Case ID: serg-rawl_2/html/0208-01.html
Source: Caselaw Access Project
Author: {"author": "Tilghman C. J. Yeates J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Kingston against Wharton.
    , ’ If a debtor on the eve of bankruptcy, promise his creditor to pay ' the debt he shall be able, his certificate of discharge under the act of 4th April, 1800, is no bar to a suit brought upon the new promise.
    It seems, that if the creditor proves the original debt under the commission, and receives a dividend, he may recover the balance, in a suit brought after bankruptcy, founded upon such a promise.
    THE defendant on the 12th December, 1800, made a promissory note in favour of the plaintiff for 1000 dollars, , payable in sixty days, which was indorsed by the plaintiff for the defendant’s accommodation, and discounted by the Bank .of the United States. On the 29th December, 1800, the defendant wrote a letter to the plaintiff, in which he expressed his regi'et, that it would not be in his power to take up the ’ note when it should become due, and declared, “ the moment “I am able to relieve you, I will.” On the 13th February, 1801, the note became due, and was taken up by the plaintiff after protest. A commission of bankrupt was issued against the defendant on the 16th March, 1801, under which he was declared a bankrupt, and on the 26th of the following May, he obtained a certificate of discharge. The plaintiff did not prove any debt under the commission. This action was founded upon 'the defendant’s promise to pay when he should be able., and it was admitted, that at the commencement of the suit he was able. It was agreed, that a verdict should be taken for the plaintiff, subject to the opinion of the Court upon the facts given in evidence; judgment to be entered accordingly for the plaintiff or defendant.
    
      J. R. Ingersoll for the plaintiff.
    The question is, whether this debt could have been proved under the commission? When the defendant wrote the letter of December 29th, 1800, he had bankruptcy in contemplation, and with a view no doubt to induce the plaintiff not to oppose his discharge, meant to give him a positive promise to pay the debt after bankruptcy, when he should be able. This promise was accepted by the plaintiff, who, considering the debt due on the note as thus discharged, proved no debt under the commission, but relied wholly upon the promise, which created a new contingent debt, to take effect after the discharge under the bankrupt law. A contingent debt cannot be proved under the commission ; the contingency may never happen, and the debt consequently never become due; it is therefore not barred by a certificate of discharge. By statute 7 Geo. I. 
      c. 31. persons who have taken bills, bonds, notes, &c. payable at a future day certain, are permitted to prove their debts ; ~ and statute 19 Geo. II. c. 32. contains a provision in favour of obligees in bottomry and respondentia bonds, and the insured in policies of insurance.'
    The act of April 4th, 1800, sect. 34. (5 Laws of the United States, 45.) discharges the bankrupt from all debts by him due or owing at the time he became bankrupt, and all which were, or might have been, proved, under the commission. The 39th section declares, that debts payable at a future day may be proved, discounting where they do not bear interest, so much as is equal to the legal interest of the states in which they are respectively pajmble. It also makes a provision in favour of obligees in bottomry and respondentia bonds, and the insured in policies of insurance, similar to that of 19 Geo. II. c. 32. These statutory provisions all point to debts which may be ascertained and proved under the commission, except those which may arise upon bottomry and respondentia bonds, and policies of insurance, the reason and equity of providing for which are obvious. The case, however, of a promise to pay upon a contingency, to happen after bankruptcy, out of funds altogether independent of the property assigned, is very, different. Such a debt could not possibly be proved in any shape under the commission. The ability to pay is the essence of the obligation, without which it can never be consummated, and the plaintiff when he brings suit on a promise of this kind must prove the defendant’s ability. Besford v. Saunders,
      
       Cole v. Saxb,
      Colls v. Lovel, goes upon the same principle. A contingent debt, uncertain as to the time of payment, is not within the statute 7 Geo. I. c. 33; one reason for which is, that the interest cannot be discounted. Tully v. Sparkes. For much stronger reasons must this debt be excluded from the act of April 4th, 1800. Not only was the time of payment uncertain, but the event upon which the debt was to arise might never have happened. The plaintiff, therefore, could not swear, that the defendant would ever be able to pay, much less could he designate the period of his ability. The rule undoubtedly is, that where a debt, certain in amount, is incurred before bankrupt
      cy, and is to be paid on a day certain after bankruptcy, it may be proved under the commission discounting the interest; but where the amount is unliquidated, or the debt is to become due upon a contingency, it cannot be proved, and therefore is not affected by a certificate of discharge. This is fully established by the following authorities. Cotterel v. Hooke,
      
       Ludford v. Barber,
      
       Bannister v. Scott,
      
       Utterson v. Vernon,
      
       Alsop v. Price,
      
       Chilton v. Whiffin,
      
       Ex parte Adrey,
      
       Taylor v. Mills,
      
       Ex parte Harrison,
      
       Bamford v. Burrell,
      
       Hammond v. Toulman,
      
       Hancock v. Entwisle,
      
       Anonymous,
      
       Ex parte Sneaps,
      
       Goddard v. Vanderheyden, referring to Ex parte Todd and Walter v. Sherlock.
      
