1. The priority established by R.S. § 3466 for debts due to the
United States in cases in which "an act of bankruptcy is committed"
is applicable where, upon a creditor's petition, a receiver has
been appointed to liquidate the assets of an insolvent corporation.
P.
314 U. S.
426.
2. The purpose of R.S. § 3466 is to secure adequate public
revenues to sustain the public burden, and it is to be construed
liberally in order to effectuate that purpose. P.
314 U. S.
426.
3. In an equity receivership proceeding in a state court, a
claim of the United States arising under the National Housing Act
is entitled, under R.S. § 3466, to priority over claims for wages.
P.
314 U. S.
426.
4. The right of the United States to priority in such case is
not affected by state law, nor by § 64a of the Bankruptcy Act; nor
is it inconsistent with the National Housing Act. Pp.
314 U. S.
427-429.
143 S.W.2d 318 reversed.
Certiorari, 313 U.S. 552, to review a judgment denying a claim
of the United States to priority. The judgment of the state court
of first instance was affirmed by the Springfield Court of Appeals,
and the Supreme Court of Missouri denied a petition for
certiorari.
Page 314 U. S. 424
MR. JUSTICE BYRNES delivered the opinion of the Court.
This case involves the application of § 3466 of the Revised
Statutes to a claim of the United States under the National Housing
Act in an equity receivership proceeding in a state court.
The St. James Distillery, a corporation, executed a note to the
Industrial Bank and Trust Company of St. Louis on September 23,
1935. On July 14, 1936, the Bank endorsed the note and delivered it
to the Federal Housing Administration, acting on behalf of the
United States, under a contract of insurance and guaranty provided
for in Title I of the National Housing Act. The United States,
through the Federal Housing Administration, on that date reimbursed
the Bank in the amount of $5,988.88, the balance due on the note.
Emory, claiming wages due him, filed a petition on August 27, 1936,
in the Circuit Court of Phelps County, Missouri, alleging that the
St. James Distillery was hopelessly insolvent and praying that a
receiver be appointed. On September 9, the Circuit Court found all
the issues in Emory's favor and appointed a receiver, who took
possession of the corporate assets.
After deductions for the costs of the receivership, the assets
available for distribution totaled $678. Against this amount the
wage claims of "about twelve individuals" were filed. The separate
amounts of these claims were neither stipulated nor determined by
the courts below; their aggregate was "about $900." The United
States, on behalf of the Federal Housing Administration, filed a
claim for the $5,988.88 due on the note. The wage claimants
Page 314 U. S. 425
asserted priority under § 1168 of the Revised Statutes of
Missouri; [
Footnote 1] the
United States asserted priority under § 3466 of the Revised
Statutes of the United States. [
Footnote 2]
The Circuit Court of Phelps County decided that the claim of the
United States should be treated as an ordinary claim against the
estate, and that the wage claims should be paid first. On appeal,
the Springfield Court of Appeals held that the claim of the United
States on behalf of the Federal Housing Administration was accorded
preference over ordinary claims by § 3466 of the Revised Statutes
of the United States. Consequently, it was of the opinion that the
Circuit Court had erred in treating the claim of the United States
as an ordinary claim. However, it held further that the error was
of no consequence, since the Missouri statute granted priority to
wage claims even over other preferred claims, and no assets would
remain after they had been satisfied. Rehearing was denied, and
Page 314 U. S. 426
the Supreme Court of Missouri denied a petition for certiorari.
We granted certiorari, 313 U.S. 552, because of the importance of
the question and because of an asserted conflict of decisions.
The applicability of § 3466 to this case is clear. The section
applies in terms to cases
"[1] in which a debtor, not having sufficient property to pay
all his debts, makes a voluntary assignment thereof, or [2] in
which the estate and effects of an absconding, concealed, or absent
debtor are attached by process of law, . . . [or] [3] in which an
act of bankruptcy is committed."
This case falls within the third category. It is agreed that the
St. James Distillery was insolvent "on or before August, 1936," and
that, in response to a creditor's petition, a receiver was
appointed to liquidate the corporate assets. The appointment of a
receiver under such circumstances is among the most common examples
of an "act of bankruptcy."
Cf. § 3(a)(4) of the Bankruptcy
Act, U.S.C. Title 11, § 21(a)(4).
