Wagner v. McDonald

• Decision Date: 27 April 1938
• Docket Number: No. 11054.,11054.
• Citation: 96 F.2d 273
• Parties: WAGNER v. McDONALD, Federal Housing Administrator.
• Court: U.S. Court of Appeals — Eighth Circuit

96 F.2d 273 (1938)

WAGNER v. McDONALD, Federal Housing Administrator.

No. 11054.

Circuit Court of Appeals, Eighth Circuit.

April 27, 1938.

Clyde W. Wagner, of St. Louis, Mo., for appellant.

Marshall Craig, Asst. U. S. Atty., of Charleston, Mo. (Harry C. Blanton, U. S. Atty., of Sikeston, Mo., on the brief), for appellee.

Before GARDNER, SANBORN, and THOMAS, Circuit Judges.

THOMAS, Circuit Judge.

The single question presented on this appeal is whether a claim filed by the Federal Housing Administrator on behalf of the United States against a bankrupt estate is entitled to the priority accorded to debts due the government under section 3466, Revised Statutes, 31 U.S.C.A. § 191.

On June 17, 1935, Frank Weiss borrowed $2,493.93 from the Industrial Bank & Trust Company under the terms of the National Housing Act, as amended, 12 U.S.C. A. §§ 1701-1732, and executed two notes in favor of the bank for the aggregate amount. Subsequently, but prior to bankruptcy of the maker of the notes, the bank assigned them by an indorsement on the back "to the Federal Housing Administrator acting on behalf of the United States of America." On January 24, 1937, Weiss was adjudicated a bankrupt. In his schedule in bankruptcy the loan was listed as one entitled to priority of payment on the ground that it was a debt "due and owing to the United States." The Administrator then filed a claim "acting on behalf of the United States of America" for the unpaid balance on the notes of $2,067.77, including interest, and alleged that the claim was entitled to priority under section 64b(7) of the Bankruptcy Act, as amended, 11 U.S.C.A. § 104(b) (7), because it was submitted by a duly authorized agency of the United States. The referee held that the debt was not entitled to a preference, and entered an order allowing it as a general claim only, on the ground that the original debt "would not have been preferred in the hands of the Bank and the Bank by its assignment could assign only the rights that it had in the contract. * * *" On petition for review the District Court reversed the referee and ordered the claim to be allowed as preferred. The trustee of the bankrupt estate then brought this appeal, assigning the order of the District Court as error. Neither the amount of the claim nor the insolvency of the debtor are in dispute.

Section 64b(7) of the Bankruptcy Act, as amended, 11 U.S.C.A. § 104(b) (7), provides:

"The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be * * *

"(7) Debts owing to any person who by the laws of the States or the United States is entitled to priority: provided, that the term `person' as used in this section shall include corporations, the United States and the several States and Territories of the United States."

Section 3466, Revised Statutes, 31 U. S.C.A. § 191, provides: "Whenever any person indebted to the United States is insolvent, * * * the debts due to the United States shall be first satisfied; and the priority established shall extend * * to cases in which an act of bankruptcy is committed."

The language of the statute is unambiguous, and under the repeated decisions of the courts must be liberally construed. Beaston v. Farmers' Bank, 12 Pet. 102, 134, 37 U.S. 102, 134, 9 L.Ed. 1017; Lewis v. United States, 92 U.S. 618, 621, 23 L.Ed. 513; Bramwell v. United States F. & G. Co., 269 U.S. 483, 487, 46 S.Ct. 176, 177, 70 L.Ed. 368; Price v. United States, 269 U.S. 492, 500, 46 S.Ct. 180, 181, 70 L.Ed. 373; United States v. Guaranty Trust Co., 8 Cir., 33 F.2d 533, 537; Bliss v. United States, 8 Cir., 44 F.2d 909, 911.

The appellant seeks reversal of the order allowing priority on two grounds, which he states as follows:

(1) The United States is not a creditor of the bankrupt estate, and the Administrator, as such, is not entitled to priority of payment of his claim.

(2) Even should the claim be a debt due the United States, it is not entitled to priority of payment.

First. The appellant contends that the United States is not a creditor of the bankrupt estate for two reasons: (1) Because the "notes did not have any right of priority at the time of their execution * * * nor did the assignment create a debt due to the United States"; and (2) because the National Housing Act does not give a right of priority.

The second reason assigned requires no consideration. The right of priority, if it exists, arises under section 3466, and not by reason of any specific provision of the National Housing Act.

Neither is there merit in the first contention; that, because the right of priority did not attach to the notes in the hands of the bank when they were executed, the attribute of priority was not created when they became the property of the United States. Under section 3466, priority of payment does not depend upon how the United States acquired title to the notes, nor upon their status prior to their transfer. Priority is the result of insolvency of the debtor and ownership of the claim by the United States. In Howe v. Sheppard, 12 Fed.Cas. pp. 672, 675, No. 6,772, 2 Sumn. 133, Mr. Justice Story, as Circuit Justice for the District of Maine, held that a private judgment assigned to the United States prior to the death of the insolvent judgment debtor was entitled to priority over debts of the estate due private creditors under the statute. He said: "And, if the estate be insolvent, are not the United States necessarily entitled to a priority as to all their debts by the very terms of the statute?" He answered: "That the priority of the United States attaches to all debts, equitable, as well as legal."

In United States v. Fisher, 6 U.S. 358, 2 Cranch 358, 2 L.Ed. 304, the question was "Whether," under the statute, "the United States are entitled to be first paid and satisfied, in preference to the private creditors, a debt due to the United States by Peter Blight, as indorsor of a foreign bill of exchange, out of the estate of the bankrupt in the hands of assignees?" The bill had been purchased by an agent of the United States, but who did not declare himself to be such. In an opinion by Chief Justice Marshall the court held that the government was given priority by the statute.

In Lewis v. United States, 92 U.S. 618, 621, 23 L.Ed. 513, in considering the priority in bankruptcy of a debt due the Navy Department, the court said:

"This language is general, and it is without qualification.

"The form of the indebtedness is immaterial.

"It may be by simple contract, specialty, judgment, decree, or otherwise by record. The debt may be legal or equitable, and have been incurred in this country or abroad. A valid indebtedness is as effectual in one form as another. No discrimination is made by the statute.

"The debtors may be joint or several, and principals or sureties.

"Here, again, no distinction is made by the statute. All are included. * * *

"Where the language of a statute is transparent, and its meaning clear, there is no room for the office of construction. There should be no construction where there is nothing to construe."

In view of these well-settled principles, the fact that the debt assigned to the United States was originally a private debt is immaterial under the statute. But under this branch of his argument appellant contends that the government is not a creditor because, he says, the funds with which the Administrator purchased the notes from the bank were furnished by the Reconstruction Finance Corporation, a distinct corporate entity whose claims are not accorded priority in bankruptcy. This argument is based upon an erroneous interpretation of the National Housing Act. The two promissory notes evidencing the debt were made upon forms provided by the Federal Housing Administration, and were given to the Industrial Bank & Trust Company, which was insured under the provisions of...