#### OSSIE BISHOP, Trading and Doing Business as BISHOP CONSTRUCTION COMPANY, v. D. H. BLACK and E. L. HAZEN, Trading as MOUNTAIN CREST FARMS, and VINNIE BLACK.

(Filed 21 March, 1951.)

1. Appeal and Error § 10a—

An exception to the order for the disbursement of the funds remaining in the hands of the receiver in accordance with the receiver’s report theretofore filed, to which no exception was taken, presents the correctness of the judgment for review, and the alleged error being presented by the record proper, no case on appeal is required.

2. Receivers § 12d—

Where there are no exceptions to the receiver’s report, an exception to the order of the court directing the disbursement of the funds remaining in the receiver’s hands presents the question of whether the priority of payment directed is correct upon the findings of the receiver.

*3343. Receivers § 12c—

Under .the provisions of R.S. 3466, 31 U.S.O.A. 191, the United States is entitled to priority upon its claim for taxes immediately upon the appointment of a receiver provided the debtor is insolvent at the time of the appointment, irrespective of the time its claim for taxes is docketed in the district.

4. Same—

While the right of the United States to priority on its claim for taxes against an insolvent is not enforceable “against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector,” 26 U.S.O.A. 3672, creditors who have attached property of the debtor prior to the appointment of the receiver but who have not reduced their claims to judgment at the time the'right of the United States to priority of payment arises, do not come within this category and they are not entitled to priority over the claim for taxes.

■5. Same—

Where all claims filed with the receiver which were secured and superior to the claim of the United States for taxes have been paid in full, the claim of the United States for income taxes due from the debtor, filed with, approved and reported by the receiver, is entitled to full satisfaction out of the assets of the insolvent before any other claim or charges of other creditors can be paid from the assets.

Appeal by tbe United States from *Rudisill,*JDecember Term, 1950, of HeNdeesoN.

This is an action instituted 11 October, 1949, in wbicb tbe plaintiff alleged tbe defendants D. H. Black and C. L. Hazen, trading as Mountain Orest Farms, were nonresidents of North Carolina; that they were indebted to bim in tbe sum of $1,705.88, and in wbicb a warrant of attachment was issued and levied on certain personal property belonging to the defendants.

Tbe plaintiff further alleged other creditors bad filed suits and attached property of tbe defendants; that tbe debts of tbe defendants amounted to approximately $100,000, and that a large number of additional creditors were preparing to file suits and attach their property. Wherefore, tbe plaintiff prayed tbe court to appoint a receiver to take over tbe assets of tbe defendants and to restrain tbe creditors from instituting further suits and to require all tbe defendants’ creditors to file their claims with tbe receiver in order that such claims might be adjudicated in said receivership. Accordingly, a temporary receiver was appointed and tbe appointment was made permanent on 7 November, 1949. Thereafter, on 6 March, 1950, tbe Receiver made bis report to tbe March Term of tbe Superior Court of Henderson County, tbe pertinent parts of wbicb are as' follows:

“Tbe undersigned duly appointed receiver in tbe above entitled action respectfully reports to tbe court ... a list of tbe names of all creditors *335who have filed claims with him, as receiver, with the finding by the receiver as to the priority of each claim as provided by statute:

“1. The cost of this action to be taxed by the court.

“2. State Trust Company mortgage on real estate together with collateral note secured on bean seed, $23,052.22. This the receiver finds to be a first lien and prior claim on the money derived from the sale of the real estate and equipment of the defendants.

“3. State Trust Company, $1,158.83. Secured by chattel mortgage on farm equipment which has already been paid under former order of the court.

“4. To the TJ. S.-Government for income tax liens filed: amount at this time not absolutely determined, but approximately, $2,691.39.

“5. Any other taxes that may be due the Government of the U. S., or the State of North Carolina, that have not been filed with the Receiver.

“6. Ossie Bishop, the sum of $115.00 by reason of sale of Buick automobile to *W.*R. Johnson for the sum of $730.00, which automobile had been attached by said Ossie Bishop prior to the appointment of your Receiver, your Receiver finding as a fact that such attachment constitutes a prior lien on funds derived from said sale.

“7. To Ben Israel the sum of $632.14, by reason of said Ben Israel having attached one Ford Truck which was sold to *W.*R. Johnson for the sum of $1,000 prior to the appointment of the Receiver in this cause, which the Receiver finds is a prior lien on the funds derived from the sale of said truck.”

