American A. & B. Coal Corp. v. Leonardo Arrivabene, SA

• Decision Date: 13 June 1960
• Docket Number: Docket 25735.,No. 91,91
• Citation: 280 F.2d 119
• Parties: AMERICAN ANTHRACITE & BITUMINOUS COAL CORP., Appellee, v. LEONARDO ARRIVABENE, S.A., Tramp Tankers Corporation of Liberia and Estate of Hector C. Dracoulis, Appellants.
• Court: U.S. Court of Appeals — Second Circuit

280 F.2d 119 (1960)

AMERICAN ANTHRACITE & BITUMINOUS COAL CORP., Appellee, v. LEONARDO ARRIVABENE, S.A., Tramp Tankers Corporation of Liberia and Estate of Hector C. Dracoulis, Appellants.

No. 91, Docket 25735.

United States Court of Appeals Second Circuit.

Argued December 9, 1959.

Decided June 13, 1960.

COPYRIGHT MATERIAL OMITTED

Sydney Basil Levy, New York City (Chauncey H. Levy, New York City, on the brief), for appellee.

Humphrey Statter, New York City (Daniel L. Smith, Jr., Cardillo & Smith, New York City, on the brief), for appellant, Leonardo Arrivabene, S.A.

James E. Freehill, New York City (Francis P. Kelly, Hill, Betts & Nash, New York City, on the brief), for appellants, Tramp Tankers Corporation of Liberia and Estate of Hector C. Dracoulis.

Before LUMBARD, Chief Judge, and SWAN and FRIENDLY, Circuit Judges.

LUMBARD, Chief Judge.

Leonardo Arrivabene, S.A., Tramp Tankers Corporation of Liberia, and the Estate of Hector Dracoulis, three creditors of American Anthracite & Bituminous Coal Corporation, the debtor in a proceeding for an arrangement pursuant to Chapter XI of the Bankruptcy Act, appeal from a decision of the district court denying priority under § 64, sub. a(1) of the Act, 11 U.S.C.A. § 104, sub. a(1), to their claims for freight and demurrage. The appellants argue that these claims are entitled to priority either as "costs and expenses of administration" or as "actual and necessary costs and expenses of preserving the estate." We agree with the district court and with the referee that these claims are not entitled to priority and affirm the order.

At the threshold the appellants challenge the standing of the debtor to object to the priority status accorded their claims by the order confirming the arrangement. They point out that under § 367(3) of the Bankruptcy Act, 11 U.S. C.A. § 767(3), none of the $2,000,000 deposited by the debtor for distribution to its creditors may be returned to it under any circumstances and argue that the debtor is therefore not a "party in interest" entitled to object to the allowance of claims under § 57, sub. d, 11 U.S. C.A. § 93, sub. d, even in the absence of a trustee in bankruptcy. We do not agree.

First, it is settled that under § 2, sub. a(2), 11 U.S.C.A. § 11, sub. a(2), and under § 57, sub. k, the referee upon his own motion may reconsider the allowance or status of a claim. In re Owl Drug Co., 9 Cir., 1936, 84 F.2d 342; In re Noble, D.C.W.D.N.Y.1936, 15 F.Supp. 648. Since the referee may act without the filing of an objection by anyone, his power surely cannot be diminished because the debtor suggests the reconsideration.

Second, § 342 of the Act, 11 U.S. C.A. § 742, states that the debtor in possession shall "exercise all the powers of a trustee appointed under this title." A trustee has the power, indeed the duty as representative of all the creditors, to object to the allowance of improper claims. Section 342 should be understood as authorizing the debtor in possession to exercise this same power. See In re Martin Custom Made Tires Corp., 2 Cir., 1939, 108 F.2d 172; In re Ankeny, D.C. N.D. Iowa 1900, 100 F. 614.

Third, General Order 21(6) of the General Orders in Bankruptcy, 11 U.S.C.A. following § 53, as amended by the Supreme Court in 1933 (see 288 U.S. 628), specifically permits "the bankrupt or debtor," as well as the trustee or any creditor, to petition for "reconsideration of any claim allowed against the estate." This Order is expository of § 57, sub. d, see In the Matter of Woodmar Realty Co., 7 Cir., 1957, 241 F.2d 768, 64 A.L.R.2d 883, and constitutes a recognition of the fact that a debtor, particularly one who anticipates that his business will continue after reorganization, has a real interest in seeing that his assets are distributed equitably among his creditors in accordance with the bankruptcy law. As this Court has stated, it was the purpose of the 1933 amendment of General Order 21(6) to give to the bankrupt or the debtor standing to petition for reconsideration of the claims of creditors. In re Povill, 2 Cir., 1939, 105 F.2d 157. In re Munsie, 2 Cir., 1929, 33 F.2d 79 and Gregg Grain Co. v. Walker Grain Co., 5 Cir., 1922, 285 F. 156, certiorari denied, 1923, 262 U.S. 746, 43 S.Ct. 522, 67 L.Ed. 1212, decided prior to the 1933 amendment, are no longer authority.

