CHAPTER XXXI.

OF TITLE BY BANKRUPTCY.

THE preceding chapter having treated pretty largely of the acquisition of personal property by several commercial methods, we from thence shall be easily led to take into our present consideration a tenth method of transferring property, which is that of

X. Bankruptcy; a title which we before lightly touched upon, (a) so far as it related to the transfer of the real estate of the bankrupt. At present we are to treat of it more minutely, as it principally relates to the disposition of chattels, in which the property of persons concerned in trade more usually consists, than in lands or tenements. Let us, therefore, first of all consider, 1. Who may become a bankrupt: 2. What acts make a bankrupt: 3. The proceedings on a commission of bankrupt: and, 4. In what manner an estate in goods and chattels may be transferred by bankruptcy.

1. Who may become a bankrupt. A bankrupt was before (b) defined to be " a trader, who secretes himself, or does certain other acts, tending to defraud his creditors." He was formerly considered merely in the light of a criminal or offender, (c) (1) and in this spirit we are told by Sir Edward Coke, (d) that we have fetched as well the name, as the wickedness *of bankrupts from foreign nations, (e) But at present the laws of bankruptcy are consid

[ *472 ]

(b) Ibid.

(c) Stat. 1 Jac. I, c. 15. § 17.

(a) See page 285. (d) 4 Inst. 277. (e) The word itself is derived from the word bancus or banque, which signifies the table or counter of a tradesman (Dufresne, I. 969), and ruptus, broken ; denoting thereby one whose shop or place of trade is broken and gone; though others rather choose to adopt the word route which in French signifies a trace or track, and tell us that a bankrupt is one who hath removed his banque, leaving but a trace behind. (4 Inst. 277.) And it is observable that the title of the first English statute concerning this offence (34 Hen. VIII, c. 4), "against such persons as do make bankrupt," is a literal translation of the French idiom, qui font banque route.

mentioned therein on demand. These securities are designed to circulalate as money, and they are not allowed to be issued except by persons duly authorized by statute. But though they circulate as money, no one is obliged to receive them as such, but has a right instead to insist upon receiving the legal tender of the country. A tender of such notes is nevertheless good, if accepted, or if refused on any other ground than because they are not money. Warren v. Mains, 7 Johns. 476; Wright v. Reed, 3 T. R., 554; Snow v. Perry, 9 Pick. 539. The property in these notes follows possession; grace is not allowed upon them, and they bear no interest until after demand of payment and refusal. They never become overdue in the law, and the statute of limitations does not apply to them.

Bank checks are orders drawn by an individual upon his banker, directing him to pay the sum of money specified therein, either to the bearer or to some person named, or to the order of a person named. These instruments are supposed to be drawn against funds actually deposited subject to call, and they are payable at presentation without grace. If payable to order or bearer they are negotiable, and the person in whose favor they are drawn may make himself a party thereto by indorsement, in which case his rights and liabilities correspond to those of the indorsee of a bill or note. They ought usually to be presented for payment as soon as convenient, and if the holder retains them in his own hands without presentation for an unreasonable time, he takes upon himself the risk of the banker's responsibility. 2 Pars. Notes and Bills, 72. A check does not operate as an assignment of the amount thereof in bank to the drawee, and if the banker refuses to pay, the recourse of the holder is to the drawer and indorsers if any. But the banker would be liable to the drawer of the check for any injury to his credit by unjustifiable refusal to pay. Marzetti v. Williams, 1 B. and Ald. 415; 14 C. B. 595. If a check is drawn without funds, or if the funds are withdrawn by the drawer, before the check is presented, he will be liable to the holder for the amount without presentment or notice.

Checks are sometimes presented to banks for certification, and after being certified by the proper officer as good, are withdrawn to be used instead of money in business transactions. This is sometimes done when there are no funds to meet them, and important questions then arise, regarding the liability of the bank upon them. Upon this subject see cases collected and discussed in 3 American Law Review, 612.

Upon the general subject of negotiable paper, the elementary treatises on bills and notes are very full and satisfactory, especially the English treatises by Chitty and Byles, and the American by Edwards and Parsons.

