Messrs. A. S. Gilbert, Francis Gilbert, | a preference in payment of the claim and William J. Hughes submitted the for taxes by reason of its sovereign cause for petitioner: prerogative.

い

MARSHALL v. NEW YORK.

Fed. 356; Pennsylvania Steel Co. v. New York City R. Co. 193 Fed. 286; Greeley v. Provident Sav. Bank, 98 Mo. 460, 11 S. W. 980; The Roseric, 254 Fed. 154; People ex rel. Hatch v. Reardon, 184 N. Y. 431, 8 L.R.A.(N.S.) 314, 112 Am. St. Rep. 628, 77 N. E. 970, 6 Ann. Cas. 515, affirmed in 204 U. S. 152, 51 L. ed. 415, 27 Sup. Ct. Rep. 188, 9 Ann. Cas. 736; Wise v. L. & C. Wise Co. 153 N. Y. 507, 47 N. E. 788; Conklin v. United States Shipbuilding Co. 148 Fed. 129; New York Terminal Co. v. Gaus, 204 N. Y. 512, 98 N. E. 11.

Mr. Justice Brandeis delivered the opinion of the court:

to

On December 4, 1917, the district court of the United States for the southern district of New York appointed H. Snowden Marshall general receiver of the property of the All Package Grocery Stores Company, a corporation organized under the laws of Delaware, but having a place of business and property in the state of New York. latter state asked The debts due to it declared payable as have certain preferred claims out of the assets in the hands of the receiver. These debts consisted of (a) amounts due for annual franchise taxes assessed under § 182 of the New York Tax Law, and (b) amounts due for license fees or taxes for the privilege of doing business within the state, assessed under § 181 of that law, and payable but once. The state asserted in its claim "that said taxes accrued and became a lien on all the property of defendant corporation pursuant to the provisions of the Tax Law of the state of New York prior to the appointment of a receiver herein." The district court held that both [382] classes of claims were taxes, but that the lien created by § 197 of the Tax Law applied only to annual franchise taxes, and that no provision of the law gave a lien for license taxes until a levy was made therefor. It accordingly allowed the preference as to the amounts due for annual franchise taxes, and denied it as to the amounts due for license taxes. Upon appeal by the state, the circuit court of appeals held that, independently of specific statutory provision, the law of New York, as declared by its courts, gave to the state as sovereign a lien or priority for payment of taxes over unsecured creditors; that this priority was a prerogative right, rule of administration; and that it applied, therefore, in the Federal courts.

not a mere

65 L. ed.

Fed. 727.

381-383

writ of certiorari. The case L. ed. 725, 40 Sup. Ct. Rep. 396. The came here on propriety of allowing to the state a 252 U. S. 577, 64 preference as to amounts due for the annual franchise taxes is admitted by the receiver. ative priority of the state and the United States is involved. No question of the reltion arise as to priority of the state over encumbrances. Nor does any quespresented whether the state of New York has priority in payment out of the genThe single question is eral assets of the debtor over other credof the parties nor accorded a preference, itors whose claims are not secured by act legislature or otherwise. by reason of their nature, by the state

Britain, by virtue of a prerogative right, At common law the Crown of Great had priority over all subjects for the payment out of a debtor's property of all debts due it. The priority was effective alike whether the property remained in the hands of the debtor, or had been placed in the possession of a third perority could be defeated or postponed son, or was in custodia legis. The prionly through the passing of title to the debtor's property, absolutely or by way of lien, before the sovereign sought to enforce his right. Bing. 128, 139, 157, 183, 131 Eng. Reprint, 563, 2 Moore & S. 197, 1 Clark Giles v. Grover, 9 & F. 72, 6 Eng. Reprint, 843, 6 Bligh, N. R. 277, 5 Eng. Reprint, 598, 11 Eng. Rul. Cas. 550; in Re Henley & Co. L. R. 9 Ch. Div. 469, 48 L. J. Ch. N. S. 147, 39 L. T. N. S. 53, 26 Week. Rep. 885. Compare United States v. [383] National Surety Co. decided by this court November 8, 1920 [254 U. S. 73, ante, 143, 41 Sup. Ct. Rep. 29]. The first Constitution of the state of New York (adopted in 1777) provided that the common law of England, which, together with the statutes, constituted the law of the colony on April 19, 1775, should be and continue the law of the state, subject to such alterations as its legislature might thereafter make. was embodied, in substance, in the later Constitutions. The courts of New York decided that, by virtue of this constitutional provision, the state, as sovereign, succeeded to the Crown's prerogative right of priority; and that the priority taxes, but extended alike to all debt due was not limited to amounts due for to the state, e. g., to amounts due on a general deposit of state funds in a bank. Re Carnegie Trust Co. 151 App. Div. 606, 136 N. Y. Supp. 466, 206 N. Y. 390, C. C. A. 262 46 L.R.A. (N.S.) 260, 99 N. E. 1096.

