In re Gutchess

COOPER, District Judge.

George V. Roberts, Jr:, and Jesse D. Roberts, alleged creditors in the sum of $10,408.42, petition to review the order of the referee in bankruptcy disallowing their claim.

The bankrupt was adjudicated such on the 3rd day of February, 1928. The 6 months’ period for filing claim expired on August 3, 1928. The final meeting of creditors was held on December 28, 1928. The petitioners attempted to file their proof of claim on January 8, 1929, but it was rejected because not filed within the 6 months’ period. No distribution of the estate'has been made.

If the petitioners’ claim was a liquidated one at the time of adjudication, it should have been disallowed, because not proved within 6 months after adjudication as required by Bankruptcy Act, § 57n, as amended (11 USCA § 93(n), the provisions of which for later proof of claims relate only to claims unliquidated at adjudication, which are later liquidated as a result of litigation.

But petitioner’s claim is a secured claim and therefore unliquidated under the Bankruptcy Law. In re Southern Pharmaceutical Co. (D. C.) 286 F. 148. Most of the claim arises from a bond accompanying a purchase-money mortgage given by the bankrupt to the petitioners covering certain real estate conveyed by petitioners to the bankrupt. The petitioners’ mortgage was subordinate to a first mortgage covering the same premises given by petitioners to a Federal Land Bank. The bankrupt assumed and agreed to pay the first mortgage when he took title to the real property covered by the two mortgages.

Proceedings to foreclose the first mortgage were begun in September, 1928. Judgment of foreclosure and sale was granted on October 16, 1928. The sale took place on December 29, 1928. Upon the sale, the property sold for less than the amount of the first mortgage, leaving a deficiency of $2,708.42. The sale for less than the amount of the first mortgage made the second mortgage of the petitioners worthless —that is, destroyed their security — leaving them unsecured creditors for the full amount of the second mortgage debt and interest.

The petitioners were also in the position of sureties or guarantors for the bankrupt’s obligation to pay the first mortgage debt, which he assumed when he took title to the real property. The bankrupt thereby became primarily liable for the first mortgage debt, and tbe petitioners secondarily liable. Tbe measure of tbe petitioners’ .liability to pay tbe bankrupt’s debt could not be determined until tbe sale of tbe property under foreclosure of tbe first mortgage and confirmation of tbe sale by tbe court which granted tbe judgment of foreclosure.

Tbe order or judgment confirming the sale was tbe final judgment, within tbe meaning of section 57n of tbe Bankruptcy Law, as to both mortgages. Tbe date of this is not given, but it must have been some time between December 28, 1928, tbe date-of sale, and January 8, 1929, tbe day tbe petitioners presented their proof of claim. Petitioners’ claims were unliquidated until tbe final order or judgment of confirmation of tbe foreclosure sale. Petitioners evidently took an assignment of tbe deficiency judgment arising upon the confirmation of the sale under tbe foreclosure of tbe first mortgage, and filed proof of claim for tbe amount of this judgment plus tbe amount of tbe second mortgage debt, within a very few days of tbe confirmation of tbe sale.

Tbe referee’s rejection of their claim, because not filed within tbe 6 months after tbe adjudication, was error. An unliquidated claim is not barred by tbe 6 months’ limitation. Such claim comes within tbe exception stated in section 57n: “Or if they (tbe claims) are liquidated by litigation and tbe final judgment therein is rendered within thirty days before or after tbe expiration of such time, then within sixty days after tbe rendition of such judgment. s. * * >>

Though section 57n at a casual reading seems to mean that final judgment must be recovered within 30 days before or within 30 days after tbe expiration of * tbe 6 months’ period, tbe correct construction of tbe section is that tbe 30-day limitation applies only to tbe period before tbe expiration of the 6 months’ period, and that there is no 30-day or other limitation within which final judgment may be recovered after tbe expiration of tbe 6 months’ period in order to give to tbe judgment creditor tbe additional 60 days provided for in section 57n.

Tbe creditor has an absolute right to file bis claim and have it allowed within 60 days after final judgment in tbe litigation necessary to determine, tbe amount due him above tbe value of tbe security regardless of when, after tbe 6 months’ period, tbe final judgment may be rendered. This provision is so construed in tbe well-considered opinion of Judge Sanford, then District Judge, now Justice of tbe United States Supreme Court, in tbe case of In re Southern Pharmaceutical Co. (D. C.) 286 F. 148, supra. Tbe statutory period for proving claims was then one year, but has since been reduced to 6 months. See, also, Powell v. Leavitt (C. C. A.) 150 F. 91; Keppel v. Tiffin Bank, 197 U. S. 356, 25 S. Ct. 443, 49 L. Ed. 790; Page v. Rogers, 211 U. S. 575, 29 S. Ct. 159, 53 L. Ed. 332.

In a proper case tbe distribution of tbe estate may be stayed to await tbe outcome of such litigation. Tbe date of tbe maturity of these mortgage debts, tbe fact that tbe petitioning creditor’s attorney attended meetings of creditors, and through lack of information, if such be tbe faet, did not know that tbe period for filing proof of claims bad been reduced from one year to six months, are all immaterial.

Tbe order of tbe referee is reversed, and tbe petitioners may prove their claim before tbe referee and be permitted to share with tbe other creditors in tbe distribution of tbe bankrupt’s estate.