Mojave Uranium Co. v. Mesa Petroleum Co.

451 P.2d 587, 22 Utah 2d 239, 1969 Utah LEXIS 593

• Court: Utah Supreme Court
• Decided: March 5, 1969
• Docket: 11286
• Status: Published

Opinions

HENRIOD, Justice:

Appeal from a summary judgment of no cause of action in a case where Mojave claimed Mesa assumed an obligation of Standard Gilsonite to pay a claim held against the latter by Mojave that existed over three years earlier, and which Mesa allegedly took over by acquiring the assets and liabilities of Standard in September, 1965. The trial court said that although there may have been such an obligation, it was discharged in bankruptcy. We affirm with costs to Mesa.

Back before 1962, Standard Gilsonite, under the pilotage of one Pinder, became indebted to Mojave, and, with personal property of highly questionable value, signed a note and chattel mortgage, which latter was recorded. Standard became insolvent and on May 25, 1962, filed a petition under Chapter XI of the Bankruptcy Act,¹ (known as the Chandler Act of 1938) said chapter having to do only with unsecured creditors as opposed to other types of claims.² Thereafter Mojave, which technically was a secured creditor, some time in June, 1962, in an agreement signed by Standard and Mojave, acknowledged that Standard was insolvent, that the latter had filed under Chapter XI, and that “This agreement is entered into with the knowledge that unless a Chapter XI * . * * is successful, Mojave would receive nothing, or very little, by way of their present secured position.” These concessions were made over three years before the instant action was instituted, but the “prime” attorney, as plaintiff calls him, virtually confirmed the worthlessness of the so-called security in 'his deposition. Nonetheless, this agreement which released the security in exchange for an unsecured claim, must have impressed the trial judge, as it does us, that the transmutation of a secured debt into an unsecured claim was designed for no other reason or purpose than that Mojave could take advantage of Chapter XI and salvage something from Standard’s insolvency, rather than nothing. Hardly could one venture the conclusion that any such a stance could result three years later in any retransmutation to a status prior to Standard’s filing under Chapter XI — so far as equity is concerned. We believe that all things being equal, unless the Bankruptcy Act itself condones such a chameleonic result, — at least in equity, someone should not have his cake and eat it, — should be es-topped to tie a new knot where a predecessor one had been untied, — or should be held to have waived, abandoned or otherwise deserted any novel claim asserted years later, — whatever you choose to classify or define it.

This brings us to the Chandler Act itself and the Zavelo case³ with which appellant so urgently and not without merit tantalizes us. He contends that irrespective of all else, Zavelo says that the time at which the debt is determined is the date that the petition was filed, — none other. He quotes 9 Collier, Sec.-7.05, p. 22, volunteering that “following the rule of Zave-lo v. Reeves,” “thus, the general time of cleavage, insofar as determining whether a person is a creditor is the date of the filing of the Chapter XI petition in a section 322 * * The Collier statement necessarily does not justify counsel’s gratuity of “following the rule of Zavelo v. Reeves,” in the atmosphere in which the text discussion was conducted. Collier did not cite Zavelo in support of the statement. It is conceded that Zavelo has been cited by Collier and by dozens of cases involving regular bankruptcies since 1898 in support of the rules that 1) only debts existing at the time of filing the petition are provable and 2) a provable debt dis-chargeable in bankruptcy effectively may be revived or payable by virtue of a clear, unequivocal promise to pay. We have found no case in our research that cites Zavelo as being applicable to a Chapter XI case, — nor has counsel cited one

We believe the reason that Zavelo is not applicable to a Chapter XI case is because of its incompatibility with the widely extended objectives of the Chandler Act and its modified philosophy designed to prevent bankruptcy rather than merely to furnish a sanctuary immunizing one against continuous harassment in a hopeless situation of financial despair.

