Opinion · District Court, S.D. New York
In Re Louis Elting, Inc.
4 F. Supp. 732
- Type
- Opinion
- Court
- District Court, S.D. New York
- Jurisdiction
- New York
- Date
- 1933-09-21
- Topic
- general
WOOLSEY, District Judge. These petitions to review are dismissed. The learned referee’s admirable certificate comprehensively covers the situation herein, and I have not anything to add there *738 to except (1) a reference to the very recent decision of the Circuit Court of Appeals for this circuit in Matter of Bronx Ice Cream Company, Inc., 66 F.(2d) 626, and (2) to observe that as Sidney Wedeen, Esq., voted for the Irving Trust Company such of his claims as were not properly excluded by the referee as insufficient, he cannot now be heard to complain of the appointment of the Irving Trust Company as trustee by the referee on a vote divided in numbers. By so doing he waived such right. A provisional vote cannot be recognized as preserving it.
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IN RE LOUIS ELTING, INC., (S.D.N.Y. 1933)
4 F. Supp. 732
In re LOUIS ELTING, Inc.
United States District Court, S.D. New York.
September 21, 1933.
Petitions for review dismissed.
To the Honorable Judges of the United States District Court for the Southern District of New York:
I, Oscar W. Ehrhorn, referee in bankruptcy in charge of the above-entitled proceeding, do hereby certify:
That in the course of such proceeding and on the 27th day of July, 1933, an election was held for trustee in bankruptcy herein, and an order was made appointing Irving Trust Company as said trustee in bankruptcy.
That thereafter Sydney Haberman, a candidate for the office of trustee, and Style Headgear Company, Inc., and other creditors by Sidney Wedeen, who voted for Benjamin Jacobson, a candidate for the office of trustee, feeling aggrieved thereat, have filed petitions for review which were granted.
That the errors complained of are set forth in such petitions for review.
Pursuant to the provisions of General Order 27 [11 USCA § 53], I hereby certify that the question presented is whether the referee was right in excluding the various claims offered in behalf of the election of the said Sydney Haberman and Benjamin Jacobson, and in finding that no candidate has a majority in number and amount of claims, and that therefore the Irving Trust Company was duly appointed as trustee in bankruptcy pursuant to the provisions of the Bankruptcy Act.
The error complained of by Sydney Haberman is that the seven claims filed in behalf of his election were all valid claims in proper form to be allowed and counted, and they therefore exceeded in number the claims ofWest Page 733the Irving Trust Company; also contending that he was elected because the amount of the claims of Sydney Haberman were greater in amount than the claims allowed of the Irving Trust Company.
The errors complained of by Sidney Wedeen are: First, that the claims held insufficient because only statements were attached giving no particulars of the account, or the items should have been counted; and second, that the referee committed error in refusing the application of the attorney for an adjournment to correct his proofs of claim; and third, the referee erred in refusing to strike out all of the claims for the Irving Trust Company, which did not have a year set forth on the left-hand side of the invoice; fourth, that the claims voted by Sydney Haberman should have been excluded for the reason that they were obtained independently of what Wedeen claims was a "Creditor's Committee, duly organized at a general meeting of creditors, and in opposition thereto, for the selfish interests of Sydney Haberman and not for the benefit of anyone else"; fifth, that all of the claims voted by the referee as attorney in fact should have been excluded as contrary to the provisions of the Bankruptcy Act, etc.
The attorneys contend that a proof of claim setting forth merely that the amount is due for goods sold and delivered is a sufficient requirement of section 57a of the Bankruptcy Act (11 USCA § 93(a), however, if the law is otherwise neither the Haberman claims nor the Wedeen claims were sufficient in number for an election.
The undersigned referee has ruled that proofs of claim are not sufficient for allowance and voting if they fail to set forth the alleged consideration upon which the claims are based with sufficient particularity to allow them.
If the alleged consideration be goods or merchandise, a description of such goods or merchandise must be given; and if it be services rendered, the details relating thereto must be set forth.
Numerous authorities, in addition to those set forth hereunder, established the proposition that a proof of claim in bankruptcy must state with meticulous care the consideration of the claim.
This was first set forth in the case of In re Elder, Fed. Cas. No. 4326, which arose under the Bankruptcy Act of 1867. The proof of claim there was filed for "hay, barley and merchandise sold and delivered to said Elder between the 13th day of April 1865 and the 13th day of April 1866 and for board furnished to said Elder for the agreed price of $2300."