Just such proceedings as this, therefore, are governed by the
plain command of § 3466 that "debts due to the United States shall
be first satisfied." The purpose of this section is "to secure an
adequate public revenue to sustain the public burden"
(
United States v. State Bank of
North Carolina, 6 Pet. 29,
31 U. S. 35), and
it is to be construed liberally in order to effectuate that
purpose.
Bramwell v. U.S. Fidelity
& Guaranty Co., 269 U.
S. 483,
269 U. S. 487.
In view of this language, purpose, and rule of construction, the
priority asserted here by the United States appears to be securely
established.
The court below, however, held otherwise. In granting priority
to the wage claims over that of the United States, it relied upon
Missouri law. It recognized, as the authorities obliged it to
recognize, [
Footnote 3] that
the state statute could
Page 314 U. S. 427
not prevail if it was in conflict with § 3466. But it decided
that no such conflict arose for the reason that § 3466 had been
impliedly modified by § 64(a) of the Bankruptcy Act, [
Footnote 4] which, like the Missouri statute,
requires that wage claims be satisfied before those of the United
States.
The judgment below must have rested upon either of the following
theories: that Congress intended by § 64(a) of the Bankruptcy Act
to subordinate claims of the United States to wage claims in
nonbankruptcy proceedings generally, or that Congress intended by §
64(a) to modify § 3466 only so far as to grant priority over the
United States to wage claimants in state nonbankruptcy proceedings
when they would be entitled to such priority by otherwise
applicable state law.
There is a difficulty common to both theories which we regard as
insurmountable. Neither the language of § 64(a) nor the
Congressional history of the legislation here involved supports the
proposition that § 64(a) was intended to eliminate, either
partially or wholly, the priority of claims of the United States in
nonbankruptcy proceedings.
Page 314 U. S. 428
The provisions of § 3466 have been in force since 1797, without
significant modification. 1 Stat. 515. The first three federal
bankruptcy acts [
Footnote 5]
specifically preserved the priority of the United States over all
other claimants in bankruptcy proceedings in the federal courts.
Section 64 of the Bankruptcy Act of 1898, [
Footnote 6] however, disturbed this state of affairs.
It provided an order of distribution of the assets of bankrupt
estates in which certain wage claims preceded nontax claims of the
United States. While § 64 has been altered since 1898 in several
particulars, the priority of wage claims over nontax claims of the
United States has continued. Consequently, we must look to the Act
of 1898 for evidence that the priority accorded to wage claims by §
64 was intended to apply to more than bankruptcy proceedings in the
more than bankruptcy proceedings in the
We find no such evidence. The entire Act of 1898, as § 2 in
particular plainly reveals, was designed to create federal courts
of bankruptcy, and to define their functions. Indeed, § 64 itself,
in subdivision (a), refers to the "court;" § 1 provides that, as
used in the Act, "court" means "the
Page 314 U. S. 429
court of bankruptcy in which the proceedings are pending;" and §
1 also provides that "courts of bankruptcy," as used in the Act,
mean the federal district courts and a few other federal courts.
There is no internal sign that any part of § 64 was intended to
apply to state courts or to nonbankruptcy proceedings in the
federal courts. We have looked in vain in the committee reports and
the debate upon the bill for any external hint of such an
intention.
It is not strange therefore that both courts and commentators
have assumed that the application of § 64 of the Act of 1898 was
limited to federal bankruptcy proceedings, and that the priority of
claims of the United States in nonbankruptcy proceedings remained
unaffected.
Bramwell v. U.S. Fidelity
& Guaranty Co., 269 U.
S. 483;
Price v. United States, 269 U.
S. 492;
Stripe v. United States, 269 U.
S. 503;
United States v. Butterworth-Judson,
269 U. S. 504;
Mellon v. Michigan Trust Co., 271 U.
S. 236,
271 U. S.
238-239;
Spokane County v. United States,
279 U. S. 80;
New York v. Maclay, 288 U. S. 290.
See Rogge, The Differences in Priority of the United
States in Bankruptcy and in Equity Receiverships, 43 Harv.L.Rev.
251; Blair, The Priority of the United States in Equity
Receiverships, 39 Harv.L.Rev. 1. We are aware of but a single case
in which an appellate court has specifically passed upon the
contention that the priority granted to the United States in
nonbankruptcy proceedings by § 3466 has been modified by § 64 of
the Bankruptcy Act. And, in that case, the contention was rejected.
