United States v. Shannon (Two Cases)

186 F.2d 430, 1951 U.S. App. LEXIS 3591

Opinions

PARKER, Chief Judge.

These are appeals by the United States in two cases relating to damage to real estate, one of which was instituted under the Tucker Act [28 U.S.C.A. § 1346, 2401, 2402] and the other under the Federal Tort Claims Act [28 U.S.C.A. §§ 1346, 2671 et seq.]. In 1943, the United States leased from Mrs. Kathleen P. Boshamer and others a tract of land, excepting therefrom two tenant houses and an acre of land surrounding each house. The suit under the Tucker Act was instituted to recover damages under the lease contract to the land covered by the lease. The suit under the Federal Tort Claims Act was to recover damages to the two houses not covered by it. The trial judge found the amount of the damage to the land covered by the lease to be $2,050 and to the houses not covered to be $975, and entered judgments for these amounts in favor of plaintiffs. The United States does not contest the correctness of the finding as to damages, but denies the right of plaintiffs to recover because of the provisions of the anti-assignment statute, 31 U.S.C.A. § 203. The judgment in the Tucker Act case embraces a recovery of $202.74 for rents due plaintiff which is admitted to be proper.

The facts with respect to the assignment are that in 1946 Mrs. Boshamer and the other owners of the land joined in a deed in which they conveyed it to' plaintiffs subject to the lease then outstanding in the United States and transferred to plaintiffs any cause of action they might have against the United States for damage done the property during the term of the lease.¹ Following this transaction, agents of the United States had the parties to enter into a tripartite written contract² with each other and with the United States setting forth the conveyance of the land from Mrs. Boshamer and others to plaintiffs, fixing the date to which rent should be paid to vendors and after which it should be paid to plaintiffs, stating that vendors released the United States from all claims on account of damage to the land and reserving to plaintiffs all claims on account of such damage. It is to be noted that this contract, to which the United States was a party, contained an addendum signed by plaintiffs in which their rights to damages during government occupancy were specifically reserved. In 1947, when turning back the land to the owners, and investigating the amount of claims for which it was liable, the United States obtained from the vendors, but not from plaintiffs, a release of all claims arising out of occupation of the property. Not until after this had been done did it raise any question as to the validity of the assignment.

All of the damages awarded in the judgments were incurred during the term of the lease and prior to the acquisition of the property by plaintiffs; and it is perfectly clear that in the assignment of claims to plaintiffs and in the other actions taken with regard thereto, both the plaintiffs and the vendors were acting under the mistaken assumption that such assignments were perfectly valid and would vest in plaintiffs the right to recover against the government any amount for which the government might be liable thereon. It is a fair assumption also that, when accepting the tripartite agreement and obtaining later the release from vendors, the agents of the United States knew that both plaintiffs and vendors were laboring under this mistake of law.

By amended complaints filed in the cases, the vendors were made defendants and it was alleged that they had transferred to plaintiffs, along with the conveyance of the land, their claims to recover from the United States on account of damages thereto and that they refused to help plaintiffs recover on the claims. Vendors filed answer stating that they made no claim to any damages to the lands “having assigned their claims or rights, if any, to the plaintiffs” and admitted that “‘the plaintiffs are entitled to the proceeds of any claim for damages which may be established as owed by the United States”. On the basis of these admissions and the other facts to which we have adverted, the District Judge held that plaintiffs were not precluded from relief by the anti-assignment statute> saying :

