Price v. United States

¶1CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOE THE SECOND CIRCUIT.

¶2.1. Taxes due tbe United States are “.debts” within the meaning of Rev. Stats. § 3466, giving the United States priority in certain cases. P. 499.

¶32. Rev. Stats. § 3466 is to be construed liberally. P. 500;

¶43. The joining by a defendant corporation in securing a receivership in a suit by a simple contract creditor, to take over the defendant’s property and business for the purpose of conserving them and paying creditors, amounts to. a voluntary assignment, within the meaning of § 3466, Rev. Stats., where the business is- in a failing condition and turns out to be. insolvent >so that the assets are a trust fund for the creditors according to their priorities. P. 502.

¶56 Fed. (2d) 758, affirmed,

¶6, Certiorari to a judgment of the Circuit Court of Appeals. affirming an order of the District Court directing a *493receiver to pay claims of the United States as priority claims. See Liberty Mutual Go. v. Johnson Shipyards, 6 Fed. (2d) 752;'Stripe v. United States, post, p. 503.

¶7Mr. Godfrey Goldmark, for petitioner.

¶8The priority of the United States does not stand upon any sovereign prerogative^ but exclusively upon the provisions of the statute. United States v. Fisher, 2 Cr. 358; United States v. Bank of North Carolina, 6 Pet. 29; United States v. Canal Bank, 3 Story, 79 Fed. Cas. No. 14, 715; United States v. Oklahoma, 261 U. S. 253.

¶9An examination of the earlier statutes, now §§ 3466 and 3467, in the light of their underlying purpose, will reveal that they were intended primarily to secure the prior payment of revenue where the debtor was divested of his property in the methods provided, and only later were extended to secure prior payment of all obligations to the United States, whatever their nature, and were in- ■ tended to impose a personal liability upon executors and trustees, in the event that the priority was ignored.

¶10Whether revenues are collected through or without the exaction of a bond, in either case, the statute measures the extent of the priority. United States v. Chamberlain, 219 U. S. 250.

¶11Lane v. Oregon, 7 Wall. 71 and Meriwether v. Garrett, 102 U. S. 472, distinguished.

¶12In this case, the debtor has not been divested of its property in any of the methods which the statute prescribes. Therefore, the priority created by § 3466 is inapplicable.

¶13Section 3466 does not create a priority for ordinary debts or for taxes, where'the assets of a corporation are distributed in a judgment creditor’s suit or equity receivership. United States v. Oklahoma, 261 U. S. 253; United F. & G. Co. v. Strain, 264 U. S. 570.

¶14The appointment of a receiver on a judgment creditor's bill is not a divesting of the debtor’s title to all his prop*494erty within the purview of the Act. Beaston v. Farmers’ Bank, 12 Pet. 102; Pa. Steel Co. v. N. Y. City Ry. 198 Fed. 721; Pusey Jones Co. v. Hanssen, 261 U. S. 491; Metropolitan St. Ry. Receivership, 208 U. S. 90; Luhrig Collieries v. Interstate Coal Co., 281 Fed. 265. The present suit is not the equivalent of a general assignment. Laclede Bank v. Schuler, 120 U. S. 511; Empire Metallic Bedstead Co., 98 Fed. 981; Quincy R. R. v. Humphreys, 145 U. S. 82; Great Western v. Harris, 198 U. S. 561; Lion Bonding Co. v. Karatz, 262 U. S. 77; Zacher v. Fidelity Trust Co., 106 Fed. 593.

¶15The admission of the allegations of the bill and the com sent to the appointment of a receiver are not the commission of acts of bankruptcy within the meaning of § 3466. The defendant has not committed 'an act of bankruptcy within the provisions of the Bankruptcy' Act of 1898.' There is no proof that insolvency existed at the time of the filing of the bill or that the bill was filed because of this condition. This being so; United States v. Oklahoma. and Strain v. United States, supra, are conclusive to. the effect that the receiver was- not appointed because of insolvency. To the same effect are: Matter of Spalding, 139 Fed. 244; Matter of Valentine Pohl Co., 224 Fed. 685; Matter of William S. Butler &. Co., 207 Fed. 705. The fact that the defendant consented does not make the suit collusive or other than'the ordinary law suit in which the defendant corporation is the defendant and not the plaintiff. Even if the defendant did commit an act of bankruptcy under the 1898 Bankruptcy Act-, the United States would not be entitled to priority, inasmuch as the defendant has not been divested of its property in any proceeding based upon the alleged act. of bankruptcy.

¶16Congress has by the Revised Statutes provided a coin- ■ prehensive method for the collection of taxes and has provided for a lien and distraint; and as the provisions of’Rev. Stats. §§ 3186, et seg. as amended in'1913, *495were not complied with in this case prior to the receivership, a tax claim is not entitled to priority. The facts that the suit was instituted by one creditor on behalf of all, a judgment waived, and the other creditors enjoined from proceeding to judgment, cannot increase the rights of the United States. American & British Securities Co. v. Mfg. Co., 275 Fed. 121.

¶17This suit is a mere equitable levy in favor of all creditors, and they all have the same rights as if they were’ separate'judgment creditors, namely, the right to satisfy their claims ahead of the Government, because the latter did not comply with § 3186 as amended in 1913. As the two common law prerogatives are embodied in §§ 3466 and 3.186, et seq., and as no priority exists under the terms of either, there can be no priority at all.

¶18Solicitor General Mitchell'and -Messrs. Jerome Michael, Henry Gale, and Ralph F. Fuchs, Special Assistants to the Attorney Generál, for the United States.

¶19By virtue of Rev. Stats. 3466 the Government is entitled to payment of its taxes in advance of the claims of general creditors in an equity receivership proceeding •instituted with the defendant’s consent.

