United States v. Marxen, 307 U.S. 200 (1939)

307 U.S.
200
59 S.Ct. 811
83 L.Ed. 1222
UNITED STATES
v.
MARXEN. In re MONTEREY BREWING CO.
No. 544.
Argued March 28, 1939.
Decided May 15, 1939.
Mr. Samuel E. Whitaker, Asst. Atty. Gen., for the United states.
Mr. Clarence Hansen, of Los Angeles, Cal., for Marxen.
Mr. Justice REED delivered the opinion of the Court.
The case is here on certificate from the Circuit Court of Appeals for the Ninth
Circuit with a request for instructions needed in a pending cause. Sec. 239,
Jud.Code, 28 U.S.C. 346, 28 U.S.C.A. 346. The following facts are stated:
On August 10, 1934, the Federal Housing Administrator issued a policy of
insurance, under the provisions of the National Housing Act, Title 1, Sec. 2,1 to
the California Bank, a banking corporation. On January 2, 1936, the California
Bank, under the protection of this policy, made a loan to the Monterey Brewing
Company. The company paid part of the indebtedness but defaulted on the
balance on February 2, 1937. On April 5, 1937, it filed a petition in bankruptcy
and was adjudicated a bankrupt. Under the insurance contract the bank had to
wait until 60 days after default before making claim upon the Administrator.
The 60 days expired two days before bankruptcy of the company. The bank,
however, did not present its claim to the Administrator until July 3, 1937; the
latter paid August 4, 1937, by draft drawn on the Treasury of the United States;
the bank assigned the note to the 'United States of America.' Later the
Administrator filed a claim upon the note in the name of the United States of
America.
The referee allowed it as a general claim only. The district court approved. In re
Monterey Brewing Co., D.C., 24 F.Supp. 463. On the appeal to the circuit court
of appeals the following question, decisive of the controversy,2 was certified:

3
'Where, prior to the filing of a petition for and adjudication in bankruptcy of the
maker of a promissory note payable to a bank, the Federal Housing
Administrator, under the provisions of the National Housing Act, insured the
payee bank against the nonpayment of the note by its maker, upon which note
the maker became in default more than sixty days prior to said filing and
adjudication, and upon demand of the insured bank made after the adjudication,
the Federal Housing Administrator paid to the bank its claim arising from such
default, and procured an assignment to the United States of the claim of the
insured bank against the bankrupt, which claim had not been presented or
proved in bankruptcy by the insured bank, and presented such claim in the
name of the United States to the trustee in bankruptcy having before him other
allowed aims against the bankrupt, is such claim entitled to priority over such
other claims under sec. 3466 of the Revised Statutes (31 U.S.C.A. 191) by
reason of the provisions of sec. 64(b)(7) (11 U.S.C.A. 104(b)(7)).'
Section 64(b)(7) conferred priority upon 'debts owing to any person who by the
laws of * * * the United States is entitled to priority: Provided, That the term
'person' * * * shall include * * * the United States * * *.'3 Section 3466 of the
Revised Statutes, the basis for the claimed priority, provides that 'Whenever
any person indebted to the United States is insolvent * * * the debts due to the
United States shall be first satisfied; and the priority hereby established shall
extend * * * to cases in which an act of bankruptcy is committed.'
Although an amendment of the National Housing Act authorized the

Administrator to sue and be sued in any court of competent jurisdiction, State or
Federal,4 it is not necessary in answering the present certificate to determine
whether by this addition the Congress intended to give the Administrator the
status of a corporation or other entity distinct from the United States and by
such status, to confer on or withhold from claims of the Federal Housing
Administration against bankrupts the advantages of section 3466.5 We can deal
only with a claim of the Federal Housing Administration assigned to the United
States after the adjudication in bankruptcy of the obligor. It is assumed that
such a claim belongs to and is made by the United States.6
Before considering the applicability of Section 3466 to claims of the United

