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(289 Fed. 732.) of a composition, and by § 21g good the promise to pay in futuro (Comp. Stat. $ 9605, 1 Fed. Stat. revives the original debt, i. e., the Anno. 2d ed. p. 757), a certified copy very debt that is the subject-matter
of the order of con- of composition. Bankruptcyeffect of com
firmation shall con- The argument in favor of this position.
stitute evidence of proposition has two parts: (a) the revesting of title. Thus, the or- That a composition is to be treated der of confirmation becomes, in ef- as at common law; or (b) that the fect, a discharge, and is pleaded in true construction of the statute probar with like effect. Cumberland duces a result identical with that of Glass Mfg. Co. v. De Witt, 237 U. S. the Bankruptcy Act of 1867 (14 447, at page 452, 59 L. ed. 1042, Stat. at L. 517, chap. 176). It is 1044, 35 Sup. Ct. Rep. 636. This undoubted that a common law, citation is complete justification for where a debtor and his creditors the common dictum that a composi- agreed to discharge the claims of tion is a discharge pro tanto; i. e., the latter in consideration of a parthe bankrupt is discharged from all tial payment, the debtor was only those debts which have been prop- discharged upon performance; and erly treated in the composition or- this was true, whether the performder, except that fraction thereof ance was to be in præsenti or futuro. which he has agreed to pay.
The transaction was a kind of acUnder g 12e (Comp. Stat. & 9596, cord and satisfaction; wherefore, if 1 Fed. Stat. Anno. 2d ed. p. 651), satisfaction was absent, the original upon the confirmation of a composi- debt revived. But the promisee tion, "the consideration shall be dis- could elect whether to sue on his tributed as the judge shall direct, original cause of action or on the and the case dismissed.” Only when new contract. This is pointed out the composition is admirably in Beck v.
in Beck v. Witteman firming com- not confirmed shall Bros. 185 App. Div. 643, 173 N. Y. position.
the estate be fur- Supp. 488, where the court exther administered in bankruptcy; pressed the opinion that this docand this court has held that with
trine was applicable to bankruptcy the signing of the order of confirma- compositions under the Act of 1898. tion the bankruptcy court loses ju
We have no doubt that the court inrisdiction. Re Hollins, 151 C. C. A. 637, 238 Fed. 788. The only power
tended to express the foregoing as
its view of the whole matter, alleft in the bankruptcy court, after
though the exact question signing the confirmation order, is to
question was set the composition aside within six
whether a plea of composition was a months, for the reasons, and only good bar, when it was not shown the reasons, set forth in 13 (Comp.
that there had been either a distriStat. $ 9597, 1 Fed. Stat. Anno. 2d
bution of the consideration or an ed. p. 652). Re Eisenberg (D. C.) )
order of confirmation. 148 Fed. 325.
That a composition not carried It is now urged that a composition out according to its terms revived regular in form, not produced by the original debt under the Act of fraud, wherein the consideration 1867 is true, though it would be has been deposited and distributed more accurate to say that such inas required by law, and where the completed composition never canoriginal bankruptcy proceeding has celed, discharged, or barred the accordingly been dismissed, is nev- original debt. This was a necesertheless imperfect and in a sense sary consequence of the language of inoperative (if the consideration that act, which, as originally enactconsist in part of promissory pa- ed, contained no provision whatever per), unless promises of deferred for compositions. They came into payment are made good. It is fur- the statute by the Amendment of ther said that such failure to make 1874. 18 Stat. at L. 182, chap. 390.
-effect of con
Cf. Re Scott, Fed. Cas. No. 12,519, gument in favor of the similitude 15 Nat. Bankr. Rep. 73.
