In the original bill filed by the United States in the Circuit
Court of Rhode Island, the claim of the United States to payment of
a debt due to it was asserted on the ground of an assignment made
to the United States by an insolvent debtor who was discharged from
imprisonment on the condition that he should make such an
assignment. The debtor had been previously discharged under the
insolvent law of Rhode Island, and had made, on such discharge, a
general assignment for the benefit of his creditors. Afterwards an
amended bill was filed in which the claim of the United States was
placed upon the priority given to the United States by the act of
Congress against their debtors who have become insolvent. It was
objected that the United States could not change the ground of its
claim, but must rest it as presented by the original bill, on the
special assignment made to them.
By the Court:
"It is true, as the defendant insists, that the original. bill
still remains on the record and forms a part of the case. But the
amendment presents a new state of facts, which it was competent for
the complainants to do, and on the hearing, they may rely on the
whole case made in the bill or may abandon some of the special
prayers it contains."
The same right of priority which belongs to the government
attaches to the claim of an individual who, as surety, has paid
money to the government.
The assignment under the insolvent law of Rhode Island could
only take effect from the time it was made. Until the court, in the
exercise of its judgment, determines that the applicant is entitled
to the benefit of the law, and in pursuance of its requisitions he
assigns his property, the proceedings are inchoate, and do not
relieve the party. It is the transfer which vests in the assignee
the property of the insolvent for the benefit of his creditors. If
before the judgment of the court the petitioner fail to prosecute
his petition, or discontinue it, his property and person are liable
to execution as though he had not applied for the benefit of the
law. And if after the judgment of the court he fail to assign his
property, it will be liable to be taken by his creditors on
execution.
The property placed on the inventory of an insolvent may be
protected from execution while he prosecutes his petition, but this
cannot exclude the claim of a creditor who obtains a judgment
before the assignment.
The United States obtained a judgment against Smith, an
insolvent debtor, previous to his assignment under the insolvent
laws of Rhode Island. Under his assignment, a debt for money paid
by him to the United States as surety on duty bonds for the Crarys
passed to his assignee. The Crarys had claims upon Spain which were
afterwards paid under the Florida treaty, and the assignee of Smith
received the amount of the said Spanish claim in satisfaction of
the payments made for the duty bonds by Smith. The judgment by the
United States against Smith having preceded the assignment, and the
receipt and distribution of the money received from the Spanish
claim under the insolvent law, the government having an
unquestionable right of priority on all the property of Smith, it
extended to the claim of Smith on the Crarys. If the right of
Page 30 U. S. 174
the United States to a priority of payment covers any part of
the property of an insolvent, it must extend to the whole until the
debt is paid.
The claim of Smith on the Crarys was properly included in his
assignment under the insolvent laws, however remote the probability
may have been at the time of realizing the demand. It was an
assignable interest. If at the time of the assignment this claim
was contingent, it is no longer so. It has been reduced into
possession, and is now in the hands of the representative of the
debtor to the general government. If under such circumstances the
priority of the government does not exist, it would be difficult to
present a stronger case for the operation of this prerogative.
By a special act of Congress, the principal debtor was
discharged from imprisonment, and the expression is omitted in this
act, which is used in the general act passed June 6, 1798,
"providing for the relief of persons imprisoned for debts due to
the United States" that "the judgment shall remain good and
sufficient at law." In the special act it was declared that any
estate which the debtor "may subsequently acquire shall be liable
to be taken in the same manner as if he had not been imprisoned and
discharged." The special act did not release the judgment, and did
not affect the tights of the United States against the surety.
That the same rules of contract are applicable where the
sovereign is a party as between individuals is admitted, but the
right of the sovereign to discharge the debtor from imprisonment
without releasing the debt is clear.
The act of government in releasing both the principal and surety
from imprisonment was designed for the benefit of unfortunate
debtors, and no unnecessary obstructions should be opposed to the
exercise of so humane a policy. If the discharge of the principal
under such circumstances should be a release of the debt against
the surety, the consequence would be that the principal must remain
in jail until the process of the law were exhausted against the
surety. This would operate against the liberty of the citizen, and
should be waived unless required to secure the public interest.
A discharge from prison by operation of law does not prevent the
judgment creditor from prosecuting his judgment against the estate
of the defendant. To this rule a discharge under the special
provisions of the bankrupt law may form an exception.
