McLaughlin v. Upton

Peck, J. It appears on the part of the assignee the plaintiff below, that on the 14th day of February, 1871,'the company made a contract dated on the 6th of the month, with McLaughlin, of the sale to him of ten shares of its unpaid capital stock of the par value of $1,000; for the consideration of $700, in full: that in pursuance of the contract the ten shares were delivered on its execution, and $200 paid by the 19th day of August following. The suit is to recover upon the contract $800, the balance of the par value of the ten shares, as a balance due by the contract, and interest. Whether the district court having jurisdiction the assignee could recover upon that contract, as for a balance and its interest; or in order to recover, should have rescinded the contract, as void (for fraud) against the company, and have sued for damages committed by the fraud, which consisted of that transaction, and of which the instrument of February 6th was but an element, are questions, that we do not consider, because of our conclusions upon the antecedent subject of jurisdiction. If the court having jurisdiction, there is such right of recovery upon the contract, it arises by converting a contract, which in terms — and they are most explicit to that effect, because mutually executed on the payment of the $200 — into an executory contract against McLaughlin as to the $800 and interest, and this to effectuate the principle, that the laws, which required the company to affix a par value to its stock, also forbade its parting with the stock, except for an actual and bona fide equivalent, so — 43 — as to protect creditors, "by enabling them to rely absolutely upon its capital as actual not fictitious. The assignee treats the contract executory upon this principle, and seeks to recover upon it accordingly. Hence by the theory of the suit the alleged claim is for a balance of the price or value of unpaid stock, -which balance if due at all, was due on the 14th day of February, 1871, when the stock was delivered, and therefore on the 11th day of April, 1872, when the assignee was appointed, 22 How., 380, Ogilvie v. Knox Ins. Co.; 5 Otto, 628, Perry v. Anderson. It also appears on the part of Upton that the bankrupt court on the 5th day of July, 1872, duly ordered this balance to be paid to him by August 15th, 1872, and that in pursuance of that order notice Avas given to McLaughlin on the 15th day of the same July. Therefore, whether the date, at which the alleged claim accrued to the assignee be treated as the date of his appointment, or the date designated in the order for payment, is immaterial to the enquiry whether the district court had jurisdiction of the suit, for in either view more than two years had expired before the maturity of the claim and his commencement of suit. The bankrupt act of March 2, 1869, at sections 2 and 14, U. S. S. at L., 518, declares that “ no suit at law or in equity shall in any case be maintainable by or against the assignee in bankruptcy, or by or against any person claiming an adverse interest towards any property or rights of property transferable to or vested in such assignee in any court Avhat-soever, unless the same be brought within two years from the time when the cause of action accrued for or against such, assignee: provided, that nothing herein contained shall reAÚve a right of action barred at the same tpne such assignee is appointed.” The bankrupt acts of section 5057 of the U. S. Rev. Stats., declares, “that no suit in laAV or equity shall be maintainable in any court between an assignee in bankruptcy and a person claiming an adverse interest touching any property or rights of property transferable to or vested in such assignee unless brought — 44 — within two years from the time when snch cause of action accrued for or against such assignee. And this provision shall not in any case revive a right of action, barred at the time, when an assignee is appointed.” The sections are identical in substance. The statute creates an officer unknown, and for purposes unknown to the common law; what it creates, it can limit: the officer has his origin in the statute, his existence begins and ends in it, and his capacity is measured by it. The difference between the objects respectively aimed at by a statute of merely remedial limitations and the present statute, indicates the difference between the constructions which are to be applied to them.1 The former seeks to protect a party from an alleged liability upon a'Claim, that after a prescribed period is presumed to be fictitious, either because it never existed, or, if it did, has been satisfied; the latter to secure to creditors the largest benefit of a common fund, by speed and economy in the administration of it, the paramount importance of which purpose is peculiar to a bankrupt act is manifest from the indefinite variety, extent and complications of assets to be administered and of claims to be adjusted against them. The clear intention of the act in question was to impose two years as the absolute limit to the capacity of the officer, within which to sue or be sued,— and this in order to promote dispatch in the liquidation of the bankrupt estate by avoiding the indefinite, wasteful and vexatious delays, which would be necessarily consequent upon the power of waiver, were this provision a limitation of the remedy alone. The last clause of each section, namely, that it shall not in any case revive a right of .action, barred when the assignee is appointed, completely matches this construction ; and it would be inconsistent with the body of the act, were that to be construed, as a mere limitation upon the remedy, for thus it would in one breath forbid the revival of actions barred at