Hewes v. Rand

Gray, C. J. By the act of Congress of June 22, 1874, § 17, it is enacted that the provisions of a composition in bankruptcy, accepted by resolution of the requisite majority of the creditors, “ shall be binding on all the creditors whose names and addresses and the amounts of the debts due to whom are shown in the statement of the debtor produced at the meeting at which the resolution shall have been passed, but shall not affect or prejudice the rights of any other creditors,” A creditor, whose name, or the amount of whose debt, is not shown in the. statement of the debtor, is not bound by the composition. If his debt is stated at less than its true amount, the composition is no more binding on him than if he is not named in the statement at all. In either case, he would not obtain under the composition a like proportion of his actual debt with the other creditors, and may sue upon his debt, as if no proceedings of composition had been had. Pratt v. Chase, 122 Mass. 262. Woolsey v. Hogan, 124 Mass. 497. Ex parte Lang, 5 Ch. D. 971. Breslauer v. Brown, 3 App. Cas. 672. Burliner v. Royle, 5 C. P. D. 354. The powers conferred by the statute upon the District Court of the United States are: 1st. To “ inquire whether such resolution has been passed in the manner directed by this section,” and whether “ it is for the best interest of all concerned,” and, if so, to order the resolution to be recorded, and the statement of assets and debts to be filed. 2d. To enforce “ the provisions of any composition, made in pursuance of this section,” in a summary manner. 3d. If it shall at any time appear that the composition “ cannot, in consequence of legal difficulties, or for any sufficient cause, proceed without injustice or undue delay to the creditors or to the debtor,” to refuse to accept and confirm the composition, or to set it aside. That court may doubtless inquire (as it appears to have done in this case) whether the debtor has filed a statement of assets and debts. And if the debtor, pending the proceedings for a composition, discovers a mistake in his statement, the statute provides that “ any mistake [523] made inadvertently by a debtor in the statement of his debts may be corrected upon reasonable notice, and with the consent of a general meeting of his creditors.” But if the statement of the debtor, as originally filed, or as thus amended, does not truly state the debt of a particular creditor, no action of the court in bankruptcy can give the composition an effect against him which the act of Congress expressly declares that it shall not have. The only decision cited by the defendant which supports his position is one of the City Court of Brooklyn. Beebee v. Pyle, 1 Abbott N. C. 412. In Beekefs ease, 2 Woods, 173, no question of the effect of a mistake in the statement of a debt was presented or considered. In Paret v. Tieknor, 4 Dill. Ill, the decision was that the debtor’s statement that a particular debt upon his schedule was fully secured was not binding upon the creditor, but that the latter was entitled under the composition to the same proportion as the other creditors of so much of his debt as the security did not satisfy. In Farwell v. Raddin, ante, 7, the error alleged was not a mistake in the amount of the plaintiff’s debt, but a fraudulent suppression of assets, which would affect all creditors alike, and as to which the act of Congress makes no specific provision. In Ex parte Trafton, 2 Lowell, 505, the point decided was that a debtor might dispute the validity and amount of a claim entered upon his statement, and have the true amount ascertained under the direction of the court in bankruptcy, and satisfy the claim by paying to the creditor the proportion, stipulated by the composition, of the amount so ascertained. That decision appears to be inconsistent with the later judgments of the Court of Appeal in Melhado v. Watson, 2 C. P. D. 281, and of the House of Lords in Breslauer v. Brown, 3 App. Cas. 672. And Judge Lowell, while intimating an opinion that a mistake, without fraud, in the statement of a particular debt, would not vitiate the composition, guardedly added that, if the creditor failed to come in and prove the true amount, it would be for the State courts to say whether he was bound by the composition. In the case at bar, the actual amount of the plaintiff’s debt, without interest, and deducting the defendant’s claim in set-off, [524] is found to have been more by $27.81 than the amount as stated by the debtor; and the plaintiff, not appearing to have joined in the resolution for a composition, nor to have accepted any money under it, but having objected to its being recorded, is not bound by it. Ex parte Lang, and other cases before cited. It was therefore rightly ruled in the Superior Court that there must be Judgment for the plaintiff. * Footnotes [*] A similar decision was made in Suffolk, November 26, 1880, in the case of William MacMahon, trustee, vs. David H. Jacobs. Contract to recover $125 for rent and $225 for taxes under an indenture of lease, by which the plaintiff, “trustee for Mrs. Mary S. Israel,” leased to David H. Jacobs and Henry A. Holbrook a house and land in Boston for twenty years from March 15, 1873, and they covenanted to pay him rent and taxes. The defendant Jacobs alone appeared and answered, setting up a composition in bankruptcy under the act of Congress of June 22, 1874, § 17. At the trial in the Superior Court, before Pitman, J., without a jury, the following facts were admitted: The plaintiff was the son-in-law of and trustee for Mary S. Israel, who lived at Portsmouth in the State of New Hampshire and as such trustee held the title of the estate, and made the lease, and she assented to the lease by this writing thereon: “Boston, March 15, 1873. I, Mary S. Israel, named in the foregoing lease, hereby assent to and ratify and confirm the said lease, and bind myself and my heirs, appointees by will, and assigns, thereto. Mary S. Israel.” On December 12, 1874, the plaintiff, by a written order addressed to the defendants, requested them to pay the rent to become due “to Mary S. Israel until further order from me, and her receipts to you for all rents of said house and estate shall be your discharge and acquittance of all the same, the same as if signed by me.” The defendants afterwards paid rents as they became due to Mary S. Israel, taking her receipts therefor. On April 17, 1878, the date of the filing of the defendant’s petition in bankruptcy, the sums sued for were due under the lease and unpaid; and the defendants owed no other sum to the plaintiff or to Mary S. Israel. The proceedings in bankruptcy and in composition were in regular form. On the defendant’s schedule of debts, the plaintiff’s name did not appear, but the following entry was made under proper headings: “Mary S. Israel, Portsmouth, N. H. $125.” She received notice of the issuing of the warrant in bankruptcy, containing a list of the defendant’s creditors, then addresses and the amount due to each, stated as aforesaid, and also containing a notice of the first meeting of creditors; and sent the notice to the plaintiff at his residence in Boston; but he, being away, did not receive it until after the first meeting. Neither he nor she took any part in the proceedings in [525] bankruptcy or in composition, nor took any dividend under the composition; but a tender was made of the dividend on $125. The defendant requested the judge to rule that Mary S. Israel was the plaintiff’s cestui que trust and agent, and a party, by way of ratification, to the lease; that, if the plaintiff had actual notice of the proceedings in bankruptcy, saw the notice sent to her, and understood that the debt stated in the schedule or notice was intended to mean the debt now sued for, the composition was a bar; and that her name and address and the amount due to her were, so far as this action was concerned, the name and address of, and the amount due to, the plaintiff, and were sufficiently stated in the notice and in the schedule produced at the meeting of creditors at which the resolution of composition was passed, and that he was bound thereby. But the judge refused so to rule, and found for the plaintiff; and the defendant alleged exceptions to the refusal so to rule. O. A. James Sf C. A. Prince, for the defendant. J. B. Richardson $• E. B. Hale, for the plaintiff. Gray, C. J. The debt sued on was due to the plaintiff, not to his cestui que trust. He never authorized her to receive or discharge any part of the claim for taxes, nor to discharge any part of the rent without actual payment. Neither the sum due for taxes, nor the plaintiff’s name and address, were upon the debtor’s schedule. The plaintiff having taken no part in the proceedings, the composition in bankruptcy is no bar to this action. Hewes v. Rand,, supra, and cases cited. Exceptions overruled.