1. The United States is entitled to priority of payment out of
the effects of its bankrupt or insolvent debtor, whether he be
principal or, surety, or be solely, or only jointly with others,
liable, and it is immaterial where the debt was contracted.
2. The United States was the creditor of a firm, A., B. &
Co., doing business in London, and consisting of several persons,
some of whom resided there. The others resided in this country,
and, with another partner, constituted the firm of A. & Co. The
members of the latter firm were duly declared bankrupt, and a
trustee was appointed under the forty-third section of the Bankrupt
Act of March 2, 1867. Held
that the relations of the
bankrupt members of the firm of A., B. & Co. to the United
States are the same as if they were severally liable to the United
States, and that the United States
Page 92 U. S. 619
is entitled to the payment of its debt out of their separate
property in preference and priority to all other debts due by them
or either of them or by the firm of A. & Co.
3. The United States was under no obligation to prove its debt
in the bankruptcy proceedings or pursue the partnership effects of
A., B. & Co. before filing this bill against the trustee, and
the circuit court had original jurisdiction of the case thereby
made, although the fund arose, and the trustee was appointed, under
the Bankrupt Act.
4. A creditor holding collaterals is not bound to apply them
before enforcing his direct remedy against his debtor.
MR. JUSTICE SWAYNE delivered the opinion of the Court.
This case turns upon legal propositions. There is no controversy
about the facts. Jay Cooke, McCulloch & Co., bankers, of
London, were appointed by the United States disbursing agents for
the Navy Department. On the 19th of October, 1873, they were
indebted to the department for the balance of moneys placed in
their hands for disbursement, in the sum of �131,610 9s
. On or about the 20th of September, 1873, when the
amount due to the department was considerably larger than that
mentioned, the company placed in the hands of the United States or
their agents a large amount of collaterals for the security of the
debt. The United States claim the right to apply the proceeds of
these collaterals to the payment of another and later debt arising
in the same way. Irrespective of the collaterals, the amount first
mentioned, with interest, is still due and unpaid.
The firm of Jay Cooke, McCulloch & Co. consisted of Hugh
McCulloch, J. H. Puleston, and Frank H. Evans, residents of Great
Britain, and of Jay Cooke, William G. Moorehead, H. C. Fahnestock,
H. D. Cooke, Pitt Cooke, George C. Thomas, and Jay Cooke, Jr.,
residents of the United States. For a long period previous to the
time first mentioned there was a banking house in Philadelphia
under the name of Jay Cooke & Co.
Page 92 U. S. 620
The members of that firm were the seven American partners in the
house of Jay Cooke, McCulloch & Co., and James A. Garland. On
the 26th of November, 1873, all the persons composing the firm of
Jay Cooke & Co. were adjudicated bankrupts, and this
adjudication remains in full force. This included the seven
American members in the house of Jay Cooke, McCulloch & Co. The
other three partners of this latter firm are not bankrupt. Under
the proceedings in bankruptcy, the defendant, Lewis, has been
appointed trustee of the estates of the bankrupts of the firm of
Jay Cooke & Co., and as such received and holds their several
separate individual estates and assets, and the estates and assets
of the firm as well. The estates of these bankrupts are
insufficient to pay all their indebtedness. The United States,
under the statutes in such case provided, claim priority of payment
of their debt before mentioned out of the separate estates of such
members of the firm of Jay Cooke & Co. as were also members of
the debtor firm of Jay Cooke, McCulloch & Co. The trustee
denies the validity of this demand. The United States have
instituted this proceeding to enforce it.
On the 10th of April, 1875, there was already accumulated in the
hands of the trustee of the funds so claimed by the United States
the sum of $267,844.80.
The Bankrupt Act of March 2, 1867, declares that in the order
for a dividend,
"the following claims shall be entitled to priority or
preference, and to be first paid in full in the following
fees, costs, and expenses of suits and of the
several proceedings under this act, and for the custody of
property, as herein provided."
all debts due to the United States, and all
taxes and assessment under the laws thereof."
