Mr. MICHENER. Assuming that these matters should be going along, what would become of the bankruptcy proceeding in the meantime?

Mr. JACOB. The bankruptcy proceeding would be stopped.

Mr. MICHENER. And what would become of the bankruptcy proceedings in the meantime?

Mr. JACOBS. They would be stopped, because a confirmation of a composition works a dismissal of the proceeding. The bankruptcy proceeding ends by the decree confirming the composition. The property technically reposes in the bankrupt, and the bankruptcy proceedings end. That is the way that law stands to-day.

Now, by our amendment we say that if the bankrupt falls down on any of these notes, no matter of what duration, any creditor will be entitled then to come forward and file a petition to have the composition revoked, and, we say, why should not the creditors have that right? If this man can not pay his old obligations, he should be back in bankruptcy. He is in a position where he can not pay his bills, and it is time that the court come forward and seize his property and administer it for the benefit of the creditors.

Mr. MICHENER. How about after acquired property?

Mr. JACOBS. That is taken care of by the act, because under the provisions of section 60, all new indebtednesses are paid first. You have the same proposition to-day where you revoke a discharge, for instance, or revoke a composition because of fraud.

Suppose a man puts through a composition to-day. You have six months within which you can file a petition to revoke the composition because of fraud. Let us assume a man runs along for five months, and then some creditor comes forward and finds out that this bankrupt had concealed assets and, instead of making a settlement on the basis of 25 cents on the dollar he could have paid 100 cents on the dollar if he had not concealed these assets; that creditor can come forward and revoke the composition. The composition is then revoked, and the court then takes care of all this new indebtedness by paying it first. That is the way they work it out, and we are not asking any more than what the act gives us now except in this one instance. We give another remedy to creditors where the debtor has not carried out the terms of his composition. That is the only thing we ask. The procedure is exactly the same. We merely give an additional ground for this fraud in offsetting the composition. That is all. To-day you have to allege fraud.

Mr. HAYS. I am very much impressed with this. May I ask Mr. Jacobs a question?

Mr. MICHENER. Mr. Jacobs has the floor. If he desires he may yield for a question.

Mr. HAYS. Suppose a man had $10,000 worth of notes and failed to pay a note of $100. Would you then give that man owning the $100 note the right to throw the whole thing back?

Mr. JACOBS. I certainly would, because if the man could not pay $100, he is hopelessly insolvent and, if he could pay $100, the judge would very quickly say, "You pay the $100 note, otherwise I will revoke the composition," and if he paid the $100 I do not think a judge would go ahead very quickly.

Mr. HAYES. I thought of it in the aspect of possible conspiracy between the debtor and somebody else.

Mr. JACOBS. Might I say that, reading down further-I read what they say in the Mercus case, the argument in favor of the proposition that a composition is to be treated as at common law, that the true construction of the statute produces a result identical with that of the bankruptcy act of 1867. It is known to-day that at common law, where a debtor and his creditors agree to discharge the claim in consideration of a partial payment, the debtor would only discharge the part performance, and this was true whether the performance was to be in praesenti or in futuro. The transaction was a kind of satisfaction. If the satisfaction was absent, the original debt was revived, but the promissee could elect whether to sue on his original cause of action or under the contract.

This is pointed out admirably in the Beck case (185 Appellate division, N. Y., p. 643), where the court expressed the opinion in that that the doctrine was applicable to the bankruptcy composition under the act of 1898. That case held contrary to the court of appeals, but was overruled later by the court of appeals, so that case is not law. The composition not carried out in accordance to its terms revived the original debt under the act of 1867, though it would be more accurate to say that such incompleted composition never canceled nor barred the original debt. See in this connection Lansing. v. Gear, where Wallis, justice, says the creditor's debt is not discharged by the resolution only. It is discharged only when the terms of the composition are carried out.

That is under the act of 1867 as originally enacted. There was no composition arrangement; there could not be a composition under the act of 1867. In 1874 they passed an amendment whereby compositions, either before or after adjudication, could be prevented under that amendment. In 1874 the composition was put through by a resolution which was filed in court. There was no similar arrangement to what we have here, whereby the composition was confirmed, but they filed a resolution in court covering the money and the notes and whatever they had in court, and they worked the arrangement out exactly as they did in a common law composition, but the court never let go that case. The proceedings were not dismissed like they are under the present act. The court never let go that case until the notes were paid. If they were not, they could come back into court and revive the bankruptcy proceedings.

