Hawley v. Hunt

27 Iowa 303

• Court: Supreme Court of Iowa
• Decided: June 18, 1869
• Status: Published

Opinion

Dillon, Ch. J.

i. bankkottot: insolvent laws: alider?ge Respecting the validity of discharges under State insolvent laws, where the creditor is a non-resident of the State granting the discharge, there has been much discussion, ranch conflict of opinion, and, until recently, much doubt. But, in view of the authoritative adjudications of the Supremo Court of the United. States, presently to be refei’red to, and of the leading decisions of the State courts, cited below, the law, so far as relates to the present case, may be stated in a single sentence.

The settled doctrine now is, that a debt attends the person of the creditor, no matter in what State the debt originated or is made payable; that a creditor cannot be compelled by a State, of which he is not a citizen or resident, to become a party to insolvent proceedings therein ; that such proceedings are judicial in their nature, so that jurisdiction over the person of the creditor is essential; that notice is requisite to jurisdiction in such cases, and can no more be given in insolvent proceedings than in personal actions, where the party to be notified resides out of the State, and hence a discharge under a State insolvent law will not and cannot discharge a debt due to a citizen of another State, unless the latter appears and voluntarily submits to the jurisdiction of the court by becoming a party to the proceeding, or claiming a dividend thereunder.

As direct authority for this statement of the law, we refer to the following decisions of the Supreme Court of the United States. Baldwin v. Hale, 1 Wallace, 223; 1863; S. C., 3 Am. Law Reg. (N. S.) 462, and note by Judge Redfield; Ogden v. Saunders, 12 Wheat. 213; Boyle v. Zacharie, 6 Pet. 348; Cook v. Moffat, 5 How. 310; Suydam et al. v. Broadnax et al., 14 Pet. 75.

See, also, the following cases and authorities: Donnelly v. Corbett, 7 N. , Y. (3 Seld.) 500; Felch v. Bugbee, 48 Maine, 9; S. C., 9 Am. Law Reg. (O. S.) 104; Beers v. Rhea, 5 Texas, 349; Poe v. Duck, 5 Md. 1; Anderson v. Wheeler, 25 Conn. 603; Crow v. Coons, 27 Mo. 512; Pugh v. Bussel, 2 Blackf. 394; Beer v. Hooper, 32 Miss. ; Woodhull v. Wagner, Baldw. C. C. 300; Byrd v. Badger, 1 Mc All. C. C. 263; Springer v. Foster, 2 Story C. C. 387; 2 Story on Const. § 1390; Confl. Laws, § 341; 2 Kent Com. (9th ed.) 503; Kelly v. Drury, 9 Allen (Mass.), 27, 1864.

I have said that the settled law now is that a non-resident and non-assenting creditor is not bound by the debtor’s discharge under State insolvent laws, no matter where the debt originated or was made payable. In other words the citizenship of the parties governs, and not \h.Qplace where the contract was made, or where it is to be performed.

4. —■ validity of State íbsoÍventiaw. It is, perhaps, desirable to trace briefly the line of decision leading to and establishing the doctrine ° a as above stated.

Respecting State insolvent laws, the controlling constitutional provision is, that “ no State shall pass any law impairing the obligation of contracts.” “Any law,” to use the .language of Mr. Webster in his argument in Ogden v. Saunders (6 Webs. Worts, 26), “impairs the obligation of a contract which discha/rges the obligation without fulfilling it.”

In Sturges v. Crouninshield (4 Wheat. 122) the Supreme Court of the United States held such laws to be invalid as to pre-existing contracts. Subsequently the great case of Ogden v. Saunders (12 id. 213) came before the court. Respecting just what that case decided there has been much difference of opinion; but these differences have been set at rest by the recent decision in Baldwin v. Hale, before cited.

In Ogden v. Saunders, one point ruled or declared was that a State insolvent or bankrupt law was not a law impairing the obligation of contracts as respects debts contracted after the enactment of such law. This was upon the ground, largely if not wholly, that every contract made in a State must be taken to have relation to the existing law of the State, which becomes, so to speak, part of it, attached to it and attendant upon it; and since the insolvent law declares a right on the part of the debtor to be discharged from contracts thereafter made on certain terms, whoever becomes interested in such contracts takes them subject to this right, and the exercise of such right cannot be said to impair the obligation of the contract. It was this point in the case which has been the cause of much controvers}r in the State courts. In his argument, Mr. Webster combatted with great force the proposition “ that the law itself was part of the contract, and, therefore, cannot impair it.” 6th vol. Webs. Works, 29.