between a confirmed composition Under this amendment, literally and a discharge granted; the tests construed, cash only could be the for barring discharges are identical consideration of a composition; but with those barring compositions. business necessities compelled a It follows that, if the reasons against somewhat astute construction of the confirming a composition are the statutory language, so that composi- same as those against granting a tions payable by instalments, with discharge, the effect of avoiding the instalments secured by notes, such reasons for refusal is also the raised questions similar to the one same. Consequently, the statute, in at bar. Re Langdon, 2 Low. Dec. $ 1 (12), being Comp. Stat. § 9585, 387, Fed. Cas. No. 8,058, 13 Nat. i Fed. Stat. Anno. 2d ed. p. 511, deBankr. Rep. 60. But over such fines "discharge" as meaning "the compositions with deferred pay- release of a bankrupt from all of ments the court never lost jurisdic- his debts which are provable in tion. It retained, until composition bankruptcy, except such as are exhad been completed in respect of cepted by this act;" and $ 14c payment, what Wallace, J., well (Comp. Stat. § 9598, 1 Fed. Stat. called "supervisory jurisdiction,” Anno. 2d ed. p. 703) specifically deand could “enforce the composition clares that the confirmation of a as against creditors or as against composition “shall discharge the the debtor." Ransom v. Geer (C. bankrupt from his debts, other than C.) 12 Fed. 607. If at “any time” those agreed to be paid by the terms it appeared to the court that such of the composition and those not afcomposition could not “proceed fected by a discharge.” without injustice or undue delay to This narrows the inquiry to askthe creditors,” the court could "re- ing what is meant by the phrase, fuse to accept and confirm such com- debts "agreed to be paid by the position, or set the same aside,” in terms of the composition." The which case the bankruptcy proceed- statute does not say those which ed. Act of 1874, supra. In other are actually paid in cash, but those words, such a thing as a confirmed which are "agreed to be paid;" and composition prior to its actual ful- this is but another way of saying filment by payment was an impos- (especially in respect of the acceptsibility under the Act of 1867. ance of promissory paper) that the
Under the present statute the case agreement to pay is fulfilled by the is wholly different, as above shown. delivery of the paper-the paper is The duty of the court is fulfilled, the agreed method of paying. and the power of the court is ex- The similitude between discharges hausted, with the entry of the order and compositions is utterly deof confirmation, and under the spe- stroyed, if the original debt revives cific language of $ 12d (Comp. Stat. upon failure to pay promissory pa$ 9596, 1 Fed. Stat. Anno. 2d ed. per. We pay no attention to the p. 648), the judge "shall confirm a point that in this instance the paper composition" if circumstances are was indorsed, so that there was an made to appear such as existed in additional consideration for the this matter of Mirkus under the composition. It is undoubted that first petition; i. e., that the debtor a discharge loses none of its efficacy had made an offer of cash and notes, if, after the time for revocation that the creditors were satisfied thereof has passed ($ 15 [Comp. therewith, that the cash and notes Stat. $ 9599, 1 Fed. Stat. Anno. 2d had been deposited, that the matter ed. p. 703]), fraud is discovered was done in good faith, and that the which would have barred the disbankrupt had done nothing which charge if found out in time, or that would "bar his discharge."
a composition loses its value if, aftThis last phrase is a powerful ar- er the time for setting it aside has
(289 Fed. 732.) passed (§ 13 [Comp. Stat. § 9597, made a composition on time, to i Fed. Stat. Anno. 2d ed. p. 652]), count as a possible creditor for the fraud is discovered; yet it is thor- full amount everyone who had come oughly set aside and held for naught into the composition. by the present contention, merely The foregoing considerations apby the misfortune of a second in- pealed to the court in Jacobs v. Fensolvency,
sterstock, 118 Misc. 266, 193 N. Y. Finally, if the policy of the act, Supp. 827, and are set forth in the or perhaps the spirit of the times, able opinion of Gavegan, J., on be regarded, the argument for this which opinion the case was affirmed appeal fails. It is a commonplace in 202 App. Div. 795, 194 N. Y. that the Act of 1898 is far more gen- Supp. 947. With the reasoning and erous to debtors than any previous conclusion of this decision we agree; bankruptcy statute; it intends to en- also, with the views expressed by courage a hopeful continuance in the latter court in Wood & Selick v. business. A failing debtor who Vanderveer, 55 App. Div. 549, at finds sufficient favor with his credi- 552, 67 N. Y. Supp. 371. tors to effect a composition under It may be observed of certain the act is thereby, in the opinion of cases cited by appellant, or in the every business man, rehabilitated, Beck Case, that Re Kinnane Co. (D. with a markedly diminished mass of C.) 221 Fed. 762, discusses the matliabilities. He is encouraged to go ter obiter, with reference solely to on, to obtain new credit, and incur decisions under the Act of 1867. new indebtedness. If thereafter With the opinion of Mr. Loveland that occurs which has occurred in on this subject, contained in his this case, and the debtor finds him- work on Bankruptcy, we do not self unable to pay both the instal- agree, and think it well treated in ments of his old indebtedness repre- the opinion in the Jacobs Case. Re sented by composition notes, and his
Carton (D. C.) 148 Fed. 63, and Re obligations to new and confiding Eisenberg (D. C.) 148 Fed. 325, recreditors, it is not in accord with
late to entirely different matters; the spirit of the act, or the business
Carton to a common-law composisense of business -effect of non
tion, and Eisenberg to an effort, in men, that the prop
substance, to set aside a composition composition erty which he has
after the expiry of six months. The accumulated on his new credit should be devoted to the
references there made to the quespayment of an indebtedness which
tion now at bar are hypothetical dichis new creditors had good reason
ta only; that the hypothesis implied to believe was discharged by the ear
debatable legal matter is perhaps lier bankruptcy. The ruling now
shown by this case, and the history demanded would practically require
of decisions above given. every creditor of a person who had Order affirmed, with costs.