the time of the appointment and permit the revival of whatever right becomes subsequently barred — a senseless incongruity. Hence, after the two years, — 45 — for all the purposes of suit being commenced by or against the assignee, bis office lias expired and bis existence ceased. As be is powerless to acquire, so tbe court is powerless to admit bim to a status within tbe court. This want of power is want of jurisdiction. We should not hesitate so to construe tbe statute were it to read: “no suit shall be commenced in any court,” instead of, “no suit shall be maintainable in any court,” as it now reads; “maintainable” signifies capable of being maintained; “not maintainable” incapable of being maintained. Declaring that no suit shall be capable of being maintained if commenced after tbe two years, or that every suit commenced after that period, shall be incapable of maintainance, tbe section declares that a suit so commenced, shall be a subject on which no court shall act, that is, shall be capable of acting. But tbe words, “ not maintainable,” are employed ex industria, intending to preclude all doubt, that might attend an implied construction, by inhibiting in express and explicit terms tbe officer and claimant from instituting suit after the prescribed period; and tbe courts from entertaining it, if instituted. This is tbe special function of tbe terms, “not maintainable,” as employed in tbe context. They go beyond tbe parties, and reach tbe very jurisdiction of tbe court, defining it as to subject matter. This construction of tbe two years clause concurs with tbe unmistakable spirit and intent of tbe rest of tbe act; in its consistent and careful provisions for suits, summary bearings, compromise and other proceedings essential to the administration of tbe estate, it exposes tbe one general purpose of thrifty conversion and early distribution.' The provision then which is under enquiry is jurisdictional; and a suit, instituted in violation of it, would be coram non judice and void. Since reaching this conclusion, we have examined Baity, Assignee-in bankruptcy of Benjamin Glover v. Glover et als., 21 Wall., 342; we derived the impression at the hearing that the case expressed only a dictum in favor of this view; we find that it has a graver aspect. It was a — 46 — suit in equity brought by Baily against Elenor Glover and others in the circuit court of the United States for the southern district of Alabama, to vacate a conveyance of property, made by the bankrupt to the defendants in fraud of the act: it appeared by the bill that the assignee was appointed on the 1st day of December 1869, and brought the suit on the 20th day of January 1873 ; that the fraud was committed prior to the appointment, but kept secret by the parties to it from the assignee, so that he was prevented from discovering it until within two years next before the commencement of the suit; the defendants demurred, the demurrer was sustained by the court below, and the as-signee appealed; the supreme court reversed with a modification sustaining the general principle of the decree below, simply modifying its application to the special features of fraud. The opinion of the court was delivered by Mr. Justice Miller ; he says of the second section of the act of 1867, “ this is a statute of limitations and is precisely like other statutes of limitations,” and stopping at this remark a hasty conclusion would be that he was speaking of the statute as merely an act of limitation: upon the remedy it is however observable that the expression viewed literally does not indicate whether it referred to an act of remedial, orto one of jurisdictional limitations; the context, however, unmistakably indicates that it referred to the latter, and this we proceed to show. If a bar of limitations is simply remedial, it does not-impair the right of action or defence, cannot be raised by demurrer, can only be raised by plea, and this whether the facts on which it is raised, do or do not previously appear in the record; if the bar of limitations is jurisdictional it does impair the right of action on defense, and may be raised by demurrer on motion, when the ground of the bar appears in the record; if the facts do not so appear, they must be pleaded in order to prevent the jurisdictional bar; this distinction between the several functions of a demurrer and a plea under a limitation act is a perfect key to Baily v. Glover and, others, sufficing to — 47 — determine its scope as a decision. The demurrer was interposed upon the theory that the section prescribed a jurisdictional bar and that, in applying the bar, the time would be computed from December 1st, 1869, the date of the assignee’s appointment, and not from the discovery by him of the fraud; the demurrer might have been overruled upon either of two grounds: one, that the bar was remedial, the other, that it was jurisdictional; but in applying it as such, the time would be computed from his discovery of the fraud ; but the demurrer could have been sustained only upon the ground that the bar was jurisdictional. Now, how did the circuit and supreme courts treat this demurrer ? The former sustained-it on the ground that the time began with the date of appointment, and dismissed the bill. The latter sustained it with the modification already stated; having made the remark, “ this is a statute of limitation, and is precisely like other statutes of limitation,” Judge Miller proceeded as follows: “and applies to all judicial contests between the assignees and other persons touching the property or rights of property of the bankrupt, transferable to, or vested in the assignee, where the interests are adverse and have so existed for more than two years from the time when the cause