Chapter XI itself seems to evince such purpose and malleability designed to save rather than sink a debtor. Counsel for plaintiff quite fairly and frankly seems to concede the change represented by the new law which in much greater degree favors the distressed debtor over his brethren of yesteryear. He says:

* * * Upon the filing of a Chapter XI proceeding the debtor is brought within the protective umbrella of the court which, under the Act can issue various protective orders for the benefit of the debtor and his business, all with a mind to keep the business going and to give the debtor breathing space while he attempts to work out a satisfactory arrangement with his unsecured creditors.

Sections of Chapter XI call for (356) provisions for changing rights of unsecured creditors, (357) treating the claims on a parity or division into classes, with treatment in different ways or on different terms, for continuation of a debtor’s business, to provide payment of debts incurred after the filing of the petition and during the pendency of the arrangement, retention of jurisdiction by the court, and for “any other appropriate provisions not inconsistent with this chapter.”

Such provisions would seem to anticipate and cover a case such as we have here, where a creditor may have a claim purportedly secured by personal property that virtually appears to be worthless, and where the creditor might, after the filing of the petition, agree to release or waive such security, and say, (all of which seems to be the case here) “I acknowledge I am a secured creditor, but almost in name only, and being an unsecured creditor now and in reality, I will submit to the conditions of an arrangement, after the filing, but before the order confirming any arrangement is concluded.”

It seems to us that where a creditor takes such a position at the time of his debtor’s adversity, hardly can it say subsequently and after three or four years of quiescence that “Now that you have become -prosperous, I will advise that whatever I did to change my creditor status, I now disconfirm, confirming my status at the time that you filed your petition, and disconfirm the order confirming the arrangement, and I do this under the authority of Zavelo v. Reeves, although I am unable to find a case citing this landmark decision in a Chapter XI, Chandler Act environment.” Counsel for appellant, I opine, will espouse a somewhat different conclusion, hut the trial court’s result in this case points up the difference between 1898 and 1938. The only cases, which are not numerous, nonetheless support the thesis that in a Chapter XI proceeding, Zavelo is not controlling as to discharge-ability based on the date of filing the petition. Rather, they support respondent’s urgence that unsecured claims are determinable and dischargeable as of the date the - arrangement ultimately is confirmed under the provisions of Sections 367 and 371 of the Act, — and such a conclusion does not seem terribly unreasonable considering the obviously new approach under the Chandler Act, and under the apparently on-again-off-again factual switches in this case in an apparent effort to gain creditor advantage, but upon failure to accomplish such advantage, attempt to revert to a creditor status that appellant completely had abandoned, deserted and waived. !

Without abstracting the facts in the cases mentioned hereunder we commend the reader to some that seem .to conclude that the order confirming the arrangement in a Chapter XI case determines the rights of all unsecured creditors who were such at the time of confirmation, irrespective of their status at the time a petition was filed.⁴

This court has but fleeting kinship with federal bankruptcy matters, to which counsel for appellant no doubt will amen, but respects the pronouncements of the federal-courts that have a greater closeness and acquaintance with the federal bankruptcy laws, — with which the instant case is concerned. In McAbee v. Isom,⁵ Circuit Judge Sibley said “It thus appears that a claim proven as a secured claim is al--ways potentially an unsecured one. If the security fails in whole or in part the equity of the case will generally require that recognition be given the unsecured debt.” In re: Berkshire Hdw. Co.,⁶ the court recognized that the Zavelo rule that only those .debts provable at the time of a petition for bankruptcy has been modified by the provisions of the 1938 Chandler Act.

Two other points on appeal persist : 2) That regardless of a discharge of the alleged debt, it was revived and made enforceable by Standard’s June, 1962, agreement to pay it. This claim admittedly was worth nothing or very little. The so-called agreement, which appellant must have renounced, since in this suit it said it remained a secured creditor, has the complexion of inconsistency seemingly engendered by one Pinder, president of Standard, then of Mesa, and a relative of and intermediary for those of Mojave, which, according to this record reasonably could convince a trial judge that the alter-ego-paterfamilias relationship was designed to recover something now, failing which, reservation of rights might provoke a second and possibly a third try to revive a corpse that may, by some sort of miracle, resurrect itself. We go along with the trial court in discounting Point No. 2 on the facts. Point No. 3, that there was an enforceable contract for the benefit of a third party, is as unimpressive as Point No. 2. It appears that the trial court, under the facts of this case, highly confusing and contradictory as they are, without any sworn testimony save that contained in a deposition of a lawyer that added little to, but detracted from clarity, decided, as did the state court, to let the corpse of this case rest in peace.

