United States v. State Bank of North Carolina

THIS case came before the court on a certificate of division from the circuit court of the United States for the district of North Carolina.

The facts of the case upon which the question submitted to this court arose, were as follows: Willian H. Lippett, a merchant of Wilmington, North Carolina, was, on the 14th of 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 sixteen thousand six hundred and twelve dollars and forty-seven cents 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 seven thousand four hundred and eighty-six dollars and eighty-six cents; of which bonds, but one only, amounting to four hundred and nineteen dollars and ninety-seven cents, 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:

The case was argued by Mr Taney, attorney-general of the United States, for the plaintiffs; and by Mr Peters for the defendants.

Mr Taney stated: that the single question which was presented by the case for the consideration of this court, was, whether the priority of the United States attaches to bonds given to the United States for duties which are not due; but which had been given to the United States before the insolvency of the obligor.

The law of the sovereign, to be first paid, existed at the common law; it was an acknowledged prerogative of the crown, and the laws of the United States have done no more than adopt this known and established principle. If, therefore, the language of the acts of congress is doubtful, we may safely appeal to the common law, not as authority on this point, but for its sanction of the principle upon which this interpretation of our own statutes is claimed for the United States.

The principle upon which the debts to which the plaintiffs are entitled are considered as due at the time of the execution of the bond, is familiar to the court. The obligatory part of a bond acknowledges a present debt, and it is by the condition only that its period of payment is postponed. In the distribution of assets in England, a preference is given to debts due by sealed instruments, although not payable at the time of the distribution. Toller's Exec. 275.

The construction of the law of the United States now claimed, had been that of universal practice since it was enacted. From 1797 down to the present period, it has been applied in favour of the United States to bonds not due, as well as to others to become due; and the estates of insolvents and intestates have been adjusted and settled on this principle in every section of the union. This received construction will induce the court to hesitate before it will adopt another; as it would open those long established settlements, and would be productive of great difficulty and confusion.

The principle contended for by the government, was recognized in the case of Thellusson v. Smith, 2 Wheat. 396, and in Conard v. The Atlantic Insurance Company, 1 Peters, 386. The point arose in the first case, although it was not discussed.

The act of congress of March 3, 1797, 1 Story's Laws U.S. 465, gives the priority to the United States, where persons are indebted to the United States by bond or otherwise. This is a provision for all debts due by public debtors; and it operates upon all cases, unless some exception in favour of particular persons shall be found in subsequent laws, which is not the case.

The act of March 2d, 1799, by the sixty-fifth section, declares the priority shall apply to bonds for duties; and it is upon the language of that section that the doubt which has arisen in this case has been founded. The provision is, that where bonds for duties are not satisfied on the day they become due, suits shall be brought; and where the estate in the hands of executors, administrators or assignees, shall be insufficient to pay all the debts due, the United States shall be first paid.

There is nothing in the provisions of this section which interferes with those of the law of 1797. Both are in force, and both operate on the case of a debtor by duty bonds. All duties are in fact due when the goods are imported upon which they accrue, and the indulgence which is given for their payment, does not take away the essential feature in them. Even then, upon this section alone, the right of the United States rests in safety; but if the words of the section are equivocal, as the act of 1797 is not repealed, and is not inconsistent with it, the priority will be protected by that act. The fifth section of that act applies to the cases of all persons 'indebted to the United States.' It has been so held in the case of the United States v. Fisher, 2 Cranch, 358, 394; and the title of the act, as was decided in that case, does not limit its provisions to receivers of public money only. In construing a statute, the court always looks to laws in pari materia.

There is a stronger reason for the application of the rights of the United States to a priority of payment, in the cases of debts due to them by merchants, as the business of commerce is more precarious than any other. A large portion of the revenue of the nation is derived from its commerce, and it is essential that this revenue should be secured and certain. It was a part of the early legislation of the United States to introduce this provision, for the protection of the revenue; and hence it is found in the forty-fifth section of the act of August 4, 1790.

