Murray v. De Rottenham

The Chancellor. This case has been argued with much ability, and .the points raised admit of some latitude of discussion; but they have been rendered quite embarrassing by the complicated nature of the facts, and the distressingly voluminous documents in which they are involved, 1. The first point is, whether Mark continued bound by his personal covenants in the trust deed to Murray, after his discharge as a bankrupt. His debt of 40,000 dollars to Count De Rotienham and others, contracted in Germany in 1796, and payable there, was a debt which “ might have been proved” under Ms commission of bankruptcy; and his certificate of discharge under the bankrupt act of the United States, in 1800, was, consequently, a bar to that debt. The. bankrupt act of 1800 was general in its terms, and applied to all the bankrupt’s estate, “ whatsoever and wheresoever,” and to “ all^ and every the creditors of such bankrupt who should come jn and prove their debts under the commission and, also, to “ all debts which were, or might have been proved under the commission.” It was suggested, that if an insolvent, or bankrupt statute, did not, by express words, or by necessary construction, extend to extra-territorial, or foreign [59] contraéis, it Was not to be applied to then). But I do not apprehend, that we are to require an express declaration of the legislature, that foreign creditors are included in the operation of a bankrupt law, when the language of the statute is otherwise sufficiently general and comprehensive, and when the evident policy of the law is to embrace all debts that can be proved under the commission, and to give the unfortunate merchant, who conducts himself fairly, new credit in the commercial world, and new capacity for business. The question may not have been distinctly decided in the English Courts; but, I should infer, from the general language of the British statutes of bankruptcy, and from the silence of the books, that it was the received, and undisputed doctrine there, that the certificate barred the foreign, as well as the domestic creditor. The case of Lynch v. M'Kenny, mentioned in Quin v. Keefe, (2 H. Black. 553.) strikes me as pretty decisive evidence of the English practice. Mr. Justice Aston discharged a bankrupt, who had obtained his certificate in England, from arrest by an Irish creditor, for a debt contracted in Ireland, because the debt arose before the commission, “ and might have been proved under the commission.” [58] A certificate of discharge undev the bank-bar weU°afímnestic debts, prov-commission, [59] The case of Penniman v. Meigs, (9 Johns. Rep. 325.) contains an express recognition of the rule, which, I presume, prevails equally in England, and in this country. It was there held, by the Supreme Court, that they were " bound to consider a discharge under the insolvent act of this state, as a bar to all suits brought here upon antecedent contracts, wherever made. The statute was peremptory and binding on our Courts. It was for the wisdom of the legislature to say, whether foreign contracts should be exempted from the operation of an insolvent act, but they have not made any such exception.”(a) The insolvent act [60] referred to in that decision, did not expressly include foreign debts contracted abroad, any more than the bankrupt act of the United States, and it used only the general language of requiring three fourths in value of all the creditors to petition for the insolvent’s discharge, and that he should exhibit a true account of “ all his creditors, and the moneys owing to them,” and that he should be discharged from “ all such debts due at the time of the assignment, or contracted for before that time, though payable afterwards.’’ It may, therefore, be considered as a case much in point; and it was a decision well considered at the time, in respect to the question, (and which was the only question raised in this case,) and the language in which it was expressed was carefully selected. There is a wide distinction between a discharge under the authority of the government where the suit is brought, and a discharge obtained abroad, which has no authority here, and is admissible only upon the ground of comity. In the latter case, a wide range is given to the operation of considerations growing out of the special circumstances of the case, or springing from enlarged views of justice and international policy. In the former, we have only to look to the fair and reasonable interpretation of the statute, and. to give effect to its intention. 