    
    To prove that the prior debt formed a good consideration for the new promise, it is only necessary to refer to Trueman v. Fenton.
      
    
    
      Hallowell and Rawle, for the defendant.
    The defendant’s letter of December 29th, 1800, was merely an overture to the plaintiff to give up the note, and rely upon the promise to pay when able. There was no evidence, that this letter was ever answered, of course the overture was in effect declined. Had there been proof, that the plaintiff agreed not to come in under the commission, in consideration of which the defendant promised to pay when he should be able, there might be some foundation for this suit. But no such thing took place. There is nothing to warrant the idea, that the defendant even had bankruptcy in contemplation, when he wrote to the plaintiff ; for it does not appear -when the act of bankruptcy was committed; his stopping was certainly not such an act. When the commission issued on the 16th March, 1801, the plaintiff was in possession of the note, and might have proved his debt, for there was nothing to restrain him. If the debt on the note was not cancelled, as it certainly \yas not, the promise ma,de, before an act of bankruptcy had been committed, to pay when able, imposed no greater obligation upon the defendant, than the law had already imposed; nay not so great, ' because he might háve been compelled to pay immediately. There was no consideration, therefore, for a distinct substantive promise. In the case of Trueman v. Fenton, the new debt was incurred after the commission had been sued out, and was founded upon an express engagement,'that the original debt should be cancelled, and that the plaintiff should accept no dividend or benefit whatever under the commission. This circumstance, which was greatly relied on by Lord Mansfield, clearly distinguishes that case, from the one before the Court, in which there was no promise not to come in under the commission, and in which the plaintiff had a perfect right to prove his debt, and claim a dividend. A similar answer may be given to nearly all the cases cited on the opposite side. They are cases in which the promise was-made, or the causé of action arose after bankruptcy.
    What was the intention of the parties ? Could the defendant, when he wrote the letter in question, have meant to bind himself and leave the plaintiff free ; to lay himself under a future obligation, while the original debt remained uncanceíled; to give the plaintiff an opportunity of proving the debt oil the note before the commissiohers, or of bringing suit upon the alleged promise, as circumstances might tdtn Up ? This could never have been irt the contemplation of the defendant, nor could the plaintiff have, expected to be placed on so unequal a footing. If the letter had any view to bankruptcy it amounted to nothing more than a promise to pay upon a contingency, provided the plaintiff would give up the note. The' letter was not answered, which was equivalent to a refusal to accede to the proposition. The plaintiff did not think proper to bind himself, and therefore Can have no claim Upon the defendant founded on tlie letter. Obligations of this soft ought to be reciprocal. It is true, that at the time the letter was written no debt was actually due, but the note Was Outstanding, and became due before the commission issued; and even had it not been then due, it might have been proved under the express provisions of the bankrupt law.' The'circumstance of the plaintiff not having proved it amounts to nothing, because he had it in his power to do so, being under no engagement to the contrary.
    But if the promise had bee» founded upon an express agreement by the plaintiff to withdraw his opposition to the' defendant’s discharge, it would not have been good. AUj Pr^vate agreements tending to give one creditor an advantage over the rest, are contrary to the policy of the bankrupt law, ¡ and void. Where money was paid by the sister of a bank- i rupt, to induce a creditor to sign his certificate, Lord Mans- | eieed, and the whole Court, agreed in permitting it to be re- j covered back, although the payment was by a third person,! and the effects of the bankrupt were not diminished by it,. Smith v. Broomley.
      
       So a bond given to a creditor to induce him to withdraw a petition which he had presented to the 1 chancellor, against the allowance of a certificate, was declared Void, Summers v. Brady.
      
       This position is also fortified, by Cockshott v. Bennett,
      
       and Spencett v. Spiller.
      
