892 In re
. FEDERAL REPORTER.
and others, Bankrupts.
(District Oourt, B. D. New York.
·IN .BE ltBU'T.
which creditors ,have held to be estopped by consent to an act from alleging it agail}st their debtor, as proof of an act of bankruptcy on the of his adjudication, or, as a fraudulent conveyance upon the qu stionof his discharge. It may be taken 'as ·settled that a credit0r who assents ,to the making of ,an assignment or other ance, which, but for such would ,be an act of ruptcy or would preclude ,a dir;charge, cannotaHege the same against the debtor for either :gllrp,ose. The ground oM4erule is thai to allow him to do so. would be inconsistent withgS>od faith ,and fair dealing, encourage. deceit, and put it· within. the power of creditor.s to entrap. ,the debtor by inducinghin;l:to commit acts apparently fraudulent as to thelll, which they intend afterwards to repudiate to his disadvantage. To this extent the applipation .of the principle clearly goes. Johnson v. Rogers, 15 N. B. R. 1; In re Schuy.· ler,2 N. B. R. 549; In re Langley, 1 N. B. R. 559, 565 j In re Williams, 14 N. B. R. 132; In re Massachusetts B1'ick Co. 5 N. B. R. 408, 412. The limit of the rule, ho,,;ever, is indicated by Judge Blatchford, in In re Schuyler, 2 N.B. R. 54,9, 551, where he says that the creditors are estopped from questioning the assignment "by reason of the fact that those creditors, while enjoying the free election of ratifying or repudiating tqe asaignment, have chosen to ratify it." If, then, the creditor has done any act which amounts to a prior assent to the or if, having it in his power to dissent, repudiate, and avoid it, he fails to do so, he may bl;l taken to have assented to it, and will be estopped to allege it against the debtor, as done against his .rights and without his consent. This, it seems to me, is the utmost extent to which the estoppel goes. If the creditor could make the assignment the ground for putting the debtor into bankruptcy, as he could down to the amendment of the bankrupt law in 1874, npon his petition alone, or as he can do under the English bankrupt law, then the failure to take this course may well be deemed an to what the debtor has done. Having power to undo the act, he lets it pass and is deemed to
assent. This is the purport of the English decisions, and the rule might be the same here if a single creditor could put the debtor into bankruptcy. In re Cawkwell, 19 Ves. 232; Bamford v. Baron, 2 T. R. 594, (a) note; Hicks v. Burfitt, 4 Campb. 235; Ex parte Kilner, Buck's Cases in Bankruptcy, 105. But where the creditor cannot, by any action of his own, repudiate, dissent from, or undo the act of the dehtor, his taking of So under the assignment cannot be deemed such an assent to it, or ratification of it, that he will be estopped to allege it against the debtor as a ground for refusing his discharge. The act done is, as regards the creditor, unlawful and improper; constructively fraudulent, in diverting the settlement of the insolvent debtor's' estate from that mode of administration appointed by law to another mode selected by him; and the appointed consequence of the illegality is the . forfeiture of the right to a discharge if opposed by the cred. itor so injured. To hold that the taking of a dividend by the creditor under this unlawful assignment, which he can neither prevent nor undo, estops him from alleging the making of it as a violation of law which forfeits a discharge, would put it in the power of the debtor, designing an act in violation of the rights of his creditor, to compel the creditor to elect either to lose all benefit of the distribution of his estate, or to lose the right to visit upon him the rightful consequence of the illegal act. Such a result would be as clearly against good faith and good morals, as it is to allow one who has assented to an act to allege it against the party doing it, to the disadvantage of that party, as if it were done without his consent and to his prejudice. The dictum in Mayer v. Hellman, 91 U. S. 496, 501, to the effect that creditors are deemed to have acquiesced in preferential or fraudulent transfers made before the limited period prior to the bankruptcy, which is prescribed as the limit of time within which they must be made to be set aside, has relation only to the recovery of such property by action, and has no bearing on this question, which arises under the ninth subdivision of section 5110 of the Revised Statutes. That subdivision of the section imposes no limit of time within"which
BRADLEY 'V. ADAMS EXPRESS 00.
the prohibited 'act may be 'done to constitute it a sufficient ground for withholding a discharge. r think there was no error in the former decision refusing the discharge.
'V. ADAMS EXPRESS
(Cirouit Oourt, D. Ma8IJachU36tt8. September80, 1880.)
1. BANKRUPTCy-SECURED CREDITOR-PROOF OF DEBT-REV. ST.
§ 5075. A secured creditor, being placed in a difficult position, sold, in the honest exercise of his best discretIOn, before the condrmation of an assignee in bankruptcy, the securities, theu deemed worthless, and realized a considerable sum for the same. Hdd, that the district judge had power to confirm such sale, as if made after the confirmation of the assignee, and by prev,ious authority, and that proof for the remainder of the debt should be allowed.
The Boston, Hartford & Erie Railroad Company and the Adams Express Company. entered into an arrangement for the conduct of t.he express business over the line of the road, by which the express company had a valuable monopoly granted them, and in consideration thereof lent the railroad company $200,000, which were secured by two notes Of that company, and by a pledge of 10,000 shares of its stock, with the right also on the part of the express company to apply to the debt, from time to time, a certain portion of the sums which would come due from them to the railroad company. The railroad company became insolvent, and a petition for adjudication of bankruptcy was filed against it in Massachusetts, under which it was adjudged bankrupt in December, 1870. See Adams v. Boston, Hartford et Erie R. Co, 1 Holmes, 30. Similar proceedings were afterwards taken in the southern district of New York and in Connecticut, which resulted in adjudications in those districts. In all three cases applications were made to the circuit court for a reversal or modification of the decrees, which resulted in the affirmance of the decree in Massachusetts, (Sweatt v. B(lston, Hartford