States acquired after the bankruptcy of the obligor, we must examine the
contention of the Government that it possessed a provable claim at the time the
petition in bankruptcy was filed. This assertion predicates an agreement,
express or implied, by the obligor to indemnify the Government for any loss it
may sustain by reason of its insurance of the bank. The question certified
contains nothing as to the contract of insurance except that it was under the
provisions of the National Housing Act and 'insured the payee bank against the
nonpayment of the note by its maker.' The section of that act, quoted above,
does not indicate any privity between the bankrupt maker and the Government
based upon the insurance contract. Even if we accept as accurate the statement
in the certificate that the Administration insured against the non-payment of
this note,7 there is nothing in the record to connect the maker with the
insurance. The Government attempts to fill in the facts lacking in the
certification by printing in its brief a regulation of the Federal Housing
Administration, Number 10 of July 15, 1935,8 and the form of credit statement
from the note maker to the bank in use, presumably, at the time of the loan. The
form contains this sentence, as well as information as to the applicant's
employment or business, his income and the property to be improved: 'The
following information is given for the purpose of inducing you to grant credit
under the provisions of Title I of the National Housing Act.'
7
The regulation and the credit statement certainly do not supply the facts
necessary to the conclusion that this particular form of credit statement was
used. As the certificate does not show the State in which the note was executed,
payable or enforceable, we are left to speculate as to the applicable law of
indemnity. It is not clear that a voluntary guarantor can recover in every
jurisdiction from the involuntary principal who has not requested the service.9
But even if we assume that such a guarantor may recover upon an implied
promise of reimbursement, the rule is not effective here. The statement of the
case and the question certified show that the claim in bankruptcy of the
Government is based upon the note, duly assigned to it after bankruptcy. As no
proof was made of any claim for reimbursement, such a claim is not involved.10
The claim on the note, assigned to the United States subsequently to the
maker's bankruptcy, has priority, if at all, by virtue of the general provisions of
Section 3466, as recognized by Section 64(b)(7) of the Bankruptcy t.11 That
subdivision granted priority ahead of dividends to creditors, to claims entitled to
priority under the laws of the United States. Priority has been secured to the
United States in varying language throughout its history.12 The tendency has
been to interpret these provisions liberally to secure the advantage sought by
the Congress.13 'As this statute has reference to the public good, it ought to be
liberally construed.'14 It has been said that 'nothing else appearing' even claims
under the railroad Federal Control Act, 40 Stat. 451, would be entitled to
priority.15 But this principle of construction is subject to the limitation that the
generality of the language of the section is restricted by the purpose to grant
priority to the United States, only, and by legislative intention, as shown by
other statutes. Consequently priority was refused to corporations wholly owned
by the United States16 and to the Director General of Railroads because section
10 of the Federal Control Act manifested an intention that the carriers under
federal control should be treated as before their transfer to federal operation.17
The United States itself when it sought priority for its loans under the
Transportation Act was denied the benefits of Section 3466 because the
intention to build up the credit standing of the railroads was inconsistent with
the claimed priority.18
9
We are of the view that Section 3466 is inapplicable to general claims in

bankruptcy transferred to the United States, or to which it has become
subrogated on payment, after the filing of the petition for the reason that the
rights of creditors are fixed by the Bankruptcy Act as of the filing of the
petition in bankruptcy. This is true both as to the bankrupt and among
themselves.19 The assets at that time are segregated for the benefit of
creditors.20 The transfer of the assets to someone for application to 'the debts of
the insolvent, as the rights and priorities of creditors may be made to appear,'21
takes place as of that time.
10
The question certified should therefore be answered in the negative.
11
It is so ordered.
12
Question answered.
13
The CHIEF JUSTICE and Mr. Justice DOUGLAS took no part in the
consideration or decision of this case.
'Sec. 2. The Administrator is authorized and empowered, upon such terms and
conditions as he may prescribe, to insure banks * * * which are approved by
him as eligible for credit insurance, against losses which they may sustain as a
result of loans and advances of credit, and purchases of obligations representing
loans and advances of credit, made by them * * * for the purpose of financing
alterations, repairs, and improvements upon real property. In no case shall the
insurance granted by the Administrator under this section to any such financial
institution exceed 20 per centum of the total amount of the loans, advances of
credit, and purchases made by such financial institution for such purpose * * *.'
Act of June 27, 1934, c. 847, 48 Stat. 1246, 12 U.S.C.A. 1703.
United States v. Mayer, 235 U.S. 55, 66, 35 S.Ct. 16, 18, 59 L.Ed. 129; cf.
Wheeler Lumber Co. v. United States, 281 U.S. 572, 577, 50 S.Ct. 419, 420, 74
L.Ed. 1047; Indian Motocycle Co. v. United States, 283 U.S. 570, 573, 51 S.Ct.
601, 602, 75 L.Ed. 1277.
3
Act of May 27, 1926, c. 406, 44 Stat. 667, 11 U.S.C. 104(b)(7), 11 U.S.C.A.
104(b)(7). This section has been amended by the Act of June 22, 1938, c. 575,
64, 52 Stat. 874, 11 U.S.C.A. 104.
Act of August 23, 1935, c. 614, 344(a), 49 Stat. 722, 12 U.S.C.A. 1702.
The purpose of the amendment was said to be 'clarifying.' Sen.Rep. No. 1007
on H.R. 7617, 74th Congress, 1st Session, p. 24. The House Report merely
stated its substance. H.R.Rep. No. 1822 on H.R. 7617, 74th Congress, 1st
Session, p. 57. The Congressional Record is silent on this clause of the Banking
Act of 1935.
A corporation wholly owned by the United States is held without the
advantages of 3466. Sloan Shipyards Corp. v. U.S. Fleet Corporation, 258
U.S. 549, 570, 42 S.Ct. 386, 389, 66 L.Ed. 762.
Cf. Wagner v. McDonald, 8 Cir., 96 F.2d 273, 274; In re Dickson's Estate,