Matter of Kupshire Coats, Inc. v. United States, 272 N.Y.
221, 5 N.E.2d 715. [
Footnote
7]
While the point was not discussed in the courts below, it is now
urged that the objectives and provisions of the National Housing
Act require us to hold that claims of the
Page 314 U. S. 430
United States arising under it are not entitled to the priority
awarded by § 3466. We are aware of no canon of statutory
construction compelling us to hold that the word "first" in a
150-year-old statute means "second" or "third" unless Congress
later has said so or implied it unmistakably.
Certainly there is no provision in the National Housing Act
expressly relinquishing the priority of the United States with
respect to claims arising under it. At best, therefore, such an
intention on the part of Congress must be found in some patent
inconsistency between the purposes of the Housing Act and § 3466.
The plain objective of the Housing Act was to stimulate the
building trades and to increase employment. In order to induce
banks and other lending institutions to get the program under way,
Congress promised that the United States would make good up to 20%
on the losses they might incur on such loans. [
Footnote 8] As between the government and the
lending institutions, it was clearly intended that the United
States should bear the losses resulting from defaults. But beyond
this we may not go. There is nothing to show a further intention
that the United States should relinquish its priority as to claims
against defaulting and insolvent borrowers whose notes it takes up
from the lending institution pursuant to the insurance contract.
That is, the ultimate collection of bad loans was consigned to the
United States, rather than to the lending institutions, but the
collecting power of the United States was neither abridged nor
qualified. [
Footnote 9]
We are told, however, that the broad purposes of the Act would
be thwarted if we failed to assume that Congress
Page 314 U. S. 431
intended to surrender this priority. The reason advanced is that
suppliers of goods and services would refuse to extend credit to
those desiring to make property improvements if they knew that in
the event of insolvency their claims would be subordinated to those
of the United States. The fatal weakness of this contention is that
the Federal Housing Administration imposes an iron-clad requirement
that the proceeds of insured loans be used for no purpose other
than the improvements described in the application for the loan.
[
Footnote 10] Indeed,
lending institutions frequently pay the proceeds of the loan
directly to the suppliers of goods and services, rather than to the
property owner, and the practice has met with the enthusiastic
approval of the Administration. [
Footnote 11]
Consequently, the argument against the application of § 3466 is
reduced to this: private persons in general are reluctant to extend
credit when they know that, in the event of the borrower's
insolvency, the claims of the United States will receive priority,
and this circumstance is particularly undesirable in times of
economic stress. In the first place, whatever may be the merits of
the contention, it should be addressed to Congress, and not to this
Court. In the second place, the argument proves too much. If it is
sound as applied to this kind of a claim of the United States, it
is equally sound as applied to all claims as to which the United
States asserts priority under § 3466.
Neither
Cook County National Bank v. United States,
107 U. S. 445, nor
United States v. Guaranty
Trust Co.,
Page 314 U. S. 432
280 U. S. 478,
requires a different conclusion. In the former case, the United
States was denied its § 3466 priority in connection with a claim
against a national bank for the amount of certain funds of the
United States deposited with it. The decision was based on two
grounds. First, the national banking Act undertook to provide a
complete system for the establishment and government of banks, and
it included specific provisions concerning the distribution of the
assets of insolvent banks which were plainly inconsistent with the
granting of priority to general claims of the United States.
Second, the national banking Act expressly authorized the Secretary
of the Treasury to require national banks accepting deposits of
federal funds to give satisfactory security; it was held to be
fairly inferable that Congress intended the United States to look
to this provision, rather than to § 3466 for protection.
The claims which were denied priority in the
Guaranty
Trust case arose under Title II of the Transportation Act of
1920. That Act provided for the funding of debts to the United
States which the railroads had contracted during the period of
wartime control, and also provided for new loans to the railroads.
In holding § 3466 inapplicable to the collection of these loans,
the Court emphasized that the basic purpose of the Act was to
promote the general credit status of the railroads, that the
railroads were required to furnish adequate security for the
payment of both the old and new loans, and that the interest rate
of 6% on one class of loans was
"much greater than that which ordinarily accompanies even a
business loan carrying such assurance of repayment as would have
resulted from an application of the priority rule."
