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create such a preference, then the law would conclusively impute to Harrison the intention to bring about the result necessarily arising from the nature of the act which he did. Wilson v. City Bank, 17 Wall. 473, 486. To give effect; therefore, to the finding that there was no intention on the part of Harrison to prefer, we must consider that the authority given by him to the tie company to collect from the laborers did not give that company the right or endow it with the option, when it had collected, to retain the money for its exclusive benefit, and to the detriment of the other creditors of Harrison.
The result of the facts found then is this: Harrison sold his goods to the laborers and agreed with the tie company that that company when it paid the laborers should deduct the amount due by the laborers from the wages which the tie company owed them, and after making the deduction should remit to Harrison the amount thus deducted, irrespective of any indebtedness otherwise due by Harrison to the tie company. Did this give rise to a voidable preference within the intendment of sections 579 and 606 of the bankrupt act?
In view of the necessary result of the findings which we have previously pointed out, it is, we think, beyond doubt that the agreement was not a voidable preference within the meaning of the statute, since, considering the agreement alone, it brought about no preference whatever. This leaves only for consideration the question whether the tie company was entitled to prove its claim, as it sought to do, for the balance owing, after crediting as a set-off the “deductions from pay rolls,” to which we have referred. Now, as we have seen, from the facts found, it must be that the agreement between Harrison and the tie company obligated the latter, when it made the deductions from pay rolls, to remit to Harrison the amount of such deductions irrespective of the account between itself and Harrison. It follows that as to such deductions the tie company stood towards Harrison in the relation of a trustee, and, therefore, the case was not one of mutual credits and debts within the meaning of the set-off clause of the bankrupt law.
Opinion of the Court.
Libby v. Hopkins, 104 U. S. 303. And, irrespective of the trust relation which the findings establish, it is equally clear from general considerations that the right to set-off did not exist. To allow the set-off under the circumstances disclosed would violate the plain intendment of the inhibition contained in clause b (2) of section 68 of the bankrupt act, which forbids the allowance to any debtor of a bankrupt of a set-off or counterclaim which "was purchased by or transferred to him
“. after the filing of the petition, or within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt is insolvent or had committed an act of bankruptcy.” That is to say, whether or not the trust relation was engendered, the result would still be that the tie company, within the prohibited period and with knowledge of the insolvency of Harrison, acquired the claims of the latter against the laborers, with a view to using the same by way of payment or set-off, so as to obtain an advantage over the other creditors, which it was not lawfully entitled to do.
As we have concluded that under the findings there was no voidable preference, we think the court below erred in refusing to allow the tie company to prove its claim, unless it surrendered the sums which it owed Harrison and his bankrupt estate. Section 57g of the bankrupt act, as amended by the act of February 5, 1903, 32 Stat. 797, 799, empowering the court to compel creditors to surrender preferences as a prerequisite to the proof of claims against the estate of the bankrupt, relates only to those creditors “who have received preferences viodable under section sixty, subdivision b." But it also is demonstrated, from what we have said, that the tie company was not entitled to prove its claim as it sought to do, embracing, as it did, the assertion of a right to set-off, and thus extinguish the sum which it owed to the bankrupt estate, resulting from the deductions from pay rolls. Whilst, therefore, because of the error in imposing the condition of prerequisite surrender of the alleged preference, the judgment below was erroneous, nevertheless the court was correct in refusing
to allow the alleged set-off, and in refusing to permit proof to be made which embraced and asserted such set-off. It follows that although the judgment below must be reversed for the reasons stated, the case should be remanded with directions to disregard the alleged claim of set-off, to reject any proof of claim asserting the same, and to permit a claim to be filed for the gross indebtedness to the tie company, with the alleged set-off eliminated. The result will be that the tie company will be a creditor of the estate for the whole amount of its claim, and will be at the same time a debtor to the estate for the amount of the deductions from the pay-rolls collected by it, the court below, of course, having power to take such steps as may be lawful to protect the estate in respect to the payment of dividends to the tie company, in the event that company does not discharge its obligations to the bankrupt estate. The decrees of both courts are reversed and the case is remanded
to the District Court with directions to allow the proof of claim, rejecting the alleged set-off, and for further proceedings in conformity with this opinion.
