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In re WILLIAM J. NEWMAN CO. KLEIN-EXEL et al. v. SMART.

Nos. 6640, 6672.

Circuit Court of Appeals, Seventh Circuit.

Nov. 17, 1938.

Robert McCormick Adams and E. Douglas Schwantes, both of Chicago, 111., for Klein-Exel.

Maurice J. Mahoney, of Washington, D. C., and James W. Morris, Asst. Atty. Gen., Sewall Key, Norman D. Keller, and W. Croft Jennings, Sp. Assts. to Atty. Gen., and Michael L. Igoe, U. S. Atty., and David L. Bazelon, Asst. U. S. Atty., both of Chicago, 111., for the United States.

M. Robert Sturman and Carl B. Nusbaum, both of Chicago, 111. (M. Robert Sturman, of Chicago, 111., of counsel), for appellee.

Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.

*661EVANS, Circuit Judge.

The single question presented by this appeal may be stated thus: Does section 3468, Revised Statutes, 31 U.S.C.A. § 193, give to the assignee of a surety which has discharged its liability to the United States under a bond to secure payment of a Federal income tax, a status of priority against the estate of the bankrupt taxpayer, in the same class as claims of the United States for taxes for other years, — all as covered by subsection (6) of section 64b ?

The answer to the query is to be found in the decision, United States v. National Surety Company, 254 U.S. 73, 41 S.Ct. 29, 65 L.Ed. 143. There, the court said [page 30]:

“The priority secured to the United States by section 3466 [31 U.S.C.A. § 191] is priority over all other creditors; that is, private persons and other public bodies. This priority the surety obtains upon discharging its obligation. But what the surety asks here is not to enj oy like priority over such other creditors, but equality with the United States, a creditor whose debt it partly secured. To accord such equality would abridge the priority expressly conferred upon the government.”

The decree is reversed with costs and with directions to accord claimant the priority provided for in subsection (7) of 64b of the Bankruptcy Act and to deny him the priority of subsection (6) of 64b.

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