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Composition in Bankruptcy.

By virtue of the absolute dominion which every man has over his own property, a creditor at common law could refuse to receive less than the full amount due him in satisfaction and discharge of his demand, although a compromise might be for the best interest—not merely of other creditors, but of himself. In this way an obstinate creditor could defeat an advantageous composition unless his terms were accepted by the debtor and the other creditors. Such a power in the hands of an exacting and unscrupulous creditor, although legal, was inequitable, for it enabled him to violate that principle of equality which is equity, and, moreover, was contrary to that principle of natural justice which dictates that the majority of those having a common interest shall have the right to prescribe the course of action to be pursued by all.

The 17th section of the act of June 17, 1874 (18 Stat. 182), was passed for the purpose of remedying this wrong. It provides for the adoption of a resolution of composition in all cases in bankruptcy, whether voluntary or involuntary, and whether an adjudication has been had or not. By the express terms of the statute a case in bankruptcy must be pending in order to authorize the commencement of a proceeding for a composition.¹ Such a case would not be pending if the court had no jurisdiction of the cause, but, inasmuch as the requirement is merely that the case shall be pending, mere defects in the petition in bankruptcy, which page 2 do not affect the jurisdiction, will not vitiate a proceeding for a composition. This was so decided in a case where the petition in involuntary bankruptcy alleged that the petitioners constituted the requisite proportion in number and amount of the creditors of one of the petitioners, instead of the debtor.² The case is pending from the time of the filing of the petition in bankruptcy; and as the statute expressly provides for the institution of proceedings for a composition, whether an adjudication has been had or not, the absence of an adjudication of bankruptcy will not render them void in either a voluntary or involuntary case.³ It has, however, been held that such an adjudication should be made; but this may be deemed doubtful, for the statute authorizes a proceeding in a pending case before adjudication, the very object of which is to suspend and eventually terminate the case without going through the ordinary course of a proceeding in bankruptcy. It would, therefore, seem to be the better doctrine that the proceeding for a composition, in general, stays or suspends all other pro-ceedings in the case until it is finally disposed of.

The statute provides for the acceptance of a composition proposed by a "debtor;" but this term includes corporations as well as natural persons.⁴ So, at least, is the judgment of respectable authority; but it must be confessed that the question cannot be deemed to be settled yet, for a resolution of composition is a discharge within the meaning of the bankrupt law, and the Revised Statutes (§ 5122) provide that no discharge shall be granted to a corporation. If the case is pending by or against a firm, one partner may make a proposition alone, for the term "debtor" is construed to mean any one or more of the debtors. In such case all may unite in a proposition, or each debtor may make a proposition for himself.⁵

A petition for a meeting to consider a proposed com- page 3 promise may be filed by the debtor or bankrupt, as the case may be, or by any creditor of such debtor or bankrupt, and must be duly verified. It must set forth that a compromise has been proposed by the debtor or bankrupt, and that the petitioner verily believes that such proposed composition will be accepted by two-thirds in number and one-half in value of the creditors of such debtor or bankrupt, in satisfaction of the debts due from such debtor or bankrupt.⁶ The fair inference from this language is that the terms of the proposed compromise need not be set out at length; but if they are, the creditors, at the meeting, may accept or reject that proposition, and the debtor may make, and the creditors may accept, a different proposition.⁷

Upon the filing of the petition the court must forthwith order a meeting of the creditors to be called, to consider the proposition.⁸ This order may be made by the judge, or, if there is no contest, by the register.⁹ The statute provides that the meeting shall be called under the direction of the court, but does not direct by whom the notices shall be sent. The fair inference is that this matter is left to the court to fix in its order. In practice, the notices are sent by the clerk, marshal, or register.¹⁰ The creditors are to be notified of the time, place, and purpose of the meeting, but not necessarily of the precise proposition to be made.¹¹ A notice must be sent to each known creditor not less than ten days before the meeting. It may be personal or otherwise, as the court may direct. It is generally sent by mail, and, in that case, should be properly addressed and postpaid.¹² If the notices are sent by the register, his own memorandum is sufficient proof that they have been duly sent. If they are sent by the clerk or the marshal, the officer so sending them should page 4 make a return of that fact on or before the day appointed for the meeting.