    
    Reply, This is like a demurrer to evidence, and the Court must infer all that a jury might have found. The facts authorise a belief that the plaintiff accepted the defendant’s offer, and that, in consequence, he agreed not to come in under the commission. The letter contained not merely an overture, but a positive promise, which constituted a distinct cause of action; it was at his election to bring suit upon this promise, or to proceed upon the note under the commission, as is proved in Cotterel v. Hooke already cited. There was no reason why he should give up the note, when he adopted the former course, because by the certificate the defendant was discharged from it. Besides, as the letter mentioned no precise sum, but referred to the note, the possession of the note was necessary to enable the plaintiff to shew how much, was due. The objection, that the promise was made before bankruptcy has nothing in it, because the same thing took place in many of the cases cited, as in those of stock contracts, rents becoming due after bankruptcy, &c. where, although the cause of action did not arise until after, the obligation to pay was incurred before bankruptcy; which is precisely this case.
    The contract was legal, and not inconsistent with the policy of the bankrupt law. There is no question that an agreement to sign a certificate right or wrong, or an agreement not to oppose a discharge where there is good ground for opposition, would be illegal. But nothing of that kind exists here. The agreement had no tendency to injure the other creditors; on the contrary, they were benefitted by the plaintiff’s making no .claim under the commission, because the funds to be divided among them were thus increased. There is no case in which an agreement not to prove a debt before the commissioners, has been held illegal. In Summer v. Brady,
      
       Lord Loughborough said, there was an enormous fraud on the face of the transaction; there was perjury.
    
    
      
      
        2 H. Bl. 116.
    
    
      
       3 Esp. Rep. 159.
    
    
      
       1 Esp. Rep. 282.
    
    
      
      
         2 Ld. Raym. 1546.
    
    
      
      
         Doug. 97.
    
    
      
       1 T. R. 86.
    
    
      
       6 T. R. 489.
    
    
      
      
         3 T. R. 539.
      
    
    
      
      c) Doug. 165.
    
    
      
      d) 3 Wils. 13.
      
    
    
      
      
         Cowp. 460.
    
    
      
      
         Cowp. 525.
    
    
      
      
         2 Brown 615.
    
    
      
      
        2 Bos. & Pull. 1.
      
    
    
      
      
         7 T. R. 612.
    
    
      
      
         3 T. R. 435.
    
    
      
      
         Loft’s Rep. 435.
      
    
    
      
      
         Cook’s B. L. 192.
      
    
    
      
      
         3 Wils. 270. 272.
      
    
    
      
      
         Cowp. 544.
    
    
      
       2 Doug. 696.
    
    
      
      
         1 H. Bl. 647.
      
    
    
      
       2 T. R. 768.
      
    
    
      
      
         1 Atk. 105.
    
    
      
      
         1 H. Bl. 655.
    
   Tilghman C. J.

after stating the facts, delivered the following opinion : The plaintiff did not prove any debt under the commission, and the objection to his recovery in this suit is, that the debt was discharged, under the commission. Every debt which was due, or owing, at the time the defendant became bankrupt, or which might have been proved under the commission, was discharged; but it is contended, by the plaintiff, that the debt on which this suit is brought, was not then due, nor could it be proved under the commission, that the promise'was contingent, and if the defendant had never been able to pay, no action could have arisen. This principle is supported by the case of Besford v. Saunders, 2 H. Black. 116, where it was held, that in an action on a promise of this kind, the plaintiff must prove the defendant’s ability. But the defendant insists, that the plaintiff kept the note for 1000 dollars in his possession, and might have proved it under the commission, and therefore the contingent promise was of no validity. If it were necessary, the facts in this case would warrant the conclusion, that the plaintiff had agreed not to prove under the commission, and then I see nothing in the way of his recovery. Such an agreement would have been for the advantage of the other creditors, and the defendant himself could have nothing to say against it, because it only obliged him to do, what he was under a moral obligation to do, without it. I take for granted, that there was no collusion between the plaintiff and defendant, to the prejudice of the other creditors. If a creditor, knowing that the bankrupt had been guilty of an act, which would debar him of the benefit of a certificate, should agree to keep it secret, in order that the bankrupt might obtain his discharge, any promise founded on that consideration would be void, because the agreement is fraudulent, and prejudicial to the other creditors. But where every thing is fair, and the creditors agree to take no dividend under the commission ; in consideration whereof the bankrupt makes a new promise to pay the debt, such promise is binding. This was decided in Trueman v. Fenton, (Cowp. 544.) The only answer attempted to be given to that case, is, that the promise was made after the act of bankruptcy committed. But that is not material, because the promise in the present case, although made before the bankruptcy, gave no cause of action till after. It was once doubted, whether a new promise by a bankrupt, after obtaining his certificate, was binding; but it has been long settled that it is binding, because the moral obligation to pay continues^ notwithstanding the discharge, and that obligation is a sufficient consideration for a new promise. I have said, that the facts in this case, would warrant the conclusion, that the plaintiff had agreed not to prove his debt, under the commission. But to put the matter in the strongest point of view for the defendant, let us suppose that the plaintiff had not so agreed. The defendant’s letter may be fairly construed as follows : I am sorry for the inconvenience I have thrown upon you, by procuring your indorsement of my note on the eve of bankruptcy. I am about to become a bankrupt. Take up the note, and I promise, that, as soon as I am able, I will indemnify you, by paying the balance which shall be due, after you have received your dividend from my estate, or the whole, in case you do not prove the debt under the cómmission. I ask, what objection there is to the validity of such promise ? Is not the moral obligation as strong before the act of bankruptcy as after, or does the new promise go beyond the bounds of the moral obligation ? and if not, how can it be said, that a good consideration is wanting? It is objected, that such a promise would be a fraud on the bankrupt law, which intended, that the bankrupt should be discharged from all his debts. But I cannot perceive the fraud. The bankrupt law intended to discharge the debtor from all his debts if he chose it; but not force a discharge upon him. If the discharge was to be absolute and against the bankrupt’s .will, a new promise made after the bankruptcy would be void. It is objected also, that it would be dangerous to establish such promises, because unfortunate persons might be induced to make them in order to avoid opposition to their discharge. Every case must depend on its own circumstances. How far a promise would be good, made in consideration of not opposing a bankrupt’s discharge, extorted from him under hard circumstances, it is unnecessary to determine, because it is not pretended, that the plaintiff took any advantage of the defendant’s necessities, or exacted, or even asked any promise. The promise, such as it was, proceeded altogether from the defendant, and seems to have flowed from his own sense of justice. A new promise by a bankrupt, in consideration of his creditors signing his certificate, is made void in England by act of parliament (5 Geo. II. c. 30. sect. 11.) but Lord Mansfield, in the case of Trueman v. Fenton, (Cowp. 550.) supposes, that before that act, such a promise was good, and lays great stress on it, in support of his opinion in that case. Upon the whole then it appears, that the promise on which this action is founded, was not absolute, but conditional; that the condition has been performed by the defendant’s acquisition of property sufficient to pay the debt; that the promise is supported by a good consideration; and that the debt arising from it could not be proved under the defendant’s commission. I am therefore of opinion, that the plaintiff is entitled to recover.

