Court Opinion

ID: 9419197
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:47:22.100395+00
Date Added: 2024-06-11T17:22:16.178791
License: Public Domain

Me. Justice Reed,
dissenting:
The purpose and provisions of the National Housing Act1 lead me to the conclusion that § 3466 of the Revised *434Statutes is inapplicable to the claim of the Administrator in this case.2
A statute is not to be interpreted by its text alone, as though it were a specimen under laboratory control. It takes meaning from other enactments forming the whole body of law bearing upon its subject.3 If, like § 3466, it has been upon the books for years, the precedents interpreting its meaning must be considered in connection with it, particularly when, as here, new legislation is passed which may be inconsistent with its application.4
From past interpretation we learn that the traditional function of § 3466 is the assurance of the public revenue,5 whatever may be the expense to the competing creditors. Their interests are subordinated to the general advantage.6 *435Title I of the National Housing Act, however, is not a revenue measure — it was intended to stimulate recovery and employment in the construction industries and to enable property-owners to obtain funds for sorely needed repairs by insuring financial institutions against loss on loans for such work.7 This was accomplished by what is, in effect, a guarantee that all losses on rehabilitation loans, up to a predetermined percentage (20% here) of the total made by the financial institution, would be borne by the United States, either by taking over loans in default or paying the deficit.8 That loss Congress intended the Government to bear.9 In estimating the loss, it relied upon the experience of private companies which were unaided by any such priority as § 3466.10 Loans could *436not be made for a longer term than five years, and many would be for less. Stable economic improvement was hardly to be expected within that time, and yet, many of those who borrowed would die, or default, and undergo some sort of financial liquidation. The enforcement of § 3466 under those circumstances would shift the loss from the Government to competing creditors, thus hampering the efforts of private business and capital to achieve that economic recovery which was the aim of the legislation.11
Nothing in the hearings, the debates or the Act show definitively that Congress considered the application of § 3466 to government claims under the National Housing Act. If the two acts alone were to be appraised, it might well be concluded that, as they are not necessarily inconsistent, both should be enforced. But the determination of Congressional purpose is not so simple as that. Upon the assumption that the applicability of § 3466 never came to the attention of Congress, we must find legislative purpose not from the language of the two Acts alone but from generalizations as to the object of the new statute and from judicial interpretations'of the meaning of the old. To reach a sound conclusion as to the applicability of the priority statute and the purpose of Congress deduced merely from the state of the law at the time of the enactment of the Housing Act, we need to weigh the precedents under § 3466 quite as carefully as the Acts themselves, in order to develop the legal situation *437into which the Housing Act was injected. When this is done, it is apparent that, each time this Court has considered legislative purpose as to § 3466 in relation to government claims under public financial legislation affecting creditors competing with the Government, it has determined § 3466 did not apply.12
The National Housing Act was “one of the latest of a series of enactments, extending over more than a century, through which the Federal Government has recognized and fulfilled its obligation to provide a national system of financial institutions. . . 13 Section 3466 is inconsistent with this purpose.14 It is not significant that in the case of Cook County National Bank the debtor bank against which priority was denied was in the federal financial system, while here the debtor is a private corporation which has participated in a federal financing plan. The intrusion of a novel priority, uncertain in amount because unrecorded, into the intricate .credit system of the Nation at a time of strain, would be a drag on recovery, rather than a stimulus. Suppliers of goods or services in all fields of credit activity would be moved to constrict their advances to a borrower known to have created a secret but valid lien upon his assets superior to all general creditors. The full reach of the implication of credit dislocation may be readily gauged by the fact that, at the end of 1936, 1,326,102 separate rehabilitation loans had been made under Title I for an aggregate amount of $500,220,64215 *438Possible priorities will now exist for every outstanding dollar.
The facts of this case show how government aid to a debtor may be a snare for his other creditors if the priority statute operates in this class of claims. About a dozen claimants became creditors in the aggregate amount of some nine hundred dollars for labor. Such labor claims were entitled to the preference under Missouri law common to labor claims. But for the priority of the Government’s claim, they would receive all of the realization from the assets — about two-thirds of their claims. But a month before the appointment of the receiver, the Federal Housing Administration took over from a bank a note of about $6000. From a deferred position in the hands of the bank, this debt is said to have stepped into a preferred position by transfer to the government agency. As such, it absorbs all of the assets, and the laborers who trusted their employer’s credit get nothing. Such a preference of creditors, brought about by the debtor, would be an act of bankruptcy.
In 1920, when the railroads needed funds but lacked credit for private borrowing, government loans were authorized by Congress, based upon such prospective earning power and security as would furnish reasonable assurance of repayment.16 In United States v. Guaranty Trust Co., 280 U. S. 478, we held that the rehabilitating functions and the security provisions of the Transportation Act of 1920 were so inconsistent with § 3466 as to preclude its application in the receivership of a debtor railroad. Even more inconsistent considerations exist in this case. Congress was confronted with widespread need of repairs on property owned by persons without the cash or credit to secure them.17 Moreover, not only homeowners *439but, like the railroads, hard pressed business establishments, such as the distillery in this case, were to be assisted in securing modernization loans.18 Instead of lending these people federal funds, Congress lent them federal credit on which to borrow private funds, with the evident purpose of keeping the program as much as possible a matter of private enterprise handled in the course of private affairs. Assurance of repayment was rested not on a combination of security and earning power but deliberately upon earning power alone.19 Whereas, with the railroads, interest corresponding to the risk was charged, no premium was charged for the insurance of loans under Title I, — with the expectation that the Government would pay the loss as its contribution to recovery.20 The declared purpose of the United States to absorb the losses of the lenders is clearly inconsistent with the priority over other creditors given by § 3466. It seems beyond doubt, to me, that Congress did not expect a priority under Title I which the Guaranty Trust case certainly denied it under Title II relating to insured mortgages.21
Even in the mechanics of its operation, Title I repudiated the benefits of § 3466. Collection was left to the financial institution after default, so long as there was *440hope of partial liquidation.22 The lender, of course, had no priority.
The judgment should be affirmed on the ground that no priority exists by virtue of § 3466.
MR. Justice Roberts, Mr. Justice Douglas and Mr. Justice Jackson concur in this dissent.

