Case Name: In the matter of John M. Berrian and Cornelius A. Berrian, bankrupts
Court: United States District Court for the Southern District of New York
Jurisdiction: United States
Decision Date: 1872-12
Citations: 44 How. Pr. 216
Docket Number: 
Parties: In the matter of John M. Berrian and Cornelius A. Berrian, bankrupts.
Judges: 
Reporter: Howard's Practice Reports
Volume: 44
Pages: 216–223

Head Matter:
U. S. DISTRICT COURT.
Southern District of New York.
In the matter of John M. Berrian and Cornelius A. Berrian, bankrupts.
That where a partnership is in bankruptcy, and the separate estate of one partner is more than enough to pay his separate debts, at the amounts proved as they stood at the time of the adjudication, without computing interest thereon after that time, the surplus of such estate, over such debts, is to be added to the partnership estate, and applied to the payment of the joint debts, before paying such interest on the separate debts.
John Fitch, register. — This case is pending before me. The following question arose at the adjourned second meeting of the creditors of said bankrupts, held on the 12th day of November, 1872, and was stated and agreed to in writing, as follows: Claims againstthe separate estate of the bankrupt John M. Berrian, including computation of interest up to the date of the adjudication only have been provéd.
At the meeting of creditors, held November 12th, 1872, it appears by the assignee’s account, that he has collected sufficient money to pay all the debts proved- against the separate estate of John M. Berrian, and leave a surplus.
Joint creditors of the bankrupts have proved claims against the joint estate of the bankrupts to the amount of $49,712.-10 and upwards, which the surplus arising from John M. Berrian’s separate estate is not sufficient to pay.
The separate creditors of John M. Berrian claim, that before the surplus of his .separate estate is applied to the payment of the joint debts, the interests on the separate debts of John M. Berrian shall be computed from the day of ad judication, and the surplus applied to the payment of such interest.
The assignee claims that the surplus is not to be applied to the payment of joint debts, and not to the payment of interest which has accrued since the adjudication on the separate debts of John M. Berrian. ■
The legal points to be decided by the court, arising in this case upon the statement of, facts, are: First.—Can interest be allowed upon any claim, proven and allowed by the register as against any estate, after the date of the adjudica-, tion of bankruptcy 1 Or the question in this case may be stated thus: Is it lawful for the asignee to allow the separate creditors of the estate, interest on their respective claims, as proven, from the date of the adjudication to the date, of the order of distribution, before paying the joint creditors of the estate ? Second.—If interest can be so paid, then, upon what debts or claims, and under what circumstances ?
Section 19 of the bankrupt act, applicable to this case, is as follows:
“ That all debts due and payable from the bankrupt at the time of the adjudication of bankruptcy, and all debts then existing but not payable until a future day—a rebate of interest being made when no interest is payable by the terms of contract—may be proved against the estate of the bankrupt. All demands against the bankrupt, for or on account of any goods or chattels wrongfully taken, converted, or withheld by him, may be proved and allowed as debts to the amount of the value of the property so taken or withheld, with interest.”
Section 19 of the bankrupt act is but a condensation of the insolvent laws of the respective states as well as of the English bankrupt laws, but more especially of the insolvent laws of New-York and Massachusetts. To the decisions of the courts of these two states, and also to the English courts, this court must look for precedents in the decision of these questions.
By the uniform decisions of our state courts, interest follows the principal as soon as due, and as soon as .a sum certain is found to be due between debtor and creditor, interest attaches. It also attaches in case of default in not paying money, the nondelivery of property, and the failure to perform a specific contract (2 N. Y., 135; Id, 408). Such was the practice established under the English common law and the decisions thereunder.
