In re Bayly

WOODS. Circuit Judge. It is clear that Fourehey was in the first instance properly enjoined from proceeding to enforce the collection of his judgment out of the property of the bankrupts. Bayly & Pond filed their petition in bankruptcy March 2, 1876, in which they prayed for the benefit, of the act to establish a uniform system of bankruptcy throughout the United States, approved March 2, 1867. [14 Stat. 517.] The suit of Fourehey was not. begun until March 13, and judgment was not rendered in his favor until April .10. The property of the bankrupts was by force of the bankrupt act. protected from any interference by then-judgment or execution issued thereon. See sections 5,'106, Rev. St. The only question, therefore, for solution is: What is the effect of the composition proceedings, and the failure of the bankrupts to pay the composition, on the rights of the • petitioner? Clearly as long as the bank- ■ rupts were paying the instalments according to the terms of their composition, the judg- I ment creditor could not enforce the collection of his debt against the property of the bankrupt, for the act of congress providing for composition declares that the provisions of a composition accepted by a resolution ■adopted at a meeting of the creditors “shall be binding off all the creditors whose names and addresses, and the amount 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.” [Act of June 22, 1874.] 18 Stat. 183. And Four-chey’s name, address, and- the amount of the debts due him from the bankrupts, were shown in the list above mentioned. Has the failure of Bayly & Pond to perform the composition according to its terms clothed Fourehey with the right to disregard the bankruptcy proceedings and sue for his whole debt? It seems to me that such a result does not follow the failure of the bankrupts to pay their composition. The bankruptcy proceedings are not determined and closed by the order of the court approving the resolution of the creditors accepting the composition. The case is still pending. Further steps in the case may be necessary. The law says: “The provisions of any composition made in pursuance of this section may be enforced by the court on motion made in a summary manner by any person interested and on reasonable notice, and any disobedience of the order of the court made on such motion shall be deemed a contempt of court.” “If it should at any time appear to the court on notice, satisfactory evidence and hearing, that a composition under this section cannot, in consequence of legal difficulties, or for any sufficient cause, proceed without injustice or undue delay to the creditors or to the debtor, the court may refuse to accept or confirm such composition, 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 law, and proceedings may be had accordingly, and the time during which such composition shall have been in force shall not in such case be computed in calculating periods of time prescribed by said act. 18 Stat. 184. It is clear from these provisions of the statute that when a composition is set aside by the court the proceedings in bankruptcy may be prosecuted without beginning de novo. No new petition is required. The case is taken up just where it .was when interrupted by the composition. The bankruptcy suit is therefore, pending all the time, and by its force protects the property of the debtor from seizure by any creditor who is bound by the composition resolution. If a composition fails and the court orders the case in bankruptcy to proceed, the court has it in its power to see that those creditors who have not received their pro rata shares, if any, shall be made equal to those who have, in the distribution of the assets of the bankrupt estate. To hold that a failure to pay accord [1087] ing to the composition resolution authorizes the creditors who are not paid to seize the property of the bankrupt, would be to ren-der Tain and futile the bankruptcy. The petitioner in review has attempted to sustain his views by the citation of cases under the English composition act. Edwards v. Coombe, L. R. 7 C. P. 519; Newell v. Van Praagh, L. R. 9 C. P. 96; In re Hatton, 7 Ch. App. 723. It is to be observed that these cases arose under section 120, 32 & 33 Viet., (see Blum. Bankr. p. 400,) which provides that “the creditors of a debtor unable to pay his debts may, without any proceedings in bankruptcy, by an extraordinary resolution, resolve that a composition shall be accepted in satisfaction of the debts due to them from the debtor. If it appears to the court in satisfactory evidence that a composition under this section cannot, in consequence of legal difficulties, or for any sufficient cause, proceed without injustice, or ■undue delay to the creditors or to the debtor, the court may adjudge the debtor a bankrupt, and proceedings may be had accordingly.” The difference between the English act and ours is evident at a glance. Under the English act the composition may take place without any proceedings in bankruptcy, and if the composition fails, the court may, but is not required to, adjudge the debtor a bankrupt. Under the act of congress there can be no composition unless a petition under the bankrupt act is first filed; and if the proceedings in bankruptcy are arrested by a composition, and the composition fails, the law declares that the bankruptcy shall proceed. I therefore think that the authorities cited are not pertinent^to the American statute. These remarks also apply to the cases relied ¡ on by petitioner, cited from Massachusetts Reports. National Mount Wollaston Bank v. Porter, 122 Mass. 308; Pierce v. Gilkey, 124 Mass. 300. On the other hand, in a well-considered case, the court of appeals of Maryland has decided, basing its decision on the peculiar form of our statute, that where j a resolution of composition provides that the ; instalments shall be secured by the notes j of the debtor, a creditor who has proved his ] debt cannot sue for his original debt in a state court, although the debtor has made default in payment of one of the instalments. Deford v. Hewlett, 49 Md. 51. The remedy for failure to comply with the terms of the composition, it seems to me, is clearly pointed out by our statute. It does not permit the creditor to sue for and recover his original debt, but provides for an application to the court for the enforcement of the composition, or, in ease the composition cannot be enforced, that the proceedings in bankruptcy shall be resumed. It results from these views that Fourchey was properly enjoined by the district court, and that the court was right in refusing to dissolve the- injunction. Petition of review dismissed at petitioner’s costs.