Case ID: ny-super-ct_31/html/0034-01.html
Source: Caselaw Access Project
Author: {"author": "Fithian, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

JOHN GEORGE REPPLIER, Plaintiff and Respondent, v. MATTHIAS BLOODGOOD, impleaded, Defendant and Appellant.
    It is no defence to a promissory note given for a prior indebtedness, that it was given partly in consideration of an agreement that the creditor to whom it was given would discontinue proceedings in bankruptcy which he had previously commenced against the maker. The other creditors of the maker are no way affected by such an agreement, nor does it contravene any policy of the Bankrupt Act.
    Before Monell, Jones, and Fithian, JJ.
    
      [Decided February 12, 1869.]
    This action was on two promissory notes made by defendant Farrar, payable to the order of, and endorsed by, defendant Bloodgood. The defense was, that the defendant Farrar being insolvent, and indebted to the firm of Repplier & Brother in $19,000, and the firm of John Street & Co. in $4,000 or $5,000, and other creditors in various amounts, the firm of Repplier & Brother institutéd proceedings against Farm*, under the provisions of the United States Bankrupt Law in relation to “ involuntary bankruptcy.” After such proceedings an arrangement was made by and between Farrar and Repplier & Brother, by which it was agreed Farrar should, and he did, execute and deliver the two notes in suit—one to Repplier & Brother, and one to Street & Co.—to apply on his indebtedness to those firms; and in consideration thereof, Repplier & Brother agreed to, and did, withdraw their proceedings against Farrar, and agreed to assist him in “ every way.” The defendant claimed that the consideration of the notes was illegal, and the notes void—the transaction being contrary to the “ policy,” if not the letter, of the Bankrupt Act.
    This action was tried before Mr. Justice Jones and a jury.
    Under the direction of the Court, the jury found a verdict for the plaintiff.
    
      
      Mr. E. L. Fancher for appellant.
    The termination of the bankruptcy proceedings delayed the coming of the estate to the creditors, as it compelled new bankruptcy proceedings to be initiated. Such delay is contrary to the letter and spirit of the Bankrupt Law, besides being a fraud on the other creditors, and an agreement to that effect is void (secs. 35, 29; Davis v. Holding, 1 M. & W., 159).
    It is of no moment how Repplier effected this, whether by his own withdrawal at a time when the creditors were ignorant of his intention to desist, or by his inducing their desistance.
    The thing agreed to be done, i. e., the absolute termination of the bankruptcy proceedings, was consummated, and the creditor’s remedy injured thereby (Bell v. Leggett, 7 N. Y., 182; Sharp v. Teese, 4 Halst., 355).
    The promises “ to withdraw the bankruptcy proceedings,” and “ to assist Farrar in every way possible,” meant to forbear opposing Farrar’s discharge.
    If the withdrawal was illusory, this forbearance to oppose a discharge was the only real aid to Farrar in the agreement, and was clearly illegal (Nerot v. Waller, 3 T. R., 17; Holland v. Plummer, 1 Bos. & Pull., 95; 7 N. Y., 131; 4 Halst. [N. J.] 354).
    It is contrary to the policy of the Bankrupt Act for a petitioning creditor to extort from a bankrupt or his friends new security by illusory or illegal promises of this kind.
    It is putting the bankrupt under a temptation to prefer one creditoi as to so much (U. S. Bankrupt Act, sec. 35; Avery & Hobbs, p. 251; ibid., 209, sec. 29; Bello v. Leggett, 7 N. Y., 181).
    It contravenes the policy of the law (Davis v. Holding, 1 M. & W., 159; 3 T. R., 17; 1 Bos. & Pull., 95; Bell v. Leggett, 7 N. Y., 176).
    The policy of our insolvent laws is, that a full and fair disclosure and surrender of the property of the debtor shall be obtained; and on such disclosure and surrender, he shall be without further impediment, liberated from confinement; and all the creditors shall be placed on an equal footing without preference (4 Halst. [N. J.] 354; Phelps v. Thomas, 6 Gray, 327; Coates v. Blush, 1 Cush., 564; Barnard v. Crosby, 6 Allen, 327).
    