The fifth section of the Act of March 3, 1797, 1 Stat. 515,
"That where any revenue 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
Page 92 U. S. 621
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 and
effects of an absconding, concealed, or absent debtor shall be
attached by process of law, as to the cases in which a legal act of
bankruptcy shall be committed."
It may be well to pause here and carefully analyze this section,
and consider the particulars of the category it defines, so far as
its provisions apply to the case in hand.
Those affected are persons "indebted to the United States."
This language is general, and it is without qualification.
The form of the indebtedness is immaterial.
It may be by simple contract, specialty, judgment, decree, or
otherwise by record. The debt may be legal or equitable, and have
been incurred in this country or abroad. A valid indebtedness is as
effectual in one form as another. No discrimination is made by the
The debtors may be joint or several, and principals or
Here, again, no distinction is made by the statute. All are
included. Beaston v. Bank of
12 Pet. 134; United
States v. Fisher,
2 Cranch 358.
There must be bankruptcy or else insolvency, as the latter is
defined by the statute and the authorities upon the subject.
As bankruptcy exists here, we need not look beyond that point in
this case. Congress had power to pass the act. 2 Cranch
6 U. S. 396
Where the language of a statute is transparent, and its meaning
clear, there is no room for the office of construction. There
should be no construction where there is nothing to construe.
United States v.
5 Wheat. 95; Cherokee
11 Wall. 621.
That the facts disclosed in the record bring the case within the
plain terms and meaning of the section in question seems to us,
viewing the subject from our standpoint, almost too clear to admit
of serious controversy. Affirmative discussion under such
circumstances is not unlike argument in support of
Page 92 U. S. 622
a self-evident truth. The logic may mislead or confuse. It
cannot strengthen the preexisting conviction. 11 Wall. 78 U. S.
The statute must prevail unless its effect shall be overcome by
the considerations to which our attention has been called by the
learned counsel for the appellant. They have argued their
contentions with a wealth of learning and ability commensurate with
the importance of the case.
We shall respond to their propositions without restating
The United States are in no wise bound by the Bankrupt Act. The
clause above quoted is in pari materia
with the several
acts giving priority of payment to the United States, and was
doubtless put in to recognize and reaffirm the rights which those
statutes give and to exclude the possibility of a different
conclusion. That the claim of the United States was not proved in
the bankruptcy proceedings in question is therefore quite
immaterial in this case. United States v.
20 Wall. 251; Harrison v.
5 Cranch 289.
The case presented is that of a trust fund, a trustee holding
and a cestui que trust
claiming it. This gave the circuit
court original and plenary jurisdiction. That the fund arose and
the trustee was appointed under the Bankrupt Act did not affect the
right of the United States to pursue both by the exercise of the
jurisdiction invoked. The same remedies are applicable as if the
fund had arisen and the trustee had been appointed in any other
way. 12 Pet. supra; 15 U. S.
2 Wheat. 425.
The United States were under no obligation to pursue the
partnership effects of Cooke, McCulloch & Co. before filing
this bill. The bankruptcy of the American partners dissolved the
firm of Cooke, McCulloch & Co., not only as to themselves, but
also, inter se,
as to the solvent partners. In analogy to
the proceeding at law, where there are joint debtors and one is
beyond the reach of the process of the court, and equity has
jurisdiction, a decree may be taken against the other for the whole
amount due. Darwent v. Walton,
2 Atk. 510. In
5 How. 127, this Court held that the creditor
of a partnership may proceed at law against the surviving partner,
or go in the first instance into equity against the representatives
of the deceased partner, and that it was not necessary for him
Page 92 U. S. 623
to exhaust his remedy at law against the surviving partner
before proceeding in equity against the estate of the deceased. The
solvency of the surviving partner is immaterial. To the same effect
are Thorpe v. Jackson,
2 Y. & C.Ex. 553, Wilkinson
1 M. & K. 582, Ex parte Clegg,
Cox's Cas. 372, and Camp v. Grant,
21 Conn. 41. A court of
equity will not entertain the question of marshalling assets unless
both funds are within the jurisdiction and control of the court.