Yeates J.

Of the honesty and equity of the plaintiff’s demand there can be no doubt. The plaintiff indorsed a note for the defendant, three months before his bankruptcy, merely for his accommodation, and has paid it upon its being discounted at the late Bank of the United States, and protested afterwards. The defendant, within six weeks before it became due, writes to him, that it would not be in his power to take up the note, but assures him, that the moment he was able to relieve him, he would so do. The ability of the defendant to pay the money advanced for him, was admitted on the trial. The sole question is, whether the certificate of bankruptcy granted; to the defendant shall bar the plaintiff’s claim.

I was at first struck with the circumstance, that the plaintiff’s having paid the note at bank after it became due, and before the defendant had applied to commissioners for the benefit of the bankrupt act,.the debt became absolute, and he ’ might then have instituted a suit for the recovery of the money, or proved it afterwards under.the commission. But the case of Cotterel v. Hooke, 1 Doug. 97. satisfied me on this point. Where there was a bond, and also a deed of covenant to secure an annuity, although the bond was forfeited before a discharge under the insolvent act of 16 Geo. III. c. 38. the party might be sued on the covenant for payments becoming due after the discharge. The words of that statute much resemble the 34th section of the bankrupt law of congress of the 4th April, 1800. Lord Mansfield said, he took the case of a bankrupt and insolvent debtor, (as to this point) to be the same. When a man has two remedies he may elect. If the plaintiff had made use of the penalty, the case would have been different, but as he had not, he might proceed as often as he pleased for breaches of the covenant. We may here presume the plaintiff acquiesced in the assurances given to him, that the money should be repaid to him in case of the defendant’s future ability to do so. He threw no obstacles in his way to prevent his obtaining the benefit of the bankrupt law, and I can see no reason why a promise founded on a good moral consideration, made prior to a discharge under the bankrupt law, subject to a contingency, should not be equally obligatory as a promise made subsequent to such discharge. The cases cited on the argument fully shew, that a promise to pay when able, is a contingent debt, and not absolute until the happening of the event. The ability must be ascertained by proper proof upon the trial. It has been objected, that a promise made by one who contemplates a bankruptcy, in favour of one creditor, is injurious to the interests of the general creditors, — opposed to the policy of the-laws, and therefore void. But here the promise not only did not operate disadvantageously to the other creditors, but was beneficial to them. The plaintiff’s not proving his debt under the commission, necessarily had the effect of increasing the dividends of those who did claim. So far from undue and oppressive terms being- exacted by the plaintiff in the distressed situation of the defendant, it appears to have been- the spontaneous and unsolicited act of the latter, when he wrote the letter on which this suit is founded. No case has been shewn, that a promise made to pay a debt binding in morality and good conscience on the party making it, when at a future day, he shall be of sufficient ability to pay it, has been adjudged illegal, and therefore I am of opinion, that judgment should be entered on the verdict for the plaintiff.

Brackenridge J. concurred.

Judgment for the plaintiff.