The bankrupt law discharging a debtor from his debts, is an act of sovereignty, authorized by section 8, clause 4, of the constitution of the United States; is in derogation of the common law, suspends and invalidates the same—was required by considerations of public good, public policy, and for the welfare of the nation. In construing its provisions, the court should give it such a construction as will best carry out the intention of its makers. Such intention may be ascertained by reference to the causes which led to the passage of the law. And further, when the source, from which the words used in framing a statute, is found by the courts, viz., other statutes or judicial opinions, it is but reasonable that the decision of the courts upon such statutes should be followed with reason, prudence and judgment.
In the case of Dudley agt. Mayhew (3 N. Y., 9) the court held that, “ Where a statute confers a right, and prescribes adequate means of protecting it, the person possessing the right is confined to it, and must be governed by it.” That principle is applicable to this case, as the bankrupt law gives each creditor the right to prove his claim, and to receive whatever dividend may be paid thereon. If a creditor takes this right, it must be taken with the conditions and restrictions thereon set forth in the law, the same as he would have to take it at common law.
It was the uniform practice under the New-York insolvent law to compute interest upon claims up to the date of the assignment as provided for in the act. And where the claims proven were greater than the estate (which is always the case under state insolvent laws, where preferences are allowed, and the favored few divide the entire proceeds of the estate among themselves, and exclude the nonfavored creditors) interest could not be allowed. It was legal, however, to allow interest on the claim as computed after the payment of the principal. If such a thing could occur under any insolvent law allowing preferences, a similar rule prevailed in New Jersey. The insolvent law in that state contains the fundamental principles of the New York insolvent law. The proceedings therein being about the same with a similar ruling of the courts (Saxton, 572).
Section 40 of the insolvent law of the state of New York, provides that, “ Every person, to whom a debtor (except one proceeding under the sixth article) shall be indebted on a valuable consideration, for any sum of money not due at the time of such distribution but payable afterwards, shall receive his proportion with other creditors, after deducting a' rebate of legal interest upon the sum distributed, for the time unex-' pired of such credit ” (1 R. L., § 18).
Under this provision interest was computed up to the date of the assignment (Ex parte Murray, 6 Paige, 204). A similar rule prevails in England. The English bankrupt law stops interest on claims at the date of the fiat or commission, and does not allow interest to be computed upon a claim against the estate of the insolvent (Robson on, Bankruptcy, 106; Bromley agt. Goodire, 1 Atk. 79; ex parte Badger, 4 Ves., 164; 10 Gray, 263; 9 Ves., 588; 4 Ves., 677; ex parte Boardman, Cooks B. L., 208; 8 Tauton, 660; 2 B. & A., 305., sec. 97, English bankrupt law, 1861.
By section 25 of the insolvent law of' Massachusetts, “Debts due and payable from the debtor at the time of the first publication of the notice of issuing the warrant, may be proved and allowed against his estate at any meeting; and all debts at that time absolutely due, although not payable, may be proved and allowed as if payable, with a discount or rebate of interest when no interest is payable by the contract.”
The bankrupt law requires all claims to be proven in accordance with the requirements of section 19 of the act. It is imperative, and no evasion of it can be allowed by the courts. Interest on the claims, as specified by the act, is to be computed in the manner so specified up tó the date of the adjudication of bankruptcy, and then the interest must cease, unless upon the happening of certain contingencies, as I shall hereinafter describe (In re Orne, B. R. Sup., 13; S. C., 1 Bt., 361).
In this case, there are individual debts and an individual estate sufficient to pay the individual claims as proven and allowed by the court, and a surplus over. There are large claims against the joint estate, and there cannot be any surplus with which' to pay the interest upon the individual claims against the separate estate, but the question arises the same, as if there was.
From a careful reading of section 19 of the bankrupt law and the portions of the insolvent laws, of New York and Massachusetts, from which said section was framed, I am clearly of the opinion that it was the intention of congress not to allow interest on ordinary contract debts after the adjudication, unless when there was a surplus after paying all the debts of the estate with interest up to the date of the adjudication, thus rendering the bankrupt a solvent debtor, under the same rules of law that are applicable to solvent debtors— namely, that he must pay his debts. Such was evidently the intention of congress as to all moneys arising from the estate of a bankrupt, which was to be distributed among the general creditors, but as to holders of specific liens, recognized by the act, and which were precedent to the bankruptcy, it is different; there the common law rule prevails, and interest follows the principal.
