In re Inman & Co.

• Decision Date: 07 June 1909
• Parties: In re INMAN & CO.
• Court: U.S. District Court — Northern District of Georgia

171 F. 185

In re INMAN & CO.

United States District Court, N.D. Georgia.

June 7, 1909

Lamar &amp Callaway and McDaniel, Alston & Black, for claimants.

Slaton & Phillips, for trustee.

NEWMAN District Judge.

The claim made in this case will appear from the paper sent up by the referee on the petition for review, as follows:

'I Percy A. Adams, one of the referees of said court in bankruptcy, do hereby certify that in the course of the proceedings in said cause before me the following question arose pertinent to said proceeding:

'T. B. Ketterson filed a proof of claim wherein he claimed of the estate of Inman & Co., bankrupt, $225. By amendment which was allowed by consent, it was set up that 'the consideration of said debt being that on the 1st day of October, 1907, deponent was employed for 10 months at the rate of $150 per month, that deponent entered upon said employment on October 1, 1907, and continued in the employment of said firm until May 4, 1908, when the said firm was adjudged bankrupt, and that the sum of $225 now due is the amount due under said contract for the period from May 4, 1908, to July 1, 1908, the date fixed in the contract for the termination of the said contract of employment and for damages for the breach thereof.'

'To the original claim the trustees through their counsel demurred, and for demurrer set up that said claim is not a provable claim in bankruptcy as to any amount claimed subsequent to the filing of petition in bankruptcy. The trustees without waiving demurrer also answered.

'To the claim as amended the trustees filed a motion to expunge on the grounds that the said claim is not a provable claim in bankruptcy; that the amount claimed to be due was not due and owing at the date of bankruptcy; that said claim was not a fixed liability absolutely owing at the time of the filing of the petition in bankruptcy in this cause; that it was an existing demand at such time, but both the existence and the amount of the possible future demands are contingent upon unforeseen events; and that it is neither an unliquidated nor liquidated provable claim, nor was it an unliquidated or liquidated provable claim on the date of the bankruptcy.

'Said matter having come on for hearing before me on the said demurrer and the motion to expunge, I have passed an order expunging the said claim and sustaining the demurrer thereto. The said T.B. Ketterson being dissatisfied with said judgment, and having requested that the same be certified to the judge of the United States District Court for the Northern District of Georgia, the said question is accordingly certified to the judge of said court for his opinion thereon.

'A copy of the original proof of claim and the demurrer thereto, and of the answer thereto, and of the amended proof and the consent of counsel allowing the said amendment and of the motion to expunge filed on behalf of the trustees are attached hereto.'

It will be perceived from the foregoing that T. B. Ketterson was in the employment of the bankrupt firm at the time the proceedings in bankruptcy were filed, and that the term for which he was employed had not expired when the bankruptcy occurred. He seeks to prove a claim for the unexpired portion of the time of his employment. He was allowed without objection the amount that was due him at the time the bankruptcy proceedings were instituted, and, as it was less than three months, he was allowed priority for the same.

The question presented is an interesting one, and is almost without direct authority since the passage of the present bankruptcy act. The right to prove, if it exists at all, is under paragraph 4, Sec. 63, of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 563 (U.S. Comp. St. 1901, p. 3447)). Section 63 provides that:

'Debts of the bankrupt may be proven and allowed against his estate which are * * * (4th) founded upon an open account or upon a contract expressed or implied.'

Section 63b provides that:

'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 his estate.'

It is conceded that if a breach of contract had occurred prior to the commencement of the bankruptcy proceedings, and the claim for damages on account of the breach already existed, that the amount of such damages might be liquidated in such manner as the court might direct; but the immediate question is whether where there is a discontinuance of employment growing out of, and resulting from, the filing of a petition in bankruptcy, and that only the right to damage exists and may be proved and the amount of such damage ascertained. Stating the inquiry somewhat differently, it is this: Whether, where proceedings in involuntary bankruptcy are instituted, followed by an adjudication, and the bankrupt is a party to a contract of employment not terminated, this of itself is a breach of the contract on the part of the bankrupt, or is the contract simply terminated and annulled by operation of law without any default on the part of the bankrupt? The latter being true, there is no cause of action arising as for a breach of contract.

