20 F. Cas. 490 | S.D.N.Y. | 1874
On the 3d of August, 1874. a petition in involuntary bankruptcy was filed in this court against Morris Reiman and Albert Friedlander, composing the firm of M. Reiman & Co., by fourteen of their creditors, who alleged, in the petition, that they constituted one-fourth at least in number of the creditors of said firm, and that the debts owing to them by said firm amounted in the aggregate to at least one-tliird of all the debts owing by said firm, and provable against them. The demand of each of the petitioners was alleged to exceed the sum of $250. The petition and the papers accompanying it being regarded as sufficient, an order was made by the court on the 3d of August, requiring the debtors to show cause on the 25th of August why thé prayer of the petition should not be granted. On the return day of the order, proof of due service was made, and the debtors aiipeared by attorney. The proceedings on the order were adjourned, and have since been adjourned from time to time, and now stand adjourned to a future day. Meantime, on the 12th of August, the debtors filed in this court a sworn petition, setting forth what they stated therein to be a true statement of the names and addresses of their creditors, and of the amounts due to them, and praying that a meeting of their creditors might be called by the court, and under its direction, for the purpose of their offering a composition to their creditors. Thereupon, on the 12th of August, an order was made by this court, directing that the clerk give notice to the creditors by letter to be mailed, postage prepaid, to each known creditor, and to each creditor named in the said statement, at the address
At the hearing on these two objections, the counsel for Lazard, Freres, interposed the objection. that tlie proceedings were void, because the creditors were shown to be 74 in number, and only 14 of them had joined in the petition in involuntary bankruptcy, being less than one-fourth. As this is a jurisdictional objection, it is entertained, although not made at either of tlie meetings of the creditors. A case in bankruptcy must be pending, to authorize proceedings for a composition, and. under the act of June 22d, ]S74, no case in involuntary bankruptcy can be brought, unless the petition is made by at least one-fourth in number of the creditors. But tlie act provides, that, in computing the number of creditors who are to join in the petition, creditors whose respective debts do not exceed $250 shall not be reckoned, unless there be no creditors whose debts exceed $250, or unless the requisite number of creditors holding debts exceeding $250 fail to sign the petition. In the present case, the debt of each of the 14 petitioning creditors exceeds $250. and the number of creditors whose respective debts exceed $250 is 34. Therefore, the statute was complied with, and tlie objection is not tenable.
The constitution of the United States (article 1, § 8) provides, that “the congress shall have power * * * to establish * * * uniform laws on the subject of bankruptcies throughout the United States,” and “to make all laws which shall be necessary and proper for carrying into execution the foregoing powers.” It is contended, that the provisions for a .composition with creditors, enacted by the act of 1874, are not “a law on the subject of bankruptcies;” that the expression, “a law on the subject of bankruptcies,” .had, at the time of the adoption of the constitution, a well settled meaning, in the laws of England; that reference must be had to the pi’ovisions of those laws, to determine the meaning of the language of the constitution; that it always has been an indispensable element in a law on the subject of bankruptcies, that all the property of the bankrupt or debtor shall be surrendered and its proceeds be distributed pro rata among all his creditors; that, without such element, a law may be one for the confiscation of debts or for the release of the debtor, but will not be a law on the subject of bankruptcies; that all the English statutes on the subject, enacted prior to the adoption of the constitution, contained provisions for vesting all of the bankrupt’s or debtor’s estate in an assignee for the benefit of his creditors, and for a pro rata distribution of the proceeds of such estate among such creditors; that it is not enough, in order that a law shall be one on the subject of bankruptcies, within the meaning of the constitution, that there shall be a provision for. the release of the bankrupt or debtor from his debts without full payment of the same; that such provision for release must be accompanied by a surrender of all the property of the "bankrupt or debtor to his creditors; and that a law which provides for such release, without such surrender, is, so far as non-assenting creditors are concerned, merely a law for the confiscation of their debts, for the benefit of the bankrupt or debt- or. and not a law on the subject of bankruptcies, within the meaning of the constitution.
