In re RAGAN. In re CHENEY. RAGAN v. FORBES, 2 F.2d 785

JOHNSON, Circuit Judge. Benjamin P. Cheney was adjudicated a bankrupt on January 14, 1918. In the schedules filed by Mm the American Ammonia Company appeared as a creditor in the amount of $136,000, holding as security 14,800 shares of its capital stock. Upon September 17, 1918, the trustee filed a petition for leave to sell at public or private sale all of the assets of the estate of the bankrupt.

On September 26, 1918, the American Ammonia Company filed objections to the sale, “for the reason that, certain shares of its capital stock are among said assets, and that it has a lien on said shares amounting to upwards of $130,000.” The referee, who has since died, ordered that the trustee should have leave to sell at public or private sale any and all assets of the bankrupt estate, except “the interests of the bankrupt in any stock of the American Ammoiiia Company, any interests he may have in the estate of his late father, Benjamin P.

Cheney, Sr., and any interests he may have in the stock or bonds of the Gila Copper Sulphide Company.” On December 4, 1923, the petitioner, as trustee of the American Ammonia Company, which had been adjudicated a bankrupt, filed a petition with the referee in bankruptcy appointed after the decease of the referee to whom the Cheney bankruptcy case was first referred, asking leave to amend the written objection to the sale of assets filed by the attorney for the American Ammonia Company on September 26, 1918, by substituting therefor a formal proof of its claim, and also praying that the value of the stock held by the American Ammonia Company as security be appraised, and that it be allowed to participate in any dividends declared or to be declared in said bankruptcy estate as a creditor to the extent of the excess of the claim of the American Ammonia Company above the value of the said securities.

This petition was denied, and' upon review the District Court has approved the order of the referee. The District Court has found that, in the course of proceedings before the referee upon the petition to sell the assets of the Cheney estate, Mr. Anderson, counsel for the American Ammonia Company, stated orally that his client had a claim of upwards of $130,000 for which it held collateral and that it objected to its collateral being sold by the trustee.

The District Court further found that the only written document presented to the trustee or filed in court relating to the claim of the American Ammonia Company was the objection to the sale filed by Mr.

Anderson; that the Ammonia Company became bankrupt in 1922 without having realized on its collateral and applying the proceeds on its claim, and that its stock is worthless; that “there is nothing indicating any intention on the part of the Ammonia Company seasonably to assert its rights as a creditor; that it never instructed its counsel to prove its claim; it resisted any effort on the part of the trustees to sell the securities belonging to the bankrupt; it never pursued any of the courses open to it with reference to liquidation of that security, an essential step to any proof; that there is no evidence that the Ammonia Company omitted to file the proof through oversight, misunderstanding, or mistake; that the learned referee was not unwarranted in inferring that the Ammonia Company knew what it Was about and intentionally failed to prove.”

Section 57n of the Bankruptcy Act (Comp.

St. § 9641) contains the following limitation on the proof of claims: “Claims shall not be proved against a bankrupt estate subsequent to one year after the adjudication; or if they are liquidated by litigation and the final judgment therein is rendered within thirty days before or after * * * 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.” Both the referee and the District Court have ruled that because of this section'the petitioner has lost the right to prove this claim 'of the American Ammonia Company after more than five years had elapsed since the adjudication in bankruptcy.

The requisites of a proof of claim are pointed out in

section 57a of the act: “Proof of claim shall consist of a statement under oath, in writing, signed by a creditor setting forth the claim, ;the consideration therefor, and whether any, and if so what, securities are held therefor, and whether any, and if so what, payments have been made thereon, and that the sum claimed is justly owing from the bankrupt to the creditor.” Nothing approaching any compliance with these requirements was filed by the American Ammonia Company in the Cheney bankruptcy’ proceedings. While the claim of that company was included in the

schedule of creditors, this would not relieve it from a proof of its claim. In the objection filed by its counsel to the sale of its stock it did not make any claim against the estate of Benjamin Cheney, but objected to the sale because it had a lien upon these shares of stock in the amount of $130,000. The oral statement made by its counsel before the referee that it had a claim against the Cheney estate of upwards of $136,000 was evidently made to show its right to file its objections to the sale of its stock.

While the courts have been liberal in the allowance of amendments of the proofs of claims, yet in all the eases cited by the counsel for petitioner there was some written document, however informal, which could be recognized as a claim made against the estate of the bankrupt and which could be the subject of amendment. ' In this case no claim was made by the creditor against the estate. The statement of its counsel that it objected to the sale of its stock because it had a lien upon the same' of upwards of $130,000 could not be distorted into the assertion of a claim against the estate.

