Maynard v. Elliott Varney v. Same Smith v. Same Rutherford v. Same

• Decision Date: 13 April 1931
• Docket Number: Nos. 239-242,s. 239-242
• Citation: 51 S.Ct. 390,283 U.S. 273,75 L.Ed. 1028
• Parties: MAYNARD v. ELLIOTT. VARNEY v. SAME. SMITH et al. v. SAME. RUTHERFORD v. SAME
• Court: U.S. Supreme Court

283 U.S. 273

51 S.Ct. 390

75 L.Ed. 1028

MAYNARD

v ELLIOTT.

VARNEY

v. SAME.

SMITH et al.

v. SAME.

RUTHERFORD

v. SAME.

Nos. 239-242.

Argued March 12, 13, 1931.

Decided April 13, 1931.

Messrs. Randolph Bias and Wells Goody. both of Williamson, W. Va., for petitioner.

Mr. Stanley Reed, of Ashland, Ky., for respondents.

Mr. Justice STONE delivered the opinion of the Court.

The bankrupts in these cases were indorsers of promissory notes payable to petitioners, some of them within the year after adjudication, allowed by section 57, 57n of the Bankruptcy Act (July 1, 1898, c. 541, 30 Stat. 544, 561, 11 USCA § 93(n) for proof of claims, others at later dates. Petitioners filed proofs of claim upon the indorsements, which were allowed. Proceedings were brought by the trustee to expunge the claims as not provable.

Upon review, the Circuit Court of Appeals for the Sixth Circuit held that as none of the notes was due at the time of the petition, and as neither presentment nor notice of dishonor had been waived, the liability with respect to each of the indorsements was not a provable claim because contingent, and gave judgment accordingly, 40 F.(2d) 17, following its earlier decision in First National Bank v. Elliott (C. C. A.) 19 F.(2d) 426. This Court granted certiorari, 282 U. S. 822, 51 S. Ct. 31, 75 L. Ed. , October 13, 1930, to resolve the conflict between the decision below and those of other circuit courts of appeals, in Moch v. Market Street National Bank, 107 F. 897 (C. C. A. 3d), and in In re Semmer Glass Co., 135 F. 77 (C. C. A. 2d), appeal dismissed, 203 U. S. 141, 27 S. Ct. 50, 51 L. Ed. 128; see Colman Co. v. Withoft (C. C. A.) 195 F. 250, 253.

Section 63 of the Bankruptcy Act (11 USCA § 103) provides:

'(a) Debts of the bankrupt may be proved and allowed against his estate which are (1) a fixed liability, as evi- denced 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 here on which would have been recoverable at that date or with a rebate of interest upon such as were not then payable and did not bear interest; * * * (4) founded upon an open account, or upon a contract txpress or implied. * * *

'(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 the estate.'

Section 17 of the act (11 USCA § 35) provides that, 'A discharge in bankruptcy shall release a bankrupt from all of his provable debts * * *' with exceptions not now material, and section 1(11) of the act, 11 USCA § 1(11), that "debt' shall include any debt, demand, or claim provable in bankruptcy.' Earlier acts provided for the proof of various types of contingent liability specifically enumerated, including that of the indorser of negotiable paper, section 5, Act of August 19, 1841, c. 9, 5 Stat. 440, 445; section 19, Act of March 2, 1867, c. 176, 14 Stat. 517, 525.

Although the omission of any reference to contingent claims in section 63 of the present act has led to some confusion and uncertainty in the decisions, it is now settled that claims founded upon contract, which at the time of the bankruptcy are fixed in amount or susceptible of liquidation, may be proved under subdivision (a)(4) of that section, 11 USCA § 103(a)(4), although not absolutely owing when the petition is filed. Williams v. U. S. Fidelity Co., 236 U. S. 549, 35 S. Ct. 289, 59 L. Ed. 713; Central Trust Co. v. Chicago Auditorium, 240 U. S. 581, 36 S. Ct. 412, 60 L. Ed. 811, L. R. A. 1917B, 580. The sole question now presented is whether the liability of an indorser is of that class.