“It appears from a review of the cases interpreting this Act that the purpose of Congress in passing it was to prevent the United States from being put in a position of having to decide to which of two claimants it would pay money under a contested claim; and then to stand liable for a like sum to the rejected claimant should a court decree that such claimant was the party to whom the money should have been paid. Martin v. National Surety Co., 300 U.S. 588, 57 S.Ct. 531, 81 L.Ed. 822. The courts all decree that as between the claimants themselves such an assignment is valid. Bank of California, National Ass’n v. Commissioner of Internal Revenue, 9 Cir., 133 F.2d 428; In re Webber Motor Co., 52 F.Supp. 742, 55 Am. Bankr. Rep. N.S. 340. In this case, however, all of the possible claimants against the United States in this cause of action now stand before the judicial forum. The United States will not have to choose which claimant will be paid. This court will do so and all of the claimants will be bound by the decree and those who are unsuccessful will have had their day in court and will not be heard to return at some later date and set up an unjust claim against the United States for money to which they are not entitled. The rights of all of the possible claimants and of the United States will be finally adjudicated in this one suit and that will be an end to the matter. Kathleen P. Boshamer, Eva P. Summers, Amy P. Lybrand, Julia I. Porter, Joan Porter, and N. C. Porter, Jr., have all answered in this suit, and have all admitted the sale of the property and the lease in question to the plaintiffs. They also admit the sale of any cause of action that they may 'have against the United States to the plaintiffs and they state that they are willing for the plaintiffs to receive any money due them from the United States in this cause of action. These parties, Kathleen P. Boshamer, et al. are not merely passive parties in interest in this suit. They have been brought into this court as active parties-plaintiff by the other plaintiffs. Any judgment against the United States that may be rendered in their favor will not be decreed in favor of Samuel Shannon, Patti Shannon and W. L. Shannon, by virtue of an assignment to the Shannons, of a claim, by Kathleen Boshamer, et al. and then 'by virtue of the answer of Kathleen Bosha-mer et al. The judgment will be declared against the United States specifically in favor of Kathleen Boshamer, et al. and the admitted sale of their claim to the Shannons any proceeds arising therefrom will be awarded the Shannons.”

We think that this holding of the District Judge on the facts of the case before us is essentially correct. We think it clear that the assignment involved falls within the terms of the anti-assignment statute.³ And we are not impressed by the argument that under the tripartite contract a new and independent claim was created in favor of plaintiffs which would not be subject to the statute. That instrument merely recognized the assignment of existing claims which had not then been allowed and could have no more validity than the assignment itself. Nor are we impressed with the argument that the statute has been waived; for, while the statute may be waived by proper agents of the government after the claim has been allowed, it may not be waived in advance of allowance. Goodman v. Niblack, 102 U.S. 556, 560, 26 L.Ed. 229.

It by no means follows, however, that plaintiffs are not entitled to relief. The effect of the statute is not to invalidate the claims but merely their assignment. The vendors could unquestionably recover upon them unless precluded by the releases that they have executed; and, since the assignment is good between the parties although not against' the United States,⁴ any recovery which the vendors might obtain could be impressed with a trust in favor of plaintiffs.⁵ It is clear that the assignment to plaintiffs and the releases executed by the vendors were the result of mutual mistake as to' the law applicable in the premises and that, laboring under such mistake, plaintiffs both accepted the assignment and executed the tripartite contract with regard thereto. It is unthinkable that a court of equity should be without power to grant relief under such circumstances. The power to relieve against mistakes of law as well as of fact in proper cases is well settled.⁶ The power of a court of equity to allow suits in the name of the assignor of claims not assignable at law for the benefit of the assignee is equally well established.⁷ And with all parties before the court, and with the strong equity arising out of the mistake of both plaintiffs and vendors, established beyond peradventure, there is no reason in law or in morals why the court should not relieve against the mistake and grant recovery on the claim for the benefit of the parties equitably entitled to the proceeds. Whether the mistake of law here involved would he sufficient to warrant reformation or to serve as a defense in equity, it is not necessary to decide. It is .certainly sufficient, taken with the other facts and circumstances of the case, to warrant the court in allowing the plaintiffs to bring the vendors into the case and requiring that it be prosecuted in their name for the use and benefit of plaintiffs.

It should be noted, in this connection, that the relief granted on the ground of mistake is primarily between the private parties. Vendors have the right to recover at law on the claims notwithstanding the assignment, since the effect of the statute is to invalidate the assignment, not the claims; and what is being done is to require them, because of the mistake of law under which all parties were acting in making the assignment, to sue on the claim for the benefit of those who are equitably entitled under the agreement made. It is argued that the vendors have released the government from liability under the claim and therefore cannot maintain suit on it; but the answer is that this release was the result of mistake on the part of the vendors as their answer clearly shows. This does not mean that the government is held liable or estopped by reason of the mistake of its agents, but merely that it may not take an unconscionable advantage of the mistakes made by private parties in their dealings with it and with each other.

