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September 13, 1962

UNITED STATES of America, Plaintiff,
Elizabeth Simonson KING, Executrix of the Estate of George Stewart King, deceased, and National Surety Corp., a corporation of the State of New York, Defendants

The opinion of the court was delivered by: WORTENDYKE

This action is against the executrix of a deceased Distributing Agent for a bankrupt in a Chapter XI proceeding, under 11 U.S.C.A. § 701 et seq., to recover the amount of a debt due from the Debtor to the United States, and also against the surety upon the Agent's bond (to the extent of the penalty of $ 10,000 thereof). Plaintiff bases its alleged right to recover upon the provisions of 31 U.S.C.A. § 192. *fn1" Plaintiff asserts the priority (31 U.S.C.A. § 191) of its claim against cash assets of Debtor in the hands of the Agent which were disbursed by the Agent to non-priority creditors of the Debtor. The Agent died testate, after the commencement of this action, and his executrix was substituted as a defendant in his stead. The case has been submitted to the Court, sitting without a jury, upon the following stipulation of facts:

'This stipulation is entered into by and between the United States of America as plaintiff and Elizabeth Simonson King as personal representative of George Stewart King, defendant, deceased, and National Surety Corporation.

 'Paul T. Murphy, Esquire, is appearing for National Surety Corporation, and has been authorized by David S. Bate, Esquire, of Boyd, Dodd, Keer & Booth, Esquires, to appear on behalf of the defendant Elizabeth Simonson King for the purpose of making the within stipulation.

 'This stipulation is made pursuant to the direction of the Court contained in the pretrial order dated January 3, 1961.

 'It is stipulated by and between the parties hereto that the following facts shall constitute the record in the trial of this cause without testimony or proof on behalf of any party, subject to objections, if any, as to materiality and relevancy, and subject to the right of any party to introduce at the trial of the cause any evidence not inconsistent herewith upon five days notice prior thereto to all parties:

 '1. There is jurisdiction in this court by virtue of the status of the plaintiff, the United States of America. This action was commenced on July 3, 1958.

 '2. On October 1st, 1946, Seeley Tube and Box Company, Inc., a corporation of the State of New Jersey, filed a petition for reorganization under Chapter XI of the Bankruptcy Act (11 U.S.C.). Pursuant to an order of Referee Cahill entered on March 17, 1947, and filed on March 22, 1947, the deceased George Stewart King was appointed distributing agent and entered into performance of the duties of that office. On the same date the deceased George Stewart King filed a bond of the Defendant National Surety Corporation in the amount of $ 10,000 for the faithful performance of the duties of George Stewart King. On March 21, 1952, by order of Referee Cahill the bond was reduced to $ 4,000.

 '3. The claim of Plaintiff United States of America arose out of default of Seeley Tube and Box Company, Inc., under contracts dated June 13 and 24, 1946, with the United States, and represents the excess costs incurred by the United States in completing the contracts. Two letters dated October 11, 1946, were addressed to the debtor by the Ordinance Department, Dover, New Jersey, advising of in intention to terminate the contracts because of default, and on November 18 and 19, 1946, debtor was notified by the Ordinance Department of the termination of the contracts and of the intention to hold the debtor liable for any excess costs.

 '4. The Plaintiff United States of America was not scheduled as a creditor in the petition filed by the debtor corporation. The contract between the plaintiff and debtor corporation was listed as an executory contract on the schedules annexed to the petition.

 '5. An amended plan of arrangement was confirmed following a hearing on March 21, 1947.

 '6. The debtor corporation deposited with the distributing agent the sum of.$ 160,193.68 in order to consummate the plan of arrangement. This sum was distributed pursuant to orders of the Court by checks signed by the distributing agent and countersigned by the referee. No written provision was contained in the plan of arrangement for payment of plaintiff's claim.

 '7. Part of the statement made on the record on March 21, 1947, by the Referee and the attorney for the debtor was as follows:

 "THE REFEREE: Is there a claim of the Picatinny Arsenal?

 "MR. FREEMAN: The Picatinny Arsenal may have some claim.

 "THE REFEREE: Have we put up enough money to meet it?


 "THE REFEREE: Is there a problem there?

 "MR. FREEMAN: We do not owe them any money, and we want to bring them in. I want to state to your Honor further that the debtor company will deposit any sum of money that is represented by any claim that the Picatinny Arsenal may file in these proceedings within a time that your Honor directs them to file it.

 "THE REFEREE: Have you any notion of what they might claim?

 "MR. FREEMAN: We think they may claim $ 20,000.

 "THE REFEREE: Have you $ 20,000 available?

 "MR. FREEMAN: We have $ 94,000 available to pay them if necessary, and we represent to your Honor that there will be at all times $ 20,000 or more available to dispose of that claim, in cash * * *

 "MR. FREEMAN: I have a further application to limit the time of the United States of America to file a claim in this proceeding. And I am now handing your Honor a petition and order to show cause.

 "THE REFEREE: There is a provision in the statute --

 "MR. FREEMAN: Yes, there is.

 "THE REFEREE: I want to see it.

 "MR. FREEMAN: It is Section 369.

 "THE REFEREE: Section 369 says under proved debts:

 "'1. Have been proved but not allowed or disallowed, prior to the date of confirmation; or 'unliquidated debts.'

 "'2. Are disputed or unliquidated, have been scheduled by the debtor, and are proved within such time as the Court may direct; or 'Arising from rejection of executory contracts.'

 "'3. Arise from the rejection of executory contracts by the debtor and are proved within such time as the Court may direct.'

 "This comes within the last category.

 "MR. FREEMAN: Yes, that is the last category.

 "THE REFEREE: Well, I will sign this order and let Miss Robinson fix the date. * * *"

 'The records of the Clerk of the Bankruptcy Court reflect the appearance of 'G. Stewart King', distributing agent and president of the debtor corporation, in court on that date.

 '8. On April 14, 1947, an order was entered directing the United States of America to file its claim on or before May 9, 1947.

 '9. On May 9, 1947, the United States of America filed its preliminary contingent proof of claim in the amount of $ 26,818.82. The aforesaid claim alleged that the United States of America was a priority creditor. '10. On May 9, 1947, the distributing agent had in his hands the sum of $ 6,085.01, which was subsequently distributed as follows: United States of America $ 3,620.39 Creditors having a priority to United States of America 1,057.55 Creditors not having a priority 1,407.07 $ 6,085.01


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