Appeals from the District Court of the United States for the Northern District of Illinois, Eastern Division; William H. Holly, Judge.
Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.
Appellee file a claim for $17,531.39 against the estate of the bankrupt which was duly allowed. The correctness of this allowance is not challenged. In addition thereto, it was accorded the same priority as was allowed taxes under subsection (6) of section 64b, 11 U.S.C.A.§ 104(b) (6), the section which determines the order in which claims or debts of a bankrupt are paid. Appellants challenge the correctness of the ruling as to priority. They concede to claimant the priority of subsection (7) of 64b, 11 U.S.C.A. § 104(b) (7), but deny the applicability of subsection (6) of said 64b. The estate is not sufficient to pay all claims entitled to priority under subsection (6). Hence, if claimant is to receive anything on his claims, he must be accorded a subsection (6) priority status.
The facts: The Union Indemnity Company bound itself to pay any deficiency income taxes which might be assessed against the William J. Newman Company for the year 1925. Subsequently the surety, Union Indemnity Company, failed to meet its obligations. Receivers were appointed, and it liquidated. The bankrupt did not pay its 1925 deficiency income tax, and $17,531.39 was collected from the receivers of the Union Indemnity Company on its said bond. The claim of the receivers of the surety company against the estate of the bankrupt herein, by virtue of its having paid this sum to the United States, was sold at public auction to appellee for $85. This claim and its priority status and the objections thereto were referred to Charles T. Adams, a referee in bankruptcy. Before said referee, the claimant stated his position to be that of a claimant second in priority to the Government. Notwithstanding this position of claimant's counsel, the referee found that the claimant was entitled to equality with claims of the Government for taxes. The District Judge approved the referee's finding and ruling.
The single question presented by this appeal may be stated thus: Does section 3468, Revised Statutes, 31 U.S.C.A. § 193, give to the assignee of a surety which has discharged its liability to the United States under bond to secure payment of a Federal income tax, a status of priority against the estate of the bankrupt taxpayer, in the same class as claims of the United States for taxes for other years, - all as covered by subsection (6) of section 64b?
The answer to the query is to be found in the decision, United States v. National Surety Company, 254 U.S. 73, 41 S. Ct. 29, 65 L. Ed. 143. There, the court said [page 30]:
"The priority secured to the united States by section 3466 [31 U.S.c.A. § 191] is priority over all other creditors; that is, private persons and other public bodies. This priority the surety obtains upon discharging its obligation. But what the surety asks here is not to enjoy like priority over such other creditors, but equality with the United States, a creditor whose debt it partly secured. To accord such equality would abridge the priority expressly conferred upon the government."
The decree is reversed with costs and with directions to accord claimant the priority provided for in subsection (7) of 64b of the Bankruptcy Act and to deny him the priority of subsection (6) of 64b.