The register acting in the case, or, if no register has been assigned, a register to be designated by the court, must hold and preside at the meeting at the time and place specified in the notice.¹³ He has the power to regulate the form and order of proceedings at the meeting, and to decide questions that arise, subject to review by the court.¹⁴ The debtor, unless prevented by sickness, or other cause satisfactory to the meeting, must be present, and produce a statement showing the whole of his assets and debts, and the names and addresses of the creditors to whom such debts are due. If he is prevented from being present, some one in his behalf may produce the statement. If the debtor has already filed sworn schedules, he may use them as the written statement.¹⁵ The statute specifies no form, manner, or time at which the statement shall be made or presented, and, therefore, if the debtor is examined, his testimony will be deemed to constitute a part of his statement.¹⁶ Where a debt arises upon a bill of exchange or promissory note, the debtor, if he does not know who is the holder thereof, may state the amount of such bill or note, the date on which it falls due, the name of the acceptor and of the person to whom it is payable, and any other particulars within his knowledge respecting the same, and the insertion of such particulars is a sufficient description in respect to such debt. If a debtor disputes the claim of a creditor, he should have the amount ascertained either by the trial of an action at law or by an enquiry in the bankrupt court.¹⁷ If the amount due to any creditor is found to be different from that contained in the statement, the statement should be altered at once and the true amount inserted.¹⁸

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The statute merely provides that the creditors may accept the composition proposed by the debtor, and that the provisions of the composition so accepted shall be binding on them. It has, therefore, left the debtor and the creditors to arrange the terms of the composition in each particular case. To this remark there is one exception. Every composition subject to the priorities allowed by the bankrupt law must provide for a pro rata payment or satisfaction in money to the creditors in proportion to the amount of their unsecured debts, or their debts in respect to which they may have surrendered any security held by them. If any of the creditors are entitled to priority, the composition should provide for it; otherwise they might be entitled to share only pro rata with the other creditors.¹⁹ The term "money "is used, in contradistinction to property, so as to preclude all traffic, or dicker, or speculation in property by which a large nominal debt may be paid by small actual value, or by which one creditor may receive more than another. The amount or proportion to be paid must be fixed in currency, and all must receive alike.²⁰ A composition, therefore, cannot provide for a payment in notes.²¹ Where notes are to be used, the proper provision is that the payment shall be secured by notes. The term "money," however, does not mean cash on the nail or on demand, but that, whenever paid, it shall be in what the law admits to be money. A composition may, therefore, provide for payment in installments' at stated future times.²² If the debtor desires to relieve himself from the obligation at common law to seek the creditor and tender the composition, he should make the money payable within a certain time after notice or demand, or introduce some other provision for his protection.²³ If the payment is to be secured by an endorsement, the resolution should either page 6 name the endorser or provide for his being definitely named;²⁴ but a provision that the endorser shall be satisfactory to certain persons who act as a committee for the creditors is sufficient.²⁵ If the endorser is to be secured by an assignment of the property, the trust as to any surplus that may remain after the payment of the composition should be declared; otherwise the endorser may be entitled to retain it.²⁶ The resolution may provide for the appointment of a trustee, either to receive and distribute the money due under the composition, or to take an assignment of the debtor's, assets to secure the payment of the composition. Under the English statute the debtor remains in the possession and control of his property,²⁷ but our act, in requiring the pendency of a case in bankruptcy, to a certain extent deprives him of that control.²⁸ If he desires to have the power to dispose of his assets, in order to meet the composition which he stipulates to pay, he may insert a provision to that effect.²⁹

