persons who by the laws of the United States were entitled to priority. There were detailed provisions for proving debts, contesting them, ascertaining the debtor's property, for holding meetings of the creditors, and making dividends.2 When a creditor and the bankrupt had mutual and provable claims, one was set off against the other, dollar for dollar, and the balance only regarded. The debtor must have acquired his claim before the filing of his petition. The bankrupt might be a sole trader and also a member of a firm. He also might be a member of two or more firms, having in each case a distinct business, and distinct estates to be wound up in bankruptcy. In such a case the proof against each estate was required to be made distinctly and separately, without reference to the fact that the firms were composed in whole or in part of the same individuals. Each estate was thus treated as a matter by itself, with separate ownership and separate liabilities.* It was the object of the law to protect pledges and mortgages, and at the same time to recognize the claims of the creditor for any difference, in case of deficiency, between the value of the property and the amount of the debt. The value might be ascertained by agreement or by sale, under the direction of the court. If the value exceeded the mortgage, the assignee was entitled to the excess. The creditor was not allowed to prove his claim for a deficiency unless he complied with the rules of law as to the mode of ascertaining the value of the property.5 If three fourths in value of the creditors resolved at a proper meeting that it was for the interest of the general body of the creditors that the estate should be settled by trustees under the direction of a committee of the creditors, that course might be sanctioned by the court, and the trustees substituted for the assignee. The proceedings were substantially the same as if the assignee had continued to act, and the discharge of the bankrupt was equally binding. 6 (4) Proceedings peculiar to partnerships and corporations. Independent of any bankrupt law, there is a special rule prevailing in equity, in case of the insolvency of a partnership, that if there be both partnership assets and separate property of the individual partners, the partnership estate is to be first applied to the discharge of the partnership liabilities. This grew out of the theory of a trust, and that each of the partners had an equitable lien upon the assets for the sake of bringing about an equality of estate which they can enforce in the ordinary tribunals. If such a court has jurisdiction of a suit, it will not necessarily be deprived of it by mere force of an adjudication in bankruptcy, though the bankruptcy court might arrest or control it for the purposes of justice.1 Rule 3. A sheriff of a State court must obey an injunction of the District Court. At the same time, property in his possession by virtue of an execution before the commencement of bankruptcy proceedings, should not be taken away in a summary proceeding. The judgment in the State court should be first set aside.2 Rule 4. The court will protect its assignee from having property taken away by a State court in a proceeding to which he is not a party. Rule 5. The bankruptcy court may control a proceeding by a creditor to foreclose a mortgage against the bankrupt's estate. Leave to foreclose should be obtained from the District Court, setting forth the facts. Still, prosecution of a foreclosure suit in a State court is not of itself a contempt of the bankruptcy court, and is valid. The object of this rule is to protect the interest of the assignee, and he should not be permitted to stay a foreclosure without good reason. Rule 6. The District Court has power in a variety of cases to restrain by injunction proceedings in State courts. Instances are to prevent a creditor from liquidating and enforcing a lien; or to prevent the sale of property by virtue of an execution issuing out of a State court; or, in a proper case, to prevent an attaching creditor from proceeding against the goods attached; or to restrain the prosecution by a depositor against an insolvent bank; or to restrain persons from collecting rents of real estate in which the bankrupt has an interest. Rule 7. A distinction must be carefully taken between cases where jurisdiction has been exercised before the bankrupt proceedings were initiated, and those where the bankrupt proceedings preceded State action. Thus, a bankrupt court cannot correct or annul judgments rendered in a State court, nor affect alimony in a divorce suit,5 nor prevent the prosecution of an action already commenced, nor, as we have seen, take property from a sheriff holding it under State execution.7 270. 1 In re Davis, 1 Sawy. 260. 2 Infra, Rule 7. 8 In re Moller, 14 Blatch. 207. 6 In re Garrett, 11 Nat. Bankr. Reg. 493. Hewett v. Norton, 13 Nat. Bankr. ♦ In re Dunn, 11 Nat. Bankr. Reg. Reg. 276. 7 Townsend v. Leonard, 3 Dill. 370. The action of the bankruptcy court does not disturb liens created by contract prior to the act of bankruptcy and in good faith. It only affects the mode of enforcing them. The lien is to be recognized.1 While the mortgagor is still under a relation of trust to the mortgagee, the bankruptcy court has a broad and extensive authority to work out the trust in accordance with the intention of the law. If a receiver appointed by a State court under regular proceedings be in possession, the proceedings in bankruptcy will not be a ground for dispossessing him. And if he be in possession in a foreclosure case, the only recourse for the assignee is to redeem the mortgage. Where a corporation is dissolved under a State law, and afterwards becomes bankrupt, the proceeds up to that time in the State court are saved. Insolvency under State laws. The original distinction between bankruptcy and insolvency, as it existed in England, has practitically disappeared in the United States. A State may pass what in substance is a bankrupt law; that is, a law discharging a debtor from the payment of his debts, as well as one relieving him simply from imprisonment. There are, however, practical limitations to the power of the States growing out of restrictions in the United States Constitution. The full statement of these properly belongs to a treatise on constitutional law. They will be noticed here in a brief and summary manner. 