
    354 F. 2d 292
    LINDA SCOTT, A PARTNERSHIP, CONSISTING OF HAROLD BEETEN, EDWARD FRANK AND SAM M. SLOSBERG, PARTNERS, AND ROBERT H. HOLLAND, TRUSTEE IN BANKRUPTCY OF LINDA SCOTT, INC., INTERVENING PETITIONER v. THE UNITED STATES
    [No. 64-58.
    Decided December 17, 1965]
    
      
      Marvin J. Levin, attorney of record, for plaintiff. Robert R. Holland for third party petitioner.
    
      Sheldon P. Migdal, with whom was Acting Assistant Attorney General Richard M. Roberts, for defendant. Sheldon J. Wolfe, of counsel.
    
    Before Cowen, Chief Judge, Laramore, Durfee, Davis and Collins, Judges.
    
   Davis, Judge,

delivered the opinion of the court:

Linda Scott, a partnership consisting of three partners— Harold Beeten, Edward Frank, and Sam M. Slosberg — commenced this action on February 15, 1958, to recover an amount allegedly due as an equitable adjustment for additional work it had been required to perform under a supply contract executed in 1951 with the Department of the Army. The trial commissioner’s report indicates that it was stipulated in this proceeding that $9,456 is due and owing from the Government on the contract claim. On May 29, 1962, the trustee in bankruptcy of Linda Scott, Inc., the assignee of the assets of Linda Scott, the partnership, filed an intervening petition stating, in effect, a claim to the amount due under the contract and requesting the court to determine whether the partnership or the trustee was the proper recipient of that amount. The defendant has asserted counterclaims against the trustee in bankruptcy for certain taxes owed by Linda Scott, Inc., and against Harold Beeten, one of the members of the claimant partnership, for $13,618.76 assessed against him as a 100 per cent penalty under the applicable Internal Revenue Code provisions for his alleged willful failure, as the responsible corporate official, to pay to the Government certain withholding and F.I.C.A. tax assessments made against Richard Scott, Inc. (a separate corporation otherwise uninvolved in this litigation).

After the trial commissioner’s report was filed, none of the parties took any further steps and we dismissed for default the plaintiff’s petition and the trustee’s intervening petition, by order dated June 5, 1964. Neither the plaintiff nor the intervenor has asked to set aside this default. The June 5th order also dismissed the Government’s two counterclaims. On June 10th, however, the defendant moved for relief from this portion of the court’s order, and for leave to file a brief and exceptions to the commissioner’s findings. By order of October 16,1964, we set aside the judgment dismissing the counterclaims on the ground that the defendant’s failure earlier to file a brief and exceptions constituted “excusable neglect.” Accordingly, we must now dispose of these two tax counterclaims.

The trial commissioner has found that taxes, properly assessed against Linda Scott, Inc. between February 1954 and August 1956, remain unpaid. The trustee in bankruptcy of Linda Scott, Inc., does not except to these findings or contest, in any way, the corporation’s liability. There is no reason to reject the commissioner’s conclusion. Judgment on the counterclaim for these taxes must therefore be entered against the trustee as provided by law.

The tax counterclaim against Beeten, for unpaid Bichard Scott, Inc. taxes, presents two questions. The first is whether Beeten may be held responsible, and a penalty assessed against him, for these imposts. The second, of more general interest, is whether, in an action commenced by a partnership, the Government may maintain a counterclaim against one member of the partnership arising out of a transaction wholly unrelated to the partnership’s claim and with which it has no concern.

We are clear that, if the defendant’s tax-penalty claim against Beeten may be considered in this proceeding, the controlling provision of the 1989 Internal Revenue Code—§ 2707(a) — entitles the Government to recover. This section declares that “any person who willfully fails to pay, collect, or truthfully account for and pay over * * *” certain taxes (including withholding and F.I.C.A. taxes) may be assessed “a penalty of the amount of the tax evaded, or not paid, collected, or accounted for and paid over * * Corporate officers under a duty to discharge these general tax-collecting functions are included within the class to which § 2707 (a) applies. § 2707 (d), 1939 INC. The unchallenged findings disclose that Richard Scott, Inc., incurred withholding and F.I.C.A. tax liabilities in four fiscal quarters of 1954 and 1955 in the amount of $13,618.76; that Harold Beeten was an incorporator, director, and secretary-treasurer of Richard Scott, Inc.; that as treasurer of the corporation during two quarters in 1954 he had the authority, duty, and responsibility to collect, account for, and pay over to the Treasury the tax liability then incurred; that the Treasury assessed a 100 per cent penalty for unpaid Richard Scott, Inc., taxes against Beeten; that the Commissioner of Internal Revenue gave him notice of, and demand for payment of, this assessment; and, finally, that Beeten’s failure to collect and remit the taxes was “a knowing, deliberate, and willful act on his part.” No more is needed; these findings are supported by the evidence, and meet the twin requirements of § 2707(a) — a willful default in the payment of taxes by a responsible person.

The condition that the failure to pay the overdue taxes be wiEful has been seen by the courts of appeals passing on the point as calling for proof of a voluntary, intentional, and conscious decision not to collect and remit taxes thought to be owing — and not as requiring a special intent to defraud or deprive the Government of the monies withheld on its account. Bloom v. United States, 272 F. 2d 215, 223 (C.A. 9, 1959), cert. denied, 363 U.S. 803 (1960); Flan v. United States, 326 F. 2d 356, 358 (C.A. 7, 1964); Dillard v. Patterson, 326 F. 2d 302, 304-05 (C.A. 5, 1963). These courts have rejected suggestions that a finding of willfulness entaEs a showing of evil motive, bad purpose, or calculated malevolence. Bloom v. United States, supra, at 223-24; Dillard v. Patterson, supra; Frazier v. United States, 304 F. 2d 528, 530 (C.A. 5, 1962). They focus, rather, on the deliberate nature of the individual’s election not to pay over the money and the circumstances of that refusal. See 8A Mertens, Federal Income Taxation § 47A.25a at 127 (1964). We agree with this reading of the statute.

In the two fiscal quarters here involved, Mr. Beeten either deliberately caused tax returns to be filed or acquiesced (apparently without objection) in their filing while aware that the proper withholding taxes were not being paid. As an accountant, he was familiar with the provisions of the withholding tax laws. As treasurer of Richard Scott, Inc., he supervised the activity of the bookkeeper preparing the corporate tax returns, and clearly “knew that the corporation was not * * * depositing the withholding taxes” in accordance with the law. Although “it appears very probable” that corporate funds sufficient for timely payment of the necessary withholding taxes were unavailable at the time of the returns, it is also plain that Beeten either failed to cause the requisite taxes to be collected or that (by his direction or with his approval) they were collected and thereafter used to pay other corporate creditors, rather than the Government. This intentional preference of others over the United States constituted a willful failure to collect and pay the taxes within § 2707(a). See Flan v. United States, supra, at 358; Frazier v. United States, supra, at 530; Dillard v. Patterson, supra, at 304; Rev. Rul. 54-158, CB 1954-1, at 247.

The second requirement of the penalty provision — that the person failing to malee the remittance have a duty to do so— applies by its terms to corporate officers who are found legally obliged to pay the taxes over to the Government. § 2707(d). Mr. Beeten possessed general authority to sign a wide variety of corporate documents (including tax returns) , to draw checks on the corporate bank account, and to make decisions respecting financial difficulties arising in the ordinary course of business, as well as the special authority and responsibility to collect and remit to the Treasury money withheld from employee wages. Plaintiff’s claim that he did not have such authority is supported only by his own testimony (some of which must be rejected on various grounds, see finding 30 (b)), and, in the light of the other evidence, cannot be accepted. Cf. United States v. Strebler, 313 F. 2d 402, 404 (C.A. 8, 1963). It is inconsequential that exclusive control over all corporate affairs was not vested in him, or that the corporation’s president retained a considerable measure of decision-making discretion. Section 2707 (d) is not so phrased or designed as to exclude one corporate officer from its sanction merely because it might also be held to extend to another. Realistically read, the subsection encompasses all those who are so connected with a corporation as to have the responsibility and authority to avoid the default which constitutes a violation of § 2707(a), even though liability may thus be imposed on more than one person, Scherer v. United States, 228 F. Supp. 168, 170 (D.C. Idaho, 1963).

Beeten says, however, that an independent counterclaim against an individual partner will not lie in a suit by the partnership, and asks us to adhere to that rule as laid down in Boehm v. United States, 20 Ct. Cl. 142 (1885), and reaffirmed in Marietta Mfg. Co. v. United States, 61 Ct. Cl. 122 (1925).

This problem must be scanned within the framework of our jurisdictional statute and our rules, and against the backdrop of modem procedural practice. Section 1503 of Title 28 gives this court “jurisdiction to render judgment upon any set-off or demand by the United States against any plaintiff in such court” and Section 2508 likewise grants power to hear and decide counterclaims by the United States “against any plaintiff making claim against the United States” in this court. See McElrath v. United States, 102 U.S. 426 (1880); Cherry Cotton Mills v. United States, 327 U.S. 536 (1946). Our rule on counterclaims (now Rule 21, formerly Rule 17) is similar to that of the Federal Rules of Civil Procedure (FRCP 13); subsection (a) marks as compulsory any claim which the defendant “has against any plaintiff” if it arises out. of the transaction or occurrence that is the subject matter of the petition and does not require the presence of third parties who cannot be brought in, while subsection (b) permits as a counterclaim any other demand, “against a plaintiff.” These words of the statute and rule, unqualified as they are, may tend in their breadth to support the counterclaim here, but they do not compel that result. Decision must be reached through the corridors of judicial administration and procedural philosophy.

The four principle arguments for the position we announced in 1885 and reiterated in 1925 are that (1) the only counterclaims or set-offs allowed by Congress are “mutual debts or demands” by and against the partnership itself (Marietta Mfg. Co., supra, at 125); (2) unless the claim is disallowed the individual partner’s debt to the United States will be satisfied out of partnership' assets (Boehm, supra); (3) allowance of claims unrelated to that stated in the petition will result in trial confusion, delay, and injustice (Marietta Mfg. Co., supra, at 125); and (4) since courts increasingly regard partnerships as separate jural entities for procedural purposes, we should hold that the partnership, as distinct from the partners individually, is the sole “plaintiff” in this proceeding (within our Rule 21 (b)) against whom counterclaims may be asserted. Cf. Ruzicka v. Rager, 305 N.Y. 191, 111 N.E. 2d 878, 881 (1953). We consider these points seriatim, but none of them seems to us sufficiently valid in the prevailing conditions of our day to call for continued application of the Boehm-Marietta rule.

