Opinion
April Term, 1852
E. Sandford, for appellants.
N. Hill, Jun., for respondent.
The first section of the bankrupt law, (5 Statutes at Large, 440,) provides, that the persons therein mentioned, who shall by petition, setting forth, c. apply to the proper court, and therein declare, that they are unable to meet their debts, shall be deemed bankrupts, within the act, and may be so declared by decree, c. By this section, the presentation of the petition is an act of bankruptcy. By the seventh section, upon every such petition, notice is to be published in the manner therein stated, that all persons interested may appear, c. In this case, the petition of Pomeroy was presented and filed on the 23d of January, 1843. The order of publication of notice was made on the same day and published as early as the 10th of February following. The note which is now attempted to be set off by the defendants, was not purchased conditionally, until the 13th of February; and the conditional agreement then made, was not ratified until the 17th of that month; the cash part of the consideration was not paid until the 24th, and the note of the manufacturing company was not sent to the holder of the note against the bankrupts, until the 3d of March, the day following the one upon which Pomeroy was declared a bankrupt by the decree of the district court. In Shawhan v. Wherritt, (7 How. 643,) it was held that the proceedings were in rem, or in the nature of proceedings in rem, to which all the creditors were parties. That "the public notice required "by the act having been given, the creditors must be treated "as having notice of the proceedings." Here, the negotiation with Cone, the holder of the note, did not commence until after the first publication of the notice. He must be deemed to have had notice according to the above decision; and the defendants, on the instant of their purchase, became creditors, and of course affected with constructive notice of all the proceedings. They cannot be deemed bona fide purchasers for value, without notice, and must, I think, be considered as having succeeded to the rights of Cone, as a creditor of the bankrupt, and to have acquired no other or different equities. It was also held in the case cited, that any payment or security, although not made by the bankrupt, but acquired through legal proceedings in the state courts, after notice of the act of bankruptcy, was a fraud upon the statute. To allow the set-off in this case, would be to permit a payment to be received, and preference thereby obtained, by these defendants, to the prejudice of other creditors, who are entitled to a pro rata dividend of the bankrupt's estate. The judgment of the supreme court should be affirmed.
It is unnecessary for us to follow the counsel on the argument in their extended examination of the doctrine of relation under the bankrupt law, for there is another rule, founded both upon principle and authority, which is decisive of this case.
It is well stated by Kent, Ch. J., in Ogden v. Cowley, (2 John. 278.) "It would be unjust if one person who happened to "be indebted to another at the time of his bankruptcy was permitted "by any intrigue between himself and another person so "to change his own situation as to diminish or totally destroy "the debt due to the bankrupt by an act ex post facto. Such "an act would be a fraud on the equality of the bankrupt act." See, also, Dickson v. Evans, (6 T.R. 57;) Bull. N.P. 180, where it is said the assignee ought not to be in a better condition than the assignor, who would only have come in as a creditor under the commission.
It is the same principle on which it has been held that the debtor of an intestate cannot set off a debt due from the intestate purchased by the defendant after the death of the intestate. ( Root v. Taylor, 20 John. 137.)
In that case, Ogden v. Cowley and Dickson v. Evans, ( supra,) were cited and commented upon as settling the question, not so much on the ground of the enactments in the bankrupt law as on those of the statute of set-offs; and the case in 6 T.R. was regarded as applicable to the English statute of set-off and consequently to our statute. I conclude by adopting its language, that this is not a case within the statute, that the bankrupt and the defendants never were indebted to each other, and had not demands arising on contracts or credits against each other, and that it would be unjust, and against the whole policy of the statute to allow a set-off acquired against the estate of a bankrupt after his petition in bankruptcy. See also Wells v. Stewart, (3 Barb. S.C. Rep. 40,) where the principle is recognized.
Judgment affirmed.