Rosenthal v. Nove

• Decision Date: 21 March 1900
• Citation: 56 N.E. 884,175 Mass. 559
• Parties: ROSENTHAL v. NOVE et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

175 Mass. 559

56 N.E. 884

ROSENTHAL v. NOVE et al.

Supreme Judicial Court of Massachusetts, Worcester.

March 21, 1900

COUNSEL

J. R. Thayer and A. P. Rugg, for plaintiff.

W. S B. Hopkins and Rockwood Hoar, for defendants.

OPINION

BARKER J.

After verdict, and before judgment, the defendants were adjudicated bankrupts, and thereafter they filed a suggestion of that fact, and moved that all proceedings be stayed.This motion was denied, and a special judgment entered to enable the plaintiff to proceed against the sureties upon a bond given more than four months before the bankruptcy to dissolve an attachment.The exceptions raise the question whether the court had power to overrule the motion for a stay, and to direct the entry of a special judgment.The answer depends upon the provisions of the United States bankruptcy law of 1898(chapter 541).Section 11 of that act is as follows 'Sec. 11.Suits by and against bankrupts.(a) A suit which is founded upon a claim from which a discharge would be a release, and which is pending against a person at the time of the filing of a petition against him, shall be stayed until after an adjudication or the dismissal of the petition if such person is adjudged a bankrupt, such action may be further stayed until twelve months after the date of the adjudication or, if within that time such person applies for a discharge, then until the question of such discharge is determined.(b)The court may order the trustee to enter his appearance and defend any pending suit against the bankrupt.(c)A trustee may, with the approval of the court, be permitted to prosecute as trustee any suit commenced by the bankrupt prior to the adjudication, with like force and effect as though it had been commenced by him.(d) Suits shall not be brought by or against a trustee of a bankrupt estate subsequent to two years after an estate has been closed.'Under the definitions contained in the statute, this language includes persons who have filed voluntary petitions, and applies to all claims provable in bankruptcy from which a discharge in bankruptcy would be a release, and the court which may order the trustee of the bankrupt estate to enter his appearance in and to defend any suit pending against the bankrupt is the court of the United States having jurisdiction of the bankruptcy.Act U.S. 1898, c. 541, § 1.The construction of the provisions quoted for which the defendants contend is that they are peremptory, and compel the court in which a suit is pending against a bankrupt at the time of the adjudication to stay further proceedings for 12 months, or until the question of discharge is determined.A strong argument against this construction is found in the use of the words 'shall be stayed until after the adjudication,' and the words 'such action may be further stayed,' which follow.The provision as to a suit pending against the bankrupt at the time of the filing of the petition is, in terms, peremptory.If, in case of an adjudication, congress had intended that a further stay should be peremptory also, the continued use of the word 'shall' would have made its meaning clear, and the use of the word 'may,' ordinarily used as a word of permission, rather than of command, is significant.As against the argument drawn from this use of the word 'may' it is to be noticed that the second clause of the section, '(b)The court may order the trustee to enter his appearance and defend any pending suit against the bankrupt,' implies that all suits pending against the bankrupt may be defended by the trustee of his estate, if he shall be ordered to enter his appearance and defend by the United States court; and that, unless all suits must be further stayed after the adjudication, they may be determined against the bankrupt after the adjudication, and before there is a trustee who can appear and defend.But the fact that a trustee may be ordered to appear and defend assumes that the prosecution of the suit may go on after the adjudication, and before the question of a discharge is settled.It is contended that unless, after adjudication, a further stay is imperative, the creditor may merge his claim into a judgment, which, being entered after the adjudication, is not provable in the bankruptcy, and from which the bankrupt will not be released by a discharge.But by section 63, cl. 5, claims are provable which are founded on provable debts reduced to judgments after the filing of the petition, and before the consideration of the bankrupt's application for a discharge.Act U.S. 1898, c. 541, § 63, cl. 5a.In order to release property which has been attached, or to prosecute an appeal, or procure a review of questions at first decided against a defendant, he must often secure the plaintiff's demand by the individual undertaking of some third person.One provision of the law in question covers such cases, providing that: 'Whenever a creditor whose claim against a bankrupt estate is secured by the individual undertaking of any person, fails to prove such claim, such person may do so in the creditors' name, and if he discharge such undertaking in whole or in part, he shall be subrogated to that extent to the rights of the creditor.'Act U.S. 1898, c. 541, § 57, cl. 'i.'The natural meaning of the concluding part of the clause is that the person by whose individual undertaking the creditor's claim is secured shall have a right in the dividend on account of that claim proportionate to the part of his own undertaking which he has discharged.If this clause is to have operation in every instance in which a creditor's claim is secured by the individual undertaking of a third person, the creditor must not have power, between the time of the commencement of the bankruptcy proceedings and the time when claims may be proved, to so deal with a claim that it cannot be proved, and thereby to deprive the surety of his right.It is urged that, unless the further stay of proceedings is peremptory after the adjudication as well as before, the creditor, by merging his provable claim into a general judgment entered after the adjudication, may prevent the surety from exercising his right.If the original claim no longer exists, it is contended that the surety cannot prove it, and that the judgment cannot be proved because it accrues after the bankruptcy proceedings are commenced.But the provision already referred to, allowing the proof of judgments entered after the adjudication upon provable debts, deprives these contentions of weight.

An argument may perhaps be drawn from the provisions of the act relating to liens.It is provided: 'That all levies judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate; and thereupon...