The debtor, at the meeting, must answer any enquiries, that may be made of him. It is not the intent of the statute that the debtor shall answer only such questions as may be put by the meeting, or with its consent. The provision was designed to protect the minority, and enable them to instruct themselves and the majority upon the expediency of the proposed composition before it is voted on. A creditor, therefore, may examine the debtor, although the majority object to his doing so,³⁰ and, if he desires it, the examination, must be completed before the vote on the resolution can page 7 be taken.³¹ If other creditors are not willing to be detained while the examination is in progress, the taking of the vote may be postponed to a specified time, and those who do not desire to remain can depart, and return at the designated time.³² The creditor is entitled to the fullest opportunity to put questions calculated to ascertain all the material facts in regard to the debtor's affairs, but this right must be exercised in good faith, and the examination must be confined to such material facts.³³ The object in view in requiring the debtor to be present and answer enquiries is to enable any creditor who is dissatisfied with the contents of the statement, or may regard it as inaccurate in omitting things which it ought to contain, or in containing erroneous items, to ask the debtor as to the particulars respecting which information is thought to be desirable, and thus arrive at a true exhibit of his affairs. The enquiries, therefore, must be only such as will properly be in furtherance of such object, and such as will aid in determining whether any composition at all ought to be accepted, or the terms of the one which ought to be accepted.³⁴ If the debtor has kept books in his business, such books must be produced on the demand of any creditor and the debtor must answer all enquiries in reference to any entry in such books which bears upon the question of the exact condition of his affairs. If it seems necessary that time shall be allowed to have them examined by an expert, an adjournment may be had for that purpose.³⁵ The examination of the debtor should be conducted in the same manner as the examination of a witness in open court, and the debtor should answer the enquiries made of him by the creditor, and do no more until the creditor has finished, after which he may, of his own volition or in answer to interrogatories by his counsel, make such explanations as are relevant. The page 8 answers of the debtor should be reduced to writing, in the form of an examination, and the debtor should sign the document and be sworn to the truth thereof.³⁶

After the examination is completed, the vote on the resolution may be taken. The register has the right to decide who are entitled to vote, and in respect to what amount of debt, and pass upon the propriety and regularity in form of the proofs of debt and the letters of attorney.³⁷ The statute provides that the creditors may resolve that a composition proposed by a debtor shall be accepted. The term "creditors," however, is not used in a technical sense, but includes all persons who have provable claims.³⁸ The mere fact that the name of a creditor appears on the statement does not give him the right to appear without proof, and be recognized as a creditor for the sum named. None but bona fide creditors are to have a voice in the proceedings, and the mere fact that the debtor chooses to put their names on his statement does not, even prima facie establish that they are creditors. Everyone who claims to be a creditor must, therefore, establish his claim. If a creditor, however, in an involuntary case, is one of the petitioning creditors, and has established his debt so as to obtain the issuing of an order to show cause, he need not prove his debt anew.³⁹ As a minor cannot bind himself by a valid contract, he is not competent to vote.⁴⁰ The same principle would seem to be applicable to a feme covert, but it has been held that she may vote if she has the authority of her husband, whether exhibited or not, and that an affidavit subsequently filed by him to the effect that she had such authority is a ratification which relates back to the vote and gives it validity.⁴¹ If a child of one of the debtors is sui juris, he may prove his claim and vote, although it consists of a note made payable to his page 9 father as guardian, which has never been endorsed to him.⁴² Where a partnership proposes a composition, all the creditors, both partnership and individual, may vote without any classification if no objection is made; but if one of any class of creditors perceives that the other class is about to force an unjust composition upon him, he may demand a separate vote.⁴³ A creditor may buy up the claims of others and vote thereon to defeat the composition, if his motive is merely to realize more money from the estate thereby.⁴⁴ When an attorney at law appears before the register to represent a creditor, he is to be accepted as such attorney unless some one puts him to proof, by a rule therefore, to:show his authority.⁴⁵ All others who desire to vote on behalf of another must produce a letter of attorney duly executed.⁴⁶ If the letter of attorney specially authorizes the attorney to sign a composition for a precise sum, thus leaving him a mere ministerial duty to perform, there is no incompatibility in the same person appearing as attorney for the debtor and also as attorney in fact for a creditor.⁴⁷