(1) [Throughout the three first statutes the bankrupt is invariably called an offender, and the original design of the bankrupt law appears to have been to prevent and defeat the frauds of criminal debtors.]

ered as laws calculated for the benefit of trade, and founded on the principles of humanity as well as justice; and to that end they confer some privileges, not only on the creditors, but also on the bankrupt or debtor himself. On the creditors, by compelling the bankrupt to give up all his effects to their use, without any fraudulent concealment: on the debtor, by exempting him from the rigour of the general law, whereby his person might be confined at the discretion of his creditor, though in reality he has nothing to satisfy the debt: whereas the law of bankrupts, taking into consideration the sudden and unavoidable accidents to which men in trade are liable, has given them the liberty of their persons, and some pecuniary emoluments, upon condition they surrender up their whole estate to be divided among their creditors.

In this respect our Legislature seems to have attended to the example of the Roman law. I mean not the terrible law of the twelve tables; whereby the creditors might cut the debtor's body into pieces, and each of them take his proportionable share: if, indeed, that law, de debitore in partes secando, is to be understood in so very butchery a light; which many learned men have with reason doubted. (f) Nor do I mean those less inhuman laws (if they may be called so, as their meaning is indisputably certain), of imprisoning the debtor's person in chains; subjecting him to stripes and hard labour, at the mercy of his rigid creditor; and sometimes selling him, his wife, and children, to perpetual foreign slavery trans Tiberim: (g) an oppression which produced so many *popular insurrections, and secessions to the mons sacer. But I mean the law of cession, introduced by the Christian emperors; whereby, [ *473 ] if a debtor ced d, or yielded up all his fortune to his creditors, he was secured from being dragged to a gaol, "omni quoque corporali cruciatu semoto." (h) For, as the emperor justly observes, (i)" inhumanum erat spoliatum fortunis suis in solidum damnari." Thus far was just and reasonable: but, as the departing from one extreme is apt to produce its opposite, we find it afterwards enacted, (k) that, if the debtor by any unforeseen accident was reduced to low circumstances, and would swear that he had not sufficient left to pay his debts, he should not be compelled to cede or give up even that which he had in his possession: a law which, under a false notion of humanity, seems to be fertile of perjury, injustice and absurdity.

The laws of England, more wisely, have steered in the middle between both extremes providing at once against the inhumanity of the creditor, who is not suffered to confine an honest bankrupt after his effects are delivered up; and at the same time taking care that all his just debts shall be paid, so far as the effects will extend. But still they are cautious of encouraging prodigality and extravagance by this indulgence to debtors; and therefore they allow the benefit of the laws of bankruptcy to none but actual traders; since that set of men are, generally speaking, the only persons liable to accidental losses, and to an inability of paying their debts, without any fault of their own. If persons in other situations of life run in debt without the power of payment, they must take the consequences of their own indiscretion, even though they meet with sudden accidents that may reduce their fortunes: for the law holds it to be an unjustifiable practice, for any person but a trader to incumber himself with debts of any considerable value. If a gentleman or *one in a liberal profession, at the time of contracting his debts, has a sufficient fund to pay them, [*474 ] the delay of payment is a species of dishonesty, and a temporary injustice to his creditor: and if, at such time he has no sufficient fund, the dishonesty and injustice is the greater. He cannot therefore murmur, if he suffers the punishment which he has voluntarily drawn upon himself. But in mercantile transactions the case is far otherwise. Trade cannot be carried on without mutual credit on both sides: the contracting of debts is therefore here not only justi

(f) Taylor, Comment in L. decemviral. Bynkersh. Observ. Jur. I, 1. Heinecc. Antiq. III, 30, 4. (9) In Pegu and the adjacent countries in East India. the creditor is entitled to dispose of the debtor himself and likewise of his wife and children: insomuch that he may even violate with impunity the chastity of the debtor's wife, but then, by so doing, the debt is understood to be discharged. (Mod. Un. Hist. vii, 128.) (h) Cod. 7, 71, per tot. (i) Inst. 4, 6, 40. (k) Nov. 135, c. 1.

fiable, but necessary. And if by accidental calamities, as, by the loss of a ship in a tempest, the failure of brother traders, or by the non-payment of persons out of trade, a merchant or trader becomes incapable of discharging his own debts, it is his misfortune and not his fault. To the misfortunes, therefore, of debtors, the law has given a compassionate remedy, but denied it to their faults: since, at the same time that it provides for the security of commerce, by enacting that every considerable trader may be declared a bankrupt, for the benefit of his creditors as well as himself, it has also (to discourage extravagance) declared that no one shall be capable of being made a bankrupt, but only a trader; nor capable of receiving the full benefit of the statutes, but only an industrious trader.