This provision

paid out of moneys in receivers' hands. Central Trust Co. v. New York City & N. R. Co. 110 N. Y. 250, 259, 1 L.R.A. 260, 18 N. E. 92. In the case at bar the district judge relied upon § 197 as justi

This priority has been enforced by the courts of New York under a grea variety of circumstances in an unbroke series of cases extending over more than half a century. It has been enforced as a right, and not as a rule of administra-fying him in giving priority to the claim tion. for annual franchise taxes, and in denying priority to the claim for license fees, because, in respect to the latter, no corresponding provision is to be found in the Tax Law. But he had no occasion to seek statutory support for the priority sought by the state, since here it does not seek to displace any prior lien. It asks merely to have its prerogative right enforced against property which there is no prior lien and upon which it is impossible to levy, because the property has been taken out of hands of the debtor and placed in the custody of the court for purposes of protection and distribution.

This priority arose and exists independently of any statute. The legislature has never, in terms, limited its scope; and the courts have rejected as unsound every contention made that some statute before them for construction had, by implication, effected a repeal or abridgment of the priority.2 The only changes of the right made by statute have been by way of enlarging its scope in [384] certain cases. Thus, while by the common law of England (Rex ex rel. Braddock v. Watson, 3 Price, 6, 146 Eng. Reprint. 174), and by that of New York (Wise v. L. & C. Wise Co. 153 N. Y. 507, 511, 47 N. E. 788), the priority does not obtain over a specific lien created by the debtor before the sovereign undertakes to enforce its right, the legislature of New York extended the prerogative right, so as to give certain taxes priority over prior encumbrances. An extension of this nature is found in § 197 of the Tax Law, which declares in respect to the annual franchise tax, that "such tax shall be a lien upon and bind all the real and personal property of the corporation, joint stock company or association liable to pay the same from the time when it is payable until the same is paid in full." [Consol. Laws. chap. 60.] By reason of that provision the annual franchise tax takes priority over encumbrances on the corporate property. New York Terminal Co. v. Gaus, 204 N. Y. 512, 98 N. E. 11. Under the earlier law a debt for franchise taxes was not a "technical lien on specific property," and had been ordered

1 See in addition to cases cited in the text: Re Columbian Ins. Co. (1866) 3 Abb. App. Dec. 239, 242; Central Trust Co. v. New York City & N. R. Co. (1888) 110 N. Y. 250, 259, 1 L.R.A. 260, 18 N. E. 92; Re Atlas Iron Constr. Co. (1897) 19 App. Div. 415, 419, 46 N. Y. Supp. 467; Re Niederstein (1912) 154 App. Div. 238, 246, 138 N. Y. Supp. 952; Re Wesley (1913) 156 App. Div. 403, 405, 141 N. Y. Supp. 1031; People v. Metropolitan Surety Co. (1913) 158 App. Div. 647, 650, 144 N. Y. Supp. 201; Mixter v. Mohawk Clothing Co. (1915)

155 N. Y. Supp. 647.

2 See Re Niederstein, 154 App. Div. 238, 244-246, 138 N. Y. Supp. 952; Re Wesley, 156 App. Div. 403, 405, 141 N. Y. Supp.

1031.

on

Whether the priority enjoyed by the state of New York is a prerogative right or merely a rule of administration is a matter of local law. Being such, the decisions of the [385] highest court of the state as to the existence of the right and its incidents will be accepted by this court as conclusive. Compare Lewis v. Monson, 151 U. S. 545, 549, 38 L. ed. 265, 266, 14 Sup. Ct. Rep. 424; St. Anthony Falls Water Power Co. V. St. Paul Water Comrs. 168 U. S. 349, 358, 42 L. ed. 497, 501, 18 Sup. Ct. Rep. 157; Archer v. Greenville Sand & Gravel Co. 233 U. S. 60, 68, 69, 58 L. ed. 850, 853, 854, 34 Sup. Ct. Rep. 567; Guffey v. Smith, 237 U. S. 101, 113, 59 L. ed. 856, 863, 35 Sup. Ct. Rep. 526. The priority of the state extends to all property of the debtor within its borders, whether the debtor be a resident or a nonresident, and whether the property be in his possession or in custodia legis. The priority is, therefore, enforceable against the property in the hands of a receiver appointed by a Federal court within the state. Duryea v. American Woodworking Mach. Co. 133 Fed. 329; Conklin v. United States Shipbuilding Co. 148 Fed. 129, 130; compare Franklin Trust Co. V. New Jersey, 104 C. C. A. 629, 181 Fed. 769; Washington-Alaska Bank v. Dexter Horton Nat. Bank, C. C. A. 263 Fed. 304. For a receiver ap. pointed by a Federal court takes property subject to all liens, priorities, or privileges existing or accruing under the laws of the state. In the case at bar a warrant for the amount of the license tax might have issued but for the appointment of the receiver, and if the levy