At the outset, we note that Congress, in the legislative history of Section 3 of the Act of March 3, 1863, 12 Stat. 765 (the forerunner of §§ 1503 and 2508) did not advert to, or dispose of, the issue now before us. There were references in the debates to “mutual” claims (60 Cong. Globe Appendix 123, 124 (1862)) and to set-off “such as is generally resorted to in the States” (58 Cong. Globe 1675 (1862), but a stand was also taken for “a settlement of all transactions” and in favor of “the wise policy of preventing a multiplicity of suits” (60 Cong. Globe Appendix 123, 124 (1862)). We think it apparent that Congress intended the provision, formulated in general phrases, to enable the Government to make as full use of its counterclaim power as accepted or respected principles allow at any particular time. It would be too rigidly antiquarian to insist that, as counterclaim provisions have expanded over the years, Congress mummified the counterclaim rights of the defendant in this court in the precise shape and form they had in 1862-1863.

The second and third arguments against the Government’s right depend upon considerations of fairness and convenience related to procedural rules no longer with us. In Boehm, the defendant sought, in an action by a three-member partnership, to set off a judgment previously recovered against two of the partners. With little discussion, the court held that this was impermissible at law. It was said that to allow the Government to set off against a plaintiff-partnership a debt due from an individual partner would prejudice the non-debtor partners, since the partnership’s total recovery would be diminished by the amount of the individual debt. This may have been so in 1885 because the court then did not deem itself able to enter several judgments on the separate claims; set-off involved a single judgment for the difference between the two claims asserted. See Note, 7 Chi. L. Rev. 394, 395 (1940). That being the law’s limitation, fairness may well have demanded dismissal of the counterclaim. Reaffirming the Boehm rule in Marietta, the court gave a comparable practical reason for refusing such counterclaims: “confusion, delay and injustice could arise in the disposition of the original suit” if an individual counter-demand could be set off in a partnership suit “and be heard along with the original suit.” There was then no mechanism for a separate trial of the several issues in a case, and it was felt that the burdens of a joint trial of a given counterclaim outweighed all alleged advantages, at least where the counterclaim did not affect all the parties. In 1885 and 1925 the procedures available to handle offsetting claims were at an intermediate stage of their present development — more expansive, surely, than common law recoupment, but not nearly as liberal, in the interest of efficiency and fairness, as the modern federal practice. Clark, Code Pleading §§ 100-104 (1947). Boehm and Marietta reflected that period in civil procedure.

The procedural rules now followed in the federal courts, including our own, have furnished devices which improve upon the restrictive practices leading to the Boehm-Marietta ruling, and which give the courts a different touchstone by which to test the question today. These rules permit courts, in their discretion, to order separate trials and to enter separate judgments in cases involving counterclaims. Our Rule 47 (b) allows “the court, in furtherance of convenience or to avoid prejudice, * * * [to] order a separate trial of any claim or counterclaim, or of any separate issues, or of any number of claims, counterclaims, or issues; and * * * [to] enter appropriate orders or judgments with, respect to any such issues, claims or counterclaims that are tried separately.” Cf. FRCP 42(b) and 54(b). Confusion which might result from taking evidence on wholly unrelated issues at the same trial may, if necessary, be eliminated by such separate treatment. If the United States prevails on its counterclaim, the court may enter a separate judgment against an individual partner, thus averting the possibility that that partner’s debt might be unfairly satisfied out of partnership assets. While Buie 47 (b) explicitly provides for separate judgments only where a separate trial is ordered, such judgments are allowed in multiple party claims (Ct. Cl. Rule 26(a), FRCP 20(a)), and there is no adequate reason to prohibit them in this analogous context. Indeed, Bule 13 (i) of the Federal Buies expressly provides that judgment may be entered on a counterclaim even where the claims of the opposing party, as here, have been dismissed. The short of it is that the practical objections raised in Boehm and Marietta no longer exist.

The trial commissioner’s report confirms what, from our experience, we think is beyond doubt — that the rule we adopt will not unduly burden or prejudice any party in the normal litigation. The report demonstrates that, except perhaps in the extraordinary case, the trial judge may competently consider unrelated claims in one proceeding, sometimes even without ordering separate trials. The findings treat distinctly, and without confusion, the partnership’s breach-of-contract claim, the tax counterclaim against Linda Scott, Inc., and that against Mr. Beeten (for taxes withheld by Bichard Scott, Inc.). Delays in the prompt resolution of this litigation related primarily to the intervening petitioner’s claim to the contract proceeds and to the fact that the Government initially did not distinguish between the Bichard Scott, Inc., and Linda Scott, Inc., tax liabilities. These delays did not result from the joint trial of the contract claim and the counterclaim against Beeten. In sum, we know of no functional reason, nor has any been cited to us, to dismiss this counterclaim and require the Government to resort to another federal forum elsewhere to assert its demand against a party with whom it is already litigating.

The theoretical argument that the partnership is an entity and it, rather than the partners individually, must be held to be the sole plaintiff in this suit does not convince us. Unlike corporations, partnerships are not consistently treated as units, but just as often (or more so) as an aggregation or combination of individuals. Uniform Partnership Act § 6. That they may bring suit in the entity name (e.g., “Linda Scott, A Partnership Consisting of Harold Beeten, Edward Frank and Sam M. Slosberg * * *”), rather than in the name of the co-owners (e.g., “A & B, Partners, Trading As * * *”), does not usually determine the way courts will view them for a particular purpose, and is generally no more than á matter of form or preference. The choice of how to deal with partnerships in various contexts must be based on weightier considerations of substance. The salutary objectives of the counterclaim rules should not turn on the sequence of the names in the pleadings, or be defeated by a reversal of that order. Nor should the rules be read as permitting partners to avoid individual counterclaims by the simple expedient of bringing the action in the name of the partnership and omitting their own names entirely.

We recognize that, in these days, courts consider partnerships as entities for some procedural purposes — such as venue and service of process (see Joscar Co. v. Consolidated Sun Ray, Inc., 212 F. Supp. 634, 636-38 (E.D.N.Y. 1963) )— but the ultimate aim of such treatment is usually fairness and convenience, rafher than the acceptance of the entity theory for all purposes. Cf. Sperry Products Inc. v. Association of Am. Railroads, 132 F. 2d 408, 410-11 (C.A. 2, 1942). Thus, while state statutes permit partnerships to sue and be sued in the partnership name, and Federal Rule of Civil Procedure 17 (b) similarly provides in suits for the enforcement of rights existing under the Constitution and laws of the United States, the main reason for adoption of these provisions is that plaintiffs suing partnerships under the common, law rule were burdened with the task of ascertaining and naming the members of the partnership as defendants. See Ruzicka v. Rager, 305 N.Y. 191, 111 N.E. 2d 878, 881 (1953); 2 Barron & Holtzoff, Federal Practice and Procedure §487 (Wright ed. 1961). In the present situation, however, there are no similarly compelling practical reasons to consider partnerships as entities, rather than as aggregates of individuals. Whatever merit there may be to the point that consistency entails a uniform entity treatment of partnerships for all procedural purposes, we find outweighed by the realistic considerations mentioned earlier, as well as by the theory of the present-day counterclaim system (to be discussed presently).

Our partners’ own view of their position is instructive in this connection. It is evident that they did not consider the partnership an entity, but rather saw themselves as individuals before this court asserting a jointly-held claim arising out of their common business. For example, on December 4, 1958, two of the partners, Frank and Slosberg, moved for summary judgment for their two-thirds of the Linda Scott contract claim and for dismissal, with respect to them, of the Government’s tax counterclaim against Beeten, on the postulate that the contract claim belonged to the partners in equal shares as individuals. They acted on this basis during the entire course of the litigation (see footnote 8, supra). Although this was the reaction of a particular set of partners, we think it not insignificant or unrepresentative; it buttresses the conclusion that, in the normal case, partners will not find themselves put upon or unduly inconvenienced if viewed as the individual owners of the claim and individual plaintiffs for counterclaim purposes.

We find, therefore, that none of the four reasons given for the Boehm-Marietta rule currently sustains that restriction on the right of counterclaim. On the other hand, while our counterclaim rule (21) (see FRCP 13) does not specifically answer the question, the essential theory of that rule, and of the related provisions governing joinder of claims and multi-party litigation, affirmatively supports allowance of the Government’s tax demand. This general theory encourages “unlimited joinder at the pleading stage, with power in the court to order separate trial of a particular issue if this is in fact convenient or desirable.” Wright, Federal Courts 299 (1963). The overriding emphasis is on consolidation and the expeditious resolution (where that is fair) of all the claims between the parties in one proceeding. The specific provisions of Eule 21 teach this. Counterclaims arising out of the same transaction as the claim must be asserted, at the risk of being waived. Any claim may be asserted whether or not it is related to the subject matter of the original claim. Counterclaims “may or may not diminish or defeat the recovery sought by a plaintiff [and] * * * may claim relief exceeding in amount or different in kind from that sought in the petition.” This is in direct contrast to the earlier, more circumscribed, rules which allowed counterclaims only if they arose out of the same transaction as was the basis of the complaint, or diminished or defeated the plaintiff’s recovery. Clark, Code Pleading §101 (1947). The effort to consolidate and avoid duplicating litigation is also evident in Rule 13(a) (2) providing for the joinder of “as many separate claims or defenses” as a party has, Eule 23 allowing impleader of any third party “who appears to have an interest in the subject matter” of a claim, and Eules 25 through 28 dealing with joinder of parties and intervention. (The parallel Federal Rules of Civil Procedure are similar in substance.) The controlling philosophy is that, so far as fairness and convenience permit, the various parties should be allowed and encouraged to resolve all their pending disputes within the hounds of the one litigation. To say that an individual partner-plaintiff can veto the maintenance of an individual counterclaim against him, even though convenience and fairness would be served by allowing it, goes counter to this basic premise and affords partners a technical, artificial device for proliferating litigation and possibly escaping valid demands against them.

The decisions disallowing counterclaims against plaintiffs as individuals in actions commenced by them in a representative capacity (see 1A Barron & Holtzoff, Federal Practice and Procedure § 398 (Wright ed. 1961)) do not require us to continue in the opposite position. Individuals suing as the representative of another or as a fiduciary do not benefit, in any immediate, personal way, from the judgments entered in those suits. But judgments rendered on partnership demands result in an immediate pro rata gain to the individual partners, since they actually own the claim in most senses. Inherent in the notion of ticking off the parties’ debts and obligations to achieve an ultimate balance — the concept underlying the counterclaim rules — is the necessary condition that the parties against whom counterclaims may be lodged have a personal, beneficial interest in the claim declared in the complaint or petition. The rulings disallowing counterclaims against plaintiffs suing in a representative capacity rest on the assumption that such persons do not. See, e.g., Higgins v. Shenango Pottery Co., supra, 99 F. Supp. 522, 524 (W.D.Pa. 1951). Zion v. Sentry Safety Control Corp., 258 F. 2d 31 (C.A. 3, 1958), is also different. The question there was whether a single partner, when sued, had to assert a partnership claim as a compulsory counterclaim under Federal Civil Rule 13(a). For the court, the basic question was whether an individual partner has the capacity to assert a partnership claim under Federal Rule 17(b), which requires that this question be decided as one of state law. It held that the single partner lacked such capacity to sue under Pennsylvania law. "We face no problem of capacity to sue, and base our holding on our own statute and rules of procedure, not state law.

