U.S. Supreme Court
Hunter v. United States, 30 U.S. 5 Pet. 173 173 (1831)
Hunter v. United States
30 U.S. (5 Pet.) 173
In the original bill filed by the United States in the Circuit Court of Rhode Island, the claim of the United States to payment of a debt due to it was asserted on the ground of an assignment made to the United States by an insolvent debtor who was discharged from imprisonment on the condition that he should make such an assignment. The debtor had been previously discharged under the insolvent law of Rhode Island, and had made, on such discharge, a general assignment for the benefit of his creditors. Afterwards an amended bill was filed in which the claim of the United States was placed upon the priority given to the United States by the act of Congress against their debtors who have become insolvent. It was objected that the United States could not change the ground of its claim, but must rest it as presented by the original bill, on the special assignment made to them.
By the Court:
"It is true, as the defendant insists, that the original. bill still remains on the record and forms a part of the case. But the amendment presents a new state of facts, which it was competent for the complainants to do, and on the hearing, they may rely on the whole case made in the bill or may abandon some of the special prayers it contains."
The same right of priority which belongs to the government attaches to the claim of an individual who, as surety, has paid money to the government.
The assignment under the insolvent law of Rhode Island could only take effect from the time it was made. Until the court, in the exercise of its judgment, determines that the applicant is entitled to the benefit of the law, and in pursuance of its requisitions he assigns his property, the proceedings are inchoate, and do not relieve the party. It is the transfer which vests in the assignee the property of the insolvent for the benefit of his creditors. If before the judgment of the court the petitioner fail to prosecute his petition, or discontinue it, his property and person are liable to execution as though he had not applied for the benefit of the law. And if after the judgment of the court he fail to assign his property, it will be liable to be taken by his creditors on execution.
The property placed on the inventory of an insolvent may be protected from execution while he prosecutes his petition, but this cannot exclude the claim of a creditor who obtains a judgment before the assignment.
The United States obtained a judgment against Smith, an insolvent debtor, previous to his assignment under the insolvent laws of Rhode Island. Under his assignment, a debt for money paid by him to the United States as surety on duty bonds for the Crarys passed to his assignee. The Crarys had claims upon Spain which were afterwards paid under the Florida treaty, and the assignee of Smith received the amount of the said Spanish claim in satisfaction of the payments made for the duty bonds by Smith. The judgment by the United States against Smith having preceded the assignment, and the receipt and distribution of the money received from the Spanish claim under the insolvent law, the government having an unquestionable right of priority on all the property of Smith, it extended to the claim of Smith on the Crarys. If the right of chanrobles.com-red
the United States to a priority of payment covers any part of the property of an insolvent, it must extend to the whole until the debt is paid.
The claim of Smith on the Crarys was properly included in his assignment under the insolvent laws, however remote the probability may have been at the time of realizing the demand. It was an assignable interest. If at the time of the assignment this claim was contingent, it is no longer so. It has been reduced into possession, and is now in the hands of the representative of the debtor to the general government. If under such circumstances the priority of the government does not exist, it would be difficult to present a stronger case for the operation of this prerogative.
By a special act of Congress, the principal debtor was discharged from imprisonment, and the expression is omitted in this act, which is used in the general act passed June 6, 1798, "providing for the relief of persons imprisoned for debts due to the United States" that "the judgment shall remain good and sufficient at law." In the special act it was declared that any estate which the debtor "may subsequently acquire shall be liable to be taken in the same manner as if he had not been imprisoned and discharged." The special act did not release the judgment, and did not affect the tights of the United States against the surety.
That the same rules of contract are applicable where the sovereign is a party as between individuals is admitted, but the right of the sovereign to discharge the debtor from imprisonment without releasing the debt is clear.
