Opinion
No. 32046.
June 10, 1938.
Sam H. Lipchitz, of New York City, for trustee.
Michael F. Walsh, U.S. Atty., of Brooklyn, N.Y., Eastern District of New York (Vine H. Smith, Asst. U.S. Atty., and Aaron Nussbaum, both of Brooklyn, N.Y., of counsel), for Federal Housing Administrator.
The Trustee in bankruptcy seeks to review the order of the Referee in bankruptcy. The Referee certified the following question:
"Is the claim of the Federal Housing Administrator under Section 64(b) of the Bankruptcy Act entitled to priority over general creditors?"
Pursuant to the provisions of Title 1, Sec. 2 of the National Housing Act ( 12 U.S.C.A. § 1701 et seq.) a contract of insurance was executed by the Federal Housing Administrator in favor of the National City Bank, insuring the bank against credit losses which it might sustain as a result of notes purchased or loans thereafter made.
The bankrupt as a co-maker executed a note in the sum of $1,800 to the bank. Thereafter, the bankrupt was duly adjudicated a bankrupt in this Court. The Federal Housing Administrator made good the note to the bank. The Federal Housing Administrator has filed a proof of claim for the indebtedness claiming a priority. The following decisions have been cited in the briefs: Davis v. Pringle, 268 U.S. 315, 45 S.Ct. 549, 69 L.Ed. 974; Claude D. Reese, Inc., v. United States, 5 Cir., 75 F.2d 9; Bramwell v. U.S. Fidelity Guaranty Co., 269 U.S. 483, 46 S.Ct. 176, 70 L.Ed. 368; Barnett v. American Surety Co. of New York, 10 Cir., 77 F.2d 225; Federal Housing Administrator v. Moore, 9 Cir., 90 F.2d 32; Sloan Shipyards Corp. v. United States Shipping Board Emergency Fleet Corp., 258 U.S. 549, 42 S.Ct. 386, 66 L.Ed. 762; Price v. United States, 269 U.S. 492, 46 S.Ct. 180, 70 L.Ed. 373; Salas v. United States, 2 Cir., 234 F. 842; Lord Burnham Co. v. United States Shipping Board, D.C., 265 F. 955; United States Shipping Board v. Wood, 258 U.S. 549, 42 S.Ct. 386, 66 L.Ed. 762; Guarantee Title Trust Co. v. Title Guaranty Surety Co., 224 U.S. 152, 32 S.Ct. 457, 56 L.Ed. 706; United States v. Miller, 8 Cir., 28 F.2d 846, 61 A.L.R. 405; Emergency Fleet Corp. v. Western Union, 275 U.S. 415, 48 S.Ct. 198, 72 L.Ed. 345; Federal Land Bank v. Gaines, 290 U.S. 247, 54 S.Ct. 168, 78 L.Ed. 298; West Virginia Rail Co. v. Jewett Bigelow Brooks Coal Co., D.C., 26 F.2d 503; Continental Illinois National Bank Trust Co. v. Chicago, Rock Island Pacific Ry. Co., 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110; Mellon v. Michigan Trust Co., 271 U.S. 236, 46 S.Ct. 511, 70 L.Ed. 924; Hatch v. Morosco Holding Co., 2 Cir., 56 F.2d 640, affirmed 2 Cir., 61 F.2d 944; Lewis v. United States, 92 U.S. 618, 23 L.Ed. 513; In re Neff, 6 Cir., 157 F. 57, 28 L.R.A., N.S., 349, 19 A.B.R. 23; Board of County Commissioners v. Hurley, 8 Cir., 169 F. 92, 22 A.B.R. 209; Muller v. Kling, 149 App. Div. 176, 133 N.Y.S. 614, affirmed 209 N.Y. 239, 103 N.E. 138; In re Eastern Shore Shipbuilding Corp., 2 Cir., 274 F. 893, 48 A.B.R. 110; Beaston v. Farmers' Bank, 12 Pet. 102, 9 L.Ed. 1017; U.S. v. State Bank of North Carolina, 6 Pet. 29, 8 L.Ed. 308; and Wagner v. McDonald, Federal Housing Administrator, 96 F.2d 273, decided by the Circuit Court of Appeals, Eighth Circuit, on April 27, 1938.
While the question involved is not free from doubt due to conflicting opinions, the weight of authority indicates that the Federal Housing Administrator's claim arises from an expenditure of Government funds; therefore it is a debt due the United States and is entitled to priority over general creditors under Section 64b of the Bankruptcy Act, 11 U.S.C.A. § 104(b).
The report of the Referee is confirmed. Settle order on notice.