In re Waller

• Citation: 142 F. 883
• Parties: In re WALLER.
• Decision Date: 05 July 1905
• Court: U.S. Court of Appeals — Fourth Circuit

142 F. 883

In re WALLER.

United States District Court, D. Maryland.

July 5, 1905

William P. Lyons, Baldwin & Baldwin, and C. Howard Millikin, for trustee.

Joseph C. France and James E. Ellegood, for Wicomico county com'rs.

MORRIS District Judge.

The bankrupt, prior to September 1, 1903, was carrying on a boot and shoe business in the town of Salisbury in Wicomico county, Md., in partnership with one Thomas W. Waller trading as R. Lee Waller & Co. On that day they dissolved the partnership, and R. Lee Waller, the bankrupt, dissolved the partnership, and R. Lee. Waller, the bankrupt, assumed the debts and took an assignment of the partnership assets including the stock of boots and shoes. R. Lee Waller, the bankrupt, had been, during 1900 and 1901, collector of taxes for Wicomico county, and was then in default for taxes collected for the county and not paid over. Suit was instituted against him in the name of the state of Maryland to the use of the commissioners of Wicomico county, and against the surety of his collector's bond, at the September term, 1903, of the circuit court for Wicomico county, and judgment was entered October 2, 1903, for the penalty of the bond, to be released on payment of $16,641.59 and interest. In like manner suit had been entered at the September term, 1902, against Waller and another surety, and judgment had been entered September 23, 1902, for the penalty of the bond to be released on payment of $8,566.10 and interest. On these two judgments, at the date of the filing of the involuntary proceedings in bankruptcy against R. Lee Waller, viz., March 17, 1904, there was due about the sum of $14,300, and within four months prior to the filing of the petition execution had been issued on the judgments, and at the time of the filing of the petition the sheriff was in possession of all the bankrupt's stock of boots and shoes contained in his store.

In the bankruptcy proceeding receivers were appointed, to whom under orders of court, the sheriff delivered possession of the property held by him under the fi. fas. Waller was adjudicated a bankrupt, the property was sold, and the fund, amounting to about $8,000, is now in court for distribution. The county commissioners of Wicomico county claim the fund, which is less than the balance due them. They claim that the county is entitled to priority of payment over general creditors, for the reason that, being a public corporation and a governmental agency of the state of Maryland charged with the duty of assessing, levying, and collecting the taxes of said county, the default of said Waller as collector is a debt due to the state of Maryland, and that the state is, by virtue of its prerogative, entitled to priority of payment out of the assets of its debtors being citizens of said state, over creditors having no lien, and that said priority could not constitutionally be affected by the bankrupt act. To this petition the trustee has demurred upon the ground that it does not appear that the state of Maryland is a creditor of the bankrupt, and that the debt due by the bankrupt is due to the county, and that the county is not entitled to any priority over other creditors. Answering the petition, the trustee further alleges that the stock of boots and shoes which were sold by the receiver and produced the funds now in court were purchased by the firm of R. Lee Waller & Co. from the merchants, who are now the creditors of said bankrupt, and that the debts incurred in the purchase of said goods ought rather first to be paid out of the proceeds of said goods.

It is admitted that the taxes collected by the bankrupt, and for the default in the payment of which claim is now made, are county taxes collected for the use of the county commissioners of Wicomico county and not for the state of Maryland. Every collector of county taxes is required to give bond in doubt the amount of the taxes to be collected by him, conditioned to account for and pay to the county commissioners the money he receives for the county commissioners or be answerable for by law, and also to give a separate bond to the state of Maryland for the money he shall receive for the state or be answerable for by law.

The question is whether, under the facts above states, the county is entitled to priority of payment.

Section 64 of the Bankrupt Act of July 1, 1898, c. 541, 30 Stat. 563 (U.S. Comp. St. 1901, p. 3447), in declaring what debts shall have priority, enacts that:

'The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, state, county, district or municipality in advance of the payment of dividends to creditors, and upon filing the receipts of the proper public officers for such payment he shall be credited with the amount thereof, and in case any question arises as to the amount or legality of any such tax, the same shall be heard and determined by the court.'

Also among the debts entitled to priority of payment are placed:

'(5) Debts owing to any person who by the laws of the state or of the United States is entitled to priority.'

It follows that if in the present case the sum of money due to Wicomico county is 'taxes legally due and owing by the bankrupt to the county,' or if for this debt owing to it the county by the laws of the state of Maryland is entitled to priority, then the prayer in the petition of the county claiming the fund in the hands of the trustee must be granted.

First. Is the claim 'taxes legally due and owing by the bankrupt to the county. ' By section 47, art. 81 of the Maryland Code Pub. Gen. Laws 1904, it is enacted:

'All state, county or municipal taxes shall be liens on the real estate of the party indebted from the time the same are levied.'

Obviously the liability of the bankrupt to the county in the present case is not of the character intended and expressed by the word 'taxes' in this section of the Maryland Code. By section 82 it is provided that, if any collector of county taxes refuses or neglects to pay over any money he has collected or ought to have collected, upon application to the county court upon twenty days' notice before the meeting of the court, judgment shall be entered against such collector for the amount due from him; and by section 84 it is provided that, if any collector of county taxes fails to account for and pay over the money he has collected or ought to have collected within the time required by law, his bond may be put in suit, and he shall be chargeable with interest from the time the money ought to have been paid. It may possibly be...