314 U.S. 480 (1941), 44, United States v. Texas

Docket Nº:No. 44
Citation:314 U.S. 480, 62 S.Ct. 350, 86 L.Ed. 356
Party Name:United States v. Texas
Case Date:December 22, 1941
Court:United States Supreme Court

Page 480

314 U.S. 480 (1941)

62 S.Ct. 350, 86 L.Ed. 356

United States



No. 44

United States Supreme Court

Dec. 22, 1941

Argued November 19, 21, 1941




1. Under R.S. § 3466, in the distribution of assets of an insolvent debtor through a general receivership, an unsecured tax claim of the United States takes priority over the like claim of a State. P. 483.

2. The priority of unsecured claims of the United States under R.S. § 3466 attaches upon the taking over of the insolvent debtor's property by a general receivership, and cannot be divested by subsequent proceedings for the perfection of liens claimed by a State. P. 486.

3. Article 7065a-7 of the Texas Civil Statutes declares that all gasoline taxes due by any distributor to the State

shall be a preferred lien, first and prior to any and all other existing liens, upon all the property of any distributor, devoted to or used in his business as a distributor . . .

Held, that the lien thus created is not a specific and perfect lien entitled to priority, despite R.S. § 3466, over a claim of the United States, but is an inchoate and general lien requiring further procedure to define and enforce it. P. 484.

138 S.W.2d 924 reversed.

Page 481

BYRNES, J., lead opinion

MR. JUSTICE BYRNES delivered the opinion of the Court.

W. L. Nix was a manufacturer and distributor of motor fuel, doing business in Texas under the name of Texas Refinery. On November 20, 1933, M. R. Ingraham, who held a demand note secured by a chattel mortgage on certain tanks belonging to Nix, brought an action in the District Court of Gregg County, Texas. He alleged that demand had been made on the note, that it had not been paid, that Nix owned no [62 S.Ct. 351] property in Texas other than that of Texas Refinery, that the value of the mortgaged tanks was insufficient to discharge the note, that the tanks were not used "for a separate purpose," but in the "operation of the said refinery as a unit," and that Nix was insolvent. He asked that judgment be entered in his favor for the amount of the note, that the mortgage be foreclosed, and that, in the meantime, a receiver be placed in charge of "the whole of the property" of Texas Refinery. On the

Page 482

same day, a receiver was appointed, and he was subsequently authorized to sell all of the refinery property.

On November 21, R.P. Ash intervened in the proceedings as the holder of an overdue note secured by a mortgage on the physical plant of the refinery not subject to the Ingraham mortgage. Both the state of Texas and the United States then intervened with the claims for state and federal gasoline taxes which are the subject of the present dispute. Later, both the Ingraham and Ash mortgage notes were assigned to Howard Dailey.

The District Court found that Nix was insolvent on November 20, 1933, and continued to be insolvent thereafter. The sum available for distribution after sale of the refinery property by the receiver was $7,466.92. The court found that, of these proceeds, $1,294.80 was allocable to those assets which were subject to the mortgages held by Dailey, and it ordered that his claim to that amount be first satisfied. It determined that Nix was liable to the United States for $19,343.91 in federal gasoline taxes, and to Texas for $40,312.51 in state gasoline taxes. As between the state and federal claims, it decided that the United States was entitled to priority, and concluded that nothing would be left to apply to the Texas claim.

From this order, Texas appealed to the Court of Civil Appeals for the Second District. That court certified the controlling questions to the Supreme Court of Texas. The Supreme Court, on the authority of State v. Wynne, 134 Tex. 455, 133 S.W.2d 951, a companion case decided the same day, answered the questions in such a way as to require that the claim of Texas be first satisfied, that of Dailey second, and that of the United States third. State v. Nix, 134 Tex. 476, 133 S.W.2d 963. The Court of Civil Appeals thereupon so ruled, noting that the assets available would not completely satisfy even the claim of Texas and that Dailey, and the United States would receive nothing. State v. Nix, 138 S.W.2d 924. A motion by the United States for a rehearing was denied, and the Supreme Court of

Page 483

Texas refused to review the decision of the Court of Civil Appeals. We granted the petition of the United States for certiorari because of the important question of the fiscal relationship between state and federal governments which is involved. 313 U.S. 554.

No question as to the rights of Dailey, the mortgagee, is raised by this appeal. We confine ourselves, therefore, to the only question presently open to decision: the relative priority of the claims of the United States and Texas.

The United States rests its assertion of priority upon § 3466 of the Revised Statutes.1 Despite the contention of Texas to the contrary, that section clearly applies to this proceeding. As we recently remarked in United States v. Emory,2 § 3466 covers in terms the case of an insolvent debtor who has committed an act of bankruptcy, and there are few more familiar examples of an act of bankruptcy than the appointment of a receiver because of the [62 S.Ct. 352] debtor's insolvency. Cf. § 3(a)(4), of the Bankruptcy Act, U.S.C. Title 11, § 21(a)(4). Here, the district court expressly found that Nix was insolvent, and it appointed a receiver. It is true that the original petition was filed by a mortgagee, rather than by a general creditor. But, if any limitations upon the operation of § 3466 might otherwise have flowed from this circumstance, they were removed by the subsequent character of the proceeding.

Page 484

The receiver was placed in control of all of Nix's assets, rather than only those subject to the mortgage, and all of the assets were eventually liquidated. Parties other than the mortgagee, including Texas itself, intervened and were heard. We think that realities require us to treat the proceeding as a general equity receivership within the scope of § 3466.

We are thus brought to the important issue in the case. Article 7065a-7 of the Vernon's Annotated Texas Civil Statutes declared that all gasoline taxes due by any distributor to the state

shall be a preferred lien, first and prior to any and all other existing liens, upon all of the property of any distributor, devoted to or used in his business as a distributor. . . .3

It is the state's position that, under this section, it held a specific and perfected lien upon the refinery property which entitled it to priority despite § 3466 of the Revised Statutes.

Section 3466 mentions no exception to its requirement that "the debts due to the United States shall be first satisfied." It is nevertheless true that, in several early decisions, this Court read an exception into the section in the case of previously executed mortgages. Thelusson v. Smith, 2 Wheat. 396, 426; Conard v....

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