The report then deals with additional preferred claims, not pertinent to this appeal, and lists the common creditors who are entitled to share ratably in any assets remaining after payment of the preferred claims.

No exceptions were filed to the report of the Receiver.

After the payment of items two and three, as shown in the report of the Receiver, the only assets remaining in the hands of the Receiver, is a sum slightly in excess of $1,000.

At the December Term, 1950, of the Superior Court of Transylvania County, the court entered an order purporting to determine the parties entitled to receive the funds then in the hands of the Receiver.

The court held that since the Receiver was appointed on 12 October, 1949, and “the Collector of Internal Revenue did not transfer and have docketed its claim from the State of Florida to the Collector of Internal Revenue, in Greensboro, against the defendants until several months thereafter,” the United States is not entitled to recover on its claim. The order then states that the remaining parties having entered into an agreement prorating their claims which were approved by the Receiver as a preference, or preferred claim, the court ordered the Receiver to pay to Ben Israel the sum of $250.00, to Ossie Bishop $550.00, and to the *336State Trust Company tbe sum of $200.00, and to file bis report and be discharged.

Tbis judgment was entered by consent of tbe attorney of record wbo represents tbe plaintiff Ossie Bisbop, and wbo also represented tbe Receiver at tbe bearing below, and by tbe respective attorneys representing State Trust Company and Ben Israel.

Upon being apprised of tbe entry of tbis judgment, tbe United States excepted thereto and gave notice of appeal to tbe Supreme Court.

*A. J. Redden for Ossie Bishop.*

*O. B. Crowell fox Stale Trust Company.*

*Paul K. Barnwell for Ben Israel, appellees.*

*Thomas A. Uzzell, Jr., United Stales Attorney, and James B. Craven, Jr., Asst. United States Attorney, for appellant.*

DeNNY, J.

Tbe appellees move to dismiss tbe appeal for that tbe appellant failed to serve a statement of case on appeal pursuant to tbe order entered by bis Honor on 13 December, 1950, and for tbe further reason that no notice was given tbe appellees or their attorneys of tbe bearing when tbe court adjudged that tbe record proper should constitute tbe case on appeal.

Tbe correctness of tbe judgment entered below is tbe only question posed for decision, and that is presented by tbe exception noted.

"When an error relied on by tbe appellant is presented by tbe record proper, no case on appeal is required. *Russos v. Bailey,*228 N.C. 783, 47 S.E. 2d 22. Tbis cause was beard below on tbe report of tbe Receiver, therefore it was unnecessary to serve a case on appeal. *Reece v. Reece,*231 N.C. 321, 56 S.E. 2d 641; *Privette v. Allen,*227 N.C. 164, 41 S.E. 2d 364; *Bessemer Co. v. Hardware Co.,*171 N.C. 728, 88 S.E. 867; *Commissioners v. Scales,*171 N.C. 523, 88 S.E. 868. Tbe motion to dismiss is denied.

Tbe appellant excepts and assigns as error tbe signing of tbe judgment entered below in that it directs tbe disbursement of tbe remaining assets in tbe bands of tbe Receiver in a manner contrary to tbe law governing priority of payments among creditors, and for tbe further reason that bis Honor bad no jurisdiction to reverse tbe findings of tbe Receiver in tbe absence of appropriate exceptions to bis report.

In the case of *Surety Corp. v. Sharpe,*232 N.C. 98, 59 S.E. 2d 593, *Ervin, J.,*speaking for tbe Court, sets out in a very comprehensive manner tbe duties of a receiver. It is pointed out that “tbe receiver must pass upon tbe validity and priority of tbe claims presented to him, and allow or disallow them or any part thereof, and notify claimants of bis determination. . . . G.S. 55-152. . . . When tbis is done any inter*337ested person’ may except to tbe reported finding of tbe receiver as to tbe claim, and contest such finding in tbe original receivership action without any leave from court provided be files bis exceptions in apt time. . . . G.S. 55-152.”

No exception having been taken to tbe report of tbe Receiver, this appeal turns upon whether tbe United States is entitled to priority of payment on tbe findings of tbe Receiver.

Tbe Congress of the United States in 1797 enacted a statute conferring upon the government a right of priority in payment out of tbe assets of an insolvent debtor of all claims due the United States. There has been no substantial change in this statute in tbe meantime, which is now R.S. 3466, 31 U.S.C.A. 191, tbe pertinent part of which reads as follows: “Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied.”