At present, however, we have no occasion to enter upon a discussion of this vexed proposition; the Supreme Court asserted that a State bankrupt law was not invalid as respects subsequent contracts. And the point ruled in Ogden v. Saunders was that a State insolvent law cannot affect the rights of creditors who are citizens of other States.

The second opinion of Mr. Justice Johnson (12 Wheat. 258), says Judge Curtis, jvas concurred in on the general question, and settled the law involved therein. (On this point see also Boyle v. Zacharie, 6 Pet. 348, 643; Cook v. Moffatt, 5 How. 310; Baldwin v. Hale, supra, per Clifford, J.)

The principle of the decision in Ogden v. Saunders, as stated by Mr. Justice Johnson is “that, as between citizens of the same State, a discharge of a bankrupt by the laws of that State is valid as it affects posterior contracts; as against citizens of other States, it is invalid as to all contracts.”

In Cook v. Moffatt (5 How. 309) the leading case of Ogden v. Saunders was reviewed, the soundness of many of the reasons assigned in former opinions questioned, but the court held, among other points, that “ a certificate of discharge under an insolvent law, will not bar an action brought by a citizen of another State on a contract made with him that State insolvent laws “ can have no effect on contracts made before their enactment, or beyond their territory.”

This language, it will be seen, is not free from uncertainty, and does not necessarily exclude the notion that if a contract is made originally between citizens of a State, and is to be performed there, and a non-resident subsequently becomes interested in or the owner of such contract (for example, a bill of exchange), he shall-not be bound by a discharge granted in pursuance of a State law in existence at the time when the contract was made. The Supreme Court of Massachusetts, admitting its duty to follow what was decided on this subject by the Supreme Court of the United States, held that, even as between citizens of different States, a State insolvent discharge was effectual in cases where it appears by the terms of the contract that it was made and to be performed in the State granting the discharge. This was in Scribner v. Fisher (2 Gray, 43), Mr. Justice Metcalf dissenting.

This decision was followed in other cases in that State, which, "without re-argument, were rested upon it.

In Demeritt v. Exchange Bank, 10 Law Rep. 606 (March, 1858), Mr. Justice Curtis, then of the Supreme Court of the United States, in express terms denied the correctness of Scribner v. Fisher, stating that it ivas in conflict with Ogden v. Saunders and Boyle v. Zacharie. “It is urged,” says Judge Curtis, “that whore the contract is to be performed in the State it is not within Ogden v. Saunders. It has been so held in Scribner v. Fisher (2 Gray, 43). But I cannot concur in that opinion. I consider the settled rule to be that a State law cannot discharge or suspend the obligation of a contract, though made and to be performed within the State when it is a contract with a citizen of another State.”

In Donnelly v. Corbett (7 N. Y. [3 Seld.] 500, 1852) the Court of Appeals of New York; in Felch v. Bugbee (48 Me. 9; S. C., 9 Am. Law Reg. [O. S.] 101, 1860) the Supreme Judicial Court of Maine; in Anderson v. Wheeler (25 Conn. 607) the Supreme Court of Connecticut ; and in Doe v. Puck (5 Md. 1) the Supreme Court of Maryland, and there are other similar decisions, decided that the distinction taken in Scribner v. Fisher was unsound, and that State insolvent laws had no extra territorial effect so as to operate upon the rights of citizens' of other States.

But in Baldwin v. Hale, before cited, the Supreme Court of the United States, in 1863, in terms and by-name, declared Scribner v. Fisher to be in conflict with the settled rule of that court. Mr. Justice Clifford, after reviewing the prior decisions and stating the points ruled, says : “ But a majority of the court held in Scribner v. Fisher, that, if the contract was to be performed in the State where the discharge was obtained, it was a good defense to an action on the contract, although the plaintiff was a citizen of another State and had not in any manner become a party to the proceedings. Irrespective of authority it would be difficult, if not impossible, to sanction that doctrine. Insolvent systems of every kind partake of the character of a judicial investigation. Parties, whose rights are to be affected, are entitled to be heard; and, in order to be heard, they must first be notified. Common justice requires that no man shall be condemned without notice and an opportunity to make his defense. Courts of one State have no power to require citizens of other States to become parties to insolvent proceedings. * * * Insolvent laws of one State cannot discharge the contracts of citizens of other States, because they have no extra territorial operation, and consequently the tribunal sitting under them, unless in cases where a citizen of such other State voluntarily becomes a party to the proceeding, has no jurisdiction in the case. Legal notice cannot be given, and consequently there can be no obligation to appear, and of course there can be no legal default.”

