King v. United States

Background

The case involved the executrix of George King, who had been the president of a debtor company and was appointed as the distributing agent in a Chapter XI reorganization. The debtor deposited $160,193.68 with King to be paid out under court orders. The United States later filed a priority claim based on terminated government contracts. Between the plan confirmation hearing and the Government’s proof of claim filing, King paid out almost all the deposited funds, including substantial payments to himself as a creditor.

Reasoning

The Court addressed whether the federal statute that makes certain fiduciaries personally liable (31 U.S.C. § 192) covers a distributing agent in Chapter XI cases. The Court focused on practical control: if a person in the agent’s position has control over distributing the debtor’s assets, the statute can apply. Looking at the facts — King’s role as company president, presence at the confirmation hearing, involvement in the plan, and substantial personal payments — the Court concluded he had enough control and responsibility to require him to ensure the Government’s priority claim was paid.

Real world impact

The decision means that distributing agents who exercise meaningful control over debtor deposits may be personally responsible if their payments prevent the United States’ priority claim from being paid. The Court emphasized that liability does not require dishonesty; instead, the agent has a duty to see that priority claims are protected.

Dissents or concurrances

Justice White concurred, noting typical distributing agents who lack knowledge of unscheduled claims might not be liable, but in this case King’s dual role and knowledge justified liability. Justices Black and Douglas would have reversed.