United Pacific Insurance Company v. The UNITED STATES and William H. Kennedy, Trustee in Bankruptcy of Nils Sigurd Andersson, Third-Party Claimant

358 F.
2d 966
UNITED PACIFIC INSURANCE COMPANY

v.
The UNITED STATES and William H. Kennedy, Trustee in
Bankruptcy of Nils Sigurd Andersson, Third-Party Claimant.
No. 292-62.
United States Court of Claims.

April 15, 1966.
Edward Gallagher, Washington, D. C., for plaintiff.

Gerson B. Kramer, Washington, D. C., with whom was Asst. Atty. Gen.,
John W. Douglas, for defendant.
Seymour L. Coblens, Portland, Or., for third-party claimant. Reinhardt,
Coblens & Stoll, Portland, Or., of counsel.
Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS and
COLLINS, Judges.
COWEN, Chief Judge. 1
The Government is a stakeholder of funds admittedly due for completed

performance of a contract. Plaintiff, a surety company which financed contract
performance under a questioned assignment, and the third-party claimant,
trustee in bankruptcy of the insolvent contractor, are rival claimants for the
funds so held. At issue are whether the assignment is valid, and whether
payment under it would constitute a voidable preference under Section 60 of the
Bankruptcy Act (11 U.S.C. 96), which the trustee in bankruptcy may treat as
void.
Plaintiff is a qualified surety under Oregon law and is also engaged in the
general insurance business there. Prior to June 1961, it had issued to Nils
Sigurd Andersson, a contractor, performance and payment bonds covering
certain road and bridge contracts in Coos County, Oregon, with the Bureau of
Public Roads of the Department of Commerce and with the Oregon State
Highway Commission. Andersson experienced a great deal of financial

difficulty in performing the contracts, and as a result he and plaintiff entered
into an agreement, on June 28, 1961, whereby a joint control bank account was
opened in the First National Bank of Oregon to receive the proceeds payable to
Andersson under the federal and state contracts and to apply these receipts to
the payment of certain outstanding obligations.2 Andersson was insolvent as of
the date this Joint Control Agreement was signed, and plaintiff knew it or
should have known it. Also, on June 28, 1961, as part of the agreement,
Andersson executed and delivered to plaintiff an assignment of the proceeds of
certain of the contracts entered into with the City of Medford and State of
Oregon.
3
On December 16, 1961, Andersson was awarded a purchase order by the

