Court Opinion

ID: 8802580
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:37:32.200332+00
Date Added: 2024-06-11T17:03:57.777571
License: Public Domain

WOODS, Circuit Judge
(dissenting). The Ainslie Carriage Company was adjudicated a bankrupt on February 3, 1910. In the distribution of the funds derived from the sale of its property a contest arose between the city of Richmond, claiming arrears of taxes, and Elizabeth M. Bird, Loulie M. Nolting and Charles E. Whitlock, claiming rent due them as owners of the premises occupied for business purposes by the carriage company. The question to be decided is whether the District Court was right in holding that the taxes should be paid in preference to the rent. The facts are:
On November 1, 1909, the petitioners levied a distress warrant on the goods and chattels found on the premises leased from them by the carriage company for $2,929.57 arrears of rent. Before sale could *557be made the chancery court of the city of Richmond took charge of all the assets of the carriage company, and was administering them at the time of the adjudication in bankruptcy, when all the assets were turned over to the District Court for the Eastern District of Virginia. Upon the estate coming-into the hands of the bankruptcy court, the petitioners proved their debt for rent, and claimed the proceeds of sale by virtue of the lien acquired by levy of the distress warrant under sections 2791 and 2792 of Virginia Code. At the time the distress warrant was issued, taxes on the property were due to the city of Richmond for the years 1907, 1908, and 1909, and after it passed into the hands of the court of chancery the taxes for 1910 became due, the whole amounting to $657. The landlords conceded that the taxes for the year 1910 should be paid in preference to their claim, but asserted their lien to be superior to that of the city for the delinquent taxes of 1907, 1908, and 1909. There is no claim on the part of the city that the landlords’ lien was invalid under section 67f of the Bankruptcy Act, because perfected by distress within four months of bankruptcy. In re Emslie, 102 Fed. 291, 42 C. C. A. 350; In re Robinson & Smith, 154 Fed. 343, 83 C. C. A. 121; In re West Side Paper Co., 162 Fed. 110, 89 C. C. A. 110, 15 Ann. Cas. 384.
We consider first the effect of the Virginia statutes. Section 2792 relating to distress for rent puts this limitation upon the effect of the levy of the warrant:
“Neither this nor the preceding section shall affect any lien for taxes, levies, or militia fines.”
It will be observed that the statute does not expressly create a lien in favor of the landlord by virtue of the distress for rent, but does so only by necessary implication. By an implication still stronger the following section of tire charter of the city of Richmond confers a lien for taxes on personal property:
“Sec. 73. All goods and chattels wheresoever found may be distrained and sold for taxes assessed and due thereon, and no deed of trust 'or mortgage upon goods or chattels shall prevent the same from being distrained and sold for taxes assessed against the grantor in such deed while such goods and chattels remain in the grantor’s possession, nor shall any such deed prevent the goods and chattels from being distrained and sold for taxes thereon, no matter in whose possession they may be found.”
The right to distrain and sell goods and chattels for taxes “wheresoever found” means that they may be taken if found in the hands of one holding under the landlords’ right or any other claim whatever. It seems to me that this is the meaning of the law beyond all doubt, but if there were any doubt it should be resolved in favor of the collection of the public revenue. Indeed, this construction seems to be conceded, for it is admitted that the rent claim must yield to the taxes for the year 1910; and it was the construction adopted by the Supreme Court of Virginia in Jackson v. Phillips Line, 114 Va. 40, 75 S. E. 681, as. to the taxes for the current year due the city of Petersburg.
In the case cited it was decided, however, that the right of the state to levy for taxes expired at the end of one year from the date at which the taxes were assessed, and .“that the city of Petersburg had a right *558of distress against the property assessed with taxes in its favor, which the city might have exercised before the taxes were returned delinquent, or the property upon which they were assessed had passed into the hands of subsequent purchasers, and thereby have secured a lien therefor, but these rights were never exercised.” The charter of the city of Richmond contains no such limitations as to taxes after they are returned delinquent, but, on the contrary, provides by section 51 that the officer charged with the collection of delinquent taxes “shall have the same power to collect by the same means and processes all bills, assessments and accounts delivered to him as are conferred by the city charter upon the collector 'of taxes.” The case before us is thus clearly distinguished from Jackson v. Phillips Line, and falls within the general principles so well stated in Taylor v. Sutherlin, etc., Co., 107 Va. 797, 60 S. e. 132. Pience it follows that there was the same right of distress for the collection of taxes due the city of Richmond, and delinquent for the years 1907, 1908, and 1909, as for the current taxes of 1910.