Mr. Justice Story, in commenting on the-provision of the constitution, says (Story, Const. § HOG) that “the general objects of all bankrupt and insolvent laws are, on the one hand, to secure to creditors an appropriation of the property of their debtors pro tanto to the discharge of their debts, whenever the latter are unable to discharge the whole amount, and, on the other hand, to relieve unfortunate and honest debtors from perpetual bondage to their creditors.” He also says (section 1111): “What laws are to be-deemed bankrupt laws, within the meaning-of the constitution, has been a matter of much forensic discussion and argument. Attempts have been made to distinguish between bankrupt laws and insolvent laws. For example, it has been said that laws which merely liberate the person of the debtor are insolvent laws, and those which discharge the contract are bankrupt laws. * * * Again, it has been said that insolvent laws-act on imprisoned debtors only at their own instance, and bankrupt laws only at the instance of creditors. But, however true this-may have been in past times, as the actual course of English legislation, it is not true, and never was true, as a distinction in colonial legislation. * * * It is believed that no laws were ever passed in America, by the colonies or states, which had the technical denomination of bankrupt laws. But insolvent laws, quite co-extensive with the-English bankrupt system in their operations- and objects, have not been unfrequent in colonial and state legislation. No distinction was ever practically, or even theoretically, attempted to be made between bankruptcies and insolvencies. And a historical review of the colonial and state legislation will abundantly show, that a bankrupt law may contain those regulations which are generally found in insolvent laws, and that an insolvent law may contain those which are common to bankrupt laws.” He further says-(section 1113): “In the English system the bankrupt laws are limited to persons who are traders, or connected with matters of trade and commerce. * * * But this is a mere matter of policy, and by no means enters into the nature of such laws. There is nothing in the nature or reason of such laws to prevent their being applied to any other class of unfortunate and meritorious debtors.” In a note to the section last cited it is said: “Perhaps, as satisfactory a description of a bankrupt law as can be framed is, that it
The general observations thus cited were made without reference to the particular provisions of any statute. But the reported decisions are in consonance with such views. In the case of In re Klein [Case No. 7,865] under the bankruptcy act of 1841 [5 Stat. 440] the district court for Missouri had held that the extent of the power of congress to establish uniform laws on the subject of bankruptcies throughout the United States was limited to the principle on which the English bankrupt system was founded, and, therefore, to a proceeding by a creditor against a debtor who was a trader, in which there should be “distribution of the bankrupt’s effects equally among his creditors, and a discharge of the debtor from his contracts upon obtaining the consent of a given majority of his creditors; and that the act of 1841, in so far as it permitted the debtor, at his own sole election, to come into court and coerce an extinction of his debts and abrogation of his contracts, contrary to the will of his creditors, was in violation of the leading principles on which the English laws were founded.” The circuit court (Mr. Justice Catron), in the Case of Klein, on appeal, held the act of 1841 to be constitutional, and observed (1 How. [42 U. S.] 27S): “Other and controlling considerations enter into the construction of the power ‘conferred on congress.’ It is general and unlimited. It gives the unrestricted authority to congress over the entire subject, as the parliament of Great Britain had it. and as the sovereign states of this Union had it before the time when the constitution was adopted. To go no further — what was the power of the states on the subject of bankruptcies? They could, and constantly did, permit the debtor to come in voluntarily, and surrender his property, and ask a discharge from his debts. The property was distributed generally among the creditors, and the debts of the petitioner annulled. Nor does the constitution prohibit the states from passing such laws. * * * What the states might do before the adoption of the constitution may well be ascertained from what they now do in virtue of their respective powers. They may frame a bankrupt law in any form they see proper. * * * In the state tribunals the debtor comes in voluntarily and forces the creditor to prove his -debt or be barred. One not a trader may apply. Neither is the consent of the creditors, or any portion of them, necessary to authorize a discharge from the contracts of the debtor. So he may have no property to divide, and many debts to annul, from which he seeks a discharge, and from which he is discharged. These powers clearly belonged to the state governments before congress was invested with them; and this was done without limitation. * * * In considering the question now before me, I have not pretended to give a definition, but purposely avoided any attempt to define the mere word bankruptcy. It is employed in the constitution in the plural, and as part of an expression, ‘the subject of bankruptcies.’ The ideas attached to the word in this connection are numerous and complicated. They form a subject of extensive and complicated legislation. 'Of this subject, congress has general jurisdiction; and the true inquiry is, to what limits is that jurisdiction restricted ? I hold, it extends to all cases where the law causes to be distributed the property of the debtor among his creditors. This is its least limit. Its greatest is a discharge of the debtor from his contracts. And all intermediate legislation, affecting substance and form, but tending to further the great end of the subject — distribution and discharge — are in the competency and discretion of congress. With the policy of a law letting in all classes, others as well as traders, and permitting the bankrupt to come in voluntarily and be discharged without the consent of his creditors, the courts have no concern. It belongs to the law-makers. I have spoken of state bankrupt laws. I deem every state law a bankrupt law, in substance and fact, that causes to be distributed by a tribunal the property of a debtor among his creditors; and it is especially such if it causes the debtor to be discharged from his contracts, within the limits prescribed by the case of Ogden v. Saunders, 12 Wheat. [25 U. S.] 213. Such a law may be denominated an insolvent law. Still it deals directly with the subject of bankruptcies, and is a bankrupt law, in the sense of the constitution.” The views thus set forth proceed upon the well established principle that, in making laws necessary and proper to carry into execution the powers vested by the constitution in the government of the United States, congress possesses the choice of means, and may use any means which are, in fact, conducive to the exercise of a power granted by the constitution. U. S. v. Fisher, 2 Cranch [6 U. S.] 358, 390; McCulloch v. Maryland, 4 Wheat. [17 U. S.] 310, 421; The Legal Tender Cases, 12 Wall. [79 U. S.] 457, 539.
In the case of In re Silverman [Case No. 12,855], in the district court for Oregon, in 1871, under the present bankruptcy act, a debtor proceeded against in invitum took the objection that congress had no power to pass a bankruptcy law applicable to other persons than traders, because its power was limited
In U. S. v. Pusey [Id. 16,098], in the circuit court for the Eastern district of Michigan, the 44th section of the present bankruptcy act, which provides that a debtor or bankrupt who shall, with intent to defraud his creditors, within three months next before the commencement of proceedings in bankruptcy, dispose of, otherwise than by bona fide transactions in the ordinary way of his trade, any of his goods which have been obtained on credit and remain unpaid for. shall be deemed guilty of a misdemeanor, and on conviction be punished by imprisonment, came under consideration. After the defendant had been tried and convicted of an offence against that section, a motion in arrest of judgment was made, on the ground that the above provision was unconstitutional and void, because it assumed to punish an offence committed before the commencement of proceedings in bankruptcy, and was, therefore, not a law necessary and proper for carrying into execution the power of congress to establish uniform laws on the subject of bankruptcies. The motion was overruled. In the decision of the court, it is said: “One object to be attained by the enactment of a bankrupt law is the appropriation of the debtor’s property to the payment of his debts. And this may be said to be the principal or primary object of all such laws. * * * Prom what has been said and written by early commentators, and by high authority, in regard to the power of congress over bankruptcies, as well as from the nature of the subject itself, there is some ground for assuming that it extends to the regulation of all the relations of debtor and creditor, for the prevention of frauds and otherwise, to the end of placing all creditors of the same debtor, not expressly preferred, upon one broad basis of equality, and of securing the honest appropriation of a debtor’s property, not expre&sly exempted, to the payment of his debts, either with or without the commission of an act of bankruptcy, or whether bankruptcy was or was not in contemplation. But in this case it is unnecessary to go to that extent, and I, therefore, leave the point undecided.”
