United States v. Moore
423 U.S. 77 (1975)

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U.S. Supreme Court

United States v. Moore, 423 U.S. 77 (1975)

United States v. Moore

No. 74-687

Argued October 15, 1975

Decided December 2, 1975

423 U.S. 77




Obligations of an insolvent debtor arising from default in the performance of government contracts, occurring before an assignment for the benefit of creditors held entitled to the statutory priority accorded "debts due to the United States" under 31 U.S.C. § 191, even though the obligations were unliquidated in amount at the time of the assignment. Pp. 423 U. S. 80-86.

(a) Nothing on the face of § 191, and no potential difficulty in administering it, require any distinction between liquidated and unliquidated debts for purpose of the statutory priority; the statute's language looks to the time of payment, rather than the time when the assignment is made. P. 423 U. S. 83.

(b) To construe the words "debts due to the United States" as including unliquidated claims and as not being restricted to those obligations that would on the date of the assignment have given rise to a common law action for debt, comports with the treatment of unliquidated claims in the Bankruptcy Acts, including the current Act. Pp. 423 U. S. 83-85.

(c) The obligations in question were fixed and independent of "events after insolvency," and only the precise amount of those obligations awaited future events. Pp. 423 U. S. 85-86.

497 F.2d 976, reversed and remanded.

BURGER, C.J., delivered the opinion for a unanimous Court.

Page 423 U. S. 78

MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.

We granted certiorari to decide whether obligations of an insolvent debtor arising from default in the performance of Government contracts, occurring before an assignment for the benefit of creditors, are entitled to the statutory priority for "debts due to the United States" when the amount of the obligation was not fixed at the time of the assignment. We hold that the obligations, even though unliquidated in amount when the insolvent debtor made the assignment, are entitled to the statutory priority accorded debts due the United States under Rev.Stat. § 3466, 31 U.S.C. § 191, and we reverse.


The facts are not in dispute. In June, 1966, respondent Emsco Screen and Pipe Company of Texas, Inc., contracted with the United States in three separate contracts to supply to the Navy, the Army, and the Defense Supply Agency certain fabricated items at an aggregate agreed price of $310,296. Emsco subsequently advised the Navy that it could not perform the contracts without an advance of money not yet due under the terms of the contracts; the Government was unwilling to make the advance. The Navy treated its contract as terminated on August 31, 1966. Emsco repudiated the Army contract, and the Army notified Emsco of its intent to treat the contract as terminated during the same month, although formal termination was not made until December 6, 1966. The Defense Supply Agency terminated its contract with Emsco on October 19, 1966, for failure to deliver.

Respondent Emsco made a voluntary assignment of all its assets, totaling $55,707.28, on October 20, 1966, to respondent Thomas W. Moore, Jr., as assignee for the

Page 423 U. S. 79

benefit of creditors. The company at that time owed the city of Houston approximately $6,000, and it owed more than $68,000 to the private creditors who consented to the assignment. Thus, the claims of the private creditors alone exceeded all known corporate assets of the debtor.

The United States did not consent to the assignment, but filed proof of claims with the respondent Moore. The amount of the Government's claim, after reprocurement of the contract goods and negotiations with respondent Moore, was eventually set at $51,680, exclusive of interest. Respondent Moore refused to accord these claims priority under Rev.Stat. § 3466, 31 U.S.C. § 191, which provides:

"Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; and the priority 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, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed."

The United States then sued respondents Moore and Emsco in District Court. That court found the amount owed under the three defaulted contracts to be in excess of $67,000, including interest, and held that § 3466 afforded priority status to them as "debts due to the United States."

The Court of Appeals reversed, with one judge dissenting, holding that the claims of the United States were not, at the time of the assignment for creditors, amounts

Page 423 U. S. 80

certain and then payable, and hence not "debts due" entitled to statutory priority. 497 F.2d 976 (CA5 1974). To define this term, the court looked to the limits of a common law action for debt, which permitted recovery of only liquidated obligations -- "sums certain or which could be made certain by mathematical computation." Id. at 978. One judge concurred separately, concluding that, to have priority, the claim of the United States must be one ascertained in amount prior to assignment, by a tribunal having jurisdiction to bind the contracting parties. Judge Thornberry dissented; he relied on King v. United States,379 U. S. 329 (1964), and other holdings to the effect that Congress intended to give special status and protection to claims of the Government and the statute was to be construed to accomplish that objective. Small Business Administration v. McClellan,364 U. S. 446 (1960); United States v. Emory,314 U. S. 423 (1941); Bramwell v. U.S. Fidelity & Guaranty Co.,269 U. S. 483 (1926). The dissent viewed the existence of an obligation as determinative, even though the extent of the obligation was unliquidated at the time of the assignment.