Because they no longer represent the better practice, we decline to follow Boehm and Marietta in our day and hold that, except perhaps for exceptional situations, the defendant may counterclaim against an individual partner-plaintiff for independent causes of action unrelated to that on which the partnership sues. This is also the result in the only reported case we have found on the point under the Federal Rules of Civil Procedure. Abraham v. Selig, 29 F. Supp. 52 (S.D.N.Y. 1939).

Judgment is accordingly entered against Robert H. Holland, the trustee in bankruptcy of Linda Scott, Inc., on the defendant’s counterclaim, plus penalties and interest (to be determined under Rule 47 (c) ) and against Harold Beeten in the amount of $10,416.89 plus interest (the amount likewise to be determined under Rule 47 (c)).

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner Franklin M. Stone, and the briefs and arguments of counsel, makes findings of fact as follows:

General

1. On November 16, 1951, Linda Scott, a partnership (hereinafter sometimes referred to as “L. S., the partnership,” or the “partnership”), which was formed in 1948 and located in Bethlehem, Pennsylvania, was awarded contract DA-30-280-QM-21512 (hereinafter referred to as the “contract,” or QM-21512) by the Department of the Army, Quartermaster Corps, which contract was signed by Harold Beeten, partner. The partnership was to fabricate 189,600 cotton mattress covers under the contract for a consideration of $414,783.60.

The contract, among other things, provided as follows:

Assignment of Claims
(a) Pursuant to the provisions of the Assignment of Claims Act of 1940, as amended (31 U.S. Code 203, 41 U.S. Code 15), if this contract provides for payments aggregating $1,000 or more, claims for moneys due or to become due the Contractor from the Government under this contract may be assigned to a bank, trust company, or other financing institution, including any Federal lending agency, and may thereafter be further assigned and reassigned to any such institution. Any such assignment or reassignment shall cover all amounts payable under this contract and not already paid, and shall not be made to more than one party, except that any such assignment or reassignment may be made to one party as agent or trustee for two or more parties participating in such financing. Notwithstanding any other provisions of this contract, payments to an as-signee of any moneys due or to become due under this contract, shall not, to the extent provided in said Act, as amended, be subject to reduction or set-off.

2. On February 18,1952, the plaintiff partnership assigned to the Allentown National Bank, Allentown, Pennsylvania, (hereinafter sometimes referred to as the “Bank”), all moneys due and to become due the partnership, and all claims for moneys due and to become due under the provisions of the aforesaid contract, as collateral security for plaintiff’s indebtedness to the Bank. The Bank notified the Quartermaster Corps of the assignment. The 189,600 covers were delivered to, and accepted by, the defendant by November 16, 1952. On November 25,1952, defendant made final payment to the Bank in the sum of $414,783.61, representing the consideration set forth in the contract.

3. Under date of January 14,1953, upon Linda Scott partnership stationery, and over the signature of Harold Beeten, plaintiff sought an equitable adjustment for additional work it had been required by Quartermaster Inspectors to perform under the contract involved herein (QM-21512), and a certain subcontract (the identification of which is not relevant in this case). Plaintiff claimed costs of $7,494.50 incurred by reason of this additional work it was required to perform in fabricating the 189,600 mattress covers under QM-21512, and in fabricating some 41,000 covers under said subcontract. The assertion was made in such claim for an equitable adjustment that another contractor having a similar contract was not required to perform the extra work required for plaintiff. At the trial of this case, Mr. Beeten testified that such claim had neither been sent nor signed by him, and that the partnership’s then counsel had taken all correspondence and contracts performed by the partnership for the purpose of preparing claims against defendant. At the request of such counsel, blank Linda Scott partnership letterheads were given to him in order that he could handle the correspondence and transactions. A follow-up letter to the Quartermaster Corps, dated February 16, 1953, apparently was prepared, and Mr. Beeten’s signature inserted therein, by the then counsel.

4. Sometime prior to March 2,1953, a Pennsylvania corporation, Linda Scott, Inc. (hereinafter sometimes referred to as L. S., the corporation), was organized, to which corporation plaintiff Linda Scott, the partnership, assigned the claim, then asserted to be in the amount of $7,494.50, involved in this litigation.

5. At or about the time Linda Scott, Inc. was formed, a local accounting firm, on March 2,1953, prepared a corporate balance sheet for submission to the Bank. Because Mr. Bee-ten stated he believed the aforementioned claim was valid, it was inserted on said balance sheet under the heading “OTHER ASSETS” in the following manner: “Claims Receivable — U.S. Government $7,494.50.”

The minutes of the first meeting of the Board of Directors of said corporation held on March 2,1953, contained the following entry:

* * * Whereas, Harold Beeten, Sam M. Slosberg, and Edward Frank have offered to sell to the corporation all the assets of their business subject to all liabilities as more particularly described in the offer hereto attached, for the issuance to each of them of 100 shares of the fully paid and non-assessable common stock of tbe corporation ; * * * And, whereas, in the judgment of the Board of Directors said offer is good and sufficient consideration for the shares * * * subject to the following qualifications: (a) that the 100 shares of common stock referred to shall include the 4 shares which each of the officers have subscribed for in the corporation; and (b) that the sale of the assets shall not include the inventory of made-up merchandise and piecegoods purchased from Imperial Textile Co. was used, [sic] nor shall the assumption of liabilities by the corporation include any of the liabilities of Harold Beeten, Edward Frank and Sam M. Slosberg to Imperial Textile Co. * * *

A bill of sale, dated March 2, 1953, containing the words ‘Claims receivable, U.S. Government, $7,494.50” was attached to a page of the corporate minute book.

j6. Under dates of January 15 and February 12,1954, upon Linda Scott partnership stationery, the former partnership’s then counsel wrote to the Quartermaster Corps inquiring about the status of the claim for $7,494.50, filed on January 14, 1953. Reference was made only to the prime contract, QM-21512. The claim for an equitable adjustment upon the subcontract apparently was deleted. The then counsel signed Harold Beeten’s name as “President, Linda Scott, Inc.” On April 15, 1954, the contracting officer denied the claim, finding that no authorized personnel had ordered or required extra work to be performed beyond the contractual requirements of QM-21512. Thereafter, on April 26, 1954, the then counsel on behalf of Linda Scott, the partnership, filed an appeal with the Armed Services Board of Contract Appeals, claiming that the extra costs incurred had been in the amount of $6,162. At the conclusion of said appeal was typed “Harold Beeten, Partner.”

7. (a) On May 11, 1954, upon L. S. partnership stationery, and bearing a signature of Harold Beeten, a request was made of the Quartermaster Corps for relief, pursuant to Title II of the First War Powers Act of 1941. It was alleged in such claim that losses in the amount of $29,455.91 had been incurred in fabricating mattress covers under the primary contract (QM-21512) herein involved and under tbe subcontract related thereto. Under date of August 26, 1954, the then counsel for the instant partnership prepared a more detailed letter request for Title II relief. Harold Beeten signed the letter without reading it. After his signature appear the typed words, “President, Linda Scott, Inc.” Ultimately, on June 1, 1955, the Quartermaster Corps denied the claim for Title II relief.

(b) On May 11, 1954, another request for Title II relief was addressed to the Department of the Navy wherein losses in the amount of $12,659.85 were alleged to have been incurred in completing two Navy mattress cover contracts, N-40538 B and N-31271 B. Under date of May 28,1954, the Navy denied the plaintiff partnership’s request for Title II relief with respect to those two Navy contracts. No claim was ever filed with the Navy, by or on behalf of the partnership or of the successor corporation, wherein damages for breach of contract were alleged, or equitable adjustments were sought for extra work performed in completing the aforementioned Navy contracts; nor was litigation ever instituted by either the partnership or its successor corporation in an effort to recover damages allegedly incurred under these Navy contracts.

8. On or about February 18, 1955, L.S., the corporation, ceased doing business. In a letter addressed to the Quartermaster Corps under date of March 15, 1955, the plaintiff partnership’s then counsel recognized that Title II relief did not extend to losses incurred under subcontracts. Accordingly, he deleted that portion of plaintiff’s claim, and claimed that the losses suffered in the performance of QM-21512 amounted to $24,218.74.

9. On May 6, 1955, Harold Beeten, as president of Linda Scott, Inc., filed a petition of bankruptcy in the District Court for the Eastern District of Pennsylvania. Mr. Beeten, therein under oath, stated that said corporation was the successor to Linda Scott, a partnership; that he, as president, Sam Slosberg, Edward Frank, and Louis Eosner, as treasurer, were directors and stockholders of the corporation; and that, as the only stockholders, each held 25 percent of the stock. Upon Schedule A-l of the petition in bankruptcy, captioned “Statement of all Creditors to Whom Priority is Secured by the Act,” appeared the following entry — “Taxes due U.S.A. (b) Director of Internal Revenue, Scranton, Pa. Balance due on Withholding Tax and Social Security $14,932.09.” TJpon Schedule B-3 caption “Chuses IN ActioN,” beside the heading entitled “Unliquidated claims of every nature, with their estimated value,” appeared the entry “There is a claim against the United States Government for funds due on prenegotiated contract and contract breach— now pending in Philadelphia District Court $5,000.00.”

10. (a) On June 2,1955, the first meeting of the creditors of L. S., the corporation, was held before Russell Hiller, Esquire, referee in bankruptcy. An attorney, Jackson Sigmon, Esquire, represented the bankrupt corporation. Robert H. Holland, Esquire, appeared on behalf of a small creditor. In response to the referee’s questions, Mr. Beeten testified that on March 2, 1953, L. S., the corporation, became the successor of the former three-man partnership (L. S., the partnership), and it conducted a similar business using the same place of business as had the partnership; that the corporation acquired the assets of the partnership; that he, Edward Frank, Sam Slosberg, and an S. M. Schwab were each issued equal shares of common stock in the corporation; that each of the partners had transferred his interest in the partnership assets for one-fourth of the corporate common shares; and that at the time of incorporation, the corporation assumed the debts of the partnership.

