In re Brightman

4 F. Cas. 138, 18 Nat. Bank. Reg. 566, 19 Alb. Law J. 55, 1879 U.S. Dist. LEXIS 90

Opinion

LOWELL, District Judge.

The facts present a case of great hardship for the petitioners. The old creditors of L. Brightman & Sons¹ permitted the firm to trade, and it was necessary that they should contract some debts in carrying on the business. .If these necessary debts had been paid, as many of them were, out of the receipts, or even out of the capital, I do not know that any one could complain. It is hard that chance, or the neglect or whim of the debtors, or even the exhaustion of the available assets, should have the effect of putting some of the new creditors in the position which the petitioners occupy. I regret to say that I cannot find- the law which will give these new creditors a lien on the old property. If the trustee had been duly authorized to carry on the business, and had contracted proper debts, he would have had a lien for his indemnity, and so of the committee; but the arrangement was that the debtors might pursue their usual business for a year, unless the committee should interpose, and that certain joint property would not be sold in the usual course of business — such as vessels — should be put into the hands of a trustee for safe keeping. The answer of the assignees alleges that the separate real estate of L. Brightman was left with the bankrupts to enable them to raise money for the business, and that it was mortgaged for that purpose. This mortgage was paid during the .year out of the receipts of the business or of the assets. The result seems to be that the debtors were to go on as before, and I cannot see that tlie old creditors impliedly understood that the debts should be paid. Two of the committee wrote to the petitioners that it was understood that the new debts were to be paid in full; but they disclaimed all personal responsibility, and it is admitted that they had no authority to give an equitable lien on the assets, and that they have not effected such a lien by this letter. It must be taken as a statement of what the debtors intended and expected to do.

The cases cited from the English books are not much like this. They hold that while the assignees, under the then existing provisions of the law, were entitled to all the after-acquired property of an undischarged bankrupt, yet if they permitted him to go on and trade as a free man, they would be estopped to claim such newly-acquired property, obtained by trade, against a creditor who had no knowledge of the bankruptcy, and were pressing a remedy by execution or by a fresh bankruptcy against such new property. There must be some laches on the part of the assignees, and a concurrent deception of the persons dealing with the bankrupt, to bring about this equity.

Several of the elements of the estoppel are wanting here. None of the assets were acquired in the new trade, nor have the creditors held out the bankrupts as capable of contracting, excepting as the resolutions gave them a year in which to pay the first instalment, and as the exact state of matters was fully known to the persons dealing with the bankrupts, the single question is, whether the resolutions bind the old creditors to such a consequence.

Now I understand it to be admitted that by the English law, which we have imitated in a large measure, there would be no such right as is here claimed. The cases above referred to were none of them cases of composition, but of trading, for a long time after an ordinary bankruptcy. A letter of license, or a covenant not to sue, appears to be the nearest analogy to a resolution like this. It must be remembered that the mere acceptance of the resolution, with nothing in it about a trustee or a committee, would probably have operated in the same way as these resolutions — that is, as a license to trade for a year. The appointment of these persons was only a precaution intended to keep some control against fraud or recklessness, and does not bind the creditors, or the committee, or the trustee, to the new creditors, and for that reason does not bind the property.

I do not wish to be understood as deciding that the new debts may not be proved pari passu with the old debts. This point was not argued, and I can conceive that a question of estoppel might be made with some force in that direction. I believe I have never decided that point, though I may have said something about it Petition dismissed without costs.