Brighton Market Bank v. Merick

11 Mich. 405, 1863 Mich. LEXIS 40

• Court: Michigan Supreme Court
• Decided: May 30, 1863
• Status: Published

Opinion

Campbell J.:

This suit was brought by plaintiff, a corporation of Massachusetts, against defendants, upon a promissory note made by them in New York, while citizens of that State, to the order of J. H. Mack & Co., who were also citizens of New York, payable at a bank in New York, and indorsed to plaintiff before maturity. Defendant, Eldridge G-. Mer•ick, who is the only party served with process, sets up in bar of the action a discharge under the insolvent laws •of New York, releasing him from' his debts. These laws were in existence when the note was made; and the proceedings were regular, or are so to be regarded in this action.

There is therefore but one point presented for our consideration, which is, whether the discharge is operative -upon the rights of the plaintiff.

The first question to be determined is, whether the plaintiff, by the indorsement, becomes a party .to the contract with the maker, in such a way that an agreement •can be alleged between maker and indorsee, to pay the latter the amount of the note in controversy. This is ■a well settled and elementary principle. The maker promises to pay to any one who may become the lawful holder in the way prescribed by the law. The liability is direct and unqualified. As the question only assumes importance when viewed in connection with certain principles of the insolvent law, it will be sufficient to refer to such cases as hold that, for all purposes within the rules applicable to insolvent discharges, as affecting non-residents, the rights of an indorsee are the same as if he had been named as payee in the note. If the discharge would not have affected his lights as a non-resident in the one case, it will not in ■the other: — Baker v. Wheaton, 5 Mass. 509; Braynard v. Marshall, 8 Pick. 194; Fessenden v. Willey, 2 Allen, 67; Wheelock v. Leonard, 20 Penn. St. 440; Felch v. Bugbee, 45 Me. (9 Am. Law Reg. 104); Bancker v. Fisk, 33 Me. 316; Houghton v. Maynard, 5 Gray, 552; Anderson v. Wheeler, 25 Conn. 603; Savoye v. Marsh, 10 Met. 594.

It is admitted that if this note had been executed and delivered in New York to a non-resident, without expressing upon its face that it was payable there, a discharge granted in New York would have no binding force against the holder continuing to be a non-resident. This doctrine is never denied to have been settled by Ogden v. Saunders, 12 Wheat. 213; and is expressly recognized by numerous authorities, all of which assert that under ordinary circumstances a contract with a non-resident can not be discharged, unless he has so assented to, or interfered in, the proceedings as to have submitted his interests to the action of the insolvent court: — Clay v. Smith, 3 Pet. 411; Donnelly v. Corbett, 3 Seld. 500; Norton v. Cook, 9 Conn. 314: Potter v. Kerr, 1 Md. Ch. Dec. 275; Poe v. Duck, 5 Md. 1; Palmer v. Goodwin, 32 Me. 535; Whitney v. Whiting, 35 N. H. 457; Collins v. Rodolph, 3 Green (Iowa), 299; Pugh v. Russell, 2 Blackf. 394; Watson v. Bourne, 10 Mass. 337; Bradford v. Farrand, 13 Mass. 18; Agnew v. Platt, 15 Pick. 417; Fiske v. Foster, 10 Met. 597; Woodbridge v. Allen, 12 Met. 470; Tebbetts v. Pickering, 5 Cush, 83; Isley v. Merriam, 7 Cush. 242; Clark v. Hatch, 7 Cush. 455; Dinsmore v. Bradley, 5 Gray, 487; McKim v. Willis, 1 Allen, 512; Eaton v. Sweetzer, 2 Allen, 70; and the cases cited under previous head. These citations might be extended indefinitely. They are only made now because they have an important bearing upon the discussion of the supposed distinction between contracts generally and contract with an expressed place of performance.