The court disallowed this claim for failing to state the consideration on which it was based, saying:
"But what was the object of the law maker in requiring the consideration to be stated in the deposition? The answer to this will help to ascertain how particular the statement of it must be. One object, no doubt, was to enable the register to say whether it is legal in its nature, and will support a demand or promise. Another, to show him whether or not the demand is unliquidated, and must be ascertained by assessment before its allowance. Another, to afford the assignee means for comparing the books of the bankrupt with the proof. But the chief object, no doubt, was to put a check upon the proof of fraudulent and fictitious claims, by requiring the claimant to give such a particular and definite statement of the consideration, as would enable other creditors to trace out, discover, and expose the fraud or illegality of the claim, if any existed.
"The requirement is intended to be for the benefit of all other creditors of the estate and the bankrupt, and to prevent fraud. If the statement of the consideration is so general and indefinite, as to afford no aid to the creditors in their inquiry as to the fairness and legality of the claim, it does not effect the object of the law, and must be held insufficient."
If for the word "register" we substitute "Referee," and for the word "Assignee" substitute "Trustee," then the quotation is applicable to the present law.
Under the act of 1898 the same doctrine was set forth in the case of In re Scott, 93 F. 418, 419 (D.C. Texas, 1899). In that case the claim was for legal services performed during the year 1898 for the alleged bankrupt. The court disallowed the claim, saying: "It is conforming to the simplest business method to set forth the items which make up the account which is to be presented to the debtor. It is very necessary that this should be done when the debtor's property has become a common fund for application ratably in the payment of his debts, for then all creditors have an interest in each account presented, and they can know nothing of the nature of the account except through the disclosures of the proof of debt. The statement of consideration should be sufficiently specific and full to enable creditors to pursue proper and legitimate inquiry as to the fairness and legalityWest Page 734of the claim, and, if it is so meager and general in character as not to do this, it must be held insufficient."
In a similar case where the claim was for legal services, In re Hudson Porcelain Co., 225 F. 325, 327 (D.C.N.J. 1915), the proof of claim stated the claimant has appeared in various actions and had prepared certain papers for the alleged bankrupt. This was held not a sufficient statement of the consideration, and the court said:
"It has been uniformly held under the present Bankruptcy Law that the statement of the claim and its consideration must be sufficiently specific and full to enable the trustee and the creditors to make proper investigation as to its fairness and legality, without undue trouble or inconvenience. * * *
"This is but a general statement that the consideration of the debt is for legal services rendered during a certain period of time, without specifying the nature of the matters in which they were rendered, whether in litigation or what, except in the one particular of the preparation of the schedules to be filed in this bankruptcy proceeding. It does not specify the dates or the number of times the claimant appeared for the corporation at Trenton, or the purpose thereof. It is silent as to the amount of time given by the claimant to the affairs of the corporation. It fails to state whether the amount claimed was agreed upon between the claimant and the corporation, or whether the amount which he claims is what he considers the services reasonably worth. In short, it affords the trustee and the creditors no means of making a proper investigation to ascertain whether the amount claimed is fair and reasonable or what services were actually rendered."
In re United Wireless Telegraph Co., 201 F. 445 (D.C. Me. 1912). The claim alleged that claimant had been employed by the bankrupt for a specified length of time at a stated salary, and that such salary had not been paid. The court reversed the referee in allowing the claim saying, after a discussion of the principles referred to above:
"The deposition does not show what the officer did to earn his money; no distinct consideration is given. * * * It seems to me clear that this item of the proof before me does not state the character of the services, and the consideration for them, in so full and specific a manner as to enable creditors to pursue a proper and legitimate inquiry as to the fairness and legality of the claim. * * *
"I am constrained to hold that the deponent in this case has set forth a mere statement of claim, but not a `proof' of claim, within the meaning of the Bankruptcy Law." Pages 447 and 448 of 201 F.
It is to be noted that the court draws a distinction between a mere statement of claim and a proof of claim within the meaning of the Bankruptcy Law.
