274 F. 893 (2nd Cir. 1921), 208, In re Eastern Shore Shipbuilding Corp.

Docket Nº:208.
Citation:274 F. 893
Party Name:In re EASTERN SHORE SHIPBUILDING CORPORATION. v. WOOD. UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION
Case Date:June 15, 1921
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 893

274 F. 893 (2nd Cir. 1921)

In re EASTERN SHORE SHIPBUILDING CORPORATION.

UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION

v.

WOOD.

No. 208.

United States Court of Appeals, Second Circuit.

June 15, 1921

Page 894

Francis G. Caffey, U.S. Atty., of New York City (Edward F. Unger, Asst. U.S. Atty., of New York City, and Henry J. Gibbons and Wm. Y. C. Anderson, both of Philadelphia, Pa., of counsel), for appellant.

Rosenberg, Ball & Marvin, of New York City (Godfrey Goldmark, of New York City, of counsel), for appellee.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

ROGERS, Circuit Judge.

This case presents two questions of very considerable importance:

(1) Is the United States Shipping Board Emergency Fleet Corporation, organized under the laws of the District of Columbia for and on behalf of the United States in connection with the World War, such an agent of the United States that a debt due to it from the bankrupt is in fact and in law a debt due to the United States; and is the corporation as representing the United States entitled to claim whatever right of priority of payment the United States might be entitled to assert in the case of a debt owing to the government?

(2) If the court finds that the Fleet Corporation is such an agency, and may assert such rights to priority as the United States has, is the United States itself, under the Bankruptcy Act (Comp. St. Secs. 9585-9656), entitled to the prior payment of ordinary debts due to it as against the general creditors of the bankrupt?

It may be said concerning the second question that there seems to be no authoritative decision determining whether or not the United States itself is entitled under the existing Bankruptcy Act to prior payment of debts due to it, as distinguished from unpaid taxes. This is rather remarkable, as the act has been in force since 1898. It will, of course, not be necessary for this court to consider the second of these questions, if we find that the Fleet Corporation is not such an agent of the United States that a debt due to it cannot be regarded as a debt due to the United States.

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The first question which is here presented has received no consideration in any other case, at least in none which has come under our observation, or which has been brought to our attention. As contracts running into many millions of dollars have been entered into with the Fleet Corporation, and many of the contractors have been made bankrupt in attempting to perform them, and there are large sums due from them to the corporation, as well as to private creditors, the importance of the questions involved is readily appreciated.

It appears that on August 22, 1918, the United States Shipping Board Emergency Fleet Corporation entered into a contract with the Eastern Shore Shipbuilding Corporation, hereinafter referred to as the Eastern Shore Corporation, for the construction of six wooden harbor tugs for the United States. For each of these tugs the Eastern Shore Corporation was to receive $145,000, to be paid in ten installments as the work progressed. After the signing of the Armistice on November 11, 1918, the work under this contract was stopped, but was later resumed under supplemental agreements which it is not necessary to consider. In March, 1919, the Eastern Shore Corporation became involved in financial difficulties and receivers were appointed for it, and shortly thereafter, on March 20, 1919, it was adjudicated a bankrupt. At the time of adjudication none of the six tugs in course of construction was completed sufficiently to launch. The Eastern Shore Corporation had been paid by the Fleet Corporation under the contract on account $428,017.72. And after the adjudication of bankruptcy the Fleet Corporation was compelled to expend the additional sum of $135,161.65 in order to be able to launch the tugs and remove them from the bankrupt's shipyard. At the time of the bankruptcy the tugs were appraised at the sum of $100,000 and this was found to be their value by the referee in bankruptcy, who deducted that amount from the sum of $428,017.72, and allowed the balance of $328,017.72 as a general claim of the Fleet Corporation against the bankrupt's estate, but disallowed priority to said claim on the ground that the debt represented thereby is not a debt due to the United States. On petition to review the order of the referee, the District Judge affirmed it in all respects. On the appeal to this court no question is raised as to the amount due from the bankrupt. The only questions involved are those stated in the beginning of this opinion.

The argument presented to us is that the Fleet Corporation, by virtue of its incorporation and organization under the acts of Congress and by virtue of an executive order of the President of the United States issued in pursuance of an act of Congress, was at the time of and in the transaction out of which this controversy grew, and still is, the appointee of the President of the United States, and the agent and representative of the United States, and that, the contract with the bankrupt having been made for and on behalf of the United States by the Fleet Corporation, as the appointee of the President and the agent and representative of the United States, the debt due thereunder is a debt due and owing to the United States, and therefore entitled

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to priority of payment under the provisions of section 64 of the Bankruptcy Act (Comp. St. Sec. 9648) and of section 3466 of the Revised Statutes (Comp. St. Sec. 6372). The pertinent provisions of section 64 1 and section 3466 2 are found in the margin.

In determining the question of whether the Fleet Corporation is such an agency of the United States that a debt due to it is to be regarded as a debt due to the United States, it is necessary to examine the acts of Congress under which the Corporation came into existence. The Act of Congress of September 7, 1916, is entitled:

'An act to establish a United States Shipping Board for the purpose of encouraging, developing, and creating a naval auxiliary and naval reserve and a merchant marine to meet the requirements of the commerce of the United States with its territories and possessions and with foreign countries; to regulate carriers by water engaged in the foreign interstate commerce of the United States; and for other purposes. ' U.S. Stat. at Large, vol. 39, c. 451, p. 728.

The act created a board of five commissioners, to be appointed by the President. It authorized the board, with the approval of the President, to cause to be constructed and equipped, in American shipyards or elsewhere, or to purchase, lease, or charter, vessels suitable, as far as the commercial requirements of the marine trade of the United States may permit, for...

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