Source: http://www.chanrobles.com/usa/us_supremecourt/336/328/case.php
Timestamp: 2018-06-22 17:11:39
Document Index: 351455733

Matched Legal Cases: ['§ 103', '§ 103', '§ 93', '§ 63', '§ 57', '§ 57', '§ 64', '§ 64', '§ 57', '§ 64', '§ 57', '§ 64', '§ 57', '§ 57', '§ 57', '§ 64', '§ 64', '§ 57', '§ 57', '§ 64', '§ 57', '§ 64', '§ 64', '§ 57', '§ 64', '§ 64']

The ultimate issue in these three cases is whether tax claims against a bankrupt bear interest until the date of bankruptcy, [Footnote 1] as held by the court below, [Footnote 2] or until payment, as previously held by another Court of Appeals. [Footnote 3] We granted certiorari [Footnote 4] to resolve the conflict, the matter being of considerable practical importance [Footnote 5] in the administration of the Bankruptcy Act. [Footnote 6] chanroblesvirtualawlibrary
If the question were one of first impression to be decided in the light of the present statute alone, we should have no difficulty in affirming the court below. More than forty years ago, Mr. Justice Holmes wrote for this Court that the rule stopping interest at bankruptcy had then been followed for more than a century and a half. He said the rule was not a matter of legislative command or statutory construction, but, rather, a fundamental principle of the English bankruptcy [Footnote 7] system which we copied. Sexton v. Dreyfus, 219 U. S. 339, 219 U. S. 344. Our present statute contains no provision expressly repudiating that principle or allowing an exception in favor of tax claims. Every logical implication from relevant provisions is to chanroblesvirtualawlibrary
the contrary. Section 63(a)(1), 11 U.S.C. § 103(a)(1), allows interest on judgments and written instruments [Footnote 8] only to date of bankruptcy. Section 63(a)(5), 11 U.S.C. § 103(a)(5), allows interest only to that date on debts reduced to judgment [Footnote 9] after bankruptcy. [Footnote 10] No provision permits post-bankruptcy interest on other claims in general or tax claims in particular. Section 57(j), 11 U.S.C. § 93(j), forbidding allowance of governmental penalties or forfeitures permits [Footnote 11] allowance of losses sustained by the acts penalized, with actual costs and "such interest as may have accrued thereon according to law." However, on its face, this appears to delimit even such allowable debts as of the date of bankruptcy, and to allow no more interest than does § 63 with respect to the claims there specified. Moreover, there is no chanroblesvirtualawlibrary
It is contended that decisions under the Act of 1898 definitely established such a rule. And petitioners challenge the lower court's holding, despite those decisions, that the Congress, through the Chandler Act, completed the assimilation of taxes to debts and manifested an intention that such claims be treated, interest-wise, the same as other debts. They assert that the pre-Chandler Act allowance of interest to date of payment was grounded in judicial construction of § 57(j) approved, at least sub silentio, by this Court in United States v. Childs, 266 U. S. 304, and adopted by Congressional reenactment of that section in the Chandler Act. They chanroblesvirtualawlibrary
At the outset, it may be admitted that, in practice under the Act of 1898, the lower courts generally did allow interest on tax claims until paid. The parties and the lower courts trace that practice to In re Kallak, 147 F.2d 6, and cases following that decision. But we do not believe those cases support petitioners' contention that the pre-Chandler allowance of post-bankruptcy interest reflects a construction of § 57(j). The Kallak opinion itself refutes that contention insofar as it may be based on that line of cases. The court there first decided that, since § 64(a) of the Act of 1898 [Footnote 12] gave taxes absolute priority over claims of every kind, "public taxes do not constitute a claim' in bankruptcy." 147 F.2d 6, 277. The statute did not require that taxes be proved, but that the trustee should seek them out and pay them in full. In view of that requirement, and since taxes were not claims, the court saw no reason why the rule stopping interest on ordinary claims should apply. The court found that rule was based on considerations of expediency and practical chanroblesvirtualawlibrary
