19 N.Y.2d 550 (1967)

For the purpose of determining the priority of a tax lien on the cash surrender value of life insurance policies under New York Lien Law § 240, the situs of the policies is the taxpayer’s county of residence, regardless of the physical location of the policies.

Summary

This case addresses the priority between a U.S. Government tax lien and the lien of a pledgee (Bankers Trust) on life insurance policies. The government filed a tax lien against Fynke (taxpayer) in his county of residence. Bankers Trust had been assigned life insurance policies as collateral for loans to Fynke. The core issue is whether the government’s filing in the taxpayer’s county of residence was sufficient to establish priority over the bank’s lien on the policies, especially for advances made *after* the government filed its lien. The New York Court of Appeals held that the government’s lien had priority because the situs of the intangible asset (the insurance policies’ cash surrender value) followed the taxpayer’s residence.

Facts

Fynke, the taxpayer, resided in Nassau County, New York. The government filed a notice of a tax lien against Fynke in Nassau County on November 13, 1953. Prior to this date, Fynke had assigned life insurance policies to Bankers Trust as collateral for loans; the unpaid balance was $13,000 at the time of the lien filing. After the government’s lien was filed, Fynke assigned additional policies to the bank, and Bankers Trust made further advances, leading to an additional unpaid balance of $29,000. The government notified the insurance companies of its lien in 1960. Bankers Trust, in 1961, sought to collect on the policies, leading to a dispute with Equitable Life Assurance Society, which held the cash surrender value. Bankers Trust sued Equitable, and the government intervened.

Procedural History

Bankers Trust sued Equitable Life in New York state court. Equitable paid the cash surrender value of the policies into the court. The Government intervened, claiming priority on the funds based on its tax lien. The Appellate Division ruled in favor of Bankers Trust, holding their lien superior. The Government appealed to the New York Court of Appeals.

Issue(s)

Whether, under New York Lien Law § 240, the U.S. Government’s tax lien, filed in the taxpayer’s county of residence, takes priority over a pledgee’s (Bankers Trust) lien on life insurance policies for advances made *after* the filing of the government’s lien, given that the physical location of some policies was in New York City?

Holding

Yes, because for the purposes of determining the situs of the insurance policies under Section 240, their situs follows that of the insured’s residence, and thus the government’s filing in the county of residence was sufficient to establish priority for the tax lien.

Court’s Reasoning

The Court of Appeals reversed the Appellate Division, holding that the situs of the insurance policies, for purposes of determining lien priority under New York Lien Law § 240, is the taxpayer’s county of residence. The court reasoned that determining the situs of intangible property is a legal fiction based on