such circumstances) but rather to illustrate the fact that the retention of these assets by the Government always rested within the broad discretionary power of the Bankruptcy Court. Couple this fact with the Referee's finding (supported by the record) that to allow the Banks to keep this money at the expense of the Government would be contrary to the whole purpose of his earlier order and we have no doubt that the Bankruptcy Court had the power to act as it did.
Turning to the specific arguments of the petitioners, we think they are adequately explained by the foregoing rationale. Thus, petitioner's first point -- which relies so heavily upon the language of the agreement between the Banks and the Receiver -- fails to disturb the real basis for our holding. The Court agrees with their statement that there must have been an underlying debt for those goods already received by the Government; that the Banks had a valid assignment of this debt; and that the Banks were not in default under their agreement with the Receiver. Nevertheless, the petitioners grasp at a straw when, in summing up this first point, they argue, 'If, as the Government contends, there were no moneys due by the Government, then, logically, all the Moneys disbursed to the Bank should have been returned to the Government, and not just the sum of $ 10,521.57.' Brief, p. 12. We do not understand the Government to seriously contend that there was no money owed by them for goods received prior to bankruptcy. If they did, we would reject such a contention. Nevertheless, this does not alter the fact that it was only through the power of the Referee, once bankruptcy ensued, that the petitioners ever acquired possession of the disputed funds. Add to this a finding that the Government's reliance upon some further operation of the bankrupt's business under the terms of the Referee's order was reasonable, and we think the situation fully justified the Bankruptcy Court's action.
The second point raised by the petitioners, which is a bit more troublesome, is that the Assignment of Claims Act, 31 U.S.C.A. 203, supra, specifically bars any repayment by the assignee under a Government contract. Assuming that this Act is applicable to the present assignment, the Court does not interpret it so broadly as to preclude the Bankruptcy Court's order here.
In pertinent part, Section 203 states as follows:
'* * * no liability of any nature of the assignor to the United States * * * whether arising from or independently of such contract, shall create or impose any liability on the part of the assignee to make restitution, refund or repayment to the United States * * *.' 31 U.S.C.A. 203.
The issue which this statute at once poses is this: Is it in fact a liability of the assignor-bankrupt which creates or imposes the duty on the part of the assignee-Banks to return the $ 10,521.57 to the Government?
As this Court views the case it is not a liability of the bankrupt which in any true sense creates or imposes a liability on the Banks to return this money. Rather it is the authority of the Bankruptcy Court, acting in equity to preserve the integrity of its own orders, which creates or imposes this duty. Such being the case, the Assignment of Claims Act is no obstacle to the present order.
Some may argue that this is indeed a fine distinction. Our reply would be that it is perhaps this power to make such distinctions (where justice demands it) that distinguishes the equity powers of a court. Equity indeed follows the law, but not blindly.
Nor, in reaching this conclusion, have we overlooked the case of United States v. Hadden, 6 Cir., 1951, 192 F.2d 327, which held that a literal interpretation of Section 203 precluded the Government from recovering money paid to an assignee by mistake. That case does not dissuade us from our present interpretation of Section 203, which we think is reasonable under the peculiar facts before us.
We need not now decide whether in an appropriate case, we would feel bound to accept that holding. See, for example, Newark Insurance Co. v. United States, Ct.Cl.1960, 181 F.Supp. 246.
Petitioner's third and final point rests upon the argument that at the time the Government paid the money to the Banks it had no claim in diminution of its loss for breach of contract because the contract had not yet been formally terminated. That the bankruptcy of a party to a contract prior to his completing performance thereon constitutes an anticipatory breach of the contract giving the other party the right to treat the contract as ended and at once commence an action thereon was long ago decided by the Supreme Court. Central Trust Co. of Illinois v. Chicago Auditorium Ass'n, 240 U.S. 581, 36 S. Ct. 412, 60 L. Ed. 811. The mere fact that the Government did not at once issue a formal notice of termination is of no moment. Obviously it was the Government's very reliance upon the Referee's order and a desire to cooperate in this matter (albeit for its own benefit) which prompted it to withhold such notice. Yet it is precisely such reliance which we find formed a justifiable basis for Bankruptcy Count's disputed order.
The Finding as to Amount
In the alternative, the petitioners argue that the evidence adduced by the Government as to the amount of damages which they were entitled to was predicated upon incompetent and irrelevant evidence. We have carefully examined the record of the hearing held before the Referee on April 26, 1960. On pages 51 through 53 there is testimony by a Mr. G. F. Allan, Contracting Officer in the Philadelphia Quartermaster Depot, which we think constitutes sufficient basis for the Referee's finding as to damages. There was no objection made to this testimony by the petitioners. Nor was there any attempt whatsoever made to prove that the Government's losses were anything but what Mr. Allan testified to. Under the circumstances the petitioners cannot be heard to complain about this matter now. Krienke v. Illinois Central R.R., 7 Cir., 1957, 249 F.2d 840.
The order of the Bankruptcy Court directing the return of $ 10,521.57 by the Banks to the Government will, accordingly, be affirmed.
Counsel will prepare an appropriate order.