In Re C. J. Rowe & Bros.

GIBSON, District Judge. The bankruptcy proceedings in the instant ease were instituted April 6, 1924. On March 15, 1924, the Cumberland Company distrained upon certain personal property upon land in Allegany county, Maryland, leased to the bankrupt. On March 17,1924, the Somerset Company levied and distrained upon personal property on leasehold premises of the bankrupt in Somerset county, Pennsylvania. Bach of the levies, it will be noted, was made prior to the filing of the bankruptcy petition, Subsequent to the beginning of the bankruptcy matter and the appointment of a receiver, the District Courts of Maryland and the Western District of Pennsylvania issued orders temporarily restraining sale of the property levied upon. Prior to the date fixed for hearing in the temporary restraining orders an agreement was entered into by the receiver, with the approval of court, with each of the distraining companies, whereby it was agreed that the trustee in bankruptcy should make sale of the property and that the lien of the distraining company, if any it had, should apply to the fund arising from the sale of the property. Subsequent to the levies of the Cumberland and Somerset Companies and the agreements mentioned, the United States filed liens in the office of the collector of internal revenue for additional income taxes claimed against the bankrupt. These taxes were for the years ending December 31, 1918, 1919, 1920, and 1922, with interest. The total of the claim was $43,167.66. Upon distribution of the fund in the hands of the trustee, the referee found that this claim of the government for taxes was entitled to payment prior to payment of the respective claims of the Cumberland Company and the Somerset Company. To his order the companies mentioned have taken exception and have had the matter certified to this court for review. The trustee, after deducting expenses of administration, has in his hands about $33,-993.73, so that, if the judgment of the referee be sustained, the entire fund is payable to the United States on account of additional income taxes. The referee has based his order upon section 64a of the Bankruptcy Act (Comp. St. § 9648) and section 3466 of the Revised Statutes (Comp. St. § 6372). Section 64a' of the Bankruptcy Act is as follows: “(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.” Section 3466, R. S., is as follows: “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 insufficient 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 eases in which an act of bankruptcy is committed.” In holding that the foregoing provisions require the payment of the claim of the government for taxes in advance of every other claim except administration expenses, the learned referee, as we think, has failed to take into consideration all the facts involved. If no distraint for rent had been made,' and the claims of the Cumberland and Somerset Companies were merely for rent, without any reference to the levies, the distribution of the fund by the referee would doubtless have been correct; but in view of the levies, and the transfer of the rights of the landlords under the levies to the fund, his ruling was erroneous. The specific lien acquired by a landlord by means of a distraint is not such a lien as is “obtained through legal proceedings,” as con *660 template! by section 67f of the Bankruptcy Act (Comp. St. § 9651), and is not divested by tbe bankruptcy of tbe tenant within four months. See In re West Side Paper Co., 162 F. 110, 15 Ann. Cas. 384 (3d Ct.); Henderson v. Mayer, 225 U. S. 631, 32 S. Ct. 699, 56 L. Ed. 1233. On tbe other band, section 3466, R. S., supra, created no lien, and tbe priority created by it does not attach while tbe debtor continues tbe owner and in possession of tbe property. United States v. Oklahoma, 261 U. S. 253, 43 S. Ct. 295, 67 L. Ed. 638; Beaston v. Farmers’ Bank, 12 Pet. (37 U. S.) 102, 9 L. Ed. 1017. Section 64 of tbe Bankruptcy Act was intended to create priority of payment in favor of certain classes, who, in tbe absence of statute, would be general creditors of tbe bankrupt. It did not contemplate an advantage to tbe classes given priority as against holders of valid specific liens, such as existed at tbe time tbe petition was filed in tbe Cumberland Company and tbe Somerset Company. City of Richmond v. Bird, 249 U. S. 174, 39 S. Ct. 186, 63 L. Ed. 543 (affirming [C. C. A.] 240 F. 545). Tbe ease last cited is decisive upon tbe question involved in tbe present matter, in so far as it relates to the rent due at tbe time of distraint and tbe costs of distraint. In addition to tbe amount of tbe rent and costs so due, tbe Cumberland Company and tbe Somerset Company have each filed a claim for rental due from tbe receiver and trustee for tbe occupation of tbe property by them — from April 10, 1924, to November 10, 1924, in tbe case of tbe Cumberland Company, and from April 9, 1924, to November 10, 1924, in tbe case of tbe Somerset Company. This amount, in each case, is claimed as an administration expense, and as such entitled to priority of payment over tbe tax claim of tbe United States. So far as appears, tbe oeeupancy of the premises in question was a necessary administration expense. As such, it is entitled to priority of payment as against taxes. New Jersey v. Lovell, 179 F. 321, 31 L. R. A.. (N. S. ) 988 (C. C. A. 3d Ct.), certiorari denied 219 U. S. 587, 31 S. Ct. 471, 55 L. Ed. 347. Tbe refusal of tbe referee to allow it was erroneous. Tbe Cumberland Company and tbe Somerset Company have each filed a further claim for rent accruing between tbe date of distraint and bankruptcy. As against these claims, tbe United States’ claim for taxes is entitled to priority. An order will be drawn, reversing and setting aside tbe order of tbe referee, whereby be rejected tbe claim of the Cumberland Company for $7,850.13, rent distrained for prior to bankruptcy, and $284.08, eosts of distraint, and for $4,036.20, rent of tbe premises after bankruptcy; also bis order rejecting tbe claim of tbe Somerset Company for rent distrained for, $6,194.27, with costs of distraint, $36.45, and for $4,375 for rent during bankruptcy, will be reversed.