Under R.S. § 3466, debts due by an insolvent corporation to the
United States have priority over claims of a State for franchise
taxes due but not liquidated, although, by the state law, such
taxes are a lien in the sense that, when liquidated, they take
precedence, by relation, over other intervening claims. Pp.
288 U. S.
289-294.
59 F.2d 979 affirmed.
Certiorari, 287 U.S. 590, to review the affirmance of an order
granting priority to the United States in the payment of income
taxes and of a claim for damages, over the claim of the New York
for franchise and gross earnings taxes, in the liquidation through
a receivership of the assets of an insolvent corporation.
Page 288 U. S. 291
MR. JUSTICE CARDOZO delivered the opinion of the Court.
The controversy is one between the United States and a state as
to priority of payment out of the assets of an insolvent
corporation.
Receivers of the corporation were appointed by a consent decree
in January, 1927, and creditors were directed to file their claims.
The decree had the effect of a general assignment.
Price v.
United States, 269 U. S. 492,
269 U. S. 502.
The United States filed with the receivers a claim for additional
taxes in the sum of $33,663.97 due from the insolvent for the years
1917 and 1918, and also a claim for $516.46 expenses incurred in
the replacement of a buoy run into by the insolvent's tug. The
State of New York filed a claim for franchise taxes due for the
years 1921 to 1925, but not assessed or liquidated till after the
receivership. It filed another claim afterwards for taxes due for
later years. The District Court held that, under § 3466 of the
Revised Statutes (31 U.S.Code, § 191), the debt owing to the United
States had a preference over the debt owing to the state in the
distribution of the fund. Upon appeal to the Circuit Court of
Appeals for the Second Circuit, the decree was affirmed. 59 F.2d
979. The case is here on certiorari.
The decision of this Court in
County of Spokane v. United
States, 279 U. S. 80,
upheld the power of Congress to give priority to debts due to the
people of the United States, though the debts thereby subordinated
were due to the people of a state, or its political subdivisions.
To
Page 288 U. S. 292
that decision we adhere. The hardship to the state, if there is
any, "is the necessary consequence of the supremacy of the laws of
the United States on all subjects to which the legislative power of
congress extends." Marshall, C.J., in
United
States v. Fisher, 2 Cranch 358,
6 U. S. 397.
Cf. Florida v. Mellon, 273 U. S. 12,
273 U. S.
17.
The tax held to have been subordinated in the
Spokane
County suit was not a perfected lien upon the property of the
insolvent at the date of the receivership.
279 U. S. 279 U.S.
80,
279 U. S. 93-94.
The question was reserved whether a different conclusion would have
been necessary if such a lien had been proved.
279 U. S. 279 U.S.
95. Certiorari was granted in this case because of the claim of the
petitioner that, by the statutes of New York, franchise taxes
become liens in advance for the years in which they are due, though
the amount is not fixed, and must be liquidated thereafter.
Liens in a sense they unquestionably are, but, we think, not so
perfected or specific as to change the rule of distribution. The
receivers were appointed, as we have seen, in January, 1927, and
the petitioner, if not preferred at the time of the appointment,
did not win itself a preference by anything done thereafter.
United States v. Oklahoma, 261 U.
S. 253,
261 U. S. 260.
By the statutes of New York,
"each such tax or fee [including the annual franchise tax to be
paid by corporations] shall be a lien and binding upon the real and
personal property of the corporation . . . liable to pay the same
until the same is paid in full."
N.Y.Tax Law, Consol.Laws, c. 60, § 197. The lien thus created is
effective for many purposes, though its amount is undetermined. It
is notice to mortgagees or purchasers, who are held to loan or
purchase at their own risk if they take their mortgages or deeds
before the tax has been assessed or paid.
Carey v. Minor C.
Keith, Inc., 250 N.Y. 216, 164 N.E. 912;
Engelhardt v.
Alvino Realty Co., Inc., 248 N.Y. 374, 162 N.E. 287. In that
respect, it is similar to the lien of a transfer tax or
Page 288 U. S. 293
duty upon the estate of a decedent.
Midurban Realty Co. v.
F. Dee & L. Realty Corp, 247 N.Y. 307, 160 N.E. 380;
Stock v. Mann, 255 N.Y. 100, 104, 174 N.E. 76. It will
even be superior at all events after assessment (
N.Y. Terminal
Co. v. Gaus, 204 N.Y. 512, 514, 98 N.E. 11), to mortgages
already made, and will thus prevail against a purchaser who buys at
a foreclosure sale.
N.Y. Terminal Co. v. Gaus, supra.
Cf. Marshall v. New York, 254 U.
S. 380,
254 U. S. 384.
All this is settled in New York by reiterated judgments.
The problem here is different. To hold that a lien has
progressed to such a point as to be a warning to mortgagees and
purchasers of a contingent liability, like a notice of
lis
pendens, is far from holding that, while the liability is
unliquidated and unknown, the lien thus created is perfect and
specific. By the terms of the hypothesis, it is nothing of the
kind. If the state were to stand upon the warning and omit to
ascertain the debt, it would never be able to sell anything, for it
would not know how much to sell. Against mortgagees and purchasers,
a lien perfected afterwards may take effect by relation as of the
date of the inchoate lien through which mortgagees and purchasers
became chargeable with notice. The doctrine of relation will not
divest the United States of the preference that accrued when
receivers were appointed.
In what has been written, there has been an assumption in favor
of the petitioner that the tax would have priority if its amount
had been liquidated before rights and interests became static
through insolvency proceedings. The assumption is hardly to be
reconciled with a judgment of this Court pronounced a century and
more ago.
Thelusson v.
Smith, 2 Wheat. 396,
15 U. S. 426.
The ruling there was that the general lien of a judgment upon the
lands of an insolvent debtor is subordinate to the preference
established by the statute, unless seizure by a marshal or some
other equivalent act has made the lien specific and brought
Page 288 U. S. 294
about a change of title or possession. Later cases have drawn a
distinction between the liens of judgments and of mortgages. These
last have been thought to have the effect of a conveyance,
divesting the debtor of his title and leaving nothing but an equity
to which a preference can attach.
Conard v.
Atlantic Insurance Co., 1 Pet. 386;
Brent v. Bank of
Washington, 10 Pet. 596,
35 U. S.
611-612;
Savings & Loan Society v. Multnomah
County, 169 U. S. 421,
169 U. S. 428.
We do not now determine whether the holding in the mortgage cases
is to be applied in jurisdictions where a mortgage upon real estate
is a lien and nothing more (
Trimm v. Marsh, 54 N.Y. 599),
nor whether, if so applied, it imports a modification of the
holding in the
Thelusson case as to the lien of a
judgment.
Cf. United States v. Canal Bank, 3 Story 79, 81;
United States v. Duncan, 4 McLean 607, 630. A mortgage,
even though a lien is one much more specific than a judgment or a
tax, much closer to ownership.
Conard v. Atlantic Insurance
Co., supra, pp.
26 U. S. 443.
Into these refinements and their consequences there is no need to
enter now. Enough for present purposes that the statutory
preference must prevail against the lien of a tax not presently
enforceable, but serving merely as a caveat of a more perfect lien
to come.
The judgment is
Affirmed.