Mr Peters, for the defendant, contended, that from the first organization of the revenue system by the government of the United States, down to the period of the last legislation on the subject of duty bonds, they had been treated differently from other debts due to the United States. While it was admitted that, by the act of 1797, all persons, other than those who were liable to pay bonds given for duties on merchandize, were subject to the provisions of that law, and the priority of the United States attached equally to debts which were payable, or not, at the time of insolvency; such was not the law in reference to duty bonds. There was a good and satisfactory reason for this distinct and different course, as to the debts due by those engaged in commerce. The government is deeply interested in the preservation of mercantile credit, and the existence of an incumbrance, the extent and operation of which could not be ascertained, if it attached to all the business of a merchant; and which might sweep away in favour of one preferred creditor all his means; it was seen would take largely from the confidence which was essential to the success of all operations in trade. Where bonds for duties have become due, and are unpaid, the amount of such debts could be known, but until then, they could not be ascertained.

The question here submitted to the court has never been judicially decided: and whatever may have been the practical construction heretofore given to the law, this Court will decide the case upon a careful examination of the provisions of the statutes, and upon those provisions only. The preference given to the United States is stricti juris; and has no foundation in prerogative. It exists by statutory provisions only; if it exists at all.

The forty-fifth section of the act of 1790 declares, that 'any bond for the payment of duties not satisfied on the day it becomes due, shall be sued;' and it enacts, that in cases 'where any estate is in the hands of the assignees and shall be insufficient to pay all the debts due, the debt due to the United States on any such bond shall be first satisfied.'

In this section, and there is no other in the act of 1790 upon the matter; bonds not satisfied on the day they become due are to be put in suit, and any such bonds are to be first paid. No others are within the terms of the law.

The sixty-fifth section of the act of 1799 adopts the same language. Bonds, not satisfied on the day they become due, are to be sued out, and the preference is given to the debts 'due to the United States on any such bond or bonds.' It is claimed that the legislation of congress upon such bonds is full; and no aid is to be obtained from the act of 1797 in the interpretation of it. There is no room for the application of acts in pari materia; nor are the subjects of the laws the same. The system is complete as applicable to commercial debtors by the acts of 1790 and 1799. The rights of the United States in other cases rest on the act of 1797.

In Hunter v. The United States, 5 Peters, 173, Mr Justice M'Lean, who delivered the opinion of the court, intimates a doubt whether, where a judgment has been obtained by the United States against assignees after an assignment, there might not have been some ground to question the right of priority claimed by the United States in such a case.

The priority of the United States has been held to exist in the cases only which come within the statutes, on their strictest construction. Any one who has given bonds to the government may pay the debts due by him to others; although his ability to discharge the debt due to the United States may be destroyed thereby. Unless a general assignment shall be made, there has been no 'insolvency' within the purposes of the statute. Bona fide securities, given to creditors by one in insolvent circumstances, are not affected by the claim to priority. The United States v. Hooe, 3 Cranch, 73; Thellusson v. Smith, 2 Wheat. 396; Conrad v. The Atlantic Insurance Company, 1 Peters, 387; The United States v. Howland, 4 Wheat. 108.

The principle derived from these decisions is, that the right of the United States to payment of its debts, does not attach to the property of the debtor from the commencement of the obligation to pay, and infect it, so that it is not entirely disposable by him. The 'insolvency,' which deprives the debtor of this right, must be a legal insolvency. The evidence of this is bankruptcy, or a general assignment.

What shall be considered as debts due may be well ascertained by a reference to English authorities upon the law of set off. Cited, Ex parte Prescott, 1 Atk. 229; Rose v. Hart, 8 Taunt. Rep. 503; 2 Brod. & Bingh. 89; 5 Barn. & Alderson, 86.

Mr Justice STORY delivered the opinion of the Court.