Pleasants v. Meng , 1 U.S. 380 ( 1788 )

1 U.S. 380 (1788) 1 Dall. 380

PLEASANTS
versus
MENG et al.

Supreme Court of United States.

SHIPPEN, President

This is an action brought by Samuel Pleasanis against John Meng, and three other persons, in which the Defendants have pleaded, that they are certificated bankrupts, and the Plaintiff has replied, that the certificates were unfairly obtained. If the plea had been drawn up at large, instead of being entered on the docquet, it must have been pursuant to the act of Assembly, "that the cause of action did accrue before such time as he became "a bankrupt;" and the certificate is made by the act only a matter of evidence.

The question, now to be decided is, whether, upon a trial at law, the creditor of a bankrupt may give evidence to controvert the trading, bankruptcy, and conformity? Or, whether the certificate is conclusive proof of all the proceedings before the Commissioners: And in this case it is fortunate that the act of Assembly nearly pursues the words of the statute of 5 Geo. 2. c. 30 for, the analogy of the law must greatly strengthen the application of the authorities, and facilitate the decision of the Court.

The clause, on which the argument arises, is thus expressed both in the English statute, and the act of Pennsylvania: "And, in "case such bankrupt shall afterwards be impleaded for any debt "due before he became a bankrupt, such bankrupt shall be discharged "upon common bail, and may plead in general, that the "cause of action did accrue before such time as he became a bankrupt; "and the certificate of such bankrupt's conforming and the "allowance thereof, shall be sufficient evidence of the trading, "bankruptcy, commission, and other proceedings precedent to the "obtaining such certificate, unless the Plaintiff can prove the said "certificate was obtained unfairly, or make appear any concealment "by such bankrupt to the value of Fifteen Pounds."

Certain it is, that from the 13 Eliz. c. 7. (at which time Commissioners of bankrupts were appointed in England) until the passing of the 5 Geo. 2. a period of about 200 years, there is no instance that ever the proceedings of the Commissioners, when called for, were not revised and corrected in the Courts of Law. By the statute 5 Geo. 1. c. 24. the bankrupt's certificate might be given in evidence, and was directed to be a full discharge of any action that should be brought by any creditor of such bankrupt; yet, it appears by the case in 1 Stra. 533. that it was still necessary to prove the act of bankruptcy, besides producing the certificate; because the words, such bankrupt, related to such person as was described in the statute. Under that statute, therefore, the certificate was so far from being conclusive evidence, that it was not sufficient, without other proof, to shew that he was an object of the act, by being a trader, and having committed an act of bankruptcy.

What then was the alteration introduced by the 5 Geo. 2. c. 30? It had been found very inconvenient to compel a bankrupt, as often as he was sued, to enter into a proof of all the circumstances which had already been proved before the Commissioners: This statute, therefore, enacted, that "the certificate should be sufficient evidence of the trading, bankruptcy, commission, &c." and here, ex vi termini, we must infer that this was not the case before, as the word sufficient naturally respects what had been hitherto insufficient. The statute, however, does not declare, that the certificate shall be incontrovertible, or conclusive, evidence, but, in rendering it sufficient evidence of certain facts, which the Bankrupt was before under the necessity of establishing by specific proofs, it has merely transferred the burthen from him to the creditor, with whom it now lies to prove, according to the terms of our act of Assembly, that the certificate was unfairly obtained.

That the certificate was unfairly obtained, is, indeed, an expression attended with some ambiguity; but it must have respect to the subject matter, which was the trading, bankruptcy, commission, &c. And, if a man had not been a trader, or, if he had not committed an act of bankruptcy, it was unfair to grant him a certificate: — So that unfair is tantamount to illegal; holding equally with the converse of the proposition, that a certificate illegally must be unfairly, obtained.

If the Parliament of England intended to make so essential a change in the bankrupt system, as to leave the proceedings of the Commissioners without controul, or appeal, it would be strange that no stronger, no clearer expression, was employed for that purpose; and, if such was indeed their sense, it must appear still more strange, that the Courts of Law have been so far from understanding it, that in every case since the passing of the statute, they have permitted the same investigation which was before allowed. In Cowp. 823. it appears, that a Bankrupt, having obtained a certificate under a second Commission pending a former one, under which a certificate had been refused, an application was made for an Exoneretur to be entered on the bail-piece; but the Judges pronounced the second commission to be absolutely void, and discharged the rule to shew cause. Now, if the certificate were conclusive, this decision was illegal; for, the certificate is as much evidence of the commission, as of the trading and bankruptcy; and its validity was a question equally before the Commissioners, whose sanction it had received.