280 U.S. at
280 U. S. 486.
These factors persuaded the Court that Congress had intended to
exclude these loans from the scope of § 3466.
In the instant case, none of these circumstances is present. The
National Housing Act contains no reference
Page 314 U. S. 433
to the liquidation of estates of insolvent borrowers, and
consequently no direct inconsistency with § 3466 is possible. The
purpose of Title I was not the strengthening of the general credit
of property owners, but the stimulation of the building trades by
affording assurances to lending institutions in order to induce
them to make loans for property improvements. No security was
required of the borrowers, and the interest charge was low.
[
Footnote 12] Only the
plainest inconsistency would warrant our finding an implied
exception to the operation of so clear a command as that of § 3466.
We think such inconsistency is wholly wanting here.
Section 3466 is applicable to this proceeding, and it requires
that the claim of the United States be first satisfied.
Reversed.
[
Footnote 1]
Mo.Rev.Stat. (1929) § 1168, Rev.St.1939, § 1332, so far as
pertinent, provides:
"Hereafter, when the property of any company, corporation, firm
or persons shall be seized upon by any process of any court of this
state, or when their business shall be . . . put into the hands of
a receiver or trustee, then, in all such cases, the debts owing to
laborers or servants, which have accrued by reason of their labor
or employment, to an amount not exceeding one hundred dollars to
each employee, for work or labor performed within six months next
preceding the seizure or transfer of such property, shall be . . .
first paid in full, and, if there be not sufficient to pay them in
full, then the same shall be paid to them
pro rata, after
paying costs."
[
Footnote 2]
U.S.Rev.Stat. § 3466, U.S.C. Title, 31, Section 191,
provides:
"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 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 and 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 3]
Field v. United
States, 9 Pet. 182,
34 U. S. 200;
United States v. Oklahoma, 261 U.
S. 253;
Barnett v. American Surety Co., 77 F.2d
225;
In re Dickson's Estate, 197 Wash. 145, 154, 155, 84
P.2d 661;
cf. United States v. Summerlin, 310 U.
S. 414.
[
Footnote 4]
Section 64(a) of the Bankruptcy Act, so far as pertinent,
provides:
"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 (1) . . . [costs of
preserving the estate, etc.]; (2) wages, not to exceed $600 to each
claimant, which have been earned within three months before the
date of the commencement of the proceeding, due to workmen,
servants, clerks, or traveling or city salesmen on salary or
commission basis, whole or part time, whether or not selling
exclusively for the bankrupt; (3) . . . [certain expenses of
creditors connected with the liquidation of the estate]; (4) taxes
legally due and owing by the bankrupt to the United States or any
State or any subdivision thereof . . . , and (5) debts owing to any
person, including the United States, who, by the laws of the United
States, is entitled to priority. . . ."
[
Footnote 5]
Act of 1800, c.19, § 62, 2 Stat. 19, 36; Act of 1841, c. 9, § 5,
5 Stat. 440, 444; Act of 1867, c. 176, § 28, 14 Stat. 517, 530.
[
Footnote 6]
Section 64 of the Bankruptcy Act of 1898, 30 Stat. 544,
provided:
"(a) The court shall order the trustee to pay all taxes legally
due and owing by the bankrupt to the United States, State, county,
district, or municipality, in advance of the payment of dividends
to creditors, and upon filing the receipts of the proper public
officers for such payment he shall be credited with the amount
thereof. . . ."
"(b) The debts to have priority, except as herein provided, and
to be paid in full out of bankrupt estates, and the order of
payment shall be (1) the actual and necessary cost of preserving
the estate subsequent to filing the petition; (2) the filing fees
paid by creditors in involuntary cases; (3). . . [the costs of
administration]; (4) wages due to workmen, clerks, or servants
which have been earned within three months before the date of the
commencement of proceedings, not to exceed three hundred dollars to
each claimant, and (5) debts owing to any person who by the laws of
the States or the United States is entitled to priority."
[
Footnote 7]
A similar contention with respect to § 57(j) of the Bankruptcy
Act was rejected in
Matter of Simpson, Inc., 258 App.Div.
148, 15 N.Y.S.2d 1021.
[
Footnote 8]
48 Stat. 1246, c. 847, § 2.
[
Footnote 9]
The priority granted by § 3466 is, of course, no guaranty that
the United States will be saved from loss. In the instant case, for
example, the assets available for distribution are so small that
the United States will lose heavily even if its claim is first
satisfied.