Rights of creditor upon failure of bankrupt to carry out composition agree
ment under Bankruptcy Act of 1898.
As to binding effect of promise to pay debt discharged in bankruptcy, where compromise was made by bankrupt with creditors, see annotation in 1 A.L.R. 1704.
Although, under the Federal Bankruptcy Act of 1867, as amended in 1874, the fact that a composition was
not carried out by payment of the consideration, in effect, revived the original obligation, it seems, as is held in the reported case (RE MIRKUS, ante, 435), that the situation as presented by the Act of 1898 is so different that the decisions under the earlier act should not be regarded as authorita
tive under the later act, the phraseol- tion for a confirmed composition which ogy of which differs materially from acts as a discharge has not been paid the prior provisions. However, the by the bankrupt, the remedy of the later act leaves the question open to creditor for the recovery thereof is some doubt, which has not as yet been against the bankrupt, as on a new definitely determined by the Supreme cause of action which is not affected Court of the United States. In fact by the discharge. Re Maytag-Mason there is a decided conflict of authority Motor Co. (1915) 223 Fed. 684, 35 Am. upon the question, some courts main- Bankr. Rep. 160; Kobre Assets Corp. taining that noncompliance upon the v. Baker (1917) 178 App. Div. 62, 164 part of the bankrupt with the terms N. Y. Supp. 597, affirmed in (1917) of the composition agreement has the 221 N. Y. 616, 116 N. E. 1056; Wood & effect of reviving the original debt, Selick v. Vanderveer (1900) 55 App. while other courts, with equal posi- Div. 549, 67 N. Y. Supp. 371, 3 N. B. tiveness, maintain that a failure to N. Rep. 345, reversing (1900) 31 Misc. comply with the terms of the composi- 557, 65 N. Y. Supp. 521; American Can tion does not revive the original debt, Co. v. Schenkel (N. Y.) supra. but merely gives him a right of action And in Jacobs v. Fensterstock based on the composition. However, (1923) 236 N. Y. 39, 139 N. E. 772, 1 it is worthy of note that the judicial Am. Bankr. Rep. N. S. 14, affirming statements and decisions which sup- (1922) 202 App. Div. 795, 194 N. Y. port the revival rule either consist Supp. 947, which affirmed (1922) 118 largely of obiter, or else have been in Misc. 266, 193 N. Y. Supp. 827, in holdeffect overruled by later and more au- ing that a failure to pay composition thoritative decisions of the courts of notes does not revive the original debt, the same jurisdictions.
the court of appeals said: “The plainTo the effect that the failure of a
tiff argues, first, that the words in $ bankrupt to carry out a confirmed 14, those agreed to be paid by the composition agreement does not revive terms of the composition,' mean the an original debt discharged pursuant original debts which are to be settled to § 14c of the Federal Bankruptcy by the composition, and, second, that Act of 1898, which declares that the on general and familiar principles a confirmation of a composition “shall debtor's note given to settle a debt discharge the bankrupt from his debts, does not operate as a payment unless other than those agreed to be paid by it is actually paid. The defendant, on the terms of the composition, are RE the other hand, claims, and it has MIRKUS (reported herewith) ante, thus far been held, that the words 435; Re Maytag-Mason Motor Co. 'those agreed to be paid by the terms (1915) 223 Fed. 684, 35 Am. Bankr. of the composition' mean, in such a Rep. 160; Kobre Assets Corp. v. Baker case as this, the notes which are given (1917) 178 App. Div. 62, 164 N. Y. on the composition, and that the comSupp. 597, affirmed in (1917) 221 position acts as a settlement and disN. Y. 616, 116 N. E. 1056; Jacobs charge of all the old debts. While the v. Fensterstock (1923) 236 N. Y. 39, language may be somewhat am139 N. E. 772, 1 Am. Bankr. Rep. N. S. biguous, we think that, construed in 14, affirming (1922) 202 App. Div. the light of the well-known purposes 795, 194 N. Y. Supp. 947, which af- of a bankruptcy law, the contention firmed on opinion below (1922) 118 of the defendant is correct. As we Misc. 266, 193 N. Y. Supp. 827; Wood all understand, the purpose of a bank& Selick v. Vanderveer (1900) 55 App. ruptcy law is to give a debtor relief Div. 549, 67 N. Y. Supp. 371, 3 N. B. from his debts, and to enable him to N. Rep. 345, reversing (1900) 31 Misc. 'start over' in business, provided he is 557, 65 N. Y. Supp. 521; and American honest and turns over all of his propCan Co. v. Schenkel (1920) 110 Misc. erty not exempt for the benefit of his 345, 180 N. Y. Supp. 102.
