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ported by oath or affirmation, apply to the proper court, and therein declare themselves to be unable to meet their debts and engagements, shall be deemed bankrupts within the purview of this act, and may be so declared accordingly by a decree of such court.
NThe terms of the act are very full, "all persons whatsoever;" these include not only all persons who may be made bankrupts by adverse proceedings, but also all other persons who " declare themselves to be unable to meet their debts and engagements." The exceptions in the act are the cases of a person, some of whose debts have been created in consequence of a defalcation, either
As a public officer; or
As executor, administrator, guardian or trustee; or
While acting under any other fiduciary capacity.
This just provision excludes from the benefit of this law, on their own petitions, all persons who have been guilty of a breach of trust; that is, when they received money or property belonging to others for a specific purpose, or in a confidential character, and subsequently converted this property or money to their own use. 1 Atk. 146; 1 V. & B. 494; 14 Ves. 603; 3 C. & P. 283; 4Campb. R. 164. See Breach of Trust.
Sect. 2. Of involuntary bankrupts.
[ 18 ] This section will be divided by considering, first, the persons who may be declared bankrupts; secondly, the acts for which such person may be so declared; thirdly, the manner in which a person may be declared a bankrupt.
1. Of the persons who may be declared involuntary bankrupts.
[ 19 ] The persons who may be declared bankrupts are such as owe debts to the amount of not less than two thousand dollars; namely,
1. All persons being merchants or using the trade of merchandise. Sect. 1.
In England, a commission of bankruptcy cannot, in general, be supported against a person under age. 3 C. & P. 283; 1 Ves. & B. 494; 4 Campb. R. 164; 14 Ves. R. 603; 6 Taunt. R. 106; 1 Marsh. R. 469; 2 Rose, 269; 9 Bing. R. 365; but where the infant had represented himself to be an adult, the court refused to supersede the commission. 16 Ves. R. 265.
A married woman cannot, in general, be made a bankrupt, but when she carries on business as a feme sole, and is responsible as such, she may be so declared. See 1 W. Bl. R. 570; 3 Burr. 1776; 1 Desaus. R. 445; 18 John. R. 141; 8 John. R. 72; 8 T. R. 546; 7 Bing. R. 762; S. C. 20 Eng. Com. Law R. 323; 2 Bell's Com. 166, 5th ed.
A lunatic who has contracted a debt and committed an act of bankruptcy, during a lucid interval, 13 Ves. R. 590; 9 Bingh. R. 365; 4 Cowen, R. 207; an alien who com. mits an act of bankruptcy in the United States, 5 T. R. 530; an executor who trades for the benefit of testator's family, 3 Esp. 83; 10 Ves. R. 110; may be declared bankrupts.
The party must be a trader; as to who is one, see Bac. Ab. (Bouv. ed.) Bankrupt, Q 1; 1 Leigh, N. P. 205, note (a); and article Trader.
A corporation is not a person within the meaning of the act of congress.
2. All retailers of merchandise. Sect. 1. Vide Retailer of Merchandise.
3. All bankers. A banker may be made a bankrupt if he act as such, although he may not actually keep an open banking house. 1 Atk. 218. Vide 2 H. Bl. 235; 1 Mont. B. L. 12; and the article Banker.
4. All factors. Vide Factor.
5. All brokers. A pawnbroker is a broker within the English statute, 5 Geo. 2, c. 30, § 39; 5 B. & A. 124. And under this term, it is said, all kinds of brokers will be included. Cullen, B. L. 48. Vide Broker.
