United States v. Paddock

• Decision Date: 09 February 1951
• Docket Number: No. 13011.,13011.
• Citation: 187 F.2d 271
• Parties: UNITED STATES v. PADDOCK.
• Court: U.S. Court of Appeals — Fifth Circuit

187 F.2d 271 (1951)

UNITED STATES v. PADDOCK.

No. 13011.

United States Court of Appeals Fifth Circuit.

February 9, 1951.

COPYRIGHT MATERIAL OMITTED

Frank B. Potter, U. S. Atty., Fort Worth Tex., O. Morris Harrell, Asst. U. S. Atty., Dallas, Tex., for appellant.

Richard U. Simon, Fort Worth, Tex., for appellee.

Before HOLMES and RUSSELL, Circuit Judges, and DOOLEY, District Judge.

HOLMES, Circuit Judge.

This appeal is from a judgment confirming an order of the referee with respect to certain claims filed by the United States in the bankruptcy court. The initial proceeding in this case was instituted pursuant to Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. and was given consideration by this court in United States v. Paddock, 5 Cir., 178 F.2d 394; Id., 5 Cir., 180 F.2d 121. At the time of the initial proceeding, Globe Aircraft Corporation, acting first as agent of the Defense Plant Corporation, created under an amendment to the Reconstruction Finance Corporation Act, 15 U.S.C.A. § 601 et seq., and later as agent of the War Assets Corporation, likewise created under said amendment, had sold and was selling surplus war materials.

Under Contract No. SIA-5-5 with the Defense Plant Corporation, the bankrupt, as agent, agreed to handle and sell government-owned surplus aircraft components on a cost-plus commission basis as provided in said contract, under which the bankrupt, as agent, was entitled to reimbursement for certain costs incurred in the performance of this contract. The contract was terminated on February 6, 1946, and the bankrupt entered into another contract called the Industry Agency Agreement, with War Assets Corporation, under which it was entitled to retain out of the proceeds of such sales a 40% commission. Globe became delinquent in its payment of the remaining 60% due on sales made thereunder, and on December 13, 1946 (14 days before its bankruptcy), entered into a working arrangement with the War Assets Administration, which had then replaced the War Assets Corporation in the administration of the contract. Under this arrangement, Globe was to remit the full 100% of all moneys received as the result of the sale of surplus war materials. It being apparent that Globe was indebted to the War Assets Administration, and the amount of the indebtedness being unknown, the trustees, with the approval of the court, agreed to continue the working arrangement and to remit the full proceeds collected by them from sales of war surplus materials.

At a later date the appellee, as liquidating trustee, did not continue paying the full 100% to the War Assets Administration, but, under direction of the bankruptcy court paid only 60% of the money collected by him as proceeds of sales. Globe had sold some surplus war materials to Culver Aircraft Corporation that were not paid for when delivered. An account receivable was set up for them against Culver, and this account fell into the hands of the trustee as did many others, and the trustee proceeded to collect it. Culver was bankrupt at the time appellee sought to collect the account; so, as trustee, appellee filed a proof of claim in another bankruptcy proceeding. The War Assets Administration later intervened in the proceeding, and appellee, under the assumption that Globe was still indebted to the War Assets Administration, agreed that the Culver claim could be paid by the Culver trustee directly to the War Assets Administration. In the latter part of 1947, it became apparent to appellee that the bankrupt estate was no longer indebted to the War Assets Administration, and he ceased making payments.

The War Assets Administration filed proofs and amended proofs of claims in the estate of this bankrupt. Upon a hearing and consideration of these claims, the referee entered his order allowing a claim for rent in the principal sum of $2222.23, together with interest in the amount of $175, making a total of $2397.23. The War Assets Administration's claim for cost of inventory was allowed in the amount of $4500, and its claim under the Industry Agency Agreement was allowed in the principal amount of $19,393.44, together with interest in the amount of $736.22, making a total of $20,129.66. Included in the allowance of $19,393.44, under the Industry Agency Agreement, was the bankrupt's claim against Culver, which had been allowed in the sum of $3682.59. The total amount of these allowances in favor of the government was $27,026.89. The referee found that the government had admitted payments on its claims in the sums of $10,500 and $2077.37, and a credit thereon of $7,364.18. He further found that the bankrupt was entitled to reimbursements in the amount of $10,929.10 under the terms of Contract No. SIA-5-5. The total amount of payments and credits thus found by the referee in favor of the bankrupt's trustee was $30,870.65. When the allowed claims were offset against the credits due the bankrupt and the payments made by it, there was found to be an overpayment on the part of the trustee in the sum of $3,843.76. The referee ordered that, when the government received payment of the approved claim in the Culver bankruptcy proceedings, it should forthwith remit such amount to the trustee of this bankruptcy estate, because the Culver claim was included in the government's allowance under the Industry Agency Agreement.

Being dissatisfied with the referee's order, the government petitioned the court below to review same. On a review, the lower court confirmed the order of the referee, and the government appealed to this court, contending that the referee did not have jurisdiction to order it to make a proper accounting for the overpayment made by the trustee or to order it to remit the amount collected on the approved claim in the Culver bankruptcy proceedings, because a referee in bankruptcy has no jurisdiction to enter an affirmative judgment against the United States or to make a finding that the United States is indebted to a trustee in bankruptcy, or any other person; that it was entitled to interest on certain of its claims until they were paid and not just to the date of the filing of the bankruptcy proceedings as found by the referee; that the bankrupt was not entitled to certain reimbursements under Contract No. SIA-5-5 allowed it by the referee, because such reimbursable expenses were not presented as claims to the General Accounting Office to be passed upon by it as required by law; and that the above-mentioned reimbursable costs and expenses under Contract No. SIA-5-5 should have been forfeited because of fraud practiced by the bankrupt in connection with two of the items of said claim.

The evidence in the record clearly shows that the trustee, in administering the estate in bankruptcy, overpaid the government. The referee recognized this overpayment in the amount of $3,843.76, and ordered that an accounting be made therefor, but went on further to provide that the order was without prejudice to the right of the trustee to assert a right of set-off against any other claims of the government allowed in the proceedings, in the event the government failed to account for the overpayment. When this proceeding came on for a hearing, the Culver claim had already been allowed as a preferential claim, but the money had not been paid. The $3,682.59 claim against Culver was included in the $19,393.44 claim, which the referee allowed the government. In other words, the government asserted a claim against Globe based on the latter's contractual liability under the agency contract; and included within this claim, which was allowed in the sum of $19,393.44, was the item of $3,682.59. Thus, when the court allowed the $19,393.44 claim, and found that the same had been paid, all of the indebtedness owing to the government, including its debt arising out of the Culver account, was offset or paid. The Culver money was later received for the purpose of applying it on the government's claim, which had been paid without the necessity of resorting to this particular money. It follows that when the government later received the Culver money, the Globe trustee was entitled to credit for same in an accounting, and the orders entered by the referee directing an accounting by the government for the overpayment and for the proceeds of the Culver claim were not affirmative judgments against the United States to which it had not consented, but were merely recognitions of such amounts for the purpose of protecting the trustee's future rights, since the government had presented and was presenting other claims for allowance and payment.

Section 68 of the Bankruptcy Act, 11 U.S.C.A. 108, provides that in all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor, the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid. In United States v. Roth, 2 Cir., 164 F.2d 575, the bankruptcy court was allowed to grant setoffs against claims of the United States, and the court overruled the government's contention that it could not be called to account in a court of bankruptcy under Section 68. The referee gave the government the opportunity to account for this money, but did not attempt under his order to enforce collection thereof. He did not say...