It is clear, therefore, in every view, from the words of the law and from judicial interpretations of its meaning, that the Legislature has only made the certificate evidence; and the nature of evidence necessarily implies an adverse right to controvert and repel. A foreign judgment is allowed to be prima facie evidence of a debt, and yet it was adjudged to be open to examination; for, as I have already hinted, although some kinds of evidence are stronger than other kinds, yet, in that respect, they are all placed on the same footing. Doug. 1.

But there is a general consideration, independent of the act of Assembly and the authorities; which is, that the matters determined by the Commissioners are certainly matters of law, arising from the facts; as, what avocation constitutes a trader, or what conduct amounts to an act of bankruptcy: Would it not then be a strained and unreasonable thing to suppose, that the Legislature has established a jurisdiction of this sort, competent to decide questions of the greatest magnitude in their operation, and yet, that there should be no appeal to examine its proceedings, no power to correct its errors! — We are happy, indeed, in knowing that our decisions, if erroneous, may be rectified in the Supreme Court; the adjudications of which are also liable to the ultimate scrutiny of the High Court of Errors and Appeals. And, I repeat, is it not absurd, therefore, to imagine, that the limitted jurisdiction of the Commissioners of Bankrupts is alone exempted from controul; or, that men, unskilled in jurisprudence, however upright in their general conduct, and intelligent in their particular arts and professions, should enjoy an absolute authority in the discussion and determination of every nice point of law, which is incident to the extensive and intricate investigations of the bankrupt system?

For these reasons, THE COURT are unanimously of opinion, that the evidence offered by the Plaintiff, ought to be received.

The case, upon the evidence, appeared to be this: — The Defendants, John Meng, William Goodwin, James Smith, and Robert Cumming, had been copartners in trade under the firm of John Meng and Co. On the 26th of April 1785, Goodwin alone, in the name of himself and his partners, executed an assignment of all their personal property to Curtis Clay et al. in trust for the benefit of the partnership creditors: And, on the 30th of the same month, he executed another assignment, in the same form, and for the same use, of all the real estate of the company. On the 25th of June following, a third assignment was executed by Meng, Goodwin, and Cummings, of all the real and personal estate of the partners to trustees, for the same use; at which time the Defendants were indebted to the Plaintiff (among others) and to Messrs. Rose and Dickens (who afterwards became the petitioning creditors) to a considerable amount. After these transactions, about the beginning of July, 1786, Meng opened a store in Philadelphia under the old firm of John Meng and Co. in which, however, the messenger of the company only found a small quantity of soap, and a bundle of paper money; but Cummings was gone to Georgia to collect debts under the direction of the assignees, and Goodwin and Smith resided and kept a store at Cooper's Ferry, in New-Jersey. On the 1st of August, 1786, a joint commission of bankrupts against all the four partners as traders by retail, issued upon the petition of Rose, who alone subscribed it in behalf of himself and his partner Dickens, having previously sworn that John Meng and Co.-were indebted to them on a bond bearing date the 8th of July, 1786; payable on the 15th of the same month; which bond, it was admitted, had been given for the precedent debt due at the time of the assignment of the 25th June, 1785. It was also agreed that Meng and Cummings had committed acts of bankruptcy; and, with respect to the other two partners, it appeared from the minutes of the Commissioners of bankrupts, that the Sheriff's Officer, having a Ca. Sa. against all four at the suit of Rose and Dickens, had made enquiries for Smith and Goodwin at the place where Meng kept his store in Philadelphia, and at the Ferry-house from which they usually crossed to New Jersey, but could not find them; that they had requested the Ferry-man to keep a boat in readiness for them, for fear of a writ being issued against them; that the Ferry-man, observing the approach of the Sheriff's Officer, gave them notice; that thereupon they concealed themselves in the Ferry-house, saying that they did not like to go to Gaol, but would be able to pay all their debts; and that soon afterwards they crossed the river to elude the pursuit of the officer.