The first statute made concerning any English bankrupts was 34 Hen. VIII, c. 4, when trade began first to be properly cultivated in England: which has been almost totally altered by statute 12 Eliz. c. 7, whereby bankruptcy is confined to such persons only as have used the trade of merchandise, in gross or by retail, by way of bargaining, exchange, re-change, bartering, chevisance, (1) or otherwise; or have sought their living by buying and selling. And by statute 21 Jac. I, c. 19, persons using the trade or profession of a scrivener, receiving other men's monies and estates into their trust and custody, are also made liable to the statutes of bankruptcy: and the benefits, as well as the penal parts of the law, are *extended as well to aliens and denizens as to natural-born sub[*475] jects; being intended entirely for the protection of trade, in which aliens are often as deeply concerned as natives. By many subsequent statutes, but lastly by statute 5 Geo. II, c. 30, (m) bankers, brokers, and factors, are declared liable to the statutes of bankruptcy; and this upon the same reason that scriveners are included by the statute of James I, viz.: for the relief of their creditors; whom they have otherwise more opportunities of defrauding than any other set of dealers; and they are properly to be looked upon as traders, since they make merchandise of money, in the same manner as other merchants do of goods and other movable chattels. But by the same act, (n) no farmer, grazier, or drover, shall (as such) be liable to be deemed a bankrupt: for, though they buy and sell corn, and hay, and beasts, in the course of husbandry, yet trade is not their principal, but only a collateral, object; their chief concern being to manure and till the ground, and make the best advantage of its produce. And, besides, the subjecting them to the laws of bankruptcy might be a means of defeating their landlords of the security which the law has given them above all others, for the payment of their reserved rents; wherefore, also, upon a similar reason, a receiver of the king's taxes is not capable. (0) as such, of being a bankrupt; lest the king should be defeated of those extensive remedies against his debtors, which are put into his hands by the prerogative. By the same statute, (p) no person shall have a commission of bankrupt awarded against him, unless at the petition of some one creditor, to whom he owes 1007.; or of two, to whom he is indebted 1507.; or of more, to whom altogether he is indebted 2007. For the law does not look upon persons whose debts amount to less, to be traders considerable enough, either to enjoy the benefits of the statutes themselves, or to entitle the creditors, for the benefit of public commerce, to demand the distribution of their effects. (2)

(1) That is, making contracts. Dufresne, II, 569. (m) § 39. (n) 40.

(0) 1bid. (p) § 23.

(2) The English law of bankruptcy was entirely remodeled by the act 32 and 33 Vic. c. 71, which took effect on the first day of January, 1870. The following is a summary of its pro

visions :

[First, all persons, even including persons who have privilege of parliament, may be adjudged bankrupt, whether they be traders or not.

Next, a person becomes a bankrupt, when adjudged so by the court, upon the petition of a creditor whose debt, which must be a liquidated and unsecured debt, amounts to 501. or upwards, or of several creditors whose debts in the aggregate amount to that sum at least. But before such petition can be presented the debtor must have committed one of the acts or defaults which are constituted "acts of bankruptcy."

*In the interpretation of these several statutes, it hath been held

that buying only, or selling only, will not qualify a man to be a bank- [ *476]

rupt; but it must be both buying and selling, and also getting a livelihood by it. As, by exercising the calling of a merchant, a grocer, a mercer, or in one general word, a chapman, who is one that buys and sells any thing. But no handicraft occupation (where nothing is bought and sold, and where, therefore, an extensive credit for the stock in trade is not necessary to be had) will make a man a regular bankrupt; as that of a husbandman, a gardener, and the like, who are paid for their work and labour. (7) Also an inn-keeper cannot, as such, be a bankrupt: (r) for his gain or livelihood does not arise from buying and selling in the way of merchandise, but greatly from the use of his rooms and furniture, his attendance, and the like: and though he may buy corn and victuals, to sell again at a profit, yet that no more makes him a trader than a school-master or

