Sturgill v. Lovell Lumber Co.

• Citation: 136 W.Va. 259,67 S.E.2d 321
• Decision Date: 30 October 1951
• Docket Number: No. 10358,10358
• Court: West Virginia Supreme Court
• Parties: , 52-1 USTC P 9177, 41 A.F.T.R. 339 STURGILL et al. v. LOVELL LUMBER CO. et al.

Page 321

67 S.E.2d 321

136 W.Va. 259, 52-1 USTC P 9177, 41

A.F.T.R. 339

STURGILL et al. v. LOVELL LUMBER CO. et al.

No. 10358.

Supreme Court of Appeals of West Virginia.

Submitted Sept. 11, 1951.

Decided Oct. 30, 1951.

Syllabus by the Court.

1. § 3466, Revised Statutes of the United States, ( § 191, Title 31, U.S.C.A.) relates solely to the priority of debts due the United States from the persons designated therein, including an insolvent debtor.

2. The provisions of §§ 3670, 3671, and 3672, Title 26, U.S.C.A., have no application to the priority of a debt due the United States from an insolvent debtor, allowed under § 3466, Revised States ( § 191, Title 31, U.S.C.A.).

3. A laborer's lien authorized by Code, 38-2-31, as amended by Chapter 77, Acts of the Legislature, 1939, prior to adjudication thereon by a court of equity, is not sufficiently specific to take priority over a debt due the United States under Revised Statutes, § 3466 ( § 191, Title 31, U.S.C.A.).

A. Garnett Thompson, U. S. Dist. Atty., Charleston, W. Va., Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack, Spec. Asst. to Atty. Gen., Frank K. Foster, Spec. Asst. to Atty. Gen., for appellant.

No appearance for appellees.

LOVINS, Judge.

This suit was instituted by Monroe Sturgill and others, plaintiffs, against Lovell Lumber Company, a corporation, the Bank of Raleigh, a corporation, and Donald Hayhurst, defendants. The suit had for its purpose, among others, the appointment of a special receiver for the defendant, Lovell Lumber Company, such receiver to reduce all the property of the company to cash, to operate the company's sawmill and sell all lumber and logs produced from such operation for cash, and to wind up the affairs of the company.

During the progress of the suit an amended and supplemental bill was filed, alleging that the Lovell Lumber Company had illegally preferred James O. Ball, Sr. and James O. Ball, Jr., creditors. The trial court decided that issue adversely to plaintiffs, who prosecuted an appeal to this Court. Upon hearing the appeal this Court reversed the decree of the trial court and remanded the cause. For a statement of facts, and the conclusions of this Court, see Sturgill v. Lovell Lumber Co., W.Va., 51 S.E.2d 126.

The present appeal is not concerned with any phase of this cause except that part of the final decree of the Circuit Court of Wyoming County which adjudged priorities of the claims and debts against the Lovell Lumber Company.

The original plaintiffs filed notices of laborers' liens as authorized by Chapter 38, Article 2, Section 32, Code of West Virginia, various amounts having been claimed by them aggregating the sum of $5,292.93.

The cause was referred to a special commissioner in chancery. The United States of America filed its claims before such special commissioner, though not made a party defendant. Those claims were for withholding taxes, federal insurance contributions taxes, federal unemployment taxes, and other miscellaneous taxes, aggregating $3,216.75. The State of West Virginia, intervenor, filed a claim for corporation license taxes, unemployment compensation taxes, and business and occupation taxes, amounting to a total of $3,064.92.

Upon a hearing before the special commissioner in chancery, the claims of the original plaintiffs, the United States of America and the State of West Virginia, among others, were approved. The special commissioner reported that the debts due plaintiffs were first in priority; that the debts due the government of the United States were second in priority; that the debts due the State of West Virginia were third in priority; and that the debts due the general creditors could not be paid out of the money in the hands of the special receiver.

Upon the exceptions to the report of the special commissioner, filed by the Federal Government and the State of West Virginia, the Circuit Court decreed that certain of the claims of the United States of America, totaling $1,226.99, were first in priority; that the claims of Monroe Sturgill and the other laborers were second in priority; that the claims of the United States Government for federal insurance contributions taxes for the period ending June 30, 1947, and federal unemployment taxes to October 1947, aggregating $1,989.76, were third in priority; that the claims of the State of West Virginia were fourth in priority; and that the general and unsecured claims allowed were fifth in priority, but could not be satisfied out of available assets.

