United States v. Corporation
| Decision Date | 02 March 1925 |
| Docket Number | No. 338,BUTTERWORTH-JUDSON,338 |
| Citation | 45 S.Ct. 338,69 L.Ed. 672,267 U.S. 387 |
| Parties | UNITED STATES et al. v. CORPORATION et al |
| Court | U.S. Supreme Court |
Mr. Wm. Marshall Bullitt, of Louisville, Ky., and The Attorney General, for appellants.
Mr. William C. Breed, of New York City, for appellee National Newark & Essex Banking Co.
Mr. David Paine, of New York City, for appellees Chase National Bank and others.
The United States, plaintiff below, and certain surety companies, defendants below, appeal from a decree of the Circuit Court of Appeals (297 F. 971), affirming that of the District Court dismissing the complaint as to certain banks, defendants below, and dismissing counterclaims set up against the banks in the answers of the surety companies. The decree also dismissed counterclaims against the banks, set up in the answer of the Butterworth-Judson Corporation and its receivers, defendants below They have not appealed.
The controversy concerns the right of the banks, as against appellants, to set off against debts owing to them by the Butterworth-Judson Corporation the deposit balances remaining with them in special accounts.
The Butterworth-Judson Corporation, a contractor, and the United States, made an agreement, dated May 9, 1918. The contractor agreed to select a site and, for a profit of $1 and no more, to design, construct, and equip thereon a plant for the production of picric acid, and to manufacture for the United States 72,000,000 pounds for 53 cents per pound. The entire cost of the plant was to be paid by the United States. The contractor was to make all necessary expenditures for the construction work, and the United States from time to time was to reimburse it therefor. The United States agreed to recommend to the War Credits Board an advance payment to the contractor of $1,500,000, upon such terms as the board might prescribe, and also agreed that, if the board should require interest on the advance payment, it would reimburse the contractor as a part of the cost and expense of the latter under the contract. The United States reserved the right to cancel the agreement at any time that its need for the plant or output ceased. It agreed in such event to reimburse the contractor for its expenditures, to assume all its outstanding obligations incurred under the contract, and to pay for all the picric acid wholly or partly manufactured, and it agreed in case of cancellation before 18,000,000 pounds were delivered, to pay three cents per pound for the undelivered portion up to that amount.
The same parties made a supplementary agreement, dated May 22, 1918. The United States agreed to advance $1,500,000 to the contractor. The contractor agreed to account for the advance with interest, by applying that amount to the payment of vouchers covering deliveries of picric acid. The contractor reserved the right at any time to repay in cash. If the United States did not recoup, through the deliveries of picric acid, the total amount of the advance with interest, the contractor was required to 'return to the government, on demand, any balance of the said advance and interest after deducting the total of any recoupments made as hereinabove provided together with all liquidated accounts that may be due and owing under the principal agreement from the government to the contractor.' The contractor agreed to give the United States, as collateral security for the recoupment or return of the above-mentioned advance and any interest due, it demand note for $1,500,000, bearing 6 per cent. interest, and to furnish a bond in the sum of $750,000, with surety for the performance of the agreement. The United States reserved the right, in case of failure of the contractor to comply with the agreement, to sell the note and apply the proceeds to the repayment of the advance, accounting to the contractor for the surplus, if any; but it agreed not to negotiate or demand payment of the note, so long as the contractor was not in default, and to return the note and bond upon complete performance. And the agreement contained the following:
'The contractor shall deposit the money advanced hereunder in special accounts in banks, separate from its other funds, and shall draw on said accounts only in payment of expenditures made and obligations incurred in designing, constructing and equipping the plant specified in the principal agreement, and for other equipment and for material, labor and overhead expense, required in the direct performance of the principal agreement, unless otherwise authorized in writing by the War Credits Board.'
It was stipulated that the contracting officer might require the contractor to deposit in the special accounts the funds paid by the government, reimbursing the contractor for expenditures made from such advance payment. The contractor was to collect from the banks with which such accounts were kept such interest as is usually allowed for similar accounts, and credit or pay that interest to the government.
The bonds provided for in the principal and supplementary agreements were furnished. The United States advanced $1,500,000 to the contractor, and the latter gave its note as agreed. The contractor deposited the money with defendant banks in special accounts, and entered upon the performance of the agreement. It made withdrawals from these accounts for the specified purposes, and from time to time deposited therein the sums paid to it by the United States in reimbursement of its expenditures. The banks at all times knew that the moneys deposited by the contractor in the special accounts consisted exclusively of the advance payment and replenishments, and that all deposits and balances in these accounts were held pursuant to the principal and supplementary agreements. Shortly after the Armistice, the plant being less than half completed, the United States terminated the principal agreement. No picric acid had been manufactured. The United States reimbursed the contractor and assumed all the latter's obligations under the principal agreement. It was shown in a creditors' suit in the District Court that the contractor was unable to pay...
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