The right of priority of payment of debts due to the government
is a prerogative of the Crown of England, well known to the common
law. It is founded not so much upon any personal advantage to the
sovereign as upon motives of public policy to secure an adequate
revenue to sustain the public burdens and discharge the public
debts.
The claim of the United States to priority does not stand upon
any sovereign prerogative, but is exclusively founded on the actual
provisions of our own statutes. The same policy which governed in
the case of the royal prerogative may be clearly traced in their
statutes, and as that policy has mainly a reference to the public
good, there is no reason for giving to them a strait and narrow
interpretation. Like all other statutes of this nature, they ought
to receive a fair and reasonable interpretation according to the
just import of their terms.
The priority of payment out of the estates of insolvents in
favor of the United States was, under the statutes of the United
States, first applied to bonds for the payment of duties and to
persons engaged in commerce.
The term "due," as applied to debts, is sometimes used to
express the mere state of indebtment, and then it is equivalent to
"owed" or "owing." And it is sometimes used to express the fact
that the debt has become payable.
The priority of the United States extends as well to debts by
bonds for duties which are payable after the insolvency or decease
of the obligor as to those actually payable or due at the period
thereof.
In the strictest sense, the bond for duties is
debitum in
praesenti,
although, looking to the condition, it may be properly said to
be
solvendum in futuro. It is in this sense that the
legislature is to he understood in the use of the words "debt due
to the United States." Wherever the common law would hold a debt to
be
debitum in praesenti, solvendum in futuro, the statutes
giving the United States priority embrace it just as much as if it
were presently payable.
The facts of the case upon which the question submitted to this
Court arose were as follows:
William H. Lippett, a merchant of Wilmington, North Carolina,
was, on 14 October, 1828, indebted to the United States and to
sundry persons, and among others to the State Bank of North
Carolina, and on that day he made a general assignment of all his
property to Talcott Burr in trust to pay his creditors. The
assignment directed that the sum of $16,612.47
Page 31 U. S. 30
should be paid to particular creditors, and that the residue of
the property assigned should be appropriated to the payment of
bonds for duties to the United States. At the time of the
assignment, Mr. Lippett had given bonds to the United States for
duties on merchandize amounting to $7,486.86, of which bonds but
one only, amounting to $419.97, was due and unpaid when the
assignment was executed.
In the cause in the circuit court, the question arose
"whether the priority to which the United States are entitled in
case of a general assignment made by the debtor of his estate for
the payment of debts comprehends a bond for the payment of duties
executed anterior to the date of the assignment, but payable
afterwards."
Upon this question the judges differed in opinion, and, on
motion of the attorney of the United States, the point of law on
which the disagreement arose was stated under the direction of the
said judges and certified under the seal of the court to the
Supreme Court of the United States, to be finally decided.
Page 31 U. S. 34
MR. JUSTICE STORY delivered the opinion of the Court.
The suit is an information by the United States in the nature of
a bill in equity seeking to recover against the defendant and
Talcott Burr as the assignee of William H. Lippett the amount of
custom house bonds owing by Lippett to the United States, Lippett
having become insolvent and having made a voluntary assignment of
all his property to Burr for the benefit of his creditors by which
he has given a preference of payment to certain creditors, who are
made defendants,
Page 31 U. S. 35
and, among others, to the State Bank of North Carolina, before
payment to the United States. The Bank of North Carolina appeared
and pled a demurrer to the information, and upon the argument of
that demurrer it occurred as a question whether the priority to
which the United States is entitled in case of a general assignment
made by the debtor of his estate for the payment of debts
comprehends a bond for the payment of duties executed anterior to
the date of the assignment but payable afterwards. Upon this
question the judges were divided in opinion, and it now stands for
the decision of this Court.
The right of priority of payment of debts due to the government
is a prerogative of the Crown well known to the common law. It is
founded not so much upon any personal advantage to the sovereign as
upon motives of public policy, in order to secure an adequate
revenue to sustain the public burdens and discharge the public
debts. The claim of the United States, however, does not stand upon
any sovereign prerogative, but is exclusively founded upon the
actual provisions of their own statutes. The same policy which
governed in the case of the royal prerogative may be clearly traced
in these statutes, and as that policy has mainly a reference to the
public good, there is no reason for giving to them a strict and
narrow interpretation. Like all other statutes of this nature, they
ought to receive a fair and reasonable interpretation according to
the just import of their terms.
