Deford v. Hewlett

Stewart, J., delivered the opinion of the Court. A petition having been filed against the appellee in bankruptcy, he made a proposition for composition with his creditors, in pursuance of the 17th sec. of the Act of Congress of 1874, ch. 390, to wit: that the proceedings, in bankruptcy be suspended, and that they should receive in full satisfaction and discharge of their claims of every kind against him, twenty-five per centum of the same,— three per ct. in cash, payable 10 days after a resolution, accepting this offer, shall be confirmed by the Court, and ordered to he recorded ; and the balance to he paid in money, in three equal instalments in six, twelve and eighteen months, from the date of the recording of such resolution, with interest, to be secured by his promissory notes to be delivered to the creditors, their attorneys or assigns, within ten days after the recording of the said resolution—his assets, in the meantime to be placed in the custody of George J. Appold—the dividends of the same when collected, to be applied to the payment of the said three per cent, and said promissory notes, as they respectively fall due. This proposition was duly accepted by his creditors, at a meeting called for the purpose of considering the same, by resolution to that effect. — 61 — The appellants holding his two promissory notes, each for the sum of $1786.87—being present and voting, and proving their claim in the bankruptcy proceedings. This resolution, according to the appellee’s proposition, was passed by the Court, and recorded. In accordance with the terms of the composition, the appellee paid in cash the three per centum, of the claims against him, including the appellants’, and delivered to his creditors, including the appellants, his promissory notes for twenty-two per cent, of their claims ; and transferred to Appold, as required by the resolution, all of his assets of every description, as security for the payment of the promissory notes. The three per cent, in cash and the first instalment under the composition, being paid, but the second unpaid, the appellants brought suit for recovery on the original notes. Under this state of facts, disclosed by the pleadings, the substantial question presented for our review, is, whether the appellants can maintain this suit, for recovery on the original notes. A preliminary question of practice has been argued by the counsel for the appellants, who insists that the plea of the appellee is defective, because it sets up, as he alleges, three distinct facts, constituting three distinct defences in one plea, to wit: 1st, the recording of the resolution in bankruptcy—2nd, the fact that the appellants were present and voted, and 3rd, the pendency of the proceedings in bankruptcy. The detail of facts and proceedings consisting of the averment of the composition and its acceptance, and its performance by the payment in money and delivery of the promissory notes of the appellee to the appellants ; the fact of the appellants being present and voting, the recording of the resolution and the pendency of the proceedings in bankruptcy, was necessary to a clear understand — 62 — ing of the defence, and does not come within the scope of the rule against double pleading. The statement of a multiplicity of facts constituting the defence and material to its conclusiveness, even if there was surplusage, affords no ground for demurrer on that account. Code, Art. 75 secs. 2 and 3. If the appellants can, notwithstanding the facts averred and admitted, collect their claim in this form, the object of the bankrupt law and its amendments, to wit: the discharge of the bankrupt from his debts under the terms provided, and the fair distribution of his assets amongst his creditors, is defeated—the proceedings in bankruptcy are nugatory, and the race for precedence amongst his creditors is open to a general scramble—not only the Federal, but the State Courts are at their command. Bankrupt laws, it is well understood, discharge the contract, contradistinguished from insolvent laws, which only liberate the person. 4 Wheaton, 194. Whilst the bankrupt is going through the process provided for the discharge of his debts, under the direction of the only jurisdiction that can discharge them, is it possible that the State Courts can intervene and enable the creditors to pursue their remedies as if no such proceeding had taken place ? The 17th sec. of the Act of 1874, ch. 390, provides, that in all cases in bankruptcy, ivhether an adjudication in bankruptcy shall have been had or not, the creditors of the bankrupt at a meeting called, under the direction of the Gourt, may resolve, that a composition proposed by the debtor, shall be accepted in satisfaction of the debts due them. With some modifications hereafter referred to, this provision is taken from the 126th sec of the English Bankrupt Act of 1817, 32 and 33 Viet., ch. 71. Under that statute, the creditors of the bankrupt, may, without any proceedings in bankruptcy, resolve, that a composition shall be accepted in satisfaction of their debts. — 63 — Without the intervention of the Court, the requisite number of the creditors can determine whether he shall be discharged, and the registrar is to make registry of the resolution, if satisfied that it passed in pursuance of the statute. Under our law, the composition is an incidental proceeding in bankruptcy. Proceedings in the Court of Bankruptcy commence upon the filing of the petition for an adjudication in bankruptcy, either by the debtor, in his own behalf, or by a creditor against him. Section 4991 of the Revised Statutes. The jurisdiction of that Court is exclusive, except where otherwise provided by statute. U. S. Revised Statutes, secs. 563, 629, 630, 639, 711, 4972, sub. 2 and 4, 4979, 5105, 4991; ch. 390, sec. 2, of the Act of 1874. There is a broad and well defined distinction between the arrangement of the Courts in England, in regard to jurisdiction, and between our Federal and State Courts. Under the constitution of our Courts growing out of the form of our government made up of State and Federal authority, the bankrupt laws clearly provide for the exclusive jurisdiction of the Federal Court over matters