Kelly v. United Financial Corp.

Opinion

KINGSLEY, J. Plaintiffs were the sole officers and shareholders of Krim Construction Company (hereinafter “Krim”). To finance a student housing project in Isla Vista, California, Krim entered into a “take-out” agreement with United. This written agreement provided that, upon certain conditions to be met by Krim, United would loan Krim $950,000 by April 18, 1964. On November 25, 1964, United extended its commitment until November 30, 1965. The loans were not made and plaintiffs claim damages in the amount of $28,500—being the amounts paid by Krim to induce the making of the “take-out” contracts and its extension.

On October 1, 1965, a proceeding by Krim for corporate reorganization under Chapter X of the Bankruptcy Act was initiated. The petition was thereafter approved by the federal district court.1 On June 5, 1968, [688]Krim was ordered to be adjudicated a bankrupt. On February 27, 1970, the trustee in bankruptcy assigned Krim’s alleged claim to appellants. Suit was brought on this claim on April 8, 1970. After extended oral argument, the court held that appellants’ claim was barred by the four-year statute of limitations on written contracts in California. (Code Civ. Proc., § 337.) The demurrer of defendants was sustained without leave to amend and a formal judgment of dismissal was entered, from which plaintiffs have appealed. We affirm the judgment.

It is admitted that the California law barred plaintiffs’ action unless the California statute of limitations was tolled by the provisions of the federal Bankruptcy Act.

Plaintiffs rely on section 11(e)2 of the Bankruptcy Act, and authorities applying that section, to support their argument that their claim, derived from assignment from the trustee, was not barred by the California statute of limitations. Section 11(e) provides in relevant part: “A receiver or trustee may, within two years subsequent to the date of adjudication or within such further period of time as the Federal or State law may permit, institute proceedings in behalf of the estate upon any claim against which the period of limitation fixed by Federal or State law had not expired at the time of the filing of the petition in bankruptcy.”

The parties agree that the controlling issue is the meaning of “the date of adjudication” in the above statute. To determine that semantical issue, we turn first to sections 527 and 528 as found in Chapter X of the Bankruptcy Act.3 Those sections read as follows: “§ 527. A petition [under Chapter X] may be filed in a pending bankruptcy proceeding either before or after the adjudication of a corporation.