United States v. Moore

• Citation: 497 F.2d 976
• Decision Date: 26 July 1974
• Docket Number: No. 73-2951.,73-2951.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Thomas W. MOORE, Jr., Assignee for Benefit of Creditors of Emsco Screen Pipe Company of Texas, et al., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

497 F.2d 976 (1974)

UNITED STATES of America, Plaintiff-Appellee, v. Thomas W. MOORE, Jr., Assignee for Benefit of Creditors of Emsco Screen Pipe Company of Texas, et al., Defendants-Appellants.

No. 73-2951.

United States Court of Appeals, Fifth Circuit.

July 26, 1974.

Thomas Osa Harris, Houston, Tex., for defendants-appellants.

Hellen M. Eversberg, Asst. U. S. Atty., Houston, Tex., Roger Wesley, Kathryn H. Baldwin, General Claims Section, Civ. Div., U. S. Dept. of Justice, Washington, D. C., for plaintiff-appellee.

Before JONES, THORNBERRY and COLEMAN, Circuit Judges.

JONES, Circuit Judge.

The facts from which this controversy arose were stipulated. In June, 1966, Emsco Screen Pipe Company of Texas entered into separate contracts with the Department of the Navy, the Department of the Army and the Defense Supply Agency for materials and supplies to be furnished thereafter. Emsco defaulted. The Navy terminated its contract on August 31, 1966. The Army terminated on December 6, 1966, and Defense Supply on October 19, 1966. Emsco made a voluntary assignment for the benefit of its creditors on October 20, 1966, to Thomas W. Moore, Jr. It was stipulated that "All of the . . . . claims were finalized¹ as to exact amounts after the aforesaid assignment." The assets in the hands of the assignee were insufficient to discharge all claims in full. The United States brought an action against the assignee and asserted priority under 31 U.S.C.A. § 191². The district court concluded that the statute gave priority and entered judgment for the United States. The assignee has appealed.

The question to be decided is whether there were "debts due to the United States" from Emsco at the time it made its assignment for the benefit of creditors. The statute providing priority and the phrase "debts due" are not new. The present statute is not very different from the version incorporated in the revised statute.³ The phrase is, it seems, included in an Act of Congress of 1797. See Prince v. Bartlett, 12 U.S. (8 Cranch) 431, 3 L.Ed. 614. The word "debt" has been many times defined and given many varied meanings. The definitions range from the duty to return a social courtesy to legal obligations of many kinds. 26 C.J.S., p. 1, Debt, et seq. It has been said that a debt is an obligation to render something to someone else. In searching for the meaning of a term of so many different meanings in different contexts, we look to the meaning which it had when it was used in the first priority statute enacted by the Congress. At that time the basic law of all of the states, both substantive and procedural, was the common law. One of the common law actions was the action of debts. "The action of debt lies where a party claims the recovery of a debt, i. e. a liquidated or certain sum of money alleged to be due to him." Stephen, Principles of Pleading, 8th Am. Ed., p. 13, 1859. Such was the meaning of the word "debt" at the time of the earliest priority enactment. Such is the meaning of the word in the present statute. The United States had claims for damages for breach of contract. The stipulation expressly states that the claims were not finalized when the assignment was made. The claims were not for sums certain or which could be made certain by mathematical computation. They were not liquidated. Because the claims of the United States were not for fixed and certain amounts and presently payable, they were not debts due.

Since it is here determined that the claims of the United States were not "debts due," the judgment of the district court will be reversed and the cause remanded for further appropriate proceedings.

Reversed and remanded.

COLEMAN, Circuit Judge, Separate Opinion.

Judges Jones and Thornberry reach diametrically opposing results as to how the issue raised in this appeal should be decided. Their written opinions reflect the precedential murkiness surrounding the question. Neither cites a case squarely in point. Thus, they are left to reason from other premises. Obviously, I find myself similarly situated.

I am impressed by the fact that this statute has been on the books since March 3, 1797, and all along the language has remained the "same" or "equivalent", United States v. Oklahoma, 261 U.S. 253, 43 S.Ct. 295, 67 L.Ed. 638. Thus, it would appear, Congress has considered it adequate to the consummation of its fundamental purpose, which the courts have described as the "protection of the government's revenue". It has been content to rely on debts ; it has not seen fit to expand the language to include "claims" or such like.

I note, too, that this statute is codified in the official version of the United States Code, United States Government Printing Office, 1971, Chapter 6 of Title 31, under the heading, "Debts Due By, or To, The United States".