If this reasoning be sound, the petitioner’s claim to have a lien under the Virginia statute superior to the claim of 'the city of Richmond for taxes must rest upon this proposition: After the levy of the distress warrant for rent on behalf of the petitioners, the city might nevertheless have levied under a distress warrant for taxes and thus displaced to the extent of the taxes the lien of the landlords; but since the court took the property after the lien of the landlord had attached to it by distress, and thus made impossible a levy on behalf of the city, the right of the city to acquire the superior lien or preference was forever lost. It would indeed be a curious result for a court to seize property in the interest of general creditors, and thus forbid the city to exercise its statutory right of perfecting its inchoate lien by levy and then penalize it for not exercising the right. In such circumstances the court necessarily deals with the city as if it had actually done, that which the court incidentally in the interest of others had prevented it from doing. The matter is thus disposed of by the Supreme Court, quoting with approval Greeley v. Provident Savings Bank, 98 Mo. 458, 11 S. W. 980:
“It may be conceded that the state did not have an express lien upon the assets that went into the hands of the receiver, but it had a right paramount to other creditors, to be paid out of those assets — a right which it could have enforced through its revenue officers by the summary process of distress — but for the fact that the property and assets of its debtor had passed into the custody of its courts; .whose duty it was in the administration and distribution of those assets to respect that paramount right, upon the un-trammelled exercise of which depends the power to protect the very fund being distributed, and to maintain the existence of the tribunal engaged in distributing it; and to make no order for the distribution of assets in custodia legis except in subordination to that right.” In re Tyler, 149 U. S. 164, 13 Sup. Ct. 785, 37 L. Ed. 689; Taylor v. Sutherlin, etc., Co., 107 Va. 797, 60 S. E. 132.
St. Va. 1897-98, p. 824 (V. C. § 492b), forbids any court to distribute or dispose of funds or other property without first paying the taxes thereon.
*559The argument is presented that section 73 of the charter of the city of Richmond authorizes a levy on property only for taxes due thereon — that is, on the identical property assessed, and that the property in the hands of the court is not the property upon which the taxes were assessed. The argument falls for several reasons: First. The petition before us and the entire record refer throughout to the property levied on for rent as identical with that upon which the taxes were in arrears for 1907, 1908, and 1909; and the court should not’ assume that it is a shifting stock of goods. ' Second. Even if it be assumed without proof that the property was a stock of merchandise changing in its items in the course of trade, surely it should not be-assumed further that all of the goods in stock when the taxes were assessed had been sold in the course of trade. The entire property realized in the hands of the court $3,343.02. The aggregate of the city taxes was $657. I do not perceive upon what ground it can be assumed that the entire stock had been purchased since the taxes were assessed in 1907, 1908, and 1909, or that of the total stock, $3,343.02, found on hand there was not $657 worth on hand at the date of the assessment. Third. But even if it be assumed that the property was a shifting stock of goods and that all of its items had changed in the course of business, the argument is still unsound. Of necessity the law considers a merchant’s stock a definite entity upon which the taxes are assessed and remaining the same aggregate entity until the taxes are paid, notwithstanding the changing of the items in the regular and anticipated course of trade. Surely it cannot be the law that if a dealer’s stock of dry goods or groceries are assessed for taxes in January and in tire course of business the dealer sells all of the particular goods then on hand, replacing them with others, the city would be unable to enforce its right by levy on the stock because the items of the stock had been changed.
