15.] Impeaching the Discharge by One Creditor, for Fraud.

fraudulent act of the bankrupt, have the discharge set aside or annulled, if that act was unknown to him before the discharge was granted, but not otherwise, appears to have been, that the question of the discharge of the bankrupt from all debts and claims whatever (except of those classes which are declared not to be affected by any certificate of discharge) shall be finally and conclusively settled by the court of bankruptcy within a moderate time, leaving the bankrupt, if he prevail in such trial of that issue, free from future suit, molestation, or embarrassment on account thereof; and that every creditor shall be obliged to try the question of the validity of the discharge, if at all, while the facts upon which it depends are comparatively recent, and in such manner as to inure to the benefit of all the creditors if the discharge is annulled, and shall not be allowed to wait until the period prescribed by the general statutes of limitations has nearly expired, and the bank upt has perhaps established himself anew in business and suffered the means of disproving the charges against him to pass beyond his reach, and then bring a suit to which the other creditors are not parties, and thus harass him on account of his old debts and obtain an inequitable advantage over him. It follows that the remedy given by application to a bankruptcy court to revoke the discharge is exclusive of any other mode of impeaching the validity of a discharge, either in the Federal or in the State courts. (Way v. Howe, 4 N. B. R. 677; s. c. 108 Mass. 502.) It will undoubtedly be conceded by all that nowhere is there any authority or principle of law permitting a proceeding to revoke the discharge in toto except under the terms of this section. That one creditor should not be allowed in any other court to show that it is inoperative as to him; in other words, that the law will not allow a piecemeal revocation, will, we think, also be conceded when the effect of such a practice is considered. To allow such individual attempts to impeach the judgment, will be to destroy all uniformity. With reference to this right of the individual creditor to impeach the decree in an action in a State court, it was said by the court in the opinion in Hudson v. Bingham (8 N. B. R. 494; s. c. 12 A. L. Reg. 637):

Effect of Revocation of Discharge — Co-Debtors of Bankrupt. Ch. III.

"The bankrupt may have had the very same grounds urged against the granting of his discharge by one creditor and the matter have been decided in his favor, or there may have been an attempt by another creditor to annul his discharge within the statutory period, and the court may have decided that issue again in his favor; yet if the discharge is assailable in a State court, another creditor may still require him to try the same question over again. Further than this, his discharge may have been, under this view of the law, contested and declared void by a State court within the year, and yet on proceedings instituted under the statute by other creditors in the bankruptcy court having full jurisdiction over the whole question, it may have been adjudged valid and not subject to be annulled for the causes stated. Which judgment is to be held correct, and which shall relieve him from his embarrassments? This view of the law enables the State courts, having no jurisdiction over the original question, to practically nullify the effect of the adjudication of the courts of the United States, having exclusive jurisdiction over the whole subject, and is incompatible with the powers granted to the federal government to grant a discharge in bankruptcy. No such construction ought to be given to the act of Congress unless its terms imperatively demand it."

Effect of Revocation of Discharge.-See section 64c, providing that "in the event of the confirmation of a composition being set aside, or a discharge revoked, the property acquired by the bankrupt in addition to his estate at the time the composition was confirmed or the adjudication was made shall be applied to the payment in full of the claims of creditors for property sold to him on credit, in good faith, while such composition or discharge was in force, and the residue, if any, shall be applied to the payment of the debts which were owing at the time of the adjudication."

SEC. 16. Co-Debtors of Bankrupts.-a The liability of a person who is a co-debtor with, or guarantor or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt.

Analogous Provisions of Former Acts.

R. S. section 5118; act of 1867. section 33; act of 1841, section 4; act of 1800. section 34.

Scope of Section. In a recent case decided in the District of Massachusetts (In re Marshall Paper Co. 2 Am. B. R. 653; 95

Fed. 419), reversed on another point, holding inter al. that the secondary liability of the directors of a corporation is not discharged by the discharge of the principal, the following quotation from Judge Lowell is a good statement of the intention of the section:

"It would seem that, when one is liable to a creditor for the debts of another, he must be either co-debtor with or else surety for that other (Bank v. Warren, 52 Mich. 557. 561; 18 N. W. 356); but in any case it is plain that sec. 16 was intended to include not only co-debtors, guarantors, and sureties, using those words in a narrow and technical sense, but to declare a general intention and to indicate a general proposition applicable to all persons in like situation. The directors in this bankrupt corporation are in some manner a surety for it, even if they are not its sureties in the narrowest sense. See Willis v. Mabon, 48 Minn. 140, 155; 50 N. W. 1110. As the existing Bankrupt Act, then, has in substance provided that the statutory liability of the directors of a corporation shall not be altered by the discharge of a bankrupt, this court is bound to abstain from doing anything which shall hinder the enforcement of that liability."

Indeed the section is merely declaratory of general legal principles.