The present bankruptcy act is entirely different from Act March 2, 1867, c. 176, 14 Stat. 517, as to the right to prove claims such as are presented here. That act provided in section 19 (Rev. St. 5067, 5068):

'In all cases of contingent debts and contingent liabilities contracted by the bankrupt, and not herein otherwise provided for, the creditor may make claim therefor, and have his claim allowed, with the right to share in the dividends, if the contingency shall happen before the order for the final dividend, or he may at any time apply to the court to have the present value of the debt or liability ascertained and liquidated, which shall then be done in such manner as the court shall order, and he shall be allowed to prove for the amount so ascertained. * * * If any bankrupt shall be liable for unliquidated damages arising out of any contract or promise * * * the court may cause such damages to be assessed in such mode as it may deem best and the sum so assessed may be proven against the estate.'

There is no such language in the act of 1898. This omission is significant, and is important in passing on the question here presented.

The only case decided by the Supreme Court of the United States which throws any light on this question under the present act, so far as the citation of counsel, and my examination, show, is Dunbar v. Dunbar, 190 U.S. 340, 23 Sup.Ct. 757, 47 L.Ed. 1084. In that case there was an effort to prove in bankruptcy by a wife, who, anticipating divorce, had separated from her husband, a claim against him on an agreement to pay her a certain amount yearly for her own support and a certain amount for the support of their children. The agreement was to pay the wife the amount stipulated so long as she remained unmarried, and the children until they came to the age of 21 years. It was held that the contract, so far as it related to the wife, was not a contingent liability provable under the act of 1898, and, as to the children, it was held that his duty as a father to his minor children was an obligation from which it could not be supposed it was the intention of the bankruptcy act to discharge him. In the opinion Mr. Justice Peckham, after referring to the English bankruptcy act of 1869, says:

'No such broad language is found in our bankruptcy act of 1898. Section 63a provides for debts which may be proved, which, among others, are (1) 'a fixed liability, as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, with any interest thereon which would have been recoverable at that date or with a rebate of interest on such as were not then payable and did not bear interest;' (4) 'founded upon an open account, or upon a contract express or implied.'

'In section 63b provision is made for unliquidated claims against the bankrupt, which may be liquidated upon application to the court in such manner as it shall direct and may thereafter be proved and allowed against his estate. This paragraph 'b,' however, adds nothing to the class of debts which might be proved under paragraph 'a' of the same section. Its purpose is to permit an unliquidated claim coming within the provisions of section 63a to be liquidated as the court should direct.

'We do not think that by the use of the language in section 63a it was intended to permit proof of contingent debts or liabilities or demands the valuation or estimation of which it was substantially impossible to prove.

'The language of section 63a of the act of 1898 differs from that contained in the bankruptcy act of 1867, and also from that of 1841. Act March 2, 1867, c. 176, Sec. 19, 14 Stat. 517, 525, carried into the Revised Statutes as section 5068, provided expressly for cases of contingent debts and contingent liabilities contracted by the bankrupt, and permitted applications to be made to the court to have the present value of the debt or liability ascertained and liquidated, which was to be done in such manner as the court should order, and the creditor was then to be allowed to prove for the amount so ascertained.

'Section 5, Act Aug. 19, 1841, c. 9, 5 Stat. 444, provides in terms for the holders of uncertain or contingent demands coming in and proving such debts under the act. But neither the act of 1841 nor that of 1867 would probably cover the case of such a contract as the one under consideration.' According to this, section 63b adds nothing to section 63a as to the class of debts which may be proven, and it was

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