It was held in Scribner v. Fisher, 2 Gray, 43, that a contract which, by its terms, was expressly to be performed in Massachusetts, although in favor of a non-resident who hacl never submitted himself to the laws of Massachusetts, might be absolutely discharged by insolvent proceedings in that State. This case is, so far as we can ascertain, the only direct authority for such a position, except some decisions of the same Court based upon it, and adopting it. It was not concurred in by Judge Metcalf, who delivered an able dissenting opinion. The decision is, upon this •point, entirely unreasoned; and seems to be based upon the claim that the United States Courts are not disposed to enlarge the effect of Ogden v. Saunders, and that there is some difference between that and the case then under consideration. The respect which we have always entertained for the Massachusetts decisions renders it proper for us to examine into the authority of this case somewhat carefully.

The exact question decided in it has been passed upon by the Courts of other States; and they have arrived at a different conclusion from that adopted in Scribner v. Fisher. In Donnelly v. Corbett, 7 N. Y. 500, it was held that a note payable to a citizen of New York, at a bank in South Carolina, was not discharged by an insolvent proceeding in the latter State. The case of Anderson v. Wheeler, 25 Conn. 603, was, in all its leading features, a counterpart of the case before us; and it was there held that a note made and payable expressly in New York by one citizen to' another, and indorsed to a non - resident, was not affected by a-New York dischax-ge.

The case of Felch v. Bugbee, 45 Me. (9 Am. Law Reg. 104), was one where notes made in Boston between citizens, and payable in Boston, but indorsed to a citizen of Maine, were held unaffected by a Massachusetts discharge. These were all carefully argued cases, where the point was clearly presented; and in Fetch v. Bugbee reliance was had on Scribner v. Fisher, but the Court declined to follow it. In Demerett v. Exchange BanK (Law Reporter for Dec. 1858), Judge Curtis also criticises Scribner v. Fisher, and declares it not to be law. See also, Hale v. Baldwin, Law Rep. March, 1862.

There can be no doubt, therefore, that so far as regards the number of adjudged cases in courts of high repute, the weight of authority is not in favor of Scribner v. Fisher. And we are compelled to examine, as far as may be, the principles upon which it depends. It rests evidently upon the idea that, when parties contract with a view to performance in a particular State, their contract becomes entirely subject to the state law, and may be released by any action provided by it for the discharge of debtoi’s from their liabilities. In other words, that the local law becomes incorporated into the contract, in the same manner, and to the same extent, as if expressed in it.

Whatever force there may be in this reasoning, it does not in any way serve to distinguish the contract in question from those where no special place of performance is expressed. No contract can be made which is not, in the eye of the law, subject to be governed by the laws of some State or country indicated by and deducible from the contract itself. That a contract is in various respects governed by the law of the place of performance, is as true where that place is inferred as where it is expressed. And the law does not leave a contract expatriated, and floating’ about in a condition of outlawry, simply because it is silent as to the place of performance. Every agreement is subject to recognized - legal authority in one place or another. And a- note payable generally is subject to the law of the place where it first becomes operative, unless a different rule is deducible from its terms: — Whitney v. Whiting, 35 N. H. 457; Peck v. Hibbard, 26 Vt. 698; Story on Confl. L. § 317.

Whatever differences may exist among Courts in determining what shall be regarded as the lex loci contractus, there is no ground which we have been able to discover for making any distinction between contracts which are expressly, and those which are impliedly, to be performed in the same place. And we are' therefore led to inquire whether a contract made and to be executed in one State, in favor of a citizen of another, can always be discharged by the law of its locality.