Wash., 84 P.2d 661, 664; Dupont De Nemours & Co. v. Davis, 264 U.S. 456,
44 S.Ct. 364, 68 L.Ed. 788; Clallam County v. United States, 263 U.S. 341, 44
S.Ct. 121, 68 L.Ed. 328; North Dakota-Montana Wheat Growers' Ass'n v.
United States, 8 Cir., 66 F.2d 573, 576, 577, 92 A.L.R. 1484.
This is not in accord with the practice under Title I of the National Housing
Act. The act is administered so as to create an insurance reserve for each
approved financial institution of not to exceed the authorized percentage of the
total amount of qualified paper. Cf. Regulations, Federal Housing
Administration, Property Improvement Loans, 3 Federal Register 358,
regulation number 17.
'The question of the financial condition of the borrower is left to the reasonable
judgment of the insured institution as a credit matter. The borrower must
furnish the lending institution a financial or credit statement, approved as to
form by the Administrator, which in the judgment of the insured institution
shows the borrower to be solvent, with reasonable ability to pay the obligation
and in other respects a reasonable credit risk in view of the insurance provided
by the National Housing Act.'
Cf. Leslie v. Compton, 103 Kan. 92, 172 P. 1015, L.R.A.1918F, 706; Marsh v.
Hayford, 80 Me. 97, 13 A. 271; McPherson v. Meek, 30 Mo. 345.
10
Cf. Insley v. Garside, 9 Cir., 121 F. 699, 702. Cf. also Sec. 57(i) which provides
that 'Whenever a creditor whose claim against a bankrupt estate is secured by

the individual undertaking of any person fails to prove such claim, such person
may do so in the creditor's name, and if he discharge such undertaking in whole
or in part he shall be subrogated to that extent to the rights of the creditor.' Act
of July 1, 1898, c. 541, 57, 30 Stat. 560, 11 U.S.C. 93, 11 U.S.C.A. 93(i).
11
See note 3, supra.
12
The Government summarizes the legislative background as follows: 'The Act of

July 31, 1789, Sec. 21, c. 5, 1 Stat. 29, 42, first gave the United States priority
but was limited to debts due on bonds for duties. The Act of May 2, 1792, Sec.
18, c. 27, 1 Stat. 259, 263, allowed sureties who paid their debts to the United
States to exercise their priority. The Act of March 3, 1797, Sec. 5, c. 20, 1 Stat.
512, 515, extended the priority to all debts due from any person. The Act of
March 2, 1799, Sec. 65, c. 22, 1 Stat. 627, 676, applied to bonds for duties. R.S.
3466 is derived from the Acts of 1797 and 1799.'
13
United States v. Fisher, 2 Cranch 358, 2 L.Ed. 304; Harrison v. Sterry, 5

