King v. United States, 16

• Decision Date: 14 December 1964
• Docket Number: No. 16,16
• Citation: 13 L.Ed.2d 315,85 S.Ct. 427,379 U.S. 329
• Parties: Elizabeth Simonson KING, etc., et al., Petitioners, v. UNITED STATES
• Court: U.S. Supreme Court

379 U.S. 329

85 S.Ct. 427

13 L.Ed.2d 315

Elizabeth Simonson KING, etc., et al., Petitioners,

v UNITED STATES.

No. 16.

Argued Oct. 19, 1964.

Decided Dec. 14, 1964.

David S. Bate, Montclair, N.J., for petitioners.

Alan S. Rosenthal, Washington, D.C., for respondent.

Mr. Justice HARLAN delivered the opinion of the Court.

This is an action brought by the United States against the executrix of George King,¹ a deceased distributing agent for a debtor in a Chapter XI proceeding, and against his surety. The Government alleged that King was personally liable under R.S. § 3467, 31 U.S.C. § 192 (1958 ed.), because he satisfied claims of non-priority creditors with knowledge of an outstanding government priority claim, in consequence of which the Government could not be paid in full.

The facts of the case were stipulated and are essentially as follows. On October 1, 1946, Seeley Tube &amp Box Company, Inc., a New Jersey corporation, filed a petition for reorganization under Chapter XI of the Bankruptcy Act, 30 Stat. 563, as amended, 52 Stat. 905. Soon thereafter, the United States notified Seeley that it intended to terminate, because of Seeley's default, two federal contracts between Seeley and the Picatinny Arsenal, an installation of the War Department of the United States; the Government further signified its purpose to relet the contracts and to hold Seeley liable for any excess costs. On March 17, 1947, the referee appointed King, who was Seeley's president, as distributing agent and accepted his surety bond for $10,000. On March 21, 1947, after a hearing, a plan of arrangement submitted by Seeley was confirmed; the Government was not listed as a creditor in Seeley's petition, but the Picatinny contracts were noted in an annexed schedule as executory. The plan called for Seeley, the debtor corporation, to deposit with the distributing agent.$160,193.68 to be distributed pursuant to orders of the court by checks signed by the distributing agent and countersigned by the referee. The plan contained no written provision for payment of the Government's as yet unliquidated and unfiled claim.

At the hearing, the following colloquy took place between the referee and Mr. Freeman, counsel for Seeley:

'The Referee. Is there a claim of the Picatinny Arsenal?

'Mr. Freeman. The Picatinny Arsenal may have some claim.

'The Referee. Have we put up enough money to meet it?

'Mr. Freeman. No.

'The Referee. Is there a problem there?

'Mr. Freeman. We do not owe them any money, and we want to bring them in. I want to state to your Honor further that the debtor company will deposit any sum of money that is represented by any claim that the Picatinny Arsenal may file in these proceedings within a time that your Honor directs them to file it.

'The Referee. Have you any notion of what they might claim?

'Mr. Freeman. We think they may claim $20,000.

'The Referee. Have you $20,000 available?

'Mr. Freeman. We have $94,000 available to pay them if necessary, and we represent to your Honor that there will be at all times $20,000 or more available to dispose of that claim, in cash * * *.'

The record shows that King was present in the courtroom on the day of the hearing.

Thereafter the court entered an order directing the Government to file its claim on or before May 9, 1947. On May 9 the Government duly filed its preliminary contingent proof of claim in the amount of $26,818.82, later amended to $34,125.03, alleging a priority under § 64 of the Bankruptcy Act, 11 U.S.C. § 104 (1958 ed.), and R.S. § 3466, 31 U.S.C. § 191 (1958 ed.). However, in the seven weeks between the hearing and the filing of this claim, King, as distributing agent, had paid out by checks duly countersigned by the referee, all but $6,085.01 of the.$160,193.68 deposited with him; $42,829.76 was paid to King himself as a creditor of the company.² A long litigation then commenced on the issue of whether the Government had timely filed its claim, with an ultimate determination being made in January 1955, in favor of the Government by the Court of Appeals for the Third Circuit. The court stated, 'The disclosure by the debtor at the referee's hearing on confirmation of the plan that the Government had become a creditor was * * * in performance of its duty under the Act and amounted to an informal amendment of the list of creditors included in the debtor's schedules.' In re Seeley Tube & Box Co., 219 F.2d 389, 391, cert. denied, 350 U.S. 821, 76 S.Ct. 46, 100 L.Ed. 734.