2. But, admitting Marie to have been discharged from his bond to the German creditors, the next, and the more difficult question is, whether his certificate was a discharge from the covenants contained in his trust deed to Murray. That trust deed bears date the second day of December, 1799, and is one of the exhibits in the printed case which accompanies the proceedings in this cause. It contains [61] Thirty-two closely printed pages in one continued unbroken section : and it becomes, therefore, difficult to understand ’ ’ ’ /,ii, exactly the bearing and force of every part of such a need, amidst a succession of “ uses, trusts, powers, provisoes, restrictions, exceptions, reservations, conditions, and limitations.” This deed conveyed to Murray fourteen fifteenths of township No. 5., in Clinton county, containing 64,000 acres of land, in trust, for the payment of several German creditors ; and it provided, that 40,000 acres should be held as a security for the payment of the 40,000 ‘ dollars borrowed of Count De Rottenham and others, in 1796, with the interest and commissions secured thereon i and the trustee was to treat those creditors as special mortgagees of the 40,000, out of the 60,000 acres so conveyed in trust. In this deed, Mark covenanted to pay and discharge, from time to time, all taxes and assessments that should at any time be assessed or charged on the trust lands; and that he should, as soon as conveniently might be thereafter, and within three years, discharge a mortgage given to Jacob & Robert Le Roy, on one undivided sixth part of the township ; and, also, pay and discharge a debt due to A. J. Schuyler, as the consideration for one undivided twelfth part of the said township, under his contract to convey the same to Mark, and that Schuyler should convey to Murray free of all encumbrances. Mark was discharged under the bankrupt act in October, 1800, without performing either of those covenants; and Murray, the trustee, was obliged, in 1801, after proceedings had been commenced upon the mortgage, to redeem the same with his own moneys, which he did accordingly, and took an assignment of the bond and mortgage. And the debt due Schuyler being demanded, he paid that, also, in 1803, out of his own funds, and took a conveyance of the one twelfth to himself. He also paid the taxes accruing and charged upon the trust lands subsequent to the bankruptcy and discharge of Marks ; and he now claims reimbursement and indemnity out of the trust property. [62] The representatives of the German creditors, who owned the bond debt of 40,000 dollars, insist, that Mark was responsible, notwithstanding his bankruptcy, under his covenants for those payments, and that the trustee was bound to look to him and his representatives for payment, and has no right to charge those payments to the trust estate, has^paid WQff encumbrances estate, with his may look"6to the estate, in the first instance, for resnibuisemenq t bound to resort to the covenants of the grantor in the trust deed; but may leave the cestui que trusts to their remedy against the grantor, by substitution. Assuming that Mark continued responsible upon those covenants, notwithstanding his discharge, yet, I think, the trustee having made these advances in good faith, and for the benefit of the trust estate, is entitled, in equity, to look to that estate for his indemnity, in the first instance, . and was not bound to resort to his precarious remedy agajnst Mark. If any such remedy exists, the cestui que trusts may take the remedy by substitution under the trustee, after they shall have reimbursed him. The assignment of the mortgage, and the deed of Schuyler, are taken to him, in his own name, and he is entitled, under those instruments, to seek his indemnity from the portion of the lands conveyed by those deeds. Nothing can be more obviously just and reasonable. The covenant of Mark to pay those debts, was for a debt certain, or capable of being reduced to certainty, and provable under the commission; and I see no reason to doubt, that Mark’s certificate was a good discharge as to his covenant to pay those debts. Every person who had taken securities payable at a future day, was, by the express words of the act, admitted to prove those debts equally as if they were payable presently. The only remedy of the trustee, is against the land vested in himself by those payments, and by the assignment of the mortgage, and the execution of Schuyler’s deed. The taxes were contingent debts, not existing ■ at the time of the discharge. They were imposed subsequently, and, consequently, could not have been proved under the commission. The counsel for the plaintiffs admits, that the taxes were not an existing debt, capable of being proved under the commission; but contends, nevertheless, that as the trust [63] deed, and the covenants connected with it, were given as a collateral security for the German debts, provable under the commission, a discharge from the debt was a discharge from the collateral security. The covenant, according to the argument, created no new debt | it was a personal engagement for an antecedent debt; and as the debt for which the trust deed, with its covenants, as a security, was provable under the