Before KALODNER and FORMAN, Circuit Judges, and ROSENBERG, District Judge.
Harold Laskin, the appellant, filed a voluntary petition in bankruptcy on August 4, 1960, listing unsecured claims of $61,030.93 and declaring that he had no assets. Among the scheduled claims was that of the appellee, Industrial Rayon Corporation ("Industrial") in the amount of $10,284.33. Industrial subsequently filed a Proof of Claim in the amount of $12,803.99 to which was attached a negotiable promissory note dated March 31, 1959, in the amount of $15,426.50, payable with interest at 6% in sixty days.
On November 29, 1960, following a 21-A examination of the bankrupt on November 23, 1960, Industrial filed Specification of Objections to Discharge asserting that the bankrupt had (1) knowingly and fraudulently concealed assets belonging to the bankrupt estate from the trustee and creditors; (2) falsified books of accounts and records; and (3) transferred property within one year preceding the filing of his bankruptcy petition with intent to hinder, delay or defraud his creditors. On December 1, 1960 the bankrupt filed Exception to the Specification of Objections on the ground that Industrial was not a creditor of the estate and thus was not qualified to be heard in opposition to the bankrupt's discharge.
On June 8, 1961, at an adjourned meeting on Industrial's Objections, the bankrupt asked, and was granted, (1) leave to amend his Schedule A-3 to delete Industrial as a listed creditor; and (2) to file objections to Industrial's Proof of Claim. At the close of the June 8th hearing, which was limited to the issue as to Industrial's status as a creditor, the Referee granted the bankrupt's application to amend his Schedule A-3 so as to delete Industrial as a creditor and sustained the bankrupt's objections to Industrial's Proof of Claim and his exceptions to Industrial's Objections to Discharge. In each instance the Referee's action was grounded on his view that Industrial was not a creditor of the bankrupt by virtue of his signing of the March 31, 1959 promissory note, subsequently to be discussed in detail. On August 11, 1961 the Referee filed Orders giving effect to the rulings above stated and granting the bankrupt his discharge.
Industrial petitioned for Review of the Referee's Orders and following hearing thereon the District Court on April 17, 1962 entered its Order vacating all of the Referee's Orders. This appeal followed.
It must immediately be stated that the District Court, as evidenced by its Opinion, reported at 204 F.Supp. 106 (E.D.Pa. 1962), directed its attention only to the issue as to whether Industrial did or did not enjoy the status of a creditor by virtue of the March 31, 1959 note and the parties have likewise done so on this appeal.
The note in controversy reads as follows:
"$15,426.50 March 31, 1959.
"Sixty days after date promise to pay to the order of INDUSTRIAL RAYON CORPORATION Fifteen Thousand Four Hundred Twenty-six and 50/100 Dollars Payable at Cleveland, Ohio with interest at 6% per annum Value Received
"Laskin Bros. of Phila. Inc.
"No. K-71730 Due May 30, 1959"
The names "Laskin Bros. of Phila. Inc." and "Harold Laskin" were in the bankrupt's handwriting - the other portions of the note were printed and type written.
At the time the bankrupt was president of Laskin Brothers of Philadelphia, Inc.
The District Court held that under the provisions of Section 3-403(2) of the Uniform Commercial Code, as enacted by Pennsylvania,*fn1 which prevailed when the note was executed, the bankrupt became individually liable on the note when he signed it after writing in the firm name without any indication that his name was affixed in a representative capacity, and that evidence outside the note was not admissible to show that the bankrupt was not personally liable.
It was for that reason that the District Court held that the Referee had erred in going beyond the contents of the note itself in determining whether or not the bankrupt had become personally liable when he signed it without indicating that his signature was in his capacity as president of Laskin Brothers of Philadelphia, Inc. ("Laskin, Inc.").
The record of the proceedings before the Referee evidences that he was of the view that the Bankruptcy Act and not the Uniform Commercial Code controlled and that under the Bankruptcy Act he was empowered to go beyond the borders of the note to ascertain the capacity in which the bankrupt signed it.
We are of the opinion that the Referee was correct in this respect and for reasons which will subsequently appear we hold that he properly held that the bankrupt's signature on the note did not result in the creation of a debtor-creditor status between the bankrupt and Industrial.
One of the primary purposes of the Bankruptcy Act is the equitable distribution of the bankrupt's estate among its creditors.
These principles are well-settled:
"* * * [Courts] of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity."*fn2
The bankruptcy court in passing on claims "sits as a court of equity", and "In the exercise of its equitable jurisdiction the bankruptcy court has the power to sift the circumstances surrounding any claim to see that injustice or unfairness is not done in ...