Section 64(b)(7) of the Bankruptcy Act gives priority to
"debt owing to any person who, by the laws of the States or the
United States, is entitled to priority: Provided, That the term
'person' as used in this section shall include corporations, the
United States, and the several States and Territories of the United
States."
Held that a municipality is a "corporation" and hence a
"person" within the meaning of this provision if entitled to
priority by the law of its State. Pp.
297 U. S. 374,
297 U. S.
377.
77 F.2d 425 reversed.
Certiorari, 296 U.S. 566, to review a judgment denying the
City's claim of preference in a bankruptcy case.
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
The City of Lincoln, Neb., a municipal corporation, sought
priority in the payment of its claim against the Lincoln Trust
Company, bankrupt. The claim was for $45,000, with interest. The
city based its contention on § 64b of the Bankruptcy Act, and also
claimed that the amounts in question had been placed in the custody
of the trust company as a trust fund. The District Court held that
the city was not within § 64b, and that the trust had not been
established except as to the sum of $628.63.
Page 297 U. S. 374
The court directed that the remainder should be allowed as a
general claim. The Circuit Court of Appeals modified the judgment
by disallowing altogether the claim of priority, and, as modified,
the judgment was affirmed. 77 F.2d 425. We granted certiorari,
limited to the question of the application of § 64b.
Section 64b is as follows:
"The debts to have priority, in advance of the payment of
dividends to creditors, and to be paid in full out of bankrupt
estates, and the order of payment shall be . . . (7) debts owing to
any person who by the laws of the States or the United States is
entitled to priority:
Provided, That the term 'person' as
used in this section shall include corporations, the United States,
and the several States and Territories of the United States."
The question is presented whether a municipal corporation is a
"person" within the meaning of this section. The word "person" is
expressly stated to include corporations. A municipal corporation
is a corporation in the usual sense of the term. Does the
Bankruptcy Act use the term in a more limited sense?
Section 1a(6) provides that
"'corporations' shall mean all bodies having any of the powers
and privileges of private corporations not possessed by individuals
or partnerships, and shall include limited or other partnership
associations organized under laws making the capital subscribed
alone responsible for the debts of the association, joint stock
companies, unincorporated companies and associations, and any
business conducted by a trustee, or trustees, wherein beneficial
interest or ownership is evidenced by certificate or other written
instrument."
We find nothing in this definition which can be taken to exclude
municipal corporations. The words, "having any of the powers and
privileges of private corporations not possessed by individuals or
partnerships," do not mean,
Page 297 U. S. 375
as the context plainly shows, that those described must be
"private corporations," but that the term embraces those which have
powers and privileges analogous to those of private corporations
and not possessed by individuals or partnerships. Municipal
corporations have such powers and privileges, and thus fall within
the definition of the term "corporations" as used in the Bankruptcy
Act. The range of the definition shows the intention of the
Congress to widen, rather than to restrict the term.
Other provisions of the Bankruptcy Act, by expressly excluding
municipal corporations in certain relations, indicate that they
were intended to be included when, in the absence of exception, the
reference is to "corporations" generally, or to "persons," a term
which, in the section containing the general definition, is stated
to "include corporations, except where otherwise specified." §
1a(19). Thus, § 4 provides:
"(a) Any person, except a municipal, railroad, insurance,
banking corporation, or a building and loan association, shall be
entitled to the benefits of this Act as a voluntary bankrupt."
"(b) Any natural person, except a wage earner or a person
engaged chiefly in farming or the tillage of the soil, any
unincorporated company, and any moneyed, business, or commercial
corporation (except a municipal, railroad, insurance, or banking
corporation, or a building and loan association) owing debts to the
amount of $1,000 or over, may be adjudged an involuntary bankrupt
upon default or an impartial trial, and shall be subject to the
provisions and entitled to the benefits of this Act."
It is urged that in the provision of § 64a, specifying the
priority of taxes owing by the bankrupt, a "municipality" is
specifically named. The United States and the states are also
specifically named in that provision and
Page 297 U. S. 376
again in § 64b(7). But we think that the failure to repeat the
word "municipality" in § 64b(7) cannot be regarded as controlling
in view of the express inclusion of "corporations" in that
subdivision.
In construing the words of an act of Congress, we seek the
legislative intent. We give to the words their natural significance
unless that leads to an unreasonable result plainly at variance
with the evident purpose of the legislation.
Ozawa v. United
States, 260 U. S. 178, 180
[argument of counsel -- omitted],
260 U. S. 194;
Ohio v. Helvering, 292 U. S. 360,
292 U. S. 370.
Counsel at the bar could suggest no reason for allowing to
corporations generally, or to the associations comprehended within
the term "corporations" as used in the Bankruptcy Act, the priority
given by § 64b(7), when the state law provides for it, and denying
that, priority in accordance with state law to a municipal
corporation. We can conceive of no reasonable basis for such a
discrimination. And, while we may assume that it would be within
the power of the Congress to make it, we find no support in the
provisions of the act for the view that such a discrimination was
intended.
Respondent strongly relies upon our decision in
Davis v.
Pringle, 268 U. S. 315.
That decision was rendered in 1925, before the amendment of §
64b(7) which defined the term "person" as there used. From an
examination of the context, the Court reached the conclusion that
the word "person" in the original provision was not intended to
include the United States. The Court noted that "[e]lsewhere, in
cases of possible doubt, when the Act means the United States, it
says the United States."
Id., p.
268 U. S. 318.
The Congress then amended § 64b(7) by expressly providing that the
term "person" should include the United States. Act of May 27,
1926, § 15, 44 Stat. 662, 666, 667. But that amendment also
provided that the term "person" should include "corporations." At
the same time, by the amendment
Page 297 U. S. 377
of section 1a(6), the scope of the term "corporations" was
extended so as to include "joint stock companies, unincorporated
companies and associations."
Id. In view of the explicit
inclusion of "corporations" in the amendment of § 64b(7) and the
evident intention shown by the context not to restrict the meaning
of the term "corporations," the reasoning of the opinion in
Davis v. Pringle cannot be regarded as apposite to the
present case.
We conclude that a municipal corporation is a "corporation," and
hence a "person" entitled to the priority accorded by § 64b(7).
There is a further question, which is one of state law. The
preference under § 64b(7) is only in the case of "debts owing to
any person who by the laws of the States or the United States is
entitled to priority." The further question then is whether the
City of Lincoln is entitled to priority under the law of Nebraska.
The Circuit Court of Appeals did not determine that question. The
court cited its decision as to the status of the City and County of
Denver under the laws of Colorado (
Denver v. Stenger, 295
F. 809;
compare U.S. Fidelity & Guaranty Co. v.
McFerson, 78 Colo. 338, 241 P. 728), and apparently assuming,
without deciding, that the law of Nebraska accorded priority to the
City of Lincoln, the court proceeded to base its decision in the
instant case upon the inapplicability of § 64b(7) to a municipal
corporation. The law of Nebraska was not discussed.
As we hold that the construction placed upon the Bankruptcy Act
was erroneous, the cause will be returned to the Circuit Court of
Appeals for the determination of the remaining issue as to local
law.
The decree of the Circuit Court of Appeals is reversed, and the
cause is remanded to that court for further proceedings in
conformity with this opinion.
Reversed.