King v. United States

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 nonpriority 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 &

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

After King had distributed the $6,085.01 which still remained in his hands ($3,620.39 had gone to the United States) he filed his final report and account. On 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 King^[4] for $25,831.08, the balance outstanding on the claim as finally determined, and against the surety for $10,000. The Govérnment’s contention was that King incurred personal liability under § 192 for the unpaid amount by paying the claims of the debtor’s non-priority 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”

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

Petitioners’ emphasis on a distinction between a personal representative and an agent of the court is misplaced in the context of §§ 191 and 192. The purpose of § 192, as recognized in Bramwell, is to make those into whose hands control and possession of the debtor’s assets are placed, responsible for seeing that the Government’s priority is paid. Whether or not King falls within the category of fiduciaries on whom such responsibility should be placed depends, not on the title of his position or the mode of his appointment, but, in practical terms, upon the degree of control he is in a position to assert over the allocation among creditors of the debtor’s assets in his possession. That appointment as an officer of the court does not decisively inhibit operation of § 192 -is shown by the express inclusion.within the scope of the statute of court-appointed administrators^[7] And Bramwell. showed that others besides personal representatives of the debtor may be included in § 192, for in that case this Court indicated that § 192 would apply to a state official charged with the function of liquidating a bank’s assets, although the official was clearly not acting as the personal representative of the bank. Petitioners would distinguish Bramwell in that the state official had a large measure of control, whereas King did not,^[8] but this, on the one hand, does not vitiate the point that one need not be a personal representative to come within the coverage of § 192, and, on the other, emphasizes that it is the element of control over the assets which is decisive.

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It remains to inquire whether King, by acting as an arm of the court under court instruction and approval lacked the degree of control necessary to make § 192 operative as to him. Petitioners argue that distributing agents exercise no discretion in the discharge of their duties, but perform only the ministerial function of paying out the deposited funds in conformity with the court’s orders. Indeed, it is contended that inclusion of distributing agents within the coverage of § 192 would have placed King on the horns of a dilemma, in that he must either have incurred personal liability to the Government or risked being held in contempt by the Bankruptcy Court. But this assumes that the plan of arrangement, once submitted to the court, was immutable. In fact, if King had objected at the confirmation hearing to paying out the deposited funds to nonpriority creditors before the Government’s claim was surely provided for, there can.be little doubt that he would have obtained satisfaction.^[9]

We are not prepared to articulate any general rule defining the responsibility of distributing agents to make and press such objections. We hold only that King, on the facts of this case, did have such a responsibility.^[10] As president of the debtor corporation he must have been aware of the Government’s potential claim; most likely he took an active role in the formulation of the plan of arrangement which appended a reference to the Picatinny contracts. He had been appointed distributing agent before the day of the confirmation hearing, and was present in court on that day. In all likelihood, he was present at the time when the possibility of the government claim arose and Mr. Freeman, the company’s counsel, made the representation that $94,000 was available to meet it. Finally, he himself was one of the major distributees in the distribution plan. In these circumstances we think King was possessed of a sufficient degree of control over the allocation among creditors of the assets in his possession to give rise to responsibility under § 192 for seeing that the government priority was paid, a responsibility which King, so far as the record reveals, made no effort to discharge. This is not to say that King acted dishonestly in any way or that he positively intended to thwart the Government’s claim. He may well have relied either on the representation that $94,000 was available, or, as president of the corporation with full knowledge of its finances, on whatever underlying facts led Mr. Freeman to make that representation. But § 192

Affirmed.

Mr. Justice Black and Mr. Justice Douglas share the views of the Court of Appeals for . the Fifth Circuit, United States v. Stephens, 208 F. 2d 105 , as to the construction of the statute, and would therefore reverse the judgment below.

concurring.

In the typical Chapter XI case initiated by the debtor under § 322 it is the debtor that remains in possession and that has prepared and filed the petition and schedules and that proposes the arrangement. It is only after the arrangement has been approved by the creditors that a distributing agent is appointed and charged with the distribution to specified recipients of the deposit required by the Act. The agent, qua agent, has no reason or duty to know or to learn of unscheduled debts, priority or otherwise, and lacking such knowledge from-some other source such as his prior or current position with the debtor I would think he would be beyond the reach of 31 U. S. C. § 192 (1958 ed.) if a government priority claim is unscheduled and unpaid.^[1]