In re Rogers

• Decision Date: 13 December 1951
• Docket Number: 212-BH.,No. 50,50
• Parties: In re ROGERS.
• Court: U.S. District Court — Southern District of California

101 F. Supp. 555

In re ROGERS.

No. 50,212-BH.

United States District Court S. D. California, Central Division.

December 13, 1951.

Burton A. Van Tassel, Los Angeles, Cal., for petitioner.

Sidney Traxler, Los Angeles, Cal., for Bankrupt, Petitioner on Review.

Russell B. Seymour, Los Angeles, Cal., for William A. Wylie, Trustee, Respondent on Review.

HARRISON, District Judge.

Petition for review of determination of the Referee has been presented by claimant Aetna Casualty & Surety Company. The sole question presented is whether a claim for a payment, made prior to bankruptcy, by a surety on a bond given by the bankrupt to secure the payment of taxes is entitled to priority under Section 64, sub. a (4) of the Bankruptcy Act, 11 U.S.C.A. § 104, sub. a(4). The facts in this case are not in dispute.

The equitable doctrine of subrogation is not new. Even without its general acceptance by the courts as a remedy for a surety who has discharged the indebtedness of the principal debtor, Section 57, sub. i of the Bankruptcy Act provides for the subrogation of a surety to "the rights" of the creditor who fails to file a claim. 11 U.S. C.A. § 93, sub. i.

Of course, subrogation will be denied to the mere volunteer, In re Green River Jockey Club, D.C., 5 F.2d 259; In the Matter of Inland Gas Corp., 6 Cir., 91 F.2d 113, and it will be denied to one who engineers a tax sale to buy the bankrupt's worthless equity for the sole purpose of claiming the government's priority distribution. In the Matter of Gracey, D.C., 241 F. 981. On the other hand, there is a respectable split of authority on the question of whether a purchaser at a tax sale may be subrogated to the priority of the taxing unit. Holding that such purchaser may not be so subrogated are: In re Hollenfeltz, D.C., 94 F. 629; In re Veitch, D.C., 101 F. 251; In re Minogue, D.C., 39 F.2d 239; In re Brinker, D.C., 128 F. 634; and in the Matter of Hibbler Machine Supply Co., D.C., 192 F. 741. Contra are the more recent cases of In the Matter of Clark Realty Co., 7 Cir., 253 F. 938, and in the Matter of Ingersoll, 10 Cir., 148 F.2d 282.

Subrogation to the priority of Section 64, sub. a(4) has been allowed in the case of purchasers who bought at a sale of real property belonging to a bankrupt estate, later declared invalid, and who paid the taxes due on such realty at the time of that sale, Dayton v. Stanard, 241 U.S. 588, 36 S.Ct. 695, 60 L.Ed. 1190, and in the case of unsecured creditors of a bankrupt who advanced sufficient amounts to the United States to compromise a claim against the bankrupt for taxes due. In re Baltimore Pearl Hominy Co., 4 Cir., 5 F.2d 553. The presence of a lien is unnecessary. New Jersey v. Anderson, 203 U.S. 483, 27 S.Ct. 137, 51 L.Ed. 284.

As far as I can ascertain, our Circuit Court has not passed upon the issue herein involved. In Collier's on Bankruptcy (14th Ed.), Vol. 3, page 2167, the following language is used:

"When the power to present a tax claim against a bankrupt's estate is transferred to a non-governmental claimant by subrogation or assignment, an important question of policy is raised. Does the transfer carry with it the government's right to fourth priority? Or must the transferee claim as a general creditor? The answer is not found in Section 64. Nor are the courts in agreement. As a general policy, it is hard to see why this priority should not be transferable, although particular circumstances often impel an opposite conclusion."

The Trustee relies upon the case of In re Green River Jockey Club, 5 F.2d 259, 261, decided by the District Court, Western District of Kentucky, but disregards the holdings of the 4th Circuit Court of Appeals, In re Baltimore Pearl Hominy Co. reported in 5 F.2d 553, holding to the contrary.

Judge Byers in Re Columbia Tobacco Co., D.C., 38 F.Supp. 148, 149, decided the precise point now before this court wherein he stated the question to be:

"(1) Did the sureties by paying the tax become subrogated to the rights of the State and the City, respectively, so that they may now be reimbursed, as the holders of priority claims, out of general funds in the hands of the trustee?

"(2) If such right of subrogation exists, can it be enforced with reference to these particular taxing statutes?"

In the same opinion it was further stated: "The priority which pertains to the sovereign is not hedged about by such divinity that it cannot accrue to those who, as sureties, place the government in funds, through the payment of taxes. Dayton v. Stanard, 241 U.S. 588, 36 S.Ct. 695, 60 L. Ed. 1190; ...