In re HAMILTON AUTOMOBILE CO. KIMBALL & CO. v. JOHNSON, 209 F. 596

KOHLSAAT, Circuit Judge (after stating the facts as above). Appellee raises the following objections to the relief herein prayed by appellant, viz.: 1. The insufficiency of tKe amended petition; 2. The inclusion by the referee of the claim against Mayer as among those constituting the preference, thereby showing it to be of value and not surrendered as provided by statute. 3. The.bar of the first order disallowing appellant’s claim. 4. The bar of the one-year limitation of

section 57n. Unless weight be given to said objections 2, 3, and 4, no reason is perceived why the petition is insufficient. Under the decisions of the Supreme Court in Keppel, Trustee, etc., v. Tiffin Savings Bank,. 197 U. S. 356, 25 Sup. Ct. 443, 49 L. Ed. 790, and Page v. Rogers, Trustee, 211 U. S. 575, 29 Sup. Ct. 159, 53 L. Ed. 332, appellant stands in the position ef a creditor who has received and surrendered a preference.

We are not impressed with the argument that, by reason of its failure to account for the claim against Levy Maj^er at an earlier date, it has failed to surrender completely the preference charged. The appellant charges in its verified amended petition that said claim is valuless becaüse said Mayer had a perfect defense thereto, and that, if such were norithe case, said claim was as good and collectible at the time it was tendered to the trustee as when assigned to appellant.

The bankruptcy act deals with matter of substance and the mere preferential transfer of a worthless claim does not come within the meaning of the act. The trustee was not, nor were the creditors, in any way prejudiced by the action of appellant with reference to said claim. Nor do we find, in the recital of the referee enumerating said claim as a part of the preference obtained by appellant,' any authority for holding that it was of any value. It was not followed up by the trustee, and was evidently not worth the trouble.

Moreover, there was ample-time in which he could have brought suit to recover the amount it called for, after it was tendered back to him. It is plain from the record that appellant surrendered all the advantage it had received from the preference. The action of the referee in allowing appellant’s claim after the surrender of the preference had the effect of undoing his former order disallowing said claim as it was then presented, but came clearly within the powers conferred by the act. Clause 2 of

section 2 of

chapter 2 of the bankruptcy, act authorizes District Courts of the United States to “allow claims, disallow claims, reconsider allowed or disallowed claims, and allow or disallow them against bankrupt estates.” Subject to revision by the District Court, the referee is authorized to perform these acts.

Section 57g reads: “The claims of creditors who have received preferences, voidable under-section sixty, subdivision b, or to whom conveyances, transfers, assignments, or incumbrances, void or voidable under

section sixty-seven, subdivision e, have been made or given, shall not be allowed unless such creditors shall surrender such preferences, conveyances, transfers, assignments, or incumbrances.”' Act July 1, 1898, c. 541, 30 Stat. 500 (ü. S. Comp. St. 1901, p. 3443) as amended by Act Feb. 5, 1903, c. 487, § 12, 32 Stat. 799 (Ü. S. Comp. St. Supp. 1911, p. 1504). Subdivision k of said

section 57 provides that: “Claims which have been allowed may be reconsidered for cause and re-allowed or rejected in whole or in part, -according to the equities of the ease,, before but not after the estate has been closed.” General Order 96, cl. 6, gives the referee, on petition filed by any' creditor or the trustee, power to reopen, and, “if the claim ought to be expunged or diminished,” to order it expunged or diminished. Thus the spirit of the act, as well as the express declaration of

section 2 of

chapter 2 thereof, seems to be that the court retains control of all of the proceedings whenever necessary to effect the purpose thereof. We are of the opinion that, so long as the bankrupt’s estate is pending in the court and unsettled, the court has, under the bankruptcy act, and especially under

section 2 of

chapter 2 thereof, power over its orders and records as to the disposition of claims, to modify the same to conform to the rights of parties, and that therefore the referee was not, in the present case, estopped from permitting said amendment and the allowance of the claim in accordance with the prayer of the amended petition, by his former order' disallowing the claim as then presented. It is urged that the one-year limitation for proving claims against a bankrupt’s estate barred the right of appellant to have the amended claim proved up. We are of the opinion that

section 57n does not apply in the present case. The claim had been filed within the year. By reason of further proceedings it became apparent that justice required it should be amended and allowed for a larger amount than that claimed when it was first presented, but for the same claim or subject-matter. This situation seems to have been clearly covered by the act, which has been construed in this respect by the Supreme and other federal courts. In Hutchinson v. Otis, 190 U. S. 552, 23 Sup. Ct. 778, 47 L.

Ed. 1179, the court had before it a case in which a creditor had obtained attachments against one who was within four’months thereafter declared a bankrupt, and had attached debts, which, upon entry of judgments, were paid over to the attaching creditor, who then satisfied the judgments, guaranteeing the garnishees against loss. The trustee in bankruptcy demanded payment of the debts from the garnishees, whereupon the creditor, who had collected them and guaranteed the garnishees against loss, paid the amounts over to the trustee.

The court held that the action of the trustee undid the satisfaction of record of the creditor’s judgments and that the same were not a bar which would prevent the creditor from proving its claim against the estate in the hands of the trustee. The court says “The proof of debt originally filed is admitted to have been defective. A substituted proof was filed by consent of the trustee more than a year after the adjudication, the facts having been agreed in the meantime and an appeal taken. It is argued that the allowance of the amendment is within

section 57n, forbidding proofs subsequent to one year after the adjudication, etc. The construction contended for is too narrow. The claim upon which the original proof was made is the same as that ultimately proved. The clause •relied upon cannot be taken to exclude amendments.” To the same effect are In re Kessler, 184 Fed. 51, 107 C. C. A. 13, Powell v. Leavitt, 150 Fed. 91, 80 C. C. A. 43, and Bennett v. American Indemnity Credit Co., 159 Fed. 624, 86 C. C. A. 614.

We are therefore of the opinion that the referee was right in allowing appellant to amend its said claim after the expiration of the year from the date of adjudication, and in allowing the same as amended. The judgment of the District Court disallowing said amended claim is reversed, with direction to that court to confirm the referee’s report and allow said claim.