“It is well settled that the priority statute does *not*create a lien upon the debtor’s property in favor of the United States, but merely confers upon the government a right of priority in payment out of that property in the hands of the debtor’s assignees or other representatives, under the conditions specified in the statute.” 28 Am. Jur., Insolvency, section 73, p. 819. *Bramwell v. United States Fidelity & G. Co.,*269 U.S. 483, 70 L. Ed. 368; *United States v. Emory,*314 U.S. 432, 86 L. Ed. 314; 44 C.J.S., Insolvency, section 14 (b), p. 374.

The priority of the United States, under the provisions of the above statute, attaches upon the appointment of a voluntary or involuntary receiver, *Gordon v. Campbell,*329 U.S. 362, 91 L. Ed. 348, or upon the date of debtor’s assignment for the benefit of creditors, *United States v. Waddill, Holland & Flinn,*323 U.S. 353, 89 L. Ed. 294; *United States v. Texas,*314 U.S. 480, 86 L. Ed. 356; *Price v. United States,*269 U.S. 492, 70 L. Ed. 373; *In re Mitchell's Restaurant,*.... Del. ..., 67 A. 2d 64; *Spokane Merchants’ Asso. v. State,*15 Wash. 2d 186, 130 P. 2d 373.

However, the right to priority of payment under the above statute does not give the government any lien or right that may be enforced “against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed bv the collector” in accordance with the provisions of 26 U.S.C.A. 3672.

The appellees, Ossie Bishop and Ben Israel, are creditors who attached property of the debtors prior to the appointment of the Receiver. Even so, they had not reduced their claims to judgment at the time the right of priority of payment in favor of the government arose. Hence, they cannot claim priority under the above statute. They were not mortgagees, pledgees, purchasers or judgment creditors at the time the right *338to priority of payment arose in favor of tbe United States. *United States v. Texas, supra; MacKenzie v. United States*(C.C.A. 9th Cir.), 109 E. 2d 540.

Moreover, prior to tbe adoption of 26 U.S.C.A. 3670, 3671 and 3672, not even innocent pur chasers for value, holders of recorded mortgages, or of unsatisfied judgments of record were protected from an unrecorded tax lien. *United States v. Snyder,*149 U.S. 210, 37 L. Ed. 705; *MacKenzie v. United States, supra.*

It is well, however, to keep in mind that priority of payment in favor of tbe government within the meaning of R.S. 3466, 31 U.S.C.A. 191, does not arise unless tbe debtor is insolvent. *Louisiana State University v. Hart,*210 La. 78, 26 So. 2d 361, 174 A.L. R. 1366; *United States v. Oklahoma,*261 U.S. 253, 67 L. Ed. 638. But where a receiver is appointed tbe insolvency of tbe debtor, at tbe time of the appointment, is clearly demonstrated when it appears bis assets when liquidated are insufficient to satisfy tbe claims of contesting creditors. *Gordon v. Campbell, supra.*

Now, as to tbe appellee, State Trust Company, it is difficult to understand why tbe court below approved tbe payment of any portion of tbe funds remaining in tbe bands of tbe Receiver to this claimant. It appears from tbe record that tbe State Trust Company filed only two claims with tbe Receiver and that both of them were paid in full. Furthermore, tbe only reference to an additional claim by this concern is found in an order signed by bis Honor 10 October, 1950, which contains tbe following statement: “Tbe court further finds that the State Trust Company has a claim in tbe amount of $1,020.00, which it claims to be a first claim prior to the three creditors set up in said report.” How this claim arose, why it was not filed with tbe Receiver, and why it should be allowed as either a preferred or common claim is not disclosed by tbe record.

Since it appears that all claims filed with tbe Receiver, which were secured and superior to the claims of tbe United States under the provisions of 26 U.S.C.A. 3670, 3671 and 3672, have been paid in full, it is our opinion, and we so hold, that the claim of tbe United States for income taxes due from the debtors, claim for which was filed with, approved and reported by tbe Receiver, is entitled to full satisfaction out of tbe assets of tbe insolvent debtors before any additional claim or charge is paid except the costs incident to tbe receivership.

Tbe judgment entered below is vacated and this cause is remanded for judgment in accord with this opinion.

Error and remanded.