commission, the certificate would be a bar to any form of action for the debt, in like manner as if the trust deed had contained a covenant for the payment of the same identical debt, or for the balance of it that should remain after exhausting the trust funds, a discharge from the debt would, of course, have been a discharge from the covenant. But this is not the correct view of the case. The covenant to pay the taxes was not a covenant to pay the debt, but to protect the pledge, and is a covenant as distinct from, and independent of the debt, as a covenant in a mortgage against encumbrances, or to insure the title.' Such a covenant runs with the land, and is part and parcel of the security which the creditor may cling to, and waive the benefit^ of his dividends under the commission; and I see no reason why the creditor may not resort to the personal covenant of the debtor, for the purpose of rendering the security available. Those covenants might have been the great inducement to the taking of the pledge, and have been deemed essential to its value. If the breach of the covenant arose after the discharge, and did not relate to any certain and specific demand, capable of being proved under the commission, it is reasonable, and in conformity with the doctrine of the cases, that the covenantee should be entitled to his remedy, notwithstanding the certificate of discharge. The certificate is a bar only to debts and demands which were, or might have been proved under the commission, but not as against personal covenants and engagements which admitted of no satisfaction under the commission. If a demand be not admissible under the [64] commission, it Is not barred by the certificate. This is the just and settled rule; and to avoid the force and application of it, the counsel for the plaintiffs was obliged to con-tend? that the covenant to pay the taxes was, only in another form, a covenant to pay the debt. This was not exactly so. It was a covenant to give effect and value to a security taken partly to protect the debt; and was a collateral engagement, founded on the consideration of the acceptance of the security, and the different and various rights which that security was intended to protect. [63] A bankrupt’s certificate does not discharge personal covenants in a trust deed? intended only to protect: the trust estate, and which admitted of no satisfaction undeif the commis* sion# [64] Whether Mark would be indefinitely answerable under that covenant to the assignee, or purchaser of the trust property, is a question with which we have no concern. It Is sufficient to decide the question arising between the parties in this case. The bankrupt act of the United States was only a consolidation into one act, of the several English statutes of bankruptcy; and the decisions, and especially the principles settled under those statutes, in respect to their application, must be our rule of construction. From the time of Elizabeth, down to 4 and 5 Anne, the bankrupt continued liable for his debts, and the dividends under the commission were only considered as a payment pro tanto. The statute of Anne, for the first time, discharged the bankrupt in toto, from his debts; but the statute only applied to debts due at the time of the bankruptcy. The stat. 7 Geo. I., extended the statutes to debts contracted before the bankruptcy, though payable afterwards; and the statute of 19 Geo.II., extended the bankrupt laws to certain debts payable on a contingency, as respondentia bonds. Under those statutes, the following decisions have the greatest bearing on the point before me : In Funtur v. Graham, (cited in note to 8 East, 317., and S. C. in Barnes’ notes, 69., under the name of Centrel v. Graham,) decided in C. B. in 1736, the defendant rented a house for years on lease, with the usual covenants, and within the time became a bankrupt. He was sued in [65] debt for the rent accrued after his certificate, and the Court held, that by the bankruptcy the lease became vested in the assignees, and the defendant ceased to be the tenant, and could not be chargeable for the rent accrued after-wards. But in Mayor v. Steward, (4 Burr. 2439.) a different decision took place, in a case somewhat similar, but under different circumstances. Land was demised to the plaintiff and the defendant, as partners, for fifteen years, at a yearly rent; and the plaintiff released to the defendant his interest for the residue of the term, and the defendant covenanted to pay the rent, and indemnify the plaintiff. A breach was assigned in non-payment of rent; and the defendant pleaded his discharge under the bankrupt act, since the making of the covenant. The Court held, that this was not a case between lessor- and lessee, founded on privity of contract, as in the former case, but here was a detached, collateral, independent covenant, and the plaintiff could have had no remedy for