Cyclopædia of Political Science, Political Economy, and the Political History of the United States
PRIORITY OF DEBTS DUE TO THE UNITED STATES AND TO THE STATES. In the first decade of its existence under the constitution, congress passed several laws giving priority to debts due to the United States. As early as July 31, 1789, it was enacted, that the claims of the national government upon bonds given by importers for the payment of duties should have precedence over all other obligations. (U. S. Statutes, 1789, chap. 5, § 21.) Subsequent revenue acts contained similar provisions. (U. S. Statutes, 1790, chap. 35, § 45; Ib., 1792, chap. 27, § 18; and Ib., 1799, chap. 22, § 65.) On May 3, 1797, a bill became law which regulated in detail the settlement of accounts between the government and revenue officers. (U. S. Statutes, 1797, chap. 20.) It contained a section (§ 5) which gave preference to debts due to the United States in all cases whatsoever, whether "a revenue officer or other person" was the debtor, and however he might have become indebted, if only the debtor became insolvent, or if his estate after his death was insufficient to pay his creditors. This sweeping clause, curiously inserted in a bill of limited scope, still remains in force; and in all cases of insolvency or insufficient assets in the hands of executors or administrators, debts due to the United States are first satisfied.
—It is easy to ascertain why congress gave priority to the claims of the government. These statutes were framed for the purpose of building up our system of customs, and preference was given the debts of the government simply to increase the revenue and make it more certain. The heavy national debt which the confederation had left behind it made such a course especially desirable. The section which extended this preference to all debts passed as a part of the revenue laws. These statutes neither recognize nor adopt any traditional prerogative. They rest the right of priority, not on the dignity, but on the need, of the government. In 1805 the supreme court at Washington held that the constitutional right of congress "to pay the debts of the United States," (Constitution, art. 1, § 8), and "to make all laws which shall be necessary and proper for carrying into execution the foregoing powers," (Ib.), included the right to make laws preferring debts due to the government. (Fisher vs. Blight, 2 Cranch, 358.) Our highest tribunal thus bases this priority on the power of congress to use whatever means it considers eligible to raise revenue for the purpose of paying the debts of the nation. No legal objection to the preference of debts due to the national government could be made on the ground that it interferes with the rights of individual states, because the constitution, and the laws of the United States made under it, are the supreme law of the land. (Constitution, art. 6.) The insolvency of the debtor which gives preference to the United States under the act of 1797, must be legal insolvency, manifested by some notorious act. Mere inability on the part of the debtor to pay his debts is not enough, unless it is accompanied by a voluntary assignment of all his property for the benefit of creditors. The courts usually construe the act strictly, and do not allow the right of priority unless it is clearly established.
—Would this right of preference have existed independent of statute? Our national and state governments are the successors of the British crown, and, as such, they acquired those prerogatives of the crown which are adapted to the changed condition of things in this country. This right of preference is a royal prerogative in England. Where the king's right and that of a subject meet at one and the same time, the king's is preferred. (8 Bacon's Abridgment, Prerogative E. 4, p. 91.) In a case which was several times argued in the court of common pleas during the reign of Elizabeth (Skrogs vs. Gresham, Anderson, 129, case 176), Lord Chief Justice Anderson decided that the queen should be preferred in the payment of debts before any subject, partly because of the requirements of magna charta, and for various other "self-evident reasons," (et per divers auters reasons queur jeo omit pur ceo que sont evidents). These reasons are not as evident to-day as they were then, and it is a pity that the learned chief justice did not give them at length.
—Did the United States and the states themselves inherit the right of priority from the crown? Our courts have divided on this question. As the state and nation are equally sovereign in their own spheres, the arguments which apply to one apply also to the other. The supreme court of the United States has distinctly held that the national government had no right to prior payment before the acts were passed. (1815, United States vs. Bryan, 9 Cranch 387.) In South Carolina the state has no right of priority. The court there holds that the state has not succeeded to all the prerogatives of the crown. A monarchy is a government for the benefit of the king, while a republic is a government for the protection of the citizens. The state, therefore, has no privileges but such as are granted by its constitution, or by act of the legislature, or such as are necessary to the proper administration of the government. (State vs. Harris, 2 Bailey, 599.) In Maryland, on the other hand, preference is given to debts due to the state. Its court recognizes the right as a common law prerogative of the government. (State vs. Bank of Maryland, 6 Gill and Johnson, 205.) In most of the states the question has never been settled. This is the case in New York, but at one time the court of appeals seemed to favor the right of priority. One of the judges, in an opinion of the court, said that there was great force in the suggestion that the people of the state have succeeded to all the prerogatives of the crown in so far as they are necessary to the effectual exercise of the essential powers of civil government, and that consequently taxes should here be paid first, as they are in England. (In re Columbian Insurance Company, 3 Abbott's Court of Appeals Cases, 239.)
—The statutes of the states have declared and altered the law in many cases. Taxes are usually preferred by express enactment, but in some cases this preference only applies to insolvents, and in others only to bankrupt estates in the hands of executors or administrators. The reader must examine the statutes of each state to ascertain the law. It is to be noted that the right of priority existed under the Roman law, and that it usually prevails now wherever the civil law is followed.
—See on the general subject, 1 Kent's Commentaries, Lecture 12; see also U. S. Revised Statutes, § 3466 et seq.
ERNEST HOWARD CROSBY.
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