So too in the case In re Coventry Evans Furniture Co., 166 F. 516 (D.C., N.D.N.Y. 1909). The court said: "If the claim is for a debt for work, etc., or money loaned, or property sold, etc., and no note has been given, the proof of claim should state the consideration and give facts which will enable the trustee and creditors to ascertain the adequacy of the consideration and the justice and legality of the claim. Whether the claim be on a promissory note, other instrument in writing, or on an account, or for money loaned, etc., the proof of claim must state `the consideration' for the debt. A proof of claim which complies with the requirements of section 57 establishes the claim, entitles it to allowance in the first instance, and throws the burden of overthrowing it on the trustee when appointed, and on the creditors of the bankrupt if they would contest. Whitney v. Dresser,200 U.S. 532,26 S. Ct. 316,50 L. Ed. 584, and cases there cited. If it fails to do this, it is not entitled to allowance, and, if allowed, the trustee when appointed may have it disallowed and expunged, unless it is corrected by amendment or established by proof. The proof of claim must set forth `the consideration,' not a general statement that there was a consideration. The claim is `proved' and entitled to allowance only when it is properly verified and gives `the consideration' therefor and contains the other statements required. It is not sufficient to say that the bankrupt is indebted to claimant in a certain sum, and then say that the consideration for the debt is a written promise to pay it reciting `for value received.' True, this written promise also acknowledges a consideration for the promise, but it does not give the consideration as required by section 57a." Pages 522, 523 of 166 F.
In the case of In re Blue Ridge Packing Co., 125 F. 619, page 621 (D.C. Pa. 1903), the court said:
"The claims of Harrold Fernsler, William Price, and Fred N. Bert were thrown out on the ground, in each case, that the consideration was not sufficiently stated. So far as the first two are concerned, this ruling was unquestionably correct. In the Harrold Fernsler claim the consideration is said to be for `printing done for said bankrupt at itsWest Page 735request heretofore, to wit, in September, 1903, as per bill rendered.' This is clearly an insufficient specification. It may inform, to a certain extent, of the origin and character of the debt, but the items by which it is made up should be given. In re Elder, Fed. Cas. No. 4,326; In re Scott (D.C.) 1 A.B.R. 553, 93 F. 418. If this bill was represented by an account, as seems to be implied, other creditors are entitled to have it in all its particulars just as it stands.
"In the Price claim the debt is said to be for `goods, wares, and merchandise sold and delivered by claimant to bankrupt at its request, consisting of green truck and vegetables, amounting to said sum of $140, with interest from * * *, being the balance now due on said claim on book account.' Here there admittedly is an account, and the claimant is therefore bound to give the items, without which there is nothing in any way sufficiently informing."
In re case of In re Youroveta Home Foreign Trade Co., Inc., 297 F. 723, page 725 (C.C.A.2d 1924), the court said: "The common statement of the rule in matters like this is that, under Whitney v. Dresser,200 U.S. 532,26 S. Ct. 316,50 L. Ed. 584, a sworn proof of claim puts the `burden of proof' on the objecting trustee. This is not an accurate statement, for, as Holmes, J., remarked in the case cited, the question is — `whether the sworn proof of claim is prima facie evidence of its allegations in case it is objected to. It is not a question of the burden of proof in a technical sense, a burden which does not change, whatever the state of the evidence, but * * * whether the sworn proof is evidence at all.' Pages 534, 535 [of 200 U.S.],26 S. Ct. 317."
So it was said In re Century Silk Mills, Inc., 296 F. 713, page 714 (D.C., S.D.N.Y. 1923): "A sworn proof of claim would ordinarily be prima facie evidence requiring an objector to go forward. It is the objection, not the claim, which is pointed out for hearing and determination. Whitney v. Dresser,200 U.S. 532,26 S. Ct. 316,50 L. Ed. 589. But, in order to have probative force, the proof of claim must comply with the requirements of the Bankruptcy Law from which it receives whatever effect it has."
The contention is often made that a proof of claim is prima facie evidence of its allegations, and should be allowed in absence of any evidence impeaching it, irrespective of whether a proof of claim complies with the requirements of the Bankruptcy Act, as to the statement of the claim and its consideration.
The court in Re Hudson Porcelain Co., supra, said as follows: "I think that the mere statement of the first question refutes the soundness of the claimant's contention. I fail to perceive how any probative force can be given to a proof of claim which does not comply with the requirements of the law from which it receives whatever effect it has. It proves nothing more than incompetent evidence does. In addition, the statute (section 57d) provides that `claims which have been duly proved shall be allowed,' unless objections are interposed, etc. Claims which do not comply with the requirements of the statute are not `duly proved.' They are not, therefore, entitled to allowance, and, if they are not entitled to allowance, it is difficult to understand upon what theory the proofs can be considered as proving anything. My attention has not been called to, nor have I been able to find, any reported case in which a contrary view is expressed. On the other hand, it has been considered in several cases that the proof of claim must comply with the statutory requirements before it is accorded any probative force. In re Castle Braid Co. (D.C.S.D.N.Y.) 145 F. 224, 228; In re Coventry Evans Furniture Co. (D.C.N.D.N.Y.) 166 F. 516; Orr v. Park, 183 F. 683, 686, 106 C.C.A. 33 (5th Cir.); In re Goble Boat Co. (D.C.N.D.N.Y.) 190 F. 92; In re Creasinger, 17 A.B.R. 538 (referee, S.D. Cal., affirmed by District Judge); In re United Wireless Telegraph Co. (D.C. Me.) 201 F. 445. See, also, opinion of Judge McPherson in Re Greenfield (D.C.) 193 F. 98, 100, where he suggests, but does not decide, the question whether a proof of claim, based partly on checks and notes, to which neither the original instruments nor copies were attached, nor their absence accounted for, as required by the statute, `is entitled to the presumption of validity referred to in Whitney v. Dresser.' I must conclude, therefore, both upon reason and authority, that, if the proof of claim in question did not comply with the necessary statutory requirements, it had no probative force whatever."