(b) The attorney for the bankrupt, Mr. Sigmon, advised the referee that the only asset of the bankrupt corporation was a lawsuit pending on behalf of the corporation as plaintiff in the Philadelphia District Court, and that the then attorney prosecuting the suit, whom he identified, had advised that this claim soon would be considered by the Armed Services Board of Contract Appeals. Mr. Beeten testified to the effect that said claim was the one against the Covemment listed on Schedule B-3 of the petition in bankruptcy; that it involved $7,494.50; and that the attorney handling the claim had taken it upon a one-third contingency basis. Mr. Beeten further testified that the partnership had become insolvent by December 31,1952.

(c) At the close of the hearing, the referee appointed the intervening petitioner herein, Robert H. Holland, (hereinafter referred to as the “trustee”), as trustee in bankruptcy.

11» (a) After investigation, the trustee concluded that the only recoverable asset was the claim listed on the bankruptcy schedule as a claim against the United States Government in the amount of $5,000. The trustee learned the name of plaintiff’s then attorney and wrote to him inquiring about the status of the claim which L. S., the corporation, had against the United States Government. In a reply letter dated July 8, 1955, such attorney advised “I do not appear in any matter wherein Linda Scott, Inc. has a claim against the United States.”

(b) The trustee also wrote to the clerk of the United States District Court for the Eastern District of Pennsylvania, and requested whether Linda Scott, Inc. had filed a civil suit against the United States; and he was advised on July 25, 1955, that no such suit had been filed. Thereafter, the trustee communicated with Mr. Sigmon, the attorney who had represented the bankrupt L. S., the corporation, at the first meeting of creditors, and advised him of the difficulties involved in identifying the claim and requested the name of the attorney who might be handling it. Mr. Sigmon responded on August 3, 1955, to the effect that he was “amazed” that the attorney handling the claim denied any knowledge about it, suggested that the suit may have been initiated under the partnership’s name, and enclosed a letter dated May 19, 1955, from the instant plaintiff’s then attorney addressed to Mr. Beeten, in which he was advised that “ASBCA No. 2806, Appeal of Linda Scott under Contract No. DA-30-280-QM-21512” would soon be placed upon the Armed Services Board’s calendar, and that Mr. Beeten should arrange to visit the attorney’s office at an early date with respect to the matter.

12. On August 4,1955, the Armed Services Board of Contract Appeals (ASBCA) beard testimony in the appeal of Linda Scott, a partnership, under contract No. QM-21512 (ASBCA No. 2849), which (as noted in finding 6, supra) had been filed on April 26, 1954. At that time, Mr. Beeten testified, under oath, as follows:

Q. What is your capacity with the partnership of Linda Scott ?
A. I am in charge of financing.
Q. At the present ?
A. Present.
Q. Who are the partners ?
A. Mr. Sam M. Slosberg and Mr. Edward Frank.

Thereafter, on January 28, 1956, the ASBCA sustained the appeal of Linda Scott, a partnership, finding that in the performance of contract No. QM-21512 the partnership had been required to do extra work not provided for by the specifications. The Board remanded the case to the contracting officer for a determination as to the amount of the equitable adjustment. In a letter to the Quartermaster Corps, dated February 6, 1956, the instant plaintiff’s then counsel claimed entitlement to an increased equitable adjustment of $10,805.30.

13. (a) During the course of investigations which the trustee in bankruptcy continued, he made inquiry as to whether accounts receivable of L. S., the corporation, had been pledged to the Bank to secure payment of accounts upon which the corporation drew prior to its bankruptcy. On February 21, 1956, the Bank advised the trustee that it had accepted assignment of accounts from November 4, 1948, to February 11, 1955, and that the thexx present indebtedness of L. S., the corporation, amounted to $13,569.08.

(b) Upon further inquiry, the trustee received a letter, dated November 27, 1956, from the Armed Services Board of Contract Appeals which enclosed a copy of its decision of January 23, 1956 (referred to in finding 12, supra), and inferred him to the contracting officer for any assertion of the trustee’s interest. The trustee, not having the name and address of the contracting officer, telephoned the instant plaintiff’s then counsel and requested him to furnish such information. However, the latter, after first responding that he knew nothing abont L. S., the corporation, or an appeal, finally stated that he would not disclose the name of the contracting officer since this was confidential information.

(c) Finally, on January 3, 1957, the trustee wrote to the General Counsel, Office of the Quartermaster General in Washington, D.C., stating, in substance, that in order to proceed to properly protect the interests of the bankrupt es-state he would appreciate being advised as to the names of the persons who had filed a claim, or received an award, in the case of Linda Scott under contract No. QM-21512. By letter of February 13, 1957, the Deputy General Counsel of the Quartermaster General’s office in Philadelphia, Pennsylvania, identified plaintiff’s then attorney as the attorney who had been administratively prosecuting such a claim, stated that the amount of the equitable adjustment had not as yet been determined, and requested the trustee to advise the status of plaintiff’s then attorney and to arrange to negotiate a settlement. In a letter dated March 5, 1957, said Deputy General Counsel advised Mr. Holland in pertinent part:

Investigation reveals that Linda Scott and Linda Scott, Inc. are separate and distinct business entities. Linda Scott is a partnership composed of Harold Beeten, Edward Frank and Sam M. Slosberg t/a Linda Scott, whereas Linda Scott, Incorporated is a corporation incorporated on or about March 17,1953.
Contract No. DA-30-280-QM-21512 (01-5537) was awarded to Linda Scott, a partnership, on November 16, 1951 which, according to tins Agency’s information, was prior to the incorporation of Linda Scott, Incorporated. Therefore, Linda Scott, Incorporated could hardly assert any claim under the instant contract.
Inasmuch as you are trustee for Linda Scott, Incorporated, it would appear that you have no right, title or interest in any claims which Linda Scott, a partnership, may have against the Government.
It is requested that you confirm the facts set forth above.

(d) The trustee responded to the above-mentioned letter in a letter dated March 6,1957, which reads in pertinent part:

RE: QMCT-LC-161
DA-30-280-QM-21512 (01-5537)
(Linda Scott)
To tbe best of my knowledge the history of Linda Scott and Linda Scott, Incorporated as recited in your letter is correct. However, Linda Scott, Incorporated in its petition in bankruptcy which was attested to by Harold Beeten listed the above-captioned claim as an asset and examination of Mr. Beeten under oath at the first meeting of creditors revealed that the assets of the former partnership were assigned to the corporation.
It is, therefore, my contention that any monies due from your office to the old Linda Scott partnership, which incidentally is definitely out of business at this point, are legally due to its assignee, Linda Scott Incorporated.
It is respectfully requested that no distribution of the claim be made in view of this notice until the position of the respective parties is clearly ascertained.

14. (a) Sometime prior to February 19, 1957, plaintiff’s then counsel prepared and sent a release of assignment to Morris Efron, the Bank’s attorney in Allentown, Pennsylvania, for execution by the Bank. Although (as noted in finding 2, supra), defendant had paid the full contractual consideration to the Bank, the Bank continued to hold the assignment as collateral for loans to the successor corporation after March 2, 1953. The Bank did not retain the assignment as collateral for the indebtedness of the partnership. The Bank considered and treated L. S., the corporation, as the successor to the partnership and its liabilities. Despite the fact that the Bank had retained the assignment as security for the indebtedness of L. S., the corporation, the Bank decided to release the assignment to the partnership because the Bank concluded it would be unable to recover anything from the corporation due to its bankrupt status, and that it would be easier and cheaper for the partnership to process the claim. The Bank executed said release of assignment on February 21, 1957.

(b) Prior to the execution of the above-mentioned release by the Bank on February 21, 1957, an understanding was arrived at by the Bank and the partnership, and incorporated in an undated written “Agreement,” which was attached to the Bank’s copy of the release of assignment and kept in the Bank’s files. Such agreement reads as follows:

WheReas, Linda Scott, a partnership, composed of Harold Beeten, Sam M. Slosberg, and Edward Frank, have a claim against the United States under Contract DA30-28-qm-21512 for $6,162.00 and their attorney for such claim, Edwin J. McDermott, Esq., is entitled compensation for services equal to one-third of any amount recovered as well as to reimbursement of $49.60 being advance for cost of depositions, and,
Wheeeas, The First National Bank of Allentown is assignee of such contract and holds it as security for guarantee of an indebtedness of Linda Scott, Inc., by aforesaid Harold Beeten, and,
Whereas, Morris Efron, Esq., has been engaged to secure Release of Assignment by said The First National Bank of Allentown.
Now, therefore, it is agreed this-day of January, 1957, between Harold Beeten, Sam M. Slosberg, and Edward Frank, as follows:
1. Out of any amount recovered from the Government under said claim there shall be paid:
A. To Edwin J. McDermott, Esq., as compensation for services an amount equal to one-third thereof and he shall be reimbursed in addition for $49.60 advanced for cost of depositions.
B. To Morris Efron, Esq., as compensation for services the sum of $500.00.
C. To The First National Bank of Allentown one-third of the balance of the monies so recovered from the Government as aforesaid in consideration of its Release of Assignment.
2. After the foregoing payments, the balance remaining of the amount recovered from the Government shall be divided equally among the partners, Harold Beeten, Sam M. Slosberg and Edward Frank.
[seal]
Harold BeeteN.
[seal]
Sam M. Slosberg.
[seal]
Edward FraNK.

(c) The above agreement appears to bear the signature of each of the plaintiff partners.

(d) The release of assignment executed by the Bank on February 21,1957, is quoted below:

RELEASE OF ASSIGNMENT
KNOW all men bt these PRESENTS that for value received, The First National Bank of Allentown, Allentown', Pa. (hereinafter called “Bank”) hereby sells, assigns, transfers and sets over to Linda Scott, a partnership, composed of HaRold Beeten, Sam: M. Slosberg and Edwaed Feank (hereinafter called “Company”) all monies and claims for money now or at any time hereafter due from or payable by the United States of America or any agency or department thereof (hereinafter called “The United States”) under or pursuant to Contract No. DA30-280-qm-21512 (hereinafter called “Contract”) and hereby releases and forever discharges The United States from any and all liability and obligation to pay to the Bank any monies or claims for any money now or at any time or times hereafter due from or payable by The United States under the said Contract.
This assignment is a reassignment to the Company of the Contract which was originally assigned by the Company to the Bank as collateral security for payment of a certain indebtedness of the Company to the Bank and is made for the purpose of releasing the said collateral security including all right, title and interest of the Bank in and to any monies or claims for money now or at any time or times hereafter due from or payable by The United States under the said Contract to the Company.
In every instance except where the context hereof otherwise requires, each reference to The United States, the Bank and the Company or any of them shall be deemed to include their respective successors and assigns and each reference to the Contract shall be deemed to include all extensions, change order, amendments and supplements thereto.
In witness whereof the Bank has caused this instrument to be executed by its duly authorized officers and its corporate seal to be hereunto affixed this 21st day of February 1957.