a breach of it under the commission. This last case applies with some force to the present. The defendant, there, was originally liable for the rent, and was discharged from any action for it, founded on the privity of contract; but he was not discharged from a collateral covenant to pay the rent. The covenant to the plaintiff, in that case, was like the covenant in the present case, a collateral, detached, independent covenant, and he was held answerable, notwithstanding his certificate. In Wadham v. Marlowe, (cited in 8 East, 314, note,) in the K. B. 25 Geo. III. the Court cited and followed the case of Funtur v. Graham, and held, that debt on the reddendum, would not lie against the lessee for rent accruing after his bankruptcy, when he had ceased to occupy the premises, and they had passed to the assignee, under the commission. But, afterwards, in Mills v. Auriol, (1 H. Black. 433. 4 Term Rep. 94.) the Court took a distinction between debt and covenant for rent in such a case, and [66] held the defendant liable, notwithstanding his bankruptcy, in one case, and not in the other: and that too upon a technical distinction between an express covenant, founded upon the privity of contract, and debt founded upon the privity of estate. And, again, in Boot v. Wilson, (8 East, 311.) the K. B. went further, and held, that a parol promise or agreement to pay rent, took the case out of the certificate, as much as the covenant to pay rent. There are a number of cases which establish, that if a surety or bail be fixed in that character, before the discharge of the principal, and are obliged to pay the debt after his discharge, the certificate of discharge is no bar, because the demand of the surety or bail was not provable under the commission, it not being, until payment, a debt due and owing. ( Goddard v. Vanderheyden, 3 Wils. 262. Cockerill v. Owston, 1 Burr. 436. Frost v. Carter, 1 Johns. Cas. 73. Buel v. Gordon, 6 Johns. Rep. 126. Lansing v. Prendergrast, 9 Johns. Rep. 127.) But the case which approaches the nearest in principle to the present one, is that of The Mechanics and Farmers’ Bank v. Capron, (15 Johns. Rep. 467.) The defendant gave a note, discounted by the plaintiff for the benefit of the defendant, and which became due before his discharge under the insolvent act, but was not paid. The defendant endorsed another note, payable in four years, as collateral security for the first note, and he was discharged, within the four years, under the insolvent act. The Court held, that the discharge was no bar to an action upon the second note, because he was not fixed as endorser, at the time of his discharge. The claim on that collateral security, was conditional until then, and it was analogous to personal security, where no liability existed at the time of the discharge. The fact, “ that the note was left as a collateral security for the priof note, due at the time of the assignment, did not prevent the application of the principle.” How, then, can the certificate of Mark be a discharge in [67] an action upon the covenant to pay the taxes, when the damages for non-payment of the taxes did not accrue before the certificate, and were then contingent, and could not have been proved under the commission, and when it was a distinct, detached, independent covenant, given to secure a pledge which embraced, not only the German bond of 40,000 dollars, but other demands and considerations ? If the covenant had been made purposely to secure the German debt, yet, it being a collateral undertaking, arising on a distinct matter or cause of action, contingent in its nature, and not arising until after the discharge, it is no bar, within the doctrine of the cases cited. The German debt was the remote, but certainly not the proximate or immediate cause or consideration of the covenant. The trust deed, with its covenants, was given as well for the indemnity of Speyer as for the security of the German debtsj and, I conclude, that Mark and his representatives remained liable, after his discharge, for the payment of the taxes accruing subsequent to his discharge. But this is a question that does not appear to be necessarily connected with the present application of the trustee, to be indemnified for the payment of those taxes out of the very fund in hand. He has his remedy in rem. upon the fund, as well as upon the personal covenant of Mark. A trustee, who acts with good faith, is entitled to' a prompt indemnity for his necessary disbursements and expenditures in the execution of his trust. He has a hen upon the trust property for them; and the cestui que trusts could never call that property out of his hands without first tendering him his indemnity. The payment of the taxes, from time to time, imposed upon the trust property, was indispensable to the preservation of the estate, and he is entitled to ask the cestui que trusts to refund to him, and