6. All underwriters or marine insurers. Sect. 1. Vide 4 Ves. Jr. 168; vide Underwritert.
2. Of the ads of bankruptcy.
[ 20 ] Whenever a person being a merchant, or actually using the trade of merchandise, or being a banker, factor, broker, underwriter, or marine insurer, shall commit any of the following acts, he may be declared a bankrupt; namely;
1. Whenever he shall depart from the state, district or territory of which he is an inhabitant, with intent to defraud his creditors. Sect. 1. Under the former bankrupt law of the United States, it was considered doubtful whether the flight of a person to his own house in another state, was an act of bankruptcy. 1 Dall. 390; 2 Dall. 126; 1 Yeates, 50. When at the moment of departure the party intends to delay his creditors by that act, the bankruptcy is complete; but if that intention do not exist, although the creditors may be delayed, it has not been considered a departure. 1 Atk. 193; 7 T. R. 509; 5 Ves. 576; 1 Rose, 387; 1 Ves. & Bea. 177; 1 Holt, N. P. C. 175. See B. N. P. 39; Co. B. L. 111.
2. Whenever he shall conceal himself to avoid being arrested. Sect. 1. Vide 1 Wash. C. C. R. 29; 4 Day, 81, note; 5 T. R. 575; 5 Moore, 129; Selw. N. P. 180; 1 B. & C. 55; Holt, 159; 3 Campb. 349 ; Bac. Ab. (Bouv. ed.) Bankrupt, Q 2, note (i).
3. Whenever he shall willingly or fraudulently procure himself to be arrested, or his goods or chattels, | lands or tenements, to be attached, distrained, sequestered or taken in execution. Sect. 1. Under the bankrupt law of 1800, the imprisonment and arrest of the debtor were both necessary to constitute an act
of bankruptcy, and the imprisonment must have been for two months or more. Coop. B. L. 153; 1 Murph. R. 149; the arrest must be a legal one. 3 Lev. 57; 1 Vent. 370; T. Raym. 479; 1 Har. & John. 327.
4. Whenever he shall willingly or fraudulently remove his goods, chattels or effects, or conceal them to prevent their being levied upon, or taken in execution, or by other process. Sect. 1. Under the act of 1800, the concealment of goods must have been actual and not merely constructive. 3 Mass. R. 486.
5. Whenever he shall make any fraudulent conveyance, assignment, sale, gift, or other transfer of his lands, tenements, goods or chattels,
I credits, or evidences of debt. Sect. '1. The term "conveyance" in the bankrupt law of 1800, meant an instrument under seal. 3 Mass. 487; see 1 Adol. & Ell. 456; S. C. 28 Eng. C. L. R. 124. A conveyance in contemplation of an act of bankruptcy to secure a bona fide creditor, made before the bankrupt law went into operation, was holden to be valid. 3 John. R. 446; 1 Cranch, 239; Owen, B. L. 22.
3. Of the manner of declaring a person an involuntary bankrupt.
[ 21 ] The persons who are subject to adverse proceedings under the bankrupt law, and who have committed an act of bankruptcy, when they are owing debts to the amount of not less than two thousand dollars, shall be liable to become bankrupts, within the true intent and meaning of the act; and may, upon the petition of one or more of their creditors, to whom they owe debts amounting in the whole to not less than five hundred dollars, to the appropriate court, be so declared accordingly. Sect. 1.
Srct. 3. Of the bankrupt's discharge.
[ 22 ] Under this section will be considered, first, when his discharge will be granted; secondly, when it will be refused; and thirdly, the effect of the discharge.
