McNeil v. Knott

By the Court.

Lumpkin, J.

delivering the opinion.

It seems, that in May, 1839, Wm. Segur and Wm. Crawford, made a note for $100, payable Christmas next thereafter, to one Henry Kunkle or bearer. Kunkle, the payee, transferred the note, by delivery, to Edward F. Knott, who, in 1841, indorsed it to Hector G. H. McNeil, the plaintiff, to be liable in the second instance. Segur, one of the makers, left the country. Suit was brought against the estate of Crawford, who had died in the meantime, and on the final trial, in 1845, it was proven, and so found by the Jury, that the note had been paid off and discharged by Segur to Kunlde, the payee, while the paper was in his possession. McNeil then sued Knott, who, pending the previous action, to wit, in 1843, had been discharged under the Act of bankruptcy, then in force in the United States; and this writ of error is prosecuted to review and to reverse the several decisions of the Superior Court, upon this trial.

The plaintiff having tendered the note and the indorsement thereon, in evidence, and an exemplification from the Superior Court of Henry County, with some additional proof, showing due diligence on his part, to collect the note out of the makers, and his failure to do so, closed his case.

The defendant then offered a paper, purporting to be his certificate of discharge, as a bankrupt. It was in these words:

“ District Court of the United States, 1 District of Georgia., j

In Bankruptcy: Edward F. Knott, of the Town of McDonough, Henry County, Georgia — physician, and one of the late firm of Crew, Segur & Knott, and of Bond & Peck, and of James & E. Knott, of McDonough — a bankrupt, having filed his petition, praying that a full discharge of all his debts may be decreed and allowed, and a certificate thereot be granted him, pursuant to the Act of Congress, entitled an Act to establish a uniform system of bankruptcy throughout the United Slates, passed 19th August, 1841; and it appearing to the Court, upon the petition and ieport of the Clerk and assignee accompanying the same, that the said bankrupt has surrendered all his property, and rights of property, with the exception of the necessary household and kitchen furniture, and such other articles as have been designated and set apart by the assignee, and the wearing apparel of the said bankrupt, and that of his wife and children; and that the said bankrupt has fully complied with, and obeyed all orders and directions, which, from time to time have been given and passed by the Court, and has otherwise conformed to all the requirements of the said Act; and that no written dissent to such discharge has been filed by a majority, in number and value, of his creditors, who have proved their debts; and no cause being now shown to the Court why the prayer of the petitioner should not be granted — on motion of H. R. Jackson, by Jos. W. Jackson, attorney for the petitioner, it is therefore, by virtue of the Act aforesaid, ordered, decreed and allowed, that the said Edward F. Knott be, and he is hereby, fully discharged of, and from all his debts, owing by him at the time of the presentation of his petition to be declared a bankrupt; and it is further ordered and granted that the Clerk duly certify a copy of this decree, under the seal of the Court, and deliver the same to the bankiupt when demanded.”

I, George Glenn, Clerk of said Court, do certify, that the above orders were made and passed by the Court, on the 23d day of May, 1843. In witness whereof, I have hereunto set my hand, and affixed the seal of the said Court, this 23d day of May, A. D. 1843.

[6fea¿.] . G-eorge Glenn, Clerk.

The introduction of this account was objected to, on the grounds : First, That the defendant had not pleaded it.

Secondly, Because it was not issued in conformity with the Bankrupt Act.

[1.] The answer of the defendant to the action, was in these words: “ The said defendant, by his attorney, Andrew K. Moore, says, that after the making of said note, and his indorsement thereon, to wit, on-the 23d day of May, 1843, he, the said Edward F. Knott, became a bankrupt, within the true meaning and intent of the Statute' passed by the Congress of the United States, in the year 1841; and that said supposed causes of action accrued before this defendant’s discharge,” See.

By the Judiciary Act of 1799, the defendant is required to make his answer in writing, w'hich shall plainly, fully and distinctly set forth the cause of his defence. This plea is certainly a substantial compliance with the Statute ; and the Court, therefore was right in letting in the evidence which was offered under it.

[2.] But had the plea been defective — the case being in the last resort — the party was entitled to amend.

[3.] Whether the certificate be in conformity with the law which authorizes it to be granted, can be best ascertained by reference to the Act itself.

By the 4th section, it is enacted, “ that every bankrupt who shall bona fide surrender all his property and rights of property, with the exception before mentioned, for the benefit of his creditors, and shall fully comply with, and obey all the orders and directions which may, from time to time, be passed by the proper Court, and shall otherwise conform to all the requisitions of this Act, shall (unless a majority, in number and value, of his creditors, who have proved their debts, shall file their written dissent thereto) be entitled to a full discharge from all his debts; to be decreed and allowed by the Court which has declared him a bankrupt; and a certificate thereof granted to him by such Court, accordingly, upon his petition filed for such purpose.” 5th volume United States Statutes at Large, 443.

