Nassau Smelting & Refining Works, Ltd. v. Brightwood Bronze Foundry Co. , 286 F. 72 ( 1923 )

BINGHAM, Circuit Judge.

This is a petition under section 24b of the Bankruptcy Act of 1898 (Comp. St. 9608) to revise in matter of law proceedings of the District Court for Massachusetts.

An involuntary petition in bankruptcy was filed in the District Court against the Brightwood Bronze Foundry Company on November 5, 1920, and on November 19, 1920, it was adjudicated a bankrupt. The bankrupt duly filed schedules of its property and a list of its creditors as required by section 7, clause 8, of the act (Comp. St. § 9591), and included in its schedules the present petitioner, the Nassau Smelting & Refining Works, as a creditor in the sum of $11,354.40. On February 12, 1921, and before the expiration of a year from the date of adjudication, the bankrupt made an offer of composition to its creditors, and a meeting of creditors to consider the offer was held February 25, 1921. On March 27, 1922, the Nassau Smelting & Refining Works, having failed to prove and file its claim for $11,354.40 within a year from adjudication, the bankrupt, the Foundry Company, petitioned the court to be permitted to deposit, to meet the composition offer, a fund sufficient to pay creditors whose claims had been proved and allowed within a year from adjudication, together with all reasonable expenses of administration. Notice of the petition having been given, the Nassau Smelting & Refining Works appeared and objected to the granting of the petition and asked leave to file its proof of claim. The petition to limit the amount of the deposit was granted, and the Nassau Smelting & Refining Works brought this proceeding to revise, and also appealed from the order.

It is conceded that the Nassau Smelting & Refining Works received due notice of-all proceedings in bankruptcy, and it does not appear that its failure to have its claim proved and filed was due to any misconduct of the bankrupt. The sole question is whether the limitation placed upon the proof and filing of claims by section 57n of the Bankruptcy Act (Comp. St. §' 9641) applies to composition proceedings under that act.

Section 57n, so far as here material, reads as follows:

“Claims shall not be proved against a bankrupt estate, subsequent to one year after the adjudication.”

There can be no question but that in the ordinary bankruptcy case the claim of a creditor, although included in the bankrupt’s schedules, in the absence of fraud practiced by the bankrupt, must be proved and filed within one year from the date of adjudication, and the question is whether, under the composition provisions of the act, a creditor’s right to share in a composition offer is likewise limited.

By section 12a (Comp. St. §' 9596) a bankrupt may offer terms of composition to his creditors after he has been examined in open court or at a meeting of his creditors, provided he has filed schedules of his property and a list of his creditors; and by subdivision “b” of the same section—

“An application for the confirmation of a composition may be filed in the court of bankruptcy after, but not before, it has been accepted in writing by a majority in number of all creditors whose claims have been allowed, which number must represent a majority in amount of such claims, and the consideration to be paid by the bankrupt to his creditors, and the money necessary to pay all debts which have priority and the cost of the proceedings, have been deposited in such place as shall be designated by and subject to the order of the judge.”

By section 12e—

“Upon the confirmation of a composition, the consideration shall be distributed as the judge shall direct, and the case dismissed. Whenever a composition is not confirmed, the estate shall be administered in bankruptcy as herein provided.”

By section 14c (Comp. St. § 9598)—

“The confirmation of a composition shall discharge the bankrupt from his debts, other than those agreed to be paid by the terms of the composition and those not affected by a discharge.”

Section 17 (Comp. St. § 9601) defines the debts not affected by a discharge.

Section 57, and subdivisions “a” to “m,” inclusive, provide the method by which claims may be proved and allowed, and are applicable, whether the bankrupt is seeking a discharge through composition or through the administration and distribution of his estate in the ordinary course, and, the method of proof being the same, it is difficult to see how Congress could have intended that the limitation provided by subdivision n of that section, which undoubtedly applies to the proof and allowance of claims under section 57 when the estate is administered in the ordinary course, should not also apply to composition, where there has been an adjudication in bankruptcy.

In the construction and application of these provisions in the Massachusetts district and elsewhere through a long series of years, a creditor, in the absence of fraud practiced upon him, has not been permitted to prove and file a claim after the expiration of a year from adjudication and participate in an offer of composition, and no sufficient reason has been suggested and none occurs to us for reaching a different conclusion. See In re Lane (D. C. Mass.) 125 Fed. 772; In re Blond (D. C. Mass.) 188 Fed. 452; In re French (D. C. Mass.) 181 Fed. 583; In re Brown (D. C. Col.) 123 Fed. 336; In re Bickmore Shoe Co. (D. C. Ga.) 263 Fed. 926.

In Re Lane, supra, decided by the District Court of Massachusetts in 1902, it appeared that the petitioner had failed through inadvertence to prove his claim within a year of adjudication, that the bankrupt had offered a composition which had been duly accepted and a sufficient deposit made, that some of the creditors had failed to claim their dividends, and that the petitioning creditor sought to prove his claim and obtain payment from the surplus left in the hands of the court. It was held that the petition to be allowed to prove the claim should be denied. In re Lane was cited with approval by the Supreme Court in Cumberland Glass Co. v. De Witt, 237 U. S. 447, 453, 35 Sup. Ct. 636, 59 L. Ed. 1042 (1915), and, such being the case, we regard it as indicating that that court considered section 57n applicable to proof of claims in composition.

Then again, as section 12a, as amended in 1910, provides that “a bankrupt may offer, either before or after adjudication, terms of composition to his creditors, etc.,” it is contended that a composition may be had without adjudication, and if a composition were had without adjudication there would be no time fixed from which the year would run to bar the proof of claims under section 57n. But, notwithstanding a bankrupt may offer composition before adjudication, it does not follow that adjudication may not thereafter be had for the purpose of barring claims. The act, as a whole, contemplates, and the language used in section 12 implies, that adjudication may and will be had, if it is desired to bar the proof of claims, or if composition has for any reason failed and the estate is to be administered in the ordinary course (section 12e). Composition is a proceeding in bankruptcy (Wilmot v. Mudge, 103 U. S. 217, 26 L. Ed. 536), and, as the proof of a claim may be barred where the estate is administered in the ordinary course, there is no reason why it may not be barred when composition is had by taking the necessary steps to fix the time from which the statute may run.

The appeal is dismissed, with costs to the appellee. In the proceeding to superintend and revise it is ordered that the decree of the District Court be affirmed, with costs to the Brightwood Bronze Foundry Company.