¶20The income tax involved in this case was entitled to priority' of payment by virtue of the provisions of the Revenue Acts by which it- was levied and under which it was assessed,- by virtue of the provisions of Rev. Stats. 3186, and because, Congress having established an extrajudicial system for the collection of the. internal revenue which was designed to insure, and which in the absence of judicial interference will normally result in, its prior payment, it is the plain duty of the courts either to permit that system to function or, in the alternative, to direct the payment of taxes in . advance of the claims of general creditors. If further evidence is required that Congress-intended the provisions of the Revenue Acts to apply *496equally to all. corporations, whether solvent or insolvent, whether in receivership or under the management of the , corporate officers, it is to be found in those sections of the Revenue Acts which require a receiver who is operating the property or business of a corporation to make returns- for such corporation, and provide that any tax due thereon is to be collected “ in the same manner as if collected from the corporation.” Swarts v. Hammer, 194 U. S. 441.

¶21. If receivership proceedings had not intervened, the Government would have acquired a lien upon all the property of the Gidding Company which would have been yalid against .its general creditors. It is equally clear that the appointment of a receiver can not render the Government impotent to assess or to demand the payment of taxes. But if the Government can demand the payment of a tax, it can also acquire a lien therefor in spite -of a receivership, for the result of a demand -followed by failure to pay is prescribed by statute. It can not .be prescribed by the courts'.

¶22The argument that a statutory lien for taxes can and does attach after the appointment of a receiver is fortified by th&ifoct that even before assessment and demand the Government’s lien is inchoate. Henderson v. Mayer, 225 U. S. 631; Kane & Co. v. Kinney, 174 N. Y. 69; Hildreth Granite Co. v. City of Watervliet (N. Y.), 161 App. Div. 420; Crane Co. v. Pneumatic Signal Co. (N. Y.), 94 App. Div. 53. Neither the complainant, nor any other.general creditor, nor the receiver, is a judgment' creditor within the meaning' of R. S. 3186.

¶23There is nothing in the doctrine of equitable execution or in the character- or purpose of' a receivership proceeding initiated by general creditors, to prevént the creation or perfection of statutory li.ens, including tax liens, after, the .bill is filed. Pennsylvania Steel Co. v. New York City Ry., 198 Fed. 721; Filene’s Sons Co. v. Weed, 245 *497U. S. 597; Stevens v. New York & O. M. R. Co., 13 Blatch. 104; Central Trust Co. v. Wabash, St, L. & P. Ry., 26 Fed. 11.

¶24If, as this Court held in Re Tyler, 149 U. S. 164, it is-the duty of tax collectors to refrain from the seizure and sale of 'property in the custody of the courts, it would seem to be equally the duty of the courts to direct the prior payment of the Government’s taxes. A receivership may justify a variation of the means; it can not justify a change in the result. The application -of the doctrine that a court of equity must direct the prior payment of taxes in a receivership proceeding if it stops the’ executive machinery for their collection, extends as well to past as to current taxes, as well to taxes which have not become, as to taxes which are, liens on the property in the court’s possession. Ledoux v. La Bee, 83 Fed. 761; Coy v. Title Guarantee & Trust Co., 220 Fed. 90; Bear River Co. v. City of Petosky, 241 Fed. 53; Greeley v. The Provident Sav. Bank, 98 Mo. 458; George v. St. Louis Ry. Co., 44 Fed. 117; Gaither v. Stockbridge, 67 Md. 222.

¶25Independently of statute, the United States were entitled to priority of payment of both the customs duties and the income tax involved in this case,' because priority of payment inheres in the very concept of a tax and the right to priority of payment of -taxes is an attribute of the sovereignty of the Government. In levying taxes, the Government is exercising one of the most important of its sovereign powers. Nicol v. Ames, 173 U. S. 509. A tax is not a debt. It is an impost levied for the support of the Government. It operates in invitum. Meriwether v. Garret, 102 U. S. 472; Crabtree v. Madden, 54 Fed. 426; City of Camden v. Allen, 26 N. J. L. 398. Taxes are of higher order than debts, even than debts due the Government, and in respect to them the Government is not a creditor. United States v. Eggleston, Fed, Cas. No. *49815027; Food Controller v. Cork, (1923) A. C. 647; United States v. McHatton, 266 Fed. 602; State v. Rowse, 49 Mo. 586. The claim for taxes is paramount to' all other claims against the citizen. Greeley v. The Provident Sav. Bank, supra; Coy v. Title Guarantee Co., 220 Fed. 90; Springer v. United States, 102 U. S. 586; Liberty Ins. Co. v. Johnson Shipyards Corp., 6 Fed. (2d) 752; Minnesota v. Central Trust Co., 94 Fed. 244.

¶26While the Government does not claim to be'possessed of the right to priority of payment of its taxes as a heritage from the British Crown, there is nevertheless a solid foundation for the proposition- that the United States possess as sovereign rights those prerogatives of the kings of England which the latter enjoyed as representatives of .the English people and which are not incongruous with our republican. form of Government. United States v. Thompson, 98 U. S. 486; Dollar Savings Bank v. United States, 19 Wall. 227. The fact that the Government has • no sovereign right to priority, of payment of its debts, is immaterial. Food Controller v. Cork, (1923) A. C. 647; Comm’rs of Taxes v. Palmer (1907) A. C. 179; Baxter v. Baxter, 23 S. C. 114; State v. Rowse, 49 Mo. 586. The . fact that the Government has never adopted the common law is immaterial.' Rev. Stats. .3466 does not measure the Government’s right to pripfity for taxes.