Thelusson v. Smith/Opinion of the Court

Two questions were made in the circuit court. 1st. At what time a judgment nisi on an award of arbitrators, made under an order of court, binds the real estate of the defendant against whom the award is made; whether on the day it is rendered; or on the quarto die post, if no exceptions be filed; or on the day when the exceptions, if any are filed, are overruled. 2. If from the time when the judgment nisi is entered; then whether, in this case, the United States are entitled to be paid in preference to the judgment creditor?

The first question was not decided by the court below, and is not contested in this court.

In considering the second question, it will be assumed, for the sake of the argument, that the judgment nisi binds the real estate of the debtor from the time it is rendered.

This question did not arise in the cases of the United States v. Fisher et al.l or in that of the United States v. Hooe et al.m The point decided in those cases was, that a mere state of insolvency or inability in a debtor to the United States to pay all his debts, gives no right of preference to the United States, unless it is accompanied by a voluntary assignment of all the property for the benefit of his creditors. There can be little doubt but that the word insolvency, mentioned in the act of 1790, ch. 35. sec. 45., and repeated in the act of 1797, ch. 74. sec. 5., and of 1799, ch. 128. sec. 65., means a legal insolvency, which, whenever it occurs, the right of preference arises to the United States, as well as in the other specified cases to which the acts of 1797 and 1799 have extended the cases of insolvency.

In this case, the conveyance of Crammond, on the 22d of May, 1805, was of all his property; at which time he was unable to pay all his debts: it is, therefore, a case precisely within the law and within the principle devided by the above cases.

But the question still remains to be decided whether this right of preference which accrued on the 22d of May can cut out a prior judgment creditor? The law declares 'that in all cases of insolvency, &c. the debts due to the United States shall be first satisfied, and if the assignees, &c. shall pay any debt due by the person or estate from whom or for which they are acting, previous to the debts due to the United States from such person or estate being first duly satisfied, they shall become answerable for the same in their own persons and estates.' These expressions are as general as any which could have been used, and exclude all debts due to individuals, whatever may be their dignity. The assignees are made personally responsible to the United States if in case of insolvency, they pay any debt previous to those due to the United States. The law makes no exception in favour of prior judgment creditors; and no reason has been, or we think can be, shown to warrant this court in making one.

Exceptions there must necessarily be as to the funds out of which the United States are to be satisfied, but there can be none in relation to the debts due from a debtor of the United States to individuals. The United States are to be first satisfied; but then it must be out of the debtor's estate. If, therefore, before the right of preference has accrued to the United States, the debtor has made a bona fide conveyance of his estate to a third person, or has mortgaged the same to secure a debt, or if his property has been seized under a ''fi. fa.'', the property is devested out of the debtor, and cannot be made liable to the United States. A judgment gives to the judgment creditor a lien on the debtor's lands, and a preference over all subsequent judgment creditors. But the act of congress defeats this preference in favour of the United States, in the cases specified in the 65th section of the act of 1799.

The judgment of the circuit court, therefore, is to be affirmed with costs.