The debts due the United States given third priority were so adjudicated because they had not been received by the Collector of Internal Revenue prior to the institution of the present suit, as were those given first priority.

The assets of the Lovell Lumber Company, after satisfying the debts due the United States decreed to be first in priority, were not sufficient to satisfy and discharge in full the debts due plaintiffs. The $1,909.70 in the hands of the special receiver was decreed to be distributed rateably among plaintiffs asserting laborers' liens.

The United States of America prosecutes this appeal from the decree of the circuit court, contending that the debts decreed to be third in priority should have also been decreed as first in priority under the authority of § 3466, Revised Statutes of the United States ( § 191, Title 31 of the United Statss Code), in that (a) the United States of America had a claim or debt against an insolvent debtor, (b) that the liens of the plaintiff decreed to be second in point of priority did not amount to a perfected lien but were inchoate under Code, 38-2-31, and (c) that the provisions of §§ 3670, 3671, and 3672 of Title 26 of the United States Code, governing taxes due the government, have no application to the question of priority.

The sole question for decision is: Are the two debts due the United States of America, decreed as third in priority, entitled to priority over the laborers' liens asserted by the plaintiffs? A determination of this question rests upon pertinent federal and state statutes and the application thereof by the courts.

The Federal Government relies on a statute reading in part as follows: 'Whenever any person indebted to the United States is insolvent, * * * the debts due to the United States shall be first satisfied; * * *' § 3466, id.

The plaintiffs in their original bill alleged that the Lovell Lumber Company was largely indebted and did not have sufficient property, real and personal, out of which to pay its debts and 'is otherwise insolvent.' Upon that bill of complaint the trial court appointed a special receiver. The special commissioner in chancery, to whom this cause was referred, reported that all the assets of the company were not sufficient to pay all the claims allowed. Ordinarily, a person is insolvent when all of his property is not sufficient to pay all of his debts. Wolf v. McGugin, 37 W.Va. 552, 16 S.E. 797; Carr v. Summerfield, 47 W.Va. 155, 34 S.E. 804; see Ream's Drug Store v. Bank of the Monongahela Valley, 115 W.Va. 66, 70, 174 S.E. 788. The allegations of the plaintiffs' original bill, the finding of the special commissioner in chancery, and the subsequent confirmation of the commissioner's report sufficiently established the existence of insolvency of the Lovell Lumber Company on July 1, 1947. Hence § 3466, id., is applicable to the indebtedness of the Lovell Lumber Company to the United States of America.

Priority of debts due the United States does not rest on any common law principle, but it is founded on statute based on the common law right accorded the Sovereign of England as a royal prerogative. United States v. State Bank of North Carolina, 6 Pet. 29, 8 L.Ed. 308; see Spokane County v. United States, 279 U.S. 80, 49 S.Ct. 321, 73 L.Ed. 621; People of State of New York v. Msclay, 288 U.S. 290, 53 S.Ct. 323, 77 L.Ed. 754. As contrasted with the statutory right of priority possessed by the United States, the power of states to create priorities arises from the common law. The principle of preference arising out of sovereignty has been adopted in this jurisdiction. Woodyard v. Sayre, 90 W.Va. 295, 110 S.E. 689, 24 A.L.R. 1497; see United States Fidelity & Guaranty Co. v. Central Trust Co., 95 W.Va. 458, 121 S.E. 430; Central Trust Co. v. Bank of Mullens, 107 W.Va. 679, 681, 150 S.E. 221. But that doctrine does not extend to counties. County Court of Calhoun County v. Mathews, 99 W.Va. 483, 129 S.E. 399, 52 A.L.R. 751.

The insolvency of the Lovell Lumber Company being established, we are of the opinion that § 3466, id., clearly applies, but that it operates only to give priority and in no wise creates any lien in favor of the United States of America. Beaston v. Farmers' Bank of Delaware, 12 Pet. 102, 9 L.Ed. 1017.

It would seem that the foregoing discussion would resolve the question, but the view was adopted by the trial court that §§ 3670, 3671, and 3672 of Title 26 of the United States Code, apply and bar the priority of the United States of America in the absence of a showing that an assessment list had been received by the Collector of Internal Revenue prior to the institution of the present suit. § 3670, id., provides as follows: 'If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.' § 3671, id., reads as follows: 'Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.' § 3672, id., reads in part as follows: 'Such lien shall not be...