1. When discharge will be granted.
[ 23 ] It is provided by section 4, that every bankrupt who shall bona fide surrender all his property and rights of property, with the exceptions before mentioned, (see § 12 and 26,) for the benefit of his creditors, and shal 1 fully comply with and obey all the orders and directions which may from time to time be passed by the proper court; and shall otherwise conform to all the requisitions of this act; shall, (unless a majority in number and value of his creditors, who have proved their debts, shall file their written dissent thereto,) be entitled to a full discharge from all his debts, to be decreed and allowed by the court which has declared him a bankrupt, and acertificate thereof granted to him by such court accordingly, upon his petition filed for that purpose; such discharge and certificate not, however, to be granted until after ninety days from the decree of bankruptcy, nor until seventy days' notice in some public newspaper, designated by such court, to all creditors who have proved their debts, and other persons in interest, to appear at a particular time and place, to show cause why such discharge and certificate shall not be granted; at which time and place such creditors, or other persons in interest, may appear and contest the right of the bankrupt thereto. Provided, that in all cases where the residence of the creditor is known, a service on him personally, or by letter addressed to him at his known usual place of residence, shall be prescribed by the court, as in their discretion they shall deem proper, having regard to the distance at which the creditor resides from such court. Sect. 4. "And if, in any case of bankruptcy, a majority, in number and value, of the creditors, who shall
have proved their debts at the time of hearing of the petition of the bankrupt for a discharge as hereinbefore provided, shall at such hearing file their written dissent to the allowance of a discharge and certificate to such bankrupt, or if, upon such hearing, a discharge shall not be decreed to him, the bankrupt may demand a trial by jury upon a proper issue to be directed by the court, at such timo and place and in such manner as the court may order; or he may appeal from that decision, at any time within ten days thereafter, to the circuit court next to be held for the same district, by simply entering in the district court, or with the clerk thereof, upon record, his prayer for an appeal. The appeal shall be tried at the first term of the circuit court after it shall be taken, unless, for sufficient reason a continuance be granted; and it may be heard and determined by said court summarily, or by a jury, at the option of the bankrupt; and the creditors may appear and object against a decree of discharge and the allowance of the certificate, as hereinbefore provided. And if upon a full hearing of the parties it shall appear to the satisfaction of the court, or the jury shall find, that the bankrupt has made a full disclosure and surrender of all his estate, as by this act required, and has in all things conformed to the directions thereof, the court shall make a decree of discharge, and grant a certificate, as provided in this act."
2. When his discharge will not be granted.
[ 24 ] But the certificate shall not be granted in the following cases:
1. If any such bankrupt
Shall be guilty of any fraud or wilful concealment of his property, or rights of property; or
Shall have preferred any of his creditors contrary to the provisions of this act; sect. 2, 4; or
Shall wilfully omit or refuse to comply with any orders or directions of such courts; or to conform to any other requisites of this act; or
Shall in the proceeding under this act, admit a false or fictitious debt against his estate. Sect. 4.
2. If any person who, after the passing of this act shall apply trust funds to his own use. Sect. 4.
3. If any person being a merchant, banker, factor, broker, underwriter or marine insurer, who shall have become a bankrupt, and who shall not have kept proper books of account, after the passing of this act. Sect. 4.
4. If the bankrupt, his application being voluntary, has, subsequent to the first day of January last, (1841); or at any other time, in contemplation of the passage of a bankrupt law, by assignments or otherwise, given or secured any preference to one creditor over another, unless his discharge be assented to by a majority in interest of those of his creditors who have not been so preferred. Sect. 2.
3. Effect of his discharge.
[ 25 ] It is enacted by the 4th section of the act of congress of August 19, 1841, that the bankrupt's discharge shall be " from all his debts;" and afterwards in the same section that "such certificate, when duly granted, shall in all courts of justice, be deemed a full and complete discharge of all debts, contracts and other engagements of such bankrupt, which are provable under this act, and shall be and may be pleaded as a full and complete bar to all suits brought in any court of judicature whatever, and the same shall be conclusive evidence of itself in favour of such bankrupt, unless the same shall be impeached for some fraud or wilful concealment by him of his property, or rights of property, as aforesaid, contrary to the provisions of this
act, on prior reasonable notice specifying in writing of such fraud or concealment."
By the second section of the act it is provided, that nothing in this act contained shall be construed to annul, destroy or impair, any lawful rights of married women or minors, or any liens, mortgages or other securities on property, real or personal, which may be valid by the laws of the states respectively, and which are not inconsistent with the second and fifth sections of this act.