There is no force in the suggestion that the city lost any right conferred either by the federal-or state statute by the mere procrastination of its officers. Robertson v. Sichel, 127 U. S. 507, 8 Sup. Ct. 1286, 32 L. Ed. 203; Powell v. Richmond, 94 Va. 79, 26 S. E. 389. It is no hardship that a preference is given for taxes for all may ascertain if they have been paid by inquiry at the proper office. It thus seems clear that if the Bankruptcy Act were silent on the subject, the statutes and decisions of Virginia require all. taxes due the city to be paid in preference to the distress for rent.
Let it be assumed, however contrary to this conclusion, that the view most favorable to the- petitioners is correct, namely, that the landlords acquired by their distress for rent a first lien on the property under the statute law of Virginia, which could not have been displaced by the levy of a distress warrant for the delinquent city taxes. Nevertheless, under the bankruptcy statute the court is required in accordance with the general equity rule to pay the taxes before distribution of-the proceeds of the sale to the petitioners or any other lien creditors. The following sections seem to make this very clear:
*560“Sec. 64a. The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, state, county, district, or municipality in advance of the payment of dividends to creditors, and upon filing the receipts of the proper public officers for such payment he shall be credited ■with the amount thereof, and in ease any question arises as to the amount oi legality of any such tax the same shall be heard and determined by the court.” Comp. St. 1913, § 9648.
“Sec. 57Z. Whenever a claim shall have been reconsidered and rejected, in whole or in part, upon which a dividend has been paid, the trustee may recover from the creditor the amount of the dividend received upon the claim if rejected in whole, or the proportional part thereof if rejected only in part.” Comp. St. 1913, § 9641.
“Sec. 65a. Dividends of an equal per centum shall be declared and paid on all allowed claims, except such as have priority or are secured.” Comp. St. 1913, § 9649.
The requirement put upon the court itself by section 64a to pay taxes in advance of the payment of dividends is not limited in its application to dividends to unsecured creditors. Taxes are not debts, and the statute means that they are to be paid in preference to all debts. The statute by section 57 undertakes to provide for the proof of secured as well as unsecured claims, and for the rights of all classes of creditors; and in subdivision “l” of that section the word “dividend” must be referred to the distribution of the assets to all classes before referred to' in the section, that is, secured or unsecured, and the recovery of dividends improperly paid to any creditor of any class mentioned, secured or unsecured.
Section 65a clearly means that dividends of equal per'cent, shall be paid on all allowed claims, and that dividends on secured claims shall be paid in view of their priority. It could hardly be denied that the pro rata distribution of the proceeds of the sale of the property of‘a bankrupt corporation to the holders of its mortgage bonds would be the payment of dividends to them. To restrict the meaning of “dividend” to payments made to unsecured creditors would not only distort the act, but would mean that the act had made no' provision whatever for distribution of assets in the hands of the court belonging to secured creditors of the same class or different classes. The word “dividend” is not one of the words limited in its meaning by a definition contained in the act itself, and hence it has its usual well-known meaning, per centum of payments made in the distribution of funds in the hands of the court to all creditors whose claims are before it. It is true it is more frequently used in the act in connection with the distribution to unsecured creditors; but that is not controlling, for the same word or phrase often has a different meaning in the same statute according to its association. American S. Co. v. Commissioners, 224 U. S. 491, 32 Sup. Ct. 553, 56 L. Ed. 856. The universally recognized rule of practice is that the courts, even when there is no statute on the subject, pay the taxes on property from the proceeds of its sale before paying dividends on debts of lien creditors, and that too without respect to whether taxes have been made a lien by statute or not. In section 64a of the Bankruptcy Act Congress has by statute enjoined on the courts the observance of this rule.
*561In support of this conclusion it seems only necessary to refer to In re Tyler, 149 U. S. 184, 13 Sup. Ct. 785, 37 L. Ed. 689; New Jersey v. Anderson, 203 U. S. 483, 27 Sup. Ct. 137, 51 L. Ed. 284; 2 Remington on Bankruptcy (2d Ed.) §§ 2141-2144, and cases cited.
I think the judgment of the District Court should be affirmed.