The statute at issue is almost as old as the Constitution, and its roots reach back even further into the English common law; the Crown exercised a sovereign prerogative to require that debts owed it be paid before the debts owed other creditors. 3 R. Clark, Law of Receivers § 669, p. 1223 (3d ed.1959). Many of the States claim the same prerogative, as an inherent incident of sovereignty. Pauley v. California, 75 F.2d 120, 133 (CA9 1934); People v. Farmers' State Bank, 335 Ill. 617, 167 N.E. 804 (1929); In re Carnegie Trust Co., 206 N.Y. 390, 99 N.E. 1096 (1912); State v. Bank of Maryland, 6 Gill & Johns. 205, 26 Am. Dec. 561 (Md.

Page 423 U. S. 81

1834). The Federal Government's claim to priority, however, rests as a matter of settled law only on statute. Price v. United States,269 U. S. 492, 269 U. S. 499-500 (1926); United States v. State Bank of North Carolina, 6 Pet. 29, 31 U. S. 35 (1832).

The earliest priority statute was enacted in the Act of July 31, 1789, 1 Stat. 29, which dealt with bonds posted by importers in lieu of payment of duties for release of imported goods. It provided that the "debt due to the United States" for such duties shall be discharged first

"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. . . ."

§ 21, 1 Stat. 42. A 1792 enactment broadened the Act's coverage by providing that the language "cases of insolvency" should be taken to include cases in which a debtor makes a voluntary assignment for the benefit of creditors, and the other situations that § 3466, 31 U.S.C. § 191, now covers. 1 Stat. 263.

In 1797, Congress applied the priority to any "person hereafter becoming indebted to the United States, by bond or otherwise. . . ." 1 Stat. 515. Then in 1799, Congress gave the priority teeth by making the administrator of any insolvent or decedent's estate personally liable for any amount not paid the United States because he gave another creditor preference. Act of Mar. 2, 1799, 1 Stat. 627, 676. The 1797 and 1799 Acts have survived to this day essentially unchanged, as 31 U.S.C. §§ 191 and 192 (Rev.Stat. §§ 3466 and 3467).

The priority statute serves the same public policy as the Crown's common law prerogative. As Mr. Justice Story wrote for the Court in 1832, the priority proceeds from

"motives of public policy, in order to secure an adequate revenue to sustain the public burthens and discharge the public debts. . . . [A]s that policy has

Page 423 U. S. 82

mainly a reference to the public good, there is no reason for giving to [the statute] a strict and narrow interpretation."

United States v. State Bank of North Carolina, supra at 34 U. S. 35. For nearly two centuries, this Court has applied the statute with this policy in mind. In State Bank itself, 6 Pet. at 34 U. S. 38, the Court rejected the bank's argument that bonds payable only in the future were not "debts due to the United States" because they were not presently payable, using language apt for today's case as well:

"No reason can be perceived why, in cases of a deficiency of assets of deceased persons, the legislature should make a distinction between bonds which should be payable at the time of their decease and bonds which should become payable afterwards. The same public policy which would secure a priority of payment to the United States in one case applies with equal force to the other; and an omission to provide for such priority in regard to bonds payable in futuro would amount to an abandonment of all claims, except for a pro rata dividend. In cases of general assignments by debtors, there would be a still stronger reason against making a distinction between bonds then payable and bonds payable in futuro; for the debtor might, at his option, give any preferences to other creditors, and postpone the debts of the United States of the latter description, and even exclude them altogether."

For similar reasons, and using similar language, the courts have applied the priority statute to Government claims of all types. See 3A J. Moore & R. Oglebay, Collier on Bankruptcy

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