It is suggested that the relief here granted is contrary to the decision in United States v. Gillis, 95 U.S. 407, 24 L.Ed. 503. That case, however, decided merely that an assignee of a claim against the United States could not recover on it by suit in his own name in the Court of Claims; and such decision is manifestly not controlling here. In so far as the reasoning of the case supports a strict construction of the statute, this has been repudiated by the Supreme Court in the comparatively recent case of Martin v. National Surety Co., 300 U.S. 588, 596-597, 57 S.Ct. 531, 534, 81 L.Ed. 822, where the Court said:

“The advocates of literalism find color of support in a line of decisions made in very different circumstances from these, but tending none the less to a strict construction of the statute. National Bank of Commerce v. Downie, 218 U.S. 345, 31 S.Ct. 89, 54 L.Ed. 1065; Nutt v. Knut, 200 U.S. 12, 26 S.Ct. 216, 50 L.Ed. 348; Spofford v. Kirk, 97 U.S. 484, 24 L.Ed. 1032; United States v. Gillis, 95 U.S. 407, 24 L.Ed. 503. We do not pause to inquire with reference to all the cases whether the necessities of the judgment were as broad as the words of the opinion. * * * Another line of cases exhibit an opposing tendency. Lay v. Lay, 248 U.S. 24, 39 S.Ct. 13, 63 L.Ed. 103; Portuguese-American Bank v. Welles, 242 U.S. 7, 11, 12, 37 S.Ct. 3, 61 L.Ed. 116; McGowan v. Parish, supra [237 U.S. 285, 35 S.Ct. 543, 59 L.Ed. 955]; Freedman’s Saving & T. Co. v. Shepherd, 127 U.S. 494, 506, 8 S.Ct. 1250, 32 L.Ed. 163; Hobbs v. McLean, supra [117 U.S. 567, 6 S.Ct. 870, 29 L.Ed. 940]; Bailey v. United States, 109 U.S. 432, 439, 3 S.Ct. 272, 27 L.Ed. 988; Goodman v. Niblack, 102 U.S. 556, 559, 26 L.Ed. 229; McKnight v. United States, supra [98 U.S. 179, 25 L.Ed. 115]; Erwin v. United States, 97 U.S. 392, 24 L.Ed. 1065. Cf. York v. Conde, 147 N.Y. 486, 42 N.E. 193, dismissed 168 U.S. 642, 18 S.Ct. 234, 42 L.Ed. 611. These cases teach us that the statute must be interpreted ' in the light of its purpose to give protection to the Government. * * * To the extent that the two lines of cases are in conflict, the second must be held to- be supported by the better reason.”

In the light of the purpose of the statute “to give protection to the government”, we agree with the District Judge that there is no ground for applying it to deny recovery in a case such as this.

The government argues that the effect of this is to nullify the statute; but we do not think so. Relief is granted, not merely because plaintiffs are assignees, nor even because the vendors have been made parties to the suit, but because of the mistake that led to the making of the assignment, which was a part of the consideration for the.purchase price paid by plaintiffs for the land conveyed to them. The relief is given to the assignees, not as a matter- of law, but as a matter of equity because of the mistake involved and the hardship which would otherwise result. The government is protected in its right to assert any defenses, counterclaims or set offs that it may have against the original claimants, who have been made parties to the suit. No precedent is created which might lead to the evils that the statute was designed to prevent, for the relief is granted in the exercise of the equitable powers of the court which may not be availed of except in circumstances of hardship such as are here presented.

