The point is of no particular importance under our State insolvent laws, because the discharge of the insolvent only affects residents of the same State with the bankrupt, and there is no great hardship in depriving them of a possible recourse to a forum foreign to both parties. § 212. Statute of Limitations not affected by Bankruptcy. Neither the schedule of the debtor containing the name of the creditor, nor the payment of a dividend, will affect the running of the Statute of Limitations, because it is not a new promise; nor has the bankrupt, when admitting his bankruptcy, the right to bind his creditors by such a promise. A fortiori the proof of a debt against one partner, or a principal, and payment of a dividend thereon, will not take the case out of the statute as against his co-partners or sureties. There are early cases which maintain the opposite of both these propositions, but they have long since been overruled.1 At any time before petition filed the bankrupt may renew the promise.2 § 213. When Quasi Partner, etc., may be estopped to prove. Where one is a creditor of the bankrupt in fact, but has held himself out as his partner, he is estopped from proving in competition with the joint creditors. But such holding out must be general. If he has only been represented to be a partner to certain creditors, they may have an action in some form against him, but he retains all the rights of a creditor in the bankruptcy. 12,753; Re Kingsley, 1 Lowell, 216, Fed. Cas. No. 7819; Re Hardin, 1 N. B. R. 395, Fed. Cas. No. 6048; Capelle v. Trinity Church, 11 N. B. R. 536, Fed. Cas. No. 2392; Re Noesen, 12 N. B. R. 422, Fed. Cas. No. 10,288; Re Reed, 6 Biss. 250, Fed. Cas. No. 11,635. 1 Courtenay v. Williams, 2 Hare, 539; Davies v. Edwards, 7 Ex. 22; Christy v. Flemington, 10 Penn. St. 129; Roscoe v. Hale, 7 Gray, 274; Stoddard v. Doane, ib. 387; Re Ray, 2 Ben. 53, Fed. Cas. No. 11,589; Richardson v. Thomas, 13 Gray, 381; Re Kingsley, 1 Lowell, 216, Fed. Cas. No. 7819; Avery's Case, 6 Abb. Pr. R. 144; Bank v. Swazey, 47 N. H. 154; Roosevelt v. Mark, 6 Johns. Ch. 266; 2 Re Lane, 23 Q. B. D. 74, if the debt is justly and morally due. 235. 3 See Ex parte Sheen, 6 Ch. D. Ex parte Sheen, 6 Ch. D. 235. So money lent to the bankrupt for the purpose of his business is a provable debt, in the absence of a general representation upon which creditors have a right to rely that it should be postponed to the trade debts, or of some statute making him a partner quoad hoc. This distinction between money lent for the trade simply and a binding estoppel, was disregarded, in a late case, by the very able and learned chief judge in England, who held that a wife who had lent her separate property to her husband for such purposes could not prove for the amount. This decision has been adopted by statute.2 § 214. Debt made or increased in Contemplation of Bankruptcy. — If a debt is contracted payable only in case of bankruptcy it cannot be proved, because the condition is illegal, for obvious reasons; but a covenant to repay, upon the happening of that event, money derived from the bankrupt's wife will be good, to the extent of the money actually received from that source. Any contrivance in the form of a debt to obtain an advantage in dividends will be void, at least to the extent of the advantage. So where, on the eve of failure, a joint note of partners is exchanged for a several note of one, or vice versa, with a view to the larger dividend which is expected from the joint or the separate estate, it will be rejected; and where acceptances were made to a friend, and by him sold at an enormous discount immediately before the acceptor's bankruptcy, the court, though unable to define the precise fraud, decided that the transaction was fraudulent, and admitted proof only for the money paid for the discount or purchase. In the parte Cooke, Ves. 353; Re Meaghan, 1 Ex parte Grainger, 24 L. T. N. s. 334. 