creditors. Then there has been inThus, in a number of instances, it grafted on this theory the idea that has been stated that, if the considera- many times it will be better to let the debtor keep his business and property plan would be faulty and doomed to rather than to liquidate it, provided failure. With practically all its old he will pay to his creditors, either in indebtedness contingently outstandcash or by obligations, all that he can ing, and interest charges thereon acafford to; and hence the provisions cumulating, and in view of the injurifor a composition. The underlying ous effect of its failure, there would thought is always that the debtor, ei- seldom be any promise for the future ther by turning over all of his prop- success of the debtor. With that erty, or by making a composition, shall prospect a composition would hardly be relieved of the incubus of his old be favored, excepting where debts, and shall be permitted to face debtor's business is not to be conthe future in business from the situa- tinued, in which case the composition tion which is created by the Bank- might be adopted as a short method ruptcy Law, and this would plainly of liquidation. These observations inmean, in the case of a composition, dicate that it is by no means always that he would be relieved of his old in the contemplation of the parties debts and would simply have the bur- that the failure to pay composition den of paying the notes which were notes will revive the old indebtedness. given under the composition. The I believe they also indicate the erronecomposition thus would operate as an ous reasoning of many discussions on absolute settlement and discharge of this subject. Debtors in bankruptcy his old debts, and leave hanging over are frequently allowed to resume him only the new ones which were business by creditors who take comcreated by the composition, and the position notes where, in view of the failure to pay these would not revive assets and the debts, it is evident the original debts, as would be the that the creditors intend to accept case in an ordinary settlement, or com
the composition settlement in full and mon-law composition.”
final payment. If they rely on the And the trial court, in this case,
language of the statute, they will find in discussing the question as affected nothing to encourage any other view.” by the rights of subsequent creditors,
And in the reported
(RE argued as follows: "Assume that un- MIRKUS, ante, 435) the court, in supder a composition in bankruptcy it has port of its conclusion that failure to given long-term notes. Should not pay promissory notes which were a those who extend it credit, thus mak- part of the consideration of a coming possible the continuation of busi- position in bankruptcy did not revive ness and earnings, for the benefit of the debt discharged by the confirmthe holders of the composition notes ance of the composition, pointed out as well as of all others concerned, not only that § 14c is not in terms conhave the assurance absolute that its fined to debts which are paid in cash, old indebtedness has been reduced to but specifically relates to those which the total of the note issue? Or should are "agreed to be paid," as by the givthey be entrapped, if the business is ing of notes, but also that the policy of again unsuccessful, and find that the
the act would be violated by a holding assets are to be applied not merely
which would subject property which upon the new indebtedness and the the bankrupt has accumulated on his notes, but upon the new indebtedness
new credit, to the payment of his old indebtedness, less the indebtedness, which his new creditors amount of the cash paid in the com- had good reason to believe was dis
charged by the confirmation in bankthat the new creditors should be
ruptcy of the composition. allowed to deal with the debtor on the But, as above stated, there is some safe assumption that the total amount of its indebtedness has been reduced,
authority to the effect that failure to
carry out a confirmed composition as indicated by the proceedings in the agreement revives the original debt. bankruptcy court. Otherwise, it could Re Kinnane Co. (1915) 221 Fed. 762, not obtain new credit, and the entire 34 Am. Bankr. Rep. 119 (dictum, cit
and the old