In re BAXTER, Bankrupt.
(District Court. 8. D.
BANKRUPTCy-PROOFS OF DEBTS-AMENDED PROOFS.
Proofs of debt. made under a mistake of fact or law, may be amended or withdrawn. if no action has been based upon such proofs which cannot be recalled or compensated.
SAME-MISTAKES-WITHDRAWAL OF PROOFS-INDEMNrry.
Where proofs of debt were made by B. B. & Co. upon two bills of exchange, drawn upon.London, against consignments of merchandise, unaccompanied by a transfer of the bill of lading, and the branch house of B. B. & Co., in London, at the time of such proof, claimed a lien upon the proceeds of the mer· chandise there as security for the bills, which was disputed and in litigation between various claimants upon the fund, including the trustee of the bankrupt's estate. and the facts were known to the creditor here, who verified the Ploofs of debt, and supposed that the facts were also known to his attorney but who was ignohere, to whom the preparation of the proofs was rant thereof and accordingly prepared the proofs 'o,s unsecured claims, held. that the case was one of mistake of mixed fact and-law, and the creditors had leave to withdraw their proofs upon terms of indem.ldty to the estate. Held, also, that the mere receipt of dividends upon such proofs is no obstacle to the withdrawal or amendment of the proofs, as the l;lividends may be returned. with interest. '
SAME-WITHDRAWAL of PROOFS, WHEN' ALLOWED-RETURN OF DIVIDEND.
But where· the trustee of a bankrupt was defending in England against a claim made by creditors upon a ccrtain fund as security for their demands, upon the ground that they were est.opped by having proved their claims here as unsecured, and also defended upon the merits, denying the creditors' alleged lien upon the fund, held. that the creditors' withdrawal of proofs should be allowed.9nly upon the return of dividends, with interest, the payment of the costs of this application, and of all the costs and counsel fees in the litigation in England, if the 'trustee elected to abandon the further defence of the case there, or, -if not, then upon payment of the trusteo'a costs up to this time.
Petition for Leave to Withdraw Proofs. W. W. McFarland, for petitioners. Abbott B1'othc'rs, for trustee. BROWN, D. J. This is a petition by Brown Bros. & Co. for leave to withdmw their proofs of debt heretofore made upon two bills of exchange drawn by Archibald Baxter & Co. upon Jones Bros., of London, at 60 days' sight,-the one dated August 5, 1875, for £2,500, payable to the order of Brown, Shipley & Co.; the 'other dated August 6, 1875, for £1,000, payable to the same payees,-which were drawn against the "account of cheese per Britannic, and lard per Greece;" which bills had been purchased by the petitioners on the day of their date. On the seventh day of August, 1875, Baxter & Co. failed, and made an assignment of their property in trust for their creditors.
IN BE BAXTER.
In November following a petitiolt'in bankruptcy was filed against them in this court, on which an adjudication in bankruptcy was had on December 24, 1875. On the twenty-eighth day of March, 1876, a trustee was appointed by the creditors for closing up the bankrupts' estate. On August 3, 1877, the petitioners filed proofs of debt against the bankrupts upon. six bills of exchange, as unsecured dem:lnds amounting altogether to the sum of $56,239.87, including the two bills first above mentioned. On the third day of November, 1877" they received a dividend of 5 per cent., and on the tenth of February, 1879, a further dividend of 3 per cent., on the amount proved. They now ask leave to withdraw their proofs in respect to the two bills above mentioned, upon restoring the dividends received thereon, with interest, upon the ground sta.ted in their petition. This is opposed by the trustee in behalf of the creditors. The ,two bills in question had been purchased by the petitioners upon the faith of the security of cheese' and lard forwarded, or to be forward'ed, by Baxter & Co. to Jones Bros. by the steamers Britannic and Greece, as referred to in the bills. The bills of lading were not attached to the drafts; and such had previously been their usual COurse of dealing. Immediately upon the failure of Baxter & Co. the petitioners employed their attorney to examine into the law and the facts in regard to the situation of their claims and their seourity under the bill&,'and were advised that where the goods referred to in the bills of exchange had been actually forwarded, the bills would constitute a lien upon the goods or their proceeds. The result of the examination into the facts by their attorney at that time led to the belief on his part that while certain goods represented by other bills of exchange had been forwarded, the goods represented by the two bills in question had not been forwarded. This was in fact a mistake, which the petitioners, through the English branch of their house, Brown, Shipley & Co., afterwards learned in due course of mail; but their attorney here was not apprised of . his mistake nor was his misapprehension corrected. In 1877, accordingly', when the same attorney prepared the proofs of debt, these two bills were included with the· others, and all were thus proved as unsecured, upon the supposition and belief on his part that the goods had not gone forward, and that there was no claim to security upon them; while certain other bills, upon whicb the attorney understood that the goods had been forwarded, were not included among the claims then proved. The petitioners, on the other hand, supposed that their attorney had been apprised of the fact that all the goods had been forwarded
