City of New York v. Saper State of New York v. Carter United States v. Carter 201

• Citation: 93 L.Ed. 710,69 S.Ct. 554,336 U.S. 328
• Decision Date: 07 March 1949
• Docket Number: Nos. 168,200,s. 168
• Parties: CITY OF NEW YORK v. SAPER. STATE OF NEW YORK v. CARTER. UNITED STATES v. CARTER. , and 201
• Court: United States Supreme Court

336 U.S. 328

69 S.Ct. 554

93 L.Ed. 710

CITY OF NEW YORK

v SAPER.

STATE OF NEW YORK

v. CARTER.

UNITED STATES

v. CARTER.

Nos. 168, 200, and 201.

Argued Jan. 4, 1949.

Decided March 7, 1949.

Mr. Seymour B. Quel, of New York City, for City of New York.

Mr. David Haar, of New York City, for Saper.

Mr. Francis R. Curran, of Poughkeepsie, N.Y., for State of New York.

Mr. J. Henry Kutz, of New York City, for the United States.

Mr. Sydney W. Cable, of New York City, for Carter.

Mr. Justice JACKSON delivered the opinion of the Court.

The ultimate issue in these three cases is whether tax claims against a bankrupt bear interest until the date of bankruptcy¹ as held by the court below,² or until payment, as previously held by another Court of Appeals. ³ We granted certiorari⁴ to resolve the conflict, the matter being of considerable practical importance⁵ in the administration of the Bankruptcy Act.⁶

If the question were one of first impression to be decided in the light of the present statute alone, we should have no difficulty in affirming the court below. More than forty years ago Mr. Justice Holmes wrote for this Court that the rule stopping interest at bankruptcy had then been followed for more than a century and a half. He said the rule was not a matter of legislative command or statutory construction but, rather, a fundamental principle of the English bankruptcy⁷ system which we copied. Sexton v. Dreyfus, 219 U.S. 339, 344, 31 S.Ct. 256, 257, 55 L.Ed. 244. Our present statute contains no provision expressly repudiating that principle or allowing an exception in favor of tax claims. Every logical implication from relevant provisions is to the contrary. Section 63, sub. a (1), 11 U.S.C. § 103 sub. a (1), 11 U.S.C.A. § 103, sub. a (1), allows interest on judgments and written instruments⁸ only to date of bankruptcy. Section 63, sub. a(5), 11 U.S.C. § 103, sub. a(5), 11 U.S.C.A. § 103, sub. a (5), allows interest only to that date on debts reduced to judgment⁹ after bankruptcy.¹⁰ No provision permits post-bankruptcy interest on other claims in general or tax claims in particular. Section 57, sub. j, 11 U.S.C. § 93, sub. j, 11 U.S.C.A. § 93, sub. j, forbidding allowance of governmental penalties or forfeitures permits¹¹ allowance of losses sustained by the acts penalized, with actual costs and 'such interest as may have accrued thereon according to law.' However, on its face this appears to delimit even such allowable debts as of the date of bankruptcy and to allow no more interest than does § 63 with respect to the claims there specified. Moreover, there is no interest except that which accrues according to law—it is exactly such interest that the 'fundamental principle' cuts off as of bankruptcy. Section 57, sub. n, 11 U.S.C. § 93, sub. n, 11 U.S.C.A. § 93, sub. n, requires governmental claims to be proved in the same manner and within the same time as other debts and only for cause shown may a reasonable extension be granted. Tax claims are treated the same as other debts except for the fourth priority of payment, § 64, sub. a, 11 U.S.C. § 104, sub. a, 11 U.S.C.A. § 104, sub a, and the provision making taxes nondischargeable, § 17, 11 U.S.C. § 35, 11 U.S.C.A. § 35. But each of these sections is silent as to interest.

The long-standing rule against post-bankruptcy interest thus appears implicit in our current Bankruptcy Act. To read into such a statute an exception to that rule would be unwarranted and, as an original proposition, we should decline to do so. However, the issue comes here after forty years of bankruptcy administration under the Act of 1898 followed by ten years under the 1938 Chandler Amendments. Petitioners contend that judicial decisions during those periods have now been incorporated into a legislative policy allowing interest on tax claims to payment, thereby producing a rule of law beyond further judicial scrutiny.

