Augsbury v. Crossman

Smith, J.: The only branch of this case which need be considered is that pertaining to the insolvent discharge. The principal question is whether the bankrupt act of 2d of March, 186Y, took effect on the day it was approved, so far as to suspend the insolvent law of 'the State and invalidate all proceedings under it had after that date, or whether its operation in that respect was postponed by the proviso in the fiftieth section, to the 1st day of June, 186Y. The argument on the part of the respondent is, that it being the well-known rule that a statute takes effect from the time of its passage, unless some other time is specified in the act itself, the presumption of law is, that it does so take effect, and the burden is on the defendant in this case to show, by the provisions of the act, that such was not the intention of congress ; that the only intent of the proviso, in the fiftieth section, was to delay the commencement of proceedings under the act till the first of June, in order to give time to the court to make rules and appoint officers, and thus provide the machinery without which no proceedings could be had; that the act contains several provisions which show that the act was intended to take effect from the time offits passage, as, for instance, the language in the twenty-ninth section: “ if, since the passage of tMs act, he has destroyed, mutilated,” etc.; and again, in the same section, “ if, being a merchant or tradesman, he has not, subsequently to the passage of this act, kept proper books of account; ” and in the thirty-ninth section, “ that any. person residing and owing debts as — 393 — aforesaid, who, after the passage of this aet, shall depart,” etc., and in section 44, “ that from and after the passage of this aet, if any debtor,” etc.; and finally, that the construction contended for by the respondent’s counsel, has been given to the proviso by the Supreme Court of the United States, in the case of Traders' Bank v. Campbell (14 Wall., 87). The answer to the argument of. the respondent’s counsel is, that the burden resting on the appellant is limited to showing that congress did not intend to invalidate bona fide proceedings had under State insolvent laws, prior to the time fixed for the commencement of proceedings under the bankrupt act; that the absence of such intention is not disproved by the prohibition of acts on the part of debtors in fraud of the provisions of the bankrupt act, intermediate the date of its passage and the time fixed for the commencement of proceedings under it; and that all that is decided in Traders' Bank v. Campbell (supra), is that the provisions of the act designed to prevent frauds upon it on the part of debtors and others, took effect at the time of its passage, notwithstanding the proviso in the fiftieth section. That the decision went no farther, appears from the report of the case. It was an appeal from a decree of the Circuit Court for the northern district of Illinois, in which that court held that a judgment in a State court against the bankrupt taken by confession when both parties knew of his insolvency, though taken before the 1st day of June, 1867, was an unlawful preference under the thirty-fifth section of the bankrupt act, it being taken after the enactment of that law. On the argument before the Supreme Court, the counsel for the appellants took the position, preliminarily, that under the proviso in the fiftieth section, the bill below did not lie, because all the acts complained of took place before the first of June, 1867, prior to which day the proviso declares that no petition or proceeding shall be begun. Mr. Justice Miller, who delivered the opinion of the court, disposed of the objection in a few words, holding that any act done after the approval of the statute, in fraud of its provisions, was within its prohibitions. Let us see, then, what is the true construction of the proviso, upon the point in question. The power of congress, on ’ the subject of bankruptcies, is not exclusive of the States. When it is unexecuted by congress, the States are at liberty to exercise the power in its full — 394 — extent, unless so far as they are controlled by other constitutional provisions; yet, when congress has acted upon the subject, the power of the States is limited and controlled to the extent of the national legislation. (Sturges v. Crowninshield, 4 Wheat., 122; Ogden v. Saunders, 12 id., 273.) But the bankrupt act does not affect cases under the insolvent law of a State, pending at the time, of its going into force. (Judd v. Ives, 4 Metc., 401; Taylor v. Carryl, 20 How. [U. S.], 583, and cases there cited; Agppleton v. Bowles, 2 N. Y. S. C. [T. & C.], 569.) In view of these general principles, it seems evident that by the proviso deferring the commencement of proceedings under the act till the first of June, congress intended that up to that time the insolvent laws of the State should continue in full operation, the same as if the act had not been passed. The only alternative is to conclude that congress intended to prevent access either to the State or federal courts, in cases of insolvency or bankruptcy, from and after the date of the passage of the act, till the time fixed for the commencement of proceedings under it. That intention should not be imputed to the legislature, except upon the clearest language. Indeed it may well be questioned, whether an act intended to have that effect would not transcend the constitutional power of congress. A law prohibiting access to both the federal and the State courts, for the purpose of obtaining an equitable disposition of the estates of.bankrupt and insolvent persons, would be a clear perversion and abuse of the power to pass uniform laws on the subject of bankruptcies. The construction of the proviso in question has been the subject of adjudication in the courts of some of the other States, and in some of the district courts of the United States. A few months after the bankruptcy act went into operation, the Supreme Court of Massachusetts held, in Day v. Bardwell and others (97 Mass., 246), that the act did not suspend the insolvent laws of that State, until