In re Pettingill & Co.

Decision Date18 April 1905
Docket Number8,742.
Citation137 F. 143
PartiesIn re PETTINGILL & CO. Ex parte PETERS. Ex parte CHICAGO NEWSPAPER UNION. Ex parte PEIRSON. Ex parte BURLINGTON HAWKEYE. Ex parte KELLOGG NEWSPAPER CO.
CourtU.S. District Court — District of Massachusetts

Joseph W. Lund, for trustee.

John Abbott and Henry C. Stetson, for creditors.

LOWELL Circuit Judge.

Pettingill styled Pettingill & Co., an advertising agent, was indebted for advertising Greene's Nervura to the creditor publisher of a newspaper. This indebtedness Pettingill had agreed to pay in four equal parts, in October, 1901, April and October, 1902, and April, 1903. On August 31, 1901 Pettingill sent a signed circular to the creditor, in which after eulogizing the prospects of Nervura, he proceeded:

'Instead of deferring final settlement of the Dr. Greene business for the year past, until April, 1903, as arranged for in our contract with you, we propose to turn over to you, on or before October 1st of this year, the six per cent. preferred stock of the Dr. Greene Nervura Company, issued as described, dividends guaranteed by Pettingill & Co. until stock is retired, in full settlement of the Dr. Greene Nervura business to date.
'We enclose herewith a blank acceptance, on the return of which, duly signed, a new contract will be forwarded.

It was agreed at the argument that the 'new contract' referred to in the sentence last quoted concerned only future business, and not the existing debt, or its payment by the issuance of stock or otherwise.

The creditor signed and returned the 'blank acceptance' above mentioned, dated September 25, 1901. It read as follows:

'Instead of the settlement in four installments, as provided in our contract with Pettingill & Company, we agree to accept six per cent. preferred stock of the Dr. Greene Nervura Co., total issue not to exceed $400,000, 6%, callable at any time after three years at 105, and any unpaid dividends, in settlement of our account for Dr. Greene's Nervura Advertising for the year beginning October 1st, 1900. Dividends on said stock guaranteed by Pettingill & Co., until stock is retired. It is understood that stock for the full amount of such account is to be issued to us October 1st, 1901, dividends payable semiannually, to accrue from that date.'

This was sent to and received by Pettingill. A stock certificate for 263 shares of the preferred stock of Dr. Greene Nervura Company, a corporation, dated March 1, 1902, was sent to the creditor. Thereafter Pettingill & Co., the firm, disposed of its assets to Pettingill & Co., the bankrupt corporation, and the corporation assumed that business debts of Pettingill. An involuntary petition against the corporation was filed March 29, 1904, upon which adjudication followed April 18, 1904. Against the Dr. Greene Nervura Company an involuntary petition was filed April 7th, and adjudication followed on April 26th. Under the guaranty of the Pettingill corporation the creditor seeks to prove against it for the amount of the dividends coming due on the Nervura stock, both before and after bankruptcy, and for the value of the Nervura stock. The referee allowed the proof for dividends accruing before the date of the petition against the Pettingill corporation, and disallowed the rest of the claim. There is not support for the claim for the value of the stock. No contract was made by the bankrupt concerning it.

The proof for dividends to accrue after the date of the petition was resisted. First, because the contract was outside the statute of frauds. But the circular was signed by Pettingill, and the offer which it contained was accepted by the creditor. An offer written and signed, though accepted but orally, is a sufficient memorandum under the statute. Browne on the Statute of Frauds, Sec. 345a. The referee was of the opinion that the circular and acceptance did not constitute a contract to guaranty the dividends, but only a contract to make a future contract of guaranty. This does not seem to me the natural meaning of the transaction. Second, the referee was further of opinion that the liability of the firm, as shown by the offer and acceptance, was not a business debt of the firm, so as to be assumed by the corporation. But, considering that the debt which the guaranty replaced was undoubtedly a business debt, and looking at the nature of the whole transaction, it seems to me that the corporation assumed the liability. If these conclusions be correct, it is not disputed that the claim is provable unless it fails by reason of its contingency. The question presented is this: If, by a valid contract, A. guaranties to B. the payment of 10 per cent. dividends upon corporate stock held by the latter, and then becomes bankrupt, can B. prove against A.'s estate in bankruptcy for damages arising from corporate failure to pay 10 per cent. dividends after the filing of the petition in bankruptcy? Is such a claim so far contingent that it may not be proved under Bankr.Act July 1, 1898, c.54b, 30 Stat. 544 (U.S. Comp. St. 1901, . 3418)?

