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reduced to judgment before the filing of the petition, the claim would still be provable.84 A right to alimony, however, is neither provable nor dischargeable.85 Nor is a judgment for a fine or statutory penalty.&

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§ 1997. Claims barred by the Statute of Limitations.

As the Statute of Limitations is a local statute, it frequently happens that a claim may be barred in one State and not in another.87 The Bankruptcy Statute, however, is effective thoughout the United States, and a discharge granted in any district discharges the debt everywhere. If, therefore, a debt barred by limitation in one State is held provable in bankruptcy proceedings anywhere in the United States, the creditor will acquire a right to share in the estate equally with creditors whose claims were not barred, although perhaps as a practical matter had the debtor not become bankrupt, the fact that the creditor's claim was still enforceable in some State or States would never have enabled him to secure a judgment upon it, since the debtor resided elsewhere. On the other hand, if the claim is not provable the debtor's discharge in bankruptcy will be no defence to it. The solution reached is to hold that the debt is provable in character and is discharged whether a dividend is allowable upon it or not, and that no dividend is allowable if the bankruptcy proceedings are in a Federal District where the debt has already become barred by limitation.88

Komar, 234 Fed. 378; Bond v. Milliken, 134 Ia. 447, 109 N. W. 774, 120 Am. St. Rep. 440.

84 By an express exception in the Bankruptcy Act the liability would not be discharged, see supra, § 1982.

85 Audubon v. Shufeldt, 181 U. S. 575, 45 L. Ed. 1009, 21 Sup. Ct. 735; Wetmore v. Markoe, 196 U. S. 68, 49 L. Ed. 390, 25 Sup. Ct. 172.

86 In re Moore, 111 Fed. 145. See also Bancroft v. Mitchell, L. R. 2 Q. B. 549; Ex parte Graves, 3 Ch. App. 642.

Sec. 57 j of the Federal statute provides that debts owing to the United States, a State, county, district, or municipality, as a penalty

or forfeiture, shall not be allowed except for the amount of the pecuniary loss sustained by the transaction out of which the penalty or forfeiture arose, with reasonable and actual costs, and such interest as may have accrued thereon.

87 See infra, § 2002.

88 Re Kingsley, 1 Lowell, 216; Re Cornwall, 9 Blatch, 114; Re Hardin, 1 B. R. 395; Re Reed, 11 B. R. 94; Capelle v. Trinity Church, 11 B. R. 536; Re Næsen, 12 B. R. 422; Re Doty, 16 B. R. 202; Re Lipman, 94 Fed. 353; Re Ray, 1 B. R. 203; Re Sheppard, 1 B. R. 439. See also Nichols v. Murray, 18 B. R. 469.

If the statute has not run at the time as of which the bankrupt's estate is assigned, proof will not be barred because of the added time which elapses between that date and the offer of proof.89 The statute continues to run, however, against any proceedings to collect a debt otherwise than through the bankruptcy court.90 Under the Bankruptcy Act of 1867 it was held that if a creditor proved his claim, the time between proof in bankruptcy and the determination of the debtor's right to a discharge was not counted against a creditor who had proved his claim and who thereafter sought to enforce his rights in another tribunal, since during this interval the statute prohibited suit. There is, however, no such prohibition in the Act of 1898; and bankruptcy proceedings against a debtor do not extend the time for enforcing claims against him in any other way than by proof in such proceedings.92

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§ 1998. Set-off.

Where both parties to a controversy are solvent, the right of set-off has merely procedural importance. With or without the right, the ultimate condition of the parties will be the same. But if one of them is insolvent, it is a substantial disadvantage to the solvent party if he is compelled to discharge in full the debt which he owes and recover only a fraction of the debt which is owing to him. The hardship is especially great if the insolvent party is also bankrupt, for not only is it impossible then to recover from the insolvent immediate payment of the full debt owing by him, but the remainder of the debt will be

89 Ex parte Ross, 2 Glyn & J. 46, 330; Re Eldridge, 12 B. R. 540; Re Graves, 9 Fed. Rep. 816; Re McKinney, 15 Fed. 912; Minot v. Thacher, 7 Met. 348, 41 Am. Dec. 444; Willard v. Clarke, 7 Met. 435; Collester v. Hailey, 6 Gray, 517; Parker v. Sanborn, 7 Gray, 191.

90 Hawes v. Fette, 42 Ark. 374; Richardson v. Thomas, 13 Gray, 381; Doe v. Erwin, 134 Mass. 90; Cleveland v. Johnson, 5 N. Y. Misc. 484, 26 N. Y. S. 734.

91 Hawes v. Fette, 42 Ark. 374; Hoff

v. Funkenstein, 54 Cal. 233; Wofford v. Unger, 53 Tex. 634. But see Harwell v. Steel, 17 Ala. 372; Sacia v. De Graaf, 1 Cow. 356; Milne's Appeal, 99 Pa. 483; Hill v. Phillips, 14 R. I. 93.

92 Nonotuck Silk Co. v. Pritzker, 143 Ill. App. 644; American Woolen Co. v. Samuelsohn, 226 N. Y. 61, 123 N. E. 154; Simpson v. Tootle &c. Co., 42 Okl. 275, 141 Pac. 448, L. R. A. 1915 B. 1221. Cf. Union Collection Co. v. Soule, 141 Calif. 99, 74 Pac. 549 (under California Insolvency statute).

discharged. The Bankruptcy Statute 93 accordingly provides in all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor that "the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid." To take advantage of this provision it is essential that each debt shall be provable,94 and that the debts shall both be owing in the same capacity. If the solvent party is obligated under an express or implied trust, he cannot set off this obligation against a debt which he owes personally to the bankrupt.95 A distinction has sometimes been attempted to be made between "mutual debts" and "mutual credits," 96 but it seems that one phrase is merely the correlative of the other.

