Thatcher v. Rockwell , 4 Colo. 375 ( 1878 )

Thatcher, C. J.

The appellants here were defendants in the court below. One of the principal questions presented by the record in this case concerns the plea of puis darrein continuance, and the evidence introduced under the issue* formed by the plaintiff’s replication thereto, and the defendants’ rejoinder to such replication. By this plea it was set up that plaintiff had been adjudged a bankrupt (since the last continuance of the cause) in United States district court of the southern district of the State of Illinois, the appointment and qualification of one Fisher as his assignee in bankruptcy; that the register in bankruptcy made, executed and delivered to the said assignee an instrument in writing, conveying to him “ all the estate,-real and personal, together with all books, deeds, and papers relating thereto, of the said plaintiff,” and that said assignment was recorded in the office of recorder of- deeds of said Gilpin county, September 18, 1876, “whereby the said assignee became and is vested with the title to all the property and estate of the said plaintiff for the use and benefit of the plaintiff s creditors, and that the said plaintiff became divested of all title to said property, including the claim in controversy.” Defendants then pray judgment if the said plaintiff sought further to have or maintain his action. To this plea a demurrer was interposed and overruled. The plaintiff then replied confessing the adjudication in bankruptcy, the appointment and qualification of the assignee, and the conveyance by'register, and the record of such conveyance, but denies that the claim in controversy passed to the assignee ; alleges that the plaintiff, for a valuable consideration, assigned in writing in November, A. D. 1875, to Lewis C. Rockwell, one-half of said claim, and to Kate Rockwell, at about the same time the other half of said claim ; that defendants were duly notified of such assignment; that said assignment was well known to the assignee in bankruptcy ever since the appointment; that by reason of the premises the said plaintiff ceased to have any right or interest in and to the said claim or suit, except to prosecute the same for the use and benefit of Lewis C. Rockwell and Kate Rockwell.” A rejoinder was filed denying the material allegations in said replication.

Ordinarily the plea of puis darrein continuance is a waiver of all the former pleas. It is a substitute for, and a retraction of all others upon which no proceedings are afterward had. Gould’s Plead., ch. 6, § 122 et seq.; Steven’s Plead., 'p. 98.

In this case, however, by leave or court, on motion of the defendants, the plea of puis darrein continuance was filed not as a substitute, but as a supplemental plea, and as such it was treated at the trial and in all the subsequent proceedings, without objection on part of plaintiff. Its effect was not, therefore, in this instance to waive the other plea.

Was the suit maintainable in a State court ? Doubtless in a direct proceeding or matter in bankruptcy the jurisdiction of the circuit and district courts of the United States is exclusive. R. S., U. S., § 711. The State courts are in no proper sense courts of bankruptcy, nor can the suit before .us be considered as a proceeding in bankruptcy, even after Rockwell was adjudged a bankrupt. It is an independent suit, and although in a certain aspect its prosecution might be said to be in aid of the bankruptcy proceeding, it is entirely distinct from it. Wiswall et al. v. Campbell et al., 3 Otto, 348. As it is no part of the bankruptcy proceeding, it cannot be said that the section of the Revised Statutes cited supra, which provides that the jurisdiction of the courts of the United States of all matters and proceedings in bankruptcy shall be exclusive of the courts of the several States, operates to divest the State courts of jurisdiction in independent suits by or against the assignee. Unless by express words or necessary implication the State courts are, by the act, divested of jurisdiction in these independent suits, they have authority to' hear and determine them. The jurisdiction of a State court is based upon the Constitution and laws of the State, and not upon an act of Congress. The right is given by an act of Congress, and may be protected by either the State or Federal courts. Their jurisdiction in this respect, within constitutional and statutory limits, is concurrent. To this effect have been the decisions construing the Bankruptcy Act, before the adoption of the Revised Statutes. Cook v. Whipple, 55 N. Y. 150 ; Eyster v. Gaff 1 Otto, 521; Claflin v. Houseman, assignee, 3 id. 130.

Considering this suit an ihdepéndent proceeding' (Wiswall at al. v. Campbell et al., supra) we find nothing in the Revised Statutes or subsequent legislation which, in our opinion, affects in any way the jurisdiction of State courts over actions pending in the name of the bankrupt before he was adjudicated to be such.