15. On March 28, 1957, the trustee consulted with the Quartermaster’s General Counsel who stated that, when determined, the amount of the equitable adjustment would not be paid until the proper recipient was identified. In similar correspondence to both the contracting officer and the Comptroller General, plaintiff’s then counsel contended that the claim for an. equitable adjustment belonged to the partnership and not in the estate of the bankrupt corporation; that the assignment of the claim to the corporation by the partnership was contrary to Title 31 U.S.C. 203; and that the Bank had released its interest as assignee to the partnership. Plaintiff’s then counsel also commented that he understood the contracting officer had requested the Comptroller General to make an advance ruling whether the partnership or the trustee in bankruptcy was entitled to the equitable adjustment.

16. In a letter dated May 8, 1957, the contracting officer requested that the trustee submit any documentary evidence he might have in support of his claim, and advised that he (the contracting officer) had tentatively approved an equitable adjustment in the sum of $7,000, but that “Final resolution of the amount necessarily must await the General Accounting Office decision” as to the proper party for payment. In an effort to support the claim asserted on behalf of the bankrupt corporation, the trustee, by letter dated May 14, 1957, furnished the contracting officer with extracts from the petition in bankruptcy and from the testimony taken at the first meeting of creditors.

17. (a) As of the time the trustee wrote to the contracting officer under date of May 14, 1957 (as outlined in finding 16, supra), the trustee was uncertain as to whether the claim awaiting a determination by the contracting officer as to the amount of the equitable adjustment actually was the same claim that had been assigned by the partnership to the corporation. Accordingly, the trustee contacted the referee in bankruptcy and suggested to him that further testimony be taken in an attempt to resolve this question. The referee in bankruptcy agreed that a Section 21(a) hearing would be in order, and such a hearing was set and held on June 25, 1957. At that hearing, Harold Beeten testified, under oath, that the claim against the United States in the sum of $5,000, as listed on Schedule B-3 of the petition of bankruptcy, related to Navy contract No. N-31271B; that such Navy claim was put on the corporate .books of L. S., the corporation, as an asset, and that he understood from the then counsel that suit with respect to such Navy claim had been filed in the Philadelphia District Court. He further testified that L. S., the partnership, never intended to, and in fact did not, assign the Army claim arising out of contract No. QM-21512 to the successor corporation, Linda Scott, Inc. The trustee pointed out to Mr. Beeten that the minutes of the first meeting of the Board of Directors of L. S., the corporation, reflected that all assets of said partnership had been offered for sale to said corporation and accepted. When asked where in the offer of sale of all the partnership’s assets, or where in any business record, had the partnership reserved or excluded Army contract No. QM-21512, Mr. Beeten replied that he could not remember. Mr. Beeten’s attention was then directed to the bill of sale, dated March 2,1953, and he identified the words “Claims receivable, U.S. Government, $7,494.50” as being the aforementioned Navy claim. He explained that such Navy claim was listed on the petition in bankruptcy as being in the amount of $5,000 rather than $7,494.50, because their then counsel was retained on a contingent fee basis, and an understanding had been reached that after such counsel took his fee, the amount left for the partnership would be $5,000.

(b) At the trial of this case, Harold Beeten testified to the effect that at the time he made the foregoing statements during the course of the Section 21 (a) hearing, he believed such statements to be true because, prior to said hearing, plaintiff’s then counsel had informed him that it was the Navy claim which had been assigned by L. S., the partnership, to the successor corporation, Linda Scott, Inc.; that the Navy claim was the one which had been listed in the bankruptcy petition; and that the claim arising out of QM-21512 was one belonging to the partnership which had not been assigned to Linda Scott, Inc.

18. (a) After the'Section 21(a) hearing held on June 25, 1957, the trustee in bankruptcy concluded he was “barking up tlie wrong tree,” and that the claim in the bankrupt estate was actually the Navy claim rather than the claim arising out of contract QM-21512. The forwarding attorney of the instant plaintiff’s attorney suggested a settlement whereby the trustee would withdraw his claim on behalf of the bankrupt estate. The trustee requested that the forwarding attorney verify that contract QM-21512 had been assigned to the Bank by plaintiff, Linda Scott, the partnership, prior to the time Linda Scott, Inc. was incorporated; and under date of July 3,1957, the trustee was furnished a letter written by the Bank stating that said contract had been so assigned to it in February 1952. Said forwarding attorney also had advised the trustee that the claim was still pledged to the Bank, but that some negotiations had been completed with the Bank whereby it agreed to reassign the claim back to the partnership. However, at that time the trustee was unaware of the actual release and the underlying agreement set forth. The trustee was not aware of the corporate balance sheet in the Bank’s files which listed “Claims receivable, U.S. Government, $7,494.50”; nor was he aware of the existence of earlier correspondence addressed to the Quartermaster Corps either wherein the partnership claimed an equitable adjustment in the amount of $7,494.50, or wherein L. S., the corporation, claimed Title II relief, or claimed an equitable adjustment for extra work performed on contract QM-21512.

(b) As a result of the information established of record during said Section 21(a) hearing and obtained by the trustee thereafter, it appeared to him that he had not effectively proven a right to contract QM-21512, and that the assignment of the claim arising out of said contract by Linda Scott, the partnership, to the Bank, prevailed.

(c) In view of the foregoing, the trustee on July 31,1957, subject to the approval of the referee in bankruptcy, entered into a stipulation with the plaintiff partnership whereby, in consideration of the agreement of the partnership to pay to the trustee the sum of $500 from the moneys which said partnership should receive as a result of the claim against the Government under contract QM-21512, the trustee released any and all claims to said funds and/or said contract.

(d) Under date of August 22, 1957, the trustee wrote to the referee in bankruptcy, who replied thereto in a letter dated August 26,1957, which reads:

I have your letter of August 22, 1957 transmitting to me an undated Stipulation between Jackson Sigmon, Esq. and yourself as trustee of this bankrupt estate in which the predecessor partnership of this bankrupt concern agreed to pay to you as trustee out of moneys they expect to receive from the United States Government the sum of $500.00. We understand from discussions with you that the claim of this partnership against the Government was assigned to the Allentown National Bank in an assignment executed under the Assignment of Claims Act and further understand that such assignment was by way of collateral security for moneys loaned to the partnership by the Bank. We further understand that the governmental agency ultimately making payment on this claim will make payment to the bank:. That out of said sum the bank has agreed to accept a portion of its claim in settlement, that another portion will be paid to the attorney in Philadelphia who has filed and prosecuted the claim for the partnership and that out of the relatively small balance which will be paid to the partnership there has been this agreement to pay you the sum of $500.00.
I have had some reluctance in lending my approval to the proposed order which is attached to the stipulation for the reason that it has some aspects of compromise which under Section 27 and Section 58(a)(6) of the Bankruptcy Act requires a notice to creditors. However, I have resolved the doubt in favor of that of merely approving a stipulation and have under date of August 26, 1957 signed the Order in the form proposed authorizing your acceptance of the sum of $500.00 in full settlement of any claim the bankrupt estate might have against moneys which are to be or will be paid under a renegotiated contract by the Government to the predecessor partnership under the contract number mentioned in the order.
❖ * * H* #

(e) Following receipt of an order, entered on August 26, 1957, by the referee, approving the above-mentioned stipulation, the trustee, on September 10,1957, signed a release, releasing to the plaintiff partnership any and all claims to funds due from the Government under contract QM-21512 arising by reason of any claim for equitable adjustment thereunder.

(f) It is clear that defendant seeks to set aside the above-mentioned stipulation and release on the grounds that they were executed by the trustee as a result of fraud or mistake in that he was led to believe that the claim in question had not been assigned to Linda Scott, Inc., by the plaintiff partnership. It is plaintiff’s contention that at the time the trustee executed said stipulation and release, he knew, or would have known if he had made a proper investigation, that the claim being released by him was the same one listed in the Schedule of Affairs filed in the bankruptcy proceedings of Linda Scott, Inc., and that such claim related to contract QM-21512 rather than to some Navy contract; that all of the assets of the plaintiff, including the claim under contract QM-21512, had been assigned to Linda Scott, Inc., by plaintiff; and that such assignment was questionable under the Assignment of Claims Act.

(g) While the trustee was aware that a claim was listed on the bankruptcy schedule, he had no information, either by amount, contract number, or other identification, which clearly linked the claim pending before the Quartermaster Corps with the claim that had been assigned by the plaintiff partnership to Linda Scott, Inc., at the time it was organized. On the basis of the entire record, particularly the testimony given by Mr. Beeten at the section 21(a) hearing held on June 25, 1957, it is concluded that the trustee was not aware that such claim was the one arising out of contract QM-21512. It also is concluded that the trustee made a reasonably thorough investigation to identify the claim involved herein, and that he was misled into making a decision to sign a stipulation and release of such claim.

19. Prior to the time the trustee executed the aforesaid release on September 10, 1957, he did not give notice or accord a hearing to the Bureau of Internal Revenue in order that defendant, as a creditor, could challenge the transfer of the claim or reassert the priority of its tax assessments against the bankrupt estate. While a trustee is not permitted to compromise a claim without notice to creditors, the trustee herein felt he was not compromising a claim at the time he executed said release because by such date he had become convinced he was pursuing the wrong claim.

20. The plaintiff partnership did not, on or after September 10, 1957, notify the Bureau of Internal Revenue that the trustee in bankruptcy of Linda Scott, the corporation, had-released the instant claim to Linda Scott, the partnership.

21. By letter dated September 12, 1957, plaintiff’s then counsel forwarded a copy of the aforesaid release, dated September 10, 1957, to the General Counsel, Military and Textile Supply Agency, Quartermaster Depot, Philadelphia, Pennsylvania, and requested that the contracting officer render a decision upon the partnership’s claim for an equitable adjustment in the asserted amount of $10,805.30. Under date of November 18, 1957, said counsel was advised by the successor contracting officer that the claim had been forwarded to the Comptroller General of the United States for a determination of the proper recipient of the equitable adjustment, and that administrative processing of the claim had been, suspended pending action by the Comptroller General.

22. On February 15, 1958, “Linda Scott, a partnership, consisting of Harold Beeten, Edward Frank, and Sam M. Slosberg, Partners,” filed a petition in this court alleging it was entitled to recover said amount of $10,805.30 as an equitable adjustment under contract QM-21512. On April 18, 1958, the contracting officer determined that the sum of $9,456 constituted an equitable adjustment in the contract price for the additional work performed on said contract. Said findings of fact and decision were sent to Linda Scott, the partnership ; to the trustee in bankruptcy for Linda Scott, Inc.; and to the Bank. The plaintiff partnership did not appeal such decision of the contracting officer. Thereafter, on May 7, 1958, the plaintiff partnership filed an amended petition in this court claiming entitlement to $9,456, which amount all parties herein subsequently stipulated is payable by the Government.

