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Opinion of the Court.

268 U.S.

rules of law and equity as to the rights of a surety to subrogation and set-off are not altered merely because the surety was a compensated one.

From the inception of the suretyship relation there is an implied legal obligation on the part of the principal to indemnify and reimburse his surety. This implied promise of indemnity is as effectual as if embodied in a written indemnity agreement executed by the principal at the date of its application for the bond; Williams v. U. S. Fidelity & Guaranty Co., 236 U. S. 557; and constitutes the surety a creditor of the principal from the time of the execution of the bond. To regard the claim of the surety against the principal as arising merely through assignment after insolvency of the principal and payment to the obligee is to ignore the debtor-creditor relationship existing ab initio between a surety and its principal. Rice v. Southgate, 16 Gray, 143; Barney v. Grover, 28 Vermont, 393; Beaver v. Beaver, 23 Pa. St. 167; Walker v. Dicks, 80 N. C. 263; M. Kalin v. Bro. V. Bledsoe, 98 Pac. 921; Craighead v. Swartz, 67 Atl. 1003; Allen v. Van Campen, 1 Freem. Ch. 273; Labbe v. Bernard, 82 N. E. 688; Dudley Lumber Co. v. Nolan Bros. 156 S. W. 465.

Mr. Ellis Douthit, with whom Mr. J. H. Barwise, Jr., was on the brief, for defendant in-error.

Mr. Loren Grinstead and Mr. Frank T. Wyman filed a brief as amici curiae by special leave of Court.

MR. JUSTICE HOLMES delivered the opinion of the Court.

The National Bank of Cleburne, Texas, became insolvent through the frauds of its president and closed its doors on October 17, 1921. On November 1 following the defendant in error was appointed receiver, and on April

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Opinion of the Court.

14, 1922, began this suit upon a bond executed by the plaintiff in error on August 28, 1921, binding it to indemnify the Bank for losses of this character to the extent of $25,000. The Guaranty Company pleaded in setoff that on August 24, 1921, it became surety for the Bank upon another bond to the Gulf, Colorado and Santa Fe Railway Company, conditioned upon payment by the Bank to the Railway Company of the Company's deposits in the Bank, and that on January 16, 1922, it paid to the Railway Company $23,312.51 and as matter of law became subrogated to the rights of the Company against the Bank, and in addition took an assignment of such rights, which was approved by the plaintiff on February 1. An agreement of the parties was filed, that the facts alleged were true and that the only question for the Court was "whether or not under the facts alleged, the defendant is entitled as against the plaintiff to set off the demand it holds as assignee or subrogee of the Gulf, Colorado & Santa Fe Railway Company." Thus the answer and the agreement confine the issue before us to the rights of the defendant Guaranty Company by way of subrogation or assignment. The District Court and the Circuit Court of Appeals gave judgment for the plaintiff for $25,000 interest and costs and denied the defendant's right. 295 Fed. 847.

The two bonds were wholly independent transactions and were not brought into mutual account by an agreement of the parties. The Guaranty Company after the insolvency of the Bank could not have bought a claim against the Bank and used it in setoff. Scott v. Armstrong, 146 U. S. 499, 511. Davis v. Elmira Savings Bank, 161 U. S. 275, 290. Yardley v. Philler, 167 U. S. 344, 360. The Receiver contends that that is the position of the defendant here, because it was only a guarantor and was only liable upon the default of the President of the Bank that produced the insolvency. The Court

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below treated the claim of the Railway Company against the Bank as acquired by the defendant after the insolvency. The defendant, however, contends that upon its payment to the Railway Company its subrogation related back to the date of its contract; and we will assume for purposes of argument that this is true. But suppose it is, the right of the Railway Company was simply that of a depositor, a right to share with other unsecured creditors in the assets of the Bank, of which the bond now in suit was a part. There would be no equity in allowing the Railway Company a special claim against this bond. We will assume that if the Railway Company had insured the honesty of the Bank's officers the Bank might have offset the obligation of the company against its claim as a depositor. But it is impossible to treat the succession of the defendant to the Railway Company's claim as effecting such an absolute identification with the Railway Company that one and the same person insured the Bank and made the deposits. The doctrine of relation "is a legal fiction invented to promote the ends of justice. . . . It is never allowed to defeat the collateral rights of third persons, lawfully acquired." Johnston v. Jones, 1 Black, 209, 221.

Judgment affirmed.