These are, 1. Making a conveyance or assignment of all his property to a trustee for the benefit of his creditors generally. 2. Making a fraudulent conveyance, gift, delivery or transfer of his property, or any part or it. 3. Doing, with intent to defeat or delay his creditors, any of the following acts, viz.: departing from or remaining out of England; or (being a trader) departing from his dwelling-house or otherwise absenting himself; or beginning to keep house, or suffering himself to be outlawed; 4. Filing, in the manner prescribed by the rules of the court, a declaration that he is unable to pay his debts; 5. Having execution levied by seizure and sale of his goods, for payment of a debt of 501. or upwards; 6. Having neglected to pay, or secure, or compound the prisoner's debt, after having had a debtor's summons served upon him, being a trader, within seven days, and, being a non-trader, within three weeks after service.

An adjudication founded upon any of these acts of bankruptcy will not, however, be granted, unless the petition be presented within six months after the act has been committed. The act of bankruptcy upon which the petition is founded, or the earliest act of bankruptcy that is proved to have been committed within twelve months preceding the presentation of the petition, constitutes the commencement of the bankruptcy. As soon as the bankrupt has been so adjudicated, no creditor may commence or prosecute any proceeding against the bankrupt without leave of the court, and all the ordinary remedies are taken away, the rights only of secured creditors with respect to their security being, however, preserved. Every creditor must prove his debt under the bankruptcy, and is bound by it. Immediately an order of adjudication has been made, the property of the debtor becomes divisible among his creditors, and, for the purpose of making a division, a meeting of the creditors is to be called, at which they are to appoint some fit person, whether a creditor or not, as a trustee, and also nominate some other fit persons, not exceeding five, who are to be creditors who have proved their debts, as a committee of inspection, for the purpose of guiding and in some measure controlling the trustee in the discharge of his duties, or the creditors may leave the appointment of the trustee to the committee. The title of the trustee relates back to the commencement of the bankruptcy. The creditors may at the same or any subsequent meeting give any special directions they may please as to the manner in which the property is to be administered by the trustee, and such directions are to be binding upon him. The property which is to be divisible among the creditors is not to include any property held by the bankrupt on trust for any other person, nor the tools, if any, of his trade, nor the necessary wearing apparel and bedding of himself, his wife and children; such tools, apparel and bedding not exceeding in value 201. But it is to include, first, all such property as may be vested in the bankrupt at the commencement of the bankruptcy, or may be acquired by or devolve upon him during its continuance. Second, the capacity to exercise or take proceedings to exercise all powers over property which might be exercised by the bankrupt for his own benefit at the commencement, or at any time during the continuance of the bankruptcy. Third, all goods and chattels being at the commencement of the bankruptcy in the possession, order or disposition of the bankrupt, being a trader, by the consent and permission of the true owner; of which goods and chattels the bankrupt is reputed owner, or of which he has taken upon himself the sale and disposition as owner: but it is provided that things in action, other than debts due to him in the course of his trade or business, are not to be deemed goods and chattels within the meaning of this clause.

Upon the appointment of the trustee the property vests, without any conveyance, assignment or transfer, in him; and the certificate of the court of his appointment constitutes his title-deed. Until the appointment of a trustee, and during any vacancy which may occur, the registrar of the court is the trustee; and the property also vests, as new trustees (if any) are from time to time appointed, on their respective appointments.

When the property has been realized, the court makes an order declaring the bankruptcy closed, and the bankrupt may apply for his discharge. The order of discharge will only be granted upon condition that the assets have been sufficient to pay a dividend of not less than 108. in the pound, unless the creditors shall have passed a resolution, by a majority in number 649

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other person is that keeps a boarding-house, and makes considerable gains by buying and selling what he spends in the house; and such a one is clearly not within the statutes. (s) But where persons buy goods, and make them up into saleable commodities, as shoe-makers, smiths, and the like; here, though part of the gain is by bodily labour, and not by buying and selling, yet they are within the statutes of bankrupts: (t) for the labour is only in melioration of the commodity, and rendering it more fit for sale.

