3 F. 391 -

WILSON

V.

NAT. !ANB:

OJ!

ROLLA..

891

been placed on record, is animportant question. Story's Eq. Jur. § 700, and cases cited in note a, (11th Ed.) Counsel will be heard further upon this question at the next term.

WILSON, Assignee, v.

(Oircuit O()Urt,

NATIONAL

BANK

OF

RoLLA..

w:

D. Missouri. JUly 23, 1880.)

I. BANKRUPTCy-SET-OFF-USURy-REV. ST. § 5073.-Section 6073 of the Revised Statutes, relating to sct-ofis in bankruptcy proceedings,Pro. vides that .. in all cases of mutual debts or mutual credits between the parties the account between shall be stated, and one debt set oft against the other, and the balance only shall be allowed or paid; no set-off shall be allowed in favor of any debtors to the bankrupt of a claim in its nature not provable against the estate, or of a claim pur. chased byor transferred to him after the filing of the petition. Held, that under this section a jUdgment obtained by an assignee in bankruptcy, for a penalty incurred by the violation of a state Iltatute against usury, could not be set-off against & claim of the judgment debtor against the bankrupt estate.

2.

SAME-JURISDICTION OF CIRCUIT COURT-BILL of

REVlRw-REV. B'l'; f 4986.-Under section 4986 of the Revised Statutes the circuit court

has jurisdiction of a bill to set aside an order of the district court directing such offset to be made.

Bill of Review. B. B. Kingsbury, for plaintiff. L. F. Parker, for defendant. MCCRARY, C. J. This is a case growing out of proceedings in the district comt in the matter of William James, bankrupt. The defendant was a creditor of said bankrupt, and proved its claim, which was upon a promissory note amount_ ing, with interest, to $5,000. The note was secured by mortgage, but after exhausting the security there remained a. balance due against the bankrupt's of $2,803. The said note was usurious, and the assignee of said bankrupt, the present plaintiff, recovered judgment against the defendant for the statutory penalty for violating the usury law of Missouri in the sum of $620. This judgment was recovered some-

392

FEDERAL

time after the commencement of the bankruptcy proceedings. Thereupon the defendant petitioned the district court for an order directing that the said sum of $620, the amount of said judgment, be applied as a credit or offset upon its claims '"bainst the estate. The district court granted the prayer of .l.tfendant's petition, and ordered the offset to be made accordingly. The present bill is brought to set aside this order as erroneous. 1. I am of opinion that this proceeding is properly insti. t,nted under the provisions of section 4986 of the Revised Statutes of the United States, which gives to the circuit court general superintendence and jurisdiction of all cases and questions arising in the district court when sitting as a court in bankruptcy. 2. The case upon the merits must turn upon the construction of section 5073 of the Revised Statutes, which is as fol· lows: "Section 5073. In all cases of mutual debts or mutual credits between the parties the account between them shall be stated, and one debt set off against the other, and the bal· ance only shall be allowed or paid; but no set-off shall be allowed in favor of any debtor to the bankrupt of So claim in its nature not.provable against the estate, or of a claim pur· chased by or transferred to him after the filing of the peti. tion." The defendant bank held an unsecured claim, duly proved, against the estate of the bankrupt, and the asssignee of the bankrupt held a judgment against the defendant bankfof $620, for penalty incurred by the violation of the statute against usury. Were these "mutual debts" within the mean· ing of the statute? In order to make a proper case for set-off, under the statute, the debts must be mutual; must be in the same right. Sawyer v. Haag, 17 Wall. 610, 622. If it be conceded that a judgment for this penalty, recovered by the bankfupt before his bankruptcy, would have been So debt, within t,he meaning of the statute, which could have been set off against the balance due on the bank's elaim, does it follow that a judgment obtained by the assignee after the bankruptcy

WILSON V. NAT. DANK OF ROLLA.

393

must be regarded in the same light? It is very clear that a. liability for violation of a penal statute is not a debt, within the terms of the law, and that is all the claim there was in favor of the bankrupt at the time of the adjudication in bankruptcy. As between the assignee and the b,ank is there such mutuality as the law requires? Are there two debts in the same right? The assignee sues on behalf of all the creditors, and the judgment recovered by him is assets in his hands for the payment, pro rata, of all the debts of the estate. The affairs of the bankrupt must be settled as of the date of his bankruptcy. If there was no right of set-off at that date there was none afterwards. I am of the opinion that the "mutual debts" and "mutual credits" which maybe set .off under the act are such as ex· isted at the time that the bankruptcy proceedings were com· menced. It is expressly declared, in the section above quoted, that "no offset shall be allowed of a claim in its nature not provable against the estate." What claims are provable? This question is answered by the statute: "All debts due and payable from the bankrupt at the time of the commence· ment of the proceedings in bankruptcy. · · · may be proved against the estate of the bankrupt." Rev. St. § 5067. And the same rule governs in determining what are assets of the bankrupt. These include "all the estate, real and personal, of the petitioner; all debts due him, or any person for his use; all his rights of action for property or estate;" anil "any cause of action which he has against any person aris. ing from contract," etc.; but do not include any cause of action founded in tort. The "mutual debts," then, to which the statute refers, are debts in favor of and against the bankrupt at the time of commencement of proceedings in bank. ruptcy. The judgment in question does not come within this definition. To hold otherwise, would, as it seems to me, amount to a practical discharge of the bank from its liability for a violation of the usury law Its claim against the bankrupt's estate is certainly not worth its face, and probably worth tle or nothing. Let ns suppose a case where the assets are exhausted, and the estate is worthless. If such is not th&
Il

894

FEDERAL REPORTER.

fact in this case, it may be in the next one, and so the illustration will serve to test the correctness of the construction contended for. In such a case we should be called upon to order that the party guilty of usury, and liable for a penalty therefor, should relieve himself from such liability by crediting the amount of the penalty upon a worthless claim against a bankmpt estate. That would be to defeat the evident purpose of the law. I am of the opinion that the bank must pay the judgment obtained by the plaintiff as assignee. Its share of the proceeds of the judgment will go to the satisfaction of its claim, but no more. The money, when collected. must be distributed pro rata among creditors. The demurrer to the bill is overruled, and if the defendant stands upon its demurrer there will be decree for plaintiff. reversing the order of the district court, and directing proceedings in accordance with this opinion.

FLATT, Assignee, v. PRESTON and others.
(District GOUl't; S. D. New York. July 26, 1880.) .

1.

CHATTEL MORTGAGE-FILING-BANKRUPTCY.-The failure to

file a

chattel mortgage pursuant to the statute of the state of New York does not, per se, avoid the mortgage in favor of an assignee in bankruptcy. Stewart v. Platt, 19 N. B. R. 347.

In Equity. A. Blu.nunshiel, for complaina.nt. B. F. Tracy and Henry Brodhead, for defendant Preston. F. W. A ngell, for defendant Weinfeld. CHOATE, D. J. This is a bill in equity, brought by the assignee in bankruptcy of one Neumann, against William J. Preston. Montz Weinfeld, and Anthony J. Diekelman, to set aside, as fraudulent against the creditors of the bankrupt, a chattel mortgage given to the defendant Preston, a lease to the defenddant Weinfeld, and a general assignment made to the defendant Diekelman, all of whiQh are alleged to have been made