      Mr. John E. Parsons for respondent.
    So far as concerned the John Street & Co. note of $315.70, the facts do not permit defendant’s argument. They had taken no bankruptcy proceedings and made no promise to withdraw.
    It is security given to a creditor to induce him “ to forbear opposing the application for discharge of the bankrupt,” which the act makes void. The principle is one well recognized. The debtor’s proceeding for a discharge is by him as against all his creditors. Any advantage to one creditor, in view of which he withdraws opposition, operates as a fraud upon the others, who by his -withdrawal are influenced to adopt the same course in ignorance of the secret motive influencing his action, and are thus cheated (Bankruptcy Act, sec. 35).
    The case does not come within the provisions of the act. It does not offend its policy; though it would be immaterial if it did. An involuntary proceeding is between the petitioning creditor and the debtor. No one is defrauded by its withdrawal. The act neither prevents nor avoids security given by a third person in consideration of it (Bell v. Leggett, 2 Sandf. S. C. R., 450, 457).
   By the Court.:

Fithian, J.

I do not see any thing in the facts in this case contravening any of the express provisions or the policy of the Bankrupt Act. ' Section 25 of the act declares void all securities or contracts made or given in order to induce any creditor to “forbear opposing the application for discharge of the bankrupt.” But in this involuntary ” proceeding, taken.by a creditor against the bankrupt, there is not, nor can there be, any “ application for discharge of the bankrupt,” The statute provides no method or means whereby a bankrupt can apply for a discharge in a proceeding hostile to him, instituted by a creditor. In this respect, as well as others, the United States law differs from the English bankrupt statutes.

Ueither am I able to see wherein the agreement, alleged and proved as one consideration of the notes in suit, is in conflict with any policy of the law. The policy and general intent of the bankrupt act is, that the bankrupt’s estate, and the whole therreofi without concealment or diminution, shall be honestly, and as speedily as possible, equally divided among all of his bona fide creditors. And there are various provisions of the statute forbidding and declaring void certain specified acts and things having a tendency to defeat such general intent and policy. But I do not think the agreement here tends, in any manner, to do that. If the defendant Farrar had paid these two creditors the amount of the notes in suit, in money of his own, or given a collateral security out of his estate, or had indemnified, out of his estate, Bloodgood, the endorser, it might have presented an entirely different question (although, as to that, I give no opinion). But there is nothing of the kind appearing here.

It is well settled that payment in full to a creditor of a bankrupt by a third person, as a friendly act, is not illegal preference, as between the creditor so paid and the other creditors, because it no way affects the other creditors. The fund to which they looked for payment was in no way diminished by it (Winson v. Kendall, 3 Story, 507; Fox v. Paine, 10 Alabama R., 523). And so, where all the creditors of the bankrupt, but one, had agreed to take a certain sum each in discharge, and the bankrupt afterward paid the one a greater sum, it was held not illegal (25 L. and E. Rep., 476).

So, here, the defendant Farrar merely gives an additional promise to pay part of his indebtedness. A judgment obtained against him in favor of plaintiff in no way affects his other creditors. It operates only as a transfer of part of his indebtedness from the original creditor to the plaintiff in this action. And in respect to the defendant Bloodgood, his endorsement was voluntary, and for the accommodation of the debtor, and without any consideration flowing from the debtor to him. It will be time enough for him to look to the interests of the other creditors, and they to raise the objection, when Bloodgood shall (if he ever does) attempt to claim against the bankrupt for endorsing.

The authorities cited by defendant’s counsel from the English cases are not, in my opinion, applicable. They arose out of particular provisions of the English Bankrupt Act, and establish no general principle applicable to this case.

.1udgment affirmed, with costs.