convenience not present in the case of taxes. First, it said that allowance of such interest at the varying rates applicable to the different claims sharing the estate would prevent definite determination of each claimant's proportionate share. Secondly, such recurring readjustments would complicate administration of the estate. Since neither difficulty would result from allowing post-bankruptcy interest on taxes not sharing the fund with other obligations, the rule against such interest was held to be inapplicable. This conclusion was grounded entirely in reasons of practical convenience. If the case involved construction of any part of the Act of 1898, it clearly was § 64(a), with its requirements of absolute priority in payment of "all taxes legally due and owing," which, together with the dispensation from proof, the court considered as indicating that taxes enjoyed a status entirely different from that accorded ordinary claims. Those provisions were considered controlling, while § 57(j) was not mentioned in the opinion. Consequently the latter section's reenactment could not be considered a legislative adoption of any "judicial gloss" on that section resulting from the Kallak line of cases. The only section relied upon in Kallak, § 64(a) has been significantly amended to deprive taxes of their preferred status, first by the amendment of 1926, and later by the Chandler Act. The former [Footnote 13] expressly provided that taxes yield priority to administration expenses and certain wages, neither of which bears interest. The latter amendments finalized the subordination of taxes to other priority items. They also wrote into § 57(n), the requirement of proof, formerly dispensed with under § 64(a). Consequently, the argument based on alleged Chandler Act recognition of lower court interpretations of § 57(j) seems entirely without force. And, on the contrary, that enactment did chanroblesvirtualawlibrary
Petitioners rely most heavily, however, upon this Court's decision in United States v. Childs, 266 U. S. 304, rev'g In re J. Menist & Co., 290 F.9d 7. It is urged that this decision reflected a construction by this Court of § 57(j) which the Congress adopted in enacting the Chandler Amendments. We do not believe this contention survives scrutiny of that case, or that it is supported by the legislative history of the Chandler Act. The Court of Appeals stated that the only issue before it was "whether an exaction of 1 percent a month as the price of delay amounts to a penalty." 290 F.9d 7, 949. It decided that anything in excess of 6% per annum would be a penalty barred by § 57(j). It is true that court also stated the allowable interest could run until payment. However, that statement was also based on the "highly preferred" status of taxes and the requirement of § 64(a) that absolute priority be given to "all taxes legally due and owing." Section 57(j) was considered chanroblesvirtualawlibrary
Other decisions of this Court cited by petitioners on this point do not help their cause, and require little discussion. Dayton v. Stanard, 241 U. S. 588, approved payment of interest to individuals who, during the course of a bankruptcy, paid off tax liens binding property of the bankrupt. The Court's decision was only that such parties, whose tax deeds were invalidated because at the time they were issued the property was in custodia legis, could be reimbursed out of the estate's general fund for both their advances and interest at the legal rate. This was simple equity, since the claimants had paid taxes which the then § 64(a) required the trustee to seek out and pay in full. New York v. Jersawit, 263 U. S. 493, is clearly a holding limited to the determination that the claim there asserted was a penalty not allowable under § 57(j). The case was so described in the Childs opinion, 266 U. S. 266 U.S. 304, 266 U. S. 309, and the discussion chanroblesvirtualawlibrary
The Court of Appeals concluded that, by the 1926 amendment and the Chandler Act, Congress assimilated taxes to other debts for all purposes, including denial of post-bankruptcy interest. We think this is a sound and chanroblesvirtualawlibrary
But, irrespective of that decision, petitioners contend that Congress has considered the lower courts' post-Chandler Act decisions as a statutory interpretation which can be overruled only by legislation. The argument chanroblesvirtualawlibrary