This form of certificate is that, no doubt, which has been prescribed by the District Court; and none more appropriate, it occurs to us, could be devised. It recites all the previous proceedings which have been had, the compliance by the applicant with every requisition which has been made upon him, and then declares him entitled to a full discharge from all existing liabilities, and directs the Clerk to certify accordingly.

The error which counsel have fallen into, is in confounding the judgment of discharge, which is certified by the Clerk, with the previous decree, pronouncing the debtor a bankrupt within the true intent and meaning of the Act.

It is next objected, that the Court erred in charging the Jury, that if the note was paid off by one of the makers, to the original holder, at the time that Knott indorsed it to McNeil, that then a right of action accrued at once to McNeil, notwithstanding Knott was to be liable only in the second instance; and that consequently he was bound to prove the debt under the commission of bankruptcy, or lose it; and that if it were otherwise, and the liability of Knott was contingent only, depending upon the result of the original suit instituted against the makers of the note, that still, under the Bankrupt Act of August, 1841, the debt might have been, and therefore must have been, proven or lost.

The correctness of the first branch of the instructions given to the Jury, will depend upon the construction to be put upon the defendant, Knott’s indorsement. It is what is termed a qualified or restricted indorsement. He undertakes to be liable in the second instance. Mr. Arnold insists, that McNeil was bound to sue the makers, whether the note was discharged or not; and at any rate, that inasmuch as the fact of payment had not been practically ascertained in May, 1843, when Knott was declared a bankrupt, that this indorsement did not constitute such a debt as could have been proven at that time.

[4.] We think otherwise, and hold that even under this limited indorsement, Knott warranted three things : 1st. That the note which he transferred was valid; 2dly, That the maker was liable to pay it; and 3dly, Its ultimate solvency: that is, payment by himself, upon failure to collect the money out of the makers.

[5.] And if the note was paid by one of the makers, to the original holder, at the time it was indorsed, there can be no doubt, we apprehend, that a right of action accrued immediately in favor of McNeil, upon this indorsement. He was bound to test the solvency, but not the genuineness of the paper. Knott had no title to the note at the time he passed it. His implied guarranty that the makers would pay it, became, therefore, eo instanii, infracted; and his conditional undertaking, converted at once into an absolute liability.

[6.] But suppose it were otherwise, and that this portion of the charge was wrong; and that a right of action against the indorser did not accrue to the holder, immediately at the time of the making of the indorsement, on account of the notes having been previously paid off by one of the makers ; and this was not, in May, 1843, such a subsisting debt as might, in England, have been proved under the commission of bankruptcy, but was an uncertain demand, dependent on the result oí the suit which was pending at the time that Knott was discharged ; still, is it not true, that under the Bankrupt Act of 1841, McNeil would have been permitted to prove, even this contingent claim, and thus have entitled himself to the right to participate in the bankrupt’s effects, and failing to do so, his remedy against Knott is forever barred ?

Even in England now, by the Statute of 6 Geo. IV. ch. 16, which was a consolidation and improvement of all the previous Statutes of Bankruptcy, contingent debts may be proven; and by the 4th section of the last American Act, it is provided, that “ all creditors whose debts are not due and payable until a future day — all annuitants, holders of bottomry and respondentia bonds, holders of policies of insurances, sureties, indorsers, bail, or other persons having uncertain or contingent demands against such bankrupt, shall be permitted to come in and prove such debts or claims under this Act; and shall have a right, when their debts or claims become absolute, to have the same allowed them, &c.” U. States Statutes at Large, 445.

Here, then, indorsers are included, eo nomine, in the list of creditors who may prove their contingent demands, and who, therefore, are bound to do it at their peril. Shall it be said that the Statute does not mean indorsers, who, like Knott, are liable in the second instance only ? We find no distinction in the Act, between indorsers generally, and those who have partially restricted their liability; and the law making none, we can make none. Indeed there is no good reason why any such should exist. If these indorsers are bound on contracts upon which they may be made ultimately responsible, then they should be provided for. Their liability is not more uncertain than that of bail, nor is it more difficult to ascertain the present value of their contingent debts.

We agree, then, with the Circuit Judge, that this wTas a subsisting debt against Knott, at the date of his discharge; because, the note was satisfied and a nullity, at the time he indorsed it; and the holder, in fact, had no other contract to go on, but that of the indorsement; and further, that before it was ascertained whether this note was collectable or not, out of the makers, it could have been proven as a contingent demand against the indorser, under the commission in bankruptcy ; and that in either view of it — being proveable under the Act — the certificate is a full discharge of the debt, and a complete bar to the suit brought against Knott, the bankrupt, for its recovery, unless the same shall be impeached for some fraud or wilful concealment by him of his property, contrary to the provisions of the Act, which is not pretended on the part of the creditors.

I have not attempted to meet, in detail, every argument that has been urged upon the Court. I rarely do. It would be wholly impracticable. If we entertained doubts, it would be our duty, perhaps, to grant a re-hearing. But deciding according to the best lights before us, we deem the judgment of the Court below to be correct in every particular.

Judgment affirmed.