It is contended that decisions under the Act of 1898 definitely established such a rule. And petitioners challenge the lower court's holding, despite those decisions, that the Congress through the Chandler Act completed the assimilation of taxes to debts and manifested an intention that such claims be treated, interest-wise, the same as other debts. They assert that the pre-Chandler Act allowance of interest to date of payment was grounded in judicial construction of § 57, sub. j, approved at least sub silentio by this Court in United States v. Childs, 266 U.S. 304, 45 S.Ct. 110, 69 L.Ed. 299, and adopted by Congressional reenactment of that section in the Chandler Act. They also contend that even after the Chandler Act the lower courts, and this Court in Meilink v. Unemployment Reserves Commission, 314 U.S. 564, 62 S.Ct. 389, 86 L.Ed. 458, affirmed the alleged prior interpretation of § 57, sub. j. In such a situation, it is said, the courts cannot modify what has now become legislative poli y even though originally it may have been a judicially developed rule and one which now, as a matter of statutory construction, we should reject.

At the outset it may be admitted that in practice under the Act of 1898 the lower courts generally did allow interest on tax claims until paid. The parties and the lower courts trace that practice to In re Kallak, D.C., 147 F. 276, and cases following that decision. But we do not believe those cases support petitioners' contention that the pre-Chandler allowance of post-bankruptcy interest reflects a construction of § 57, sub. j. The Kallak opinion itself refutes that contention insofar as it may be based on that line of cases. The court there first decided that since § 64, sub. a, of the Act of 1898¹² gave taxes absolute priority over claims of every kind, 'public taxes do not constitute a 'claim' in bankruptcy.' 147 F. 276, 277. The statute did not require that taxes be proved but that the trustee should seek them out and pay them in full. In view of that requirement and since taxes were not claims, the court saw no reason why the rule stopping interest on ordinary claims should apply. The court found that rule was based on considerations of expediency and practical convenience not present in the case of taxes. First, it said that allowance of such interest at the varying rates applicable to the different claims sharing the estate would prevent definite determination of each claimant's proportionate share. Secondly, such recurring readjustments would complicate administration of the estate. Since neither difficulty would result from allowing post-bankruptcy interest on taxes not sharing the fund with other obligations, the rule against such interest was held to be inapplicable. This conclusion was grounded entirely in reasons of practical convenience. If the case involved construction of any part of the Act of 1898, it clearly was § 64 sub. a, with its requirements of absolute priority in payment of 'all taxes legally due and owing,' which, together with the dispensation from proof, the court considered as indicating that taxes enjoyed a status entirely different from that accorded ordinary claims. Those provisions were considered controlling, while § 57, sub. j, was not mentioned in the opinion. Consequently the latter section's reenactment could not be considered a legislative adoption of any 'judicial gloss' on that section resulting from the Kallak line of cases. The only section relied upon in Kallak, § 64, sub. a, has been significantly amended to deprive taxes of their preferred status, first by the amendment of 1926, and later by the Chandler Act. The former¹³ expressly provided that taxes yield priority to administration expenses and certain wages, neither of which bear interest. The latter amendments finalized the subordination of taxes to other priority items. They also wrote into § 57, sub. n, the requirement of proof, formerly dispensed with under § 64, sub. a. Consequently the argument based on alleged Chandler Act recognition of lower court interpretations of § 57, sub. j, seems entirely without force. And, on the contrary, that enactment did significantly change the provisions of § 64, sub. a, which were decisive in Kallak and similar cases.¹⁴

Petitioners rely most heavily, however, upon this Court's decision in United States v. Childs, 266 U.S. 304, 45 S.Ct. 110, 69 L.Ed. 299, reversing In re J. Menist & Co., 2 Cir., 290 F. 947. It is urged that this decision reflected a construction by this Court of § 57, sub. j, which the Congress adopted in enacting the Chandler Amendments. We do not believe this contention survives scrutiny of that case or that it is supported by the legislative history of the Chandler Act. The Court of Appeals stated that the only issue before it was 'whether an exaction of 1 per cent a month as the price of delay amounts to a penalty.' 290 F. 947, 949. It decided that anything in excess of 6% per annum would be a penalty barred by § 57, sub. j. It is true that court also stated the allowable interest could run until payment. However, that statement was also based on the 'highly preferred' status of taxes and the requirement of § 64, sub. a, that absolute priority be given to 'all taxes legally due and owing.' Section 57, sub. j, was con- sidered as establishing that 12%, as a penalty, could not be allowed but that 6% was a 'pecuniary loss' within the meaning of that section, and allowable as such, in full. But the Government challenged in this Court only the holding that the 12% interest was a penalty barred by § 57, sub. j. This Court reversed as to that point and the opinion makes it clear that it was the only issue considered and decided here. The question whether interest could run to payment, although discussed in respondent's brief on the merits, was not the issue which induced the Court to bring the case here, and it is not discussed in the opinion. We cannot agree that the case represents even a sub-silentio approval of allowance of post-bankruptcy interest. Even assuming, arguendo, such...