[
Footnote 10]
"Modernization Credit Plan," Bulletin No. 1 (Aug. 10, 1934) pp.
15, 16-17;
id. (Sept. 12, 1934, revision), p. 22;
id. (July 15, 1935, revision), p. 19;
id. (July
20, 1936 revision), pp. 6-7; "Property Improvement Loans Under
Title I" (Feb. 4, 1938) pp. 4, 23;
id. (July 1, 1939
revision), p. 15;
id. (March 15, 1940 revision), p.
10.
[
Footnote 11]
"Modernization Credit Plan," Bulletin No. 1 (Sept. 12, 1934
revision), p. 29;
id. (July 15, 1935 revision), p. 15;
"Property Improvement Loans Under Title I" (Feb. 4, 1938) p. 33;
id. (July 1, 1939 revision), p. 30;
id. (March
15, 1940 revision), regulation No. VIII.
[
Footnote 12]
Not until 1939, four years after the note in this case was
executed, did the Federal Housing Administration even require the
lending institutions to pay premiums for the insurance of Title I
loans. 53 Stat. 805, c. 175, § 2. The income from these premiums
was to be used primarily to meet operating expenses under Title I,
and secondarily to meet losses resulting from defaults. In his
report dated April 1, 1941, the Administrator estimated that, for
the fiscal year ending June 30, 1941, this income from premiums
would prove sufficient to reimburse the United States for less than
half its losses under Title I, and that $4,000,000 of public funds
would be required to meet the balance. Report of the Federal
Housing Administration for the year ending Dec. 31, 1940, p.
11.
MR. JUSTICE REED, dissenting.
The purpose and provisions of the National Housing Act [
Footnote 2/1] lead me to the conclusion
that § 3466 of the Revised
Page 314 U. S. 434
Statutes is inapplicable to the claim of the Administrator in
this case. [
Footnote 2/2]
A statute is not to be interpreted by its text alone, as though
it were a specimen under laboratory control. It takes meaning from
other enactments forming the whole body of law bearing upon its
subject. [
Footnote 2/3] If, like §
3466, it has been upon the books for years, the precedents
interpreting its meaning must be considered in connection with it,
particularly when, as here, new legislation is passed which may be
inconsistent with its application. [
Footnote 2/4]
From past interpretation, we learn that the traditional function
of § 3466 is the assurance of the public revenue, [
Footnote 2/5] whatever may be the expense to the
competing creditors. Their interests are subordinated to the
general advantage. [
Footnote
2/6]
Page 314 U. S. 435
Title I of the National Housing Act, however, is not a revenue
measure -- it was intended to stimulate recovery and employment in
the construction industries, and to enable property owners to
obtain funds for sorely needed repairs by insuring financial
institutions against loss on loans for such work. [
Footnote 2/7] This was accomplished by what is in
effect a guarantee that all losses on rehabilitation loans up to a
predetermined percentage (20% here) of the total made by the
financial institution would be borne by the United States, either
by taking over loans in default or paying the deficit. [
Footnote 2/8] That loss Congress intended
the government to bear. [
Footnote
2/9] In estimating the loss, it relied upon the experience of
private companies which were unaided by any such priority as §
3466. [
Footnote 2/10] Loans
could
Page 314 U. S. 436
not be made for a longer term than five years, and many would be
for less. Stable economic improvement was hardly to be expected
within that time, and yet many of those who borrowed would die, or
default and undergo some sort of financial liquidation. The
enforcement of § 3466 under those circumstances would shift the
loss from the government to competing creditors, thus hampering the
efforts of private business and capital to achieve that economic
recovery which was the aim of the legislation. [
Footnote 2/11]
Nothing in the hearings, the debates, or the Act shows
definitively that Congress considered the application of § 3466 to
government claims under the National Housing Act. If the two acts
alone were to be appraised, it might well be concluded that, as
they are not necessarily inconsistent, both should be enforced. But
the determination of Congressional purpose is not so simple as
that. Upon the assumption that the applicability of § 3466 never
came to the attention of Congress, we must find legislative purpose
not from the language of the two Acts alone but from
generalizations as to the object of the new statute and from
judicial interpretations of the meaning of the old. To reach a
sound conclusion as to the applicability of the priority statute
and the purpose of Congress deduced merely from the state of the
law at the time of the enactment of the Housing Act, we need to
weigh the precedents under § 3466 quite as carefully as the Acts
themselves, in order to develop the legal situation
Page 314 U. S. 437
