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IN RE BUILDICE COMPANY

December 11, 1956

IN THE MATTER OF BUILDICE COMPANY, INCORPORATED, BANKRUPT.


The opinion of the court was delivered by: Hoffman, District Judge.

The United States Fidelity and Guaranty Company (hereafter referred to as the Surety) has filed its petition to review an order entered by the Referee in the matter of the bankruptcy of Buildice Company, Incorporated. The question raised by the petition is the relative priority of the United States of America (hereafter referred to as the United States) and of the Surety, claiming as subrogee of the United States, in the general assets of the bankrupt.

The facts which produced the controversy can be briefly stated. On March 11, 1954, Buildice Company, Incorporated, was indebted to the United States for withholding and employment taxes falling due before 1953 in the assessed amount of $33,782.18, and the United States had filed a lien for that amount. To release this lien, Buildice Company, as principal, executed a bond for the payment of these taxes and the petitioner joined in the bond as surety. After the delivery of the bond, Buildice Company made payments which reduced the debt to approximately $13,000. In March, 1955, Buildice Company was adjudicated a bankrupt.

In the bankruptcy proceeding the United States filed a claim for the $13,000 remaining due under the bond and for additional withholding and employment taxes which had been assessed after the delivery of the bond. Some of the taxes claimed had fallen due before the bond was delivered; others had accrued subsequently. The claim totaled $46,699.02, and was made up of the following items.

(a) Taxes secured by the bond —

      1.  Withheld taxes, 12/31/52  ......................  $92.36
      2.  Withheld taxes, 3/31/53  .......................   12,220.33
(b) Other taxes due before delivery of the bond —
      3.  Unemployment taxes, additional, for 1952  ......      238.85
      4.  Unemployment taxes for 1953  ...................      907.64
      5.  Withheld taxes, 12/31/53  ......................   13,750.80
(c) Taxes due after delivery of the bond —
      6.  Withheld taxes, 6/30/54  .......................   14,277.34
      7.  Withheld taxes, 12/31/54  ......................    5,931.85

The basis of the claim in all respects was the priority of tax claims due the government; no claim based upon a lien for assessed taxes was made.

On November 2, 1955, the Surety discharged its obligation under the bond by paying to the United States the amount remaining due upon the taxes secured by it. Thereafter the Surety filed its claim in the bankruptcy, as subrogee to the United States, for the amount paid under the bond, and the United States amended its claim to eliminate those items paid by the Surety.

On April 26, 1956, the Surety filed its petition for the allowance of its claim as a prior tax claim, payable proportionately and in equal preference with the tax claims due the United States. The Surety has sought review of the Referee's denial of this petition.

The question presented was certified with clarity by the Referee:

    "Where a Surety Company issues its bond to the
  United States guaranteeing the payment of certain
  taxes due the United States, and where thereafter
  the principal on said bond makes certain payments
  to the United States in the reduction of the
  principal's liability; and where thereafter the
  United States filed its priority tax claims
  against the principal bankrupt's assets,
  including the unpaid balance of tax which was
  secured by said bond, and thereafter the United
  States made demand upon the Surety for the
  payment of the unpaid balance of the taxes, which
  payment was guaranteed, and the Surety complied
  with said request and paid said balance, is the
  Surety entitled to be subrogated to the priority
  of the United States on account of such payment,
  and, if so, is it entitled to have its claim paid
  before the claim of the United States on account
  of other taxes has been paid in full?"

There is no dispute concerning the Surety's right to be subrogated to the priority of the United States to the extent of preceding the claims of other creditors. The Referee decided that as to claims inferior to the tax claims of the United States the Surety should enjoy priority, and no one has contested that determination. The sole controversy remaining concerns the relation between the claims of the United States and the Surety. The Surety claims to be entitled to proportional participation with the United States. The United States claims, and the Referee found, that the Surety is not entitled to any payment until after all of the United States' tax claim has been paid in full.

The Surety, in support of its claim to equal participation, relies upon two statutes. First Section 3468 of the Revised Statutes, ...


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