Price v. United States

Background

A retail importer and seller of clothing in New York and four other cities faced large debts and could not pay them. A creditor who held a $10,000 promissory note sued on behalf of himself and other creditors and asked the court to appoint a receiver to take control of the company’s assets so they could be fairly sold and distributed. The company answered, admitted the facts, and joined the request. A temporary receiver was appointed, later made permanent. The receiver found the assets were insufficient to pay all claims; general creditors could recover only about forty percent. The United States then filed claims for 1920 income taxes and unpaid customs duties; a special master and the District Court treated those claims as entitled to priority and ordered payment from the assets. The Circuit Court of Appeals affirmed, and the case reached this Court.

Reasoning

The central question was whether amounts owed to the United States for taxes and customs duties count as "debts" that the federal statute (R.S. 3466) makes first in line for payment. The Court traced a sequence of statutes from 1789 onward and said the priority rules aim to protect public revenue. It read the word "debts" broadly so taxes fall within the statute, rejected narrow readings based on other cases, and emphasized that the defendant’s cooperation and handover of assets meant the estate must be treated as a trust fund for distribution. For those reasons, the Court affirmed the lower courts’ orders to pay the United States first.

Real world impact

This ruling requires receivers and courts handling insolvent companies to pay federal income tax and customs claims before general creditors, reducing funds available to ordinary creditors. It confirms that the federal priority statute is to be construed liberally to secure public revenue.