On these facts, the Plaintiff's counsel contended, — 1st, That the debt of the petitioning creditor was not within the bankrupt law, which provides, that the debt, on which the commission issues, "shall have arisen upon a contract or transaction subsequent to the passing of the act." 3 State Laws 644. sect. 3. But here the bond could be given for no other purpose than to make the Defendants bankrupts; and, although it may extinguish, it cannot change the original nature of the debt. The doctrine of extinguishment at common law, is, indeed, more limitted than the adverse counsel will admit; for, although a security of a superior nature will alter the remedy, the debt itself remains. 6 Co. 44. T. Rep. 17. Barn. 81. 2 Stra. 1042. Cases Temp. Hard. 267. And the doctrine which applies in the last case to support the commission there, applies to prove the invalidity of the one at present in controversy. Besides, an act between obligor and obligee, that tends to the injury of other persons, the law deems a fraud, by which, so far, at least, it is vitiated and annulled, 1 Burr. 474. 3 Co. 80. The bond of the petitioning creditor therefore, taken in every point of view, was insufficient to found a commission; for, whether it was given without a consideration, or in consideration of a precedent debt, it is equally contrary to the act; and, if it is regarded as a fraudulent collusion between the petitioning creditor and the bankrupts, although it may be obligatory upon them, it is void as to a third person. — See Term. Rep. 406. Doug. 282.

2. The petition and affidavit of Rose alone, notwithstanding it is said to be on behalf of himself and his partner Dickens, was also irregular and illegal. There are, perhaps, no express decisions on this point; but, upon general principles, he who acts for another must shew his authority; and, in the case of partners, for a purpose of this nature, all must subscribe the petition, or delegate an express power to another for doing it in their name; a point already determined in this Court, in the case of Gerard v. Basse et al. ant. 119. This is not an act that can be in contemplation in the business of a partnership; and the reason is the stronger against allowing it, as a bond must be given by the petitioning creditor. 3 State Laws. 644. sect. 3.

3. But the commission itself has issued erroneously and illegally; for the Defendants were not partners at the time it issued; and a joint commission can only issue against partners. The assignment of the 25th of June, 1785, divested all their partnership stock, and, consequently, dissolved their joint connection; for, partnerships may be dissolved by tokens, &c. or, they necessarily cease with the objects of their institution. 1 Domat. lib. 1. tit. 8. par. 10 11. sect. 5. pa. 155. But, although there was no formal dissolution of the partnership, it is clear that the second trading was merely colourable, for the purposes of a bankruptcy; and they are described to be traders by retail, which cannot relate to their former general partnership, but to the recent colourable trading. To carry on business after a man's effects are gone, is, in itself, a fraud. Co. B.L. 80. 81. 82. 1 Burr. 478. 2 Black Rep. 996 362.

4. In a joint commission, all the parties must have committed acts of bankruptcy. Co. B.L. 4. 1 Atk. 97. The certificate, therefore, can be of no avail, at least, as to Goodwin and Smith, who never committed acts of bankruptcy. In crossing the river, although they said it was to avoid an arrest, they were only returning to their home; and absconding, in order to constitute an act of bankruptcy, must be from the usual place of abode, where the party does business; which, in the present case, was in New Jersey, whither they retreated, and not in Pennsylvania, where the writ issued. In Co. B.L. 71. it is said, that, if a man flies from the State to which he belongs, this is an act of bankruptcy: but here the parties did not fly from, but to, their State, or home; and a denial, or keeping house, to bring a man within the act, must be at his own place of residence, not at the residence of another person. Ibid. 74. Nor can an act be made an act of bankruptcy by analogy; it must be such as is within the law; and there is no case where a stranger, in another State, has been deemed a bankrupt for returning to his home, in order to avoid an arrest where, probably, he could not obtain bail; or for a temporary concealment in another's house for the same reason.

The Counsel for the Defendant stated, that, if the present objections were successful, they would be equally fatal to almost every other certificate which had been granted under the act of Assembly; for, nine out of ten of the commissions of bankrupts had originated in the same manner, upon debts either revived by new securities, or created in concert for the occasion. They then contended — 1. That the original simple contract debt was merged in the bond, 6 Co. 44. that if both parties agree to bring the debt in this shape within the act, the proviso in the third sect. is satisfied; and that the bond was not taken after the bankruptcy, which distinguishes this from the case in Rep. Temp. Hard. 267.