into which the Housing Act was injected. When this is done, it
is apparent that each time this Court has considered legislative
purpose as to § 3466 in relation to government claims under public
financial legislation affecting creditors competing with the
Government, it has determined § 3466 did not apply. [
Footnote 2/12]
The National Housing Act was
"one of the latest of a series of enactments, extending over
more than a century, through which the Federal Government has
recognized and fulfilled its obligation to provide a national
system of financial institutions. . . . [
Footnote 2/13]"
Section 3466 is inconsistent with this purpose. [
Footnote 2/14] It is not significant
that, in the case of
Cook County National Bank, the debtor
bank against which priority was denied was in the federal financial
system, while here, the debtor is a private corporation which has
participated in a federal financing plan. The intrusion of a novel
priority, uncertain in amount because unrecorded, into the
intricate credit system of the nation at a time of strain, would be
a drag on recovery, rather than a stimulus. Suppliers of goods or
services in all fields of credit activity would be moved to
constrict their advances to a borrower known to have created a
secret but valid lien upon his assets superior to all general
creditors. The full reach of the implication of credit dislocation
may be readily gauged by the fact that, at the end of 1936,
1,326,102 separate rehabilitation loans had been made under Title I
for an aggregate amount of $500,220,642. [
Footnote 2/15]
Page 314 U. S. 438
Possible priorities will now exist for every outstanding
dollar.
The facts of this case show how government aid to a debtor may
be a snare for his other creditors if the priority statute operates
in this class of claims. About a dozen claimants became creditors
in the aggregate amount of some nine hundred dollars for labor.
Such labor claims were entitled to the preference under Missouri
law common to labor claims. But for the priority of the
government's claim, they would receive all of the realization from
the assets -- about two-thirds of their claims. But, a month before
the appointment of the receiver, the Federal Housing Administration
took over from a bank a note of about $6000. From a deferred
position in the hands of the bank, this debt is said to have
stepped into a preferred position by transfer to the government
agency. As such, it absorbs all of the assets, and the laborers who
trusted their employer's credit get nothing. Such a preference of
creditors, brought about by the debtor, would be an act of
bankruptcy.
In 1920, when the railroads needed funds but lacked credit for
private borrowing, government loans were authorized by Congress
based upon such prospective earning power and security as would
furnish reasonable assurance of repayment. [
Footnote 2/16] In
United States v. Guaranty Trust
Co., 280 U. S. 478, we
held that the rehabilitating functions and the security provisions
of the Transportation Act of 1920 were so inconsistent with § 3466
as to preclude its application in the receivership of a debtor
railroad. Even more inconsistent considerations exist in this case.
Congress was confronted with widespread need of repairs on property
owned by persons without the cash or credit to secure them.
[
Footnote 2/17] Moreover, not
only homeowners,
Page 314 U. S. 439
but, like the railroads, hard-pressed business establishments
such as the distillery in this case were to be assisted in securing
modernization loans. [
Footnote
2/18] Instead of lending these people federal funds, Congress
lent them federal credit on which to borrow private funds, with the
evident purpose of keeping the program as much as possible a matter
of private enterprise handled in the course of private affairs.
Assurance of repayment was rested not on a combination of security
and earning power, but deliberately upon earning power alone.
[
Footnote 2/19] Whereas, with the
railroads, interest corresponding to the risk was charged, no
premium was charged for the insurance of loans under Title I, with
the expectation that the government would pay the loss as its
contribution to recovery. [
Footnote
2/20] The declared purpose of the United States to absorb the
losses of the lenders is clearly inconsistent with the priority
over other creditors given by § 3466. It seems beyond doubt to me
that Congress did not expect a priority under Title I which the
Guaranty Trust case certainly denied it under Title II relating to
insured mortgages. [
Footnote
2/21]
Even in the mechanics of its operation, Title I repudiated the
benefits of § 3466. Collection was left to the financial
institution after default so long as there was
Page 314 U. S. 440
hope of partial liquidation. [
Footnote 2/22] The lender, of course, had no
priority.