The Secretary of the Treasury was authorized to deduct from the
sum payable to a debtor to the United States the sum due to the
United States, and he paid to his assignee the whole sum which was
awarded to him under the Florida treaty, omitting to make the
deduction of the debt due to the United States. By the Court:
"It cannot be admitted that an omission of duty of this kind, as
a payment by mistake by an officer, shall bar the claim of the
government. If, in violation of his duty, an officer shall
knowingly or even corruptly do an act injurious to the public, can
it be considered obligatory? He can only bind the government by
acts which come within the just exercise of his official
powers."
Where a fund was in the hands of an assignee of an insolvent,
out of which the United States asserted a right to a priority of
payment, in such a case, proceedings at law might not be adequate,
and it was proper to proceed in equity.
Page 30 U. S. 175
The appellant, William Hunter, was the assignee of Archibald
Crary and Frederick Crary under the insolvent law of Rhode Island.
The Crarys obtained the benefit of that law in June, 1809. William
Hunter was duly appointed one of their assignees, and is now the
sole surviving assignee. One Jacob Smith had, as surety in a custom
house bond, been compelled to pay to the United States for the
Crarys about $2,125. This payment was made in May, 1808. Jacob
Smith soon afterwards became himself insolvent,
viz., in
October, 1809, obtained the benefit of the same insolvent law, and
William Hunter is now his sole surviving assignee. Jacob Smith and
one William McGee were sureties for William Peck as Collector of
Taxes for the Rhode Island District, and the United States obtained
a judgment for a large sum,
viz., $13,508, against the
principal and sureties in August, 1811. The suit was commenced in
May of the same year. Upon his commitment to prison, by force of
the execution issued in his case, Smith petitioned the then
Secretary of the Treasury for relief, in which petition he stated
that he was reduced to poverty, that he had obtained the benefit of
the Rhode Island insolvent law, and surrendered all his property as
compelled by that law to his assignee. He states in that petition
that his own insolvency was hurried, if not occasioned, by his
having paid considerable sums on account of suretyship at the
custom house, and in particular this very sum of two thousand some
hundred dollars for the Crarys in the year 1809. Upon this full
statement of the case, relief was granted him, and he was
discharged from prison in compliance with a warrant from the
Treasury on 17 October, 1811.
Before his discharge, Smith executed an assignment of his
property to the United States. The assignment purports to convey
all and the same property, which was conveyed by his previous
assignment under the insolvent law. He recites and includes his
sworn inventory under the insolvent law, and refers to his demand
against the Crarys.
After the release of Smith, the surety, the United States in
1812 imprisoned Peck the delinquent principal, and Congress
discharged him from that imprisonment upon his assignment and
conveyance of all his estate, real and personal,
Page 30 U. S. 176
which he then owned or might be entitled to. This was done on 12
June, 1812.
In July, 1824, under the peculiar circumstances of delay,
difficulty, and embarrassment set forth in the answer, the assignee
of the Crarys recovered and received from the United States under
their treaty with Spain, and in conformity to statutes by them
enacted, the sum of money as stated in the bill and as admitted in
the answer.
The appellant in his answers contended that so much of this sum
as by operation of law belonged to Smith, he, as the assignee of
Smith, was bound to pay over to the ascertained creditors of Smith,
for whose benefit the assignment under the state insolvent law was
made. In the original bill, the claim of the United States was
rested upon the assignment made to them by Smith, but afterwards an
amended bill was filed in which their right to payment of the whole
amount of the judgment against Smith is asserted on their right of
priority under the laws of the United States.
The circuit Court of Rhode Island give a decree in favor of the
United States, and the defendant appealed to this Court.
Page 30 U. S. 181
MR. JUSTICE McLEAN delivered the opinion of the Court.
The material facts in the case are these.
William Hunter, the defendant in the court below, is the
surviving assignee of Archibald and Frederick Crary, who in June,
1809, obtained the benefit of the insolvent law of Rhode Island.
One Jacob Smith, as surety on a custom house bond, had been
compelled to pay to the United States, in May, 1808, for the
Crarys, about $2,125. In February, 1810, Smith filed his petition
for the benefit of the insolvent law, and in August, 1811, Hunter
and one Littlefield, now deceased, were appointed assignees. On 3
September following, Smith made to them an assignment of his
property. Smith and one McGee were sureties for William Peck, as
Marshal of the Rhode Island district, who became a defaulter to the
government and against whom and his sureties, in August, 1811, a
judgment was recovered for $13,508.