In order that the resolution may be adopted, it is necessary that it shall receive the votes of a majority in number and three-fourths in value of the creditors assembled at the meeting, either in person or by proxy; but, in calculating the majority, creditors whose debts amount to sums not exceeding $50 are reckoned in the majority in value, but not in the majority in number, and the value of the debts of secured creditors above the amount of the security, to be determined by the court, is estimated in the same way. Creditors whose debts are fully secured are not entitled to vote on or sign the resolution without first relinquishing the security. This provision in regard to secured creditors applies only to those page 10 who have a lien, in some form, on the debtor's property. A. creditor who has personal security, such as an endorsement, is to be counted as an unsecured creditor.⁴⁸ Where the assets are sufficient to pay workmen to the extent of $50 each, they are within the equity of the law, and their claims cannot be counted except to the extent of their respective' debts above $50.⁴⁹ A creditor who has an attachment issued within four months before the commencement of the proceedings in bankruptcy is a secured creditor.⁵⁰ A claim for damages on account of a trespass to personal property which is unliquidated, and marked on the statement as disputed, cannot be counted.⁵¹ A claim held by a minor must be taken into account in the computation, although he cannot vote.⁵² Creditors whose debts do not exceed $50 are not to be reckoned in any part of the process of calculating the number, either as a part of the whole number or as a part of the requisite proportion.⁵³

If the resolution is adopted by the requisite proportion of the creditors, it must afterwards be confirmed by the signatures thereto of the debtor, and two-thirds in number and one-half in value of all the creditors. It is not necessary that a second meeting of creditors, as such, shall be held to confirm the resolution,⁵⁴ or that the confirmation shall take place at the first meeting.⁵⁵ The confirmatory signatures may be obtained after the first meeting,⁵⁶ and a reasonable time will be allowed for this purpose⁵⁷ but they must be obtained before the hearing for a ratification.⁵⁸ In determining page 11 whether the requisite proportion of the creditors have confirmed the resolution, the same mode of computation is observed as in determining whether the resolution has been duly adopted.⁵⁹

In composition cases the register should keep a docket and minutes, but need not send the usual memoranda to the court.⁶⁰ He should cause the proceedings, as they take place before him, to be reduced to writing, in order that he may make a report thereof.⁶¹ It is his duty to report the proceedings to the court, with his opinion thereon.⁶² It has been said that he need not pass upon the confirmation,⁶³ but where an order is passed, referring the case to him, it is usual to direct him to pass upon the confirmation, and also to report whether the composition is for the best interest of all concerned.⁶⁴ It would seem to be the better practice for him to retain the proceedings in all cases until the confirmation is filed with him, and then to transmit the proceedings to the court, with his opinion on all the questions involved. The proposition, statement, resolution, and confirmation, together with such evidence as may have been taken, should all be so transmitted.

As soon as the proceedings are filed, the clerk should give notice, of not less than five days, to all the creditors to show cause why the resolution shall not be recorded.⁶⁵ It is not necessary that the debtor shall appear on the day appointed for the hearing, to submit anew the statement previously made by him, or any other statements⁶⁶ Nor is he then subject to examination as a matter of right.⁶⁷ But, if a creditor can show that justice will be furthered thereby, the page 12 court, in its discretion, may direct an examination.⁶⁸ An objection may also be taken, at the hearing, to the legality of a debt which was proved at the meeting.⁶⁹ If a controversy arises, the court may refer the matter to the register for enquiry as to any particular facts.⁷⁰

