Crafts v. Mott

By the Court, Allen, J, Many of the earlier decisions of the English courts, some of which are relied upon by the plaintiff, are no longer authority as evidence of the law, either in England or in this country. In England the bankrupt acts were from time to time modified and amended so as to provide, for many of the difficulties, and relieve from many of the [309] hardships, suggested by these very decisions. And the late bankrupt act of the United States embraced most of the amendments and modifications of the English acts in relation to debts provable under the commission. By the act of 7 Geo. 1, debts due presently, but payable in futuro, were first made provable under a commission in bankruptcy; and this act was amended and its remedies extended by act of 49 Geo. 3. (Eden's Bank. Law, 125.) Prior to the act last cited the rights and remedies of persons who were security or “ liable” for the bankrupt, were extremely limited. The right of such persons to prove their claims was limited to cases in which the surety was actually damnified before the bankruptcy, or when he had some counter security, as a bill, note, or bond, payable at a day certain. (Eden's Bank. Law, 149.) This act gave the surety, or person liable, the benefit of the principal creditor’s proof; and secondly, if the principal had not proved, permitted such surety, or person liable, to prove under the commission, although he might have paid after a commission issued. (Id. 154.) The words “ person liable,” “ were adopted for the convenient latitude of comprehending all those who could not strictly be considered as sureties, and yet might need the protection they were entitled to under those general words.” (Per Lord Eldon, Ex parte Yonge, 3 Ves. & B. 31. Ex parte Lobbow, 17 Ves. 334.) These several modifications of the English bankrupt acts have rendered a large class of cases wholly useless as authorities as to what debts are or are not provable under a commission in bankruptcy, and accounts for an apparent conflict of authority in the reported cases. By the late bankrupt act of the United states, section five, it was provided that “ all creditors whose debts are not due and payable until a future day, all annuitants, holders of bottomry and respondentia bonds, holders of policies of insurance, sureties, endorsers, bail, or other persons having uncertain or contingent demands, against such bankrupt shall be permitted to come in and prove such debts or claims under this act,” &c. There can be no doubt that if the plaintiff occupied the relation of a surety to the defendant in respect of the debt to [310] Johnson, his claim was then barred by the certificate. Our act only differs from the English bankrupt acts upon this subject, in this respect, that by the latter, sureties and others having contingent claims cannot prove such claims until they shall have actually paid the same; while the United States bankrupt act gives the party the right to prove at once, reserving his right to have the same allowed until the claims shall have become absolute. (Bankrupt Act, § 5. 6 Hill, 583. Eden’s Bankrupt Law, 150, 1.) The design of the bankrupt act, was to give the sureties the right to prove their claims against the estate of the bankrupt, and to give the bankrupt the benefit of his certificate of discharge as against all such claims; and effect cannot be given to this intent or to the language employed, unless sureties at the time of the bankruptcy are allowed to prove their claims at once and as contingent claims. The rights of the other creditors, and of the bankrupt, are abundantly protected by withholding the allowance until actual payment of the debt by the surety, or, in the words of the act,, until the “debts ánd claims become absolute.” This right of the surety to prove his contingent claim rendered it unnecessary to provide for giving him the benefit of the proof of the principal creditor, as provided by the English acts, and it was therefore omitted. The claim of a surety against the principal, before payment, is contingent, and is in terms provided for by the act. It becomes absolute on payment by the surety. It then becomes a debt, The relation of principal and surety no longer exists. The surety has become the creditor, and then no necessity exists for a special provision authorizing him to prove his debt. If, then, the plaintiff had been the surety for the defendant, his claim would have been barred by the certificate of discharge. (Jackson v. Magee, 3 Ad. & Ellis, N. S. 48. Haight v. Jackson, 3 Mees. & Wels. 598. Morse v. Hovey, 1 Sandf. Ch. Rep. 188. S. C. 1 Barb. Ch. Rep. 406.) But the benefit of the act is not confined to persons holding the technical and conventional relation of sureties, endorsers, or bail. The phrase “ other persons,” was used to reach all persons holding a similar, although not precisely and techni [311] cally either of those relations, but who had claims of a similar character—that is, “ uncertain or contingent.” The plaintiff had a claim which was uncertain, and whether it would ever become a debt due and payable to him, depended upon a contingency yet to happen. It was just as contingent, and no more S0j than if he had been the surety in name and in fact, for the defendant, holding an agreement to indemnify him; and the contingency was precisely of the same character. In truth the equitable relation between the parties was that of principal and surety. After the agreement between them upon which this action was brought, the debt to Johnson was the proper debt of the defendant; and although the plaintiff remained liable to Johnson as a principal debtor, he was in equity, as between him and the defendant, a surety for the latter. In Wood v. Dodgson, (2 Maule & Selw. 195,) where, upon a dissolution of a partnership between three partners, two of the partners assigned to the third all their share in the partnership debts, property, &c. and took from him a covenant to pay the partnership debts and indemnify them, and the covenantee after-wards became bankrupt, after which the two were obliged to pay, it was held that by the covenant the covenantee became the principal debtor, and the other two were his sureties, and therefore, when they paid the debts, they paid in his- discharge, and that their claim was consequently barred by the bankruptcy and certificate of the covenantor. (See also Ex parte Taylor, 2 Rose, 175; Ex parte Ogeley, 3 Ves. & B. 133.) Butcher v. Forman, (6 Hill, 583,) recognizes and adopts the principle decided in the above cases, and holds the doctrine that the technical and conventional relation of principal and surety need not exist to bring a case within the provisions of the act. The claim of the plaintiff was within the terms, as well as the spirit and design of the bankrupt act, provable against the estate of the defendant as a contingent claim, to be allowed when it should become absolute, and was therefore discharged by the certificate. The case of Stinemets v. Ainslie, (4 Denio, 573,) was an action upon a continuing covenant for [312] the payment of rents, and rests upon an entirely different principle, It does not affect the principle upon which we decide this case. The motion to set aside the report of the referee is denied.