To the same effect is an opinion by Judge Learned Hand in Re Branner (C.C.A.)9 F.2d 883, page 886, where he said: "A claim is not ipso facto allowed because the referee receives it and places upon it a filing date. For aught we can know, all claims are received by the referee's clerk and stamped as filed on the date of their receipt, without any personal examination or allowance whatever. More is necessary for allowance than that. Section 57a (Comp. St. § 9641West Page 736[11 USCA § 93]) prescribes certain formalities for the proof of claim; section 57b, others. General Order XXI [11 USCA § 53] prescribes still more; the forms are in addition. Only when the proof of claim conforms with these provisions is it `duly proved' under section 57d and entitled to allowance. Moreover, we are not prepared to say that a claim must be allowed, though not objected to, if on its face for an unprovable debt under section 63a (Comp. St. § 9647 [11 USCA § 103]); e.g., one arising after petition filed. That question we leave open. The examination of the proof of claim, at least as to its conformity with the statute and the general order, is a judicial act, and, we may add for the guidance of referees, their determination ought to be evidenced by some written order. We are in accord with In re Two Rivers Woodenware Co., 199 F. 877, 118 C.C.A. 325 (C.C.A. 7)."
Assuming the above cases therefore do correctly set forth the law, an examination of all of the proofs of debt which were excluded from voting will disclose that none of them complied with the said requirements and were therefore properly excluded.
Referring therefore to the balance of the claims, it appears that there are seven claims aggregating $351.61 which were allowed to be voted in behalf of Sydney Haberman because no objections were made thereto.
There were three claims allowed to be voted on behalf of the Irving Trust Company aggregating $188.18, and four claims allowed to be voted by Sidney Wedeen totaling $384.05.
When the said Wedeen saw that the said Haberman had a majority in number but not a majority in amount of claims, he thereupon voted his said claims in behalf of the Irving Trust Company as trustee (stenographer's minutes page 13).
This therefore gave seven claims in behalf of the Irving Trust Company totaling $572.23.
The said Haberman having seven claims aggregating $351.61, and the Irving Trust Company having seven claims aggregating $572.23, the undersigned referee appointed the Irving Trust Company as trustee.
The seven claims voted for the Irving Trust Company are as follows:
(1) H. Malkin's Sons for $91.30, for shoes sold and delivered.
No objection was made to the allowance of this claim by either the said Sidney Wedeen or the said Haberman.
(2) Advance House and Window Cleaning Company for $53.75.
Three proofs of claim with powers of attorney were filed for the same amount by this creditor, one containing a power of attorney to Sidney Wedeen and others, dated June 1, 1933, and one dated the same day to Sydney Haberman or his representatives, and one dated the 18th of July, 1933, to the undersigned as referee.
I therefore ruled that, there being a revocation of the two prior powers of attorney, the referee was authorized to vote this claim, and that he might read together the three proofs of claim which contained sufficient data under the ruling above referred to.
(3) The claim of Klein Kronitz for $43.13.
The only objection to this claim was upon the ground that the year was not placed at the left-hand side of the statement, but the undersigned ruled that, the statement being dated July 12th, 1933, and there being no different year stated for the preceding months of February and March, they referred to the year 1933, and that since that was the only objection made to the proof of claim, it was sufficient.
(4) Claim of Century Factors, Inc., for $109.59.
No objection was made to this claim upon any ground by any creditor.
(5) Rosenblatt Kahn for $108.50.
No objection was made to this proof of claim by any one except that the objection was made by Mr. Haberman to Mr. Wedeen voting because the power of attorney runs to Philip Schlissel, No. 11 West Forty-Second street, New York City, or his representatives. However, the said Sidney Wedeen presented designation of himself as the representative of Philip Schlissel so as to be able to vote the said claim which was not otherwise objected to.
