This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Various state bankrupt laws have been enacted which provide for granting discharges. These state bankrupt acts lack efficiency for several reasons. (1) The discharges granted by a state bankrupt court can have no extra-territorial effect.1
1 Art. I., Sec. 8, paragraph 4.
2 In Hanover National Bank v. Moyses, 186 U. S. 181, Fuller, C. J., gave the following list of Federal bankrupt acts as in force prior to the act of 189S: Act of 1800, 2 Stat. 19, C. 19. Repealed 1803, 2 Stat. 248. C. 6. Act of 1841, 5 Stat. 440, C. 9. Repealed 1843, 5 Stat. 614, C. 842. Act 1867, 14 Stat. 517.
C. 176. Repealed 1878, 20 Stat. 99, C. 160.
3 Hanover National Bank v. Moyses, 186 U. S. 181.
4 Hanover National Bank v. Moyses, 186 U. S. 181.
1 Brown v. Smart, 145 U. S. 454; Denny v. Bennett, 128 U. S. 489; Cook v. Moffat, 5 How. (U. S.) 295; Baldwin v. Hale. 1 Wall. (U. S.)
Hence, a creditor domiciled outside of the state which grants such discharge, who does not participate in the proceedings in bankruptcy is in no way affected by such discharge.2 This rule applies even to contracts made in the state where the discharge was given and to be performed there, as long as the creditor is actually domiciled in another state.3 It applies to a foreign corporation doing business in the state which grants the discharge, even if such corporation has appointed an agent in such state on whom service can be made.4 It applies even where a non-resident individual has been doing business in the state under a name that suggests a domestic corporation.5 It applies to a partnership, one member of which is a non-resident.6 It applies to a contract entered into with a non-resident through an agent who is a resident.7 It applies to a debt due to a resident which is in good faith transferred to a non-resident before insolvency proceedings are begun.8 Thus a citizen of Massachusetts made a note payable to himself at Boston and then indorsed it to a citizen of Vermont. Such note was not barred by a discharge granted in Massachusetts.9 A claim assigned by a non-resident to a resident of the state in which insolvency proceedings are instituted is barred by such discharge,10 even if such assignment is merely to facilitate collection.11 If a discharge granted by a state court of insolvency, is valid when granted, it may be interposed as a defense to an action in another state upon the same debt. Thus a discharge granted in one state and barring debts due to another citizen of the same state may be interposed as a defense in a subsequent action in another state.12 A non-resident creditor may, however, take part in the insolvency proceedings, and thereby so submit himself to the jurisdiction of the court of the other state that a discharge will be binding upon him.13 He may take part in the proceedings so as to have this result by proving his claim,14 or by accepting a dividend.15 (2) Discharges under state bankrupt acts cannot affect debts contracted before the passage of the state act,10 even if the state act specifically provides for such discharge, since no state can pass any law impairing the obligation of contracts. (3) State bankrupt and insolvent laws are suspended by the passage of a Federal bankrupt act.17 Proceedings under a state law after the passage of the United States act of 1898 are unauthorized.18 An assignment for the benefit of creditors, made after the passage of a Federal bankrupt act, is valid except on attack by the trustee in bankruptcy ;19 and a creditor who has assented to the assignment cannot attack its validity.20 The Act of 1898 provides "Proceedings commenced under state insolvency laws before the passage of this act shall not be affected by it."21
223; Ogden v. Saunders, 12 Wheat. (U. S.) 213; Bean v. Loryea, 81 Cal. 151; 22 Pac. 513; Hawley v. Hunt, 27 la. 303; 1 Am. .Rep. 273; Pratt v. Chase, 44 N. Y. 597; 4 Am. Pep. 718; Roberts v. Atherton, 60 Vt. 563; 6 Am. St. Rep. 133; 15 Atl. 1W.