2 45 & 46 Vict., c. 75, § 3. See Re Clark (1898), 2 Q. B. 330. 3 Ex parte Bennett, Cooke (7th ed.), 240; Ex parte Hill, ib. 238; Re Wise, Cas. temp. King, 46; Re Murphy, 1 Sch. & Lef. 44; Re Henecy, ib. 46 (cited); Higginson v. Kelly, 1 Ball & B. 252; Ex parte Elder, 2 Mad. 282; Higinbotham v. Holme, 19 Ves. 88. Lockyer v. Savage, 2 Str. 947; Ex 1 Sch. & Lef. 179. 5 See Whitmore v. Mason, 2 J. & H. 204; Holroyd v. Gwynne, 2 Taunt. 176; Hawthorn v. Newcastle Ry., 3 Q. B. 734; Ex parte Williams, 7 Ch. D. 138; Ex parte Jay, 14 Ch. D. 19. Phillips v. Ames, 5 Allen, 183; Re Lane, 10 N. B. R. 135, Fed. Cas. No. 8044; Neilbut v. Nevill, L. R. 5 C. P. 478. 7 Re Gomersall, 1 Ch. D. 137. appellate court it was said that the fraud was an attempted manufacture of a large debt for purposes of proof, and that perhaps it should have been wholly rejected.1 But it is not a fraud for a debtor expecting to be bankrupt to renew his promise to pay a just debt which both he and the creditor had always treated as binding, but against which the statute had run.2 § 215. Preferred Creditor. — Another defence peculiar to bankruptcy is that the creditor has received, as to some part of the indebtedness, a payment or security by way of illegal preference. The equity due to creditors requires that he should surrender this advantage before sharing in the assets.3 The rule applies to an advantage obtained abroad by legal diligence after the date at which the assignees' title accrued at home, provided the property levied on would or might have come to the assignees if the creditor had not interfered; but not if by reason of the foreign law, or otherwise, the assignees could not possibly have reached it.5 In practice, the creditor was often permitted in disputed cases to prove his debt, the court ordering him to give security to the assignees, or permitting them to retain his dividends until the question of preference could be decided in a direct litigation between them. As a preference was originally a fraud only on the debtor's part, and was voidable by the assignees, though the creditor was not only not a party to a fraud, but was wholly ignorant of the debtor's insolvency, it followed that if the preference was given up voluntarily, or was avoided by the assignees, 1 s. c. nom. Jones v. Gordon, 2 App. Cas. 616. 2 Re Lane, 23 Q. B. D. 74. 8 Ex parte De Tasted, 1 Rose, 324; Ex parte Greenwood, Buck, 323; Ex parte Barclay, 1 Gl. & J. 272; Ex parte Ackroyd, ib. 391; Act of 1898, § 57 g, infra, § 520. 4 Westlake, 3d ed., p. 157; Cockerell v. Dickens, 3 Moore P. C. 98; Selkrig v. Davis, 2 Rose, 291, 318, per Ld. Eldon; Phillips v. Hunter, 2 H. Bl. 402, per Eyre, C. J.; Re Oriental Co., L. R. 9 5 Ex parte Egyptian & C. Co. L. R. 4 Ch. 125; Brickwood v. Miller, 3 Mer. 279; Re Bugbee, 9 N. B. R. 258, Fed. Cas. No. 2115. Mann v. Shepherd, 6 T. R. 79; Garratt v. Biddulph, 4 Esp. 104; Ex parte Allen, 3 De G. & J. 447. the creditor came in with the other general creditors for his whole debt, including that which had been attempted to be preferred. This would probably still be the law of the United States, independently of statute, for though an illegal preference includes in its definition the creditor's knowledge of the intended fraud, it is a fraud of a conventional character, and only operative if the bankruptcy takes place within a short time.1 Most of our statutes deal with the question. The late law permitted a preferred creditor to prove his debt, if he would surrender his advantage and repay the money or reconvey the property to the assignees without coercion, but not after a judgment or decree had been pronounced against him in a suit by the assignees.2 This has been adopted in several State laws. In Massachusetts no perferred creditor can prove his debt, whether he surrenders his preference or it is recovered from him by the assignees; but an attempted preference may be rescinded before bankruptcy. These statutes narrow somewhat the law of bankruptcy, at least in appearance, because they speak only of the preferred debt, and do not prevent the proof of a wholly separate debt of the same creditor. But the courts would, undoubtedly, have power to permit the assignees to retain the dividends due to a preferred creditor on a distinct debt, if necessary for their security in recovering and realizing the preference, as in the English practice above referred to.6 1 See Re Tonkin, 4 N. B. R. 52, per Longyear, J., Fed. Cas. No. 14,094. 