Majority
p. 176ALBERT G. WOODRUFF, and others, Plaintiffs and Appellants, v. JOHN R. TERRY, Defendant and Respondent.
Headnote
I. Bankruptcy proceedings.1. Composition meetings of creditors.
(a) General meeting of creditors, for the purpose of varying the original resolution of composition, and of allowing the debtor to correct his original statement of creditors, by including other pa/rties.
1. Power op meeting, as to consenting to the addition of others to the original list of creditors, and binding those so added by a resolution extending the term named in the first resolution for the payment of the composition amounts thereby fixed.
1. It has such power, subject to the approval of the bankrupt court.
3. Banh'upt court.
(a) Jurisdiction op, as to composition resolutions.
1. As to both original cmd additional resolutions, it is vested with jurisdiction upon a certain notice to creditors to inquire and determine whether such resolutions have been passed in the manner directed by law.
p. 177Before Sedgwick and Van Vorst, JJ. Decided April 7, 1879.
1. Attacking jurisdiction collaterally.
1. It cannot be attacked by evidence showing that the creditors who passed the second resolution were not creditors, because they had received the composition given by the first resolution ; nor by evidence that there was no time to be extended (the resolution being one of extension), because all the composition amounts had already been paid, nor by evidence that an omission to place in the list' of creditors certain creditors (the resolution being one of correction in this respect), was not a mistake inadvertently made ; because all these matters must be regarded as having been passed on judicially by the bankrupt court, when it ordered the resolutions to be recorded.
(5) Notice, jurisdiction depending on.
1. If the proper notice is given, jurisdiction is gained, although the park/fails to appear.
1, Conditions imposed on appearance.
The imposing by the register, as a condition of being allowed to appear, that the party should prove his claim, does not destroy the jurisdiction gained by the service of notice.
8. Debts bound, by composition.
(a) One which became due after a resolution of composition, but before a resolution extending the time to pay the composition amounts specified in the first resolution, and correcting the first list of creditors, by adding the name of the party holding the claim, such pa/rty having due notice of the second meeting, is bound.
Appeal from judgment for defendant, on verdict directed by the court.
The action was against the defendant, as indorser of two promissory notes. The first of these notes fell due January 15,1877, and the second, April 15, 1877.
The defense was, that these debts had been discharged by the effect of a composition made under the bankruptcy act of the United States, in a proceeding in which the defendant had been adjudged a bankrupt.
p. 178
The testimony showed that composition proceedings were beguri under section 17 of bankruptcy act of June 22, 1874, which ended in the district court in bankruptcy ordering the resolution to be filed, and the statement of debts and assets to be filed. The plaintiffs’ names as creditors had been omitted. All the other creditors received the amounts provided by the resolution to be paid to them. After this, steps were taken by which a general meeting of creditors was held, for the purpose of varying and adding to the original resolution, by extending the time 'for the payment of the amounts, and also to allow the debtor to correct his first statement by including the names of plaintiffs. This was corrected, and the resolution was varied. Thereupon the' district court ordered the additional resolution to be recorded, and the corrected statement to be filed.
The court upon this proof directed a verdict for the defendant.