2 Ogden v. Saunders. 12 Wheat. (U. S.) 213; Baldwin v. Hale, 1
Wall. (U. S.) 223; Gilman v. Lock-wood, 4 Wall. (U. S.) 409; Denny v. Bennett, 128 U. S. 489; Security, etc., Co. v. Rogers, 6 Ida. 526; 57 Pac. 316; Swift v. Winchester, 96 Me. 480; 90 Am. St. Rep. 414; 52 Atl. 1017; Haman v. Brennan, 170 Mass. 405; 49 N. E. 655; Pattee v. Paige, 163 Mass. 352; 47 Am. St. Rep. 459; 28 L. R. A. 451; 40 N. E. 108; Wilson v. Keels, 54 S. C. 545; 71 Am. St. Rep. 816; 32 S. E. 702.
3 Baldwin v. Hale, 1 Wall. (U.
S.) 223; Easterly v. Goodwin, 35 Conn. 279; 95 Am. Dec. 237; Pullen v. Hillman, 84 Me. 129; 30 Am. St. Rep. 340; 24 Atl. 795; Tebbetts v. Pickering, 5 Cush. (Mass.) 83; 51 Am. Dec. 48; Bedell v. Scruton, 54 Vt. 493.
4 Hammond, etc., Co. v. Best, 91 Me. 431; 42 L. R. A. 528; 40 Atl. 338; Bergner, etc.. Co. v. Dreyfus, 172 Mass. 154; 70 Am. St. Pep. 251; 51 N. E. 531.
5 Swift v. Winchester, 96 Me. 480: 90 Am. St. Rep. 414; 52 Atl. 1017. (Swift did business in Maine under the name of the Bangor Beef Co.)
6 Chase v. Henry. 166 Mass. 577; 55 Am. St. Rep. 423; 44 X. E. 988.
7 Regina Flour Mill Co. v. Holmes, 156 Mass. 11; 30 X. E. 176.
8 Baldwin v. Hale. 1 Wall. (U. S.) 223: Feleh v. Bugbee, 48 Me, 9; 77 Am. Dec. 203.
9 Baldwin v. Hale, 1 Wall. (U. S.) 223.
10 Wheelock v. Leonard, 20 Pa. St. 440.
11 Where the claim is reduced to judgment in such state by such assignee in his own name. French v. Robinson, 86 Me. 142; 41 Am. St. Rep. 533; 29 Atl. 960.
12 Discharge in Maryland: suit in Ohio. Smith v. Parsons, 1 Ohio 236; 13 Am. Dec. 608. Discharge in New York: suit in Ohio. Bank v. Card, 7 Ohio, Part IT., 170.
13 Baldwin v. Hale, 1 Wall. (U. S.) 223; Lowenberg v. Levine, 93 Cal. 215; 16 L. R. A. 159; 28 Pac. 941; Murray v. Roberts. 150 Mass. 353; 15 Am. St. Rep. 209; 6 L. P. A. 346; 23 N. E. 208.
14 Clay v. Smith, 3 Pet. (U. S.) 411.
15 Clay v. Smith, 3 Pet. (U. S.) 411; Murray v. Roberts, 150 Mass. 353; 15 Am. St. Rep. 209; 6 L. R. A. 346; 23 N. E. 208. (Writ of error dismissed in 150 U. S. 361, on the ground that no Federal question was involved.)
16 Ogden v. Saunders, 12 Wheat. (U. S.) 213; Mechanics' Bank v. Smith, 6 Wheat. (U. S.) 131: Sturges v. Crowninshield, 4 Wheat. (U. S.) 122; Schwartz v. Drink-water, 70 Me. 409; Mather v. Bush, 16 Johns. (N. Y.) 233; 8 Am. Dec. 313; Elton v. O'Connor, 6N.D.1; 33 L. R. A. 524; 68 N. W. 84.
17 Tua v. Carriere. 117 U. S. 201; Sturges v. Crowninshield, 4 Wheat.