Deseret Apartments v. United States

• Decision Date: 18 December 1957
• Docket Number: No. 5668.,5668.
• Citation: 250 F.2d 457
• Parties: DESERET APARTMENTS, Inc., Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

250 F.2d 457 (1957)

DESERET APARTMENTS, Inc., Appellant, v. UNITED STATES of America, Appellee.

No. 5668.

United States Court of Appeals Tenth Circuit.

December 18, 1957.

Keith E. Taylor, Salt Lake City, Utah (C. C. Parsons, A. D. Moffat and Calvin A. Behle, Salt Lake City, Utah, on the brief), for appellant.

Llewellyn O. Thomas, Asst. U. S. Atty., Salt Lake City, Utah (A. Pratt Kesler, U. S. Atty., Salt Lake City, Utah, on the brief), for appellee.

Before HUXMAN, MURRAH and BREITENSTEIN, Circuit Judges.

HUXMAN, Circuit Judge.

The United States, acting for the Federal Housing Commissioner, brought this action against Deseret Apartments, Inc., to foreclose a real estate and chattel mortgage on certain housing units constructed by Deseret at the Deseret Chemical Depot in Utah. The trial court entered a deficiency judgment against Deseret in the sum of $47,409.16, from which judgment this appeal is taken.

The construction of the housing units in question was undertaken after the Secretary of the Army issued a certificate of need for military housing for 26 multifamily structures to be located on or near Deseret Chemical Depot, an Army installation located in a sparsely populated area approximately 20 miles south of Tooele, Utah.

On appeal Deseret challenges the deficiency judgment on the ground that the Government comes into court with unclean hands and that before it is entitled to equity it must do equity. This contention is predicated on the premise that Deseret in constructing the housing units relied upon the statement in the certificate of necessity issued by the Secretary of the Army that "* * * the above identified housing project is necessary to provide adequate housing for civilian or military personnel (including government contractors' employees) assigned to duty at the military installation named above; * * *". It is contended that there was in fact not sufficient need for such units to enable Deseret to rent them and thus meet its mortgage payments, and that because of this misrepresentation Deseret was misled to its detriment, and that equity will, therefore, not permit the Government to obtain a deficiency judgment. A secondary contention is that in any event Deseret is entitled to a setoff against the deficiency judgment in the sum of $27,395, an operating loss, which it suffered in operating the apartments.

Deseret is not entitled to set off its claim of an operating loss of $27,395. Its claim for this amount is in reality no more than a claim of a credit due Deseret from the United States. The procedure required to establish such a credit is controlled by 28 U.S.C.A. § 2406 which in substance provides that such a claim shall not be allowed unless it is established that it has been disallowed in whole or in part by the General Accounting Office. No claim is made that this statutory requirement has been complied with.

We think the facts of this case bring it within the pronouncement of the Supreme Court in Pan-American Petroleum & Transport Co. v. United States, 273 U.S. 456, 506, 47 S.Ct. 416, 424, 71 L.Ed. 734, that "The general principles of equity are applicable in a suit by the United States to secure the cancellation of a conveyance or the rescission of a contract. * * * But they will not be applied to frustrate the purpose of its laws or to thwart public policy." and that the Government may not invoke the aid of a court of equity if for any reason its conduct is such that it must be said it comes into court with unclean hands. But unless the Government did something which in good conscience it should not have done, or failed to do something fair dealing required it to do, it comes into court with clean hands and is entitled to the equitable relief it obtained.

Appellant's entire case is predicated on the court's finding that the project referred to in the certificate of necessity was not fully justified and in view of subsequent developments it was clear that the facilities then contemplated were not needed. But the court further found that the certificate was issued in good faith. The most that can be said is that the parties erred in...