On Dеcember 2, 1929, an involuntary petition in bankruptcy was filed against the bankrupt individually and as copartner in the firm of Kornbluth & Rothenberg. An offer of composition providing for the payment of all claims in full, 17% per cent, payable in cash and 82% per cent, in notes, was confirmed by the bаnkruptcy court February 20, 1930. On March 21, 1931, Kom-bluth filed a voluntary petition in bankruptcy, and was adjudicated a bankrupt on the same day. His petition for a discharge was filed March 7, 1932. The claim of the objecting creditor is based upon unpaid settlement notes of the bankrupt given pursuant to the composition in the prior proceedings. The objection relied on is that confirmation of the composition was equivalent to a discharge in bankruptcy, and that, since six years have not since elapsed, discharge in the present proceeding is forbidden by section 14b (5) of the Bankruptcy Act, 11 U. S. C. § 32(b) (5), 11 USCA § 32(b) (5). The referee held that the bankrupt was entitled to a discharge, and his report was confirmed by the District Judge. In re Kornbluth (D. C.) 1 Fed. Supp. 281 From the order granting a discharge, this appeal is taken.
Section 14(b) of the Bankruptcy Act provides that: “The judge shаll hear the application for a discharge and such proofs and pleas as may be made in opposition thereto by the trustee or other parties in interest, * * * and investigate the merits of the application and discharge the applicant unless he has * * * (5) bеen granted a discharge in bankruptcy within six years. * * * ”
Section 14e of the act, 11 U. S. C. § 32(c), II USCA § 32(c), states that “The confirmation of a composition shall discharge the bankrupt from his debts, other than those agreed to be paid by the terms of the composition and those not affectеd by a discharge.”
Section 1(12) of the act, 11 U. S. C. § 1(12), 11 USCA § 1(12), defines a discharge as “the release of a bankrupt from all of his debts which are provable in bankruptcy, except such as are excepted by this title.”
The appellant contends that the action of the bankruptcy court in confirming the offer of composition in the prior proceeding was tantamount to the granting of a discharge, and that the present application is therefore barred.
The appellee’s argument that confirmation of a composition in bankruptcy dоes not constitute a “discharge in bankruptcy” within the meaning of section 14b (5), 11 US CA § 32(b) (5), is predicated upon the theory that composition is not strictly a proceeding in bankruptcy, and that the debtor is released from his obligations because of the contract with his creditors rather than
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by the order of the bankruptcy court or the provisions of the Bankruptcy Act. The doctrine that proceedings for confirmation of a debtor’s offer of composition, made after a petition in bankruptcy has been filed, are in some respects outside of bankruptcy proceedings “proper,” seems to have started with the decision of In re Lane (D. C.)
See Cumberland Glass Co. v. DeWitt,
In the usual proceedings, the debtor is adjudicated a bankrupt, and divested of his property. But, where the proceedings result in the confirmation of an оffer of composition, the ease is dismissed, even though the debtor has not yet been adjudicated a bankrupt. Nassau Works v. Brightwood Co.,
But it does not follow from the fact that composition differs from ordinary bankruptcy in some particulars that it differs in all. The question in the present ease is whether the discharge which accompanies confirmation of a composition is sufficiently analogоus to an orthodox discharge in bankruptcy to bar a subsequent discharge within six years of the confirmation. The appellee says that it is not, for the reason that it arises out of a contract of composition such as has long been recognized at common law. He argues that section 14e is superfluous, since the discharge would occur even if the statute did not so provide, by virtue of the contract of composition. This sort of discharge is said to be utterly different from a discharge in bankruptcy, which results by operation of law from an order of the bankruptcy court, and is in no way dependent on. a contract.
Doubtless a discharge which resulted purely from a contract of composition negotiated between a debtor and his creditors, quite apart from bankruptcy proceedings, would be no bar to a subsequent discharge in bankruptcy. But in many important respects a discharge through composition in bankruptcy differs from the contractual release resulting from a composition outside of bankruptcy, and closely resembles the ordinary discharge in bankruptcy. A composition in bankruptcy binds nonassenting creditors. See In re Lane (D. C.)
Composition proceedings arise out of bankruptcy, and those sections of the Bankruptcy Act governing composition are to be construed with the entire act. Wilmot v. Mudge,
Judicial analysis of the nature of a composition in bankruptcy has proceeded along the lines indicated, and has almost uniformly given a composition in bankruptcy the effect of a discharge in bankruptcy, rather than that of a composition outside of bankruptcy, For example, a composition outside of bankruptcy does not discharge the original debt until the consideration is actually paid. The agreement of composition, and еxecutory obligations given in pursuance thereof,’ simply suspend the right of action on the original debt, which is revived if the obligations are not met. In re Clarence A. Nachman Co. (C. C. A.)
In accordance with the foregoing principles, it has several times been held that the confirmation of a composition bars a subsequent discharge within six years of the confirmation. Rosenberg v. Borofsky (C. C. A.)
The appellee relies chiefly on the decision of the Circuit Court of Appeals for the Sixth Circuit in Re Goldberg,
The court construed the phrase “guilty of any of the acts” to cover only acts of intentional wrongdoing, and not innocent acts such as suffering a discharge, and held that, while section 14b (5), 11 USCA § 32(b) (5), bars a discharge, it does not bar a composition. It will be observed that, on this theory, neither a previous discharge nor a previous composition will bar a later composition, while either a prior discharge or a prior composition may bar a subsequent discharge, and that therefore the decision is not strictly relevant to the question now before us. The validity of the construction thus placed upon section 12d in the Goldberg Case we need not now determine. It may perhaps be reasonably argued that such language permits a composition to be confirmed in spite of a prior composition confirmed or a discharge granted within six years. On the other hand, it has frequently been stated that the same circumstances which operate to bar a discharge will prevent confirmation of a composition. In re Weintrob (D. C.)
We conclude that the District Court erred in granting the bankrupt’s application for a discharge.. Accordingly, the order granting the application is reversed, with directions that an order be entered denying a discharge.