As a secured creditor it could rely upon its security, believing it to be sufficient to pay its claim in full. The notes of the bankrupt which it held were all given for this stock and partial payments had been made upon the same, as appears from the record. It is evident that it did not wish, for reasons. of its own, to have its stock sold as such sale might show it to be of little value. It might have proved its claim as a secured creditor for the amount which the court should determine the face of its notes exceeded the value of the collateral which it held.

Until there was an offer to prove its claim there was no necessity under

section 57h to ascertain the value of the securities held by it so that the excess of its claim above the value of such securities might be determined. As no proof of claim was filed by it within a year after adjudication and nothing done by it which could be distorted into añ informal claim, there was nothing which could be the subject of amendment.

The third edition of Remington on Bankruptcy, § 889, states the law as follows: “Of course there must have been an original process duly signed within the year; otherwise there would be nothing by which to amend; and the power of amendment is not to be distorted to let in dilatory creditors who have filed no proofs within the limited year.” A large number of eases are cited in sup- ‘ port of this statement.

The learned district judge in his opinion pointed out the extreme difficulty in now ascertaining the value of the stock at the time of the adjudication of bankruptcy, as it has now become worthless and never listed on the market. The granting of an amendment was discretionary, and the refusal of the learned district judge to allow the amendment was not an unwarranted exercise of discretion.

After the oral argument and briefs in this case had been submitted by counsel, further argument was invited by the court upon the following question: “Was litigation involving the claim of the American Ammonia Company within the meaning of

section 57n of the Bankruptcy Act begun during the year succeeding the adjudication in bankruptcy and pending at the time of the beginning of the present proceedings ?” This question has been argued by counsel and briefs submitted. It is contended by counsel for the petitioner that the petition of the trustee in bankruptcy of tbe estate of Benjamin P. Cheney for leave to sell assets at public or private sale and the objection to the sale which was filed by the attorney of the American Ammonia Company constituted litigation in the sense in which that word is nsed in

section 57n, and that, by his petition, the trustee presented for the determination of the court the value of all the assets of the estate held by secured creditors; that the court did not determine the value of the American Ammonia Company stock, and the petition is still pending as to that; that, under the above-named

section of the Bankruptcy Act, the American Ammonia Company has the right to prove its claim at any time within sixty days after final action upon this petition. The purpose of the exception in this

section was clearly to allow further time in which the owner of an unliquidated claim in process of liquidation might file a proof of the same. The claim of the American Ammonia Company was not an unliquidated one, whose validity or amount was in dispute and being litigated. There was nothing to prevent or excuse its being seasonably filed and proved and sharing in dividends for the excess of its face value over the value of the collateral by which it was secured. Under

section 57h of the act the value of collateral security is to he determined by selling the same pursuant to the agreement under which it was delivered to the creditor, or by the creditor and trustee, “by agreement, arbitration, compromise, or litigation as the court may direct.” The court never issued any direction for the determination of the value of the stock of the American Ammonia Company. Upon the petition of the trustee the following order was entered: “In the above-entitled cause, notice having been given to all creditors and objections to said petition having been made on behalf of J. R.

Willislon & Co. and the American Ammonia Company, but no objection being made to the allowance of said petition to the extent specified by the following order, it is “Ordered and decreed that Allan Forbes, trustee in bankruptcy of the estate of Benjamin P.

Cheney, have leave to sell at public or private sale and upon such terms and at such prices as he may approve, without further notice to creditors or others, any and all assets of said estate except the following: The interest of the bankrupt in certain stock of the American Ammonia Company and any interest he may have in the estate of his late father, Benjamin P.

Cheney, Sr., and any interest he may have in the stock or bonds of the Gila Sulphide Company and the said petition to the extent above mentioned is allowed.” The order finally disposed of the petition of the trustee, and, if he should desire to obtain leave to sell the assets specifically excepted in the order, it would be necessary for him to file another petition.

This he did not do, nor did he ask the court to direct the determination of the value of the stock of the American Ammonia Company “by agreement, arbitration, compromise, or litigation.” There was therefore nothing pending after the above order of the court was entered which could be in any way characterized as litigation for liquidating the claim of the American Ammonia Company.

If it can he said that the filing of a petition for the sale of assets held as collateral security by a creditor is the institution of litigation for the liquidation of the secured claim, there has been no such petition pending since the above order of the bankruptcy court was entered. In 1752 the petition to revise is dismissed. In 1756 the decree of the District Court is affirmed, with costs to the appellee in this court.