III. Proof of Secured, Priority and Preferred Claims - Continued. b. Secured claims - Continued. (6) ASCERTAINING VALUE OF SECURITIES, 1149. (7) EFFECT OF PROVING SECURED DEBT AS UNSECURED, 1151. c. Priority claims, 1153. d. Preference claims, 1153. (1) FORMER RULE, 1153. (2) PRESENT RULE, 1154. (3) CASES PRIOR TO AMENDMENT OF 1903 STILL VALUABLE, 1156. (4) SURRENDER NOT A PENALTY, 1157. (5) WHAT PREFERENCES MUST BE SURRENDERED, 1157. (I) Payments on running accounts, 1157. (II) Intent to prefer, 1158. (III) Distinct and independent debts, 1160. (IV) Subrogation claims, 1160. (V) Payment of notes discounted at bank, 1160. (6) WHAT AMOUNTS TO A SURRENDER, 1161. (I) To whom made, 1161. (II) Compulsory surrender, 1161. e. Subrogation claims, 1163. (1) IN GENERAL, 1163. (2) CLAIM OF PRINCIPAL TO BE PROVED, 1165. (3) SURETY ON ATTACHMENT BONDS, 1165. (4) RESTORATION OF PREFERENTIAL PAYMENTS, 1166. f. Penalty and forfeiture claims, 1166. IV. Objections to Claims Before Allowance, 1167. a. In general, 1167. b. Who may object, 1168. c. Time of making objection, 1168. d. Form and manner of making, 1168. e. Testimony upon hearing objections, 1169. f. Determination of referee, 1170. V. Reconsideration of Claims After Allowance, 1171. a. In general, 1171. b. Jurisdiction of court or referee, 1171. c. Who may apply for reconsideration, 1171. d. Time for making application, 1173. e. Practice and evidence, 1174. f. Decision; form of order, 1175. g. Review of order, 1176. h. Costs and expenses, 1176. i. Recovery of dividends, 1176. VI. Time Limitation on Allowance of Claims, 1177. (2) APPLICATION OF LIMITATION, 1178. (5) PROOF AFTER EXPIRATION OF YEAR, 1181. b. Claims against property, 1182. c. Liquidated by litigation, 1183. (1) IN GENERAL, 1183. (2) WHAT CONSTITUTES LITIGATION, 1183. VII. Effect of Proof and Allowance, 1186. b. Waiver of lien, 1188. I. PROOF AND ALLOWANCE IN GENERAL a. Scope of section. This section is the guide to the practice upon the proof and allowance of claims against the bankrupt. It prescribes with some definiteness what is to be done by the creditor to secure an allowance of his claim. It determines what those creditors, who have security or priority in part for their claims, may do to secure an allowance of their unprotected balances. It states the duty to be performed by those creditors who have received void or voidable preferences in order that their claims may be allowed. In case of a contest on claims, it sets out the practice in hearing objections, and provides for a rejection of a claim presented, and the reconsideration of a claim allowed. It will be noticed by references hereafter noted that the practice herein prescribed is largely supplemented by the general orders, and the official forms also indicate the essential requirements for a due presentation and allowance of claims against the bankrupt's estate. The section does not attempt to declare what are and what are not provable debts; this is left for a subsequent section and will be hereafter considered, although some of the subsections are closely related to the question of the provability of debts.* 1. See General Orders, XX, XXI, XXIV and XXVIII. 2. See Official Forms, Nos. 19-21, 31-39, Vol. III, post. 3. Bankr. Act, § 63, and discussion thereunder. 4. It should be noticed, that subsection g prevents the allowance of claims of creditors who have received void or voidable preferences, except when the preferences are surrendered; that subsection j limits the allowance 5 b. Comparative legislation.-Both the English and Canadian bankruptcy laws go into great detail on the subject of the proof of claims. Their practice on proving debts is not essentially different from our own, and will, therefore, be found suggestive. So also of our law of 1867. The facts necessarily shown in a proof of debt were more numerous and, early, in its administration, the taking of proofs was limited to certain Federal officers; but then, as now, proof was made by an affidavit in the nature of a deposition. The general orders and forms 10 were practically identical with those now in use. Precedents under that law are still valuable. 9 6 8 c. Distinction between proof and allowance of claims.