John Brooks Leavitt, of counsel for appellants, on the points considered by the court, urged, among other things:
I. (1.) There being confessedly no jurisdiction over us at the outset, none could be afterwards .obtained, because the section points out only a single way in which it could be got, viz., upon a notice of the first meeting “to each known creditor, of the time, place and purpose of such meeting, such notice to be personal or otherwise, as the court may direct.” This must then be followed up by the placing of the credit- or’s name on the statement presented at such meeting. These must both concur. The creditor is, in theory, brought into court by serving the notice by mail or otherwise—whether he receives it is immaterial; if sent, the court has obtained a provisional jurisdiction, which it loses if the name is left off the statement. The proceeding may well be likened to our State court
p. 179
obtaining a provisional jurisdiction, by the granting of a provisional remedy, which jurisdiction is finally ripened by the service of the summons. The analogy is an apt one, for, suppose a judgment entered, showing no service of summons, would such judgment have any force % In the present case, neither notice was sent, nor were we named. Jurisdiction was not obtained over us, and the section provides no other process or way that it may be obtained. (2.) To this it will be answered—the only answer that can be made— the section does provide, there is a clause which gives the court jurisdiction in just such a case, viz., that any mistake in the statement may be corrected. To this we submit.: (a) The clause was not intended to apply to such a case. (5) Even if it were, it has never been acted on in such a way as to give the court j nrisdiction to enter its final order of August 16, so as to bind us. (a) It does not apply. This is not a mistake, it is an omission, a word of wholly different derivation and import. Congress has used both words, and provides for each case. For a mistake it provides relief. For an omission it adjudges a penalty. Here, the mistake of not naming a creditor is specially before comprehended and provided for by itself, so that the subsequent general provision as to the class is not to be stretched to this. Again, there is no provision by which jurisdiction can be obtained over us by the service of a notice for the second meeting. 1. What we did under that notice does not constitute an appearance which will give jurisdiction. It may be said that because these plaintiffs appeared before the register, and again before the court, that for that reason they are bound. The register answers this, he ruled that they were not in court till they proved their claim in the composition proceedings. The practice in the United States courts is to require creditors to prove their debts in the composition proceedings, whether
p. 180
they have proved them in the bankruptcy or not. Until they do so prove in composition they cannot vote, or take part in any way (Blumenstiel Bankruptcy, 412; In re Keller, 18 N. B. R. 332 ; In re Mathews, 17 Id. 225; In re Scott, 15 Id. 73). This they did not do. They refused to do that which would have waived their rights. So again before the court. Having no standing before the court, they had no right to appear, and the permission of the court to allow their counsel to talk could not give it jurisdiction over them. A court must obtain jurisdiction by the service of some process, authorized by some law, or such an appearance by the party as waives the service of process. In this case, plaintiffs’ first' knowledge of the composition proceedings was the notice served on them. Whether that was proper process is the very point for this court to decide. When they went to the register’s office to find out what it meant, the register himself ruled that they were not before him, unless they acknowledged his jurisdiction by proving their claim; and non constat but that Mr. Justice Blatohfobd held the same way. Now, while we concede that where a court has jurisdiction over the subject matter, and obtains it over the person, many mistakes which may thereafter happen, pending the administering its relief, may be corrected ; yet we dare to affirm, that it has never yet been held, that the correcting of a mistake can give jurisdiction, for the vital reason that there is no jurisdiction to correct. If an attachment is fatally defective, a judgment upon it is equally so, nor can it be made valid by the amendment of the attachment, because the latter must uphold the former. A summons which is void cannot afford jurisdiction to the court ex-y arte to correct it. Atlas may uphold the world, the world cannot uphold Atlas. The case of Thurber v. Blanck ( 50 N. Y. 80 ), is an instance of this reasoning. (5) Even if this clause does apply, it has never in fact been applied. There
p. 181
has never been any meeting of creditors, at which this so-called mistake was corrected. Why ? There were no creditors. They had all been paid. They were creditors no longer. Again, it is said that the additional resolution must be passed in the same way as the original one (In re Remsen, 11 N. B. R. 21 ; In re Asten, 14 Id. 7). Now, a resolution, until formally ordered to be recorded, has no validity. Therefore, it cannot be pretended that we were parties to this proceeding until August 16, the date when this additional resolution was ordered on file. But that was the last order in the premises. On that day, be it conceded, we became parties thereto. The bankrupt should then have called a meeting of creditors to consider his proposition. If they wanted to pass upon it, they must have refunded, and then the proceedings be gone all over again de nono. For we were not bound till we were made parties, and when we were made, we had all the rights which the statute gives to those who are parties. Being brought in by amendment, the case would have to be tried over again as to us. It never has been. Will this court determine that the trial binds us ex post facto f Lastly, conceding everything that defendant may claim as to the clause about a mistake applying to such a case as this, yet, where a composition has been passed, and the payment as therein provided made, and the time within which it was to be made has elapsed, so that the whole thing is out of court, it is then too late to allow the amendment. The court has no longer, even if it had up to then, the power to grant the relief. Mr. Justice Blatchford, in In re Hinsdale ( 16 N. B. R. 550 ), says that the proceeding is pending until the time to pay the compromise expires ; thereby admitting, that when that time arrives the cause is ended. Ex parte Mathews (10 L. R. Ch. App. 304), Mellish, J., in speaking of just such a case, says: “It is too late for the court to allow him to have it
p. 182
now.” (This was'in that case really an obiter dictum, but we submit is entitled to great weight.) And he adds: “There is no section of the act that deprives [the creditor] of his rights, and he is therefore entitled to pursue his ordinary remedies as a creditor.”