The first enactment on this subject will be found in the Duty
Collection Act of 4 August, 1790, chapter 62, section 45, which
provides that
"Where any bond for the payment of duties shall not be satisfied
on the day it became due, the collector shall forthwith cause a
prosecution to be commenced for the recovery of the money thereon
by action or suit at law in the proper court having cognizance
thereof. And in all cases of insolvency or where the estate in the
hands of the executors or administrators shall be insufficient to
pay all the debts due from the deceased, the debt due to the United
States on any such bond shall be first satisfied."
So that in point of fact, the priority was first applied to
bonds for the payment of duties and to persons engaged in commerce,
which disposes of that part of the argument of the
Page 31 U. S. 36
defendant which has been founded upon a supposed policy of the
government to favor merchant importers in preference to any other
class of their debtors.
Then came the Act of 3 March, 1791, chapter 75, which extended
the right of priority of the United States to other classes of
debtors, and gave a definition of the term insolvency in its
application to the purposes of the act. It provides,
"That where any revenue or other officer, or other person
hereafter becoming indebted to the United States by bond or
otherwise shall become insolvent, or where the estate of any
deceased debtor in the hands of executors or administrators shall
be insufficient to pay all the debts due from the deceased, the
debt due to the United States shall be first satisfied, and the
priority hereby established shall be deemed to extend as well to
cases in which a debtor, not having sufficient property to pay all
his debts, shall make a voluntary assignment thereof, or in which
the estate of an absconding, concealed, or absent debtor shall be
attached by process of law, as to cases in which an act of legal
bankruptcy shall be committed."
This act is still in force, and unless its application to the
present case is intercepted by the act of 1799, chapter 128, its
terms would seem sufficiently broad to embrace it. The language is
where any person "becoming indebted to the United States by bond or
otherwise" (which clearly includes a debtor upon a custom house
bond) "shall become insolvent" (which is the predicament of
Lippett), "the debt due to the United States shall first be paid."
What debt is here referred to? A debt which is then actually
payable to the United States? Or a debt then arising to the United
States, whether then payable, or payable only
in futuro?
We think the latter is the true construction of the term of the
act. The whole difficulty arises from the different senses in which
the term "due" is used. It is sometimes used to express the mere
state of indebtment, and then is an equivalent to owed or owing.
And it is sometimes used to express the fact that the debt has
become payable.
Thus, in the latter sense, a bill or note is often said to be
due when the time for payment of it has arrived. In the former
sense, a debt is often said to be due from a person, when he is the
party owing it, or primarily bound to pay, whether the time of
payment has or has not arrived. This
Page 31 U. S. 37
very clause of the act furnishes an apt illustration of this
latter use of the term. It declares that the priority of the United
States shall attach "where the estate of any deceased debtor, in
the hands of executors or administrators, shall be insufficient to
pay all the debts due from the deceased." Here the word "due" is
plainly used as synonymous with owing. In the settlement of the
estates of deceased persons, no distinction is ever taken between
debts which are payable before or after their decease. The assets
are equally bound for the payment of all debts. The insufficiency
spoken of in the act is an insufficiency not to pay a particular
class of debts, but to pay all debts of every nature. Now if the
term "due," in reference to the debts of deceased persons, means
owing, and includes all debts, whether payable
in
praesenti or not; it is difficult to perceive how a different
meaning can be given to it, in regard to the debt of the United
States, considering the connection in which it stands in the sequel
of the same sentence. "Where the estate . . . shall be insufficient
to pay all the debts due from the deceased, the debt due to the
United States shall be first satisfied." The obvious meaning is
that in case of a deficiency of assets, the debt owing to the
United States shall be paid before the debts owing to the other
creditors.
The only real doubt in the present case arises from the
phraseology of the sixty-fifth section of the Act of 2 March, 1799,
chapter 128, which provides that
"Where any bond for the payment of duties shall not be satisfied
on the day it may become due, the collector shall forthwith and
without delay cause a prosecution to be commenced for the recovery
of the money thereon in the proper court having cognizance thereof.
And in all cases of insolvency or where any estate in the hands of
executors, administrators, or assignees shall be insufficient to
pay all the debts due from the deceased, the debt or debts due to
the United States on any such bond or bonds shall be first
satisfied."
The argument is that the words "any such bond or bonds" refer to
the bonds mentioned in the introductory part of the sentence --
that is, to bonds for duties which have become payable and are not
paid. But we think that this construction is not necessary or
unavoidable. The words "such bond or bonds" are fully satisfied by
referring them as matter of description to bonds for the
Page 31 U. S. 38
payment of duties, whether then payable or not. The description
is of a particular class of bonds,
viz., for the payment
of duties, and not of the accidental circumstance of their time of
payment.
