Carroll Electric Co. v. Snelling, 2719.

• Decision Date: 17 December 1932
• Docket Number: No. 2719.,2719.
• Citation: 62 F.2d 413
• Parties: CARROLL ELECTRIC CO., Inc., v. SNELLING.
• Court: U.S. Court of Appeals — First Circuit

62 F.2d 413 (1932)

CARROLL ELECTRIC CO., Inc., v. SNELLING.

No. 2719.

Circuit Court of Appeals, First Circuit.

December 17, 1932.

Joseph G. Crane, of Boston, Mass. (Sherburne, Powers & Needham, of Boston, Mass., on the brief), for appellant.

Henry B. Cabot Jr., of Boston, Mass., for appellee.

Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.

ANDERSON, Circuit Judge.

This is an appeal from an order of the District Court affirming a decision of the referee disallowing a proof of claim of the appellant against the bankrupt Socold Refrigerating Company.

The Socold Refrigerating Company was adjudicated bankrupt in November, 1927. Some ten months later, in September, 1928, the trustee brought a suit in the Supreme Court of the District of Columbia against the appellant to recover for goods sold to the appellant by the bankrupt. In December, 1928, the appellant counterclaimed for breach of warranty in respect to the goods sold. In June, 1931, a verdict for $2,413.47 was returned for the appellant on its counterclaim. On this verdict judgment was entered on October 24, 1931; but on the appellee's noted appeal, various extensions were allowed for perfecting the appeal, the last of which expired on January 4, 1932, when the judgment became final. The appellant filed its proof of claim on this judgment on January 16, 1932.

On the trustee's objection, the referee disallowed the claim, and said:

"I have considered with some care the trustee's objection to the claim of the Carroll Electric Company, presented by your firm against the bankrupt estate of the Socold Refrigerating Corporation. I believe the objection is sound. It is reasonable to permit a creditor, whose claim is unliquidated, every opportunity to litigate and prove, but I believe his litigation, or other steps towards liquidation, should be instituted within the six months' period which is imposed upon other creditors."

This order was affirmed by the court below (Lowell, J.) without opinion.

The following provisions of the Bankruptcy Act are cited as bearing upon the question. Section 57n (11 USCA § 93 (n) reads as follows:

"Claims shall not be proved against a bankrupt estate subsequent to six months after the adjudication; or if they are liquidated by litigation and the final judgment therein is rendered within thirty days before or after the expiration of such time, then within sixty days after the rendition of such judgment: Provided, That the right of infants and insane persons without guardians, without notice of the proceedings, may continue six months longer."

Section 63b (11 USCA § 103 (b) provides:

"Unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against the estate."

Dealing first with the appellee's minor contentions:

(1) He urges that an unliquidated claim for breach of warranty must be liquidated under section 63b, after application to, and according to, directions of the referee. But we hold, as Judge Sanford (afterwards Mr. Justice Sanford), held in the case of In re Southern Pharmaceutical Co. (D. C.) 286 F. 148, that section 63b is permissive and not mandatory. We think this contention of the appellee is without merit.

(2) The appellee further contends that, on the facts supra, this judgment was entered on October 24, 1931, and as the proof of claim was not presented until January 16, 1932, that therefore it was not brought within the sixty-day provision in section 57n. This contention is also without merit.

In Allen v. Reed, 60 App. D. C. 346, 54 F.(2d) 713, 714, decided by the Court of Appeals for the District of Columbia on December 7, 1931, that court said: "A judgment appealed from is not a final judgment. It is merely an adjudication of the inferior court, the finality of which depends upon the action of the superior court." The proof of claim was seasonably presented.

We think that the words "within sixty days after the rendition of such judgment" must be construed as meaning final judgment, and this judgment was not final until January 4, 1932.

(3) This brings us to the main question — whether the decision below, that the claim should be disallowed because the liquidating litigation was not brought within six months after the adjudication — was correct.

Both counsel agree that the only carefully considered decision on this crucial question is the case of In re Clark (D. C.) 176 F. 955, a decision by Judge Ray in 1910. In the Clark Case the adjudication was on September 21, 1907. For some unstated reason, the trustee was not qualified until June 8, 1908. On October 28, 1908, over thirteen months after the adjudication, the trustee brought in a state court a suit to invalidate a mortgage held as security for the Clark claim of $4,662.40. The suit resulted in a holding for the plaintiff, and thus a former secured creditor was left unsecured. The claim was filed within sixty days after judgment in the suit. It was disallowed by the referee; his decision was reversed by the court. The court said (page 960 of 176 F.):

"I find nothing in the bankruptcy act to the effect that, where claims are liquidated by litigation, the suit or litigation must be commenced within one year after the adjudication in order that the claimant may thereafter prove his claim in case the litigation goes against him. Clearly the trustee may institute suit at any time before the statute of limitations has barred his right so to do."

The court then quoted the statute, section 57n, which then in the first sentence read "one year" instead of "six months," and proceeded:

"This judgment was rendered after the expiration of one year from the date of adjudication. It is immaterial when the litigation, in which the liquidation as to the validity of the mortgage was had, was commenced. It was commenced; the creditor stood upon the mortgage as valid, as he had the right to do without incurring any penalty or forfeiture, as none is prescribed in the bankruptcy act; and, when defeated and compelled to surrender his security, he had the right to prove his claim, and, if established, to have it allowed. Keppel v. Tiffin Savings Bank, 197 U. S. 356, 360-373, 25 S. Ct. 443, 49 L. Ed. 790; ...