The case of Ogden v. Saunders, 12 Wheat. 123, was argued in connection with several other cases, in which discharges had been granted of contracts between citizens of the same State. It had previously been decided, in Sturges v. Crowninshield, 4 Wheat. 122, that an insolvent law could not lawfully discharge pre-existing debts, incurred anterior to its passage; and, at the same time, it was held that the power of Congress to pass bankrupt laws was not exclusive. The extent to which state laws might go was not determined. In McMillan v. McNeill, 4 Wheat. 209, decided at the same term, it was held that a contract made in South Carolina between a citizen and a firm, one of which resided there, could not be discharged either by an English discharge of the English partner, or by a discharge in Louisiana of the American partner who had removed there; although the Louisiana law was passed before the debt was contracted. The decision was brief, and has not been regarded as very clear as to the extent it was designed to cover. In Ogden v. Saunders, and the cases argued with it, the first question discussed was whether a state insolvent law, discharging subsequent contracts made between citizens of the same State where the discharge was obtained, and in whose courts it was pleaded, was unconstitutional. It was held such a law was not invalid. The next question was, whether such a discharge could affect citizens of other States. This was decided in the negative by a majority of the Court, Mr. Justice Johnson delivering the opinion; and the three judges, who joined with him in deciding the first question, dissented on this — the other three coinciding with him. In Boyle v. Zacharie, 6 Pet. 348, upon an inquiry made by Mr. Wirt, Chief Justice Mai’shall said “the Judges who were in the minority of the Court upon the general question as to the constitutionality of state insolvent laws, concurred in the opinion of Mr. Justice Johnson, in the case of Ogden v. Saunders. That opinion is therefore to be deemed the opinion of the other Judges who assented to that judgment. Whatever principles are established in that opinion, are to be considered no longer open for controversy, but the settled law of the Court.” And on the final decision of the same case (6 Pet. 645), Mr. Justice Story, in delivering the unanimous opinion of the Court, refers to the same matter, and says, “the ultimate opinion delivered by Mr. Justice Johnson in the case of Ogden v. Saunders, 12 Wheat. 213, 358, was concurred in and adopted by the three Judges who were in the minority upon the general question of the constitutionality of state insolvent laws, so largely discussed in that case. It is proper to make this remark in order to remove an erroneous impression of the bar, that it was his single opinion, and not of the three other Judges who concurred in the judgment.” Judge Duvall who, with the Chief Justice and Judge Story concurred with Mr. Justice Johnson in deciding Ogden v. Saunders, was also present and concurring in the decision of Boyle v. Zacharie. In Cook v. Moffat, 5 How. 295, it was held the questions decided were no longer open. We may therefore, with propriety, look not only to the conclusions announced, but also to the reasons on which those conclusions were based, to understand the scope of the decision in Ogden v. Saunders. In that case the plaintiff was a citizen of Kentucky, and payee of a draft drawn upon and accepted by a citizen of New York. The acceptor’s contract was beyond question governed by the laws of New York.- But a discharge granted in New York, under a previously existing insolvent law, was held void.. The third conclusion of Judge Johnson is as follows: “When in the exercise of that power [of passing bankrupt laws] the States pass beyond their own limits, and the rights of their own citizens, and act upon the rights of citizens of other States, there arises a con" diet of sovereign power, and a collision with the judicial powers granted to the United States, which renders the exercise of such a power incompatible with the rights of other States, and with the Constitution of the United States.”

The reasoning by which this conclusion was reached was based mainly upon the constitutional provisions, regulating the judicial power of the United States, which are held to prevent the States from exercising complete judicial sovereignty over any but their citizens, unless where it is submitted to voluntarily. The English doctrine of general authority to dissolve contracts in the country of their locality, is held to be unsound, and repudiated, without reference to any constitutional difficulty, as not warranted by international law against non - residents. The same doctrine is held still more inadmissible,' as applied to States of the Union, and as inconsistent with the provision giving every citizen of one State a resort to the Courts of the Union against citizens of another State. And, inasmuch as all insolvent proceedings are in their nature judicial, the right of any State to draw before its tribunals those not subject to its jurisdiction, is denied.

The principles laid down by Mr. Justice Johnson require that the State should have jurisdiction, not only over the contract when made, but also over the parties to it. And the reasoning, as well as the language of the decision, very plainly requires the jurisdiction over the parties to ■ exist when the judicial proceedings are had to discharge the debt; as it must necessarily, in proceedings in favor of the creditor and against the debtor, to establish the personal liability of the latter. It is very well settled, that the right of a citizen of one State to sue in a Court of the United States, depends upon his present and not his former citizenship: — Morgan's heirs v. Morgan, 2 Wheat. 290; Mollan v. Torrance, 9 Wheat. 537. And any person who changes his residence, in good faith, becomes entitled to sue in those Courts his former fellow citizens; while, on the other hand, he can not sue his present fellow citizens.