After King had distributed the $6,085.01 which still remained in his hands ($3,620.39 had gone to the United States) August 2, 1956, the Bankruptcy Court August 2, 1956, the Bankruptcy Court approved them and discharged King and his surety.³

On July 3, 1958, the United States commenced this suit against King⁴ for $25,831.08, the balance outstanding on the claim as finally determined, and against the surety for $10,000. The Government's contention was that King incurred personal liability under § 192 for the unpaid amount by paying the claims of the debtor's nonpriority creditors and thereby so depleting the debtor's assets that the Government's § 191 priority claim could not be paid in full. Section 192 provides:

'Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.'

The District Court dismissed the complaint on the theory that a distributing agent is not included within § 192 as an 'executor, administrator, or assignee, or other person' because he, unlike those fiduciaries mentioned specifically in the statute, is not a personal representative of the debtor but an arm and a representative of the bankruptcy court. 208 F.Supp. 697. The decision was reversed on appeal, 322 F.2d 317, and, because of a conflict among the circuits on the proper interpretation of § 192,⁵ we granted certiorari, 375 U.S. 983, 84 S.Ct. 519, 11 L.Ed.2d 472.

I.

Section 191,⁶ which establishes government priorities on any debts owed by an insolvent debtor to the United States, and § 192, which gives assurance that such debts will be paid, are part of a single statutory structure. The precursor of § 191 first appeared in 1789 in an act establishing customs duties (1 Stat. 29, 42). Section 21, relating to collection on bonds for the payment of duties, provided: '(A)nd in all cases of insolvency, or where any estate in the hands of executors or administrators shall be insufficient to pay all the debts due from the deceased, the debt due to the United States on any such bonds shall be first satisfied.' In 1792 the Government's priority was extended to voluntary assignments for the benefit of creditors and to attachments of the property of 'absconding, concealed or absent' debtors as well as to cases in which 'an act of legal bankruptcy shall have been committed,' § 18, 1 Stat. 263. Prior to passage of the Act of 1797, 'An internal revenue had been established, and extensive transactions had taken place; in the course of which, many persons had necessarily become indebted to the United States.' United States v. Fisher, 2 Cranch 358, 392. By the Act of 1797, the section was extended to cases involving 'any revenue officer, or other person hereafter becoming indebted to the United States, by bond or otherwise.' 1 Stat. 515. See Price v. United States, 269 U.S. 492, 501, 46 S.Ct. 180, 181, 70 L.Ed. 373. Then, in 1799, Congress took the step which concerns us here by adding the provision now embodied in § 192, establishing personal liability for those who frustrated the Government's priority:

'* * * and in all cases of insolvency, or where any estate in the hands of the executors, administrators or assignees, shall be insufficient to pay all the debts due from the deceased, the debt or debts due to the United States, on any such bond or bonds, shall be first satisfied; and any executor, administrator, or assignees, or other person, who shall pay any debt due by the person or estate from whom, or for which, they are acting, previous to the debt or debts due to the United States from such person or estate being first duly satisfied and paid, shall become answerable in their own person and estate, for the debt or debts so due to the United States, or so much thereof as may remain due and unpaid * * *.' 1 Stat. 676.

Later, in the same section, the proviso extending the statute to voluntary assignments and absconding debtors is also included.

Division of the provisions into separate sections in the Revised Statutes 'did not work any change in the purpose or meaning.' Price v. United States, 269 U.S. 492, 501, 46 S.Ct. 180, 181. Thus, it is evident that §§ 191 and 192 must be interpreted in pari materia. The Court so stated in United States v. Butterworth-Judson Corp., 269 U.S. 504, 513, 46 S.Ct. 179, 180, 70 L.Ed. 380, and so interpreted them in Bramwell v. United States Fidelity & Guaranty Co., 269 U.S. 483, 46 S.Ct. 176, 70 L.Ed. 368, where it said:

'The specification in section 3466 (§ 191) of the ways insolvency may be manifested is aided by the designation in section 3467 (§ 192) of the persons made anwerable for failure to pay the United States first from the inadequate estates of deceased debtors or from the insolvent estates of living debtors. The persons held are 'every executor, administrator, or assignee, or other person.' The generality of the language is significant. Taken together, these sections mean that a debt due the United States is required first to be satisfied when the possession and control of the estate of the insolvent is given to any person charged with the duty of applying it to the payment of the debts of the insolvent, as the...