It is not reflected in the record by findings and/or conclusions, what the trial court specifically had in mind about points 2 and 3, but it is not difficult to conclude that from the elusiveness of the record, where no promissory note definitely was executed, or for that matter unconditionally intended, as was the case of a chattel mortgage, apparently never executed, or intended, the trial court was not in error.⁷ At best, the record reflects failures to comply with conditions, executions of documents, recordation or delivery of papers vital to appellant’s last two points. It ■seems that the trial court reasonably could disagree with appellant, where the only “live” testimony, — that of the so-called “prime” lawyer’s deposition and an affidavit, reflected, in its and our opinion, a fact situation that, if believed by the trial court, negated any unequivocal, unconditioned promise to pay anything to anyone in a definite amount. Among other things it was conditioned on other kinfolk creditors agreeing on the same terms, which the record does not reflect materialized, and a take-over agreement that seemed to be a family or Pinder arrangement, without any real evidence of execution or delivery, does not impress us with appellant’s ur-gence.

We believe that this case represents a belated effort to salvage something from a situation forgotten but brought to mind by change of circumstance, technical bankruptcy talk, hope for renewed existence of a given-up effort, supplemented by a 1913 Zavelo pronouncement, which we deem not authoritative under Chap. XI of the Chandler Act of 1938, or the facts of this case.

CALLISTER and TUCKETT, JJ., concur.

1 . United States Code, Title 11 Secs. 701-799.

2 . See 9 Collier on Bankruptcy (14 Ed.) Sec. 8.01, p. 157, which states .as follows: “The limitation on an arrangement under j ;• Chapter .XI So that it can deal only'with , unsecured creditors is one of the principal fundamental differences between a Chapter XI proceeding and a proceeding under Chapter X, XII, or XIII. Under Chapter X, secured as well as unsecured debts, and right of stockholders, may be affected by a plan of reorganization. Under Chapter XII, debts secured by real property or a chattel real of a debtor, and unsecured debts, may be affected by an arrangement, but unsecured debts alone can not be affected. Under Chapter XIII, secured and unsecured debts may be affected by a wage earner’s plan.” (Emphasis supplied.)

3 . Zavelo v. Reeves, 227 U.S. 625, 33 S.Ct. 365, 57 L.Ed. 676 (1913).

4 . Frey v. Frankel, 361 F.2d 437 (1966), where a contract entered into after a Chap. XI petition was filed and before confirmation of an arrangement ensued, Judge Pickett of the Tenth Circuit, in which our court also sits, said * * * “when the order of confirmation became final, the rights of the party were fixed as of its entry, * * * When the plan became effective, Frey’s position with the corporation was terminated, and he had no legal right to employment.” In Wm. H. Wise & Co. v. Rand McNally & Company, 195 F.Supp. 621 (D.C.1961), during pendency of a Chap. XI proceeding, a secured creditor at time of the filing entered into a stipulation that made it a half secured and half unsecured creditor, and as to the unsecured phase, the order of confirmation, not the date of filing the petition, was controlling.

5 . 116 F.2d 1001 (5 Cir. 1940), decided after the 193S Chandler Act.

6 . 39 F.Supp. 663 (D.C.1941).

7 . This court, in many eases has indulged the presumption that where the trial court did not make a specific finding on a particular phase of a case, that if such finding had been made it would be in harmony with the decision rendered. Probably the best statement of this proposition was made by Mr. Justice Wade in Mower v. McCarthy, 122 Utah 1, 245 P.2d 224 (1952), where it was stated that “In reviewing a ease of this kind where issues of fact are involved and there are no findings of fact, we do not review the facts but assume that the trier of the facts found them in accord with its decision, and we affirm the decision if from the evidence it would he reasonable to find facts to support it.”