The act of government in releasing both the principal and surety from imprisonment was designed for the benefit of unfortunate debtors, and no unnecessary obstructions should be opposed to the exercise of so humane a policy. If the discharge of the principal under such circumstances should be a release of the debt against the surety, the consequence would be that the principal must remain in jail until the process of the law were exhausted against the surety. This would operate against the liberty of the citizen, and should be waived unless required to secure the public interest.
A discharge from prison by operation of law does not prevent the judgment creditor from prosecuting his judgment against the estate of the defendant. To this rule a discharge under the special provisions of the bankrupt law may form an exception.
The Secretary of the Treasury was authorized to deduct from the sum payable to a debtor to the United States the sum due to the United States, and he paid to his assignee the whole sum which was awarded to him under the Florida treaty, omitting to make the deduction of the debt due to the United States. By the Court:
"It cannot be admitted that an omission of duty of this kind, as a payment by mistake by an officer, shall bar the claim of the government. If, in violation of his duty, an officer shall knowingly or even corruptly do an act injurious to the public, can it be considered obligatory? He can only bind the government by acts which come within the just exercise of his official powers."
Where a fund was in the hands of an assignee of an insolvent, out of which the United States asserted a right to a priority of payment, in such a case, proceedings at law might not be adequate, and it was proper to proceed in equity. chanrobles.com-red
The appellant, William Hunter, was the assignee of Archibald Crary and Frederick Crary under the insolvent law of Rhode Island. The Crarys obtained the benefit of that law in June, 1809. William Hunter was duly appointed one of their assignees, and is now the sole surviving assignee. One Jacob Smith had, as surety in a custom house bond, been compelled to pay to the United States for the Crarys about $2,125. This payment was made in May, 1808. Jacob Smith soon afterwards became himself insolvent, viz., in October, 1809, obtained the benefit of the same insolvent law, and William Hunter is now his sole surviving assignee. Jacob Smith and one William McGee were sureties for William Peck as Collector of Taxes for the Rhode Island District, and the United States obtained a judgment for a large sum, viz., $13,508, against the principal and sureties in August, 1811. The suit was commenced in May of the same year. Upon his commitment to prison, by force of the execution issued in his case, Smith petitioned the then Secretary of the Treasury for relief, in which petition he stated that he was reduced to poverty, that he had obtained the benefit of the Rhode Island insolvent law, and surrendered all his property as compelled by that law to his assignee. He states in that petition that his own insolvency was hurried, if not occasioned, by his having paid considerable sums on account of suretyship at the custom house, and in particular this very sum of two thousand some hundred dollars for the Crarys in the year 1809. Upon this full statement of the case, relief was granted him, and he was discharged from prison in compliance with a warrant from the Treasury on 17 October, 1811.
Before his discharge, Smith executed an assignment of his property to the United States. The assignment purports to convey all and the same property, which was conveyed by his previous assignment under the insolvent law. He recites and includes his sworn inventory under the insolvent law, and refers to his demand against the Crarys.
After the release of Smith, the surety, the United States in 1812 imprisoned Peck the delinquent principal, and Congress discharged him from that imprisonment upon his assignment and conveyance of all his estate, real and personal, chanrobles.com-red
which he then owned or might be entitled to. This was done on 12 June, 1812.
In July, 1824, under the peculiar circumstances of delay, difficulty, and embarrassment set forth in the answer, the assignee of the Crarys recovered and received from the United States under their treaty with Spain, and in conformity to statutes by them enacted, the sum of money as stated in the bill and as admitted in the answer.
The appellant in his answers contended that so much of this sum as by operation of law belonged to Smith, he, as the assignee of Smith, was bound to pay over to the ascertained creditors of Smith, for whose benefit the assignment under the state insolvent law was made. In the original bill, the claim of the United States was rested upon the assignment made to them by Smith, but afterwards an amended bill was filed in which their right to payment of the whole amount of the judgment against Smith is asserted on their right of priority under the laws of the United States.
The circuit Court of Rhode Island give a decree in favor of the United States, and the defendant appealed to this Court. chanrobles.com-red