$ 63.] Proof of Claim Subjects Creditor to All Orders of Court.

contrary, Nicholas v. Murray, Fed. Cas. 10,223; 5 Saw. 320; s. c. 18 N. B. R. 469.)

Proving Debts Which Are Not Actionable in State Courts.-Somewhat analogous to the question of the right to prove claims as to which the statute of limitations could be pleaded as a defense, is the question of the right to prove claims which by positive provisions of statutory laws are not enforceable in the State courts. Such a claim may be proved if the State statute affects only the remedy and not the validity of the contract. Thus if two persons enter into a contract of sale, valid by the laws of the State where the contract is made, but which cannot be enforced as against the purchaser in the courts of the State of his residence, yet the contractual liability existing and the person being liable to be sued thereon if jurisdiction is obtained over him elsewhere, there is such a debt as is provable in bankruptcy. The mere fact that the courts of the State will not give a seller the right to sue, goes only to the remedy, not to the existence of the contractual obligation. So held where a resident of the State of Maine bought liquors in another State by a contract valid in the State of purchase, but which the court of Maine would not enforce because of their prohibitory laws. (In re Murray, Fed. Cas. 9,954; 3 N. B. R. 765.)

Debts Not Provable, Unaffected by Bankruptcy Proceedings."The provisions in regard to what debts may be proved are arbitrary, but do not affect the existence or validity of such debts as are not provable, nor does a discharge release them. If a debt is provable, it comes in for a dividend, and can, unless it is an excepted debt, be discharged. If it is not provable, it does not come in for a dividend, but it will not be discharged." (In re May & Merwin, 9 N. B. R. 419; s. c. 47 How. Pr. 37; s. c. 7 Ben. 238.) Compare section 17a.

Proof of Claim Subjects the Creditor to All Orders of the Court.The creditor, wherever he may reside, by proving his debts, submits himself personally to the jurisdiction of the court of bank

Cross-references - Debts Which Have Priority.

[Ch. VII. ruptcy, and becomes subject to all its orders in so far as they affect his claim, and the bankruptcy court may deprive him of all the benefits which otherwise he would have, and may expunge his proof as a punishment for offenses of which he may be guilty. (In re Kyler, Fed. Cas. 7,956; 2 Ben. 414.) A creditor proving his debt makes himself a party to an equitable proceeding, and the court may deny him relief, in cases where a court of equity would be justified in so doing. Thus, if knowingly and with intentional fraud, a creditor includes in his claim a claim which is invalid and illegal, and not owing to him, it has been held that the court may refuse to give him any relief whatever; it may even refuse to allow the valid portion. (Marrett v. Atterbury, Fed. Cas. 9,102; 11 N. B. R. 225; s. c. 3 Dill. 444.)

Cross references. As to claims against partnerships, compare section 5. As to manner of proof, compare section 57. As to provable debts which are not released by a discharge, compare section 17. As to dividends on proved claims, compare section 65. As to set-off of mutual debts and credits, compare section 68.

SEC. 64 Debts which have Priority.-a The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, State, county, district, or municipality in advance of the payment of dividends to creditors, and upon filing the receipts of the proper public officers for such payment he shall be credited with the amount thereof, and in case any question arises as to the amount or legality of any such tax the same shall be heard and determined by the court.

b The debts to have priority, except as herein provided, and to he paid in full out of bankrupt estates, and the order of payment shall be (1) the actual and necessary cost of preserving the estate. subsequent to filing the petition; (2) the filing fees paid by creditors in involuntary cases; (3) the cost of administration, including the fees and mileage payable to witnesses as now or hereafter provided by the laws of the United States, and one reasonable attorney's fee, for the professional services actually rendered, irrespective of the number of attorneys employed, to the petition

§ 64.]

Priority of the United States.

ing creditors in involuntary cases, to the bankrupt in involuntary cases while performing the duties herein prescribed, and to the bankrupt in voluntary cases, as the court may allow; (4) wages due to workmen, clerks, or servants which have been earned within three months before the date of the commencement of proceedings, not to exceed three hundred dollars to each claimant; and (5) debts owing to any person who by the laws of the States or the United States is entitled to priority.

c In the event of the confirmation of a composition being set aside, or a discharge revoked, the property acquired by the bankrupt in addition to his estate at the time the composition was confirmed or the adjudication was made shall be applied to the payment in full of the claims of creditors for property sold to him on credit, in good faith, while such composition or discharge was in force, and the residue, if any, shall be applied to the payment of the debts which were owing at the time of the adjudication.

Analogous Provisions of Former Acts.

R. S., § 5101; act of 1867, § 28; act of 1841, § 5; act of 1800, § 62.

Priority of the United States.-Section 3,466 of the U. S. Revised Statutes provides:

"Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is sufficient to pay all the debts due from the deceased the debts due to the United States shall be first satisfied, and the priority hereby established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law as to cases in which an act of bankruptcy is committed."