Federal Bureau of Public Roads to remove a slide which had occurred on a
newly built road in the area where the above-described contract work had been
performed. The purchase order contained no requirement for payment or
performance bonds and none were executed. Anxious to perform this
prospectively profitable contract, but lacking funds to do so, Andersson, on
December 21, 1961, requested plaintiff to finance the performance from
balances standing in the Joint Control Account. Plaintiff agreed upon
Andersson's promise to furnish an assignment of the proceeds of the contract as
security. On December 26, 1961, responsible officials of the Bureau of Public
Roads were apprised of plaintiff's intention to finance this undertaking of
Andersson, called the "Baker Slide Job," and agreed to withhold contract
payments from Andersson if plaintiff would furnish documentary compliance
with the Assignment of Claims Act (31 U.S.C. 203). An assignment was sent
to Andersson for execution on December 29, 1961, and was signed on January
2, 1962. On January 3, 1962, both the executed assignment and a letter from
Andersson, dated January 2, were served on the Bureau of Public Roads.
The assignment in standard form assigned to plaintiff "all monies now due, or
which may hereafter become due" to Andersson from the United States under
the Baker Slide Job, and plaintiff was authorized to collect and endorse such
payments as Andersson's attorney in fact. The letter from Andersson to the
Bureau, which was filed along with the assignment itself, directed that all
payments "now due or hereafter to become due, payable to the undersigned
[Andersson] from the United States" under the Baker Slide Job "shall be sent in
care of United Pacific Insurance Company, 627 Board of Trade Building,
Portland, Oregon." In other words, Andersson's checks were to be sent to
plaintiff. The letter itself did not formally state that funds falling due under the
contract were being assigned to plaintiff: it merely directed that all moneys due
from the Bureau to Andersson should be sent in care of plaintiff. Although a
witness for the Bureau testified that his agency treated the Andersson letter as
merely a change of address rather than a notice of assignment, this contention is
untenable within the context of the dealings between the parties involved. The
Bureau had knowledge that plaintiff was financing Andersson's Baker Slide
Job, had a copy of the purported assignment of contract proceeds, and promised
plaintiff to temporarily withhold payments to Andersson pending perfection of
the assignment.
5
On January 24, 1962, the Bureau of Public Roads issued a check in the amount
of $18,291.04 payable to "Sig Andersson, % United Pacific Insurance Co., 627
Board of Trade Building, Portland, Oregon", and mailed it to plaintiff. The
check was received by plaintiff, endorsed by one of its officials as Andersson's
attorney in fact, and deposited in the Joint Control Account. The action of the
Bureau in making out the check to Andersson and mailing it to plaintiff was
consistent wtih defendant's recognition of the assignment, for it was known by
all parties concerned that plaintiff was Andersson's attorney under the
assignment, that it had authority to endorse checks payable to Andersson for
deposit in the Joint Account, and that it was empowered, with Andersson's joint
signature, to disburse funds on deposit.
On March 6, 1962, Andersson was adjudicated a bankrupt, and on that date the
balance in the Joint Control Account stood at $13,500.433 an amount
insufficient to cover outstanding bills. In addition, the United States at that time
owed Andersson a balance of $26,453.75 on the Baker Slide contract. On
September 6, 1962, the General Accounting Office offset against the
$26,453.75 due the sum of $15,165.44 to cover back taxes owed by Andersson,
and thus credited the bankrupt's account with a total of $11,288.31 on the slide
job contract.4
In the petition filed in this court plaintiff claims title to the said $11,288.31 by
virtue of the June 28, 1961, assignment from Andersson. The trustee in
bankruptcy5 filed a third-party petition asserting title to all funds remaining in
the hands of the United States on the grounds that the purported assignment of
contract proceeds from Andersson to plaintiff was void and ineffectual: (1)
because plaintiff, as a surety company, was not a "bank, trust company, or other
financing institution" as prescribed by the Assignment of Claims Act; (2)
because no "written notice of the assignment" was delivered to the United
States as required by the Act; and (3) because the assignment constituted a
voidable preference under Section 60 of the Bankruptcy Act.
The parties stipulated before trial that defendant is entitled to its offset for back
taxes in the amount of $15,497.29. After the trial commissioner made his
report, the United States filed a written disclaimer of any further interest in the
case and stated that it has become a mere stakeholder. Consequently, the sole
remaining controversy in the case lies between plaintiff and the third-party
claimant as to the $10,956.46 ($26,453.75 less $15,497.29) remaining in the
Government's possession as the balance due for performance of the Baker Slide
Job.
9
After commencing its litigation in this court, plaintiff brought suit in the United
States District Court for the District of Oregon against the First National Bank
and the trustee in bankruptcy, claiming entitlement: (a) to the balance
remaining in the Joint Control Account on the date Andersson was adjudicated
bankrupt ($13,500.43), and (b) to certain other sums due on contracts from
municipal and state authorities ($15,887.58). The District Court awarded
judgment to plaintiff on both items. See United Pacific Insurance Co. v. First
National Bank of Oregon, 222 F.Supp. 243 (D.C.Ore. 1963).
10
As to the proceeds due on the state and municipal contracts, the District Court
applied the law of suretyship and decided that plaintiff, by virtue of its having
discharged its surety obligations by paying out sums in satisfaction of labor and
materials claims far in excess of sums received as contract payments, had an
equitable right to and lien on these funds superior to that of the trustee in
bankruptcy.
11
In adjudicating the first issue, that of entitlement to the funds in the Joint
Control Account, the District Court considered and discussed the effects of the
Baker Slide Job. Specifically, the court directed its attention to the questions of
whether the sum of $18,291.04 drawn to Andersson's name by the United
States and deposited by plaintiff in the Joint Control Account amounted to a
voidable preference, in that it was paid within 4 months of the contractor's
bankruptcy, and whether the assignment under which the check was paid and
deposited was void for noncompliance with the Assignment of Claims Act. The
court dismissed the trustee's contentions that this or any of the other
assignments in question were voidable preferences or an attempt to defraud
creditors, for the court found that the assignments were made in good faith and
for a valuable consideration. As to the Joint Control Account itself, the court
decided that, since plaintiff had paid some $24,786.82 out of the account for
labor and materials bills incurred in connection with the slide job (substantially
more than $18,291.04 received from the United States as contract proceeds), no
part of the $13,500.43 remaining on deposit in the account could possibly be
Baker Slide money.
12
The District Court then noted that, although the January 2, 1962, assignment of
Baker Slide Job proceeds (the same assignment as that involved in the present
litigation) did not comply with the provisions of 31 U.S.C. 203, it was valid
as between the parties themselves. The court's opinion pointed out that the
Assignment of Claims Act had been enacted for the benefit of the United States
alone, and that under the circumstances at hand since the United States had
recognized the Joint Control Agreement and the questioned assignment and in
fact had paid the money to a party having a preference under the law of
suretyship the trustee in bankruptcy was in no position to complain.
13
However, the District Court declined, as a matter of comity, to adjudicate the

