In re Smith

• Citation: 146 F. 923
• Decision Date: 18 July 1906
• Docket Number: 574.
• Parties: In re SMITH.
• Court: U.S. District Court — District of Rhode Island

146 F. 923

In re SMITH.

No. 574.

United States District Court, D. Rhode Island.

July 18, 1906

Bassett & Raymond, for Union Trust Company.

BROWN District Judge.

The Union Trust Company held trade paper which had been endorsed by the bankrupt, and discounted for the bankrupt by the Union Trust Company before the adjudication. The notes did not become due until after the date of adjudication. At the date of proof, however, the notes had all matured, and the liability of the bankrupt as indorser had been duly fixed by default of the maker and protest. The date of filling the petition and of adjudication was February 16, 1906. The date of filing the proof of claim was May 22, 1906. The referee found that none of the notes was provable against the bankrupt's estate, on the ground that the liability was not fixed, and the claim was not absolutely due and owing at the date of adjudication. His opinion cites the opinions of referees in Chambers, Calder & Co., 2 Nat.Bankr.No., 864; In re Marks & Garson, 6 Am.Bankr.Rep. 641, and In re Dunnigan, 2 Nat.Bankr.No. 755, as stating the true construction of the law.

I am of the opinion that the weight of judicial authority is to the contrary, and that the above cited decisions proceed upon an erroneous interpretation of Section 63, Bankr. Act. of July 1, 1898, c. 541, 30 Stat. 562 (U.S.Comp.St. 1901, p. 3447). This section reads as follows:

'Sec 63. Debts which may be Proved.-- (a) Debts of the bankrupt may be proved and allowed against his estate which 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 or interest upon such as were not then payable and did not bear interest (2) due as costs taxable against an involuntary bankrupt who was at the time of the filing of the petition against him plaintiff in a cause of action which would pass to the trustee and which the trustee declines to prosecute after notice; (3) founded upon a claim for taxable costs incurred in good faith by a creditor before the filing of the petition in an action to recover a provable debt; (4) founded upon an open account, or upon a contract express or implied; and (5) founded upon provable debts reduced to judgments after the filing of the petition and before the consideration of the bankrupt's application for a discharge, less costs incurred and interest accrued after the filing of the petition and up to the time of the entry of such judgments.

'(b) 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.'

The claims in question are clearly within the terms of subdivision 4. This was the view of the learned judge in Re Gerson (D.C.) 105 F. 891, affirmed by the Circuit Court of Appeals for the Third Circuit in Moch v. Market Street National Bank, 107 F. 897, 47 C.C .A. 49. The latter case was cited in the opinion of the Supreme Court in Dunbar v. Dunbar, 190 U.S. 340, 350, 351, 23 Sup.Ct. 757, 47 L.Ed. 1084. While Moch v. Market Street National Bank was neither approved nor disapproved, the opinion of the Supreme Court points out the precise point decided; i.e., that under section 63a, subd. 4, the creditor might prove against the estate of the bankrupt after the liability had become fixed. Moreover, it may be fair to say that the course of reasoning, wherein distinctions are made between classes of contingent claims, would hardly have been necessary had the Supreme Court been of the opinion that, upon a proper construction of section 63, all claims which had been contingent at the time of filing the petition were excluded from allowance, though no longer contingent at the date of proof. See, also, In re Rothenberg (D.C.) 140 F. 798; Collier on Bankruptcy (5th Ed.) pp. 484, 489.

But, aside from authority and upon an independent reading of section 63, I am of the opinion that neither grammatical nor logical reasons require that subdivisions 4 shall be limited by subdivision 1. It is very clear that subdivisions 1, 2, 3, 4, and 5 are not to be regarded as an enumeration of a group of characteristics, all of which are essential to a provable claim. On the contrary, the subdivisions specify separate classes of provable claims. It is a classification.

In Wetmore v. Markoe, 196 U.S. 68, 72, 25 Sup.Ct. 172, 49 L.Ed. 390, it was said:

'While this section enumerates under separate paragraphs, the kind and character of claims to be proved and allowed in bankruptcy, the classification is only a means of describing debts of the bankrupt which may be proved and allowed against his estate.'

It is argued that, because subdivision 1 specifies a fixed...