(6) Style Headgear Company for $138.50.
Objection was made to this claim because it did not set forth the character of the merchandise sold and delivered, but the creditor was present who supplied the information and voted the claim and also tendered himself for examination in the event that it were desired.
(7) Mrs. Day's Ideal Baby Shoe Company.
Objection was made to this claim because it did not set forth what the character of theWest Page 737merchandise was and in view of the fact that there were two items, one for $6.20 on account of so called "discount," and one item for merchandise of $27.46 which was particularized as representing three dozen white shoes at $6.50, equals $19.50, and one dozen white shoes at $7.50, equals $7.50 and parcel post and insurance 46 cents. The above shoes being further particularized as constituting four dozen soft soles.
The undersigned referee allowed the claim for voting in the sum of $27.46 and disallowed the debit of $6.20 for discount.
It is to be noted that Sidney Wedeen voted his proved claims for the Irving Trust Company, but he nevertheless seeks to stand upon his objection to the election of the Irving Trust Company as trustee by means of the powers of attorney running to the referee in bankruptcy as proxy.
This objection the undersigned referee overruled because thus far the honorable judges have upheld the procedure instituted by them in accordance with which the referees vote in behalf of the Irving Trust Company as trustee in bankruptcy.
With reference to the application of the said Wedeen asking for an adjournment in order to complete his proofs of claim, the undersigned referee denied the said application and overruled the objection for the reason that attorneys in fact customarily, when they find themselves in the minority in regard to proofs of debt, request an adjournment for the purpose of either correcting those already filed, or of entering into competition for the purpose of garnering others and this would continue in many instances because the other attorney then finding himself in the minority might with equal justice ask for a further extension and so ad infinitum.
Furthermore, nothing was alleged or shown to require an adjournment other than to have additional proofs of claim obtained or the others corrected which could have been amply done within the ten days subsequent to the sending out of the notices to creditors of the first meeting.
In regard to the objection made by Sidney Wedeen to the allowance of the claims of Sydney Haberman because they were solicited by him independent of the creditor's committee organized and represented by the said Wedeen, the undersigned referee knows of no provision of the Bankruptcy Act giving more authority to certain creditors represented by the said Wedeen than is had by creditors organized or represented by any other attorney in fact or at law.
Orthodoxy and heterodoxy do not so far as the undersigned referee is aware depend upon whether they are organized by one person as against another, and as to whether it is for the selfish interest of Sydney Haberman and not for the benefit of any one else as alleged by the said Wedeen would probably call for a similar allegation from the said Haberman as against the said Wedeen.
In any event there was nothing before the undersigned to warrant the exclusion of the claims of the said Haberman.
I hand up herewith for the information of the judges, the following papers:
(1) Petition for review of Sidney Wedeen, filed August 3, 1933.
(2) Petition for review of Sydney Haberman, filed August 4, 1933.
(3) Stenographer's Minutes of First Meeting, pages 1-13.
(4) Claims voted in behalf of Irving Trust Company and Sidney Wedeen.
(5) Claims voted in behalf of Sydney Haberman.
(6) Claims by Sidney Wedeen which were not allowed.
(7) Claims by Sydney Haberman which were not allowed.
(8) Claims in behalf of Irving Trust Company which were not allowed.
Pursuant to the practice duly adopted, I direct that the hearing on this certificate be had before the Honorable District Judge, holding the bankruptcy part on Wednesday, August 23, 1933, at 10:30 a.m.
Notice thereof by mail given to the following: Nathaniel J. Palzer, Esq., attorney for Irving Trust Company, trustee in bankruptcy; Bernard H. Nearman, Esq., attorney for Sydney Haberman; Sidney Wedeen, Esq., attorney for claimants.
Dated, New York, August 12, 1933.
Ward Palzer (by Nathaniel J. Palzer), all of New York City, for Irving Trust Co., amicus curiæ.
The learned referee's admirable certificate comprehensively covers the situation herein, and I have not anything to add theretoWest Page 738except (1) a reference to the very recent decision of the Circuit Court of Appeals for this circuit in Matter of Bronx Ice Cream Company, Inc.,66 F.2d 620, and (2) to observe that as Sidney Wedeen, Esq., voted for the Irving Trust Company such of his claims as were not properly excluded by the referee as insufficient, he cannot now be heard to complain of the appointment of the Irving Trust Company as trustee by the referee on a vote divided in numbers. By so doing he waived such right. A provisional vote cannot be recognized as preserving it.West Page 743