The decisions of the State courts are conflicting as to the true construction of section two of the act of June 22,1874, amendatory of the Bankrupt Act of 1867, which reads as follows:

“That section one of said act be, and it is hereby am ended by adding thereto the following words: ‘ Provided, that the court having charge of the estate of any bankrupt may direct that any of the legal assets or debts of the bankrupt, as contra-distinguished from equitable demands, shall, when such debt does not exceed five hundred dollars, be collected in the courts of the State where such bankrupt resides, having jurisdiction of claims of such nature and amount.’ ”

If, when W. B. Rockwell was adjudicated a bankrupt, he had any interest in the claim in suit, if he was not at that time a mere naked trustee, the beneficial interest in the chose in action having been bona fide transferred long prior thereto to others, under some of the authorities, the suit could not be prosecuted in the State courts under the section just quoted, either in the name of the bankrupt or of the assignee. In. Olcott, Assignee, v. McLean et ad., 16 Bankruptcy R. 80, the court (supreme court of New York, first department) held that the effect of this provision was to limit the jurisdiction of the State courts to the class of actions therein named ; that Congress by providing that the collection of debts, not exceeding in amount the sum of five hundred dollars, might be allowed to be prosecuted in courts of the State where the bankrupt resides, having jurisdiction of claims of such nature and amount, intended, and by necessary implication declared, that the State courts should be limited and restricted to that class of cases arising under the provisions of the bankruptcy law; that by this amendment the State courts were deprived of all other authority than that mentioned in it, over actions of this description, and that there was no saving provision in the Revised Statutes which prevented it from including pending actions. The doctrine of this case was re-announced by Judge Hallett, in Halleck et at. v. Tritch, Assignee, reported Chicago Legal News, March 30, 1878 ; but the opinion of the learned judge in that case was obiter, as the amount in controversy was within the jurisdiction of the court, even under said section two. We cannot yield our assent to this construction of the statute. It was not, within the reasonable interpretation of the language employed, the intention of Congress to either confer or abridge the jurisdiction of the State courts. Their attention was evidently directed to the accumulation of cases in the Federal courts of original jurisdiction, in which the amount in controversy was comparatively small, but which they were bound to hear and determine. Before the amendment they were powerless to order that' debts of the class named should be collected in the State courts. By the amendment they are authorized to refuse to entertain actions at common law of the class described in the amendment, and to direct that they shall be brought in the courts of the State, where the bankrupt resides, having jurisdiction of claims of such nature and amount. Goodrich v. Wilson, 119 Mass. 434.

We are, therefore, of opinion that the State court was ■not ousted of its jurisdiction by the bankruptcy of W. B. Rockwell. If, as averred in the replication to the plea of puis darrein continuance, the plaintiff had bona fide long before Ms bankruptcy, parted with all Ms interest in the chose in action, clearly the assignee would have no property or right of property in the pending suit, belonging to the .bankrupt at the date of the assignment. Such a chose in action would not pass to the assignee. The bankrupt would stand in the light of a naked trustee. In him would 'be the legal title only, without any beneficial' interest that could inure to the creditors. In such case the assignee in bankruptcy, not being interested as trustee for the creditors, has no duty to perform, and the action is properly brought and prosecuted in the name of the bankrupt. Carpenter et al. v. Marnel, 3 Bos. & Pul. 40 ; Hynson v. Burton, 5 Ark. 494; Blin v. Pierce, 20 Vt. 25. May not an action brought before the commencement of bankruptcy proceedings thereafter be prosecuted in the name of the bankrupt (the assignee not seeking to be substituted) even- though the judgment obtained should inure in part or exclusively to the benefit of the bankrupt’s creditors ? If this question be resolved in the affirmative, the issue as to whether W. B. Rockwell had transferred his interest in the suit to others-is immaterial, and the evidence and instructions thereunder need not be considered.

Section 5047 of U. S. R. S. provides: “If at the time of the commencement of the proceedings in bankruptcy, an action is pending in the name of a debtor for the recovery of a debt or other thing which might or ought to pass to the assignee by the assignment, the assignee shall, if Tie requires it, be admitted to prosecute the action in his own name, in like manner and with like effect as if it had originally been commenced by him.”

This provision applies exclusively to pending actions. The idea that such actions should abate by reason of the bankruptcy is here clearly negatived. “It is a mistake,” says the supreme court of the United States in Eyster v. Gaff et al., 3 Otto, 524, “to suppose that the bankrupt law avoids of its own force all judicial proceedings in the State or other courts the instant one of the parties is adjudged a bankrupt. There is nothing in the act which sanctions such a proposition.”

It seems to be contemplated that the assignee may permit the action to be prosecuted to judgment in the name of the bankrupt, or, if he so elects, he may have himself substituted for the bankrupt. It is only where the assignee requires it that the act declares he shall be admitted to prosecute the action in his own name. It is not in the power of the defendants to compel the assignee to substitute his name for that of the bankrupt. Here the assignee, neither by petition or otherwise, sought to be made a party or to take part in the case. The bankrupt was in any view only a nominal plaintiff and payment to a nominal plaintiff by the judgment defendant, with notice, actual or constructive, that he was not the real party in interest, would not satisfy the judgment. The defendants are not prejudiced by the failure of the assignee to have himself substituted for the bankrupt. They were deprived of no ground of defense that would have been open to them, had the action been prosecuted in the assignee’s name. Foster v. Wylie, 60 Me. 109 : Southern Express Co. v. Connor, 49 Ga. 417.