Independent of its authoritative force, this decision, and the grounds upon which it is placed, command unqualified approval.

Certain it is, that it is the final and settled doctrine of the Supreme Court of the United States, with respect to a question of which that tribunal is the ultimate arbiter.

Subsequently, the Supreme Court of Massachusetts, in Kelly v. Drurg (9 Allen, 27), following the decision in Baldwin v. Hale, itself, overruled Scribner v. Fisher.

The Supreme Court of the United States having thus settled that a citizen of another State cannot be affected by an insolvent discharge in the State in. which the debtor resides, even though the contract was made, and on its face is to be performed therein, that 'principle settles this ease, and shows that the judgment of the District Court was erroneous on the undisputed facts before it.

Those facts were that the judgments sued on were rendered against the defendant in New York; that he afterward removed to and became a citizen of Iowa; that plaintiff was likewise a citizen of Iowa; that both plaintiff and defendant were citizens of this State at the time when the judgments were assigned to the plaintiff, at the time the latter brought suit, and at the time the judgment was recovered which is now appealed from.

The discharge w^as no bar to the plaintiff’s action, even though it be admitted that the defendant concluded to remain in New York, and in good faitb applied for Ms discharge as a citizen of that State.

The assignment of the judgments to the plaintiff made Mm the owner of them, and of the debt of which they were the record evidence. He was as much the owner as if they had been recovered in his name. Our statute recognizes the plaintiff as the owner, and allows him to sue thereon in his own name. The defendant had notice of the assignment. He owed the debt, and owed it to the plaintiff. He could not afterward pay to the assignor, or to any person but the plaintiff.

Both parties hevng citizens of Iowa, and the plaintiff having actually brought suit in Iowa to collect his debt, the plaintiff, though suing upon a New York judgment, was an Iowa creditor, and the defendant would have no more right as against the plaintiff, subsequently and pending the action, to remove to New York, acquire a discharge which should be valid as against the plaintiff’s action in Iowa, than if the defendant had never previously resided in New York, or had, while residing there, made the contract with the plaintiff, at the time a resident of Iowa.

I need not stop to point out the injustice and unreasonableness of holding that a debtor, pending an action against him, may change his residence, obtain an ex parte discharge, resume his residence in the State in which his creditor resides, and then be allowed to plead such discharge as an effectual bar to the plaintiff’s action.

The court of no State could, in justice to its citizens, ever give its sanction to such a doctrine, unless it conceived that it was so bound by authority that it could not unloose itself from its grasp.

The court below undoubtedly proceeded upon the idea of the Supreme Court of Massachusetts, in Scribner v. Fisher, and counsel undoubtedly did not call its attention to the case of Baldwin v. Hale, since it is not referred to in their briefs in this court.

It was suggested on the argument that the Court of New York would have control over judgments rendered in that State, and that the case was, or might be, different from what it would if the contracts on which the judgments were rendered had been transferred to the plaintiff, -a resident of Iowa, and had never been reduced to judg"ment, in New, York.

c IBhé'.decisions in this court (Burtis v. Cook & Sargent, 16 Iowa, 194) treat a judgment rendered as a chose in action. It is a debt, or the record evidence of a debt. The plaintiff, as the assignee, has the same rights as if he had, while a citizen of Iowa, recovered judgment in his own name, in New York. In that case it is plain that it could not be discharged against his assent, by a State insolvent proceeding. This suggestion comes right back to the point before discussed, and which has been finally set at rest by Baldwin v. Hale, viz.: that, if the creditor is a non-resident of the State, a discharge under a State law cannot affect him unless he voluntarily becomes a party to the proceeding, and this is the case, irrespective of where the contract was entered into or was to be performed.

Place of making or place of performance is utterly immaterial in all cases where the creditor is not a citizen of the State, granting the discharge.

Citizenship of the parties, and not the place of the making or the place fixed for the performance of the contract, is the controlling element.

As the plaintiff was undoubtedly a citizen of Iowa at the time the defendant obtained his discharge in New York, it is not necessary to decide the question so ably debated by counsel, whether the defendant did in fact acquire a residence in New York at the time he applied for relief under its insolvent laws.

To my mind this is doubtful, but, as the evidence is conflicting and by no means decisive, we ought not, on this ground, to disturb the judgment of his Honor below. This has made it necessary to dispose of the case on the assumption that the defendant was not a citizen of Iowa, but was a citizen of New York when he applied fo^.-M? discharge. ,

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