2 The statute was somewhat ambiguous, but this was the construction. Re Davidson, 3 N. B. R. 418, Fed. Cas. No. 3599; Re Montgomery, 3 N. B. R. 374, Fed. Cas. No. 9728; Re Reece, 2 Bond, 359, Fed. Cas. No. 11,633; Re Tonkin, 4 N. B. R. 52, Fed. Cas. No. 14,094; Re Richter, 1 Dill. 544, Fed. Cas. No. 11,803; Coxe v. Hale, 10 Blatch. 56, Fed. Cas. No. 3310; Re Stephens, 3 Biss. 187, Fed. Cas. No. 13,365; Zahm v. Frye, 9 N. B. R. 546, Fed. Cas. No. 18,198; Re Leland, 9 N. B. R. 209, Fed. Cas. No. 8230; Re Jordan, 9 N. B. R. 416, Fed. Cas. No. 7529; Re Forsyth, 7 N. B. R. 174, Fed. Cas. No. 4948; Burr v. Hopkins, 12 N. B. R. 211, Fed. Cas. No. 2192; Re Cramer, 13 N. B. R. 225, Fed. Cas. No. 3345. 3 Pub. Stats., c. 157, § 33. Blodgett v. Hildreth, 11 Cush. 311, per Bigelow, J. Re Arnold, 2 N. B. R. 160, Fed. Cas. No. 551; Re Richter, 1 Dillon, 544, Fed. Cas. No. 11,803; Re Holland, 8 N. B. R. 190, Fed. Cas. No. 6604; Re Comstock, 12 N. B. R. 110, Fed. Cas. No. 3079. 6 See § 215. § 216. Proof is Submission to Jurisdiction. Though proof is not payment, it is an election to submit the debt proved to the jurisdiction of the court of bankruptcy. Therefore, if a creditor residing abroad proves a debt, the court of bankruptcy may restrain his action abroad on the same debt, or may, on petition, after the proof has been made, require him to account for security given for it, which he has not surrendered or credited; and may deal with the proof and the dividends as if the person of the creditor were within the jurisdiction.1 So the proof will bind him to the discharge duly obtained. When the law permitted a creditor to pursue his action at law, notwithstanding the bankruptcy as an alternative remedy, the court would restrain a creditor who had proved a debt from the prosecution of an action upon it.2 § 217. When Creditor may withdraw or amend Proof. The courts are now very liberal in permitting a proof to be withdrawn when the creditor finds that he has unintentionally waived some security or set-off or other advantage legitimately his. Whether the mistake was one of law or of fact, and whether it was from inadvertence, is not important.3 Formerly the rule was more strict, because a creditor had much greater power than he now has to embarrass the proceedings in bankruptcy by vexatious litigation, and the Chancellor could not interfere with actions at law unless the debt had been proved. The withdrawal meant a renewal of trouble to all persons interested in the bankruptcy. 1 Ex parte Robertson, L. R. 20 Eq. 733; Re Schepeler, 4 Ben. 68, Fed. Cas. No. 12,453. 2 Ex parte Wilson, 1 Atk. 152; Ex parte Ward, ib. 153; Ex parte Hardenberg, 1 Rose, 204; Ex parte Lord, 2 Rose, 421; Ex parte Bernasconi, 2 Gl. & J. 381. 3 Towle v. Bannister, 16 Pick. 255; Morse v. Lowell, 7 Met. 152; Re Brand, 3 N. B. R. 324, Fed. Cas. No. 1809; Re Montgomery, 3 N. B. R. 426, Fed. Cas. No. 9730; Re Jaycox, 8 N. B. R. 241, Fed. Cas. No. 7212; Re Clark, The object is 5 N. B. R. 255, Fed. Cas. No. 2806; Re Hubbard, 1 Lowell, 190, Fed. Cas. No. 6813; Re Parkes, 10 N. B. R. 82, Fed. Cas. No. 10,754; Ex parte Williamns, L. R. 18 Eq. 373; Re King, 2 Morrell, 119; Nichols v. Smith, 143 Mass. 455; Bemis v. Smith, 10 Met. 194; Ex parte Adamson, 8 Ch. D. 807; Re Baxter, 12 Fed. Rep. 72; Re Farmers' Bank, 13 Fed. Rep. 361; Re Clarke, 67 L. T. 232; Re Piers (1898), 1 Q. B. 627. 4 Ex parte Eggington, Mont. 72; Ex parte Solomon, 1 Gl. & J. 25; Ex parte Spicer, 12 L. T. N. s. 55. |