23. In February or March of 1959, the trustee first became suspicious that he may have been misled into an error by executing said release to the claim herein involved, when the referee in bankruptcy advised him that he had received information that the Government was very much in doubt whether the partnership was legally entitled to the equitable adjustment. On March 26, 1959, the trustee wrote to the United States Attorney for the Eastern District of Pennsylvania, asserting a claim on behalf of the bankrupt corporation (L.S., the corporation) to the equitable adjustment awarded by the contracting officer. It is apparent that the trustee was under the impression, at the time he wrote such letter, that the United States Attorney’s office would make the disbursement. The trustee’s suspicion that he had been a victim of fraud or mistake in entering into said release was increased on May 16,1959, at which time defendant’s counsel indicated to him that the defendant believed the instant claim had been transferred by the plaintiff partnership to said successor corporation. Thereafter, the trustee did not request the referee to set aside the release signed by the trustee on September 10, 1957, because the trustee felt he had no more sufficient evidence than he had at the time of the section 21(a) hearing. Further, defendant’s counsel had advised the trustee that defendant would move to implead him in this case at which time he intended to assert the claim. The trustee became more convinced he had been a victim of fraud or mistake when upon visiting the Bank ón May 19, 1959, he read for the first time the release o.f assignment executed by the Bank on February 21, 1957, and learned of the agreement underlying it, and learned of the balance sheet dated March 2, 1953. Finally, the trustee considered he had been duped by the plaintiff when, in preparation for trial, he saw certain of defendant’s exhibits reflecting that Harold Beeten, as president of L.S., the corporation, had written to the Quartermaster Corps inquiring about the instant claim.

The Tax Counterclaim Against Robert H. Holland, Trustee in Banlcruftey of Linda Seott, Inc.

24.The Commissioner of Internal Revenue assessed against Linda Scott, Inc., certain taxes, gave to said corporation notice of, and demand for, payment of such taxes, for the periods, in the amounts, and on the dates, set forth below:

25.The counterclaim against Robert H. Holland, trustee in bankruptcy for Linda Scott, Inc., was authorized by the Commissioner of Internal Revenue, and it was brought by the direction of the Attorney General.

The Tax Gownterolaim Against Harold Beeten

26.Richard Scott, Inc. (hereinafter sometimes referred to as the “corporation”), was incorporated as a Pennsylvania corporation on September 15, 1953, with its principal place of business at Reading, Pennsylvania. The articles of incorporation disclose that the stated purposes of the corporation were to manufacture, contract and sell, at wholesale and retail, all manner and types of outerwear garments. The corporation was originally organized for the purpose of acting as a subcontractor in the manufacture of overcoat liners for the United States Government. These activities proved unprofitable; whereupon, after a brief period during which the corporation was closed, it entered into the manufacture of children’s dresses.

27. The incorporators and first directors of Eichard Scott, Inc., were Frank Grassi, Louis Eosner, and Harold Beeten, each of whom subscribed to 5 shares of the $50,000 authorized capital stock of the corporation, consisting of 500 shares of common stock with a par value of $100 per share. However, the share ledger and transfer book of the corporation indicate that only 3% shares of the 15 shares of said stock originally issued were ever owned by Harold Beeten. Mr. Beeten never actually made a cash payment for said shares of stock issued to him, nor did he ever receive a stock certificate evidencing his ownership of these shares of stock. Mr. Beeten and Mr. Eosner had an oral agreement under the terms of which Mr. Beeten was to be permitted to subscribe for and receive such shares of stock in compensation for services to be rendered by him.

28. (a) Eichard Scott, Inc., engaged in business operations from the date of its incorporation on September 15, 1953, until sometime after June 30, 1954, when it suspended activities. Sometime subsequent to January 1,1955, the corporation resumed and engaged in the manufacture of children’s dresses. The business conducted by the corporation became so unprofitable that sometime after June 30,1955, it went into bankruptcy in the United States District Court for the Eastern District of Pennsylvania.

(b) On October 13, 1955, Harold Beeten executed a proof of claim in the bankruptcy proceeding involving the corporation wherein he claimed unpaid wages for an eleven-week period, commencing February 18, 1955, at $175.00 per week, amounting to $1,925, expense account reimbursement in the amount of $313.99, and loans to the corporation in the amount of $825.00, totaling $3,063.99.

29. Harold Beeten was an experienced accountant, and he opened up the corporate books at the inception of the corporation on September 15, 1953. He was the secretary and treasurer of Eichard Scott, Inc., from that date until May 3, 1955. Mr. Beeten terminated his relationship with the corporation on May 3, 1955, and he did not serve as an officer thereafter.

30. (a) In order to fully understand the significance of the following series of findings (31 to 37, inclusive, infra), it should be pointed out that the plaintiff contends that Louis Rosner, as president of Richard Scott, Inc., exercised complete authority over all its affairs; that Harold Beeten did not have any authority to make independent decisions, insofar as the payment of bills and other liabilities was concerned; that Mr. Beeten brought to Mr. Rosner’s attention the delinquent status of the withholding taxes involved in this case and that by doing so, Mr. Beeten fully exhausted all of the authority and responsibility which he had with respect to the financial affairs of the corporation. Defendant sharply disputes the foregoing contentions, and contends, among other things, that Mr. Beeten not only had authority to make decisions relating to the management and operation of the corporation, but that he also had the authority and responsibility to exercise his own independent judgment in the matter of paying corporate bills and financial obligations. Thus, factual questions crucial to a determination of the primary issue involving the validity of the 100 percent penalty assessed against Harold Beeten are raised.

(b) The evidence relating to the authority Harold Beeten had, and actually exercised, in the management of the affairs of the corporation, and the evidence, particularly with respect to his duty, responsibility, and authority to pay, or to approve the payment of, bills and other corporate liabilities, specifically including withholding and F.I.C.A. taxes, is very limited and difficult to assess. Plaintiff’s aforesaid position in regard to the matters outlined above is supported solely by Mr. Beeten’s testimony, some of which is not considered entirely acceptable because it is self-serving, hearsay in character, conflicting, and inconsistent with other testimony and documentary evidence, and lacking in complete credibility.

31. At all times material herein, Louis Rosner was president of Richard Scott, Inc. Mr. Rosner died prior to the trial, and without the benefit of his testimony, it is difficult to resolve the dispute that exists between the parties as to who provided the financing for the business operations of Bichard Scott, Inc. As best it can be determined from the limited evidence of record relating to that issue'of fact, all of such financing, totaling an approximate amount of between' $40,-000 and $50,000, with the exception of loans totaling $825 made to the corporation by Harold Beeten, was supplied, or arranged for, by Mr. Bosner.

32. During the time Harold Beeten was associated with Bichard Scott, Inc., he performed various accounting work and, consistent with normal and customary practice, he signed many corporate documents as an officer of the corporation, including some of the corporation’s state and Federal income tax returns, union contracts, a manufacturing contract, a lease for the rental of real property, conditional sales contracts for the purchase of machinery, and notes payable. He was authorized to sign checks on the bank account of the corporation and he did so on many occasions while associated with the corporation. Mr. Beeten also negotiated the union contracts for the corporation, and was instrumental in the corporation’s acquisition of subcontracts for the manufacture of Army coat liners and children’s dresses.

33. (a) Considering the record as a whole, it is reasonably clear that Harold Beeten had the duty, responsibility, and discretionary authority to make decisions and judgments affecting the routine operations of Bichard Scott, Inc., including financial problems involving the payment of current bills and liabilities of a normal nature, without the prior approval of Louis Bosner, and that Mr. Beeten, as a matter of day-today routine and practice, customarily made such decisions and judgments. Undoubtedly, Mr. Beeten directed Mrs. Elizabeth A. Leibrand, who was employed by the corporation as an office worker-bookkeeper during the period January to sometime in July 1954, as to which bills were to be paid and not paid, and either directed that checks be prepared for the payment of certain bills, or approved the mailing out to payees checks which Mrs. Leibrand had prepared and signed under proper authorization.

(b) It is concluded that Mr. Beeten did not have complete and exclusive control over all of the affairs of the corporation, nor did he have the duty, responsibility, and unrestricted authority to pay, or approve the payment of, all of the corporation’s bills and liabilities, regardless of the nature or amount thereof, or the availability of corporate funds with which to pay corporation obligations. It is apparent from the record that there was a shortage of corporate funds on hand at various times which made it impossible for Mr. Beeten to pay, or approve the payment of, all corporate bills and liabilities. At such times Mr. Beeten gave directions to the office worker employed by the corporation as to which bills were to be paid. There is no evidence that Mr. Beeten had the duty and responsibility to pay all corporate bills and liabilities in full owed by the corporation, if there were no corporate funds with which to discharge such financial obligations. Certainly, there is no evidence that he was obligated to pay corporate bills and obligations out of his own personal funds, assuming he had the financial means to do so, which assumption is not supported by the record. If there were insufficient funds to pay certain bills and obligations, particularly withholding and other tax payments, Mr. Beeten had the duty and responsibility to call this fact to the attention of Mr. Bosner; but Mr. Beeten could not be reasonably expected to do so with respect to each and every bill that was not immediately payable because funds were not available. However, Mr. Beeten did have the authority and responsibility to collect, and use, moneys withheld from the wages of the corporation’s employees for the payment of F.I.C.A. and withholding taxes due the Government.

(c) There is sufficient evidence of record to show, or from which it can be reasonably inferred, that on occasion Mr. Bosner was advised by Mr. Beeten that there were insufficient funds on hand to pay some bills and purchase required materials. At least on some occasions Mr. Bosner responded by arranging for additional financing to take care of the financial problems that had developed.

(d) While there is no doubt that Mr. Beeten either had-, or assumed, considerable control oyer the affairs of the corporation, he did not have full, complete, and exclusive control or authority. Despite the reasonable inference that can be made that Mr. Rosner gave Mr. Beeten considerable discretionary authority to carry on the corporate business operation, and the fact that Mr. Beeten exercised a great deal of authority in managing the affairs of the corporation to such extent that he even gave the impression to Mrs. Leibrand that he, rather than Mr. Rosner, was the president of the corporation, it is reasonably clear that Mr. Rosner retained and exercised a certain measure of authority and control over the affairs of the corporation. Mr. Rosner telephoned and personally came to the corporation’s place of business from time to time. It appears that in addition to arranging for additional financr ing to enable the corporation to purchase necessary materials, he made certain large payments , on equipment used in the corporation’s plant. There is reasonably credible testimony that from time to time Mr. Rosner telephoned and personally directed Mr. Beeten to make sure certain bills were paid; that Mr. Rosner was the one who made the decision which resulted in Mr. Beeten’s advising Mr. Frank Grass! (one of the three original incorporators, first directors, and officers of the corporation) that he was being relieved all financial responsibility of, and interest in, the corporation, as an officer, employee, and stockholder of the corporation; that Mr. Rosner requested and received from Mrs. Leibrand certain production reports and a report of the payroll broken down into various categories of cost figures; that he had a telephone conversation with Mrs. Leibrand which resulted in Mr. Rosner’s making financial arrangements which enabled the corporation to obtain thread required to continue business operations ; and that he conducted himself in such a manner as to give Mrs. Leibrand the impression that he had a good deal to say about the business and that he, rather than Mr. Beeten, was the treasurer of the corporation.