No reason can be perceived why, in cases of a deficiency of
assets of deceased persons, the legislature should make a
distinction between bonds which should be payable at the time of
their decease and bonds which should become payable afterwards. The
same public policy which would secure a priority of payment to the
United States in one case applies with equal force to the other,
and an omission to provide for such priority in regard to bonds
payable
in futuro, would amount to an abandonment of all
claims except for a
pro rata dividend. In cases of general
assignments by debtors, there would be a still stronger reason
against making a distinction between bonds then payable and bonds
payable
in futuro, for the debtor might, at his option,
give any preferences to other creditors and postpone the debts of
the United States of the latter description, and even exclude them
altogether. In the case before the Court, the assignment expressly
postpones the claims of the United States in favor of mere private
creditors. It would be difficult to assign any sufficient motive
for the legislature to allow the public debtors to avail themselves
of such an injurious option. If, then, no reason can be perceived
for such a distinction grounded upon public policy, the language
ought to be very clear which should induce the court to adopt it.
There should be no other rational means of interpreting the terms
so as to give them their full and natural meaning. This, we think,
is not the predicament of the present language. Every word may have
a fair construction without introducing any such restrictive
construction. There is this additional consideration which deserves
notice -- that in our view the Act of 1797, chapter 74, clearly
embraces all debts of the United States, whether payable at the
decease of the party or afterwards. There is no reason to presume
that the legislature intended to grant any peculiar favor to
merchant importers, for otherwise the priority of the United States
would have been withdrawn from all bonds for duties, and not (as
the argument supposes) from a particular class of such bonds. And
as there is no repeal of the Act of 1797, chapter 74, except such
as may
Page 31 U. S. 39
arise by implication from the terms of the sixty-fifth section
of the Act of 1799, chapter 128; if these terms cover only cases of
bonds actually become due, they leave the act of 1797 in full force
with regard to all other bonds.
But if this reasoning were less satisfactory to our minds than
it is, there is another ground upon which we should arrive at the
same conclusion. The Act of 1799, chapter 128, in the sixty-second
section, prescribes the form of bonds for the payment of duties. It
is the common form of a bond with a penalty upon a condition
underwritten. The obligatory part admits a present existing debt
due to the United States which the party holds himself firmly bound
to pay to the United States. The condition, in a legal sense,
constitutes no part of the obligation, but is merely a condition by
a compliance with which the party may discharge himself from the
debt admitted to be due by the obligatory clause. And accordingly
it is well known that in declarations on bonds with a condition, no
notice need be taken of the existence of the condition. If the
debtor would avail himself of it, he must pray oyer of it and plead
it by way of discharge. In the strictest sense, then, the bond is a
debitum in praesenti, though looking to the condition it
may be properly said to be
solvendum in futuro, and we
think that it is in the sense of this maxim that the legislature is
to be understood in the use of the words "debt due to the United
States." Wherever the common law would hold a debt to be
debitum in praesenti, solvendum in futuro, the statute
embraces it just as much as if it were presently payable.
It is not unimportant to state that the construction which we
have given to the terms of the act is that which is understood to
have been practically acted upon by the government, as well as by
individuals, ever since its enactment. Many estates as well of
deceased persons, as of persons insolvent who have made general
assignments, have been settled upon the footing of its correctness.
A practice so long and so general would of itself furnish strong
grounds for a liberal construction, and could not now be disturbed
without introducing a train of serious mischiefs. We think the
practice was founded in the true exposition of the terms and intent
of
Page 31 U. S. 40
the act, but if it were susceptible of some doubt, so long an
acquiescence in it would justify us in yielding to it as a safe and
reasonable exposition.
This opinion will be certified to the Circuit Court of the North
Carolina district.
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
North Carolina, and on the point and question on which the judges
of the said circuit court were opposed in opinion and which was
certified to this Court for its opinion, agreeably to the act of
Congress in such case made and provided, and was argued by counsel,
on consideration whereof it is ordered and adjudged by the Court
that it be certified to the Circuit Court of the United States for
the District of North Carolina, upon the question upon which the
judges of that court were divided and which has been certified to
this Court, that this Court is of opinion that the priority to
which the United States is entitled in case of a general assignment
made by a debtor of his estate for the payment of debts comprehends
a bond for the payment of duties executed anterior to the date of
the assignment, but payable afterwards.