$12.] Asssignment of Cause of Action - Closing Estate - Compositions.

action is brought in the name of the trustee for the use of a third person. (Ames v. Gilman, 51 Mass. 239.) It applies also to writs of error sued out to review a State judgment, as well as to suits originally commenced. (Jenkins v. Bank, 106 U. S. 571; Walker v. Towner, Fed. Cas. 17,089; 4 Dill. 165; Payson v. Coffin, Fed. Cas. 10,858; 4 Dill. 386.)

Does Not Affect Jurisdiction.-Failure to bring the suit within. the time herein prescribed is a good defense to an action when brought, if pleaded; but it does not affect the jurisdiction of the court. (Chemung Bank v. Judson, 8 N. Y. 254.)

Assignment of Causes of Action.-Where the trustee has a claim against which the statute of limitations has run, he cannot by assignment confer a right of action upon another and thus avoid the statute. (Cleveland v. Boerum, 24 N. Y. 613.)

When is the Estate Closed.-The only provision of the statute as to when an estate is closed is that in section 2 (8), which implies that the estate is closed when an order is made approving the final account of the trustee and discharging him. But perhaps in view of the context the "closing of the estate" in this section refers to the time when the question of discharge is determined.

SEC. 12. Compositions, when Confirmed.-a A bankrupt may offer terms of composition to his creditors after, but not before, he has been examined in open court or at a meeting of his creditors, and filed in court the schedule of his property and list of his creditors, required to be filed by bankrupts.

b An application for the confirmation of a composition may be filed in the court of bankruptcy after, but not before, it has been accepted in writing by a majority in number of all creditors whose claims have been allowed, which number must represent a majority in amount of such claims, and the consideration to be paid by the bankrupt to his creditors, and the money necessary to pay all debts which have priority and the cost of the proceedings, have been deposited in such place as shall be designated by and subject to the order of the judge.

History of Composition as an Incident of Bankruptcy Proceedings. [Ch. III.

c A date and place, with reference to the convenience of the parties in interest, shall be fixed for the hearing upon each application for the confirmation of a composition, and such objections as may be made to its confirmation.

d The judge shall confirm a composition if satisfied that (1) it is for the best interests of the creditors; (2) the bankrupt has not been guilty of any of the acts or failed to perform any of the duties which would be a bar to his discharge; and (3) the offer and its acceptance are in good faith and have not been made or procured except as herein provided, or by any means, promises, or acts herein forbidden.

e Upon the confirmation of a composition, the consideration shall be distributed as the judge shall direct, and the case dismissed. Whenever a composition is not confirmed, the estate shall be administered in bankruptcy as herein provided.

Analogous Provisions of Former Acts.

R. S. section 5103 A. (Passed June 22, 1874.)

History of Composition as an Incident of Bankruptcy Proceedings. -The Bankruptcy Acts of 1800 and 1841 and the original act of 1867 contained no provision for a composition by a bankrupt with his creditors. The first United States statute on the subject was section 5103 A, Revised Statutes, passed in 1874. The first English statute permitting an arrangement with creditors was that of 6 Geo. IV. ch. 16, passed in 1825, but that did not release the compounding party from the debts due creditors who dissented. The first English statute permitting a composition which would act as a discharge of all debts, those of dissenting as well as assenting creditors, was that of 12 & 13 Vict. ch. 106, passed in 1849. That act required, however, that the compounding bankrupt must make a cessio bonorum-that is, must turn over all his property to his creditors, in order to make the composition valid in case there were dissenting creditors. The act of 1861, 24 & 25 Vict. 134. permitted a composition without a cessio bonorum. Our act of June 22, 1874, was modeled on the 126th section of the English Bankruptcy Act of 1869 (32 & 33 Vict. ch. 71), which authorized such a composition without the institution of a bank

§12.]

Constitutionality of the Section.

ruptcy proceeding, but which in all other respects was substantially adopted in the U. S. act. The section of the present act differs in many details, especially in regard to procedure, from the act of 1874. In particular the present act permits a composition only after adjudication of bankruptcy, while the act of 1867 permitted it after petition and before or after adjudication. (Compare in re Reiman, Fed. Cas. 11,673; 11 N. B. R. 21; s. c. 7 Ben. 455; s. c. on appeal, 12 Blatch. 562; Fed. Cas. 11,675; 13 N. B. R. 128.) The sections of the English act as to composition and those of the U. S. act of 1874 appear in parallel columns in the opinion in re Scott, Collins & Co. (Fed. Cas. 12,519; 15 N. B. R. 73).