We are, therefore, drawn to the conclusion, that whether the alleged assignment of the chose in action, one-half to L. C. Rockwell, and the other half to Kate Rockwell, was valid or void, the action was well enough prosecuted to judgment in the name of the bankrupt plaintiff, the assignee in bankruptcy having a knowledge of the existence of the claim and of its prior alleged assignment .to others. The defendants can, if in doubt, take proper steps to determine to whom the judgment shall be paid.

The evidence upon which the plaintiff bases his original right to recover is substantially uncontradicted. Watson B. Rockwell was a member of the firm of Cash, Rockwell & Co. The firm owned and operated certain reduction works in Gilpin county during the year 1870, and a portion of the year 1871. They kept their bank account with the defendants, who were doing business under the style of Thatcher, Standley & Co., June 12, 1871. Defendants held two notes, executed by Cash, Rockwell & Co., each for $5,000, the payment of which notes was secured by a deed of trust on the reduction works of Cash, Rockwell & Co.

A week later, Robert Cash, a member of the firm, out of the proceeds of the sale of firm property, liquidated said notes and all accounts which the defendants had or held against Cash, Rockwell & Co. The defendants gave their receipt to Cash in full of all demands against the firm. Mr. Cash was the managing partner. Plaintiff spent most of his time abroad and was not familiar with the business affairs of the firm. He had not been apprised by Mr. Cash that the bank indebtedness had been paid. With an adroitness worthy of a better cause, and for a purpose which subsequent events make apparent, Joseph A. Thatcher, in July, 1872, more than a .year after Robert Cash had paid the amount of the notes to the bank, wrote to the plaintiff, then being in New York, a fictitious statement of the bank’s, account with Cash, Rockwell & Co., and not only carefully concealed the fact of the payment of the firm indebtedness to the bank, but importunately demanded payment of the plaintiff. Before that time, April 4, 1872, he had written to plaintiff at Cairo, Illinois, urging him to stir Cash up “ and to pay some part of the claim.” He had also written to Giddings, who was acting in some matters as plaintiff’s agent, making the same misrepresentations to him. By such subterfuges and false pretenses, Joseph A. Thatcher induced plaintiff to pay $2,820.93 to be applied upon the two notes. By his subsequent correspondence with Giddings, he refers to the two unpaid notes, and endeavors to have him induce plaintiff to make another payment. There is no attempt to deny that the money whose recovery back is sought by the plaintiff was obtained by the bank from him illegally. There is no attempt to justify the tergiversations of Joseph A. Thatcher. The fact stands out in bold relief and uncontroverted that by fraudulent means he came into possession of the money. That upon the plaintiff’s evidence he is entitled to recover it back with legal interest,- there can be no shadow of doubt, unless the defendants interpose a good defense.

Under their pleas they introduced evidence tending to show that they were authorized to apply the money remitted on a certain other note. A Mr. Whiting, residing in Central City, kept an account with the banking firm of Hussey & Co., in the name of “ William A. Whiting, agent.” Thatcher testifies that plaintiff appeared to be interested in that account.

In November, 1867, plaintiff and Whiting called at the bank to look over the account. It was claimed that Whiting, without authority, had drawn from thatacc ount about $3,000 for his own use. For this sum, Hussey & Co. took the note of Whiting, and credited the account of “ Whiting, agent.” Thatcher testifies that the inducement to accept Whiting’s note was the assurance of plaintiff that he would pay the note out of the proceeds of the sale of certain real and personal property that had been “ turned over to him by Whiting.” There was no written agreement to assume the debt. The evidence is widely conflicting as to whether the sale to Rockwell was absolute or only in trust, for the payment of certain debts. The Whiting note subsequently became the property of either Thatcher or Thatcher & Standley. Thatcher applied the money, which he had so dexterously obtained from plaintiff, on the Whiting note, but concealed that fact from plaintiff until September or October, 1874. Then, for the first time, Thatcher apprised plaintiff of the ruse he had adopted to secure partial payment of the Whiting note ; that all his letters to him (R.) touching the indebtedness of Cash, Rockwell & Co. were untruthful; that said notes had been, paid more than three years before; that he had at once, in fact, applied the money received from him on the Whiting note ; and had for a purpose never canceled the Cash, Rockwell & Co. notes.