to prosecute, on their own account, the representatives of Mark, upon a covenant taken essentially for their benefit. The covenant was, in form, a covenant to him, but it was, [68] in effect and substance, a covenant to them, and the plaintiff was not obliged to sue Mark, without their directions, and at the risk of accumulating costs and expenses upon the trust fund. The probability was, that it was generally understood, and by the trustee himself, that Mark was discharged altogether from his covenants by his certificate as a bankrupt; and if he was not, whether he had means to perform the covenants, does not appear. There is no ground to charge the plaintiff with neglect of duty, in not resorting to Mark, and I shall decree, that he be refunded for his payments and advances out of the trust estate. [67] good faith, is pvompt'indemnityforhisnebursements *S andhasPa”&e« 011 the tr“st property for them, A truslee9 [68] The sums he paid to the Le Roys, and to Schuyler, ought, very clearly, to be charged upon that portion of the 60,000 acres covered by the mortgage, and by the Schuyler title ; and the taxes ought, also, to be equitably and rateably apportioned upon the trust property. Without, therefore, deciding absolutely, for the present, upon the responsibility of the representatives of Mark, I shall afford to the plaintiff the substance of the relief sought by his bill. It was “ declared, that the amount paid by John Murray, for and in respect of the mortgage given to J. & R. Le Roy, for principal, interest, and costs, be chargeable upon the mortgaged premises, being the one undivided sixth part of the township No. 5., and that they ought to be reimbursed out of the proceeds of the sale thereof. That the amount paid to A. J. Schuyler, for the one undivided twelfth part of the township, be paid and reimbursed out of the same and the proceeds thereof. That the taxes upon the- lands in the trust deed ought to be paid, and what has been paid, reimbursed out of the proceeds of the same, rateably and proportionably upon the respective quantities of interest therein, viz. the one sixth, the one twelfth, and upon the 40,000 acres remaining and mortgaged to the German bond creditors, being the residue of fifteen sixteenths, undivided parts of <i¡e said township. That the defendants, who represent [69] the German bond creditors, are entitled to the balance of the two third parts of the net proceeds of the fifteen sixteenths of the township, after deducting the propertional part of the taxes upon the township, with interest and charges, so chargeable upon the 40,000 acres as aforesaid, and after deducting, also, the commissions of the trustee, and the costs of suit, charges, counsel fees, and disbursements of John Murray, the original trustee, and of the plaintiff, his successor in the trust, paid out, payable, or chargeable concerning the defence of the suit in the pleadings mentioned in Chancery, and in the Court of Appeals, with interest, &c. And it was ordered, &cc. that it be referred to a master, to take, and state an account in the premises, upon the principles above declared, and that the master allow, and charge against the one sixth, and the proceeds thereof, the moneys paid to the mortgagees aforesaid, for principal, interest, and costs, with interest thereon, &c.; and, also, the rateable part, according to quantity of acres, of the taxes upon the township, with interest and charges; and, also, for what has been paid for taxes, with interest, &sc.; and that the master, in taking the account, also charge against the one twelfth aforesaid, the money paid to Schuyler, or his representative, with interest, &cc., and a rateable proportion of the taxes, 8zc., as aforesaid ; and that the master, in taking the account, also allow and charge against the 40,000 acres, and the proceeds thereof, a rateable proportion of the taxes aforesaid, as aforesaid, 8¿c., together with a proportional part of thS costs and charges aforesaid, &c., and commissions aforesaid, to the net proceeds of which 40,000 acres, subject to the deductions aforesaid, the defendants, representing the bond creditors, were declared to be entitled, 'and that the master report, &c., and that all further directions were reserved.” Decree accordingly. Footnotes [(a)] That case was decidedin October, 1812. In the revised act, passed April 12,1813, (sess. 36. ch. 98. sec. 8. 1 N. R. L. 460.464.) the following exception is introduced. “ Except debts due or owing to credit [60] ors without the United States, who shall not petition for the insolvent’s discharge, or come in and accept a dividend from the insolvent’s estate, from the assignees, unless two thirds of all the insolvent’s debts, including foreign debts, shall have been signed oif, as before directed, in which last case, foreign, as well as domestic debts, shall be discharged.” Vide Holmes v. Remsen, vol. 4. p. 460.