¡34. (a) Mrs. Elizabeth A. Leibrand was employed as a general office worker-bookkeeper for Richard Scott, Inc., from January 11,1954 through May 28,1954. From May 29, 1954 until sometime early in July 1954, Mrs. Leibrand worked for the corporation on a part-time basis without compensation. Mrs. Leibrand was hired by Harold Beeten from whom she took most of her instructions.

(b) Shortly after Mrs. Leibrand went to work for the corporation, arrangements were made whereby she was authorized to sign checks in payment of bills and payrolls. However, with the exception of payroll checks and checks in payment of a few small bills never exceeding $25.00, Mrs. Leibrand did not release checks signed by her until she was authorized to do so by Mr. Beeten. Among other things, Mrs. Leibrand prepared the corporation’s Federal withholding tax return (Form 941) for the fourth quarter of 1953. The tax liabilities shown on the return to be due for the fourth quarter of 1953, including $764.82 F.I.C.A. taxes and $2,940.20 taxes withheld from wages, totaled $3,705.02. Prior to the time said return was mailed to the District Director of Internal Revenue, Mrs. Leibrand called Mr. Beeten’s attention to the fact that a check in the amount of $764.82 only, was attached as an enclosure, and that the balance due for withholding taxes, amounting to $2,940.20, was not being sent in with the return. Mr. Beeten acknowledged his awareness of the fact that the entire amount shown on the return to be due was not being enclosed therewith. He stated, in substance, that the return and check in part payment of the amount thereon shown to be due would be filed, and that by the time it was checked and notice given to the corporation to pay the unpaid balance, there would be sufficient funds on hand to pay the amount due. Thereafter, said return', signed by Harold Beeten as treasurer of the corporation, and the said check in the amount of $764.82, were mailed to the District Director of Internal Revenue, and received in the Director’s office on January 29, 1954. By check dated March 9, 1954, and signed by “Harold Beeten,” the balance of the fourth quarter of 1953 withholding tax liability was paid.

(c) Mrs. Leibrand also prepared the corporation’s Federal withholding tax return (Form 941) for the first quarter of 1954 which showed a tax liability, including $2,765.70 F.I.C.A. taxes and $8,127.46 in taxes withheld from wages, totaling $10,893.16. Harold Beeten signed tbe return, as treasurer, and caused it to be filed with the District Director of Internal Revenue. The return was received in the office of said District Director on April 30,1954, and bears a notation indicating that a check in the amount of $2,765.70, rather than the full amount of the tax liabilities shown thereon to be due, was enclosed therewith. It is clear that Mr. Beeten was fully aware said return was being filed without the full amount of the tax liabilities shown thereon to be due being paid.

35. The withholding tax return (Form 941) of Richard Scott, Inc., for the second quarter of 1954, which showed tax liabilities, including $2,587.11 taxes withheld from wages and $931.11 F.I.C.A. taxes, totaling $3,518.22, was filed unsigned and with no remittance. Harold Beeten knew, no later than October 1, 1954, and probably much earlier than that date, that the corporation had not paid its withholding tax liability for the second quarter of 1954.

36. The withholding tax return (Form 941) of Richard Scott, Inc., for the fourth quarter of 1954, was signed by Harold Beeten. That return showed no liability for withholding taxes for said quarter; but “Schedule C” attached thereto shows that the corporation withheld income tax from wages during the year 1954 in the following amounts:

Quarter ended March 31_ $8,127.46
Quarter ended June 30_ 2,587.11
Total_$10, 714,57

37. Harold Beeten was an experienced accountant who had prepared income tax returns in connection with a limited tax practice carried on by him. He was aware that if an employer withheld amounts for taxes from employees’ wages in excess of $100.00 in any one month, except the last month of a particular quarter, the law required such withheld amounts to be deposited monthly in a Federal depository. Mr. Beeten knew that the corporation was not so depositing the withholding taxes.

38. Richard Scott, Inc., had net sales of $129,227.82 for the period October 1,1953 through September 31,1954. During the quarter ended March 31, 1954, the corporation paid taxable wages of $69,142.38. During the quarter ended June 30, 1954, the corporation paid taxable wages of $23,277.86.

39. Incident to the business operations of Richard Scott, Inc., it incurred withholding and F.I.C.A. tax liabilities which remained unpaid in the following amounts for the periods indicated:

Quarter ended: Amount
March 31, 1964_$8,188.09
June 30, 1954_ 2,535. 81
June 30, 1955_ 3, 877. 83
September 30, 1955_ 513.42

The portions of these unpaid liabilities representing amounts withheld from employees’ wages are as follows for the periods indicated:

Quarter ended: Amownt
March 31, 1954_ $8,127.46
June 30, 1954_ 2,535. 81
June 30, 1955___ 2, 595.35
September 30, 1955_ 360.14
Total_$13,618.76

40. On December 7,1956, an authorized delegate of the Secretary of the Treasury assessed $13,618.76 against Harold Beeten, as a 100 percent penalty under the provisions of Section 2707(a) of the Internal Revenue Code of 1939, and Section 6672 of the Internal Revenue Code of 1954, on account of the unpaid withholding taxes of Richard Scott, Inc. On December 14, 1956, the Commissioner of Internal Revenue gave to Harold Beeten notice of, and demand for, payment of said assessment. No payment has ever been made to satisfy said assessment, except that on January 22, 1959, said assessment was reduced by a credit of $246.38.

41. The counterclaim against Harold Beeten was authorized by the Commissioner of Internal Revenue, and brought at the direction of the Attorney General.

42. (a) It appears to be the position of the plaintiff that while Harold Beeten had knowledge that the corporation’s withholding tax returns for the above-mentioned quarterly periods were being filed without the full amount of the tax liabilities shown thereon to be due being paid therewith, there must be a showing not only of knowledge, but also a showing that there were sufficient corporate funds on hand to enable Mr. Beeten to pay the withholding taxes due and that he failed to use such funds to pay the withholding taxes owed by the corporation.

(b) Although the record does not disclose the amounts of withholding and F.I.C.A. taxes that were actually withheld and collected from employees of the corporation during the first and second quarterly periods of the year 1954, it is clear that Mr. Beeten was the treasurer of the corporation during such periods, and that he had the authority, duty, and responsibility to collect, account for, and pay over to the Treasury Department, at least the amounts of such withholding and F.I.C.A. taxes shown on the withholding tax returns (Form 941) filed for said quarterly periods to be payable. The failure on the part of Harold Beeten to take such action was a knowing, deliberate, and willful act on his part. However, whether Harold Beeten willfully failed to collect, account for, and pay over to the Treasury Department, the withholding and F.I.C.A. taxes of the corporation for the first and second quarters of 1954, within the meaning of Section 2707 of the Internal Revenue Code of 1939, and Section 6672 of the Internal Revenue Code of 1954, is a question of law.

(c) It appears very probable that there were insufficient corporate fmids on hand to pay such tax liabilities of the corporation at the times the withholding returns were required to be filed; but it is apparent that Mr. Beeten either failed to cause such withholding taxes to be collected from the employees of the corporation in the amounts required, or that he did do so, and subsequently either paid, or approved the payment of, other corporate bills and liabilities with such withholding tax moneys with the result that there were insufficient corporate funds on hand with which to pay the withholding tax obligations of the corporation at the times the corporation’s withholding tax returns for the first and second quarters of 1954 were filed.

(d) There is no evidence that Mr. Beeten actually advised Louis Bosner that the corporation’s tax returns for the first and second quarters of 1954 were being filed without payment of the taxes shown thereon to be due. On the contrary, there is credible evidence that subsequent to the time such tax returns were filed, Mr. Bosner expressed surprise that the taxes shown thereon to be payable had not been paid.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the defendant is entitled to recover on its counterclaims and it is therefore adjudged and ordered that it recover of and from Bobert H. Holland, the trustee in bankruptcy of Linda Scott, Inc., on its counterclaim relating to Linda Scott, Inc., in an amount to be determined under Buie 47(c), and from Harold Beeten in the amount of ten thousand four hundred sixteen dollars and eighty-nine cents ($10,416.89), plus interest to be determined under Buie 47 (c).

In accordance with the opinion of the court and memorandum reports of the commissioner as to the amounts due thereunder, it was ordered on June 6,1966, that judgment be entered against Harold Beeten and in favor of the United States for $16,311.27, plus interest at the rate of $1.71 per day from May 20, 1966, until and including the date of the order, and that judgment be entered against Bobert H. Holland, solely as trustee in bankruptcy of Linda Scott, Inc., and not individually, and in favor of the United States for $16,076.69, plus interest at the rate of 93^ per day from May 20, 1966, until and including the date of the order. 
      
       Plaintiff initially sought to recover $10,805.30. On April 18, 1958, the contracting officer determined that the sum of $9,458 constituted an equitable adjustment in the contract price. Plaintiff thereafter amended its petition to claim that sum.
     
      
       The assets of Linda Scott, the partnership, were sold sometime prior to March 2, 1953, to the newly-organized Linda Scott, Inc. On March 6, 1955, Harold Beeten, as President of Linda Scott, Inc., filed a petition in bankruptcy with the District Court for the Eastern District of Pennsylvania. The bankruptcy trustee was subsequently misled into concluding that the contract claim involved in this litigation had not been assigned by Linda Scott, the partnership, to Linda Scott, Inc., the corporation he represented, and entered into a stipulation releasing any and all interest he might have in the contract. The trustee’s petition in this court also seeks to set aside this stipulation. In accordance with the trial commissioner’s findings, we relieve the trustee of the stipulation and hold that Linda Scott, Inc. succeeded to the rights of the Linda Scott partnership in the contract claim involved here.
     