The principle on which the law of bankruptcy has, in legislation, been founded, is, that when a man becomes insolvent, the property then remaining to him rightfully belongs to his creditors, and ought to be distributed ratably among them towards satisfaction of their claims, the debtor himself being released from future liability in respect of his debts, upon giving all the aid in his power towards the realization and distribution of his estate for the benefit of his creditors, and fulfilling the other conditions prescribed by the law for his discharge. Rob. Bankr. 1. From the time when the first bankruptcy act was enacted in England (34 & 35 Hen. VIII. c. 4), it was always a feature of the law, that the estate of the bankrupt was taken by public authority and distributed ratably among his creditors. Provision for the relief of bankrupts from their debts was first introduced by the statute of 4 Anne, c. 17. The statute of 0 Geo. IV. c. 16. in 1825, first introduced the principle of deeds of arrangement, whereby the property of an insolvent trader was made applicable for the common benefit of his creditors, without his going through proceedings in bankruptcy. But the assent of all his creditors was made practically necessary to the operation of the deed, for, although a specified majority in number and value of the creditors, could, after bankruptcy, accept a composition in satisfaction of their debts, on which the commission could be superseded, the bankrupt was not thereby released from the demands of dissenting creditors. By the act of 1849 (12 & 13 Viet. c. 106), the debtor, when he found himself insolvent, was enabled to place himself and his property' under the protection of the court, and, through its intervention, without actual bankruptcy, to effect an arrangement for the payment or compromise of his debts, binding on all his creditors, provided he could obtain the assent of a majority of three-fifths in number and value; or if the debtor, without recourse to the court, could obtain the assent of six-sevenths in number and value of his creditors to an arrangement involving the distribution of his entire estate, this was also made binding on all the creditors. This act also made a composition, accepted by nine-tenths of the creditors of a bankrupt, after his last examination, binding on all the creditors, so that, on the acceptance of such composition, the bankruptcy could be annulled. This act was interpreted by the courts as not binding dissenting creditors by any arrangement which did not comprise a cession of the whole of the bankrupt’s property; and, therefore, arrangements by way of composition, without a cessio bonorum, were impossible under it when any' creditor dissented. The act of 1861 (24 & 25 Viet. c. 134) provided for allowing to the debtor a limited period to obtain the assent of his creditors to an arrangement without the risk of bankruptcy, and did not require a cessio bonorum to make an arrangement or composition binding on dissenting creditors, but empowered a majority-in number and three-fourths in value of the creditors to bind the minority. Abuses under this act led to the passing of the act of 1808 (31 & 32 Viet. c. 104). requiring, for the validity of composition deeds, the fullest discovery
It cannot be doubted, that congress, in passing laws on the subject of bankruptcies, is not restricted to laws with such scope only as the English bankruptcy laws had when the constitution was adopted. The authority of text writers, and the adjudged cases cited, and the practical construction of the provision of the constitution, by the fact of the enactment of provisions for voluntary bankruptcy, and for putting into involuntary bankruptcy others than traders, and for granting discharges without the consent of any creditor, are satisfactory evidence that the power to establish laws on “the subject of bankruptcies” gives an authority over the subject, that is not restricted by the limitation found in the English statutes in force when the constitution was adopted. The power given must, indeed, be held to be general, unlimited and unrestricted over the subject.
