United States v. Butterworth-Judson Corp., 267 U.S. 387 (1925)

United States v. Butterworth-Judson Corporation

No. 338

Argued December 9, 10, 1924
Decided March 2, 1925
267 U.S. 387

APPEAL FROM THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. Under the Act of October 6, 1917, 5, c. 79, 40 Stat. 383, the Secretary of War was authorized to advance money to a contractor for carrying out a contract for producing and furnishing supplies of picric acid to the War Department, and could provide the "adequate security" called for by the act by requiring the balances of the advanced funds be kept in special deposits subject to a lien in favor of the government, in addition to requiring a collateral note of the contractor and surety bond. P. 392.

2. Under a contract for the erection of a plant and manufacture and delivery to the government of picric acid, the government advanced the contractor moneys, to be deposited at interest in special bank accounts separate from the contractor’s other funds, such money to be drawn on only for specified purposes, and the balance thereof to be accounted for to the government either by deliveries of the acid at a specified price or by return of the amount, less authorized deductions.

Held (assuming that the title passed, establishing the relation of debtor and creditor) that the purpose and effect of the special accounts were to provide security for the United States, and that an equitable lien upon them existed in its favor, although not expressly reserved in the agreement. P. 393.

3. An equitable lien reserved by the United States as security for the proper use or return of funds advanced to a contractor, which under the agreement were deposited in special bank accounts for the purpose of providing such security, held superior to the right of the banks (they having notice of the agreement) to set off such deposits against debts owed them by the contractor. P. 394.

297 F. 971 reversed.

Appeal from a decree of the circuit court of appeals affirming a decree of the district court which dismissed, as to defendant banks, a suit brought by the United States against the Butterworth-Judson Corporation and its receivers, the banks, and several surety companies. The bill sought an accounting under a contract between the first-named defendant and the United States, and to apply the balances of special deposits made by the contractor with the banks to the amount found due under the contract -- also a decree for any deficiency against the surety companies on bonds furnished by the contractor. The contractor, receivers, and surety companies answered and also filed counter claims against the banks, seeking to have the special account deposits paid over to the United States. The banks’ motions to dismiss the bill and counterclaims were sustained by the courts below.