Such we understand to be the conclusions arrived at in Ogden v. Saunders; and we understand also the great body of decisions referred to as leading to the same result. In examining the decisions in Massachusetts, we have been unable to extract from them any harmonious principles, which we can safely rest upon in holding otherwise. And the decisions elsewhere do not lead to any other definite result; but, in the main, harmonize entirely with Ogden v. Saunders; which is recognized as- authority, although not always regarded as properly decided.

The doctrine that the lex loci conPructus draws after it the perpetual and complete jurisdiction over the contract, while it is the basis of the decision in Scribner v. Fisher, has not been uniformly adhered to in Massachusetts. In Prentiss v. Savage, 13 Mass. 20, a discharge in Jamaica, of a Jamaica contract, was held void, although under a previously existing insolvent law, on the ground that the law was unreasonable in not providing for sufficient notice to creditors; and on this account the Court held it could not have been designed to bind non-residents. Its language, however, was unqualified, and we have no laws more express in their terms that the debt shall be discharged. In Braynard v. Marshall, 8 Pick. 194, a note made in New York, but indorsed before maturity to a holder in Massachusetts, was held not affected by a New York discharge. In Agnew v. Platt, 15 Pick. 411, a New York debt, incurred by a partnership dealing in New York to a New York citizen, was held not barred by a discharge there, because one partner lived in Massachusetts. In Fiske v. Foster, 10 Met. 597, a Boston acceptance of a draft drawn in Maine, in favor of a Maine citizen, was held not barred by a Massachusetts discharge. In Ilsley v. Merriam, 1 Cush. 242, a sale in Massachusetts, by a resident agent to a citizen, was held not to subject his principal to the insolvent laws. In Marsh v. Putnam, 3 Gray, 551, a contract made and to be performed in another State was held lawfully discharged in Massachusetts, because the parties were citizens of Massachusetts. These decisions are all inconsistent with the idea that the lex loci contractus is absolutely conclusive; while some of them, especially the latter, give it no effect whatever.

In Ilsley v. Merriam, above cited, and in Fessenden v. Willey, 2 Allen, 67, it was held that the liability to state insolvent laws was not in any sense an equity attaching to a contract, which passed with it so as to bind persons who would be bound by ordinary equities; and therefore an indorsement of a note past due, to a non - resident, took it beyond the reach of local insolvent laws, as effectually as if made before maturity.

While the doctrine of the application of the lex loci contractus has been thus substantially disregarded, that of citizenship does not seem to have been adhered to on any settled principle. Thus, in Beal v. Burchstead, 10 Cush. 523, a note payáble to a non-resident which was admitted not originally subject to Massachusetts insolvent law, was held properly discharged by proceedings after he had become a resident. But in Brigham v. Henderson, 1 Cush. 430, it was held that a citizen of Massachusetts remained liable to be affected by a discharge of his previous claims after he had become a citizen of another State.

Finding, therefore, no authority except Scribner v. Fisher, and decisions resting upon it, to maintain the validity of the discharge before us, and not being able to deduce any principle upon which that case can be harmonized with the f general course of decisions, we are unable to yield to its weight. We think the case before us is clearly within the reasoning and authority of Ogden v. Saunders. The plaintiff never was in the State of New York, and never, therefore, became amenable to its judicial authority, either temporarily or permanently.

Judgment should be rendered on the referee’s report for the plaintiff, with costs of both Courts, and reversing the judgment below.

Christiancy J. concurred in this opinion.

Manning J.:

The note was made in the State of New York, where the makers and payees resided, and is payable to the order of the payees at a bank in' that State. It is not payable to bearer, and consequently could not be transferred to the plaintiffs without the indorsement of the payees. And it is conceded that as between the parties to the note the discharge in bankruptcy would be good.