But the question recurs — what is the subject? The subject is “the subject of bankruptcies.” What is “the subject of bankruptcies?” It is not, properly, anything less than the subject of the relations between an insolvent or non-paying or fraudulent debtor, and his creditors, extending to his and their relief. It comprises the satisfaction of the debt for a sum less than its amount, with the relief of the debtor from liability for the unpaid balance, and the right of the creditor to require that the amount paid in satisfaction shall be substantially as great a pro rata share of the prop
In view of all these considerations, how can it be said that these provisions for composition do not relate to the “subject of bankruptcies?” They relate to the subject of debts owing by a debtor to creditors, and to the relation of the debtor to his creditors, in view of his assets and of such debts. They place the subject under the jurisdiction of the court of bankruptcy, and require a petition in bankruptcy to be pending, either voluntary, which requires prior insolvency to be alleged, or involuntary, which requires the commission of a prior act of bankruptcy to be alleged; and, in either case, proceedings for composition are necessarily predicated on insolvency or existing inability to pay the debts in full. But, even if a more restricted meaning be given to the expression “subject of bankruptcies,” there is, within the scope of the discretionary power possessed by congress, of choosing the means to accomplish the end, a substantial appropriation of -the existing property of the debtor towards all the debts due by him. There is not, as there is in proceedings carried through in bankruptcy, a pro rata payment on the debts only of those creditors who prove their debts, but all creditors are to have a payment pro rata. It must, therefore, be held, that the statutory provisions for composition are not open to the objection, that they' are not warranted by the constitut:on.
It is fuxther objected, that the composition in this case provides for payment in notes, and not money. and is. therefore, not authorized by the statute. I do not think that the composition, properly interpreted, provides for a payment otherwise than in money. The creditors, by it, agree to accept thirty cents on the dollar, in full satisfaction and discharge of their debts, to.be paid as prescribed, namely, ten per cent, thereof within ten days after the recording of the resolution, and the filing of the statement, ten per cent, thereof in four months from .September 1st, 1874, and ten per cent, thereof in eight months from September 1st, 1874, notes satisfactorily indorsed to be given for the four and eight months payments. In default thereof, that is, in default of the making of any of the payments of the thirty per cent, at the times prescribed, the agreement for compromise is to be void and of nó effect towards those creditors in respect to whom any such default happens.
Although the English statute does not contain the provision that the composition shall provide for payment in money, yet no inference can be drawn from the fact that such provision is inserted in our statute, that it was intended to prevent the payment of the money in instalments. Our statute provides for the making of rules and regulations of court in relation to proceedings of composition. None such have yet been made. But, as our statute in relation to proceedings of composition follows very closely the English statute of 1SGÍ), it is proper to recur to the English bankruptcy rules of January 1st, 1870, promulgated by the lord chancellor and the chief judge in bankruptcy, in pursuance of sections 78 and 12G of the English act of 18G9, and which rules were in force when our statute was passed, as showing what was understood to be within the scope of a “composition.” Rule 279 of the English rules provides, that, where the creditors pass a resolution for composition, they shall specify in the resolution “the amount of the composition, and the instalments and dates at which the same shall be payable, and they may name some person as trustee for receipt and distribution of the composition and any negotiable securities which may be given for the same.” Rule 280 provides, that, “instead of specifying by their resolution the security to be given, the creditors may resolve that the composition, or some part or instalment thereof, shall be secured in such manner as may be approved by a creditor or creditors to be named by the resolution.” Rule 281 provides, that the resolution “may provide that the terms of the composition be embodied in a deed between such parties, and containing such covenants for payment of the composition, and for protecting and releasing the debtor, and such other covenants for securing the composition, either by assignment of property or by inspection of the debtor’s business, or otherwise, as the nature of the case may require, and as the resolution may specify in particular or general terms.” It is quite apparent, from these rules, that the idea of a composition, under the English statute, and under the rules prescribed concerning compositions, admits the idea of a payment of money by instalments at future dates, and the taking, in addition, of security that such payments shall be made. The word “composition,” even in connection with the provision that the payment shall be in money, cannot, under our statute, have a more restricted meaning.