II.- We beg to place, what we cannot but think must be a controlling consideration, in a point by itself, though really belonging in Point I. The act says that (upon certain notice) at a certain place, at a certain point of time, if, upon a certain statement, a creditor is named, he is bound ; if not, he is not. That certain point of time in this case was March 1, 1877. That certain place was Register Fitch’s office; that certain statement was a piece of paper, with certain names thereon written. Plaintiffs’ names were not thereon ; and they are not on it to this day. A certain other piece of paper—an additional statement—was, by order of August 16, ordered to be recorded, but that statement was not in existence at this certain place, on this certain day. That additional statement was not the statement presented to the meeting of creditors on March 1. And no order of any court can make that additional statement the one presented to that meeting on March 1. You may pile Ossa upon Pelion; you cannot make a fact, nunc pro tunc, by any subsequent proceedings, order or decree. Not even—if with all reverence we may be allowed the expression—not even the Most High Judge Himself can do that. This court is called upon to examine this certain statement, presented on a certain day, at a certain place, to certain people. It inspects that statement—it finds that our names are not upon it. No further evidence.is material. The act says we are not bound. This is the whole gist.of the case in a nutshell.. The statement is so clear that we should apologize to the court for the length of our argument, and that apology is that the case is one of first impression, and due respect to the
p. 183
court requires its candid submission upon every point that may possibly arise.
TTT The refusal to direct a verdict for plaintiffs on the second cause of action was error, and the exception thereto was well taken. The resolution accepting the compromise was on March. 1,1877, and was recorded March 16, 1877. The second note did not fall due till a month after, April 13. Defendant’s liability was as indorser. In his petition in bankruptcy he only prayed (he could only pray) for a discharge from his provable debts. A discharge in bankruptcy only affects provable debts (U. S. Rev. Stat. tit. Bankruptcy, § 5119). And where a liability is contingent, like that of an indorser—a liability which may never become fixed, for the contingency may never happen—it is not a provable debt until the event happens, and unless that event happens before the final dividend is declared (U. S. Rev. Stat. § 5069; In re Loder, 4 N. B. R. 190 ). How, it will be said that there has been no final dividend declared in this case, because the proceedings in bankruptcy were superseded by the proceedings in composition ( In re Becht, 12 N. B. R. 201 ), therefore, the debt was provable ; therefore, it is affected. The answer is obvious. If, as is held in the case just cited, and in a number of others, that proceedings in composition take the place of proceedings in bankruptcy (which we do not deny, for in composition no certificate of discharge is given or is necessary, In re Becht, 12 N. B. R. 201 ); then there must be some criterion to determine what debts are or are not provable in composition, so as to be affected by the composition proceedings, and as the amendment of the bankrupt act providing for composition does not, in terms, provide what debts shall be provable in composition, it must be deemed that those debts which are provable in bankruptcy shall be, and none other, provable in composition (Lowell, J., In re Trafton, 14 N. B. R. 507 , says : “ The word creditor, here
p. 184