So that I consider that the features of the amendment of 1874 were much more drastic than what we are proposing here.

Mr. MICHENER. How is the outsider going to know when this man is through bankruptcy unless all these notes are brought into court and some record made of the notes paid?

Mr. JACOBS. He has a record by the decree confirming the composition of what he proposed in the way of the terms of the composition. The records of the United States district court will show just what this man's position was, whether it was wholly cash or cash and notes. If it was wholly cash, without notes, all the cash had to be put up before there could be a decree confirming the composition. If it were cash and notes, the terms of the notes are set forth right in the petition which applied for the composition. He offers. the composition of so much cash and so much in notes of certain dates, so the records in the United States courts show that perfectly,. what a man's indebtedness is.

The next section that we suggest an amendment of is section 14, which is the section in regard to discharge. That section reads to-day:

14-B-2. With intent to conceal his financial condition, destroy, conceal, or fail to keep books of account or records from which such condition might be ascertained.

Now, we suggest that section 2 be amended so as to read as follows: Or fail to keep books or records from which his financial condition might be ascertained or with intent to conceal his financial condition, falsify, mutilate, destroy, or conceal his books or records of accounts.

In other words, we are dropping out from the first part of section 2 the words, "with intent to conceal his financial condition." We are suggesting that unless a man keeps books of accounts or records he should be denied his discharge.

Mr. MICHENER. What is to be the standard?

Mr. JACOBS. Simply records. I am not claiming books-books or records, records from which his financial condition can be ascertained.

Mr. MICHENER. Of course, this question would not be pertinent when applied to big business concerns, but it would be when applied to the little grocer or the small dealer who keeps very crude books. Would you deny that man a discharge because, perchance, he had not employed a bookkeeper and kept a systematic set of books?

Mr. JACOBS. Not at all. I do not care if he keeps his records on a slate, as long as he keeps them.

Mr. MONTAGUE. Who is the judge of that record?

Mr. JACOBS. Any record from which you can ascertain the man's financial condition. My reason for this amendment is this: How can a man to-day honestly file an income-tax return unless he keeps a record of his receipts and expenditures? Since this act was originally passed, the policy of the Federal Government has completely changed. You have passed your income tax law since then.

Practically every civilized country on the globe to-day has a provision which requires the keeping of books; otherwise they make it a criminal offense, even in the Philippine Islands.

As long ago as 1889 Spain promulgated a code of commerce which applied not only to Spain itself but to her possessions, including Porto Rico and the Philippine Islands. This code of commerce had a provison in it which set forth in the greatest detail the books which should be kept, giving the names of the books and requiring these books to be taken to a district judge. When new books were opened, the name of the district judge was put on the front page and every page stamped, and that is virtually true to-day in England.

Now, the previous legislation we have had in bankruptcy in this country is provided under the act of 1867. Section 29 provided "or, it being a merchant or tradesman, he has not subsequently to the passage of this act kept proper books of account."

They put a standard in that act, which I am not suggesting here. They say proper books of account." And the act of 1867 says "if, since the passage of this act, he has destroyed or mutilated or altered or falsified any of his books, documents, papers, or writings, or made any false or fraudulent entry in any books of account or other account with intent to defraud his creditor."

Now, you take those two provisions together and they are stronger than what we are suggesting here. The provision which I spoke of, with reference to the code of commerce of Spain, was article 33 of the code of 1899, and they had under that code also insolvency proceedings whereby they split up insolvency into three kinds: First, accidental insolvency; second, culpable insolvency; and, third, fraudulent insolvency; and section 889 provided:

The following shall also be considered culpable bankrupts in law, reserving the exception which may propose and prove in order to show the innocence of the bankrupts who have not kept their books of account in the manner prescribed in title 3 of book 1.

It was a provision which made it a criminal offense for a tradesman not to keep accounts, and that is the law to-day of Porto Rico, one of the insular possessions of this country, and that is the law in the Philippine Islands to-day. Yet, we say that their civilization down there is not up to the standard of the States of the Union.