6 (1) A State is restricted in this respect by the clause in the United States Constitution to the effect that "no State shall pass any law impairing the obligation of contracts." This prohibition prevents a State from making any material change in the effect of a contract by a subsequent law, and, of course, from discharging an obligation on any grounds that did not exist when the contract was made. This rule does not hinder a prior State law from affecting a subsequent contract, since in that case the law is assumed to enter into the contract. (2) Again, even though the law comply with the rule as above stated, yet it cannot affect contracts made between a citizen or a resident of the State, and a citizen or resident of another State, unless the foreign creditor chooses to submit to the jurisdiction of the court and allow his claim to be adjudicated upon. It has been strongly urged by the Massachusetts court that the rule would be 1 In re Burt and Towne, 12 Blatch. 252. 7 Baldwin v. Hale, 1 Wall. 223; Og den v. Saunders, 12 Wheat. 213, 358; Boyle v. Zacharie, 6 Pet. 348. 8 Scribner v. Fisher, 2 Gray, 43; but see Kelley v. Drury, 9 Allen, 27, where the doctrine of Baldwin v. Hale is adopted by the Mass. court. different if the contract were by stipulation of the parties to be performed in the State where the insolvent proceedings were pending. This view has not met with general recognition, and is discarded in other States,1 and has been repudiated by the Supreme Court of the United States.2 (a) The rule may be stated in a more general form. No State laws can discharge the obligations of any contracts made in the State, except those made between citizens of that State.3 Where an insolvent law simply acts on the remedies to be used in enforcing the contract, it may be retroactive, but this principle must not be pressed so far as to deprive the creditor of all efficient remedy. An instance is that of abolishing imprisonment for debt. If there be still remaining the ordinary remedies for collecting debts, the abolition will be upheld. The distinction between a right and a remedy assumes much importance in this branch of constitutional law. The rights of foreign assignees in bankruptcy or insolvency. When an assignee is appointed by a court of bankruptcy or insolvency in England, or perhaps in another State of the Union than the State where the assets are, the question arises how far will the courts of the latter State permit the foreign assignee to have control of these assets for the purposes of the bankruptcy. This is really a question of the so-called "comity of nations." There is no positive obligation, which can be enforced, imposed upon a nation to recognize the decrees or judgments of courts rendered elsewhere. There is, however, a practice or course of proceeding of that kind which prevails, unless there are countervailing reasons to the contrary, or some prohibitory statute. In applying this general principle to the particular instance now in hand, there has been great vacillation of judicial opinion. Some courts have reached the conclusion that the assignment under the bankrupt law of a particular State should pass a title to the property everywhere. Others have adopted the view that, while the foreign assignment should, as a rule, pass the title elsewhere, yet that this doctrine should be subordinate to the rights of domestic creditors. Others take a more limited view still, and deem the foreign assignment to have no extra-territorial effect. It is a local, domestic matter, and nothing more. 1 Donnelly v. Corbett, 7 N. Y. 500; Poe v. Duck, 5 Md. 1; Pugh v. Bussel, 2 Blackf. (Ind.) 394. 2 Baldwin v. Bank of Newbury, 1 (a) The doctrine of the United States Supreme Court in Baldwin v. Hale has been reiterated recently in Massachusetts. Wall. 234; Gilman v. Lockwood, 4 Id. 409. 8 Baldwin v. Hale, 1 Wall. 223. 4 Bronson v. Kinzie, 1 How. U. S. 311. Phoenix Nat. Bank v. Batcheller, 151 Mass. 589; Guernsey v. Wood, 130 Mass. 503. - A distinction must be taken between movables and immovables, a distinction recognized in all the theories. As to the title. to immovables, the law of the country where the property is situated is followed. The question as to the effect of a bankrupt or insolvent law upon this kind of property may, accordingly, be withdrawn from the discussion. The test as to whether a particular thing is an immovable or not, is the rule prevailing in the country where the thing in question happens to be. The first theory prevailing in England will be called the “English theory." The doctrines there prevailing may be briefly summed up as follows. There are two cases: First, where the bankrupt is domiciled in England or in the British dominions. Second, where he is not. The first is much the more common case. The fundamental principle underlying the whole subject is, that the movable property, including rights of action, by a fiction of law follows the person of the owner, and is, accordingly, with him where he may be domiciled. A transfer there must, necessarily, on this theory, dispose of the property wherever it may be situated. Accordingly, the English courts admit the title of foreign assignees appointed by the court of the debtor's domicile, when the property is situated in England.1 The rule is not to be extended so far as to pass to the assignee property in the foreign country which would not have passed to him had it been situated in the State or country where the bankruptcy proceedings took place. It follows from the general rule that the title of the foreign assignee would prevail over a gift made by the debtor, as well as over an attachment by a creditor in the State where the assets were.2 The English courts in enforcing these rules are met by the difficulty that they do not prevail universally elsewhere. They can only enforce them in cases where the assets, though situated out of England, are at some place within the British dominions. If beyond their jurisdiction, they may be affected by some foreign proceedings, and yet subsequently come within British control. In such a case the question will arise, how far will the English court recognize the foreign proceeding. The rule there appears to be, that while it will not recognize a voluntary payment by a debtor, it will uphold one collected by legal process. This last statement is an inference from a general rule that a title obtained by a foreign judgment from a court having jurisdiction, and there 1 Sill v. Worswick, 1 H. Bl. 665; It will be seen hereafter that this is not Jollet v. Deponthieu, Id. 132 (n). the prevailing rule in this country. 2 Solomons v. Ross, 1 H. Bl. 131 (n). |