Cranch 289, 298, 299, 3 L.Ed. 104; United States v. State Bank of North
Carolina, 6 Pet. 29, 35, 8 L.Ed. 308; Beaston v. Farmers' Bank, 12 Pet. 102,
134, 9 L.Ed. 1017; Lewis, Trustee, v. United States, 92 U.S. 618, 621, 23 L.Ed.
513; Bramwell v. United States Fidelity & Guaranty Co., 269 U.S. 483, 487, 46
S.Ct. 176, 70 L.Ed. 368; Price v. United States, 269 U.S. 492, 500, 46 S.Ct.
180, 181, 70 L.Ed. 373.
14
Beaston v. Farmers' Bank, supra.
15
Mellon v. Michigan Trust Co., 271 U S. 236, 239, 46 S.Ct. 511, 512, 70$ L.Ed.
924.
16
Sloan Shipyards v. U.S. Fleet Corporation, 258 U.S. 549, 570, 42 S.Ct. 386,
389, 66 L.Ed. 762. Even though private parties might have participated in stock
ownership under the law. See 258 U.S. page 565, 42 S.Ct. 387, 66 L.Ed. 762.
17
Mellon v. Michigan Trust Co., supra, 271 U.S. 240, 46 S.Ct. 512, 70 L.Ed. 924.
18
United States v. Guaranty Trust Co., 280 U.S. 478, 485, 486, 50 S.Ct. 212, 214,
74 L.Ed. 556.
19
White v. Stump, 266 U.S. 310, 313, 45 S.Ct. 103, 104, 69 L.Ed. 301; In re C.
H. Earle, Inc., D.C., 2 F.Supp. 15, affirmed on the opinion below, 2 Cir., 65
F.2d 1013. Cf. Spokane County v. United States, 279 U.S. 80, 83, 49 S.Ct. 321,
324, 73 L.Ed. 521; United States v. Oklahoma, 261 U.S. 253, 260, 43 S.Ct.
295, 297, 67 L.Ed. 638, as to receivership proceedings.
The lower courts have divided upon the issue whether a Federal Housing
Administration claim is entitled to priority. Priority has been given in Wagner
v. McDonald, Donald, 8 Cir., 96 F.2d 273; In re Wilson, D.C., 23 F.Supp. 236;
In re T. N. Wilson, Inc., D.C., 24 F.Supp. 651; cf. In re Dickson's Estate, Wash.,
84 P.2d 661. Priority has been denied in Re Hansen Bakeries, Inc., 3 Cir., 103
F.2d 665, Jan. 27, 1939;1 Federal Housing Administrator v. Moore, 9 Cir., 90
F.2d 32; In re Stamford Auto Supply Co., D.C., 25 F.Supp. 530; In re Miller,
D.C., 25 F.Supp. 336; cf. Paul v. Paul Lighting Fixture Co., 13 Ohio Op. 27.
The assignment was made prior to bankruptcy or insolvency in the Wagner and
Dickson cases. In the Wilson and T. N. Wilson, Inc., cases the time of
assignment is uncertain. In the remaining cases it came after bankruptcy or
insolvency. FP 1 Rehearing pending at date of publication.
20
Mueller v. Nugent, 184 U.S. 1, 14, 22 S.Ct. 269, 274, 46 L.Ed. 405; May v.
Henderson, 268 U.S. 111, 117, 45 S.Ct. 456, 459, 69 L.Ed. 870.
21
Bramwell v. United States Fidelity & Guaranty Co., 269 U.S. 483, 490, 46
S.Ct. 176, 178, 70 L.Ed. 368.

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307 U.S.

of appeals the following question, decisive of the controversy,2 was certified:

Although an amendment of the National Housing Act authorized the

Before considering the applicability of Section 3466 to claims of the United

We are of the view that Section 3466 is inapplicable to general claims in

The question certified should therefore be answered in the negative.

Cf. Wagner v. McDonald, 8 Cir., 96 F.2d 273, 274; In re Dickson's Estate,

that 'Whenever a creditor whose claim against a bankrupt estate is secured by

See note 3, supra.

The Government summarizes the legislative background as follows: 'The Act of

United States v. Fisher, 2 Cranch 358, 2 L.Ed. 304; Harrison v. Sterry, 5

Beaston v. Farmers' Bank, supra.

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