Upon his being afterwards committed to prison on an alias
execution issued in pursuance of this judgment, Smith petitioned
the Secretary of the Treasury for relief, and stated that he was
reduced to poverty and had assigned all his property under the
insolvent law. His insolvency, he alleged, had been accelerated, if
not produced, by his having paid large sums,
Page 30 U. S. 182
as surety, on certain custom house bonds, and particularly the
above sum for the Crarys. He was discharged by the Secretary, on 17
October, 1811, on his making a formal assignment of all his effects
to the United States. This assignment purports to convey the same
property which he had previously assigned. In 1812, the United
States imprisoned Peck, the principal, on execution, and in the
month of June in the same year he was discharged by act of
Congress.
In July, 1804, Hunter, as the assignee of the Crarys, obtained
from the United States, under their treaty with Spain, the sum of
$8,150.81. Out of this sum, Smith was entitled to the amount he
paid for the Crarys, and the United States claims the same from
Hunter as assignee in part satisfaction of its judgment against
Smith. Hunter claims this sum in behalf of the creditors of Smith,
under his first assignment.
By the original bill, the government rested its claim on the
second assignment. This clearly cannot be sustained.
Smith, under the insolvent law of Rhode Island, having assigned
all his property for the benefit of his creditors, could not, by a
subsequent assignment to the United States, affect the first
transfer. The government can set up no right under the second
assignment which might not be claimed by any other creditor.
This ground is abandoned by the amended bill, and the claim of
the government is placed on its priority under the act of Congress.
By this act, a preference is given to a government debt over all
others, and if the debtor be insolvent, such debt must first be
satisfied
It is true, as the defendant insists, that the original bill
still remains in the record and forms a part of the case. But the
amendment presents a new state of facts, which it was competent for
the complainants to do, and on the hearing they may rely upon the
whole case made in the bill, or may abandon some of the special
prayers it contains.
The same right of priority which belongs to the government
attaches to the claim of an individual who, as surety, has paid
money to the government. Under this provision, Smith could claim a
preference to other creditors for the
Page 30 U. S. 183
money he paid as surety for the Crarys, and on his right the
priority of the government is asserted.
The defendant resists this demand on various grounds. He
contends in the first place that the doctrine of priority is not
applicable in this case.
This prerogative of the government can only operate, it is
insisted, on a debt due at the time. That it cannot reach a debt
which depends upon a future contingency, and such was the claim of
the Crarys under the Spanish treaty. It was not realized until in
June, 1824, nearly thirteen years after the benefit of the
insolvent law had been extended to the claimants.
It is also contended that the first assignment of Smith had
relation back and took effect from the date of this inventory,
which was prior to the judgment obtained against him by the United
States. This being the case, the priority of the government could
not attach, it is urged, for it can only act on a debt, and there
was no debt in this case as against Smith until judgment was
entered.
The assignment under the insolvent law could only take effect
from the time it was made. Until the court, in the exercise of its
judgment, determines that the applicant is entitled to the benefit
of the law, and in pursuance of its requisitions he assigns his
property, the proceedings are inchoate and do not relieve the
party. It is the transfer which vests in the assignee the property
of the insolvent for the benefit of his creditors. If, before the
judgment of the court, the petitioner fail to prosecute his
petition or discontinue it, his property and person are liable to
execution the same as though he had not applied for the benefit of
the law. And if, after the judgment of the court, he fail to assign
his property, it will be liable to be taken by his creditors on
execution.
The property placed upon the inventory of an insolvent may be
protected from execution while he prosecutes his petition, but this
cannot exclude the claim of a creditor who obtains a judgment
before the assignment. If this Spanish claim had passed into the
hands of the assignee of Smith and been distributed by him before
the debt of the United States was established or notice of its
existence had been given to him, no controversy could have arisen
on the subject.
Page 30 U. S. 184
The defendant, as assignee, could not have been held responsible
under such circumstances, nor could the creditors who received
payment have been compelled to refund to the government.
If the judgment of the government had not preceded the
assignment of Smith, there might have been some ground to question
the right of priority which is contended for.
But the judgment preceded the assignment, which gave the
government an unquestionable right of priority on all the property
of Smith. Did not this right extend to the claim on the Crarys? It
would seem that no doubt can exist on this subject. If the right
cover any part of the property of the insolvent, it must extend to
the whole until the debt be satisfied.