Under that act the provability of a claim depends upon its status at the time the petition is filed. If, at that time, the claim is provable, within the definition of section 63, it may be proved. 30 Stat. 562 (U.S. Comp. st. 1901, p. 3447). If, at that time, it does not fall within that definition, but does so at some later time, it cannot be proved. Swarts v. Fourth Bank, 117 F. 1, 54 C.C.A. 387; Moulton v. Coburn (C.C.A.) 131 F. 201. This is not an invariable rule in bankruptcy. Under some bankrupt acts provability is related to another time. See Williams on Bankruptcy, p. 114; Rev. Laws Mass. c. 163, Sec. 31. If section 63a (2) and (5) and section 57i (30 Stat. 562, 560 (U.S. Comp. St. 1901, pp. 3447, 3443)) establish exceptions to the rule above stated, the exceptions are of most minute scope, and do not concern the case at bar. Section 63b 'adds nothing to the class of debts which might be proved under paragraph 'a.' ' Dunbar v. Dunbar, 190 U.S. 340, 350, 23 Sup.Ct. 757, 47 L.Ed. 1084. The court has, therefore, to consider if the claim of Peters against Pettingill at the time the petition was filed was a provable claim within section 63a of the bankrupt act. It cannot be brought within clauses (1), (2), (3), or (5). If provable, it must be so because it is a claim founded upon a contract within the definition of clause (4); but not every liability founded upon a contract can be proved in bankruptcy. This was decided of a covenant to pay an annuity to a woman dum sola (Dunbar v. Dunbar, 190 U.S. 340, 23 Sup.Ct. 757, 47 L.Ed. 1084); and it has often been decided of covenants to pay rent, in so far as the rent accrues after bankruptcy. These claims are disallowed, not because they are not founded upon contract, but because at the filing of the petition, the time when the status of the claim is fixed, the damages arising from the breach of contract are so far contingent that they cannot be computed by any process known to law. As was said by the court in Riggin v. Magwire, 15 Wall. 549, 552, 21 L.Ed. 232, where a claim for breach of a covenant of seisin was denied proof under the act of 1841:

'If an action at law had been brought on a covenant at that time (bankruptcy), nominal damages at most, if any damages at all, could have been recovered.'

That the act of 1841 went as far as the act of 1898 in admitting to proof claims subject to a contingency cannot be disputed.

Some statutes of bankruptcy, indeed, by express language admit to proof some claims which could not be liquidated in any action at law or in equity brought at the time of bankruptcy. In some sense these statutes empower a court of bankruptcy, in the language of the Supreme Court in Dunbar v. Dunbar, to guess at the creditors' damage. And this course had some advantages, for the bankrupt is thus relieved from liabilities which otherwise would hamper him after his discharge. The act of 1898, however, authorizes none of these guesses, and admits to proof only those claims which can be liquidated by legal proceedings instituted at the time of bankruptcy. Other liabilities of the bankrupt are deemed so far contingent that they cannot be proved in bankruptcy, nor are they released by the bankrupt's discharge.

For admission to proof, however, the claim need not arise before bankruptcy, nor need the contract be broken theretofore. It is sufficient for proof if the breach of contract and bankruptcy are coincident. To some extent bankruptcy operates as a breach of the bankrupt's contracts. This has been deemed...

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