plainly means all who have debts provable in bankruptcy”). And analogy then steps in and says that what the final dividend is to bankruptcy, the resolution of compromise of the creditors is to the composition. Because by that resolution is declared what the dividend shall be, and by its very effect it is a final dividend. This must be so. Otherwise, how could an offer of compromise ever be intelligently acted on % The creditors ought not to be compelled to wait five, ten months, ten years for the happening of an event which may not happen. Estates must not be tied up. The very policy of the act forbids this. But the proportion which a debtor can pay and what is the interest of the creditors to accept, could not be determined if that proportion is to be varied by subsequent events. Their resolution, then, is pro Tiac vice the declaring of the final dividend. The same result is reached from another point. Suppose, in this case, that we had been named, and had appeared at the meeting to vote on the resolution, March 1. We could not have proved this second note under section 5069. We could only have been reckoned as creditors for $256.99, in determining the amount in value of the creditors necessary to pass that resolution. As to our ¡second note, we would be unheard. And yet that second note, if provable, might be sufficient to prevent the resolution from being passed by the requisite number of creditors in value. Would not the bankrupt and the other creditors very justly oppose that note being reckoned % They would say, and say truly, it is not a provable debt, it cannot be reckoned. Bow, then, can the bankrupt turn round and say now, it was provable ? But if not provable, it had no standing; if it had no standing, it is unaffected. If unaffected, we must recover on it now. For the only defense to it is certain proceedings, which do not affect it. It is no answer to say the bankruptcy court has passed on this,'for it was never before the court. It is
p. 185
a question which can only be raised in the court where suit is brought, and whether a debt was a provable debt or not, must always be decided in the court where the discharge or composition is pleaded (see In re Halford, 19 L. R. Eq. 436).
Chamberlain, Carter & Eaton, attorneys, and F. K. Pendleton, of counsel, for respondent, urged:
I. (A) On behalf of the plaintiffs, it is claimed that the proceedings were irregular.
First. The creditors, having received the dividend under the first composition, were not entitled to vote. The decision of the bankrupt court, overruling the objection, was correct. I. A discharge in bankruptcy only relieves the debtor from personal liability. The debt is not extinguished (Bowery Savings Bank v. Clinton, 2 Sandf. 117 ; Storm v. Waddell, 2 Sandf. Ch. 525 ). A discharge only affects the remedy, and must therefore be specially pleaded (Bircham v. Creighton, 10 Bing. 11). For the same reason an express promise to pay revives the liability (Stern v. Nussbaum, 5 Daly, 382 ). Proceedings in composition are an alternative method of effectuating the purposes of the bankrupt law (In re Lytle, 14 N. B. R. 458 ; In re Becket, 12 N. B. R. 201 ; Mason & Hamlin Organ Co. v. Bancroft, 1 Abb. N. C. 415 ). They must be specially pleaded (In re Tooker, 14 N. B. R. 35 ). A composition by a principal debtor does not discharge the surety (Mason & Hamlin Organ Co. v. Bancroft, 1 Abb. N. C. 415 ). II. The word “ creditors ” in the bankrupt act designates those entitled to share in the estate, without reference to whether the liability of the debtor has been determined or not (U. S. Rev. St. §§ 5092, 5093, 5094, 5096, 5097, 5039). III. The composition under the first resolution was not completed at the time the additional meeting was held. Although the order directing the recording of the resolution and the filing
p. 186
of the statement of debts and assets had been made, the estate still remained in the hands of the assignee, under the control of the court, no final order directing it to be turned over to the bankrupt having been made. Under section 17 of the amendatory act the court had power to set aside the composition. If this had occurred, assuredly these creditors would have been entitled to share in the estate, had any additional dividend been realized.