The judgment should be affirmed on the ground that no priority
exists by virtue of § 3466.
MR. JUSTICE ROBERTS, MR. JUSTICE DOUGLAS, and MR. JUSTICE
JACKSON concur in this dissent.
[
Footnote 2/1]
Act of June 27, 1934, c. 847, Tit. I, § 2, 48 Stat. 1246, as
amended 49 Stat. 299, 49 Stat. 722, 49 Stat. 1187, 49 Stat. 1234.
The statute, as thereafter amended subsequent to the events of this
case, may be found as 12 U.S.C. § 1703 (1940).
[
Footnote 2/2]
Previous decisions in other courts concededly are to the
contrary.
In re Long Island Sash & Door Corp., 259
App.Div. 688, 20 N.Y.S.2d 573,
aff'd mem., 284 N.Y. 713,
31 N.E.2d 48,
cert. denied, 312 U.S. 696;
In re
Dickson's Estate, 197 Wash. 145, 84 P.2d 661.
Accord,
Korman v. Federal Housing Administrator, 72 App.D.C. 245, 113
F.2d 743;
Wagner v. McDonald, 96 F.2d 273;
In re
Weil, 39 F. Supp. 618;
In re Wilson, 23 F. Supp.
236;
cf. Federal Reserve Bank of Dallas v. Smylie, 134
S.W.2d 838 (Farm Credit Administration);
see 52
Harv.L.Rev. 320.
United States v. Summerlin, 310 U.
S. 414, held only that the assigned to the administrator
became a claim of the United States not subject to a state statute
of "non-claim." It did not pass upon the right to priority under §
3466 in the decedent's estate.
Compare Dupont De Nemours &
Co. v. Davis, 264 U. S. 456,
where the Director General of the railroads was held free from
limitation,
with Mellon v. Michigan Trust Co.,
271 U. S. 236,
where the Director General was denied priority under § 3466.
United States v. Marxen, 307 U. S. 200,
307 U. S. 203,
expressly did not decide the point.
[
Footnote 2/3]
Keifer & Keifer v. RFC, 306 U.
S. 381,
306 U. S.
389.
[
Footnote 2/4]
United States v. Marxen, 307 U.
S. 200,
307 U. S. 206;
United States v. Knott, 298 U. S. 544,
298 U. S.
547-548;
Mellon v. Michigan Trust Co.,
271 U. S. 236,
271 U. S. 240.
[
Footnote 2/5]
Spokane County v. United States, 279 U. S.
80,
279 U. S. 92;
Price v. United States, 269 U. S. 492,
269 U. S. 500;
Bramwell v. U.S. Fidelity
Co., 269 U. S. 483,
269 U. S.
487.
[
Footnote 2/6]
United States v.
Fisher, 2 Cranch 358,
6 U. S. 389.
[
Footnote 2/7]
Message of the President, May 14, 1934, 78 Cong.Rec. 8739-40
(Senate),
id. at 8773-74 (House). Concerning the doldrums
of the construction industry,
see 78 Cong.Rec. 11194,
11198, 11210, 11211; Hearings on Sen. 3603, Committee on Banking
and Currency, 73d Cong., 2d Sess., May 16-24, 1934, pp. 166ff.
Concerning the need for repairs,
see 78 Cong.Rec. 11194,
111214; Hearings on Sen. 3603,
supra at pp. 36, 48, 288,
290.
[
Footnote 2/8]
Regulation No. 18 -- Modernization Credit Plan -- Title I,
National Housing Act, provided:
"The Federal Housing Administration will reimburse any insured
institution on losses up to a total aggregate amount equal to 20%
of the total face amount of all qualified notes taken or current
face value of notes purchased by the financial institution, during
the time the insurance contract is in force, and held by it or on
which it continues liable. . . ."
Modernization Credit Plan, Bulletin No. 1, p. 30 (revised
reissue, Dec. 10, 1934).
[
Footnote 2/9]
Senator Bulkley, chairman of the subcommittee (78 Cong.Rec.
11974) stated to the Senate:
"It is contemplated that there will be a loss to the Government
under this title, but that probably the loss will not be very
great. . . . The reason we justify this provision is that it will
make possible a considerable expenditure of money on needed repairs
and renovation, and thereby stimulate business in trades which very
much need stimulation at this time."