The embarrassment as to the present resolution is, that it provides that the notes shall be “satisfactorily indorsed.” No in-dorser is named, nor is it provided that the indorser shall be named by a creditor or creditors. To whom is the indorser to be satisfactory? It cannot be proper to leave it open to each creditor to uame the indorser who will be satisfactory to him. It is not proper to throw upon the court the responsibility of saying who shall be a satisfactory indorser. The resolution should provide for ascertaining the satisfactory character of the indorser, either by naming him or by providing for his being definitely named. The interests of creditors not assenting are involved, and they are entitled to have something more definite in this respect than this resolution contains. Since this matter was argued, and in view of a suggestion made by the court on the argument, that the resolution was too indefinite in this respect, a paper has been presented to me signed by Mr. Michael Doyle, a merchant, consenting to indorse the notes provided for by the composition, and signed also by sundry creditors of the debtors, agreeing to accept such indorsement as the satisfactory indorsement mentioned in the resolution. The statute provides for adding to or varying the provisions of a composition, by a resolution passed in the manner and under the circumstances provided for passing the original resolution, and for presenting such additional resolution to the court in the same manner, and proceeding with it in the same wa.vand with 1 be same consequences, as the original resolution. This course can be pursued in regard to naming Mr. Doyle as in-dorser. but the defect cannot be supplied in any other way.
The resolution of composition in this case was passed on the 31st of August, 1874, at a meeting adjourned from August 20th. The meeting to inquire whether the resolution had been duly passed was held on the 16th of September, and, by adjournment, on the 18th. On the 5th of September, the court made an order that the marshal forthwith take possession provisionally of all the property and effects of the debtors and safely keep the same until the further order of the court. This was done on the petition of A. T. Stewart & Co. On the 10th of September, on the application of the debtors and of sundry creditors of theirs, an order was made that the debtors, under the direction of the marshal as the messenger of the court, should be allowed to proceed with the sale
The meeting directed in the foregoing opinion was held, and the proceedings of the meeting were presented to the court.
BLATCHFORD, District Judge. The proceedings of a meeting of the creditors of the alleged bankrupts, called for the purpose of adding to or varying the provisions of a composition previously accepted by the creditors of the alleged bankrupts, are now presented to the court. At the meeting a resolution was duly passed, varying the provisions of the composition previously accepted, and such resolution has been duly confirmed. On presenting such resolution to the court, with the statement of the debts and assets, the alleged bankrupts ask that the resolution be recorded and the statement be filed. The statute provides that the creditors may, by resolution passed in the manner and under the circumstances provided in relation to an original resolution for composition, add to or vary the provisions of any composition previously accepted by them, without prejudice to any persons taking interests under such provisions, who do not assent to such addition or variation. It further provides that “any such additional resolution” passed in the manner and under the circumstances aforesaid, “shall be presented to the court in the same manner, and proceeded with in the same way and with the same consequences as the resolution by which the composition was accepted in the first instance.” This requires that after the resolution varying the provisions of the composition previously accepted shall have been passed and confirmed and presented to the court, it shall be “proceeded with in the same way” as the original resolution was proceeded with. In regal'd to the original resolution, the statute expressly requires that the court shall, “upon notice to all the creditors of the debtor, of not less than five days, and upon hearing, inquire whether such resolution has been passed in the manner directed by this section.” It follows that this second resolution cannot now be recorded, but that a meeting on notice to all the creditors must be called, in like manner as a second meeting was called in respect to the original resolution, to inquire whether the second resolution has been passed in the manner directed by the statute. As it appears that creditors who attended at the meeting where the second resolution was passed, objected to the passing of such resolution, for reasons then and there stated by them, such creditors must have notice of the time and place of presenting to the court the proceedings of the meeting now to be called, so that they may be heard; and tliey will then be at liberty to present to the court, as will any other creditor, any papers which are relevant, to show that the composition is one which ought not to be sanctioned by the court.
[From 11 N. B. R. 21.]
[From XI N. B. R. 21.]