to the drawee, that the proofs were drawn in accordance with, and saving to them, all their legal rights. The error was not discovered until a few months since, when, in a suit in the High Court of justice, Chancery Division, in England, by Brown, Shipley & Co., plaintiffs,against the drawee and the trustee of the' bankrupts, whereby the plaintiffs sought to assert their lien upon the proceeds of the goods, the trqstee interposed as one of his defences the proofs of drafts in this court as unsecured claims as a waiver or forfeiture of any lien upon the goods. The delay in the commencement of this last suit had been caused through previous litigation in England in the same court, wherein Dennistown, Wood & Co. had, shortly after the arrival of the goods in England in 1875, asserted a claim upon the goods or their proceeds in their favor. The trustee, as well as Brown, Shipley & Co., were defendants in that suit. The latter, in their answer, had asserted their priority of lien, but without claiming specific relief.in that suit. Final decree against Dennistown, Wood & Oo.'s claim was not rendered until July, 18!:!1; whereupon, within a few days thereafter, the suit first mentioned was commenced by Brown, Shipley & Co. The trustee in this last suit defends, not merely upon the ground that the petitione.rs are precluded from recovery in consequence of their proof of the drafts in 1877 as unsecured debts,imt also upon the werita, contending that upon the fact.s the petitioners are not entitled to eithe!.; a legator an equitable lien. Without specifying further the details of the matters referred to in the present petition, and in the answering aijidavits on. the part of the trustee, I am satisfied thai' the proof of debt made by the petitioners in 1877, so far as it eJP.hracesthe two bills of exchange above mentioned, was· the result of a mutual misunderstanding between the petitioners and their attorney; that, on the part of the latter. to whom the preparation of the proofs had been entrusted, it was purely a mistake of and that although the proofs were sub.. mitted to and verified by one of the petitioners who did know the facts in regi\rd to the forwarding of the goods, yet that he was misoUhe facts, taken also in supposing that his attorney had and that the proofs properly dra.wn in reference to those facts, 80 as to save to them their: legal nghts then in litigation in England. The security claimed, 'by. w.ay, of the alleged lien is of a peculiar character, and,as the .tcustee. even now contends, altogether novel and without any legal foundation. But that neither the petitioners nor their attorney ever contemplated waiving their claim, or doing
any act to prejudice it, is, I think, clearly substantiated, not merely by the claims of the petitioners in the litigation in England, which has been all the time going on, but especially, also, from the fact that two other bills of exchange for about the same amounts, as to which the attorney knew the goods had been forwarded, were omitted from the proofs, and have never been presented in bankruptcy at all, although the claim to a lien on the goods as to those bills was attended by additional litigation here, growing out of the assertion of title to the goods by the original vendors of Baxter & Co. The proofs, therefore, must be regarded as being made under a pure mistake of fact on the part.of the attorney who prepared them, and mistake of mixed law and fact on the part of the petitioners. In such cases it has been the practice in courts of bankruptcy in this country to permit the error to be corrected when the estate has not been injuriously or when any action based thereupon can be recalled or compensated. In the case of Clark et Biningerj in this court, (5 N. B. R. ""255,) proofs were allowed to be amended nnder circumstances similar. In the case of Edward Hubbard, Jr., 1 Low. 190, (1 N. B. R. 679,) Lowell J., s a y s : "
.. When proof has been under a mistake of fact, or even of law, it be corrected, almost as a matter of course, if neither the bankrupt nor other creditors who have proved will be injured. And even where the rights of others will be affected. if the only effect is to restore all parties to the position they were in before the debt was proved, it would be proper to allow the withtlrawal if there had been a mistake and no want of diligence."
10 N. B.R. 82, Longyear, J., says: The court undoubtedly possesses the power, in its discretion, to allow proofs of debt to be amended, and in cases of mistake or ignorance, Whether of fact or oil law, will generally exercise that power in the absence of fraud, and When all parties can be placed in the same situation they would have been in jf the error bad not occurred, and where justice Beems to demand that it should be done." In re Brand, 8 N. B. B. 824; In re Jaycox, 8 N. B;R, 277; &x; parte Harwood, Crabbe, 496; Edwards v. Morgan, McClel. 551.
In the case of John F.
But where a creditor, by proof of his debt, has taken part in the meetings of creditors, and controlled the action of others in the choice of an assignee or trustee, or influenced the qUGstion of the bankrupt's discharge, he is held precluded from any subsequent change in his proofs. New Bedford, etc., v.Jt'a·ir Haven, etc., 9 Allen, 175, 180; Ex parte Solomon,l Glyn & J. 25; Stewart v. [sidor, 1 N, B. R. 485; In re Bloss, 4 N. B. R. 147.