This unexpected revelation naturally took the plaintiff by surprise, and after hearing Thatcher recount the whole transaction, and when he handed out the Whiting note to show the plaintiff that he had indorsed thereon a credit of $2,820:93, the plaintiff simply responded, “ I see.”

May 22, 1875, from Central City, plaintiff wrote to Thatcher as follows:

“ Central Citt, Col., May 22,1875.

Whatever disposition I might have to pay Mr. Whiting’s debts, were I in different circumstances, my present financial condition is such that I cannot consent that you should apply the amount I paid you upon the Cash & R. notes, to the payment of your claim against the estate of Mr. Whiting, and I must now ask that amount with interest thereon at the rate of 18 per cent per annum.”

The appellants do not-seek a reversal of the judgment on the ground that it is unsupported by evidence, but they complain of the admission of improper evidence, and assign for error the giving and refusing certain instructions. It is unnecessary to discuss the question as to whether Kate Rockwell, the wife of the plaintiff, was a competent witness, as in our view ofthe case, as we have already endeavored to show, the issue to which her testimony was directed was immaterial.

The giving of the following instruction is assigned for error:

“ The court instructs the jury that if they believe from the evidence that Rockwell, or Giddings for Rockwell,' was induced to pay, and did pay into Thatcher, Standley & Co., on February 11, 1873, a sum of money to apply on Rockwell’s portion of the Cash, Rockwell & Co. notes, upon representations of Thatcher, that such notes had not been paid, when in fact, such notes had been paid, and he (Thatcher) knew that fact; and if you believe that when he made these representations he knew them to be false and untrue, and Rockwell, Giddings, and Mrs. Rockwell had reason to believe such statements and representations of Thatcher to be true, and relied and acted thereon. If you find these to be the facts from the evidence, Thatcher was guilty of practicing a fraud upon them, and the plaintiff can now recover from defendants the money thus paid, with interest thereon at the rate of ten per cent per annum from the day of payment until now.”

The chief objection urged to this instruction is, that it rests the plaintiff’s right to recover upon proof of the fraud practiced by the bank in procuring possession of the money, and entirely ignores the question of set-off as claimed by defendants. This objection would be valid if the jury had not also been instructed upon the question of set-off. Reading this instruction in connection with instruction number five it will be discovered that the jury were properly charged as to the defense of set-off. In construing a charge, each instruction is to be considered in connection with the entire charge, and if considering it as a whole, this court is satisfied that the jury was not improperly advised as to any material point in the case, the judgment should not be reversed on the ground of an erroneous charge. Union Gold Mining Co. v. Rocky Mt. Nat. Bank, 2 Col. 565.

The instruction “ that if Thatcher was the owner of the Whiting note at the time of the commencement of this suit, it was no defense to this suit if you believe from the evidence that Rockwell is liable to Thatcher for the amount of the note, unless the plaintiff subsequently to the application of the money on the Whiting note assented thereto, ratified the application of the same,” tended in no way to mislead the jury to the prejudice of the defendants. The evidence as to whether Thatcher individually, or Thatcher and Standley owned the Whiting note is somewhat conflicting. The instruction but asserts the general doctrine that there can be no set-off where the claims are not mutual, that a separate demand cannot be set off against a joint demand. Burgwin et al. v. Babcock et al., 11 Ill. 28.

The instruction that mere silence on Rockwell’s part, when notified by Thatcher of the application of the money, will not amount to a ratification of Thatcher’s unauthorized acts in such application; that there must be some affirmance of the act to bind Rockwell, was, we think, warranted by the evidence. Thatcher having illegally obtained possession of the money by an artifice, it ought not to be said that because Rockwell elected to enforce his rights through the courts rather than to make a fruitless demand of Thatcher at the very time the fraud was made known to him, he was estopped by his silence and temporary inaction to deny a ratification of Thatcher’s act in unlawfully appropriating, his (Rockwell’s) money. It is, however, in evidence, as we have seen, that, before bringing the suit, Rockwell, by letter, demanded the return of the money. We should, even had there been no such letter, hesitate to announce the doctrine that the jury would be at liberty to infer that mere temporary silence, under the circumstances detailed, would amount to a ratification.

Although the twelfth instruction is somewhat loosely worded, the jury, we think, could not fail to understand it. It recognizes the rule that an agreement, if it be not collateral, but in the nature of an original agreement to pay the debt of another, founded on a sufficient consideration received by the promisor himself, is not within the provisions of the statute, and, therefore, need not be in writing; but if the agreement to answer for the debt of another be wholly collateral, it must be in writing.

Discovering no error in the record that would warrant a reversal of the cause, the judgment of the court below is

Affirmed.