The well-recognized principle that a statute is not to be construed as limiting the prerogative of the sovereign and that the sovereign is not affected by the provisions of a statute, unless expressly so declared, necessitates the belief that the section of the Revised Statutes above quoted is still in force, and that debts due to the United States have a priority over all claims other than

taxes.

Priority of the United States - Payment of Taxes by Trustee.

[Ch. VII. Section 3,466 was construed by the United States Supreme Court in the case of the U. S. v. Lewis (92 U. S. 618; s. c. below, 13 N. B. R. 33), and it was there said:

"The language of that section is general, and it is without qualification. The form of the indebtedness is immaterial. It may be by simple contract, specialty, judgment, decree, or otherwise by record. The debt may be legal or equitable, and may have been incurred in this country or abroad. A valid indebtedness is as effectual in one form as in another. No discrimination is made by the statute."

In that case it was held that the United States was not in any wise bound by the Bankruptcy Act of 1867, and the fact that it did not prove its claim in bankruptcy proceedings was immaterial and did not affect its right to a priority.

And see what is said under section 17 as to the non-dischargeability of claims of the United States and the various States, sub nom. DEBTS TO THE UNITED STATES, ETC.

It will be noted that the statute gives precedence expressly only to taxes so far as the State or municipal division is concerned, except so far as such priority may arise out of subdivision b (5).

In the district of Massachusetts it has lately been held that a county is a quasi-municipal corporation, and a claim held by it arising out of services of convicts in a county house of correction is entitled to priority. (In re Worcester County, s. c. In re Derby, 4 Am. B. R. 496; 102 Fed. 808.)

Payment of Taxes by Trustee. Section 64a.-It has been held that the trustee must at the request of the bankrupt pay the taxes legally owing by such bankrupt even though assessed against property which is set off as exempt and though the said taxes are a lien upon and enforcible against the exempt property and their payment would exhaust the fund otherwise going to the general creditors. (In re Tilden [D. C. Iowa], 1 Am. B. R. 300; 91 Fed. 500.) But in the District Court of Connecticut it was held that where, under the statute of a State, taxes are a prior secured lien upon real estate, and the result of their payment would be to

§ 64-]

Payment of Taxes by Trustee.

give a secured mortgagee an additional advantage over the general creditors, their payment by the trustee will not be ordered. The following extract from the opinion of Townsend, J., gives the reasoning in that case:

"That the practical result of payment of these taxes on real estate by the trustee would be to take the amount from the general creditors and give it to the mortgagee must, of course, be conceded. If the tax collector is obliged to enforce his lien. there are legal fees compensating him for his trouble. The municipalities to which the tax is due have no real interest in the controversy. The only precedent under the law of 1867, so far as I am aware, is Foster v. Inglee, 13 N. B. R. 239, Fed Cas. 4,973. In this case an execution had been levied upon real estate subject to taxes. It was held that, if the taxes had been deducted in estimating the value of the real estate, the rules of equity would forbid their payment by the trustee. It follows, then, that, upon precedent, taxes should not be paid by the trustee, where such payment would operate to the advantage of a third party against another; the taxes being, in any event, secured. Under the law of 1898, in re Tilden, I Am. B. R. 300, 91 Fed. 500, the taxes were assessed against an exempt homestead of the bankrupt. The referee refused to order the taxes paid by the trustee. The attention of the court was not called to any decision under former bankruptcy statutes throwing light on the question. Held, "the exemption laws are to be liberally construed to accomplish the purpose of the exemption," and ordered the taxes paid. The contest in that case was apparently between the bankrupt and the general creditors, the tax collector taking no part; and the decision does not indicate that the tax collector was considered as having any interest therein. John C. Hurley, referee for the Eastern District of Texas, made the same decision in a similar case. In re Baker, 1 Am. B. R. 526. In that case the taxes were a lien upon the personal as well as upon the real property. No precedent under bankruptcy laws was cited by counsel, and no case similar to the present has been found by me. Under section 64b, taxes seem to come fifth in order among the debts which have priority. It has always been recognized that the general rules of equity are to govern the administration of bankruptcy laws. These rules include the marshaling of assets, where necessary to do justice between the parties. It ought not to be construed to be the intent of the law that taxes should be paid where it is not questioned but that they are otherwise secured. and where such payment would work supra, and so far as is shown, has not been held otherwise."

(Compare In re Veitch, 4 Am. B. R. 112; 101 Fed. 251.)

It was further held, in re Conhaim (4 Am. B. R. 58; 100 Fed. 268), that where goods have been sold by the trustee and the vendees resist the payment of the taxes thereon on the ground that