      
       The order stated: “This case comes before the court on the merits, having been submitted on a report by Trial Commissioner Franklin M. Stone which is attached hereto and made a part hereof. It appears to the court that the trial commissioner’s report was filed on January 8, 1964, that no exceptions or brief has been filed by any party nor has any party filed a motion for extension of time to file exceptions or brief, that the time for so filing has expired, and pursuant to the provisions of Rule 63 [“Default”],
      it is ordered that plaintiff’s petition, the intervening petition and defendant’s counterclaims be and the same are dismissed for default.”
     
      
      
         Richard Scott, Inc., owed withholding taxes for the first and second Quarters of 1954 under Section 1622(a) of the 1939 Code and social security taxes under sections 1400 and 1401(a). The penalty provisions of § 2707(a) apply to these violations. The company also owed withholding taxes for the second and third Quarters of 1955 under section 3402(a) of the 1954 Code and social security taxes under sections 3101 and 3102(a). The penalty provisions of section 6672 of the 1954 Code apply to these violations.
      The Government now concedes that Beeten terminated his relationship with Richard Scott, Inc., on May 3, 1955, and cannot be held accountable for the 1955 taxes. Of the total assessed and initially claimed ($13,618.76), the defendant now asks to recover only $10,416.89, the amount due in the two quarters of 1954 minus a sum which has been remitted.
     
      
       The provisions of § 2707 are made applicable to these taxes by Sections 1430 and 1627 of the 1939 Code.
     
      
       The Government now concedes that Beeten was not a responsible officer during the part of 1955 for which taxes are owed. See note 4, supra.
      
     
      
       We need not reach the question raised by the plaintiff whether, in other circumstances, an insufficiency of funds with which to pay overdue taxes may exclude a responsible corporate officer from the coverage of the section.
     
      
       Throughout the trial and most of the litigation, the parties assumed that the defendant could counterclaim against Beeten individually. On its own motion the court raised this Question and ordered it briefed. Beeten now maintains that the counterclaim cannot be maintained while the Government argues that Boehm and Marietta Mfg. Co. are no longer good law.
     
      
       In pertinent part § 2508 reads: “upon tie trial of any suit in the Court of Claims in which any set-off, counterclaim, claim for damages, or other demand is set up on the part of the united States against any plaintiff making claim against the United States in said court, the court shall hear and determine such claim or demand both for and against the United States and plaintiff.
      If upon the whole case it finds that the plaintiff is indebted to the United States it shall render judgment to that effect, and such judgment shall he final and reviewahle.”
     
      
       Rule 21 (“Counterclaims”) provides (in part) : “(a) Compulsory Counterclaim: The answer shall state as a counterclaim any claim which, at the time of serving the answer, the defendant has against any plaintiff, if it arises out of the transaction or occurrence that is the subject matter of the petition and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction: Provided, That such a claim need not he so stated if at the time the action was commenced the claim was the subject of another pending action.
      “(b) Permissive Counterclaim: The answer may state as a counterclaim any claim against a plaintiff not arising out of the transaction or occurrence that is the subject matter of the petition.”
     
      
       At that time the state courts did not usually permit individual counterclaims against persons suing on a joint claim.
     
      
       In Cherry Cotton Mills v. United States, supra, 327 U.S. at 539 (1946), the Supreme Court observed: “We have no doubt but that the set-oil and counterclaim jurisdiction of the Court of Claims was intended to permit the Government to have adjudicated in one suit all controversies between it and those granted permission to sue it * * *."
     
      
       In a lengthy dictum the court declared that the relief sought could “probably” be granted In equity, but that It did not have equity powers under Its then Jurisdictional statute. It is doubtful, however, that this analysis of the difference in the power of law and equity courts was correct. See cases cited in 39 ALR 2d 295, 302 (1955).
     
      
       Where the plaintiff’s claim Is dismissed for lack of jurisdiction, this court has thus far refused to consider the counterclaim. Tuason Constr. Co. v. United States, 166 Ct. Cl. 597 (1964).
     
      
      
        Ruzicka v. Rager, supra, 305 N.Y. 191, 111 N.E. 2d 878 (1953), held that an independent counterclaim could not he asserted against a member of a limited partnership, but confined its ruling that the organization was a jural unit to limited partnerships, and rested primarily on the New York legislature’s treatment of partnerships. See Klebanow v. New York Produce Exchange, 344 F. 2d 294, 297 (C.A. 2, 1965). (We do not today decide how we would treat a limited partnership.
     
      
       The comparable Federal Rules of Civil Procedure are the same, in essence, with differences not now material.
     
      
       Counterclaims on contracts could also he asserted even though unrelated to the transaction giving rise to the plaintiff’s claim. Clark, Code Pleading § 101 (1947).
     
      
      
        Cherry Cotton Mills v. United States, supra, 327 U.S. at 539, points out that counterclaim legislation like ours “has long been favored and encouraged because of a belief that it accomplishes among other things such useful purposes' as avoidance of ‘circuity of action, inconvenience, expense, consumption of the courts’ time, and injustice.’”
     
      
      
        E.g., Higgins v. Shenango Pottery Co., 99 F. Supp. 522 (W.D. Pa., 1951) (stockholders’ derivative action); Chambers v. Cameron, 29 F. Supp. 742 (N.D. Ill., 1939) (action by trustees); Cravatts v. Klozo Fastener Corp., 15 F.R.D. 12 (S.D.N.Y., 1953) (dictum) (stockholders’ derivative action); Pioche Mines Consol., Inc. v. Fidelity Philadelphia Trust Co., 206 F. 2d 336 (C.A. 9), cert. denied, 346 U.S. 899 (1953) (counterclaim against trustee in individual capacity permitted; objection waived by going to trial on counterclaim); Durham v. Bunn, 85 F. Supp. 530 (E.D. Pa., 1949); United States ex rel. Mutual Metal Mfg. Co. v. Biggs, 46 F. Supp. 8 (E.D. Ill., 1942); but cf. Moore-McCormack Lines, Inc. v. McMahon, 235 F. 2d 142 (C.A. 2, 1956) (widow suing as special statutory trustee under the Jones Act permitted to be counterclaimed against as administratrix).
     
      
       All the partners of Linda Scott joined in the action in this court, and there is, of course, no doubt that Harold Beeten has: the capacity to he sued (through the counterclaim) as an individual.
     
      
       There may conceivably arise cases in which it would be unfair or too inconvenient to allow the counterclaim, and in which the provisions for separate trials and separate judgments will not afford a sufficient cure. We leave open the question whether, in such circumstances, the trier has' discretion to remit the counterelaimant to another forum.
     
      
       In the determination of the final judgment against the trustee, account should be taken (since Linda Scott, Inc. is the proper successor to that claim of the Linda Scott partnership, see note 2, supra) of the $9,456 admittedly owing by the Government on the contract claim by the Linda Scott partnership..
     
      
       The plaintiff partnership, however, does not concede that this final payment to the Bank was final payment of the instant claim.
     
      
       As noted in finding 22, post, plaintiff subsequently increased the amount of this claim, and the sum of $9,456 represents the equitable adjustment finally made under said contract.
     
      
       Reference is made to the partnership’s “then counsel” in order to distinguish him from present counsel who was substituted as the plaintiff partnership’s attorney of record just prior to the trial of this case.
     
      
       Although the parties stipulated that such claim was assigned as stated, plaintiff contends that such assignment was invalid, under the terms and provisions of the Assignment of Claims Act, 65 Stat. 41 (1951), as amended, 31 U.S.C. 203 (1958). (Defendant has Indicated that the question of law raised by the foregoing contention will be argued in its brief to the court and the position taken that, inter alia, such an assignment by operation of law is permitted by said Act.) Section 203 provides in pertinent part:
      “All 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 all powers of attorney, orders, or other authorities for receiving payment of any such claim, or of any part or share thereof, except as hereinafter provided, Bhall 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 daim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof. * * *
      “The provisions of the preceding paragraph shall not apply in any case in which the moneys due or to become due from the United States or from any agency or department thereof, under a contract providing for payments aggregating $1,000 or more, are assigned to a bank, trust company, or other financing institution, including any Federal lending agency: * * *”
      Also see 65 Stat. 41 (1951) as amended, 41 U.S.C. 15. Section 15 provides ini pertinent part:
      “No contract or order, or any interest therein, shall be transferred by the party to whom such contract or order is given to any other party, and any such transfer shall cause the annulment of the contract or order transferred, so far as the United States are concerned. All rights of action^ however, for any breach of such contract by the contracting parties, are reserved to the United States.
      “The provisions of the preceding paragraph shall not apply in any case in which the moneys due or to become due from the United States or from any agency or department thereof, under a contract providing for payments aggregating $1,000 or more, are assigned to a bank, trust company, or other financing institution, including any Federal lending agency: * * *”
     
      
       See finding 3, supra.
      
     
      
       See finding 3, supra.
      
     
      
       On May 14, 1956, the Bureau of Internal Revenue filed an amended proof of claim in the Bankruptcy Court, totaling $16,097.60. Binding 24, post, relating to defendant’s tax counterclaim against Linda Scott, Inc., differs In total net amount from that contained in defendant’s amended proof of claim in the bankruptcy proceeding because such tax counterclaim does not include certain nonpayment penalties and interest computations which defendant reserves for a Rule 38(c) proceeding (now Rule 47(c)).
     
      
       See finding 9, supra.
      
     
      
       See finding 4 and footnote 4, supra.
      
     
      
      
         See finding 9, supra.
      
     
      
       See finding 7(b), supra.
      
     
      
       As noted In finding 7(b), supra, no claim for breach of contract or for an equitable adjustment relating to Navy contract No. N-31271B was ever submitted to the Navy, nor suit filed thereon.
     
      
       See finding 14 (a), (b), (o), and (d), supra.
      
     
      
       See finding 6, supra.
      
     
      
       See findings 3, 6, 7 (a) and (b), supra.
      
     
      
       See finding 4 and footnote 4, supra.
      
     
      
       See finding 9, supra.
      
     
      
       See finding 10(b), supra.
      
     
      
      
         The trustee filed an Intervening petition on May 29, 1962, after defendant’s motion to implead Mm was allowed on February 16, 1962.
     
      
       See finding 40, post.
      
     
      
       See finding 34, post, for additional details concerning this employee and her connection with the issues involved herein.
     
      
       See findings 33 (a), (b), and (e), supra.
      
     
      
       63 stat. 290 (1939), 26 U.S.C. 2707(a) provides:
      “Any person who willfully fails to pay, collect, or truthfully account for and pay over the tax imposed by section 2700(a), or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected, or accounted for and paid over to be assessed and collected in the same manner as taxes are assessed and collected. No penalty shall be assessed under this subsection for any offense for which a penalty may be assessed under authority of section 3612.”
     
      
       68A Stat. 828 (1954), 26 U.S.C. 6672 provides:
      “Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable. * * *”
     
      
       See footnote 23, supra.
      
     
      
      
        Ibid.
      
     