This case involves the application of § 3466 of the Revised Statutes, 31 U.S.C.A. § 191, to a claim of the United States under the National Housing Act in an equity receivership proceeding in a state court.
The St. James Distillery, a corporation, executed a note to the Industrial Bank and Trust Company of St. Louis on September 23, 1935. On July 14, 1936 the Bank endorsed the note and delivered it to the Federal Housing Administration, acting on behalf of the United States, under a contract of insurance and guaranty provided for in Title I of the National Housing Act, 12 U.S.C.A. § 1701 et seq. The United States, through the Federal Housing Administration, on that date reimbursed the Bank in the amount of $5988.88, the balance due on the note. Emory, claiming wages due him, filed a petition on August 27, 1936 in the Circuit Court of Phelps County, Missouri, alleging that the St. James Distillery was hopelessly insolvent and praying that a receiver be appointed. On September 9 the Circuit Court found all the issues in Emory's favor and appointed a receiver who took possession of the corporate assets.
After deductions for the costs of the receivership, the assets available for distribution totaled $678. Against this amount the wage claims of 'about twelve individuals' were filed. The separate amounts of these claims were neither stipulated nor determined by the courts below; their aggregate was 'about $900'. The United States, on behalf of the Federal Housing Administration, filed a claim for the $5988.88 due on the note. The wage claimants asserted priority under § 1168 of the Revised Statutes of Missouri; the United States asserted priority under § 3466 of the Revised Statutes of the United States.
The Circuit Court of Phelps County decided that the claim of the United States should be treated as an ordinary claim against the estate, and that the wage claims should be paid first. On appeal, the Springfield Court of Appeals held that the claim of the United States on behalf of the Federal Housing Administration was accorded preference over ordinary claims by § 3466 of the Revised Statutes of the United States. Consequently, it was of the opinion that the Circuit Court had erred in treating the claim of the United States as an ordinary claim. However, it held further that the error was of no consequence, since the Missouri statute granted priority to wage claims even over other preferred claims and no assets would remain after they had been satisfied. Rehearing was denied, and the Supreme Court of Missouri denied a petition for certiorari. We granted certiorari, 313 U.S. 552, 61 S.Ct. 836, 85 L.Ed. 1515, because of the importance of the question and because of an asserted conflict of decisions.
The applicability of § 3466 to this case is clear. The section applies in terms to cases '(1) in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or (2) in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, * * * (or) (3) in which an act of bankruptcy is committed.' This case falls within the third category. It is agreed that the St. James Distillery was insolvent 'on or before August 1936' and that in response to a creditor's petition a receiver was appointed to liquidate the corporate assets. The appointment of a receiver under such circumstances is among the most common examples of an 'act of bankruptcy'. Cf. § 3, sub. a(4) of the Bankruptcy Act, U.S.C., Title 11, § 21(a)(4), 11 U.S.C.A. § 21, sub. a(4).
Just such proceedings as this, therefore, are governed by the plain command of § 3466 that 'debts due to the United States shall be first satisfied.' The purpose of this section is 'to secure an adequate public revenue to sustain the public burden' (United States v. State Bank of North Carolina, 6 Pet. 29, 35, 8 L.Ed. 308), and it is to be construed liberally in order to effectuate that purpose. Bramwell v. United States Fidelity & Guaranty Co., 269 U.S. 483, 487, 46 S.Ct. 176, 70 L.Ed. 368. In view of this language, purpose, and rule of construction, the priority asserted here by the United States appears to be securely established.
The court below, however, held otherwise. In granting priority to the wage claims over that of the United States, it relied upon Missouri law. It recognized, as the authorities obliged it to recognize, that the state statute could not prevail if it was in conflict with § 3466. But it decided that no such conflict arose, for the reason that § 3466 had been impliedly modified by § 64, sub. a of the Bankruptcy Act, which, like the Missouri statute, requires that wage claims be satisfied before those of the United States.