On the day appointed for the hearing, opposition may be made to the recording of the resolution. A creditor who is fully secured cannot enter an objection, and it is doubtful whether he can then surrender his security for the purpose of opposition, for he ought to elect at or before the meeting of creditors, and not speculate on the chances of litigation.⁷¹ The grounds of opposition are prescribed by the statute, and this excludes all others. The fact, therefore, that the debtor has given a preference,⁷² or made an assignment for the benefit of creditors,⁷³ does not of itself constitute a ground for rejecting the resolution. An opposing creditor may file any objection which goes to the regularity of the proceedings—as, for instance, that the resolution was not duly passed, or that the requisite confirmatory signatures have not been obtained, or may object on the ground that the composition is not for the best interest of all concerned.⁷⁴ The refusal of the debtor to answer a material question at the meeting⁷⁵ or a failure to produce a statement of assets and debts,⁷⁶ is a matter which affects the regularity of the proceedings and constitutes a sufficient cause for refusing to record the resolution. A composition, however, may be valid although the statement is defective in omitting either a debt or an asset. As to this point each case must be determined according to its own particular facts and depends page 13 mainly on fraud or good faith as affecting the question whether a resolution so passed is for the best interest of all concerned.⁷⁷ In determining whether the requisite proportion of the creditors have agreed to the resolution, the court is governed by the statement, and if that shows that the requisite proportion have not so agreed, the resolution will be rejected, although the statement is inaccurate.⁷⁸

The statute has vested the creditors with the power to decide upon the proposition of compromise, after a full investigation into the affairs of the debtor, and the action of the court is in the nature of a review on appeal. Hence the presumption is in favor of their decision, and if an objecting creditor desires to introduce any facts not shown before them he must produce the evidence.⁷⁹ In one case, where the resolution and statement alone were presented to the court, without the examination taken at the meeting, it was held that the resolution must be recorded.⁸⁰ But, in all cases, the fact that the attention of the creditors at the meeting was called to a matter which is made the ground for an objection before the court has an important influence upon the decision of the question.⁸¹

The power, however, that is given to a majority of the creditors to bind the minority is in the nature of a statutory power, the exercise of which is valid only when it is free from all fraud.⁸² The statute assumes, as an essential condition to the validity of the composition, that it shall be in all respects just, and any taint of fraud, whether it consists in concealment, misrepresentations, inequality, or injustice, vitiates the arrangement.⁸³ The mere fact that the majority page break are animated by motives of kindness towards the debtor does not, of itself, render the composition fraudulent,⁸⁴ but they cannot practise the moral virtues at the expense of other people. To hold the contrary would be directly opposed to the commonest principles of justice and honesty.⁸⁵ A resolution, passed merely for the purpose of giving relief to the debtor, is not a bona fide exercise of the power, nor such a bargain as the statute contemplates or requires. A resolution may be recorded although there are no available assets;⁸⁶ but in such case, if it provides for the payment of a merely nominal composition without security, it will be rejected, upon the objection of a dissentient creditor, as a fraud on the law.⁸⁷ The mere fact that the resolution was passed for the purpose of defeating a judgment creditor does not render the composition fraudulent, but is a circumstance to be considered in connection with the other facts in the case.⁸⁸

The principle of law which requires that the majority shall exercise their power in good faith, for the benefit of all the creditors, prohibits the influencing of their votes by any unfair means. If a claim, therefore, is sold by the holder for an amount in excess of the composition, a resolution which is carried only by means of such vote will not be confirmed.⁸⁹ It has also been held that, if a creditor is induced to vote, or to withdraw his opposition to the resolution, by any unfair means, whether known to the debtor or not, his vote, so influenced, operates as a fraud on the other creditors, and renders the composition voidable by any one of them.⁹⁰ But the mere fact that claims have been bought at a price in page 15 excess of the composition will not prevent the recording of the resolution if it was known to the creditors at the meeting, and the resolution was passed by the requisite proportion of the creditors, without counting the claims so purchased.⁹¹ In regard to what constitutes unfair means, it has been held that the expectation of an advantage, without any positive promise, does not leave the vote so unbiased that it can be deemed a fair vote.⁹²