had been made it would have become, under § 201 of the Tax Law, a lien on all the property of the company from "the time of the levy made by virtue thereof." Since the prerogative right of the state could not be enforced by levy and seizure, an application to the court for payment of the debt due was the appropriate remedy. Re Tyler, 149 U. S. 164, 184, 37 L. ed. 689, 695, 13 Sup. Ct. Rep. 785.

those of Virginia accorded such priority.
Here it is not sought to gain priority
over a lien existing at the time when the
receiver was appointed; and the priority
over unsecured creditors is granted by
the common law of New York,
Affirmed.

[387] ALEXANDER SMITH COCHRAN and William F. Cochran, as Surviving Executors of the Last Will and Testament of William F. Cochran, Deceased, Appts.,

V.

UNITED STATES.

(See S. C. Reporter's ed. 387-393.) succession tax -assessInternal revenue recovery back of taxes paid ment.

June 13, 1898, and the regulations of the
Internal Revenue Department, may not be
recovered back for want of a formal assess-
ment made before the repeal of such act
by the Act of April 12, 1902, since such
tax must be deemed to have been "imposed"
within the meaning of the saving clause
in the repealing act, preserving all taxes
imposed prior to the taking effect of such
act, there being no basis for the claim that
the amount of the tax was uncertain, ex-
cept the possibility that, the estate not
having been settled, the legatees might be
called upon to pay debts.
[For other cases, see Internal Revenue, VII.

The state's right to be paid out of the assets prior to other creditors does not, as pointed out in Re Tyler, supra (quoting Greeley v. Provident Sav. Bank, 98 Mo. 458, 11 S. W. 980), arise from an express lien on the assets existing at the time they passed into the receiver's hands. State use of Phillips v. Rowse, 49 Mo. 586, 592; George v. St. Louis Cable & W. R. Co. 44 Fed. 117, 118; Hamilton v. [386] David C. Beggs Taxes paid upon certain legacies conCo. 171 Fed. 157; Coy v. Title Guaran- formably to a return made by executors in tee & T. Co. 212 Fed. 520, 523, L.R.A.accordance with the War Revenue Act of 1915E, 211, 135 C. C. A. 658, 220 Fed. 90. The right of priority has been likened to an equitable lien. State use of Phillips v. Rowse, supra. The analogous preference in payment given to claims for labor by state statutes, and to which the Bankruptcy Act gives priority, has been described being "tantamount" to a lien. Re Laird, 48 C. C. A. 538, 109 Fed. 550, 555; Re Bennett, 82 C. C. A. 531, 153 Fed. 673, 677. The priority is a lien in the broad sense of that term, which includes "those preferred or privileged claims given by statute or by admiralty law." 2 Bouvier's Law Dict. 15th ed. 1883, 88. prerogative right of the state resembles the privilege accorded by the civil law Argued December 15 and 16, 1920. of Louisiana to certain classes of debts, which it was assumed in Burdon Cent. Sugar Ref. Co. v. Payne, 167 U. S. 127, 42 L. ed. 105, 17 Sup. Ct. Rep. 754, would be enforced against property in the custody of a receiver appointed by a Federal court. The fact that the right rests on the common law, independently of any statute, does not, of course, affect the right of enforcement in the Fed

eral courts.

as

The

in Digest Sup. Ct. 1908.]
[No. 116.]

cided January 3, 1921.

De

APPEAL from the Court of Claims to review a judgment denying the recovery back of certain succession taxes under the War Revenue Act. Affirmed.

The facts are stated in the opinion.

Mr. H. T. Newcomb argued the cause, and, with Mr. Frederick L. Fishback, filed a brief for appellants.

Solicitor General Frierson argued the cause and filed a brief for appellee.