Now, further than that, I want to direct the attention of the committee to the English law. Section 4 states:

For the purposes of this section, the person shall be deemed not to have kept proper books of accounts if he has not kept such books as are necessary to exhibit his transactions or financial position in his trade or business, including the books containing entries from day to day, with sufficient detail of all cash received and cash paid; also accounts of all goods sold and purchased.

Now, that provision was inserted in the English law, and this English law is the law that was passed in 1883, which has the official receivers. It has many abuses. I have in my hand here a report which in my younger days I collected. I think that and this earlier report which I also have in my hand, which reports are on the act of 1869, which is similar to our present act, are the only two copies of those reports that there are now. This is a report made in 1908 to Lloyd-George by a committee which was appointed to investigate the bankruptcy act of 1883, which is at present in effect in England, and they had given hearings similar to those that this body has given here. This report, which I will be glad to leave with the committee, has many of the abuses set forth in it, and in it is discussed this question of books, and if you will look, beginning at paragraph 36, you will see the testimony that was given pro and con by eminent counsel, both in favor of having books and against having booksthat is, in favor of making it a crime.

They finally recommended in paragraph 48, and that has been since adopted, that the failure of a debtor who becomes bankrupt to have kept proper books of account within two years next preceding his bankruptcy in a trade or business carried on by him should be made by law an offense, punishable on conviction by imprisonment, subject to the following conditions and limitations then they go on to say the law should define what kinds of books.

Mr. MICHENER. For two years back?

Mr. JACOBS. Yes.

Mr. MICHENER. Your proposed amendment contemplates no limit.

Mr. JACOBS. That is true.

Mr. MONTAGUE. You do not impose a crime?

Mr. JACOBS. I do not.

Mr. MONTAGUE. You just prevent the discharge?

Mr. JACOBS. Exactly. I claim that when a man is trusted with goods or money, and he has failed to account for them, the burden is on him, and he must show what he has done with that merchandise or that money. The burden should not be put upon the creditor to prove fraud on the part of the fellow that had the money or the merchandise. He should properly account, and the creditor should not have the burden of delving into the bankrupt's affairs to prove fraud, and that is especially true to-day because of the fact that the man, in order to be an honest business man, must keep records in order to properly file an income-tax return.

The next section which we suggest an amendment to

Mr. MONTAGUE (interposing). What would you think of the suggestion of my colleague as to the advisability of the English statute, in going back more than two years?

Mr. JACOBS. I would suggest that perhaps it would be proper to go back at least two years or three years. I would say that I would leave it to the discretion of the court to say whether a man has kept proper records, or the necessary records in his business, by the records he produced. I would not expect that a man's discharge would be denied if the man had books and records and he had had a fire

and they were destroyed. He has an excuse. The court, in using its judgment, would say, "That man had records, but they are gone. That man, of course, would get his discharge. Again, if a man had kept fairly good records for a year previous to his bankruptcy, and he happened to have a book or two missing previous to the year, if not essentially a necessary book, and he gave a good reason for the fact that it was missing, I would not expect that man's discharge to be denied. I would expect the court to use some discretion in administering the commercial law here.

The next section we suggest an amendment to is section 14-A-3. That reads as follows now:

Obtained money or property on credit by making or publishing, or causing to be made or published, in any manner whatsoever, a materially false statement in writing, made by him to any person or his representative for the purpose of obtaining credit from such person.

We suggest changing it as follows:

Obtain money or property on credit by making or publishing or causing to be made or published in any manner whatsoever a materially false statement in writing.

Now, the reason for that amendment is that at the present time this act does not hit the case of a man who gives a statement to Dun's or Bradstreet's or any one of the agencies and a merchant supplies merchandise on the strength of a rating to that merchant. Some houses are able to get financial statements, some of the bigger houses, but the ordinary medium-sized merchant can not get direct statements from the debtors.

When this act was originally passed, there was inserted by the amendment of 1903 the words, or of being communicated to the trade." If that were in the act, it would be all right. It was in the act when it left the House, but those words were stricken out by the Senate and then the House concurred in the provision being stricken out of the bill and it was passed in that way. Very quickly there was legislation over that section, as to whether or not the