United States v. State Bank of North Carolina/Opinion of the Court

This case comes before the court upon a certificate of division of opinion of the judges of the circuit court for the district of North Carolina.

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; 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 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 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 burthens 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 4th of 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 defendantwhich has been founded upon a supposed policy of the government to favour merchant importers in preference to any other class of their debtors.

Then came the act of 3d of 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 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 presenti 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 connexion in which it stands in the sequel of the same sentence. 'Where the estate, &c. 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 the 2d of 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 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 favour 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 favour 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 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 presenti, 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 presenti, 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 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 are 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.