579, 581, wherein it is said:
"Nowhere in the inheritance tax law is there any intimation that the owner of incumbered property owns less than all of it; that he is the holder of an interest only or owns less than the whole in case the property is subject to a debt or a lien. All through the act are indices pointing to the conception that it was intended by the word `interest' to convey the idea of a distinct part of the property, a proprietary interest, ownership of a life interest in the one party and the remainder in another, a certain interest with another, as the interest of one partner in the property owned by a partnership — not an equitable or other lien depending for the possibility of ownership upon the future failure to pay a debt."
The fact that one statute said "property" and the other "assets" would not seem to change the principle that a debt is still a debt whether bargaining has made it recoverable first out of a specific piece of property if not paid or whether just an unsecured debt. The debt affects only the liabilities side and not the assets side of the ledger. (d) The statute (R.S. 1933, 42-1-59) must be read to make complete sense. "All judgments obtained in any action prosecuted by the commission or by the state under the authority of this title shall have the same preference against the assets of the employer as claims for taxes" have against the assets. The italicized portion completes the sense. If assets is read to mean the clear value, it must, of course, be read throughout the section with that meaning. This would, therefore, lead to construing the phrase "as claims for taxes [have against the assets]" as meaning claims for taxes have against the clear assets, which, of course, makes nonsense, since no one would maintain that there is any room for ever contending that the law even contemplated preference for a claim for taxes or any claim for taxes only against the clear assets. *Page 477
The judgment of the court below giving the commission judgment a priority in the proceeds of the sale of the mortgaged property is reversed and the order is that the 4 commission judgment be given only such position with respect to the proceeds of sale as it would have if it were an ordinary judgment. Costs to appellant.
FOLLAND and EPHRAIM HANSON, JJ., concur.