issues relating to the $10,956.46 admittedly owing by the Government on the
Baker Slide Job, since litigation over the entitlement to that fund was pending
in the Court of Claims first.
14
Thus, with respect to the $10,956.46 now held in stake by the Government, we
are called to make an adjudication of two of the issues discussed by the District
Court namely, the validity of the January 2, 1961, assignment from
Andersson to plaintiff of the proceeds from the Baker Slide Job contract and the
existence of a voidable preference under the Bankruptcy Act. On both questions
we reach the same conclusion as did the District Court.
15
There is no need to discuss whether the assignment in question complies with

all the provisions of the Assignment of Claims Act, for whether or not the
transaction is valid as against the United States, it is in any event effective and
binding on the parties. National Bank of Commerce v. Downie, 218 U.S. 345,
31 S.Ct. 89, 54 L.Ed. 1065 (1910); Martin v. National Surety Co., 300 U.S.
588, 57 S.Ct. 531, 81 L.Ed. 822 (1937); McKenzie v. Irving Trust Co., 323
U.S. 365, 65 S.Ct. 405, 89 L.Ed. 305 (1945); In re Webber Motor Co., 52
F.Supp. 742 (D.C.N.J. 1943). The statute was designed to protect the United
States against frauds on the Treasury and a multiplicity of conflicting claims
and to save the United States defenses which it may have to claims by assignors
not to regulate the equities of individual claimants as between themselves.
Royal Indemnity Co. v. United States, 117 Ct.Cl. 736, 93 F.Supp. 891 (1950);
Beaconwear Clothing Co. v. United States, 174 Ct.Cl. ___, 355 F.2d 583
(January 1966). The Government in the case at hand is a mere stakeholder of
funds which are admittedly due to either the trustee in bankruptcy or the surety.
Having no interest in the case other than the preservation of its offset for
unpaid taxes, defendant has now withdrawn any objection it might have had to
the validity of the assignment. Moreover, it should be noted that defendant in
fact recognized the assignment and the joint control agreement and actually
paid money to plaintiff in accordance therewith. In the absence of any attack
upon the assignment by defendant we feel bound, following the dictates of
equitable policy and sound precedent, to recognize the assignment and treat it
as valid and binding between the parties. Martin v. National Surety Co., supra;
McKenzie v. Irving Trust Co., supra; In re Webber Motor Co., supra; Royal
Indemnity Co. v. United States, supra; United Pacific Insurance Co. v. First
National Bank of Oregon, supra. Accordingly, apart from any question
concerning bankruptcy law, plaintiff's right to the contract proceeds is, by
virtue of the assignment, superior to that of the trustee.
16
We next consider the issues raised by the Bankruptcy Act, for the trustee in
bankruptcy contends that, assuming the validity of the assignment, the transfer
of funds to plaintiff thereunder constitutes a voidable preference under Section
60 of the Act, reading in pertinent part as follows:
17
A preference is a transfer, as defined in this title, of any of the property of a

debtor to or for the benefit of a creditor for or on account of an antecedent debt,
made or suffered by such debtor while insolvent and within four months before
the filing by or against him of the petition initiating a proceeding under this
title, the effect of which transfer will be to enable such creditor to obtain a
greater percentage of his debt than some other creditor of the same class.
[Emphasis supplied.] (11 U.S.C. 96(a) (1)).
18
The problem here is twofold: whether (a) $3,145.45 advanced by plaintiff to

Andersson prior to the January 2, 1962, assignment and in anticipation of it
(footnote 1, finding 14), and (b) $10,042.32 of the $15,497.29 offset by the
Government for taxes, constitute debts antecedent to the assignment and within
4 months prior to bankruptcy, and are therefore voidable under the Bankruptcy
Act.
19
As for the assignment in general, there is little merit in the trustee's contention
that it was made "on account of an antecedent debt." The assignment was made
contemporaneously with the award of the Baker Slide Job and was in fact a
prerequisite to plaintiff's acceptance of the financing arrangement. We agree
with the conclusion of the District Court that the transfer in issue was effected
for the very purpose of assisting the bankrupt and helping him to extricate
himself from the financial difficulties which had beset him, not to defraud,
hinder, or delay his creditors. On this point, a brief excerpt from the District
Court opinion is relevant
20
I can find nothing in the record to support the Trustee's claim that this, or the
other assignments for that matter, was without consideration and therefore
unenforceable. Whether I view this assignment as an outgrowth of the original
application, or view it as a separate assignment by reason of the fact that the