— The language of the act in relation to the distinction between the allowance of claims and the proof of claims is carefully observed throughout §§ 55, 57, 63 and elsewhere. The proof of a claim is one thing; its allowance by the court is quite a different step. When the act refers to a proof of a claim it means the deposition or statement of the creditor. When it refers to its acceptance by the courts, it uses the word allowed or allowance." The distinction between proof and of claims for penalties and forfeitures; that subsection m permits the proof of a claim of one bankrupt estate against another, and that subsection n places a time limitation upon the provability of debts. These subsections are closely related to the subject of the provability of debts. 5. See "Analogous Provisions," supra. See also Williams on Bankruptcy (12th ed.), p. 447; Duncan on Bankruptcy, p. 431. 6. Act of 1867, § 22, R. S., § 5077. 7. Act of 1867, § 22, R. S., §§ 5076, 5079. See also R. S., §§ 5076-A, 5076-B. 8. Compare In re Strauss, Fed. Cas. 13,532; In re Elder, Fed. Cas. 4,326; In re Port Huron Dry Dock Co., Fed. Cas. 11,293; Dutton v. Freeman, Fed. Cas. 4,210. 9. Act XXXIV. of 1867, General Order 10. Act of 1867, Forms Nos. 21, 22, 23, 24, 25. 11. Proof and allowance of claims are separate and distinct steps.- In the case of In re Mertens (C. C. A., 2d Cir.), 16 Am. B. R. 825, 147 Fed. 177, 77 C. C. A. 473, the court con sidered the various subsections of section 57 and concludes: "From these various sections we deduce the following propositions: that proof and allowance of claims are two separate and distinct steps; that a clear statement of a claim in writing, duly verified and filed with a referee, if made within a year, is sufficient to take the claim out of the statutory limitation, even though it may be allowed or liquidated and allowed afterward. We think that section 63-b must be interpreted in the light of the other sections of the law and that to construe it as meaning that no proof of unliquidated claims can be filed until the precise amount due thereon is established will, in practical operation, make an allowance of such claims impossible for the reason that a hostile trustee or creditor can easily delay the liquidation until after the expiration of the year. The more reasonable and sensible construction is, that the filing of the proof, like the filing of a declaration at common law, if made within the time, takes the claim out of the statute of limitations, and that after such proof is made, the allowance is much the same as that between evidence and judgment." claim is before the court to be dealt with as the interests of the bankrupt and the creditor may require." See also In re Standard Telephone & Electric Co. (D. C., Wis.), 26 Am. B. R. 601, 186 Fed. 586; In re Fairlamb Co. (D. C., Pa.), 28 Am. B. R. 515, 199 Fed. 278. This distinction has been lucidly maintained by Judge Ray, in In re Horstein (D. C., N. Y.), 10 Am. B. R. 308, 122 Fed. 266, where he says: "It will be noted that the proof of a claim is one thing, and the allowance of such claim is quite another thing. Claims may be proved, but not allowed. They may be provable, not allowable. They may be provable, and then allowed in part only, or on conditions only. The statute does not say that the claims of creditors who have received preferences shall not be proved; but it does say that such claim shall not be allowed unless or until the creditor surrenders his preference. By plain implication, the proof of the claim is permitted. The claim of a creditor who has received a preference may be proved; but it cannot be allowed, unless he shall surrender the preference. Strange, indeed, is that construction of this law, in the face of those provisions, which will prevent a creditor from coming into court and proving his claim, having the amount of the preference received by him, if any (and that may be a serious and necessary question for determination, both to the fact of preference and its amount), determined by the court, and then having his proved claim allowed on surrendering the preference. Any creditor has the right to come into court for that very purpose. To hold otherwise will logically prevent a creditor who has in fact received a preference, by way of lien or otherwise, for only a small part of his claim, coming into court and proving his claim, and then having it allowed on surrendering the 12 preference - a mode of procedure the statute expressly permits." "Debts are not the less provable, within the meaning of the Bankrupt Act, because the statute of limitations may be successfully pleaded against their allowance. As well say that a debt was not suable because the statute of