Second. That the case at bar is not within the meaning of the clause allowing the statement of debts to be corrected, or an additional resolution, varying the terms of a composition, to be passed. This involves the interpretation of the act itself, and the powers therein granted. I. The bankrupt act is not a penal statute •; on the contrary, it is remedial in its nature, and should be liberally interpreted with a view to effect the purpose contemplated (In re Brentano, 3 N. B. R. 329 ; In re Silverman, 4 N. B. R. 532 ). The strict rules of construction which are applied in cases where a special statute gives to a court a power to do a particular act, have no application to a case where general jurisdiction over an extensive subject is given (In re Cal. Pac. R. R. Co., 11 N. B. R. 193 ). The composition clause, in the first place, provides that it shall only be binding on the creditors named in the statement. This is to prevent a fraudulent omission of any creditor. It is not meant to give to the creditor the advantage of every inadvertence. Hence the act provides that such a mistake may be corrected, when the rights of the other creditors will not be thereby injuriously affected. II. The only limitation to the power to vary the original provisions. is, that such variation shall be without prejudice to any “ person” taking an interest thereunder. The word “person” in the above limitation does not include “creditors” (In re Glover, 43 Law Journal, Bankruptcy, 4). III. The statute con
p. 187
templates that the correction shall be made after the order confirming the composition (In re Scott, 15 N. B. R. 87 ; In re Glover [above]). IV. The provision that the composition shall not affect the rights of creditors omitted from the statement of debts was not meant to nor does it in any way qualify the provisions allowing a variation of the terms of a composition and the correction of a mistake in the statement; they relate to entirely different matters. The former limits the effect of a composition completed. The latter regulate the proceedings to effect a composition.
Third. That jurisdiction of the person of the plaintiff was not acquired. I. The plaintiffs appeared generally in the proceedings in the bankrupt court by filing a proof of debt. II. By the terms of section 17 of the amendatory act every additional resolution must be passed and proceeded with in the same manner and with the same consequences as the original resolution. It is evident that it is an entirely new and independent proceeding, not relying for its validity on anything which has gone before. That the plaintiffs received due notice of the proceedings to pass the additional resolution, and attended at the meetings called for that purpose, is undisputed. It is by the composition accepted by the additional resolution that the plaintiffs are barred. III. The jurisdiction of the district court of the United States is presumed until the contrary is shown. In that respect it stands on the footing of a court of general jurisdiction (Chemung Canal Bank v. Judson, 8 N. Y. 254 ). Having general jurisdiction of the subject-matter and of the bankrupt, actual notice is not necessary to give the court jurisdiction of the creditors. It is well settled that the omission to give notice to the creditors does not render a discharge void; although a fraudulent omission would sustain direct proceedings to set the same aside (Platt v. Parker, 13 N. B. R. 14 ; Stern v. Nussbaum, 5 Daly,
p. 188
382 ). By a parity of reasoning, creditors properly described in the statement of debts are concluded by a composition, although they received no notice of the proceédings. In case of a fraudulent omission the proper remedy is by direct proceedings, to set the composition aside (In re Reiman Friedlander, 13 N. B. R. 128 ). (B) Each and every of the foregoing questions was raised and passed upon in the bankrupt court. That decision is conclusive on these parties. It cannot be attacked collaterally. I. That an adjudication by a court of competent jurisdiction is conclusive on the parties as to every question of law and fact directly involved, is well established, whether the adjudication be by judgment, order or decree (Dwight v. St. John, 25 N. Y. 203 ). II. The final order in composition is an adjudication, within the above rale, and cannot be called collaterally in question (Beebe v. Pyle, 1 Abb. N. C. 412 ; Smith v. Engle, 14 N. B. R. 481 ). III. Where a court, having general jurisdiction of the subject-matter, and the parties appearing, is obliged in the course of regular proceedings before it to pass upon the question of its own jurisdiction in the particular case, such adjudication is within the above rule, and can only be called in question by direct proceedings for review. For all the purposes of the rule the court has jurisdiction (Fisher v. Hepburn, 48 N. Y. 41 ; Rusher v. Sherman, 28 Barb. 416 ; Monnell v. Dennison, 17 How. 422 ; Price v. Peters, 15 Abb. Pr. 197 ; King v. Poole, 36 Barb. 242 ; McMahon v. Mutual Benefit Life Ins. Co., 12 Abb. Pr. 28 ). The adjudication of the district court as to whether it had acquired jurisdiction of the plaintiff, involving, as it does, the interpretation of the bankrupt act, is peculiarly within the rule'of the above cases. The plaintiffs, having taken no step to review that decision, are concluded by it in this court. Was defendant’s liability on the second note discharged by the composition? I. The plaintiffs are concluded by
p. 189
