Parker v. Bradford , 45 Iowa 311 ( 1876 )

Day, J.

i. bankruptcyj effect of discharge: warranty.

When the bankruptcy proceedings were instituted Ida Bradford held against defendant a claim for $1,090 and interest, secured by mortgage on the lands sold 3 •/ o o to plaintiff. The mortgaged lands were of sufficient valne to satisfy the demand. Ida Bradford had the right to pursue one of two courses: She might release to the assignee her claim upon the mortgaged property and prove up her debt against the. estate of the bankrupt, or she might retain her security and look to the land mortgaged for the payment of her debt, and waive the right to prove it up against the estate. Eevised Statutes of the United States, section 5075. In either event it would be almost certain that the debt would be paid out of the mortgaged property, resulting in an actual or constructive eviction of plaintiff, and a consequent breach of the covenant of warranty. Indeed, the only thing which could prevent such a result would be the very improbable contingency of the creditor’s permitting his claim to become barred by the statute of limitations. It is certain, then, that when bankruptcy proceedings were instituted the plaintiff held a contingent claim against the bankrupt, for he had his covenant of warranty, which i't was not only probable, but almost certain, would be broken. • Section 5068 of the Eevised Statutes of the United States provides: “In all cases of contingent debts and contingent liabilities contracted by the bankrupt, and not herein otherwise provided for, the creditor may make claim therefor and have his claim allowed, with the right to share in the dividends, if the contingency happens before the order for the final dividend; or he may, at any time, apply to the court to have the present value of the debt or liability ascertained and liquidated, which shall then be done in such manner as the court shall order, and he shall be allowed to prove for the amount so ascertained.”

Ida Bradford did not transfer her mortgage to the assignee, and thus she waived her right to prove up the debt against the estate. That she had elected to look to the mortgaged property for her debt must have been known before the final dividend was declared. It was then apparent that one of three thing? must happen: either the holder of the claim would permit, it to become barred by tbe statute of limitations, and tbe mortgaged property tbus to be discharged, or she would enforce tbe claim against tbe property, tbe plaintiff would pay it off, and tbus have a demand against tbe bankrupt for tbe amount of tbe incumbrance, or upon foreclosure tbe property would be sold to Ida Bradford or a third party, tbe plaintiff would be actually evicted, and tbus have a claim against tbe bankrupt’s estate for tbe consideration money and interest, a much larger sum than tbe amount of tbe incumbrance.

If tbe plaintiff’s claim bad been presented for allowance tbe court would have been justified in leaving' out of consideration tbe very improbable contingency that tbe Ida Bradford claim would be allowed to become barred by tbe statute of limitations, and tbe equally improbable contingency of tbe plaintiff’s permitting bis property to be sold for much less than its value, and then looking to tbe estate of a bankrupt for tbe consideration money and interest. Tbe court would have been authorized to find that a contingency bad happened which gave the plaintiff a claim against the bankrupt’s estate to tbe extent of tbe incumbrance existing against tbe property conveyed to plaintiff. To that extent the claim was provable against tbe bankrupt’s estate. .Section 5119 of tbe Eevised Statutes provides: “A discharge in bankruptcy duly granted shall, subject to the limitations imposed by tbe two preceding sections, release tbe bankrupt from all debts, claims, liabilities and demands which were or might have been joroved against his estate in bankruptcy.” Tbe claim in question does .not fall within tbe provisions of tbe preceding sections referred to.

The claim, as we have seen, might have been proved against tbe bankrupt’s estate, and bis discharge in bankruptcy released him from further liability thereon. The court erred in holding the defendant liable.

Eeversed.