Stripped of language inapplicable to the issue which must be decided, 31 U. S.C., § 191 may be read as follows:

"Whenever any person indebted to the United States is insolvent * * * *, the debts due to the United States shall be first satisfied." (emphasis added).

In other words, there must not only be a "debt", but it must be "due".

Let us now look at the case.

In its brief the Government says, "The original claims were against the assignee and Emsco for breach of contract" (emphasis mine). When did the "claim" ripen into a "debt due" ? My answer to this has to be, "not until the amount of the damages for the breach had been ascertained by someone with the appropriate jurisdiction to make a determination binding on both the claimant and the defendant".

The contract which ultimately gave rise to this "debt" (or claim, as the case may be) was made in June, 1966. The contract was an obligation, according to its own terms, but I doubt that either in 1797 or today it could be "liberally construed" to be a debt. The default spawned a claim for breach of the contract, but, again, I cannot construe a claim to be a debt, although it most certainly may ripen into one, as it did here. A claim cannot be a "debt due" until the amount has been ascertained. The assignment for the benefit of creditors was made on October 20, 1966. I have no hesitancy in saying that on that date the United States was not the owner of a debt due from Emsco. It had only a claim. To this point, therefore, I am in agreement with the views expressed by Judge Jones.

I read Massachusetts v. United States, mentioned in Judge Thornberry's opinion, to mean that priority is to be determined as of the date of the insolvency, not retroactively. The amount owed by Emsco as damages for its default was not finally ascertained until 1973, about seven years after the insolvency.

I, therefore, concur in the reversal of the judgment below and remand for further proceedings.

THORNBERRY, Circuit Judge (dissenting):

In this case we are called upon to construe the meaning of "debts due to the United States" as used in 31 U.S.C.A. § 191 (hereinafter the "Priority Statute"). In selecting among the various definitions of "debt" that have been applied in varying contexts, the majority inexplicably turns to the highly technical definition of the common law action of debt. In so doing the majority fails to construe the statute, in accordance with guidance from the Supreme Court, breaks with prior judicial interpretation without discussing the relevant cases, and creates an unexplained and unwise deviation from the interpretation of the term under the Bankruptcy Act, despite the analogous factual bases for application of the two statutes. Therefore, with deference, I dissent.

The Priority Statute is founded on the public policy of securing an adequate revenue to sustain public burdens and discharge the public debts. United States v. State Bank of North Carolina, 1832, 6 Pet. (31 U.S.) 29, 8 L.Ed. 308; Small Business Administration v. McClellan, 1960, 364 U.S. 446, 81 S.Ct. 191, 5 L.Ed.2d 200; City of Sherman v. United States, 5 Cir. 1968, 400 F.2d 373 ; Viles v. Commissioner of Internal Revenue, 6 Cir. 1956, 233 F.2d 376. The statute is to be liberally construed in order to effectuate that purpose. United States v. State Bank of North Carolina, supra; Bramwell v. United States Fidelity & Guaranty Co., 1926, 269 U.S. 483, 46 S.Ct. 176, 70 L.Ed. 368; United States v. Emory, 1941, 314 U.S. 423, 62 S.Ct. 317, 86 L.Ed. 315; United States v. Gotwals, 10 Cir. 1946, 156 F.2d 692 ; Lakeshore Apartments, Inc. v. United States, 9 Cir. 1965, 351 F.2d 349. By adopting a narrow, technical definition of "debt" so as to defeat the United States' priority, the majority, it seems to me, flies in the teeth of these well established general principles of construction.

The few cases that have directly considered whether the Priority Statute applies to unliquidated obligations also point toward an affirmative answer. The strongest case support for the majority's position is Massachusetts v. United States, 1948, 333 U.S. 611, 68 S. Ct. 747, 92 L.Ed. 968, where the Court held that the option of an assignee for the benefit of creditors to pay state unemployment compensation taxes and take credit against federal taxes was cut off by the insolvency of the debtor. In rationalizing this result, the Court appeared to adopt a narrow definition of "debt" for purposes of the Priority Statute.

It is at least doubtful on the statute\'s wording that obligations wholly contingent for ultimate maturity and obligation upon the happening of events after insolvency can be said to fall within the reach of "debts due" as of the time of insolvency.

333 U.S. at 626-627, 68 S.Ct. at 756. In footnote 26, the Court explained further.

The fact that all of the decisions sustaining the priority were for debts clearly due and owing, adds force to the clear inferences implicit in the statute\'s wording, viz., that Congress not only created a conclusive priority attaching as of the time of insolvency but in doing so drew the line for its operation close to, if not at, the

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