Hofmann v. United Welding & Mfg. Co.

• Citation: 140 Conn. 597,102 A.2d 878
• Court: Supreme Court of Connecticut
• Decision Date: 26 January 1954
• Parties: HOFMANN et al. v. UNITED WELDING & MFG. CO. Supreme Court of Errors of Connecticut

Page 878

102 A.2d 878

140 Conn. 597

HOFMANN et al. v. UNITED WELDING & MFG. CO.

Supreme Court of Errors of Connecticut.

Jan. 26, 1954.

Louise Foster, of the District of Columbia bar, Sp. Asst. to the U. S. Atty. Gen., with whom were Edward J. Lonergan, Asst. U. S. Atty., Hartford, and, on the brief, Simon S. Cohen, U. S. Atty., Rockville, H. Brian Holland, Asst. U. S. Atty. Gen., and Ellis N. Slack and A. F. Prescott, Sp. Assts. to the U. S. Atty. Gen., for appellant (defendant United States).

Louis Weinstein, Asst. Atty. Gen. of Connecticut, with whom, on the brief, was William L. Beers, Atty. Gen. of Connecticut, for appellee (state).

M. J. Blumenfeld, Hartford, with whom was James J. Dutton, Jr., Norwich, for appellees (defendant stockholders).

Before INGLIS, C. J., and BALDWIN, O'SULLIVAN, QUINLAN and WYNNE, JJ.

O'SULLIVAN, Associate Justice.

The plaintiffs, as stockholders of the defendant corporation, instituted this action on August 29, 1946. Their complaint alleged that the corporation was solvent but that its assets were in danger of being wasted. They prayed for the appointment of a receiver and for the dissolution of the corporation. On January 16, 1947, no plea or answer having been filed, the court, after hearing the plaintiffs and one other stockholder, found all allegations of the complaint true and rendered an interlocutory judgment appointing a permanent receiver.

During the time limited by the court, the state of Connecticut filed with the receiver a claim of $5649.48 for unpaid corporate taxes. Within the same period, the United States filed two claims, one for $289,001.72, the other for $282,255.71. The former, a tax claim, was based on deficiencies found by the commissioner of internal revenue; the latter, a renegotiation claim, had been determined by the war contracts price adjustment board, acting under authority of the Renegotiation Act of 1943, 50 U.S.C.A.Appendix, § 1191. All three claims had accrued prior to receivership and are valid. Each was allowed by the receiver and, subsequently, by the court. The defendant has never been adjudged insolvent in this or in any other proceeding.

After liquidating the corporate assets, the receiver has approximately $200,000 on hand, an amount which is insufficient to pay the claims of both the federal and the state governments. On October 31, 1952, he filed an application for an order for the distribution of these funds. On January 23, 1953, the court ordered that they be paid 'to the United States and the State of Connecticut in proportion to the face amount of their respective claim[s].' The United States has appealed from the order, assigning as the sole error the refusal of the court to hold that the claims of the United States were entitled to priority over that of the state. Certain stockholders of the defendant also contend that the court erred in its determination of the amount due the United States. The order appealed from decided only the question of priority. The allowance of the claim of the United States was entered in a separate order. The question sought to be raised by these stockholders is not at issue on this appeal.

The federal government bases its claim of priority on § 3466 of the Revised Statutes 1875. 31 U.S.C. § 191 (1946) [31 U.S.C.A. § 191]. ¹ The statute has been in force since 1797 without material change. 1 Stat. 515; United States v. Emory, 314 U.S. 423, 428, 62 S.Ct. 317, 86 L.Ed. 315. Its constitutionality has been upheld. United States v. Fisher, 2 Cranch 358, 6 U.S. 358, 396, 2 L.Ed. 304. It necessarily follows that § 3466 is the supreme law of the land and the courts of this state are bound by and must apply it, whenever it is pertinent. U.S.Const. Art. VI; Brown v. General Laundry Service, Inc., 139 Conn. 363, 368, 94 A.2d 10.

The substance of many of the decisions addressed to the statute since its enactment is that, by adding the language which follows the semicolon, the framers of the statute intended to and did limit its operation to the type of cases selected as illustrations. United States v. Hooe, 3 Cranch 73, 7 U.S. 73, 91, 2 L.Ed. 370; Conard v. Atlantic Ins. Co., 1 Pet. 386, 26 U.S. 386, 438, 7 L.Ed. 189; Beaston v. Farmers' Bank of Delaware, 12 Pet. 102, 37 U.S. 102, 133, 9 L.Ed. 1017. Consequently, to render the statute applicable and thus to extend priority to a federal claim, there must be (1) a case of an insolvent debtor who makes a voluntary assignment of his property, or (2) a case in which the estate and effects of an absconding, concealed or absent debtor are attached by process of law, or (3) a case in which an act of bankruptcy is committed. United States v. Oklahoma, 261 U.S. 253, 262, 43 S.Ct. 295, 67 L.Ed. 638.

As the basis for establishing the applicability of the statute, the federal government in the case at bar relies exclusively on the third mode for manifesting insolvency. The specific act of bankruptcy which, it maintains, was committed is that, while insolvent or unable to pay maturing debts, the defendant procured, permitted, or suffered voluntarily or involuntarily the appointment of a receiver to take charge of its property. 52 Stat. 844, 11 U.S.C. § 21(a)(5) (1946) [11 U.S.C.A. § 21, sub. a(5)].

That the defendant was insolvent, under every recognized meaning of that term, when the receiver, approximately six years after his appointment, applied for an order to distribute the funds on hand is perfectly obvious. No one challenges the fact. The court was well aware of it for, in a memorandum upon the application, the court observed that '[a]n inspection of the file indicates hopeless insolvency'; the state of Connecticut was likewise cognizant of the defendant's financial plight as of that time and readily concedes its then existence; and the finding abundantly demonstrates the force of the court's observation and the reason for the state's concession, since the distributable assets are but $200,000 while the allowed claims of both governments, excluding all other obligations, total $576,906.91. This points up the clash between the parties. It is the state's position that § 3466 is not pertinent unless the debtor is shown to be insolvent at the time receivership begins, while the federal government maintains that insolvency, whenever established during receivership, makes the statute applicable.

To support its contention, the United States places great reliance on three cases, Price v. United States, 269 U.S. 492, 46 S.Ct. 180, 70 L.Ed. 373, Hatch v. Morosco Holding Co., 2 Cir., 61 F.2d 944, certiorari denied sub nom. Irving Trust Co. v. United States, 288 U.S. 613, 53 S.Ct. 404, 77 L.Ed. 986, and Davis v. Pullen, 1 Cir., 277 F. 650. We do not attribute to these cases the significance which the federal government insists they possess. Thus, the Price case goes no further than to hold that the answer of the corporation, on a petition for receivership, admitting not only an inability to pay its debts but also the grave possibility that certain creditors were about to obtain inequitable preference as against other creditors, and joining in the plaintiff's prayer for relief, amounted to a voluntary assignment of its property within the meaning of § 3466. In the Hatch case, the receiver conceded that on the date of his appointment the corporate estate was insolvent. In the Davis case, the creditor petitioning for the appointment of a receiver alleged that the corporation, though solvent, was...