The possibility of a set-off makes it advantageous if a solvent person is indebted to one about to go into bankruptcy to buy a claim against the bankrupt if it can be secured at a discount. On the other hand, if a solvent person is a creditor of the bankrupt, it is for his interest, if he can receive full consideration for so doing, to become a debtor of the bankrupt by assuming payment of a debt due to the latter, provided in each case that the right of set-off is allowed. The statute limits the right of a bankrupt's debtor to gain an advantage of the first sort by denying a set-off in favor of any claim which was purchased by or transferred to him after the filing of the petition, or within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt was insolvent, or had committed an act of bankruptcy." The second method of gaining an advantage is not so obvious and is not expressly prohibited. It is necessary in order to make the second method available that the creditor who assumes the debt shall become a direct debtor to the bankrupt by a novation; for otherwise, there would be no mutual debts. Whether it would amount to a preference and therefore be voidable for the debtor to assent to such a novation within four

93 Sec. 68 a.

94 Sec. 68 b; In re Semmer Glass Co., 135 Fed. 77, 67 C. C. A. 551; In re Harper, 175 Fed. 412.

95 Libby v. Hopkins, 104 U. S. 303,

26 L. Ed. 769; Howard v. Magazine &
Book Co., 131 N. Y. S. 916, 147 N. Y.
App. Div. 335.

Ex parte Whiting, 2 Lowell, 472.
Sec. 68 b (2).

months of his bankruptcy seems the only question which can be raised.9

§ 1999. Debts not affected by discharge.

The words of the statute previously quoted 99 enumerating the debts which are not affected by a discharge are sufficiently self-explanatory with a few exceptions. In regard to debts which have not been scheduled in time for proof and allowance, there has been some question made as to what is a sufficiently explicit listing of a creditor's name and address; 1 and how long before the close of the proceedings it is necessary that an unlisted creditor should have had notice of the proceedings in order to be bound by them. As to the last question it is said: "Actual knowledge of the proceedings contemplated by the section is a knowledge in time to avail a creditor of the benefits of the law-in time to give him an equal opportunity with other creditors—not a knowledge that may come so late as to deprive him of participation in the administration of the affairs of the estate or to deprive him of dividends." 2

The provision of the statute depriving the debtor of the benefit of a discharge as to debts created by fraud, etc., while the debtor was acting in a fiduciary capacity have been given somewhat restricted application by a series of decisions originating under earlier bankruptcy statutes which contained a similar provision. It has been held that debts arising from the violation of an implied or constructive trust are not included in this exception,3 and the same construction was followed in the Act of 1898; 4 but in a case arising after that Act

98 In Western Tie & Timber Co. v. Brown, 196 U. S. 502, 49 L. Ed. 571, 25 S. Ct. 339, this seems to have been the essential nature of the transaction, and the creditor's right to a set-off was denied upon somewhat unsatisfactory reasoning.

"See supra, § 1982.

1 The cases are examined in Kreitlein v. Ferger, 238 U. S. 21, 59 L. Ed. 1184, 35 Sup. Ct. 685. The residence and not merely the business address should be stated. McKee v. Preble,

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had been amended in 1903, the Supreme Court held that a violation of an implied or constructive trust may amount to a "wilful and malicious injury" to the property of another.5

§ 2000. Composition with creditors.

Apart from bankruptcy legislation though a debtor may make a composition with his creditors and though he is aided in so doing by an artificial rule which finds a fictitious consideration for the promise of one creditor to surrender a portion of his debt in the promise of other creditors to do likewise, the composition is binding only upon such creditors as may assent to it. In bankruptcy, however, a bankrupt may offer terms of composition to his creditors at any time after he has been examined in open court or at a meeting of his creditors, and has filed in court the schedule of his property and list of his creditors required to be filed by bankrupts. The terms of the composition must be accepted in writing by a majority in number of all creditors whose claims have been allowed and those assenting must include a majority in amount of such claims; and the consideration to be paid by the bankrupt including the amount necessary for payment in full of all debts which have priority must be deposited by him. If these requisites are complied with, the composition will be confirmed by the court if it concludes that the composition is for the best interests of the creditors, that the bankrupt has not been guilty of any act or omission which would be a bar to his discharge, 10 and if the offer and its acceptance are in good faith and have not been

8

in the preceding note, the facts presented the case of a broker or factor who had wrongfully disposed of property held for a principal or customer.

In McIntyre v. Kavanaugh, 242 U. S. 138, 61 L. Ed. 205, 37 S. Ct. 38, the facts were similar to those stated in the preceding note. The court held that the debtor's discharge was no bar to the claim, saying "To exclude from discharge the liability arising from such transactions as those involved in Crawford v. Burke, 195 U. S. 176, 49 L. Ed. 147, 25 S. Ct. 9, and

here presented, not improbably was a special purpose of the amendment " to Sec. 17 (2) of 1903. See also as to the meaning of "Wilful and malicious " Ex parte Cote (Vt.), 106 Atl. 519; Wellman v. Mead (Vt.), 107 Atl. 396; Mason v. Sault (Vt.), 108 Atl. 267. See supra, § 126.

7 Sec. 12 a of the Bankruptcy Act.
8 Ibid., Sec. 12 b.

Ibid., Sec. 12 d (1).
Hoxie, 180 Fed. 508.

See In re

10 Ibid., Sec. 12 b (2). See In re Godwin, 122 Fed. 111.

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