It was proper for Smith to include in his assignment the claim
on the Crarys. However remote the probability may have been at that
time of realizing this demand, still under the insolvent law it was
an assignable interest. If, at the time of the assignment, this
claim was contingent, it is no longer so. It has been reduced into
possession, and is now in the hands of the representative of the
debtor to the government.
If under such circumstances the priority of the government does
not exist, it cannot be said to exist in any case. It would be
difficult to present a stronger case for the operation of this
prerogative.
But it is contended by the defendant below that if the doctrine
of preference or priority be applicable to this case, the United
States, by various acts, has waived it.
The release of Peck from imprisonment by the act of Congress,
under the circumstances of the case, it is urged, was a release of
Smith the surety.
This act was passed 24 June, 1812, and it provided that before
his discharge, Peck should assign "all his estate, real and
personal, which he may now own or be entitled to, for the use and
benefit of the United States." And it also provided
"That any estate, real or personal, which the said William Peck
may hereafter acquire shall be liable to be taken in the same
manner as if he had not been imprisoned and discharge. "
Page 30 U. S. 185
By the act providing for the relief of persons imprisoned for
debt due to the United States, passed June 6, 1798, the Secretary
of the Treasury is authorized to discharge in certain cases, and
the individual so discharged, it is declared, "shall not be liable
to be imprisoned again for the same debt, but the judgment shall
remain good and sufficient in law."
As in the act of 1798, there is an express provision that "the
judgment shall remain good," which is omitted in the act
discharging Peck, a doubt has been raised whether the judgment
against him can be further prosecuted. If by this act the judgment
be released against Peck as a matter of course, his surety is
discharged. This act specially provides "that any estate which Peck
may subsequently acquire shall be liable to be taken in the same
manner as if he had not been imprisoned and discharged."
From this provision it clearly appears that the release from
imprisonment was the only object of the statute, and a proper
construction of it does not release the judgment. If the property
of Peck may be taken "in the same manner as if he had not been
imprisoned," it may be taken under the same judgment.
That the same rules of contract as applicable where the
sovereign is party as between individuals is admitted, but the
right of the sovereign to discharge the debtor from imprisonment
without releasing the debt is clear. And how can such a release
discharge the surety?
Does it embarrass his recourse against the principal? In this
case, if Smith had paid the debt to the government, he might have
resorted to all the remedies Peck which the law allows in any
case.
The recourse of the government against the property of Peck
still remains unimpaired; consequently the judgment remains
unsatisfied, and no act has been done to the prejudice of the
surety.
The cases in 2 Dane's Abridg. 155; 3 Sergeant & Rawle
465-466, and
2 U. S. 2 Dall. 373,
were cited to show that while a defendant is charged in execution,
the debt is considered as satisfied, and that a discharge of one
co-debtor is a discharge of all.
The imprisonment of a defendant is a means to enforce the
payment of the judgment, and is only considered a satisfaction
Page 30 U. S. 186
of it so far as to suspend all other process. If, by the
operation of law, by an escape, or by any other means, without the
assent of the plaintiff, the defendant be released from prison, the
judgment still remains in full force against him.
The imprisonment of Peck the principal was no bar to an
execution against the body of his surety. In the case under
consideration, Smith had been imprisoned and discharged before Peck
was confined. These proceedings were all regular, however great the
hardship may have been to the surety, and did not in any manner
lessen the responsibility of either principal or surety.
The authorities read in the argument going to show a release of
the sureties where the creditor without their assent enlarges the
time of payment, &c., are not considered as opposed to the
doctrines here laid down.
The act of the government in releasing both the principal and
surety from imprisonment was designed for the benefit of the
unfortunate debtors, and no unnecessary obstructions should be
opposed to the exercise of so humane a policy. If the discharge of
the principal under such circumstances should be a release of the
debt against the surety, the consequence would be that the
principal must remain in jail until the process of the law were
exhausted against his surety. This would operate against the
liberty of the citizen, and should be avoided unless required to
secure the public interest.
A discharge from prison by operation of law does not prevent the
judgment creditor from prosecuting his judgment against the estate
of the defendant. To this rule a discharge under the special
provisions of a bankrupt law may form an exception.
In the cases under consideration, the defendants were discharged
under laws which expressly reserved the right to the government to
enforce the judgment against the property of the defendants.