2. That, on the second point, the act of one partner, is the act of all in commercial matters; that one partner may bring a suit at law for the joint debt, or hold the Defendant to bail upon his sole affidavit; and that the case of Gerard v. Basse et al. does not apply, as it did not turn upon a commercial transaction, but upon an instrument under seal, which can only bind the person that executes it.

3. That there was no dissolution of the partnership between the Defendants; that the store kept by Meng in Philadelphia, was evidently, from the testimony, a continuance of the old connection; and that the amount of the joint stock, whether large or small, could not affect the question. See 1 T. Jones. 141.

4. That all the Defendants were enquired for where they carried on their trade, at Meng's house; that Smith and Goodwin denied and concealed themselves at the Ferry-house, and expressly said, that they were going off to avoid the arrest; that an absconding out of the State, equally affects a stranger and an inhabitant; and that even a departure, with an intent to delay a creditor, is a sufficient act of bankruptcy. Sec 2 Stra. 809. Palm. 125. Co. B.L. 74.^[*]

The PRESIDENT, having again noticed the cause of action, and the state of the pleadings, proceeded in delivering the following charge to the Jury:

SHIPPEN, President.

A bankrupt law, in a trading country, must be productive of many benevolent and beneficial consequences. When an unfortunate trader has fairly and honestly surrendered all his property for the use of his creditors, the Legislature certainly intended, that he should be effectually discharged from all his debts and left at liberty to acquire new substance: and there are many instances in England, where, by this encouragement, bankrupts have been enabled, not only to extricate themselves and their families from the calamities that oppressed them, but to indulge an honorable disposition in paying those obligations, from which they were thus, by law, exonerated.

It has often happened, however, that, on the other hand, the bankrupt acts have been perverted to the iniquitous purposes of fraud and embezlement; and, therefore, it is requisite, that, on every occasion, the strictest scrutiny should take place. With this view, our act of Assembly, corresponding with the English statute, directs Commissioners to be appointed, who, having received the necessary proofs of the party's being a trader, and of the commission of an act of bankruptcy, are amply empowered to investigate the bankrupt's conduct, and to compel a disclosure and surrender of all his property; and, when that is satisfactorily done, they are authorized and required to grant him a certificate of his conformity to the law. In England, this certificate, (which, when fairly obtained, is a compleat discharge and release from all the former debts of the bankrupt) cannot be granted without the consent of four fifths in value of the creditors; but, in Pennsylvania, the granting it rests entirely with the Commissioners; and there is no check upon its operation, but that it must be first allowed by the President of the Supreme Executive Council, under the great Seal of the Commonwealth.

In the case under consideration, the Commissioners have granted, and the President has allowed, a certificate in favor of the Defendants; but four exceptions have been taken to the proceedings on which the certificate is founded, in order to maintain the Plaintiff's action, which is brought for the recovery of a debt contracted before the act of bankruptcy. The Court being of opinion that the evidence in support of these exceptions ought to be submitted to the Jury, it now only remains to consider, whether the exceptions themselves are sufficient, in law, to defeat the benefit which the Defendants claim from the certificate.

1. In the first place, it is said, that the debt of the petitioning creditors, was not such as warranted the issuing of the commission; for, it was contracted before the act of Assembly for the regulation of bankruptcy, although a bond of a subsequent date was given for it: And the Plaintiff's counsel have contended, that this relation between the bond and the former debt is sufficient to take the case out of the act. On the part of the Defendants, however, it is insisted, that the original debt was extinguished by the bond, which they alledge, is the creation of a new debt, so as to satisfy the proviso in the 3 sect. of the law.

The general doctrine of extinguishment is, at this day, well settled and understood. If a creditor upon a promissory note, or book account, accepts a bond for the amount from his debtor, this, being a security of a higher nature, extinguishes the first debt, and the creditor cannot afterwards sue upon the note, or account but must proceed for the recovery of his money upon the bond alone.

