JOHN AND JAMES TUCKER v. OXLEY, ASSIGNEE OF T. MOORE, A BANKRUPT, 5 Cranch 34

February 15 Marshall, Ch. J. delivered the opinion of the court, as follows : In this case the plaintiffs in error, who were defendants in the circuit court, claimed to set off against a debt due from them to Thomas Moore, the bankrupt, a debt previously due to them from the firm of H. and T. Moore, which firm was dissolved, and the partnership fund had passed to T. Moore. This offset was not allowed; and its rejection is the -error alleged in the proceedings of the. circuit court.

At .law, independent of the statute of bankruptcy, the court js of opinion that this discount could not have been made in a suit instituted by Thomas Moore against the Tuckers; and if the words of the act of congress allowing set-off in the case of mutual debts and credits were to be expounded, without regard to the provisions of that act in otner respects, it is probable that they would not be extended beyond that technical operation, to which has beexi allowed the terra “ mutual debts,” in ordinary cases; But the bankrupt law changes essentially-the reía*1 tive situation of the-parties; and the provisions making that change are thought, by a majority of the court, to have a- material influence pn the words of the 42d

section of the act, which provide- for the case of mutual debts and credits. It is the opinion of the court that* this is a debt, which might have been proved under the 6th

section of the act. It is a debt, which, by a suit against both the partners, might have been, recovered against either Of them, and either might have been compelled to pay'the whole! Although due from the Company, yet it is also due from each member of the company; and the claim of the creditor for its satisfaction extended, previous to the act of bankruptcy, 'to the whole'propéu y of each member of the tirm, as Well, as to the joint property of the firm.

It would be certainly impairing that claim'to apply, by th'C operation of law, the whole particular fund to' other creditors, who, at the time of the bankruptcy, had not a better legal claim on that fund than the Tuckers, without allowing them to participate in it. The court, therefore, would be much inclined to consider the creditors of the partnership.as having a right, upder the general ■ description ■ of creditors of the bankrupt, to prove their debts before the commisr sióners.1 But all doubt.on this subject seems to be removed by the proviso to the 34'th section. That;

section declares,that the bankrupt shall.be discharged from all'debts which were due-from him at the dateof the bankruptcy, and all which were of might have • been proved under the said commission,' “ Provided that no such discharge Of a bankrupt shall release or discharge any-..person, who was a partner with, such bankrupt at the time he or she became bankrupt, or. who was then loitidy held or bound with such'bankrupt for the same debt or debts', from Which such bankrupt was discharged as aforesaid.”- Thomas Moore, then, is discharged from'the debt due from Henry and Thomas Moore to the Tuckers ;. and if he is discharged therefrom,.it would seen! to be an infraction of their pre-existing rights not to allow them a share of his property.

It is deemed by the court material in the construction of this statute, that, as. the proviso shows.the joint creditors to be within the description of. the'terms creditors of the bankrupt, so as to enable therp. to prove their debts under the commission, they are. of necessity comprehended within the same terms; in those section's which, direct to whom the .dividends are to. be made. The words, of the 29th and 30th sections are imperative. They command.-the. commissioners to, di-".

Vide the estate .of the. bankrupt among such of his /creditors as shall have made due proof of tReir debts, in.proportion to the amount of their claims. Consequently, every creditor who. pro ves his debt is. entitled to a dividend. •But, although the creditors of H. and T. Moore might have, proved their debt before the commissioners, and. have received a "dividend out. of the estate of the bankrupt, it may be contended that,. .having failed to do so, théy are not entitled to set off their whole; claim. '.The 42d

section of the act directs, that where it shall appear to the commissioners that there hath bee.n mutual credit given by the bankrupt and'any other person, or mutual debts between them at any time before such person became bankrupt, fhfe assignee or assignees of the estate shall state the account between them, and. one debt may be sét off against the other; and. what shall appear to be" due on either side, on the balance of such account, after-such set-off, and no more, shall be claimed or paid on either side respectively.

The term “debt,”,as used in this section, is fairly to be. construed to mean any debt for which the act provides. A debt whjich máy be proved Before the . commissioners, and to the owner of which a dividend must be paid, is a debt in the sense of the term as used in this, section. Were this doubtful, it cannot be denied that the advantagé given by the

section is reciprocal, and in any case where the set-off would be allowed, if the balance was against the bankrupt, it must be allowed if in his favour. It has already been stated that the Tuckers might have proved their claim before the commissioners. Can it be doubted that the whole of the debt due to the bankrupt would, under this section,' have been deducted from that claim? We "think it cannot be doubted. Then, the terms applying alike to each party, the debt due to the Tuckers must be set off .from that which they owe, the bankrupt.