In
26 U. S. 1 Pet.
573, this Court decided, on a full consideration of the case, that
a discharge of the principal under an act of Congress did not
release the debt against the surety.
By an Act of Congress of 24 May, 1824, respecting payments under
the Spanish treaty, it is provided,
"That in all
Page 30 U. S. 187
cases where the person or persons in whose name or for whose
benefit and interest the aforesaid awards shall be made shall be in
debt and in arrears to the United States, the United States, the
Secretary of the Treasury shall retain the same out of the amount
of the aforesaid awards,"
&c.
Under this provision, it is contended that it was the duty of
the Secretary to retain the amount of Smith's demand against the
Crarys, and not having done so, the payment must be considered as
an abandonment of the claim. That the Secretary must have had
notice of Smith's claim is insisted on because it was stated on his
schedule which was assigned to the United States, and also in his
petition to the Secretary of the Treasury on which he was released
from imprisonment.
Having a knowledge of this claim of Smith's against the Crarys,
it was in the power of the Secretary, under the law, to withhold it
and appropriate it in part discharge of the judgment. The priority
which first attached to Smith, and through him to the Crarys, would
have enabled the government, without the aid of the other
provision, to retain the money. But can the payment of it under
such circumstances operate as a release to Smith?
It might be dangerous to give the same effect to a voluntary
payment by an agent of the government as if made by an individual
in his own right. The concerns of the government are so complicated
and extensive that no head of any branch of it can have the same
personal knowledge of the details of business which may be presumed
in private affairs. And if in the case under consideration some
clerk in the Treasury Department, or even the Secretary, did pay to
the assignee of the Crarys the amount claimed by Smith which might
and perhaps ought to have been retained, is it an abandonment of
the claim?
Where an officer of the government is in arrears, his salary is
required to be withheld until the sum in arrears shall be paid. In
such a case, the books of the Treasury would furnish its officers
with notice of the delinquency; and yet would it be contended that
a payment of the salary which ought to have been retained would
release the debt?
It cannot be admitted that an omission of duty of this kind, as
a payment through mistake, by an officer shall bar
Page 30 U. S. 188
the claim of the government. If, in violation of his duty, an
officer shall knowingly or even corruptly do an act injurious to
the public, can it be considered obligatory? He can only bind the
government by acts which come within a just exercise of his
official power.
The payment to the assignee of the Crarys can in no respect
affect the claim now set up against the assignee of Smith.
An objection is urged on the ground that the United States has
failed to prosecute its claim with sufficient diligence, and that
it is subject to the imputation of staleness.
Until the sum of money in controversy was received by the
assignee of Smith in 1824, the United States could not be charged
with a want of diligence in prosecuting its claim against Smith. It
had obtained a judgment in 1811, and there was no property within
the reach of any process in that judgment by which it could be
satisfied.
To subject the above claim to this judgment, the bill in the
present case was filed in 1824. If, therefore, a want of diligence
could in any case be charged against the government, there is no
ground to make the charge in this case.
The last objection urged by the defendant is that there was full
and ample relief to be obtained at law, and consequently chancery
cannot take jurisdiction of the case.
In his capacity as trustee, the government seeks to make Hunter
liable. He bears the same relation to the creditors of Smith. It
was proper in him, conceiving as he did that the fund in his hands
should be paid to these creditors, to resist the claim of the
government.
Until its right of priority, under all the circumstances of the
case, was judicially established, he, in the exercise of his
discretion, might withhold the payment. The trustee can only be
desirous of making the payment as the law requires.
How is this liability to be enforced? What process at law would
be adequate to give the relief prayed for in the bill?
It is the peculiar province of equity to compel the execution of
trusts. In this case, it is conceived, the proceeding at law would
not be adequate. The fund to be reached was in the hands of a
trustee, and it was important that it should not pass from his
hands to the creditors of Smith.
The amount of the claim against the Crarys might be
Page 30 U. S. 189
disputed; the trustee was entitled to his commissions, and other
difficulties were likely to arise in the progress of the
investigation which could only be fully adjusted, at the instance
of the United States, by a court of chancery. No doubt exists,
therefore, that a resort to the equity jurisdiction of the circuit
court in this case was proper and necessary. The judgment of the
circuit court must be
Affirmed, but without costs.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Rhode Island and was argued by counsel, on consideration whereof it
is ordered and decreed by this Court that the decree of the said
circuit court in this cause be and the same is hereby affirmed
without costs.