There is, however, no authority precisely in point to the question now agitated; but the determination in Cases temp. Hard. 267. is thought by the Plaintiff's counsel to be in a great degree analogous. On that occasion a bond had been taken after an act of bankruptcy, (of which the obligee had no notice) for a simple contract debt due before, and as any debt that accrues after an act of bankruptcy is not entitled to a dividend, the Chancellor there considered the debt as it originally stood, in order to give the benefit of it to a creditor, who would otherwise have been excluded, without any default on his part, from a distributive share of the bankrupts effects. This case, therefore, it is objected by the Defendant's counsel, must have depended upon the peculiar circumstances in which it was involved; and that this appears the more evidently, as Lord Hardwicke expressly says, that, between the parties themselves, the bond would operate as an extinguishment of the precedent debt. There can be no doubt, indeed, that many of the cases on this subject have been determined by the particular circumstances that attended them; for, we find, that a transaction of a similar nature with that just cited, but presented in a different point of view, was decided directly the other way. Term. Rep. 705. A bankrupt, after an act of bankruptcy committed, had given a bond with warrant to confess judgment to one of his creditors for a debt due before the act of bankruptcy: the judgment was entered and a Ca. Sa. issued. Afterwards the bankrupt obtained his certificate, and moved to be discharged from this execution, alledging that the cause of action arose prior to the act of bankruptcy; but the Court in this case decided, that the bond was an extinguishment of the old debt, and, accordingly, denied the motion.

But there are many reasons which might be urged to distinguish the present case from that determined by Lord Hardwicke. When the bond was given by the Defendants to Rose and Dickens, no act of bankruptcy had been committed; no dividend was to be claimed; no persons, but the parties themselves, were interested; and, as nothing appears to preclude the idea that this was a voluntary exchange of securities, certain it is, that after the acceptance of the bond, Rose and Dickens could never have recovered upon the original debt. In all these respects, therefore, there is a material difference between the authority cited, and the case in controversy; — a difference which seems strongly to support the argument of the Defendant's counsel, that the bond was an extinguishment of the preceding debt.

Even, however, if the law is doubtful, from the frequency of the practice of entering into voluntary bonds, for the very purpose of obtaining a commission, I should be unwilling to recommend it to the Jury, on that ground alone, to invalidate the certificate: And, therefore, as we have indeed no positive rule to guide us, but the whole rests on an implication arising from the cases, the Jury must decide for themselves. I will only add on this objection, that the Legislature probably introduced the proviso in the third section (with, I presume, a view particularly to foreigners) in order to evince, that it was not intended to abrogate all former contracts and obligations: And, as it is only the debt of the petitioning creditor that must be subsequent to the passing of the act (for, the commission having issued, all debts prior, as well as subsequent, are included) no great mischief can ensue from this restriction, or from the method which has been generally taken to bring the debt of the petitioning creditor within the words of the law.

2. The second objection is, that a petition subscribed by one of two partners, in the name of himself and partner, is not a legal ground for issuing a commission; and this is said to be supported by a decision of this Court, in the case of Gerard v. Basse et al. (ant. 119.) There can be no doubt of the legality of that decision. A bond is technically termed a deed; and the doctrine with respect to the efficacy of a deed, stands upon its own footing; none being bound by it, but the persons who actually execute it. In commercial matters, however, the act of one partner is the act of both; and, therefore, it is necessary to consider, whether the petition of a creditor to obtain a commission, is most like a deed, or a commercial act. It appears to me, indeed, to bear a strong resemblance to an action at law; and as one partner may institute a suit, and the oath of one will be sufficient to establish the debt on a question of bail, I cannot conceive any satisfactory reason, why more should be required for the purposes of the bankrupt law: and, therefore, in my opinion, this objection ought not to weigh with the Jury.

3. The third objection argues, that the partnership that subsisted between the Defendants, had been virtually dissolved by the general assignment of their property; and that, therefore, a joint commission could not issue against them. I have not had time to examine the authorities upon this point, but, I believe, the doctrine to be well founded, that there must be a subsisting partnership at the time a joint commission is taken out, and it seems also reasonable, to infer the dissolution of a partnership from an act, by which all its objects are alienated and transferred. The barely executing an assignment, however, of the stock in trade, if the joint transactions are not at an end, will not be an actual dissolution of the partnership; for, where there is no express agreement to make that dissolution, the assignment can only be considered as circumstantial evidence of it, which the Defendant is at liberty to repel by contrary proof.