Although the resolution may have been passed in good faith, yet it cannot be recorded unless it is for the best interest of all concerned. This means the best interest at the time, in view of all the circumstances.⁹³ The interest of all is to be considered, and the resolution will not be rejected merely because a peculiar benefit will thereby accrue to some particular creditor.⁹⁴ The mere fact that the payment of the composition is secured by the personal agreement of the debtor is not, of itself, sufficient cause for rejecting the resolution.⁹⁵ But if the composition does not provide for the payment of as much as the assets may be reasonably expected to pay, then it is not for the best interest of all concerned, and will not be recorded.⁹⁶ In passing upon this question some deference is always given to the judgment and discretion of the creditors who are presumed to be familiar with the debtor's business and the value of the assets, and their decision will not be weighed with extreme nicety, nor over-ruled on account of any slight difference between the value of the assets and the proposed composition.⁹⁷ The question is not whether the debtor might have offered more, but page 16 whether his estate will pay more in bankruptcy.⁹⁸ The elements of this comparison must necessarily vary with the amount of debts, the amount and character of the assets, the nature of the business, and other circumstances.

In some cases, where the resolution has been held to be defective at the hearing, the debtor has desired to change the terms, but it has been uniformly held that this can be done only by calling a new meeting and adopting a new resolution; for the creditors have the sole power to make the resolution, and the court can decide only whether their work: conforms to the statute or not.⁹⁹ If no valid resolution has been passed, on account of some mistake on the part of the debtor or on the part of the creditors, or for any other cause, a new meeting may be called; for the case stands then precisely as if no resolution had ever been offered.¹⁰⁰ If the meeting was duly called and held, and the proposition was rejected, after due consideration, by the creditors, a new meeting will not, in general, be called;¹⁰¹ but if the rejection arose by accident or mistake—as, for instance, from a failure on the part of a creditor to properly instruct his attorney—a new meeting may be called.¹⁰²

A mistake made inadvertently in the statement of debts may be corrected, upon a reasonable notice and with the consent of a general meeting of the creditors; but if the composition is payable in installments, and the time for the payment of the first installment is past, a meeting will not be called for the purpose of correcting an omission of the name of the holder of a bill of exchange.¹⁰³

The creditors may, by a resolution to be passed in the page 17 same manner and under the same circumstances as the original resolution, add to or vary its provisions. The meeting for this purpose, within the contemplation of the statute, is one that is to follow the recording of the original resolution,¹⁰⁴ and is allowed for some cause that occurs or is discovered subsequently—as, for instance, if the debtor should unexpectedly be held liable on a claim against which he thought he had a good defense, and for this reason should be unable to comply with the original resolution.¹⁰⁵ Such additional resolution must be presented to the court in the same manner, and proceeded with in the same way, and with the same consequences, as the original resolution. No person taking interests under the original resolution, who does not assent to such addition or variation, can be prejudiced thereby; but this provision does not apply to a creditor who was bound by the original resolution. He will be bound by the additional resolution, although it is adopted after the debtor has made default in the payment of an installments under the original resolution.¹⁰⁶ But a creditor whose name was omitted from the statement produced at the original meeting would not be so bound.¹⁰⁷

The district court has full control over the order to record the resolution, and may vacate it upon the application of any creditor who can show that the composition was obtained by fraud, either in the concealment of assets or in procuring the assent of creditors by unfair means.¹⁰⁸ The provisions of the resolution are binding on all the creditors whose names and addresses, and the amounts of the debts due to whom, are shown in the statement produced at the meeting, but does not, in general, affect or prejudice the rights of any other creditor. The debt will be barred, although the amount was not stated accurately—as, for instance, by giving the principal and omitting the interest.¹⁰⁹ page 18 But the creditor will not be bound where a sum is put down as claimed, with a remark that it is in dispute, for the statute applies only to debts the amount of which is ascertained. The debtor cannot dispute a debt and at the same time compound for it."¹¹⁰ If the debtor puts down the name and amount due to the payee of a note or bill of exchange, and it is held by another, the claim of the latter is not barred.¹¹¹ The provision that the composition shall not affect the rights of a creditor whose name and address were omitted from the statement does not apply to a creditor who appeared at the meeting and voted for the resolution, for the statute contemplates two kinds of creditors who may be bound by a composition—those who are bound because they have agreed to be bound, and those who are bound although they have not so agreed—and the provision applies only to the latter class.¹¹² The statute, in providing who shall be bound by a composition, uses the phrase, "all creditors," and as it is the latest enactment, and repeals all prior acts inconsistent there-with, there is no exception of fiduciary debts, or debts created by fraud, as in the case of a discharge.¹¹³

