United States v. Barnes

• Citation: 31 F. 705
• Parties: UNITED STATES v. BARNES.
• Decision Date: 16 July 1887
• Court: U.S. District Court — Southern District of New York

31 F. 705

UNITED STATES v. BARNES.

United States Circuit Court, S.D. New York.

July 16, 1887

Abram J. Rose, Asst. U.S. Atty., for plaintiffs in error.

Joseph A. Shoudy, for defendant in error.

WALLACE J.

This is a writ of error brought by the plaintiffs to review a judgment of the United States district court in favor of the defendant. The suit was brought to recover $32,000, with interest from September 12, 1871,-- moneys paid out by the defendant on that date as assignee in bankruptcy of Theodore H. Vetterlein and Bernhard P. Vetterlein, as a dividend to creditors, which moneys, upon the theory of the plaintiffs the defendant should have retained, and applied to pay the United States as a creditor of the bankrupts having priority over all other creditors. The cause of action arises under sections 3466 and 3467 of the United States Revised Statutes. Section 3466 provides that whenever any person indebted to the United States is insolvent, the debt due to the United States shall be first satisfied, and that the priority thereby established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts makes a voluntary assignment thereof, as well as to cases in which an act of bankruptcy is committed. Section 3467 provides that every assignee or other person who pays any debt due by the person or estate from whom or for which he acts, before he satisfies and pays the debt due to the United States from such person or estate, shall become answerable in his own person or estate for the debt so due to the United States, or for so much thereof as may remain due and unpaid.

The complaint avers that the Vetterleins were adjudicated bankrupts on the seventh day of February, 1871, in the district court of the United States for the Southern district of New York; that the defendant was on the first day of March, 1871, and ever since has been, the assignee in bankruptcy of the Vetterleins; that at the time the Vetterleins were adjudicated bankrupts they were jointly and severally indebted to the United States in the sum of $99,951, and their estate was insufficient to pay their debts; that at and prior to the twelfth day of September 1871, the defendant had notice of the indebtedness of said bankrupts to the United States; that on that day, having in his hands as such assignee assets to the sum of $32,000 and upwards, the defendant distributed and paid the same to creditors of the bankrupts other than the United States before he had satisfied or paid the debt due to the United States; and that the entire assets of the bankrupts remaining after said dividend was paid were insufficient to pay the debt due to the United States by more than the sum of $32,000.

The evidence upon the trial sustained the averments of the complaint, except that it did not show that the defendant was aware at the time of paying out the $32,000 of the precise nature or extent of the demand existing against the bankrupts in favor of the United States. It appeared, however, that in July, 1869, the United States had brought a suit in the United States district court for the Southern district of New York against the Vetterleins, to recover an alleged indebtedness of $540,000 for the violation of the customs revenue laws, and that the defendant acquired notice of the pendency of this action after he was appointed assignee, and prior to the distribution of the $32,000. It further appeared by the evidence upon the trial that the United States did not intervene in the bankruptcy proceedings, or take any steps to establish their claim, until a time subsequent to the distribution of the $32,000; that April 19, 1872, a judgment was entered in the pending suit in favor of the United States against the Vetterleins upon a cognovit for $99,951; and that on or about April 2, 1878, the claim and proof of debt of the United States, as a creditor of the bankrupts, was allowed and established upon the application of the attorney for the United States in the bankruptcy proceeding as a debt against the estate of the bankrupts jointly, for $99,951, with priority of payment next after the fees, costs, and expenses of the proceedings in bankruptcy. The defendants put in evidence the order of the court in the bankruptcy proceeding, passing the final account of the assignee. The proceedings upon which this order was founded showed that in April, 1883, the government appeared by the United States attorney, and filed objections to the account, and after proofs the court found a balance of cash in hand of the assignee, after deducting from the moneys received by him all charges, claims, and allowances, as the net cash surplus of the joint assets of the bankrupts, the sum of $27,283. This sum the court ordered to be paid to the United States. At the close of the evidence it was agreed by counsel for the respective parties that there was no question of fact to be submitted to the jury; and the counsel for the plaintiffs asked the court for a peremptory instruction to 'he jury to render a verdict for the plaintiffs, and the counsel for the defendant asked a like instruction that they render a verdict for the defendant.

The court instructed the jury to render a verdict for the defendant, and the plaintiffs excepted. The plaintiffs in error now rely upon this exception as the ground for a reversal of the judgment.

The provisions of law giving priority to the United States in cases of insolvency, now embodied in sections 3466 and 3467 of the Revised Statutes, originated in the act of congress of 1797, as supplemented by the act of March 2, 1799, and have frequently been considered by the courts. It is established by many adjudications, in which the meaning and effect of these provisions have been discussed, that such priority extends to all classes of...