UNITED STATES 1. ENGARD.
APPEAL FROM THE COURT OF CLAIMS.
No. 136. Argued January 18, 1905.-Decided February 20, 1905.
The Navy Department has no power to disregard the provisions of Rev.
Stat. $8 1556, 1571, and Pars. 1154, 1168, naval regulations and either deprive an officer of sea pay by assigning him to a duty mistakenly qualified as shore duty but which is in law sea duty, or to entitle him to receive sea pay by assigning him to duty which is essentially shore
duty and mistakenly qualifying it as sea duty. Where, however, the assignment of an officer to duty by the Navy Depart
ment expressly imposes upon him the continued discharge of his sea duties and qualifies the shore duty as merely temporary and ancillary to the regular sea duty, the presumption is that the shore duty is tempo
Statement of the Case.
rary and does not operate to interfere with or discharge the officer from the responsibilities of the sea duties to which he is regularly assigned and he is entitled to sea pay during the time of such temporary shore duty.
SOMEWHAT condensing the facts below found, they are as follows: In February, 1897, Chief Engineer Albert C. Engard was performing duty as the chief engineer of the United States receiving ship Richmond, at League Island, Pennsylvania. On the eleventh of February he received the following order from the Navy Department:
“Washington, February 11, 1897. “Sir: Report by letter, to the president of the Steel Inspection Board, navy yard, Washington, D. C., for temporary duty in connection with the inspection of steel tubes for the boilers of torpedo boat No. 11, at Findlay, Ohio, and at Shelby, Ohio.
“You are authorized to perform such travel between League Island, Pa., and Findlay, Ohio, and between League Island, Pa., and Shelby, Ohio, as may be necessary in the performance of this duty.
“Keep a memorandum of the travel so performed by you, certifying to its necessity, and submit the same to the Department, from time to time, for its approval. “This duty is in addition to your present duties. “Very respectfully,
“W. McAdoo, Acting Secretary. “Chief Engineer Albert C. Engard, U. S. Navy,
“U. S. R. S. Richmond, Navy Yard, League Island, Pa.” Complying with this order, Chief Engineer Engard made two round trips between League Island and Ohio, in order to discharge the additional duty referred to in the order. The total number of days in which he was engaged in this work between February 24, 1897, and August 14, 1897, was 122. On an application to be allowed mileage for the trips, amounting to $172.80, the Auditor of the Navy Department deducted from the claim $133.70, and allowed only $39.10. The sum
disallowed was deducted on the theory that the chief engineer was only entitled to be paid for shore duty instead of for sea service during the time referred to. This suit was brought to recover the amount of the deduction, and the right to so recover was sustained by the Court of Claims. 38 C. Cl. 712.
Mr. Special Attorney John Q. Thompson, with whom Mr. Assistant Attorney General Pradt was on the brief, for the United States:
The cases construing $$ 1556 and 1571, Rev. Stat., have established as general principles: First, that the pay of a naval officer is not determined by the nature of the order assigning him to duty, but, on the other hand, is determined by the nature of the duties actually performed by the officer. Second, that where the services performed are partly sea duty and partly shore duty, the paramount duty should determine the pay where it is possible to segregate the time spent in sea service from the time spent on shore duty. As a corollary, it may be said that an order from the Secretary of the Navy may have the effect of relieving an officer from either shore duty or sea duty, notwithstanding the fact that the order does not do so eo nomine.
Pay is not determined by the order. Symonds v. United States, 21 C. CI. 148; S.C., 120 U.S. 46; Pierce v. United States, 33 C. Cl. 294; Wyckoff v. United States, 34 C. Cl. 288; McGowan's Case, 36 C. CI. 69; Hannum v. United States, 36 C. Cl. 99; Taussig v. United States, 38 C. Cl. 112. The paramount duty should determine pay. The services were not performed at sea and the mere fact that the order did not contain express words detaching him from sea service during the time he was temporarily employed on those services does not change the character of shore services to sea service. Schoonmaker v. United States, 19 C. Cl. 170. Mr. William B. King, with whom Mr. George A. King was
the brief, for appellee: An officer sent temporarily to hospital without detach