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U.S. Supreme Court

Small Business Administration v. McClellan, 364 U.S. 446 (1960)

Small Business Administration v. McClellan

No. 42

Argued November 9-10, 1960

Decided December 5, 1960

364 U.S. 446


When the Small Business Administration, created by the Small Business Act of 1953, with authority, inter alia, to lend government funds to small businesses, has joined a private bank in making a loan and the borrower becomes a bankrupt, the Administration's interest in the unpaid balance of the loan is entitled to the priority provided for "debts due to the United States" under R.S. § 3466 and § 64 of the Bankruptcy Act -- even though the Administration has agreed to share with the bank any money collected on the loan. Pp. 364 U. S. 447-453.

(a) The Small Business Administration is an integral part of the governmental mechanism -- not a separate legal entity -- and it is entitled to the priority of the United States in collecting loans made by it out of government funds. Sloan Shipyards Corp. v. United States Fleet Corp., 258 U. S. 549, and Reconstruction Finance Corp. v. Menihan Corp., 312 U. S. 81, distinguished. United States v. Remund, 330 U. S. 539, followed. Pp. 364 U. S. 448-450.

(b) Since the Administration participated in making the loan and acquired a beneficial interest in it prior to the petition in bankruptcy, it is immaterial that formal assignment to the Administration of the note evidencing the debt was not made by the bank until after the filing of the petition. P. 364 U. S. 450.

(c) The Administration did not forfeit its right to priority by agreeing to turn over to the bank part of any distribution obtained because of its priority. Pp. 364 U. S. 451-453.

(d) Governmental priority in bankruptcy proceedings is not inconsistent with the basic purposes and provisions of the Small Business Act. P. 453.

272 F.2d 143, reversed.

Page 364 U. S. 447

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