Although a resolution operates as a satisfaction of the debt due to a secured creditor, yet it does not deprive him of his security, but merely confines him to his security and discharges the debtor from personal liability.¹¹⁴ An attachment is within the protection of this principle where no assignee has been appointed, although it was issued within the period of four months prior to the commencement of the proceedings in bankruptcy.¹¹⁵ It is true that the Revised Statutes (§ 5044) provide that an assignment shall relate page 19 back, and dissolve such attachment; but this provision does not apply to a composition without an appointment of an assignee and an assignment to him, for express words or a clear implication are necessary in order to take away a legal right. If an attachment has been dissolved by an assignment, a subsequent resolution will not revest the security in the creditor.¹¹⁶ If a creditor proves his debt as unsecured, and votes in favor of the resolution, he cannot afterwards set up his security, for this would be a fraud on the other creditors.¹¹⁷

A resolution of composition is a discharge,¹¹⁸ and hence is within the provision of the Revised Statutes (§ 5118) which enacts that no discharge shall release, discharge, or affect any person liable for the same debt for or with the bankrupt, either as partner, joint contractor, endorser, surety, or otherwise.¹¹⁹ It also seems to be the better doctrine that such joint debtor or surety would not be released, although the creditor voted in favor of the resolution; for, if the law were otherwise, a great number, or even a majority, of the creditors in some cases could not vote without imperilling their rights.¹²⁰

It is not necessary that a creditor shall prove his debt prior to the tender of the composition, or in order to be entitled to receive it, for the amount inserted in the statement is the amount upon which the composition is to be paid.¹²¹ If the resolution does not fix the time for the payment of the composition, the debtor is entitled to a reasonable page 20 time,¹²² but if it provides that the composition shall be paid within a certain time, then, in order to be entitled to the benefit of the resolution, he must, in the absence of any provision to the contrary, tender the stipulated sum within that time, or the creditor will be restored to his original rights and may sue for his whole debt.¹²³ It is not enough for him to be ready and willing to pay; he must actually pay the money within the prescribed time.¹²⁴ The fact that the creditor voted for the resolution,¹²⁵ or that the payment has been secured by the debtor's note, with a surety,¹²⁶ or that one of several installments has been paid,¹²⁷ makes no difference in the application of this doctrine. This principle rests upon the fact that the creditors agree to accept the composition, and not the resolution, in satisfaction of their debts. It was the design of the statute that there should be reciprocity, and that the creditor should be bound only if the debtor performed his part according to the terms of the arrangement. To enforce the resolution against the creditor after a default on the part of the debtor would, in effect, be to make a new agreement. The debtor may, therefore, be deemed to be estopped from setting up the terms of a composition which he has wholly neglected to carry out. The creditor is bound by the composition while it remains in force and his rights and remedies are suspended, but when the composition becomes ineffectual he is restored to his original position, and his rights are the same as they would be if the composition had never had any existence. He has, however, an election to resort to the original debt or page 21 accept the composition, and if he demands payment of the composition, after a default, this is an election and a waiver of the right to resort to the original debt.¹²⁸ It has also been held that, where the default occurred through a mistake as to the day on which the composition fell due, and the debtor tendered the money within a reasonable time, and before the creditor had availed himself of the default or the condition of the parties had changed, the creditor was then bound by the resolution.¹²⁹ If the resolution appoints a trustee to receive the composition, and the money is paid to him according to the terms thereof, he is the agent of the creditors, and a failure to pay on his part will not affect the debtor.¹³⁰