the adjudication in the district court. Beebe v. Pyle ( 1 Abb. N. C. 412 , and 71 N. Y. 20 ), holds that as to all questions touching the indebtedness, the composition proceedings are an adjudication not to be questioned in another court. If the claim on the second note is not within the effect of the composition proceedings, the. plaintiff should have raised that objection at the time. (a) An adjudication is conclusive between the parties on all questions involved, whether raised or not (Smith v. Eagle, 14 N. B. R. 481 ). (b) The question was distinctly before the court. It appeared in the proceedings that the debt was due at the date of the meeting at which the correction in the statement was made. By allowing the correction, the bankrupt court in effect held it was not necessary that the liability of the defendant as indorser should have become fixed at an earlier date in order to be discharged by the composition. < It cannot be supposed that the court allowed a correction for the purpose of inserting a claim which would not be discharged. II. Assuming that a composition by analogy to the rule in ordinary proceedings discharges provable debts only. The debt of an indorser may be proved at any time after his liability becomes fixed, and before the final dividend is declared (U. S. Rev. Stat. § 3069). The defendant’s liability on the second note became fixed on April 13, 1877. The meeting at which the additional resolution was passed was held May 4, 1877. The time fixed for payment by the first resolution was April 16, 1877. (a) Payment of the composition corresponds to declaring the final dividend in the ordinary proceedings, (b) The composition accepted at the additional meeting does not relate back to the original proceedings. It is in no proper sense an amendment. It supersedes the former proceedings as completely as if they had lapsed. III. The bankrupt act distinctly specifies what debts shall be discharged by the ordinary proceedings in bankruptcy.
p. 190
The composition clause provides generally that the same shall be binding on all creditors described in the statement of debts. Bamberg v. Stern (Daily Register, January 11, 1878), holds that a debt contracted in fraud, although not discharged by the ordinary proceedings, will be by a composition, if included in the statement of debts (In re Shafer, 17 N. B. R. 116 ; In re Rogers, 18 Id. 252 ; Wells v. Lamprey, 16 Id. 205 ). To the same effect.' The court, commenting on the composition clause, says: “It will be observed that the statute under consideration does not exempt from its operation any class of debts. It in terms declares that the composition settlement shall be binding on all the creditors whose names and the amount of whose debts are mentioned in the statement produced at the meeting at which the resolution has been passed.” In re Haskell ( 11 N. B. R. 164 ), holds that the fact that a bankrupt gave a preference is not a reason for refusing to grant the final order in composition, although it would prevent a discharge in the ordinary proceedings. That congress could provide for the discharge of all claims of every kind, by composition or the ordinary proceedings, is evident. The statute expressly limits the effect of a discharge to certain claims. Are these limitations to be considered applicable to composition proceedings? The above cases show—I. That section 5117 of the Revised Statutes, excepting certain provable debts from the effect of a discharge, does not apply to a composition. II. That the causes specified in section 5110 of the Revised Statutes, although they prevent a discharge, are no reason for refusing to confirm a composition. The claim against an indorser, even before the maturity of the note, is a debt, and the holder thereof a creditor within the meaning of the words. So it is held that persons liable for another as indorser or surety, are creditors, and an assignment for the benefit of creditors
p. 191
preferring such claims is not void, although the obligation had not matured at the time the assignment was made (Cunningham v. Freeborn, 11 Wend. 240 ; Read v. Worthington, 7 Bosw. 628 ; Hendricks v. Robinson, 2 Johns. Ch. 304 ; Brainerd v. Dunning, 30 N. Y. 211 ). If, then, the word “provable” were omitted from section 5119, Revised Statutes, such claim would be discharged. Does section 5119, Revised Statutes, limiting the - effect of a discharge to provable debts, apply to composition proceedings? In re Bailey (2 Wood, 222), Bradley, J., seems to hold that a demand, although not provable, would be discharged by a composition. I. The grounds upon which sections 5117 and 5110 have been held not to apply to composition, would seem equally strong in this case, viz.: The composition clause contemplated leaving all questions to the decision of the creditors. II. The omission to specifically extend its application to cases of composition is significant. III. The limitation should not, by implication, be extended to composition cases, in the absence of a very clear intent to that effect. It will render the resort to composition proceedings impossible in a large number of cases. IV. There would seem to be many reasons for excluding from a share in the bankrupt estate claims of uncertain value. The expense and delay caused to the other creditors if the bankrupt court were obliged to assess the amount of such claims. The opportunity thereby offered for establishing fraudulent and fictitious claims against the estate, to the detriment of the other creditors. From the different nature of the two proceedings, these considerations have much less weight in composition proceedings.