78 Cong.Rec. 11981, 73d Cong., 2d Sess.
[
Footnote 2/10]
78 Cong.Rec. 11195-11196, 11981, 11982, 73d Cong., 2d Sess.
See Hearings on Sen. 3603,
supra, at pp.
293-94.
[
Footnote 2/11]
These loans were to be so-called "character" loans, in reliance
on the character and stable earnings of the borrower. 78 Cong.Rec.
11194, 11195, 11981. It was expected that, while many persons at
the time had no stable income, the Act would temporarily promote
new employment which, once under way, was hoped would continue long
enough of its own force to culminate in permanent business recovery
and repayment of the borrowed money. Hearings on Sen. 3603,
supra, at pp. 46, 173.
[
Footnote 2/12]
Cook County Nat. Bank v. United States, 107 U.
S. 445;
United States v. Guaranty Trust Co.,
280 U. S. 478;
cf. 258 U. S. v. U.S.
Fleet Corp., 258 U. S. 549;
Mellon v. Michigan Trust Co., 271 U.
S. 236.
[
Footnote 2/13]
Validity of Certain Provisions of the National Housing Act, 38
Op.Atty.Gen. 258, 262.
[
Footnote 2/14]
Cook County Nat. Bank v. United States, 107 U.
S. 445.
[
Footnote 2/15]
Third Annual Report of the Federal Housing Administration, House
Doc. No. 48, 75th Cong., 1st Sess., p. 7.
[
Footnote 2/16]
Transportation Act of 1920, § 210, 41 Stat. 468.
[
Footnote 2/17]
78 Cong.Rec. 11199, 11388, 11981, 73d Cong., 2d Sess.; Hearings
on Sen. 3603,
supra, at pp. 30, 172, 174, 179.
[
Footnote 2/18]
The loan limit of Title I was soon increased to meet business
needs. Amendment of May 28, 1935, 49 Stat. 299.
[
Footnote 2/19]
78 Cong.Rec. 11194, 11195, 11981, 11982, 73d Cong., 2d Sess.;
Hearings on Sen. 3603,
supra, at pp. 37, 39, 293.
[
Footnote 2/20]
Senator Bulkley stated:
"The lender receives 20 percent insurance automatically as an
inducement to make loans of this particular character. Frankly it
is contemplated that the Government will lose some money."
78 Cong.Rec. 11982, 73d Cong., 2d Sess.
See also 78
Cong.Rec. 11195; Hearings on Sen. 3603,
supra, at p.
34-35.
[
Footnote 2/21]
Moreover, since July 1, 1939, there is a .75% insurance charge
under Title I, so that, in the future, whatever the decision here,
even Title I would seem to be governed by the
Guaranty
Trust case. 24 C.F.R. § 501.18 (Supp. 1939).
[
Footnote 2/22]
Modernization Credit Plan, Bulletin No. 1,
supra, at p.
8, states:
"It is to the interest of the financial institution to carry the
collection process on a defaulted note as far as there is
reasonable prospect of ultimate payment inasmuch as complete
reimbursement for any expenses incurred is provided as specified
hereinafter. This policy will tend to conserve the insurance
reserve of 20% for possible later losses, and also will maintain
the understanding of the local community that these notes require
the same prompt handling by makers as any other credit obligation.
. . . [I]t is the policy of the Federal Housing Administration to
permit financial institutions every possible latitude in making
collections on delinquent items. It is only after it clearly
appears that further collection efforts will be fruitless that the
Federal Housing Administration will insist that claims be made.
Financial institutions are therefore given a full year after
default on the note to effect collection. . . . If 10% of the
amount due on the note is collected within the first year after
default on the note and so long thereafter as 5% at least is
collected in each six-month period, the Federal Housing
Administration will not require that claim be made, but will permit
the financial institution to proceed with its collection efforts.
Claims may include: (1) net unpaid principal; (2) uncollected
earned interest (after maturity interest is not to be claimed at a
rate exceeding 6% per annum); (3) uncollected 'late charges;' (4)
uncollected court costs, including fees paid for issuing, serving,
and filing summons; (5) attorney's fees not exceeding 15% of the
amount collected on the defaulted note; (6) handling fee of $5 for
each note, if judgment is secured, plus 5% of amount collected
subsequent to return of unsatisfied property execution."