The district court, on motion made in a summary manner by any person interested, and on reasonable notice, may enforce the provisions of a composition, but not as against a surety. A person who becomes a surety for the payment of a composition does not, by so doing, make himself subject to the jurisdiction of the bankrupt court.¹³¹ A creditor whose name and address were not placed in the statement may waive the protection of the provision which exempts him from being bound by the composition, and apply to the court to enforce its terms against the debtor, but not, perhaps, to the prejudice of other creditors.¹³²

As the provisions of the composition may be enforced on the motion of any party interested, they may be enforced on behalf of the debtor as well as against him. The bankrupt court, therefore, has jurisdiction to restrain a creditor from maintaining an action against the debtor for a debt which is included in the composition.¹³³ One of the objects in con- page 22 ferring this jurisdiction was that, when a question is raised as to the validity of a composition, the question should be tried, once for all, in a court which had jurisdiction over all the creditors and over all the subject-matter. The court is to try the question—not merely between the particular creditor and the debtor, but generally; so that, if the court holds the composition to be good, it is good as to all the creditors, and if it holds the composition to be bad, then it is bad as to all the creditors.¹³⁴ The exercise of the jurisdiction is a matter of discretion, for the other courts ought not to be prevented from trying cases proper to be tried by them, unless there is some good reason for granting an injunction.¹³⁵ If the case arises before the debtor is in default in complying with the terms of the composition, the creditor will not be allowed to prosecute an action for the purpose of impeaching the whole composition—as, for instance, to have it declared void on account of some alleged concealment of assets;¹³⁶ but he will be allowed to proceed where the controversy is merely between himself and the debtor¹³⁷—as, for instance, whether he is bound by the composition when his name was not properly placed on the statement.¹³⁸ If he joins counts in tort with counts in contract, arising from the same cause of action, he will be restrained from prosecuting an action for a provable claim, but not for a non—provable claim.¹³⁹ In such case, if he desires to take any benefit under the composition, he must elect between the composition and the action at law.¹⁴⁰ If the debtor has been guilty of negligence in omitting to plead his discharge in an action at law, no relief will be granted against a judgment so rendered.¹⁴¹ If the debtor is in default in complying with the terms of the composition, page 23 an injunction will not be granted, for the court will not enforce an agreement which he himself has failed to keep.¹⁴² The granting of an injunction is a matter of discretion, although there is an allegation of a default in complying with the terms of the composition, for it is the duty of the court to protect the debtor from being harassed by an action which is obviously and clearly unfounded. But if there is a substantial question to be tried, whether or not the terms of the composition have been complied with, an injunction will not be granted.¹⁴³ It has been said that there may be cases of accident where the court may feel bound to relieve the debtor from the effect of a default,¹⁴⁴ but in practice such relief has been given only where the creditor has done anything which makes it inequitable for him to enforce his strict legal right.¹⁴⁵ If an additional resolution is adopted after a default, a creditor who was bound by the original resolution will be restrained from prosecuting an action commenced after the default.¹⁴⁶

If the composition is to be paid in installment, or at a future time, the debtor may plead the resolution in bar of an action brought before an instilment is due or any default has occurred.¹⁴⁷ But if an instalment is due, a plea of the resolution would not be good, under the English statute, unless there was also an allegation of payment modo et forma,¹⁴⁸ and the only ground on which it could be contended that the same principle did not hold good under our law would be that it has been affected by the provisions of the Revised Statutes (§5119) pertaining to the mode of pleading page 24 a discharge. Whatever may be the technical mode of ascertaining the default—whether from the failure of the debtor to plead a compliance with the terms of the composition, or from a replication alleging it—yet, if it is ascertained, the creditor may maintain his action for the original debt, for the provision of the statute allowing him to enforce the composition in the bankrupt court is not exclusive, and does not prevent him, if he so elects, from resorting to the original cause of action.¹⁴⁹ A judgment in favor of the debtor on a plea averring a discharge by virtue of a resolution of composition is a bar to an action relying upon a default that had occurred before the entry of the judgment,¹⁵⁰ but not to a suit instituted on account of a default in the payment of an installment that fell due after that time.¹⁵¹

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