One single act of buying and selling will not make a man a trader; but a repeated practice, and profit by it. Buying and selling bank-stock, or other government securities, will not make a man a bankrupt; they not being goods, wares or merchandise, within the intent of the statute, by which a profit may be fairly made. (u) Neither will buying and selling under particular restraints,

[*477] or for particular purposes; as, if *a commissioner of the navy uses to buy victuals for the fleet, and dispose of the surplus and refuse, he is not thereby made a trader within the statutes. (w) An infant, though a trader, cannot be made a bankrupt; (3) for an infant can owe nothing but for necessaries: and the statutes of bankruptcy create no new debts, but only give a speedier and more effectual remedy for recovering such as were before due: and no person can be made a bankrupt for debts which he is not liable at law to pay. (x) But a feme-covert in London, being a sole trader according to the custom, is liable to a commission of bankrupt. (y)

2. Having thus considered who may, and who may not, be made a bankrupt, we are to inquire, secondly, by what acts a man may become a bankrupt. (4) ́A

(8) Skinn. 292. 3 Mod. 330. (w) 1 Salk. 110. Skinn. 292,

(t) Cro. Car. 31. Skinn. 292.
(x) Lord Raym 443.

(u) 2 P. Wms. 308. (y) La Vie v. Philips, M. 6 Geo. III, B. R.

representing three-fourths in value of the debts, present at a meeting called specially for the purpose, to the effect that a discharge should be granted. An order of discharge releases the bankrupt from all debts provable under the bankruptcy, except those which he incurred by means of any fraud or breach of trust, and those of which he obtained forbearance by means of fraud; and also except debts due to the crown or relating to the revenue: but of these last he may be discharged if the commissioners of the treasury certify their consent in writing to such discharge. If the bankrupt fail to obtain an order of discharge, then, after the close of the bankruptcy, the following consequences ensue: a period of three years is given to the bankrupt, during which, if he pays to his creditors such additional sum as, together with the dividend already paid, makes up 10s. in the pound, he is to obtain an order of discharge; and meanwhile no debt provable under the bankruptcy shall be enforced against his property; but, if at the expiration of the three years, he has not in this manner obtained an order of discharge, any balance remaining unpaid in respect of any debt proved under the bankruptcy (without interest) shall be deemed an existing debt, in the nature of a judgment debt, and may be enforced as such.]

In the United States power is conferred upon congress by the constitution to establish a uniform system of bankruptcy. This power has been three times exercised; by act of April 4, 1800, repealed Dec. 19, 1803; by act of Aug. 19, 1841, repealed in 1843; and by act of March 2, 1867, now in force. The present act embraces within its provisions not traders only, but " any person residing within the jurisdiction of the United States," and owing debts to the amount of more than three hundred dollars provable under it. It contains what are called voluntary provisions, under which an insolvent debtor may himself be the petitioner for his discharge, and involuntary provisions, under which the creditors become petitioners when they believe an act of bankruptcy has been committed. No debt created by the fraud or embezzlement of the bankrupt, or by his defalcation as a public officer, or while acting in any fiduciary capacity, is barred by a certificate of discharge issued under the act. Original jurisdiction of the proceedings is possessed by the United States district courts, but registers in bankruptcy are appointed, by whom the major part of the business is transacted; but contested issues are adjourned by the registers for hearing in court, and the debtor who disputes the allegations of the creditors against him may demand trial by jury. See the Treatise of Avery and Hobbs on this law. And for decisions under it, see digest of cases in bankruptcy in the American Law Review for April, 1869, and subsequent numbers.

(3) See Belton v. Hodges, 9 Bing. 365; O'Brien v. Currie, 3 C. and P. 283; Stevens v. Jackson, 4 Camp. 164. But an infant may probably apply under the voluntary provisions of the United States law. See Matter of Book, 3 McLean, 317. And a married woman doubtless may, if resident where the law permits her to transact business in her own name: see Marshall v. Rutton, 8 T. R. 545; or, if the wife of a transported convict. Ex parte Franks, 7 Bing. 762. (4) The acts of bankruptcy enumerated in the act of congress of March 2, 1867, are as follows (sec. 39):