limitations might be pleaded to an action upon it." Hagardine-McKittrick Dry Goods Co. v. Hudson (C. C. A., 8th Cir.), 10 Am. B. R. 225, 122 Fed. 232, affg. 6 Am. B. R. 657. See also In re Scruggs (D. C., Ala.), 31 Am. B. R. 94, 97, 205 Fed. 673, citing text. Right to prove a secured claim.There is apparently a distinction between the proving of a claim under 57-a and its allowance under § 57-c, resulting in the right to prove a secured claim when the ultimate necessity for its allowance appears reasonably possible, even though it may turn out to be unnecessary because the security proves adequate to pay the debt in full. Emerine v. Tarault (C. C. A., 6th Cir.), 34 Am. B. R. 55, 219 Fed. 68. 66 A proved claim does not become allowed" by the filing thereof, since the allowance of a claim, different from the party's act of proving and the ministerial act of filing, is a judicial act; and until a direct or indirect order of allowance is made, objections to a claim may properly be filed, it being unnecessary, until such order is made, to proceed under section 57-k or 1 for a reconsideration of the claim and a recovery of dividends already paid. In re Two Rivers Woodenware Co. (C. C. A., 7th Cir.), 29 Am. B. R. 518, 199 Fed. 877. A disallowed claim and a nonprovable debt are not identical things; and where a debt is disallowed because without foundation the claimant does not have a nonprovable debt. Lesser v. Gray, 236 U. S. 70, 34 Am. B. R. 8. 12. Compare In re Wise, 2 N. B. R. This question is further considered under a subsequent section.13 II. PROOF OF CLAIMS GENERALLY a. General requirements.- Claims in bankruptcy must be proven in, the manner prescribed in the bankruptcy law as supplemented by the general orders and official forms." Affidavits used in insolvency or general assignment proceedings under State laws are not enough; though, where the facts and amounts tally with the schedule and include those called for by § 57-a, they will, provided there is no objection, usually be accepted and filed. Proofs of debt must show at least (1) the claim; (2) the consideration therefor; (3) whether any, and, if so, what, securities are held therefor; (4) whether any, and if so, what, payments have been made thereon; and (5) that the Rep. 151. See In re Merrick, Fed. Cas. 9,463. 13. See section 63, post, subtitle "Proved" and 66 allowed." 14. In re Dunn Hardware & Furniture Co. (D. C., N. Car.), 13 Am. B. R. 147, 132 Fed. 719; In re CoventryEvans Furniture Co. (D. C., N. Y.), 22 Am. B. R. 272, 166 Fed. 516. The practice covering the presentation of claims of creditors to the referee in bankruptcy is outlined in In re Sumner (D. C., N. Y.), 4 Am. B. R. 123, 101 Fed. 224. Verified proofs of claim.-A wife who, in her verified proofs of claims against the brankrupt estate of her husband, makes no reference to any payment on account of loans which were the subject-matter of her claims, but expressly states that "no part of said debt has been paid," and scratches out from the blank form the word “except," violates the express requirements of this section. In re Girvin (D. C., N. Y.), 20 Am. B. R. 490, 160 Fed. 197, 206. Forms.- See cross references to forms at beginning of this section. Necessity that forms be followed with exactness.-Bankruptcy forms have been provided to expedite proper and 15 prompt administrations according to the very right of parties and by no means for the purpose of creating purely technical defenses, hence the court is not bound by any hard and fast rule to these forms, but on the contrary any form of proof used, is sufficient to show the nature of the claim and the bankrupt's liability therefor supported by the legal affidavit of the claimant is sufficient. Matter of Collins (D. C., W. Va.), 32 Am. B. R. 785, 215 Fed. 247; Matter of Booth (D. C., N. Y.), 33 Am. B. R. 183, 216 Fed. 575; Matter of Hudson Porcelain Co. (D. C., N. Y.), 35 Am. B. R. 18, 225 Fed. 325. 15. Claim against bankrupt on stock subscription. A claim by a receiver of an insolvent insurance company against the bankrupt estate of a stockholder, based on the contention that it is necessary to enforce the liability of stockholders on their subscriptions in order to equalize claims between various stockholders who had paid their subscriptions in various proportions, should not be allowed where it does not appear how much the bankrupt has paid on his subscription. Matter of Bass (D. C., Ga.), 32 Am. B. R. 766, 215 Fed. 275. |