The contract of suretyship as it is understood in the commercial world is always conditioned that the surety shall not be discharged by the bankruptcy of his principal.

So as to joint liability the discharge does not affect the liability of others who are jointly or as sureties liable with the bankrupt. Legal proceedings against the former need not be discontinued because of the bankruptcy. Judgments obtained against them or security received from them or liens on their property by way of mortgage or otherwise may be enforced. (In re Levy & Levy, Fed. Cas. 8,297; 1 N. B. R. 327; s. c. 2 Ben. 169; Payne v. Able, 4 N. B. R. 220; s. c. 7 Bush. [Ky.] 344.)

A discharge releases only the personal liability of the bankrupt; it does not affect the debt as to other persons. No one else can plead it. So purely personal is the privilege that it is not available to a grantee to whom the bankrupt has fraudulently conveyed property, to defeat a judgment creditor's suit brought against the debtor and the transferee, where the judgment debtor

Creditor's Failure to Prove - Attachment Bonds.

[Ch. III. (Moyer

(the bankrupt) fails to appear and plead his discharge. v. Dewey, 103 U. S. 301.) Even if a creditor assents to the discharge of his debtor in a case where he might have urged an objection which would have induced the court to refuse a discharge, and even though the creditor is requested by the surety of the bankrupt to oppose the discharge, the creditor, loses only his rights against the principal, not against the surety, because the discharge is deemed to be by operation of law, and not of the debtor's own volition. (Ex p. Jacobs, 44 L. J. B. 34; Mason & Hamlin v. Bancroft, 1 Abb. N. C. 415; s. c. 4 Cent. L. J. 295; contra, in re McDonald, Fed. Cas. 8.753; 14 N. B. R. 477.) Where a discharge of the principal is entirely independent of any judicial proceeding, the well-established principle of law is that the surety will be discharged. (Ex p. Jacobs, 44 L. J. Bank. 34; Brown v. Carr, 7 Bing. 508; s. c. 5 M. & P. 497; Sigourney v. Williams, 1 Gray, 623; Mason & Hamlin v. Bancroft, 1 Abb. N. C. 415; s. c. 4 Cent. L. J. 295.) Compare commentaries on section 12.

Creditor's Failure to Prove.-The creditor's failure to prove his claim does not release the joint obligor or surety. There is no obligation resting on the creditor to make himself a party to the bankruptcy proceeding and to collect what he can from the estate. (Clopton v. Spratt, 52 Miss. 251.) The surety may protect himself under the provisions of section 57 (i), (q. v.).

Attachment Bonds.-The question of the effect of a discharge on the liability of sureties on bonds given by the bankrupt to release property of his which has been attached, where the suit is pending at the time of the bankruptcy, was one which was variously decided under the Act of 1867. The decisions of the State courts and the courts of bankruptcy were almost equally divided. As the condition of a bond to dissolve an attachment is to pay any judgment that may be rendered against the principal, there can be no liability until a judgment is secured. The variance between the courts arose over this question: When a

discharge has been granted to a bankrupt pending a suit in which an attachment on his property has previously been dissolved by the giving of a bond, can a judgment be subsequently entered up against him or his sureties, so that the latter may be holden on the bond; or must the bankrupt be permitted to plead his discharge by supplemental answer so that no judgment can be entered up against him, and no liability accrue against the sureties? The Supreme Court of New York, in the case of Holyoke v. Adams (10 N. B. R. 270; s. c. 1 Hun [N. Y.] 223; affirmed in 59 N. Y. 233), took the ground that as the attachment was valid under its laws and was not invalidated by the bankruptcy law, the bond given to dissolve it was in the nature of a substituted security; that a perpetual stay of the action pending proceedings in bankruptcy would not be allowed, as it would work injustice to the creditors, the obligees in the bond; and also that it would not allow a subsequently granted discharge to be set up in a supplemental answer, as the effect would be to prevent the judgment from being entered. The court further held that upon motions for leave to interpose a supplemental answer, the court should exercise its discretion, and deny the motion whenever it would work an injustice, and that to permit the pleading of discharge which would prevent the accruing of the liability of the sureties on a bond given to dissolve a valid lien, and which would deprive the lienor of all rights, would be an act of injustice. On this latter ground the case was affirmed in the Court of Appeals; followed in McCombs v. Allen (18 Hun 190; affirmed 82 N. Y. 114); to same effect, Bond v. Gardner (4 Binn. 269). The U. S. District Court for the eastern district of Michigan (in re Albrecht, Fed. Cas. 145; 17 N. B. R. 287), held that inasmuch as a plaintiff in an action in which there had been garnishment proceedings (which had been discontinued by the giving of a bond), would, under the bankruptcy law, have had a right to prosecute his suit, at least so far as to protect his lien upon the property which has been taken in garnishment, a fair construction of the statute demanded that he should be allowed to prosecute his action to judgment, so as to hold the sureties upon the bond