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OF JUDICIAL CONSTRUCTIONS OF THE POWERS OF
I PROCEED to consider the cases in which the powers of congress have been made the subject of judicial investigation.
U. S. as a
(1.) Congress have declared by law, that the United Priority of States were entitled to priority of payment over private creditors, in cases of insolvency, and in the distribution of the estates of deceased debtors. The act of congress of 31st July, 1789, sec. 21. confined the priority to custom-house bonds. The act of 4th August, 1790, ch. 35. sec. 45. limited the priority in the same manner. The act of 2d May, 1792, placed the surety in a custom-house bond, who paid the debt, on the same footing, in respect to priority, as the United States; and it confined the cases of insolvency mentioned in the former law, to those of a voluntary assignment, and of attachments against absconding, concealed or absent debtors. The act of 3d March, 1797, ch. 74. sec. 5. went further, and gave the United States a preference in all cases whatsoever, whoever might be the debtor, or however he might be indebted, in case the debtor became insolvent, or the assets in the hands of his representatives, after his death, were insufficient to pay his debts. This priority was declared to extend to cases in which the insolvent debtor had made a voluntary assignment of all his property, or in which his effects had been attached as an absconding or absent debtor, or in which an act of legal bankruptcy had been committed. The act of March 2d, 1799, ch. 128. sec. 65. provided, that in the like cases
of insolvency, or where any estate in the hands of executors, administrators, or assignees, should be insufficient, debts due to the United States, on bonds taken under the collection act, should have preference; and sureties in such bonds, on paying the same, had the same preference as was reserved to the United States.
These were the legislative provisions, giving preference to debts due to the United States; and in Fisher v. Blight,* the authority of Congress to pass such laws was drawn in question. The point discussed in that case was, whether the United States, as holders of a protested bill of exchange, negotiated in the ordinary course of trade, were to be preferred to the general creditors, when the debtor becomes bankrupt. The Supreme Court decided, that the acts of Congress, giving that general priority to the United States, were constitutional. It was a power founded on the authority to make all laws which should be necessary and proper to carry into effect the powers vested by the constitution in the government of the United States. Where the end was within the lawful powers of the government, Congress possessed the choice of the means, and were empowered to use any means which were in fact conducive to the exercise of the powers granted. The government is to pay the debts of the Union, and must be authorized to use the means most eligible to effect that object. It has a right to make remittances by bills or otherwise, and to take those precautions which will render the transaction safe. If this claim of priority interferes with the right of the state sovereignties, respecting the dignity of debts, and defeats the measures which they would otherwise have a right to adopt to secure themselves, it is a necessary consequence of the supremacy of the laws of the Union, on all subjects to which the legislative power of Congress extends.
The principle was here settled, that the United States are
a 2 Cranch, 358.
entitled to secure to themselves the exclusive privilege of being preferred as creditors to private citizens, and even to the state authorities, in all cases of the insolvency or bankruptcy of their debtor. But the court observed, that no lien was created by the statutes giving the preference. No bona fide transfer of property in the ordinary course of business was overreached. It was only a priority of payment, which, under different modifications, was a regulation in common use, and a bona fide alienation of property, before the right of priority attached, was admitted to be good.
The next case that brought into discussion this question of priority, was that of the United States v. Hooe." was there held, that the priority to which the United States were entitled, did not partake of the character of a lien on the property of public debtors. The United States, in the mere character of creditor, have no lien on the real estate of their debtor. If the priority existed from the time the debt was contracted, and the debtor should continue to transact business with the world, the inconvenience would be immense. The priority only applied to cases where the debtor had become actually and notoriously insolvent, and, being unable to pay his debs, had made a voluntary assignment of all his property, or, having absconded or absented himself, his property had been attached by process of law. A bona fide conveyance of part of the property of the debtor, not for the fraudulent purpose of evading the law, but to secure a fair creditor, is not a case within the act of Congress giving priority. In this case of the United States v. Hooe, a collector of the revenue had mortgaged part of his property to his surety in his official bond, to
a 3 Cranch, 73.
b United States v. Clark, 1 Paine's Rep. 629. United States v. Munroe, 5 Mason, 572. U. States v. Hawkins, 16 Martin's Loui. R. 317. In England, a provisional assignment in bankruptcy, will defeat. the king's extent, if it precedes the test of the writ. King v. Crump, Parker, 126. Lord Eldon, 14 Vesey, 88.
indemnify him from his responsibility as surety, and to secure him from his existing and future endorsements for the mortgagor at bank; and the mortgage was held valid against the claim of the United States, although the collector was, in point of fact, unable to pay all his debts at the time the mortgage was given, and although the mortgagee knew, when he took the mortgage, that the mortgagor was largely indebted to the United States.
Afterwards, in Harrison v. Sterry, it was held, that in the distribution of a bankrupt's effects, the United States were entitled to their preference, although the debt was contracted by a foreigner in a foreign country, and the United States had proved their debt under a commission of bankruptcy. Though the law of the place where the contract is made, be, generally speaking, the law of the contract, yet the right of priority forms no part of the contract. The insolvency which was to entitle the United States to a preference, was declared, in Prince v. Bartlett, to mean a legal and known insolvency, manifested by some notorious act of the debtor, pursuant to law. This was giving to the world some reasonable and definite test by which to ascertain the existence of the latent and dangerous preference given by law to the United States. In this last case, the effects of an insolvent debtor, duly attached in June, were considered not to be liable to the claim of the United States, on a custom-house bond given prior to the attachment, and put in suit in August following. The private creditor had acquired a lien by his attachment, which could not be devested by process on the part of the United States subsequently issued. Nor will the lien of a judgment creditor, duly perfected, be displaced by the mere priority of the United States. The word insolvency, in the acts of Congress, of 1790, 1797, and 1799, means a legal insolvency, and a mere state of insolvency, or inability in a debtor to pay all his
debts, gives no right of preference to the United States, unless it be accompanied by a voluntary assignment of all the property, for the benefit of creditors, or by some legal act of insolvency. If, before the right of preference has accrued, 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 the property has been seized under an execution, the property is devested from the debtor, and cannot be made liable to the United States."
The United States have, accordingly, a preference as creditors, to the extent above declared, in four cases, viz. (1.) In the case of the death of the debtor without sufficient assets; (2.) bankruptcy or legal insolvency, manifested by some act pursuant to law; (3.) a voluntary assignment by the insolvent of all his property, to pay his debts; (4.) in the case of an absent, concealed, or absconding debtor, whose effects are attached by process of law. The priority was intended to operate only where, by law, or by the act of the debtor, his property was sequestered for the use of his creditors; and it is proper that this prerogative right of the United States should be strictly construed, and precisely defined, for it is in derogation of the general rights of creditors.
The government was a privileged creditor, under the Roman law, and entitled to priority in the payment of debts. The cessio bonorum was made subject to this priority. This is generally the case, in all modern bankrupt and insolvent laws. In England, the king's claim is preferred to that of a subject, provided the king's process was commenced before the subject had obtained judgment. As to the fiscal lien of the government of the United States, it
a Thellusson v. Smith, 2 Wheaton, 399. Conard v. The Atlantic Insurance Company, 1 Peters' U. S. Rep. 386.
b Watkins v. Otis, 2 Pickering, 102.
c Stat. 23 Hen. VIII. ch. 39.