The composition, on which the defense relies, is contained in the additional resolution, varying and adding to the resolution
p. 192
passed at a first meeting. If that additional resolution has validity under the bankruptcy act, the plaintiffs are bound by its terms. There had been a former resolution, duly recorded and filed. The additional resolution extended the time' named in the first resolution, for the payment of the composition- amounts, and by force of the act had reference to the statement of debts ordered by the court to be filed, and which was made by the debtor, at the meeting when the second resolution was passed. The statement of debts made for the purposes of the first resolution did not contain the names of the plaintiffs as creditors ; but at a general meeting of creditors, called for the purpose, and which was ■ the same meeting called to vary and add to the first resolution, the statement was corrected by inserting plaintiffs’ names. The additional resolution had reference to the corrected statement.
By section 17 of the bankruptcy act of June 22, 1874 (§ 5103, A), “ The provisions of a composition, accepted by such resolution, in pursuance of this section, shall be binding on all the creditors whose names and addresses, and the amounts of the debts due to whom, are shown in the statement of the debtor produced at the meeting at which the resolution shall have been passed, but shall not afféct or prejudice the rights of any other creditors.” This section clearly' embraces a resolution made by varying or adding to a former resolution.
The statement was corrected by the addition of plaintiffs’ names, under that part of the same section which says, “ Any mistake made inadvertently by a debtor in the statement of his debts, may be corrected upon reasonable notice and with the consent of a general meeting of his creditors.”
The appellants contend that the bankruptcy court had no jurisdiction to order the additional resolution to be filed and recorded. The claim is that the juris
p. 193
diction was dependent upon the existence of certain things in fact, and that the court could not gain jurisdiction by adjudging that the facts existed, or, in substance, that actual facts were conditions precedent of the rightful jurisdiction. These facts are, that to vary or add to a composition already made, the resolution must be passed by persons who are then creditors, the words of the section being: “ The creditors may by resolution .... add to or vary the provisions of any composition previously accepted by them that those who passed the additional resolution were not creditors, inasmuch as they had received the amounts under the first resolutions, and thenceforth ceased to be creditors. Also, that extending the time of payment of amounts already paid, did not add to or vary the provisions of the composition previously accepted by them, especially as the statement of debts, although corrected as to plaintiffs’ names, was not a part of the resolution. Also, that the provision “ that any mistake made inadvertently, by a debtor, in the statement of his debts, may be corrected,” does not and was not meant to refer to the omission of a name of a creditor.
The issue is to be determined by ascertaining what the bankruptcy act meant should be presented for adjudication, and its meaning is conclusive. When the terms and true construction show that the court is called upon to examine and decide a particular matter, the court then obtains jurisdiction as to all matters which are involved in the examination, and its decision cannot be re-examined collaterally.
In the proceedings in question, the first steps are taken by creditors and the debtor, and these steps do not, of themselves, involve any adjudication by the court. But a resolution having been passed, the act declares, by a provision that is applicable to both resolutions and additional resolutions : “ Such resolution, together with the statement of the debtor as to his
p. 194
assets and debts, shall be presented to the court, and the court shall, upon notice to all the creditors of the debtor, of "not less than five days, and upon hearing, inquire whether such resolution has been passed in the manner directed by this section, and if satisfied that it has been so passed, it shall, subject to the provisions herein contained, and upon being satisfied that the same is for the best interest of all concerned, cause such resolution to be recorded, and statement of assets and debts to be filed, and until such record and filing shall have taken place, such resolution shall be of no validity.”