Though General Order 21(6) by its terms refers only to reconsideration of claims which "ought to be expunged or diminished," application of the Order is not so restricted. There is no rational basis for supposing that the draftsmen of the Order wished to permit petitions for reconsideration of a claim in order to reduce it, but not in order to increase it or alter its priority. The Order is intended to have a meaning broad enough to permit reconsideration of claims of all kinds. Castaner v. Mora, 1 Cir., 1956, 234 F.2d 710, 714; In re Cury, D.C.W.D.Va.1940, 34 F.Supp. 526. We conclude that the debtor's petition for reconsideration of appellants' claims to priority was properly entertained by the referee.

The claim of appellant Arrivabene to priority is founded upon its asserted rights under a contract with the debtor and the debtor in possession approved by the referee on October 31, 1957, ten days after the filing of the debtor's petition for an arrangement under Chapter XI. Previously, in accordance with a charter party between Arrivabene and Anthracite, the vessel Praglia was tendered to the debtor by Arrivabene on August 23, 1957 for the carriage of a cargo of coal from Norfolk, Virginia, to Rijeka, Yugoslavia. The ship was not loaded by the debtor until October 1, by which time demurrage charges of $22,198.75 had accrued, and both this sum and freight of $108,810.90 became payable by the debtor on October 8. Upon the debtor's failure to make payment Arrivabene notified Anthracite that it intended to exercise the lien granted it upon the cargo by the charter party. However, subsequent to the filing of the debtor's petition for an arrangement on October 21, and without exercising its lien, Arrivabene entered into a contract with the debtor and debtor in possession under which it released its lien in exchange for an immediate payment of $78,844.27, the sub-freight due the debtor from a sub-charterer of the Praglia, and a claim for the unpaid balance of $52,105.38. It is the status of the claim for this unpaid balance that is at issue here.

Arrivabene concedes that whatever preferential rights it had, at the time the debtor filed the petition for an arrangement, by reason of its lien upon the cargo were extinguished by the October 31 contract and that the present rights of the parties are to be determined by the terms of this contract. But it argues that it was the intention of the parties as manifested in the contract to accord priority to Arrivabene's claim for the unpaid amount. To support this position it points out that contractual obligations undertaken by a trustee or debtor in possession in the course of management of the bankrupt's estate are usually held to have priority and, second, that it would be unreasonable to suppose that a claimant would relinquish a lien upon which full payment could be realized without obtaining priority for any deficiency above and beyond the cash immediately obtained from the debtor.

The contract of October 31 is clear in its terms and precludes the interpretation that the appellant urges. Paragraph 5 of the contract states:

"This agreement is without prejudice to any claim which the owner may assert against charterer in respect to the differences between the amount of freight accepted in accordance with this agreement the sub-freight of $78,844.27 due the debtor, and such amounts as owner may be entitled to receive pursuant to Charter Party dated June 9, 1956, including freight and demurrage."

No mention whatever is made of any priority status to be accorded Arrivabene's unpaid claim, and there is no suggestion elsewhere in the agreement that the claim was to be other than a general one. Moreover, paragraph 6 states unequivocally that the contract shall not be deemed an affirmance by the debtor in possession of the unexecuted portion of the charter party between Arrivabene and the debtor, upon which a claim to priority would customarily be founded. Nor does it seem unreasonable or improbable that a creditor would choose to accept an immediate cash payment of 60% of its claim and a general claim against the debtor's estate for the balance in exchange for its right to execute upon a maritime lien in a distant country. Even if we were to accept Arrivabene's statement that the market value of the coal delivered in Yugoslavia was substantially in excess of the amount due it for freight and demurrage, we cannot ignore the fact that substantial expenses, delays, and hazards might be encountered in enforcing a cargo lien in Yugoslavia.

Were there any uncertainty as to the proper interpretation to be put upon the October 31 contract, the petition of the debtor in possession, submitted to the referee simultaneously with the contract and seeking approval of it, would remove any doubt. The petition states that "the proposal in essence provides for the payment of less than all of a valid subsisting lien, but with a waiver of the rights to enforce said lien, leaving the owner in the status of a general creditor as to the difference between the proposed payment and the amount of said owner's total claims." We must assume that the referee in deciding to approve the contract understood the petition to correctly state its meaning. Arrivabene argues, nonetheless, that it should not be bound by the statements of the petition, since neither its officers nor its counsel saw the petition prior to approval of the contract. Although it is true that appellant did not see the petition on October 31, Arrivabene admits in its brief that it received copy of the petition on November 4, a week before the Praglia docked in Yugoslavia. If...