By section 4, it is provided, that no discharge of any bankrupt under this act shall release or discharge any person who may be liable for the same debt as a partner, joint-contractor, endorser, surety or otherwise, for or with the bankrupt.
The discharge and certificate under a joint decree, has the effect to extinguish both joint and separate debts. 2 Str. 965, 1157; and a discharge and certificate under a separate decree has the same effect. 3 P. Wms. 24 note.
There are three classes of debts which are not discharged by the certificate, namely; 1. Contingent debts; 2. Debts contracted in a foreign country ; and, 3. Debts which the bankrupt has made a new promise to pay. See Buc. Ab. (Bouv. ed.) Bankrupt, Q 4, note (a.)
Sect. 4. of the allowance to the' bankrupt.
[ 26 ] The bankrupt is entitled to "the necessary household and kitchen furniture, and such other articles and necessaries of such bankrupt as the assignee shall designate and set apart, having reference in the amount to the family, condition and circumstances of the bankrupt; but altogether not to exceed in value, in any case, the sum of three hundred dollars; and also, the wearing apparel of such bankrupt, and that of his wife and children; and the determination of tho assignee in the matter shall, on exception taken, be subject to the final decision of the said court." Sect. 3.
Sect. 5. of a second bankruptcy.
[ 27 ] "If any person who shall have been discharged under this act shall afterwards become bankrupt, he shall not again be entitled to a discharge under this act, unless his estate shall produce (after all charges) sufficient to pay every creditor seventy-five per cent. on the amount of the debt which shall have been allowed to each creditor." Sect. 12.
Chap. 3. Of the bankrupt's property.
I 28 ] In the first section will be considered what property passes to the assignee; in the second, what does not pass; and, in the third, how the property is to be distributed.
Sect. 1. of the property which passes to the assignee.
[ 29 ] By the third section it is enacted, that all the property, and rights of property, of every name and nature, and whether real, personal, or mixed, of every bankrupt except as hereinafter provided, (see 26) who shall by a decree of the proper court be declared to be a bankrupt within this act, shall, by the mere operation of law, ipso facto, from the time of such decree, be deemed to be divested out of such bankrupt without any other act, assignment or other conveyance whatsoever, and the same shall be vested in such assignee as from time to time shall be appointed by the proper court for this purpose.
It is enacted by the second section that all future payments, securities, conveyances, or transfers of property, or agreements made or given by any bankrupt in contemplation of bankruptcy, and for the purpose of giving any creditor, endorser, surety, or other person any preference or priority over the general creditors of such bankrupts; and all other pay
ments, securities, conveyances, or transfers of property or agreements made or given by such bankrupt, in contemplation of bankruptcy, to any person or persons whatever, not being a bona Jide creditor or purchaser for a valuable consideration, without notice, shall be deemed utterly void, and a fraud upon this act; and the assignee under the bankruptcy shall be entitled to claim, sue for, recover and receive the same as part of the assets of the bankruptcy.
When the creditor receives payment or security from his debtor, the transaction, as between them, is fair and lawful; it is when a third party intervenes, that transactions assume a different character; for then the creditor, if he is participant in the design of the debtor to give an unjust preference, at the expense of the other creditors, will be in pari delicto, and the transaction will be deemed fraudulent. Each case must depend upon its own circumstances; but still, some rules may be laid down to arrive at a just determination; of which the following are the principal.
1. When the conveyance is of all the goods of the debtor, to the exclusion of some creditors, it is fraudulent. 1 Burr. 467 ; 2 Burr. 827; Dig. 42, 8.
2. Payment of a debt before it is due, and immediate failure, is also fraudulent.
3. Giving security immediately before bankruptcy, particularly when unasked, is evidence of embarrassment. See Cowp. 629.
4. When the debtor, with the participation of the creditor, makes such arrangments as to enable the latter to obtain a preference, such preference will not be sustained.
5. When a circuitous course is taken to accomplish the object of giving a preference, and the creditor participates in the arrangement, the transaction will not be sustained.