The obligation of an indorser is at least a 'claim,' and hence a debt so far as defined by section 1(11); and the language of section 63, which permits proof of a claim 'founded * * * upon a contract express or implied,' is broad enough to embrace the liability of an endorser upon negotiable paper which has not matured at the time of the adjudication. Within three years after the enactment of the Bankruptcy Act, the Court of Appeals for the Third Circuit, in Moch v. Market Street National Bank, supra, held that the liability of a bankrupt indorser of commercial paper, which did not mature until after the filing of the petition, was a provable claim under section 63(a)(4). This ruling was followed by the Court of Appeals for the Second Circuit in In re Semmer Glass Co., supra, and appears to have been accepted by the Court of Appeals for the Ninth Circuit, Colman Co. v. Withoft, supra, page 253 of 195 F., and by the District Courts generally. In re O'Donnell, 131 F. 150; In re Rothenberg, 140 F. 798; In re Smith, 146 F. 923: In re Dunlap Carpet Co., 163 F. 541; In re Caloris Mfg. Co., 179 F. 722; In re Buzzini, 183 F. 827; In re Lyons Beet Sugar Refining Co., 192 F. 445; In re Keith-Gara Co., 203 F. 585; Heyman v. Third National Bank, 216 F. 685; In re Amdur Shoe Co., 13 F.(2d) 147. See, also, Germania Savings Bank v. Loeb, 188 F. 285, 289, Courtney v. Trust Co., 219 F. 57, 66 (both C. C. A. 6th).

The rule thus announced seems not to have been seriously challenged until the decision, twenty-six years later, of the Court of Appeals for the Sixth Circuit in First National Bank v. Elliott, supra. In Dunbar v. Dunbar, 190 U. S. 340, 23 S. Ct. 757, 47 L. Ed. 1084, the Moch Case was cited and distinguished from the claim involved in that case, which was dependent upon a contingency so uncertain, as the court held, that its liquidation or valuation was impossible. In the meantime, leading text-writers have stated that the liability of an endorser, upon a note falling due after the petition, is provable under section 63(a)(4). 1 Loveland on Bankruptcy (4th Ed.) p. 609; 2 Collier on Bankruptcy (13th Ed.) pp. 1399-1400; 2 Remington on Bankruptcy (3d Ed.) § 777.

Only compelling language in the statute itself would warrant the rejection of a construction so long and so generally accepted, especially whre o verturning the established practice would have such far reaching consequences as in the present instance. But such language is wanting in section 63. That section purports to be an enumeration of classes of provable claims-not an enumeration of characteristics which must inhere in every claim proved. Only by reading into subdivision (a)(4) the limitation of subdivision (a)(1), 11 USCA § 63(a) (1), that the claim must be absolutely owing, would there be ground for rejecting a claim against a bankrupt indorser as not complying with the former.

Respondent argues that (a)(4) must be so read, since, otherwise, the limitation in (a)(1) would be practically without effect. See In re Roth & Appel (C. C. A.) 181 F. 667, 31 L. R. A. (N. S.) 270; In re Hutchcraft (D. C.) 247 F. 187. But this contention was rejected by the decision in Williams v. U. S. Fidelity Co., supra; see Central Trust Co. v. Chicago Auditorium, supra, pages 592, 593, of 240 U. S., 36 S. Ct. 412, and is not supported, as respondent contends, by Zavelo v. Reeves, 227 U. S. 625, 33 S. Ct. 365, 57 L. Ed. 676. That case held only that section 63, read in the light of the spirit and purpose of the Act, did not authorize proof of claim upon an obligation entered into by the bankrupt after the filing of the petition. See In re Burka (D. C.) 104 F. 326.

Possible doubts as to the meaning of the section should be resolved in the light of the purpose of the Act 'to convert the assets of the bankrupt into cash for distribution among creditors, and then to relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities consequent upon...