of action accrued for or against the assignee. It is obviously one of the purposes of the bankrupt law that there should be speedy disposition of the bankrupt assets; this is only second in importance to securing equality of distribution. The act is filled with provisions for quick and summary disposal of questions arising in the progress of the case, without regard to usual methods of trial attended with some necessary delay. To prevent this as much as possible, congress has said to the assignee, you shall commence no suit two years after the cause of action has accrued to you, nor shall you be hampered when the cause of action has accrued more than two years against you; within that time the estate ought to be neariy settled up, and your functions discharged ; ” this policy of the limitation clause, and the — 48 — ground of it, as so explained by the court, are utterly incompatible with the idea that the bar is under the control of the parties, not of the court, and is compatible alone with the idea that it is under the control of the court and not of the parties ; but, as if to put its view upon the subject beyond doubt the court concluded its explanation of the policy with the further remark, that by the two years clause congress declares, “ we close the door to all litigation not commenced before that period has elapsed;” the conclusion is unavoidable, if the door may be closed or opened at the will of the parties, congress does not close it, and the section provides but a remedial limitation; if congress closes it the parties cannot open it, and the section imposes a jurisdictional limitation; therefore the supreme court fully sustained the circuit court, but following the analogy furnished by the practice under a remedial bar of limitations, further held that when it appeared that there had been no laches upon the assignee’s part in hearing of' the fraud, which was the basis of the action, and the fraud had been concealed, or was of such a character as to conceal itself from him, the statute did not begin to run, till it had been discovered by, or become known to him or his privies, and so reversed with directions to proceed accordingly; thus the supreme court decided that if the concealment of the fraud did not appear in the bill, the bar would begin with the appointment; that if it clid so appear the bar would begin with the discovery, and if more than two years had‘elapsed between the commencement of the bar and the commencement of the suit, a demurrer would lie, and the bar be raised; and upon the invariable distinction between a demurrer and a plea, this was deciding that the second section of the act of 1867 prescribed a jurisdictional limitation. Hence, if we have correctly interpreted Baily v. G-lover the supreme court has adjudicated the question and its adjudication is a rule to us. We add that the rule, so laid upon us, entirely accords with our preconceptions derived from the statute alone. — 49 — We now advert to several eases which have since been decided upon the federal circuit. We refer to them, not that the decisions or opinions of an inferior court can be looked into as impairing or supporting a decision of the supreme court of the United States, but because those circuit cases contain proof that our interpretation of the appellate decision in Baily v. Glover and others is correct. In Wiltonberger and Norton, assignees in bankruptcy v. Phillips, 8 Wood, 115, it appeared by the petition that the cause of action accrued on the appointment of the assignee, and that the suit was commenced more than two years after the defendant accepted, which under the civil law practice of Louisiana was equivalent to a demurrer at the common law; the circuit court sustained the exception upon Baily v. Glover as a controlling decision. In 4 Dillon, 386, Payson, assignee in bankruptcy v. Coffin, the defendant plead that the cause of action did not accrue within two years before the suit was brought, the report does not show that that fact previously appeared upon the record ; the plaintiff demurred; the plea was adapted to either of two theories, the theory that the bar was remedial, the theory that it was jurisdictional; and, if the lapse of time between the accruing of the claim and the commencement of the suit did previously appear in the record, the plea, instead of the demurrer, may have been resorted to, for the purpose of securing to the defense whatever of the two constructions the act might receive; the plea was sustained, and on which of these grounds the report does not indicate, but in Walker, assignee in bankruptcy v. Turner, same volume, at page 165, according to Judge Dillon, Judge Miller, deciding Payson v. Coffin orally, put his conclusion upon the Baily and Glover case and what he .regarded as the obvious policy of the two years clause, and the almost necessary result of its peculiar phraseology. Judge Dillon attributes to Judge Miller the use on that occasion of the following expression, namely, that his decision of Payson v. Coffin was “ thoroughly supported by the views of the supreme court — 50 — in Baily v. Glover;” at first glance it might be said that that language rather referred to a dictum than to a decision, and that Judge Miller would not probably have emp^ed it, had he been referring to an adjudication of the supreme court; and this idea could have especial force, had Judge Miller’s expression been this — “ supported by the views of the judge who delivered the opinion in Baily v. Glover,” but, when he said, “ supported by the views of the supreme court in Baily and Glover,” he must be taken to have studiously based his remark upon this the fixed rule for the interpretation of decisions, namely, that all that binds an appellate court, and