This language plainly calls upon the court to pass judicially upon the sufficiency of the preliminary steps, to give a right to have the resolution recorded and therefore made valid. The intent of the act is made more apparent by the consideration that the terms of the act, as to what is necessary to perfect the-composition, are to be construed in their relation to the policy of the whole act, and it must have been meant that the*-district court should have exclusive judicial power in this regard. If this be not so, the district court could be ousted of jurisdiction by any other court, that, upon its own interpretation, should decide that some of the terms now referred to did not have the meaning given to them by the district court.
I. therefore, am of opinion that the district court possessed jurisdiction to determine the validity, under the act, of the rei ipsm of the additional resolution, and also to determine that such resolution was to be applied to “ the statement of assets and debts” that the court ordered at the same time to be filed.
I do not see that the court assumed a jurisdiction not conferred, when it decided that the omission of the plaintiffs’ names from the first statement was ‘ ‘ a mistake made inadvertently by a debtor in the statement of his debts.” The argument is, that the act meant a
p. 195
mistake of a different kind from an omission that resulted in the persons omitted not being bound by the composition. A conclusive answer to this is, that if the position is supposed to be correct, nevertheless, it only shows that an error was made—not. that the court was -without jurisdiction. But to my mind it is not sound, because the provision as to who shall be bound is intended to become operative after the court has exerted its due powers as to an additional statement and resolution. If the omission were a mistake, and has been corrected, then the provision as to who shall be bound does not operate in plaintiffs’ favor.
The general result is, that the court in bankruptcy competently passed upon the matters which the learned counsel for the appellant has maintained could be examined collaterally in this action.
I have not, as yet, intended to embrace the claim that the plaintiffs did not have the notice, which the bankruptcy act provided for them, and therefore that they are not bound by the composition. This may be settled, however, by adverting to the proposition already discussed. Not keeping out of sight that, so far as the first resolution was concerned, the plaintiffs were not bound, it is the fact that they had due notice of the proceedings which ended in the additional resolution, and were therefore bound by the competent action of the court in respect thereto. Their relation to the controversy was the same as it would be if a debtor were allowed to bring an action to establish the validity of a composition agreement against the plaintiffs as creditors, and they, being served with process to answer as defendants, were bound by the result of the litigation, whether they defended or refused to defend. The process having been served, the court could competently require of them, that, before opposing, or as part of their defense, they should make due proof, according to the practice of the court, of their being creditors in
p. 196
fact. Having received due notice, their omission to prove their debt, as ordered by the register, was voluntary on their part, but had no reference to the question of jurisdiction.
I am further of opinion, that the second promissory note, that fell due after the first resolution, but before the meeting for the additional resolution, was bound by the composition. On the literal meaning of the act, and in respect of the assets of the bankru2>t that would go to an assignee, it fell due before any dividend. As to the composition proceeding, it fell due before the opportunity had passed for the plaintiffs receiving an amount in composition, in proceedings that were competently held to be valid. From what has been said, it follows that the plaintiffs are bound by the specification of the amount of indebtedness due to them, as made in the statement presented by the debtor. The plaintiffs had an opportunity to have the amount increased by the small sum which makes the difference, and voluntarily omitted to object. This brings them within the spirit and letter of the provision, that the composition shall be binding on all the creditors whose names and addresses, and the amounts of the debts due to whom, are shown in the statement of the debtor, produced at the meeting at which the resolution shall have been passed.
Judgment affirmed, with costs.
Van Vorst, J., concurred.
Cases cited
- Thurber v. Blanck 50 N. Y. 80 p. 180
- Chemung Canal Bank v. Judson 8 N. Y. 254 p. 187
- Dwight v. St. John 25 N. Y. 203 p. 188
- Fisher v. Hepburn 48 N. Y. 41 p. 188
- Rusher v. Sherman 28 Barb. 416 p. 188
- King v. Poole 36 Barb. 242 p. 188
- Beebe v. Pyle 71 N. Y. 20 p. 189
- Brainerd v. Dunning 30 N. Y. 211 p. 191