| N.D.N.Y. | Oct 6, 1899
(after stating the facts as above). The; effect of a composition is to supersede the bankruptcy proceedings and reinvest the bankrupt with all his property free from the claims of creditors. As an abstract proposition, considered for a moment apart from the provisions of the statute, it is entirely clear that a condition so plainly in derogation of common-law rights should nol; be permitted, unless it is reasonably certain that the creditors approve and that they will fare at least as well as they would were the (‘State administered in the usual course. It would be manifestly unfair and opposed to the basic principle of our institutions to permit a minority to dictate terms to a majority and compel them, in invitan, to take what the bankrupt chooses to offer, or nothing. Indeed, it has been considered a somewhat dangerous exercise of legislative power to compel even a minority to surrender all claim upon the debtor’s estate at the dictation of the majority. Certainly no previous law lias permitted a minority to force a compromise. Always the safeguard of a majority against favoritism and fraud has been preserved. The amendment of 1874 to the law of 18(57 provides that “such resolution shall, to be operative, have been passed by a. majority in number and three-fourths in value of the creditors of the debtor assembled at such meeting, and shall be confirmed by ihe signatures thereto of the debtor and two-tbirds in number and one-half in value of all the creditors of the debtor.” 18 Stat. 183, c. 390, § 17. A law which compels a creditor, against his will, to accept in discharge of his debt just what the debtor sees
' The present law should be construed in the light of similar prior enactments and any doubt should he resolved against those who seek to deprive creditors of the right to have the debtor’s property applied to the payment of his debts. Nothing short of an absolutely plain and unambiguous provision will convince the court that congress intended for the first time, it is thought, in the history of bankruptcy legislation to vest such unusual and dictatorial powers - with a minority of the creditors. It may be assumed that the language of section 12 is not as perspicuous as could be desired, but, read as a whole, the intention of congress seems plain to permit a compromise only when sanctioned by a majority in number and amount of the creditors whose claims have been allowed, after due notice to them of the bankrupt’s proposition. If the construction contended for by the bankrupt be accepted it will lead to most inequitable results. Take, for illustration, a case where there are thirty creditors and only three have proved their debts, for equal amounts, at the time the composition is offered. If the bankrupt obtains the consent of two of them the composition must be confirmed, although the remaining twenty-eight creditors may be in open opposition.
Section 12 is easily capable of a construction compatible with the intent and purpose which has always ruled proceedings of this kind. After the bankrupt has been examined and filed a list of his creditors he “may offer terms of composition to his creditors.” This plainly implies that the offer should be made to all his creditors whether they have proved their debts or not. It is not essential that proofs shall be made before, or at, the first meeting. They may be made at any time within a year after the adjudication and it is not necessary that they shall be filed, in the first instance, with the referee. Section 57, c. n.
After the terms are thus made known to all the creditors they have a reasonable time to decide whether they will accept the offer or not. But in order to qualify themselves to vote upon the proposition they are required to prove their claims. The reason for this is obvious; it excludes from the voting all but bona fide creditors; it excludes all those who are too indifferent to present their claims and all whose claims are unliquidated, fictitious or exorbitant; it gives all creditors notice no matter what may be the nature of their claims and permits them to qualify, if they desire to do so, and assent to the compromise or oppose it, or, if they so elect, they may simply withhold their assent. After a fair opportunity has been given to all and the requisite majority of. those whose claims have been allowed have accepted it in writing an application to confirm the composition may be filed. Even then the composition may be rejected if the judge be convinced that it is not for the best interests of the creditors.
A construction which permits the bankrupt to select a time when but few creditors have proved and then to present his terms only to such creditors as he believes to be friendly to his interests, keeping the general creditors in the dark until he has obtained a majority of
Without pursuing the subject further the court is constrained to deny the application to confirm this composition. The reasons for this conclusion may be briefly stated as follows:
First. It is not approved by a majority in number and amount of creditors whose claims have been allowed.
Second. No notice was given to the general creditors of the bankrupt.
Third. The composition was not presented to all the creditors whose claims were allowed.
Fourth. At the present time the consideration deposited is not in form to be distributed.
Fifth. The amount deposited as costs is inadequate.
Motion denied.