The bankrupt law does not effect the rights of the lien holders, but it does effect their remedy. The constitution does not give congress the power to affect "a legal or vested right, but it-does to alter, change, or vary a remedy. This is what the bankrupt law has done.
The same rule must hold in cases as between individual creditors and copartnership creditors, where there are individual assets and copartnership assets, as it is a settled principal of law as well as of mathematics, that rules applicable to the greater are also applicable to the less, therefore I infer,, and the inference is fair, that it was not the intention of congress to allow interest on debts against a separate estate after the adjudication, even when there is a surplus, where there are copartnership creditors, until the copartnership creditors have been paid the amount of their respective claims. Such has been the construction placed by the courts of New-York and Massachusetts, upon this question of interest, arising under their respective insolvent laws (6 Paige, 204; 6 Met., 317; 6 Met., 200.
In this case the creditor of the separate estate of John M.. Berrian claims that the assignee should pay him interest on his claim from the date of the adjudication of bankruptcy up to the date of the order of distribution, before any part of the assets of the separate estate of John M. Berrian can be applied to the payment of the joint creditors. This claim cannot now be allowed. A creditor of a separate estate, where there are joint creditors, cannot be allowed interest on his claim, until after the joint creditors are paid the amount of their respective claims, as proved and allowed.
The bankrupt law allows interest up to the date of the adjudication of bankruptcy, it adds the interest to the principal, and fixes the amount due, but interest accruing upon a contract after that time is not to be computed or taken cognizance of, unless, as above stated, depending upon certain contingnences, thus, the bankrupt law becomes equal as well as just m its operations, by prohibiting the courts from computing interest on claims after adjudication, thus, all the creditors share pro rata respectively, when there is an estate either of the individual or copartnership. The creditor of the separate estate receiving his share without interest after adjudication, then the copartnership creditor receives his, and should there be a surplus over, it must be applied to the payment of the interest on the claims against the separate estate, then should there be a surplus, it must be applied to the payment of the interest on the claims against the joint estate, and if a remainder, it reverts to the bankrupt, the estates having paid their respective debts the force of the bankrupt act is spent, the bankrupt becoming solvent.
I decide, that when there is a separate estate and separate creditors, and also joint creditors, as in this case, interest can only be allowed, on unsecured contract debts, up to the date of the adjudication of bankruptcy.
That such separate creditors are not entitled to claim interest upon their claims, as adjusted, after the date of the adjudication, until after the creditors of the joint estate are first paid. Should there be a surplus over, then interest is to be paid on the claims against the separate estate.
The motion of the separate creditors of John M. Berrian, is denied.
Bangs & North, for assignee.
James L. Bishop, for. creditors.

Opinion:
Blatchford, J.
The 36th section of the bankrupt act, in saying that the net proceeds of the separate estate of each partner shall be appropriated to pay his separate creditors, and that if there shall be any balance of the separate estate of any partner after the payment of his separate debts, such balance shall be added to the joint stock on the payment of the joint creditors, follows the language of the Massachusetts insolvent law, under which (Gen. Stats. of Mass., of 1838, chap. 163, §, 21) it was held in Thomas agt. Minot (10 Gray, 263) that where a partnership and its members are in insolvency under one commission or one adjudication in the same proceeding, and the separate estate of one partner is more than enough to pay his separate debts, at the amounts proved as they stood at the time of liquidation recognized by the statute (which in that case was the day of the first publication of notice) without computing interest thereon after that time, the surplus of such separate estate over such debts is to be added to the partnership estate, and applied to the payment of joint debts, before paying such interest on the separate debts. The rule laid down in that case, was established in 1857, and ought to be followed under the like provision in the bankruptcy act, as being substantially a construction of the provision which accompanied its enactment.