therefore.all that can be reported as its views in its opinion delivered by a single member is the conclusion and its reasons, for which two elements the court is alone responsible — all matters of dictum contained in the opinion being merely the view or views of that judge and for which he alone is responsible; therefore correctly understood, Judge Miller treated that case as an adjudication of the supreme court upon the subject, and accordingly sustained the plea in Taylor and Coffin on the ground that it presented a jurisdictional bar. In Walker and Turner the limitation was pleaded, and the defense thus adapted to the alternative theories of the clause, the plea was demurred to, and was sustained as presenting a jurisdictional bar. In Foreman, assignee in bankruptcy v. Bigelow et als., 9 Cent. L. J., 430, at the first circuit, Judge Clifford, on the authority of Baily v. Glover, sustained a demurrer to a bill in equity upon the ground that two years had elapsed between the accruing of the cause of action and the commencement of the suit. In Tappan, trustee in bankruptcy v. Whittemore et als., decided, as we understand, after the 21 of Wallace, on demurrer interposed to the complaint upon the ground that the claim was barred under section 5057 which applies equally to trustees as to assignees, Judge Wallace overruled the demurrer, because the two years had not elapsed; holding that it would have been sustained had the reverse appeared; he followed the — 51 — 21 of Wall, without alluding to it, and unfairly assumes that he knew of it, when he made his decision. We therefore hold that the district court had no jurisdiction of the present suit. Is the record in a condition to enable us to act upon the defect? From the conclusion already reached, it would seem to be a necessary result that the petition does not state a right of action, unless it affirmatively shows that the suit is brought within the two years, -and that not showing it, it is substantially defective; the present petition is thus defective; the third and fourth answers were each demurred to, the demurrers sustained, and judgment rendered upon them against the defendant. Whether these answers were defective or not the demurrer reached back to the petition as containing a substantial defect, and judgment on each demurrer should have been rendered against the assignee; hence the defendants’, exception to the judg ment as rendered on the'demurrers, was well taken. Again it affirmatively appears in the record in two instances that the district court had no jurisdiction of the suit. The petition shows that the claim accrued as early as April 11, 1872, certainly not laterthan August 15, 1872, the official filing of the petition that the suit was commenced on April the 8th, 1876; upon the trial the deed of appointment executed on April 11, 1872, was offered and admitted in evidence and became thus coupled with the filing of the petition; thus the defect of jurisdiction twice appears upon the record. The purpose^of the offer was to show that the •assignee was competent to sue, and the court to entertain the suit; the effect of the offer was the same; the admission of the deed was objected to as incompetent, and an exception taken; the objection was perfect, and must be sustained. But the objection was superfluous. Want of jurisdiction over subject-matter is a radical, and therefore an incurable, ■ defect. The parties cannot waive, nor can the court ignore it. A court does not create its júrisdiction; it must accept and confine itself to what is. created for it; hence ex neeessi52 fate such defect of jurisdiction carries its objection with it; appearing in the case, it is the imperative duty of the court, of its own motion, to treat the proceedings as null, and to dispose of them accordingly; for this is its only power in the given case. Mr. Gould in his Pleadings thus states the rule: “It is a fatal objection to the jurisdiction of any court, that it has not cognizance of the subject-matter of the suit; i. e.; that the nature of the action is such that the court is under no circumstances competent to try it; in such case neither a plea to the jurisdiction nor any other plea would be necessary to oust the jurisdiction of the court; the cause might be dismissed on motion, or even without motion it would be the duty of the court to dismiss it ex officio; for the whole proceeding would be coram non judice and .utterly void.” To this we add that the rule is absolutely uniform; and is so plain and familiar, that further citation in its support would be unbecoming. The words of the act, “not maintainable,” here recur, for in the light of the above elucidated principle they constitute an express direction to the court to refuse to entertain a suit, so forbidden by the statute. It follows that it was the duty of the district court, on inspection of its record, and of its own motion, to dismiss the suit. It having proceeded to exercise jurisdiction, and render judgment for the as-signee, it is our duty to reverse, and we do reverse the judgment and dismiss the action and with costs to the plaintiff in error. It is due to the learned chief justice, who tried the case below, to say that the suit was tried there on both sides without a hint against, or an apparent doubt of jurisdiction; that the construction now given to the statute is a recent idea; and that it is not remarkable that his attention was diverted from a point, that was not suggested at the bar in a case which was represented by competent counsel, and sharply contested. Judgment reversed. — 53 — Blair, J., dissenting. This case, and the following case, of “Kent v. Upton, assignee,” were reversed in the supreme court of the United States at the October term, 1881.