In short: The vendors in good faith and for value assigned their claims against the government to plaintiffs in connection with a sale of property. The assignment was void but the- parties were ignorant of that fact and acted under mistake as to the effect of the assignment. The vendors are entitled to recover notwithstanding the assignment and the release that they executed under mistake, and any recovery they might obtain would be for the benefit of plaintiffs. All parties are before the court and the government can" assert against them any defense or counterclaim that it has or has ever had. Under such circumstances, we think it would be a reproach to the administration of justice to hold that the court is without power to afford relief to plaintiffs by requiring vendors to sue in their behalf to recover the damages for which the government is unquestionably liable to soméone. The arm of equity is neither palsied nor shortened; and certainly some way should be found to do justice and relieve against manifest mistake in a plain case of this sort. We see no reason why the government should be allowed to shield itself against the payment of a just claim by taking advantage of the-mistake of those with whom it is dealing.

Strict observance of the theory upon which this suit is allowed would require that judgment be entered against the government in favor of the vendors for the use and benefit of plaintiffs. Under the circumstances here, however, any error in entering judgment directly for plaintiffs was harmless.

Affirmed.

1 . It was agreed that the cause of action be transferred by a contract to convey dated April 20, 1946. The deed of conveyance was dated June 3, 1946. .

2 . This contract bears date of June 20, 1946, but was evidently executed at a later date, since a letter of Dec. 23, 1946, refers to the necessity of having such an agreement executed. It contains an addendum reserving to plaintiffs claims arising out of government occupancy and use, and counsel for plaintiffs contend that this was added because plaintiffs refused to sign the agreement without this reservation.

3 . The anti-assignment statute here involved is 31 U.S.C.A. § 203, the pertinent part of which provides:

“Ail transfers and assignments made of any claim upon the United States, or of any part or share thereof, or interest therein, whether absolute or conditional, and whatever may be the consideration therefor, and ail powers of attorney, orders, or other authorities for receiving payment of any such claim, or of any part or share, thereof, shall be absolutely null and void, unless they are freely made and executed in the presence of at least two attesting witnesses, after the allowance of such, a claim, the ascertain-; ment of the amount due, and the issuing of a warrant for the payment thereof * * *

4 . McKenzie v. Irving Trust Co., 323 U.S. 365, 369, 63 S.Ct. 405, 89 L.Ed. 305; Martin v. National Surety Co., 300 U.S. 588, 594-598, 57 S.Ct. 531, 81 L.Ed. 822; Lay v. Lay, 248 U.S. 24, 39 S.Ct. 13, 63 L.Ed. 103; McGowan v. Parish, 237 U.S. 285, 35 S.Ct. 543, 59 L.Ed. 955; National Refining Co. v. United States, 8 Cir., 160 F.2d 951; Bank of California v. Com’r of Internal Revenue, 9 Cir., 133 F.2d 428, 432-433; California Bank v. United States F. & G. Co., 9 Cir., 129 F.2d 751, 752-753; In re Webber Motor Co., D.C., 52 F.Supp. 742.

5 . Martin v. National Surety Co., 300 U.S. 588, 597, 57 S.Ct. 531, 81 L.Ed. 822.

6 . See Commercial Cas. Ins. Co. v. Lawhead, 4 Cir., 62 F.2d 928; Clarksburg Trust Co. v. Commercial Cas. Ins. Co., 4 Cir., 40 F.2d 626; Philippine Sugar Estates Development Co. v. Philippine Islands, 247 U.S. 385, 38 S.Ct. 513, 62 L.Ed. 1177; Griswold v. Hazard, 141 U.S. 260, 11 S.Ct. 972, 35 L.Ed. 678; Snell v. Atlantic Fire & Marine Ins. Co., 98 U.S. 85, 25 L.Ed. 52; Pomeroy’s Equity Jurisprudence 4th ed. vol. 2 p. 1711 et seq.

7 . Fourth Street Nat. Bank of City of Philadelphia v. Yardley. 165 U.S. 634, 644, 17 S.Ct. 439, 41 L.Ed. 855; Hinkle v. Wanzer, 17 How. 353, 367 — 368, 13 L.Ed. 173; 4 Am.Jur.Assignments pp. 230, 232, 247, 269, 281, and cases there cited. And see particularly United States v. American Tobacco Co., 166 U.S. 468, 17 S.Ct. 619, 41 L.Ed. 1081.