Baker Slide job was not contemplated at the time of the initial application, a
valid consideration is obvious. The duties assumed by plaintiff under the Baker
Slide job would supply a sufficient consideration. [222 F.Supp. at 251-252]
21
The contractor's attempt to assign to plaintiff the $3,145.45 advanced prior to

the assignment, however, was a transfer on account of a debt antecedent to the
assignment and within 4 months of the then insolvent contractor's bankruptcy,
and was thus voidable by the trustee in bankruptcy as a preference to plaintiff
over other creditors. The assignment cannot relate back to embrace advances
made by plaintiff in anticipation of the assignment, even though it was
imminent and the premature payments were made to permit the contractor to
proceed with the work without delay.
22
In general, an assignment made as collateral security for a debt gives the

assignee an interest in the assigned chose commensurate only with the amount
of debt or liability secured. Plaintiff's security on the Baker Slide Job
assignment extended only to amounts advanced by it to Andersson for
subsequent contract performance, and did not cover contract receipts in excess
of post-assignment contract disbursements. The Joint Control Account was
charged a total of $31,919.87 on the Baker Slide Job, of which $24,786.82 was
for direct expenses (material and payroll) and the balance for indirect expenses
allocated to the contract (overhead, taxes, equipment payments), all segregated
in finding 14. Thus, the assignment secured plaintiff to the maximum extent of
$28,774.42 of these costs ($31,919.87 less $3,145.45 advanced prior to the
assignment as stated above). This $28,774.43 is to be reduced by $18,291.04,
the contract payment already remitted to plaintiff by the Government on
January 24, 1962, leaving a net unreimbursed cost due plaintiff of $10,291.04.
Converting this into arithmetical terms, of the $10,956.46 remaining in the
Government's possession as the balance due for performance of the Baker Slide
Job, plaintiff is entitled to $10,291.04, and the trustee to $665.42.
23
The trustee in bankruptcy argues additionally that any balances in the

Government's possession due plaintiff under the assignment should be further
reduced by $10,040.32, being that portion of $15,497.29 offset by the
Government for taxes allocable to the earlier bonded contracts which plaintiff
was bound to pay in the absence of the offset. The trustee's reasoning is that,
since Andersson's performance of the Baker Slide Job created the fund upon
which the tax offset could operate, and the offset tax claims were antecedent to
the assignment, plaintiff is not entitled to at least $10,040.32 of the stakeheld
funds because the withholding relieved it of liability for taxes just as clearly as
if payment had been made to it. Aside from the fact that the trustee has failed to
pinpoint the source of plaintiff's liability to pay the taxes on the bonded jobs (i.
e., does it derive from the bonds, the joint control agreement, or the
assignment?), it seems beyond question that the assignment was given to
plaintiff for a present consideration, namely, debts in futuro under the Baker
Slide Job, and that any balance of Baker Slide contract payments held by the
Government is charged with a lien in the assignee's favor to the extent of the
assignee's advances made to the contractor to perform that contract.
24
Accordingly, we find that plaintiff is entitled to recover $10,291.04 of the

Baker Slide Job funds still in the possession of the United States, and the thirdparty claimant is entitled to the remaining $665.42. Judgment is entered to that
effect.
Notes:
1
The court acknowledges the assistance it has derived from the opinion and
findings of fact of Commissioner C. Murray Bernhardt. We have adopted his
findings of fact and borrowed a substantial portion of his opinion
The account was designated by the First National Bank as the "AnderssonUnited Pacific Construction Account."
As to Baker Slide Job funds in the Joint Control Account the check for
$18,291.04 from the United States was deposited in the account, and a total of
$24,786.82 was paid out for labor and materials bills incurred in construction of
the project
As will be seen, this $11,288.31 has been corrected by stipulation to $10,956.46
Bernard B. Cantor was appointed receiver of Andersson's estate on March 7,

1962. He qualified as trustee in bankruptcy on April 6, 1962, and remained
such until August 21, 1963, when his resignation became effective. William H.
Kennedy, third-party claimant herein, was then duly elected trustee in
bankruptcy and has since acted in such capacity

United Pacific Insurance Company v. The UNITED STATES and William H. Kennedy, Trustee in Bankruptcy of Nils Sigurd Andersson, Third-Party Claimant

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358 F.

UNITED PACIFIC INSURANCE COMPANY

United States Court of Claims.

Edward Gallagher, Washington, D. C., for plaintiff.

The Government is a stakeholder of funds admittedly due for completed

Highway Commission. Andersson experienced a great deal of financial

On December 16, 1961, Andersson was awarded a purchase order by the

However, the District Court declined, as a matter of comity, to adjudicate the

There is no need to discuss whether the assignment in question complies with

A preference is a transfer, as defined in this title, of any of the property of a

The problem here is twofold: whether (a) $3,145.45 advanced by plaintiff to

application, or view it as a separate assignment by reason of the fact that the

The contractor's attempt to assign to plaintiff the $3,145.45 advanced prior to

In general, an assignment made as collateral security for a debt gives the

The trustee in bankruptcy argues additionally that any balances in the

Accordingly, we find that plaintiff is entitled to recover $10,291.04 of the

As will be seen, this $11,288.31 has been corrected by stipulation to $10,956.46

Bernard B. Cantor was appointed receiver of Andersson's estate on March 7,

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