Adams' Eq. 6 Am. ed., 548, note; Denham v. Williams,
Ga. 312; see also Walker v. Covar,
2 S.C.N.S., 16;
Dodds v. Snyder,
34 Ill. 53; Herriman v.
33 Barb. 378; Shunk's Appeal,
2 Barr 304;
7 Watts & S. 99; Keyner v.
6 Watts 221. If a judgment at law be recovered against
a copartnership, the separate property of each partner is alike
liable to execution with the property of the partnership, and
equity will not interfere unless there are cogent special
circumstances such as have no existence here. Meech v.
17 N.Y. 300. These authorities are conclusive on the
point under consideration. If there could otherwise be a doubt upon
the subject, it is removed by the two statutes. The Bankrupt Law
declares that the United States shall be first paid; the fifth
section of the statute of 1797 enacts that where there is a debt
and bankruptcy, they shall have priority of payment. Neither
statute contains any qualification, and we can interpolate none.
Our duty is to execute the law as we find it, not to make it. It
would be a singular equity which would drive the appellees "beyond
sea" to carry through a litigation of uncertain duration, and
results against parties there before they can be permitted to
proceed against the parties and property here.
It is a settled principle of equity that a creditor holding
collaterals is not bound to apply them before enforcing his direct
remedies against the debtor. Kellock's Case, 3 Ch.App. 769;
Bonser v. Cox,
6 Beav. 84; Tuckley v. Thompson,
Johns. & Hem.Ch. 126; Lord v. Ocean Bank,
384; Neff's Appeal,
36. This is admitted,
but it is insisted that there are special considerations here which
ought to take the case out of the general rule. We think those
considerations are all of the opposite tendency. One of them is
Page 92 U. S. 624
in the character and circumstances of a large portion of the
collateral assets. The facts are set forth in the answer of the
United States to the cross-bill of the appellant, and need not be
more particularly adverted to. Another of these considerations
applies to all the collaterals, and is conclusive. There are
parties entitled to be heard touching the application of the
proceeds who were not, and could not be, brought before the circuit
court. According to the best-considered adjudications, no burden
touching these assets can be made to rest upon the United States,
which they are not willing to assume. Doubtless questions will
arise involving much delay before the administration of the fund is
completed. In the meantime, the United States cannot be barred from
enforcing any remedy to which they are entitled.
The court below committed no error in holding that the
preference of the United States as a creditor of Cooke, McCulloch
& Co. applied to the separate and individual estates of the
bankrupt partners, thus superseding the rule in equity recognized
by the Bankrupt Act -- that partnership property is to be first
applied in payment of the partnership debts, and individual
property in payment of the individual debts. It is sufficient to
say upon this subject that the learned and elaborate argument of
the appellant's counsel in support of the opposite view overlooks
the true meaning and effect of the statutes. The bankrupt parties
in question were indebted to the United States, and they had
separate estates. This entitled the United States to the preference
claimed. One of the obvious purposes of the fifth section of the
Act of 1797 was to abrogate the rule insisted upon, and it has
clearly done so. The provisions of the Bankrupt Act relied upon do
not, as we have shown, affect the United States. The legal
relations of those parties to the United States in this controversy
are just what they would have been if those parties were individual
debtors to the United States and the firm of Cooke, McCulloch &
Co. had never existed.
The separate and individual interest of the several partners in
the partnership property of Jay Cooke & Co. can be only the
share of each one of what may be left after discharging all the
liabilities of the copartnership. This will be nothing,
Page 92 U. S. 625
the firm being in bankruptcy and conceded to be hopelessly
insolvent. The United States can therefore have no interest with
respect to the administration of its affairs. Any rights as to the
collaterals held by the United States, claimed by others, must be
settled outside of the present proceeding. They cannot be
adjudicated upon in this case.