Whether, therefore, the trading subsequent to the general assignment was fictitious, and merely for the purposes of a bankruptcy, as the Plaintiff contends; or, whether it was a continuance of the former copartnership, as the Defendants alledge, must depend upon the facts, on which it is the province of the Jury to decide. If they should think that the old partnership was dissolved, and no new one contracted, then there was not any legal origin for the joint commission; — to found a commission upon a fictitious partnership being certainly unfair. But, if, on the other hand, there was really a partnership between the Defendants at the time of their bankruptcy, neither the previous assignment of their effects, nor the smallness of the quantity of goods in their store (a matter only to be considered as circumstantial evidence of a fictitious trading) can have any effect upon the case to invalidate the commission, or to defeat the certificate.

4. The fourth objection is, that two of the Defendants, Goodwin and Smith, have not committed acts of bankruptcy; and, therefore, it is argued, that the verdict of the Jury must, at least, be against them. As these persons resided in New Jersey, it is said, in support of this objection, that Meng's store, or the Ferry-house, (at both which they were denied, and at the last place they concealed themselves from the Sheriff's officer) cannot be deemed their home, so as to satisfy the words of the act, in describing an act of bankruptcy, by "beginning to keep house;" of which the usual proof is certainly, a demand and denial. Under the decisions in England (and our law is subject to the same construction) a person who resides in a foreign country, trades to that kingdom, and afterwards goes thither, is clearly within the statute. It is true, that, considering the mere phrase, it seems absurd to fay, that a man keeps his house, who has, in fact, no house to keep, and yet there is a case expressly to that point, where a man, having no home of his own, was held to have committed an act of bankruptcy by keeping house in the dwelling of another.

But the Defendants counsel have controverted this objection upon the ground of a departure out of the State; which, they say, applies as well to a stranger as an inhabitant; while, in behalf of the Plaintiff, it is contended, that, as the only proof of a departure by Goodwin and Smith, is that of going to their own house in New Jersey, this cannot, upon principle or precedent, be construed into an act of bankruptcy. From the evidence, it appears, that a writ had issued against the four Defendants, of which all of them had notice; two of them, it is agreed, committed acts of bankruptcy, and the other two, being enquired for at the store of Meng, and also at the Ferry-house, where they had ordered a boat to be ready, for the express purpose of avoiding an arrest, did actually quit the State upon hearing that the Sheriff's officer was in pursuit of them. This conduct, in the common cases of a resident, would, undoubtedly, amount to an act of bankruptcy; for, it has often been determined, that, if a man goes from home but a day, in order to delay or defraud his creditor, it is sufficient to bring him within the statute. Whether, however, the flight of a stranger to his own home in another State, is such a departure as the law intends, the cases have left in great obscurity; for the only principle ascertained by them, is, that the departure must be with a view to delay or defraud; and the act of Parliament itself contains no distinction of the nature now contended for. On so doubtful a point, therefore, the Court would rather, at this time, leave the decision at large to the Jury, than venture a positive opinion.

Such then are the objections on which the Plaintiff insists that his action is maintainable; and, if, upon the whole, the Jury think he has proved (as it is incumbent upon him to do) that the certificate has been unfairly obtained; either because the commission ought not to have issued, or that the certificate ought not to have been granted, their verdict must be in his favor. But, if, on the contrary, there has been no illegal or unfair methods pursued by the Defendants to obtain their certificate, they are discharged from the Plaintiff's demand, and the verdict must be for them.

After staying out some time, the Jury returned to the bar, and declared that they could not agree in a verdict; whereupon they were dismissed by consent of the parties, and a Venire factas de novo awarded.^[*]

NOTES

[*] My absence from Court during a great part of the defence, unfortunately prevents my stating it more at large. What is here published is principally taken from the arguments of Mr. Fisher.

[*] I have been informed by Mr. Ingersol, one of the Plaintiff's counsel, that his Client, acting on this occasion upon motives of public spirit, was satisfied with having obtained the opinion of the Court in favor of the right to investigate the proceedings before the Commissioners of bankrupts, &c. upon a trial at law; and that, therefore, probably, this action would never be prosecuted further.