of bankruptcy. That subject has been by the Constitution confided to the Federal authority. When that Court has acquired jurisdiction, it is not suspended by the proceeding for a composition. The 17th section declares that the provisions of a composition accepted by resolution, shall be binding on all the creditors, and may be enforced by the Court in a summary manner, and disobedience punished as a contempt; and if at any time, it shall appear to the Court, that a composition cannot proceed without injustice or undue delay, the Court may refuse to accept or confirm it, or may set the same aside ; and in either case, the debtor shall be proceeded •with as a bankrupt, in conformity with the provisions of the law, and proceedings may be had accordingly. — 64 — Where that Court has jurisdiction of the case and all equities between the parties, with enlarged authority over the parties, and subject-matter for its final disposition, would it he quite consistent with the orderly administration of justice, especially as provided in regard to the exercise of jurisdiction of the Federal and State Courts, to say nothing of the comity to he observed between Courts exercising a common jurisdiction, for the State Courts to interfere and undertake to withdraw the proceedings, whilst in fieri, from the Court in bankruptcy, where it had its origin, and where it may he proceeded with, in all its bearings and modifications ? Under the 5105th section of the Revised Statutes, the creditors are prohibited, from maintaining any suit at law or in equity, for the recovery of their claims, against the appellee. In this condition of things, it is quite clear the appellants have no right to resort to the Courts of the State, for the recovery of their claim, nor to invoke their authority for the redress of their alleged grievances. See Miller vs. Mackenzie, et al., 43 Md., 404. The 17th section of this amendatory Act further provides, that the composition shall, subject to the priorities specified in the Act, provide for a pro rata payment, or satisfaction in money to the creditors. This provision is not in the English statute, and must have been inserted for a purpose, and there are no English decisions of course, to he referred to as throwing any light upon the subject. It was intended to have,' and does exert, a controlling influence as to the effect and operation of a composition between the bankrupt debtor and his creditors. The creditors have the right to insist, upon payment of the composition proposed by the bankrupt in money ; if they choose to accept the promissory notes of the debtor therefor, (which the learned Judge In re Reiman vs. Fried65 lander, 12 Blatchford, 562, ruled might be done,) such notes to gratify the purposes of the Act, must have the same effect as so much money. Otherwise the creditors and bankrupt by a composition, postponing the payments, and the failure to meet them, might avoid the operation of the bankrupt law, and according to the theory of the counsel for the appellants, re-invest the State Courts with jurisdiction over the subject-matter and parties. Our bankrupt laws, as we understand them, mean by a composition, not the partial, but the total satisfaction and discharge of the debts of the bankrupt, when approved by the Court. The composition proposed and accepted, and performed by payment in money, or promissory notes equivalent thereto, is binding upon the creditors ; extinguishes and discharges the debts, and is an effective pro-, ceeding to accomplish such results. Miller vs. Mackenzie, 43 Md., 404. The creditors have no right under such circumstances, to resort to the State Courts for the recovery of their ■original debts, in case the notes are not paid. If the composition is to be held as made, partly in money and partly in notes, not considered as money, and the part in money is paid, but the notes are not paid, as in this case, what is to be the effect? As far as paid, is that to operate as a discharge quoad hoc? or does the entirety of the old debt revive? and is the jurisdiction of the Courts to be divided up? such cannot bo the result. The composition must be treated as effective-. Some of the English authorities, (Edwards vs. Coombe, L. R., 7 C. P., 519; In re Hatton L. R., 7 Ch. Ap., 723, but Ex parte Hemingway, 21 L. T., N. S., 278, the other way) construing their statute, and the effect to be given to the extraordinary resolution of the creditors for a composition, upon the existing debts of the bankrupt, — 66 — seem to treat it as having the same operation as a voluntary composition deed. (Decided 5th June, 1878.) The composition under our statute depends for its validity upon the resolution, passed by the prescribed number of creditors, binding alike on all of them, if their debts are included in the statement filed by the debtor, and finally confirmed by the Court. See Walker vs. Moore, 122 Mass., 501. In the case of the National Mount Wollaston Bank vs. Porter, 122 Mass., 308, referred to, a material fact distinguishes it from this—there was no compliance on the part of the bankrupt, with the terms of the composition. Guild vs. Butler, same volume, 498, also referred to, does not undertake to decide the question involved here. Until the bankrupt performs the terms of the composition, by payment in money, or his promissory notes to be treated as money, the composition is incomplete and ineffectual ; but that would not invest the State Court with jurisdiction ; the remedy must be sought in the Bankruptcy Court, and the provisions of the statute point out the mode of redress, and that must be exclusive; but when the bankrupt complies and performs the same by the payment in money, or as in this case, with money and notes, the composition is an accomplished fact, and the results provided for in the Act necessarily follow. The creditors having proved their claims in bankruptcy, and agreed to the composition, and the pro rata payment having been made to them by the bankrupt, part in money, and part in his promissory notes, to be treated as money, are bound thereby, and have no right to pursue the recovery of their debts through the State Court, as if there was and had been no proceeding in bankruptcy. Judgment affirmed.