In re duPont Walston Inc.

8 B.R. 844, 1981 Bankr. LEXIS 5042
CourtDistrict Court, S.D. New York
DecidedJanuary 27, 1981
DocketBankruptcy No. 74-B-344
StatusPublished
Cited by1 cases

This text of 8 B.R. 844 (In re duPont Walston Inc.) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re duPont Walston Inc., 8 B.R. 844, 1981 Bankr. LEXIS 5042 (S.D.N.Y. 1981).

Opinion

OPINION

ROY BABITT, Bankruptcy Judge:

In the administration of the estate of this erstwhile Chapter XI debtor, now a bankrupt under the relevant provisions of the 1898 Bankruptcy Act,1 this claimant, Esther 0. Kegan, filed a claim to share in the distribution of the assets of the estate. As that claim, based upon facts soon to be recounted, appeared to the trustee in bankruptcy to be a non-provable, non-allowable tort claim within Section 63(a) of the Act, 11 U.S.C. (1976 ed.) § 103(a), and, inter alia, Schail v. Camors, 251 U.S. 239, 251, 40 S.Ct. 135, 137, 64 L.Ed. 247 (1910), he interposed this objection. Claimant refrained, and wisely so, from suggesting that tort claims were within the kinds of provable claims enumerated in Section 63(a) or that their provability in bankruptcy was not foreclosed as a litigable issue. Rather, she insists that while facially her claim sounds in tort, it nonetheless may be asserted in this bankruptcy on an implied contract theory within Section 63(a)(4) which is as follows:

“§ 63. Debts Which May Be Proved, a. Debts of the bankrupt may be proved and allowed against his estate which are founded upon ... (4) an open account, or a contract express or implied. ...”

The claimant, an attorney and businesswoman, was an active trader in the stock market. She had a contractual brokerage account to buy and sell securities through the now bankrupt duPont Walston, but was denied an additional commodity broker’s account because she refused to sign a waiver form entitled “Woman’s Commodity Account”, which waived any right to hold duPont Walston (bankrupt) liable for losses incurred by trading in commodities. This waiver was not required of the bankrupt’s male customers. As a result of the refusal to open the account, the claimant alleged that she sustained substantial monetary damage in connection with certain Florida citrus groves she owned, since she could not deal in the orange juice concentrate futures market. She then went to the New York City Commission on Human Rights (Commission) resting on the Administrative Code of the City of New York and the New York State Human Rights Law which prohibit a public accommodation such as the bankrupt from discrimination based, inter alia, upon sex. When the Chapter XI petition was [846]*846filed, claimant’s proceeding had reached the point where all that was required was the submission of post hearing memoranda and a decision and order by the Commission on the issue of an award of damages. The Chapter XI petition stayed any further action by claimant and the Commission. Rule ll-44(a), 415 U.S. 1033.

During the pendency of the Chapter XI proceeding, the claimant and the Commission sought a modification of the Rule 11-44(a) stay. This court, by order # 28, granted that motion for modification of the stay and, on May 13, 1974, signed order # 29, permitting the Commission to complete all necessary proceedings against the Chapter XI debtor. On May 29, 1974, du-Pont Walston was adjudged bankrupt. On April 29,1975, the Commission rendered its decision awarding $22,855.00 to the claimant on the basis of the discriminatory treatment just recounted.

After entry of the Commission’s order, claimant filed claim # 1913 for damages in the amount of the award — $22,855.00. This claim is said by the claimant to be provable under Section 63(a)(4) of the Act as a debt arising out of an implied contract which itself originated in the express contractual relationship between claimant and the bankrupt.

Although the trustee sets out three independent bases, any of which, he says, would compel expungement of the claim, the court concludes that the objection must be sustained on the ground that the claim is based on a tort and therefore is not provable under any of the parts of Section 63(a) enumerating claims which are. As tort claims are not provable, they are not allowable, i. e., not permitted to a distributive share of the bankrupt’s property, and the claim must therefore be stricken.

While the court begins by mining the words of Section 63(a)(4) pressed by the claimant in support of her claim, those words yield little treasure. Manifestly, the phrase “implied contract’’ sheds no cross-light on the circumstances in which a non-provable tort claim is transformed into a provable implied contract claim. That torts and contracts are distinct is apparent, usually painfully, to first year law students. Only the other day, the Court of Appeals for this Circuit acknowledged the difference in these words in Alexander M. Hargrave et al. v. Oki Nursery, Inc., 636 F.2d 897 (2d Cir. 1980):

“The law of torts and the law of contracts are said to protect different interests. A plaintiff may recover in contract because the defendant has made an agreement, and the law thinks it desirable to be held to that agreement. Tort liability is imposed on the basis of some social policy that disapproves the infliction of a specific kind of harm irrespective of any agreement.”

But while the words Congress wrote yield nothing, the dispute here does not come to this court with a clean slate for other courts have given some direction to this process of transforming a tort claim to a contract claim.2

Thus, the District Court in the Matter of Paramount Publix Corp., 8 F.Supp. 644, 645 (S.D.N.Y.1934) said:

[847]*847“The cases comprised in .. . [an implied contract] are those where the bankrupt by means of a tort or wrongful act has obtained something of value for which an equivalent price should be paid and on account of which the law will imply a promise to pay. In such instances there is, of course, no real contract on the part of the wrongdoer to pay, but there is a fictitious contract forced on him by the law to pay over the amount of the unjust enrichment.”

The fashioning of such rationale as a deviation from the general rule expressed in among other places, Schall v. Camors, 251 U.S. 239, 251, 40 S.Ct. 135, 137, 64 L.Ed. 247 (1910), that tort claims are not provable against a bankrupt’s assets, is a judicial response to those instances where the tort-feasor has been unjustly enriched by his wrong.

But the theory of unjust enrichment must be limited to certain wrongs such as embezzlement, breach of trust or fraud where there is some kind of quasi-fiduciary relationship. Then, the fiction of a contract becomes more palatable. A & M Records, Inc. v. M. V. C. Distributing Corp., 471 F.Supp. 980, 984 (E.D.Mich.1979).

Similarly, the finding of a quasi-contractual relationship would be indispensable if a tort claim is to be treated as a claim ex contractu within Section 63(a)(4). But claimant can draw little comfort from this. Black’s Law Dictionary (5th ed. 1979) at 293, “a service not always to be disregarded”, Cannon v. United States, 288 F.2d 269 (2d Cir. 1961), Friendly, C. J., dissenting, defines a quasi-contract as a legal fiction to permit recovery in contractual cases where there is no contract but where justice demands it because the tortfeasor has been unjustly enriched.

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Bluebook (online)
8 B.R. 844, 1981 Bankr. LEXIS 5042, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-dupont-walston-inc-nysd-1981.