Mr. Justice McKenna delivered the opinion of the court:

Appeal from a judgment of the court of claims denying recovery of taxes paid

Richmond v. Bird, 249 U. S. 174, 63 L. ed. 543, 39 Sup. Ct. Rep. 186, relied upon by the petitioner, is not in point. The city sought there in vain to have taxes declared payable out of the bankrupt's assets in preference to the claim of the landlord thereon, which was secured by a specific lien arising upon distraint. This court held that the city did not have such superior right, since to Erskine v. Van Arsdale, 21 L. ed. neither the laws of the United States nor U. S. 63.

Note. As to when taxes illegally assessed can be recovered back-see note

319

under the War Revenue Act of June 13,, 1898 [30 Stat. at L. 448, chap. 448, Comp. Stat. § 6144, 4 Fed. Stat. Anno. 2d ed. p. 135], and amendments, upon certain legacies made under the will of William F. Cochran.

The facts, so far as we deem them material, are as follows: Cochran died in New York, December 27, 1901, leaving a will and a personal estate of the value of $7,918,027.18, of which appellants and Era S. Cochran were made executors. The latter has since died. The will was probated January 9, 1901, and letters testamentary issued the same date, and administration was immediately undertaken and proceeded with without extraordinary or unnecessary delay.

value of the residuary estate had not been ascertained.

In compliance with § 30 of the Act of June 13, 1898, the executors on February 17, 1903, made a return and filed it with the collector of internal revenue, giving a schedule of the legacies arising from the personal property of the estate, and the amount of tax due thereon. The collector accepted the schedule as correct. The amount paid to him by the executors was the amount they estimated as the amount of the taxes due. The schedule showed the taxes on each legacy, and that the total was $158,321.78, which sum was, by the collector, paid to the United States.

July 16, 1904, a demand was made upon the Commissioner of Internal RevSix months' notice to creditors was enue for the repayment to the executors given, as required by the law of New of the sum paid. After one rejecYork, and the time for the presentation tion (October 22, 1910), the Commissioner of claims expired August 4, 1902. Prior (March 15, 1915) recommended the to September 30, 1902, debts and claim for allowance in the sum of $107,claims against the estate were presented 292.24, and for the rejection of $51,029.and for the most part paid, to the aggregate amount of $98,589.04, of which amount $66,776.25 were paid prior to July 1, 1902. Expenses of administration during that period had been ascertained to be $125,000, of which sum $13,047.16 were paid prior to July 1, 1902. Otherwise, claims and expenses of administration had not been ascertained.

Certain sums were bequeathed to the executors in trust for the children of Cochran, and there was also a legacy to a niece and one to a stranger to his blood. Trusts were set up in accordance with the will, and the legatees were paid prior to July 1, 1902, the sums provided to be paid. The aggregate payment so made amounted to the sum of $3,140,979.10.

54. The recommendation was approved by the Secretary of the Treasury. The former sum was paid, the latter was not, and remains unrefunded.

[390] This sum was computed in respect to the interest of eight different legatees, of which six were residuary legatees, and the computations were made according to certain general rules, tables, and instructions for the use of internal revenue officers, administrators, and trustees in determining the amount of taxes to be paid to the United States upon legacies or distributive shares arising from personal property under the Act of June 13, 1898. There was no special investigation by the Commissioner of Internal Revenue as to the expectancy of life of the several beneficiaries, or as to the earning power of the bonds placed in trust for them respective

[389] In 1892 and 1893 litigation was instituted against the decedent which might involve the estate, it was estimated, in the payment of sev-ly, and for their benefit. eral hundred thousand dollars or more. The contentions of the parties are quite The litigation, according to the findings of the court of claims, is still in progress, and on account of it money has been retained by the executors that might otherwise have been distributed. The probable outcome of the litigation is not shown.

Under the laws of New York, funds in the hands of executors after the expiration of notice to creditors are liable to after-discovered debts, and legatees who have received money prior to the expiration of such notice are liable up to the amount paid them for claims subsequently presented The executors were not secured for the payments to legatees prior to July 1, 1902, and, prior to that date, the

accurately opposed. The appellants contend that an assessment was a necessary condition to the collection of the taxes, and that there was no assessment until after July 1, 1902, and that on that date the law which established the taxes was repealed.

In opposition it is urged by the United States that if an assessment was necessary, the right to make it was reserved by the repealing act, and that the appellants, as executors, having made a report of the legacies and the taxes thereon, the report and its acceptance by the collector of internal revenue was, to all intents and purposes, an assessment. It is further urged that if an assessment was necessary