If the “ assignee of the estate ought to have stated the account,” and have only claimed the balance, his omitting so to do cannot enlarge his rights; he can only recover what he ought to have claimed. "This, which seems to be the naked law of the case, is not unreasonable. It is fair to conclude that the Tuckers forbore to recover the money'due to them from H. and T. Moore, in consideration óf their dealings with T. Moore, after he traded on his separate, account. ■ This exposition of the bankrupt act appears to the court to conform to that which is given in England.

As the bankrupt law of the United States, so far as respects this case, is almost, if not completely, copied from that of England, the. decisions which have been made on that law by the English judges may be considered, as having been adonted with the text they expounded. In England,'it has never befen doubted that a man, having a claim on two pe.rsons,'might become a petitioning creditor for the bankruptcy of one of them. Such petitioning creditor has always been admitted to prove his debt before the commissioners, and to receive his dividends, in proportion, with the other creditors.

He is, then, in contemplation of the act, a creditor of the bankrupt; and, consequently, all the provisions of the act apply to him, as to other creditors. This would seem to prove that, under the legal operation of the act, a. creditor of a firm, of which the bankrupt was one, and a creditor of the bankrupt singly, were equally creditors of the bankrupt^ in contemplation of the law, and were construed to come equally within the meaning of the term, as used in the act.

If this position be correct, the rules which we find laid down by the chancellor, for marshalling the respective funds, are to be considered merely as equitable restraints on the legal rights of parties, obliging them to exercise those rights in such manner as not to do injustice to others. This is the peculiar province of a court of chancery. It is the same, in.principle, with the common case of marshalling assets, where specialty creditors, who have a right to satisfaction out of lands, exhaust the personal estate, to the injury of simple contract creditors.

It is undoubtedly unjust that the Tuckers, having a claim on H. and T. Moore, and being able to obtain payment from 'H. Moore, should satisfy that claim entirely out of the. separate estate of T. Moore, to the exclusion of other creditors, who had no resort to Henry; and it is probable that a court of chancery might restrain this úse of his legal rights within equitable limits. But suppose H.

Moore, also, to be a bankrupt} or to be insolvent, and unable to pay the debt} would it not be equally unjust to apply the estate of each individual to the discharge of the several debt;s; to. the entire exclusion of their joint creditors, who, previous to ■ their bankruptcy, had a legal and equitable right to satisfaction out of the separate éstate of each ? Mr. Cooke has made a very good collection of the decisions in England, on this question.

It will be found that a creditor of the partnership was first permitted by consent to prove his debt before the commissioners of the individual bankrupt, and to receive dividends from the separate fund. It was afterwards decided by the chancellor thathe had a right so to do : and in. conformity with this decision was the regulaf course of the court, until the year'1796.

Uuring. this-time, however, the chancellor, sitting, aa chancellor, on .a bill suggesting equitable considerations for restraining the order he had made, was accustomed to enjoin the- dividends which he ihad, ordered, sitting,in bankruptcy- This would seem to prove that, at law, the creditor-of the . partnership had a right.to his dividends from the separate fund, but that equity would compel him first to exhaust the joint fund. In 1796, this whole subject was reviewed in -the case Ex parte Elton, reported in'3 Ves., jun.

This case has been considered as oyerruling former decisions ; but, in the opinion of the court, it confirms the principle already stated. After stating his objection to the - prevailing practice, because each -order carried in its bosom a suit in chancery, the chancellor took time to consider the subject; and finally determined that the petitioner should be permitted to prove, his debt, and that his dividend should be set apart, but not paid to him until an account should be 'taken of the joint fund.

It is perfectly clear that, in this case, the chancellor, for convenience, exercised, at the same time, his common .Jaw and equitable jurisdiction.

In conformity with the, uniform, exposition of the act, he permitted the partnership creditor to prove his'debt before, the commissioners of the bankrupt, and directed the dividend to be allotted to him out of the separate fund; .and then, without the expense of a bill, exercising his equitable powers, he .suspended .the payinen.t of this dividend, until .it should be ascertained how much of it a court of equity would permit the creditor tó receive. - - This does not nega-; ■ tive, but affirms, the legal right of a partnership creditor to cqme on the separate fund.

It appears also to be admitted, that if the particular creditors should be satisfied without exhausting the' fund, the residue might be paid' to the partner-slip creditors. This seems to admit the legal right oí those creditors to prove their debts, and to reecho their dividends.

It is equity, not law, which ciin postpone them. li is the opinion of a majority of the court, that thecircuit court erred in rendering a judgment on thi special verdict for the sum of 143: dollars and 33 cets, instead of the sum of 16 dollars and 63 cents; with was the. balance after deducting the debt due fren H. arid T, Moore to the defendants in that cort. It is therefore considered by the court, that th< said judgment be reversed and annulled; and ths judgment be rendered for the plaintiffs in the ciruit court for the sum of 16 dollars and 63 cents, ant the .costs in the circuit court. Judgment reversed.