Revised Statute, § 3468, which gives a surety who pays to the
United states the amount due on a bond of an insolvent debtor the
priority enjoyed by the United States over other creditors under
Rev.Stats. § 3466 does not entitle the surety to share equally with
the United States when the estate is insufficient to satisfy the
claim of the
Page 254 U. S. 74
United States, and this construction is in harmony with a
familiar rule of subrogation under which a surety liable only for
part of a debt does not become subrogated to remedies available to
the creditor unless he pays the whole debt or it is otherwise
satisfied. P.
254 U. S.
75.
262 F. 62 reversed.
The case is stated in the opinion.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
The National Surety Company executed as surety two bonds given
to secure contracts entered into with the United States. The
contractor defaulted, and was later adjudicated a bankrupt. The
loss to the government was about $13,000. The Surety Company paid
to it on account of this loss $3,150, the full amount of the
liability on the bonds. Thereupon the government proved its claim
in bankruptcy for the balance, claiming, under Revised Statutes §
3466, [
Footnote 1] priority
therefore over all other
Page 254 U. S. 75
creditors. The Surety Company proved for the $3,150, and claimed
that, under Revised Statutes, § 3468, [
Footnote 2] it was entitled to a share in the distribution
of the estate
pro rata on an equality with the government.
The net assets of the estate were less than the amount of the
government's claim. The referee sustained the contention of the
Surety Company, and his order was affirmed both by the district
judge and by the Circuit Court of Appeals for the Eighth Circuit,
262 F. 62. The case comes here on writ of certiorari. 252 U.S. 577.
The single question presented is whether, in the distribution of
the bankrupt's estate, the United States has priority over the
Surety Company.
Section 3468, applying an established rule of the law of
subrogation,
Lidderdale v.
Robinson, 12 Wheat. 594,
25 U. S. 596,
declares that when
"a surety pays the United States the money due upon . . . [a]
bond, such surety . . . shall have the like priority for the
recovery . . . of the moneys . . . as is secured to the United
States."
Section 3466, embodying the common law rule by which the
sovereign has priority over other creditors of an insolvent,
United States v. State Bank of
North Carolina, 6 Pet. 29,
31 U. S. 35,
declares that "the debts due to the United States shall be first
satisfied." There is no conflict between the two sections, which
are substantially a reenactment and extension of the provisions of
§ 65 of the Act of March 2,
Page 254 U. S. 76
1799, c. 22, 1 Stat. 627, 676. The priority secured to the
United States by § 3466 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 enjoy 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. While the priority given
the surety by the statute attaches as soon as the obligation upon
the bond is discharged, it cannot ripen into enjoyment unless or
until the whole debt due the United States is satisfied. This
result is in harmony with a familiar rule of the law of subrogation
under which a surety liable only for part of the debt does not
become subrogated to collateral or to remedies available to the
creditor unless he pays the whole debt or it is otherwise
satisfied. [
Footnote 3]
The judgment of the circuit court of appeals is
Reversed.
[
Footnote 1]
"Sec. 3466. Whenever any person indebted to the United States is
insolvent, or whenever the estate of any deceased debtor, in the
hands of the executors or administrators, is insufficient to pay
all the debts due from the deceased, the debts due to the United
States shall be first satisfied, and the priority hereby
established shall extend as well to cases in which a debtor, not
having sufficient property to pay all his debts, makes a voluntary
assignment thereof, or in which the estate or effects of an
absconding, concealed, or absent debtor are attached by process of
law as to cases in which an act of bankruptcy is committed."
[
Footnote 2]
"Sec. 3468. Whenever the principal in any bond given to the
United States is insolvent, or whenever, such principal being
deceased, his estate and effects which come to the hands of his
executor, administrator, or assignee, are insufficient for the
payment of his debts, and, in either of such cases, any surety on
the bond, or the executor, administrator, or assignee of such
surety pays to the United States the money due upon such bond, such
surety, his executor, administrator, or assignee, shall have the
like priority for the recovery and receipt of the moneys out of the
estate and effects of such insolvent or deceased principal as is
secured to the United States, and may bring and maintain a suit
upon the bond, in law or equity, in his own name, for the recovery
of all moneys paid thereon."
[
Footnote 3]
Sheldon on Subrogation (2d ed.) § 127; Pomeroy, Equity
Jurisdiction (4th ed.) § 2350; 25 R.C.L. 1318;
Peoples v.
Peoples Bros., 254 F. 489, 491-492;
United States Fidelity
& Guaranty Co. v. Union Bank & Trust Co., 228 F. 448,
455;
National Bank of Commerce v. Rockefeller, 174 F. 22,
28.