The plaintiffs are a corporation in the State, of Massachusetts, and discounted the note before maturity. If they are not bound by the discharge, it must be because they are indorsees or citizens of another State.

The question is not between the plaintiffs and their indorsers on the contract of indorsement. It is between them and the makers of the note, on the contract between the makers and payees to which they have succeeded as indorsees.

As indorsees of the note, they can have no greater rights against the makers than their indorsers had, except such as grow out of the rights of a bona fide holder of this description of paper.

The right claimed is clearly not one growing out of the rights of a bona fide holder. And we must therefore look in some other quarter for its basis, if it has any.

Is there anything in the citizenship of the plaintiffs to rest it upon ? If there is, it must be in one of two provisions to be found in the Constitution of the United States — one giving the citizen of each State all the rights and imnmnities of citizens in the several States; the other giving jurisdiction to the Federal Courts between citizens of different States.

The first I have always understood to be nothing more or less than a guaranty to a citizen of one State, going into another State, of all the rights of a citizen of the latter. I believe nothing more has ever been claimed for it. I have yet to learn that it was intended to give him greater rights, whatever may be claimed.for, or be the practical operation of, that part of the Constitution giving jurisdiction to the Federal Courts between citizens of different States.

The object of this last provision, it seems to me, was to provide a court to settle differences between citizens of different States according to state laws, and not otherwise; on the supposition that alienations might arise between States, and for a time interfere with the due administration of justice between the citizens of such States in the state courts. Unless the Federal Courts in the exercise of this jurisdiction recognize the laws of the State, as expounded by the state courts, as their rule of action, to the same extent the state courts are bound by the decisions of the Federal Courts on questions arising under the Constitution and laws of the Federal Government, the law of the contract may be different in the two courts. One may so interpret the law and the contract made under it as to give effect to the contract, and the other so as to give a different or no effect whatever to it. This would place the citizen of a State and a non-resident on a footing of inequality, instead of one of equality — giving the nonresident greater rights than the resident, as both tribunals are open to him, and he is at liberty to seek redress in the one most favorable to his interest, while the citizens of a State are confined to the state courts for the measure of their rights. Such a state of things must be regarded as a great evil in a country governed by even handed justice. Let it not be said that it is an imaginary evil. It has actually occurred: — 5 Mow. 134. A rule of construction that leads to such results cannot but be unsound. It sacrifices the end to the means used to attain it. Not necessarily so, for then there would be some excuse for it. It ignores the spirit of the Constitution, in overlooking what is a necessary element in every sound rule of construction, where it can be seen, viz: the thing to be achieved by the instrument to be interpreted. Equality of the citizen, and not inequality is the spirit of our institutions, both federal and state.

But the evil does not stop here. It' goes further. It strikes with a heavy hand at the local legislation and laws of the States. If the state courts make a wrong decision, or promulgate as law what is distasteful to the people, their further action in the same direction may be arrested by state legislation. If the federal courts in deciding on state laws do the same thing, state legislation is powerless to arrest the evil, and Congress can not, if it would, legislate for a State; and what would be its effect if it should?

Ogden v. Saunders, 12 Wheat. 213, is not a parallel ease with the one before us. The question there was between the payee and acceptor of a bill of exchange, who were residents of different States when the bill was accepted. The decision was by a divided court. Judge Johnson and three of the other judges held the state bankrupt law constitutional, while the three judges only, who held the law unconstitutional, concurred with Judge Johnson, in the final decision of the case. The correctness of the decision on principle has been frequently criticised, and from the opinions of the judges in Cook v. Moffat, 5 How. 306, it would seem to be far from being satisfactory to some of the. judges of the Court.

The effect to be given to the bankrupt laws of another State is a question of comity, and not one of strict right* As such, I think we should in all cases give effect to-them, when they do not interfere with the bankrupt’s property within the State to the prejudice of our own citizens, and we can consistently do so.

I think the judgment of the Circuit Court should be-affirmed.

Martin Ch. J. concurred in the result of this opinion.

The Court being thus equally divided, the judgment of" the Court below for the defendant was affirmed.