the 1st day of June, 1867. Gray, J., delivered the opinion of the court, and discussed the question very thoroughly. In March, 1868, Leavitt, J., sitting in the United States District Court, Ohio, decided the question the other way, in Perry v. Langley (7 Am. Law Reg., 429). There, a debtor made an assignment under the insolvent law of Ohio, on the 25th of May, 1867, and under it a State court took cognizance of the matter. On July seventeenth, a — 395 — petition in bankruptcy was filed by a creditor. Tfie court field tfiat, as to tfiat matter, tfie bankrupt act was in force on May twenty-fifth, and tfie United States court could rightfully take jurisdiction of tfie whole matter under tfie petition filed in July. Tfie views of the court were stated in a carefully prepared opinion, which seems to have omitted no argument tfiat could be advanced in support of tfie decision, and in which tfie judge intimates tfiat tfie ruling is contrary to fiis first impression. He does not refer to tfie case of Day v. Bardwell, and probably fiis attention was not called to it. In April, 1869, tfie same question came before tfie Supreme Court of California, in tfie case of Martin, v. Berry (37 Cal., 208). Sanderson, J., in delivering tfie opinion of tfie court, reviewed at length tfie opinion of Leavitt, J., in Perry v. Langley (supra), and dissented from its reasoning and conclusions. His examination of tfie question is exhaustive, and to my mind is convincing. In accordance with it, tfie court field tfiat tfie insolvent law of California was not suspended by tfie bankrupt act till tfie first day of June. In December, 1871, tfie Supreme Court of New Hampshire decided tfie question tfie same way, in Chamberlain v. Perkins (51 N. H., 336). Tfie opinion cites and follows Day v. Bardwell, and disapproves of Perry v. Langley. Tfie only case in this State to which I have been referred, . is Shears v. Solhinger (10 Abb. [N. S.], 287), cited by tfie respondent’s counsel. It throws no light upon tfie question. For aught tfiat appears tfie insolvent proceedings, referred to in tfiat case, were commenced after tfie 1st of June, 1867. All tfiat is said in tfie report, on tfiat point, is tfiat they were commenced “ since tfie bankrupt act went into operation.” I entertain tfie opinion, very confidently, tfiat tfie insolvent law of this State was not suspended until tfie 1st day of June, 1867,'and tfiat tfie discharge,, granted on tfie twenty-fifth of May, was not invalidated by tfie provisions of tfie bankrupt act. Tfie respondent’s counsel also insists that tfie discharge was void, under tfie State law, by reason of certain jurisdictional defects. It is said tfiat tfie petition was not signed by creditors representing two-tfiirds of tfie debts of tfie insolvent'. Tfie statute requires tfiat tfie petition shall be signed by tfie insolvent debtor and “ by so many of fiis creditors residing within tfie United States, as have debts in good faith owing to them by such debtor, then dne or thereafter to — 396 — become due, aud amounting to at least two-thirds of all tbe debts owing by bim to creditors residing within the United States.” (2 R. S., 16, § 2.) It also provides that “whenever a petitioning creditor shall have * * * any mortgage, judgment, or other security, for securing the payment of any sum of money, upon any real or personal estate of the debtor, * * * he shall not become a petitioner in respect to the debt so secured, unless he shall add to his signature to the petition a declaration in writing that he relin-' quishes to the assignees * * * every such * * * security, for the benefit of all the creditors of such debtor; which declaration shall operate as an assignment of such * * * security to the assignees, * * * and vest in them all the rights and interest of such petitioning creditor therein.” (Id., 36, § 11.) The whole amount of debts appearing by the inventory in evidence in this case is $10,118.74; two-thirds of which is $6,745.82. The debts owing to the petitioning creditors amount to $8,726.43. Of those, debts to the amount of $3,436.51 were secured by judgment, to wit: Bagley, $108.50; Leepy, $741.63; Ross, $850; Clark, $1,736. Each of those judgment creditors added to his signature to the petition a declaration purporting to be a relinquishment of his judgment, but the respondent’s counsel claims that such declaration is insufficient in each case. That claim presents the only question involved in the-point now under consideration. The declarations attached to the signatures of Bagley, Leepy and Ross, respectively, are substantially alike. That of Bagley is in these words : “ Eor value received, I hereby release to the assignee, to be appointed, all claims on the estate of Charles Crossman, that I have by reason of the judgment against him assigned to me.” It is true, this does not follow the words of the statute, but the statute does not prescribe the form. It is a substantial compliance. A release of all claims on the estate of the judgment debtor, by reason of the judgment against him, amounts to a relinquishment of the judgment; and a release to the assignee, is necessarily a release to him for the benefit of all the creditors of the debtor, as it is the duty of the assignee to appropriate to their benefit all the rights and property of the debtor thus released to him. The debts owing to Bagley, Leepy and Ross, and seemed by judgment, therefore go to make up the two-thirds. The declaration, signed by Clark, seems to be imperfect. There was, evidently, an — 397 — omission to fill a blank left in drawing it, so that it makes no reference to the judgment held by bim; But there are two-thirds without counting his judgment debt. I have examined all the other objections taken to the sufficiency of the papers, and the jurisdiction of the judge, and think them devoid of merit. This is so apparent that it is hardly necessary to state them, or the reasons for so holding. As the discharge is regarded as valid, it follows that the judgment should be reversed and a new trial had, costs to abide event. Mullin, P. J., and Talcott, J., concurred. Judgment reversed and new trial ordered, costs to abide the event.