 Act of June 27, 1934, c. 847, Tit. I, §-2, 48 Stat. 1246, as amended 49 Stat. 299, 49 Stat. 722, 49 Stat. 1187,49 Stat. 1234. The statute as thereafter amended subsequently to the events of this case may be found as 12 U. S. C. § 1703 (1940).

 Previous decisions in other courts concededly are to the contrary. In re Long Island Sash & Door Corp., 259 App. Div. 688, 20 N. Y. S. 2d 573, aff’d mem. 284 N. Y. 713, 31 N. E. 2d 48, cert. den. 312 U. S. 696; In re Dickson’s Estate, 197 Wash. 145, 84 P. 2d 661. Accord, Korman v. Federal Housing Administrator, 113 F. 2d 743 (App. D. C.); Wagner v. McDonald, 96 F. 2d 273 (C. C. A. 8th); In re Weil, 39 F. Supp. 618 (M. D. Pa.); In re Wilson, 23 F. Supp. 236 (N. D. Tex.); cf. Federal Reserve Bank of Dallas v. Smylie, 134 S. W. 2d 838 (Tex. Civ. App.) (Farm Credit Administration); see 52 Harv. L. Rev. 320. United States v. Summerlin, 310 U. S. 414, held only that the claim assigned to the administrator became a claim of the United States not sub j ect to a state statute of “non-claim.” It did not pass upon the right to priority under § 3466 in the decedent’s estate. Compare Dupont de Nemours & Co. v. Davis, 264 U. S. 456, where the Director General of the railroads was held free from limitation, with Mellon v. Michigan Trust Co., 271 U. S. 236, where the Director General was denied priority under § 3466. United States v. Marxen, 307 U. S. 200, 203, expressly did not decide the point.

 Keifer & Keifer v. R. F. C., 306 U. S. 381, 389.

 United States v. Marxen, 307 U. S. 200, 206; United States v. Knott, 298 U. S. 544, 547-48; Mellon v. Michigan Trust Co., 271 U. S. 236, 240.

 Spokane County v. United States, 279 U. S. 80, 92; Price v. United States, 269 U. S. 492, 500; Bramwell v. U. S. Fidelity Co., 269 U. S. 483, 487.

 United States v. Fisher, 2 Cranch 358, 389.

 Message of the President, May 14, 1934, 78 Cong. Rec. 8739-40 (Senate), id. at 8773-74 (House). Concerning the doldrums of the construction industry, see 78 Cong. Rec. 11194, 11198, 11210, 11211; Hearings on Sen. 3603, Committee on Banking and Currency, 73d Cong., 2d Sess., May 16-24, 1934, pp. 166 if. Concerning the need for repairs, see 78 Cong. Rec. 11194, 11214; Hearings on Sen. 3603, supra, at pp. 36, 48, 288, 290.