is based on a Committee Report accompanying a bill approved by the House during the 80th Congress, but not acted upon in the Senate. Among Bankruptcy Act amendments proposed in this bill was one designed "both to clarify and modify" § 57(j). The change, it was said in the House Report, was to make it clear that the section referred to interest on the "pecuniary loss," and that such interest stops at bankruptcy. The clarifying clause was "intended to overrule an obsolete rule" as to interest on delinquent taxes. It was stated that, although §§ 64(a) and 57(n), as amended by the Chandler Act rendered the reasoning of the Kallak case obsolete, nevertheless its rule had not been changed, and legislation was necessary, citing Davie v. Green, 133 F.2d 451, the case which conflicts with the decision now being reviewed. The text of the section of the report devoted to this proposed amendment is printed in the margin. [Footnote 17] We chanroblesvirtualawlibrary
believe a fair reading of it leads to the conclusion that the Committee believed not that the Chandler Act either allowed post-bankruptcy interest or left the matter open, but that the courts, in allowing such interest, were ignoring the necessary and intended implications from the Chandler amendments to §§ 57(n), and 64(a). The court below did not have this report before it, but, in a well considered opinion, reached the same conclusion. We believe that conclusion is confirmed by the report, and that petitioners' contentions find no support in either the Chandler Act or this abortive attempt at clarification. [Footnote 18] chanroblesvirtualawlibrary
In re Ashland Emery & Corundum Co., 229 F.8d 9, relies entirely on § 64(a) and the Kallak case. In re Clark Realty Co., 253 F.9d 8, discusses § 64(a), but not § 57(j), and relies, erroneously, on Dayton v. Stanard, 241 U. S. 588, as to which see text. In re J. Menist & Co., 290 F.9d 7, relying on § 64(a), is discussed in the text. In re A. E. Fountain, Inc., 295 F.8d 3, does not discuss the issue, deciding only that taxes bear simple interest. Horn v. Boone County, 44 F.2d 920, discusses only whether the levy there was penalty or interest. In re Martin, 75 F.2d 618, does not discuss the issue. In re Semon, 11 F.Supp. 18, modified, 80 F.2d 81, was based on the Revenue Act of 1928, and the Court of Appeals decided only that the levy there was not a penalty. In re Beardsley & Wolcott Mfg. Co., 82 F.2d 239, also involved only the penalty issue. Compare In re William F. Fisher & Co., 148 F.9d 7, denying the claimed interest because § 64(a), contained no provision allowing it, and dictum as to interest in McCormick v. Puritan Coal Min. Co., 41 F.2d 213, 214.
"11. Section 11(a) of the bill is intended both to clarify and modify section 57j of the act. The change in 57j(c) is to make clear that the limitation on interest 'up to the date of bankruptcy' relates only to interest on the 'pecuniary loss,' and further that such interest stops at the date of bankruptcy. The addition of clause (2) in the bill is intended to overrule an obsolete rule as to interest on delinquent tax debts. Interest on general unsecured debts, on unsecured Government debts other than taxes, and on debts entitled to priority under section 64a, is suspended at the date of bankruptcy so that, except in the rare case of a solvent estate, interest is allowable only to such date. Sec. 63a; Adams v. Napa Cantina Wineries, 94 F.2d 694, 36 A.B.R.(N.S.) 8; In re L. Gandolfi & Co., Inc., 42 F.Supp. 706, 51 A.B.R.(N.S.) 521 (governmental debts and other debts entitled to priority); 3 Collier on Bankruptcy, 14th Ed., 1835 et seq.; 2 Remington on Bankruptcy, 4th Ed., Secs. 771, 795. However, interest on delinquent tax debts is allowable to the date of payment (In re Kallak, 147 F.2d 6 (1906); In re Ashland Emery and Corundum Co., 229 F.8d 9, 36 A.B.R.194 (1916); In re Clark Realty Co., 253 F.9d 8, 42 A.B.R. 403 (1918); sub silentio, United States v. Childs, 266 U. S. 304, 266 U. S. 307 (1924), 5 A.B.R.(N.S.) 5). Although, under the Chandler Act, a tax debt is required to be proved (sec. 57n) and its order of priority ranks below all administration costs and expenses, wages and costs and expenses of creditors successfully opposing a settlement or discharge, or procuring a conviction for an offense (sec. 64a(1), (2), (3)), thereby rendering obsolete the reasoning in the Kallak case, nevertheless its rule has not been changed, and therefore requires this statutory modification. For further discussion, see In re D. O. Summers Co. (Ref., N.D. Ohio, 1939), 46 [45] A.B.R.(N.S.) 123; In re Dorsey (Ref., W.D.Wash., 1940), 46 A.B.R.(N.S.) 146; Davis[e] v. Green,, 52 A.B.R.(N.S.) 603 (1943). And on overruling the Kallak case, see In re Union Fabrics, Inc., 73 F.Supp. 685, appeal pending."