LEWELLYN, FORMER COLLECTOR OF INTERNAL REVENUE, v. FRICK ET AL.

ERROR TO THE DISTRICT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF PENNSYLVANIA.

No. 681. Argued April 16, 1925.-Decided May 11, 1925.

1. Acts of Congress are to be construed, if possible, so as to avoid grave doubts of their constitutionality. P. 251.

2. The provisions of the Revenue Act of February 24, 1919, purporting to include policies insuring the life of a decedent in the

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Argument for Plaintiff in Error.

gross value of his estate as a basis for fixing the transfer tax thereon, though the policies be payable to beneficiaries other than the estate, and allowing the executor to recover from such beneficiaries their proportions of such tax and making them personally responsible therefor if not paid when due, are to be construed as inapplicable to transactions antedating the passage of the act. P. 251. 3. A declaration in an act that a provision in it shall be retroactive helps the conclusion that the same provision in an earlier act, lacking such declaration, was not retroactive. P. 252. 298 Fed. 803, affirmed.

ERROR to a judgment recovered in the District Court by the defendants in error in an action to recover the amount of taxes collected by duress.

Mr. James A. Fowler, Special Assistant to the Attorney General, with whom the Solicitor General, Messrs. Nelson T. Hartson Solicitor of Internal Revenue, and Merrill E. Otis, Special Assistant to the Attorney General, were on the briefs, for plaintiff in error.

Section 402 (f) of the Revenue Act of 1918 provides a reasonable measure of an excise tax imposed upon a transmission of a decedent's property by death. The tax is not a direct tax but an excise measured by the value of the net estate. New York Trust Co. v. Eisner, 256 U. S. 345; Greiner v. Lewellyn, 258 U. S. 384; Edwards v. Slocum, 264 U. S. 61; Y. M. C. A. v. Davis, 264 U. S. 47; United States v. Woodward, 256 U. S. 632. Congress has provided a measure for that tax based not solely upon the transfer of the decedent's property, but upon transactions, whether transfers from a decedent or not, which accomplished the same results as testamentary dispositions would accomplish. Pennsylvania Company v. Lederer, 292 Fed. 629; McElligott v. Kissam, 275 Fed. 545; Farmers' Loan & Trust Co. v. Winthrop, 238 N. Y. 488. A measure which bears a reasonable relation to the subject matter of the tax is constitutional although the

Argument for Plaintiff in Error.

268 U.S.

property affording the measure could not itself be taxed. Maxwell v. Bugbee, 250 Ů. S. 525; Flint v. Stone Tracy Co. 220 U. S. 107; Greiner v. Lewellyn, supra; Plummer v. Coler, 178 U. S. 115; United States v. Perkins, 163 U. S. 625; Orr v. Gilman, 183 U. S. 278; Bullen v. Wisconsin, 240 U. S. 625. The measure of the tax bears a reasonable and proper relation to the occasion of the tax. Penn Mutual Life Ins. Co. v. Lederer, 252 U. S. 523.

It can hardly be questioned that a deposit by A in a Savings Bank to be paid with accumulations to B on A's death would constitute a gift intended to take effect in possession or enjoyment at or after A's death, and therefore be properly included in A's gross estate under § 402 (c) of the Act. Shukert v. Allen, 300 Fed. 754. Differences between a savings deposit and the taking out of a life insurance policy on one's own life for the benefit of another, are superficial, when used to differentiate such a contract from a gift intended to take effect in possession or enjoyment at or after death. It is, of course, true that the beneficiary has a vested interest in the policy. But the ownership of the policy as such is worthless. Its only value is the assurance that at the death of the insured a certain sum will be paid. There is no true possession or enjoyment" of a policy. The possession or enjoyment attaches when, and only when, the money is paid. It is held that gifts are taxable, regardless of the vesting of title or of the right to future enjoyment, if the actual enjoyment of the property which comprised the present right to the earnings, income, and avails thereof is postponed until the donor's death. People v. Kelley, 218 Ill. 509; Re Cornell, 170 N. Y. 423; State v. Probate Court, 102 Minn. 268; American Bd. Comm'rs v. Bugbee, 98 N. J. L. 84, 118 Atl. 700; People v. Shaffer, 291 Ill. 142; People v. Danks, 289 Ill. 542; In re Felton's Estate, 176 Cal. 663; Harber v. Whelchel, 156 Ga. 601.

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Assuming for the purposes of argument that the transfer of title to the insurance policies is the subject of the

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