 Regulation No. 18 — Modernization Credit Plan — Title I, National Housing Act, provided: “The Federal Housing Administration will reimburse any insured institution on losses up to a total aggregate amount equal to 20% of the total face amount of all qualified notes taken or current face value of notes purchased by the financial institution, during the time the insurance contract is in force, and held by it or on which it continues liable. . . .” Modernization Credit Plan, Bulletin No. 1, p. 30 (revised reissue, Dee. 10,1934).

 Senator Bulldey, chairman of the subcommittee (78 Cong. Rec. 11974) stated to the Senate: “It is contemplated that there will be a loss to the Government under this title, but that probably the loss will not be very great. . . . The reason we justify this provision is that it will make possible a considerable expenditure of money on needed repairs and renovation and thereby stimulate business in trades which very much need stimulation at this time.” 78 Cong. Rec. 11981, 73d Cong., 2d Sess.

 78 Cong. Rec. 11195-11196, 11981, 11982, 73d Cong., 2d Sess. See Hearings on Sen. 3603, supra, at pp. 293-94.

 These loans were to be so-called “character” loans, in reliance on the character and stable earnings of the borrower. 78 Cong. Rec. 11194, 11195, 11981. It was expected that while many persons at the time had no stable income, the Act would temporarily promote new employment which once under way was hoped would continue long enough of its own force to culminate in permanent business recovery and repayment of the borrowed money. Hearings on Sen. 3603, supra, at pp. 46, 173.

 Cook County Nat. Bank v. United States, 107 U. S. 445; United States v. Guaranty Trust Co., 280 U. S. 478; cf. Sloan Shipyards v. U. S. Fleet Corp., 258 U. S. 549; Mellon v. Michigan Trust Co., 271 U. S. 236.

 Validity of Certain Provisions of the National Housing Act, 38 Ops. Atty¡ Gen. 258, 262.

 Cook County Nat. Bank v. United States, 107 U. S. 445.

 Third Annual Report of the Federal Housing Administration, House Doc, No. 48,75th Cong., 1st Sess., p. 7.

 Transportation Act of 1920, § 210,41 Stat. 468.

 78 Cong. Rec. 11199, 11388, 11981, 73d Cong., 2d Sess.; Hearings on Sen. 3603, supra, at pp. 30, 172, 174, 179.

 The loan limit of Title I was soon increased to meet business needs. Amendment of May 28, 1935, 49 Stat. 299.

 78 Cong. Rec. 11194, 11195, 11981, 11982, 73d Cong., 2d Sess.; Hearings on Sen. 3603, supra, at pp. 37, 39, 293.

 Senator’BulHey stated: “The lender receives 20-percent insurance automatically as an inducement to make loans of this particular character. Frankly it is contemplated that the Government will lose some money..” 78 Cong. Rec. 11982, 73d Cong., 2d Sess. See also 78 Cong. Rec. 11195; Hearings on Sen. 3603, supra, at pp. 34-35.

 Moreover, since July 1, 1939, there is a .75% insurance charge under Title I, so that in the future, whatever the decision here, even Title I would seem to be governed by the Guaranty Trust case. 24 C. F. R. § 501.18 (Supp. 1939.)

 Modernization Credit Plan, Bulletin No. 1, supra, at p. 8 states: “It is to the interest of the financial institution to carry the collection process on a defaulted note as far as there is reasonable prospect of ultimate payment inasmuch as complete reimbursement for any expenses incurred is provided as specified hereinafter. This policy will tend to conserve the insurance reserve of 20% for possible later losses and also will maintain the understanding of the local community that these notes require the same prompt handling by makers as any other credit obligation. ... it is the policy of the Federal Housing Administration to permit financial institutions every possible latitude in making collections on delinquent items. It is only after it clearly appears that further collection efforts will be fruitless that the Federal Housing Administration will insist that claim be made. Financial institutions are, therefore, given a full year after default on the note to effect collection. ... If 10% of the amount due on the note is collected within the first year after default on the note and so long thereafter as 5% at least is collected in each six-month period, the Federal Housing Administration will not require that claim be made, but will permit the financial institution to proceed with its collection efforts. Claims may include: (1) Net unpaid principal; (2) uncollected earned interest (after maturity interest is not to be claimed at a rate exceeding 6% per annum); (3) uncollected 'late charges’; (4) uncollected court costs, including fees paid for issuing, serving and filing summons; (5) attorney’s fees not exceeding 15% of the amount collected on the defaulted note; (6) handling fee of $5 for each note, if judgment is secured, plus 5% of amount collected subsequent to return of unsatisfied property execution.”