Constitutionality of the Section.-The analogous section of the former act (section 5103 A, R. S.) was assailed as unconstitutional on the ground that the power given to Congress to establish a uniform system of bankruptcy was a power to enact laws of bankruptcy as the word "bankruptcy" was understood at the time of the adoption of the Constitution. It was urged that a bankruptcy law necessarily required that all the property of the bankrupt should be turned over for distribution in some uniform manner among his creditors, and that an act which discharged a person from his debts without the consent of his creditors, when the debtor was not required to make a cessio bonorum, was not a "bankruptcy" law, and that Congress had no power to enact such a law. But the constitutionality of the law was upheld by the District Court for the Southern District of N. Y. which held that the power of Congress to legislate on the subject of bankruptcy was not limited to passing only such laws of bankruptcy as had been passed by the British Parliament at the time we adopted our Constitution, and that a law authorizing one's release from all his debts if a composition agreement is made with a majority of his creditors, is valid if by the provisions of the composition and of the proceedings under which it is conducted the property of the debtor is substantially appropriated to his creditors, and if each creditor obtains substantially as great a pro rata share of

Constitutionality of the Section - Construction.

[Ch. III. such property as it can pay or can reasonably be expected to pay. If there is such a cessio bonorum as the practical result of the composition, although there is no intervention of an assignee or trustee, and even though such cessio bonorum is the result only of a provision requiring that the composition is not binding until ratified, and that it shall not be ratified by the court unless it appears for the interest of all the creditors, then the law is constitutional, because unless the composition does substantially appropriate all the debtor's property to the payments of his debts, the court will be obliged to refuse to confirm it.

The fact that the determination of the question whether the bankrupt shall be released from his debts is left to the majority of his creditors does not make the law unconstitutional. Congress has plenary power to legislate on the subject of bankruptcy. The "subject of bankruptcy" is not, properly, anything less than the subject of the relations between an insolvent or non-paying debtor and his creditors. "It is a well-established principle that in making laws necessary and proper to carry into execution the powers vested by the Constitution, Congress possesses the choice of means, and may use any means which are in fact conducive to the exercise of a power granted by the Constitution." (United States v. Fisher, 2 Cranch 358, 396; McCulloch v. Maryland, 4 Wheat. 316, 321; the Legal Tender Cases, 12 Wallace, 457, 539.) The subject of bankruptcy includes the distribution of the property of the insolvent debtor among his creditors, and the discharge of the debtor from his contracts and legal liabilities, as well as the intermediate and incidental matters tending to the accomplishment or promotion of these two principal ends. Congress has full power over this subject, with the one qualification that its laws must be uniform throughout the United States.

Construction. This section which compels the dissenting creditors in composition to be bound by the action of the majority in number and amount and to accept the discharge of their claims which the majority of the creditors see fit to accept, being in deregation of common law rights, should be strictly construed.

§ 12.] Compositions - How Consent of Creditors is to be Obtained.

(See valuable discussion on this subject In re Rider, 3 Am. B. R. 178; 96 Fed. 808, which is one of the few cases decided under the Act of 1898.)

What Bankrupts May Make Compositions With Creditors.-The act restricts the right to no particular class. Corporations and partnerships as well as individuals may make such arrangements with creditors. A corporation under this law may apply for and secure a discharge, a right not accorded under the act of 1867. (In re Weber Furniture Co. Fed. Cas. 17,330; 13 N. B. R. 529; S. c. on appeal, Fed. Cas. 17,331; 13 N. B. R. 559.) In the case of partnerships or other joint debtors the composition and application for its confirmation may be made by any one of the several joint debtors; it is not necessary that it be made by the entire firm. (Pool v. McDonald, Fed. Cas. 11,268; 15 N. B. R. 560.)

When May a Composition be Made. Section 12a.-Under the present act a composition can be made only after the filing of the schedules, and after examination of the bankrupt, and after the claims of at least some of his creditors have been allowed; hence, not till after adjudication of bankruptcy, in this respect differing from the former act.

How Consent of Creditors is to be Obtained. Section 12b.-The present act provides no special manner in which the consent of the creditors is to be obtained. As the purposes for which a meeting was called under the provisions of the act of 1874, viz. the examination of the bankrupt and the filing of a schedule of assets, must, under the terms of the present act, be accomplished before even the offer to make a composition is made, there would be no advantage in a meeting, unless for the purpose of conference. Under the Act of 1874, which required first a meeting of creditors and thereafter a confirmation of the action of the meeting, evidenced by the signatures of a certain number of creditors, it was held that such confirmation need not be obtained at a meeting, but the debtor might procure it within any reasonable time