Shelton v. Pease

Napton, J., delivered the opinion of the Court. One of the principal questions presented - by the record in this case, grows out of the certificate of bankruptcy, which is set up in the third plea as a defence to the action. We have been referred to. a number of adjudications, made on the British bankrupt laws, and, upon our bank — 478 — rupt act of 1800, which tend to show, that under those acts, a certificate of bankruptcy did not relieve the bankrupt from contingent liabilities like the present. It is unnecessary to refer particularly to these cases. They are collated and reviewed by the American editor of Smith’s leading cases in a note to the case of Mills vs. Auriol (S. L. C., 486.) The bankrupt law of 1841, is however, in many respects suigeneris and materially unlike the British statutes or the act of 1800, upon which these adjudications were had. The 4th section provides, that the discharge and certificate granted by virtue of the act, shall, in all courts of justice, be deemed a full and complete discharge of all debts, contracts and other engagements of such bankrupt, which are proveable under the act, and that the same may be pleaded in bar to any action brought against the bankrupt. The character of the claims, which may be proved under the act, is specified in the 5th section. Amongst other things, it is declared that “all creditors whose debts are not due and payable until a future day, all annuitants, holders of bottomry and respondentia bonds, holders of policies of insurance, sureties, endorsers, bail, or other persons having uncertain or contingent demands against such bankrupt, shall be permitted to come in and prove such debts or claims under this act, and shall have a right, when their debts and claims become absolute, to have the same allowed them, &c.” It will be observed that this language is very comprehensive. Lord Coke has said (Co. Lit., 291, b. fol.) that the word demand is a word of art, and the strongest word in the law, except the word claim, and that a release of all demands releases “all mixed actions, a warranty which is a covenant real, ánd all other covenants real and personal, conditions before they are broken or performed, or after, annuities, recognizances, statutes merchant or of the staple, obligations, contracts, &c.” Now the statute uses both the word demand and the word claim, and seems to have designed to effect a complete extinguishment of all the debtor’s liabilities, however contingent or uncertain. Under the Bankrupt act of 1800, no debt, but such as was due and owing at the time of the bankruptcy, could be proved under the commission. The 34th section of the act provided in terms, that the certificate should discharge the bankrupt “from all debts by him due or owing, at the time he became a bankrupt.” Such also was the character of the English bankrupt laws, until a very recent’period. Eden on B. L., 239. But the bankrupt act of 1841 expressly provides for debts not due, and — 479 — for liabilities, contingent and uncertain, and makes the discharge coextensive with the right to a dividend. It is admitted in all the cases to which we have alluded, that a bankrupt law may be so framed as to avoid and annul all contracts, existing at the time of the bankruptcy, whether the liability of the bankrupt upon such contracts was fixed at the time of the bankruptcy or depended entirely upon contingencies which might afterwards arise. If language could be selected to convey this idea with precision and certainty, we •think it must be conceded, that the framers of this act have succeeded in adopting it. The first .replication to the plea of bankruptcy set forth, that the defendant, on, &c., at, &c. made a transfer of property in contemplation of bankruptcy, and for the purpose of giving a preference to a creditor of said defendant over the general creditors of said defendant. The second replication avered, that the defendant, on, &c., at, &c., made a transfer of property in contemplation of bankruptcy, and for the purpose of giving a preference to Richard S. Tilden, Lyman B. Shaw, and Mary Brown over the general creditors of said defendant; that heretofore, to wit: on, &c., at, &c., said Tilden, Shaw, and Brown as purchasers from said defendant of real estate subject to the mortgage described and referred to in said declaration, had a claim on said defendant for indemnity against the liability of the land thus purchased by them against said mortgage. The third replication was, that said defendant fraudulently and with intent to deceive and defraud the said plaintiff, failed to give notice, according to the provisions of the act of Congress in such case made and provided, to him the said plaintiff, to show cause why the discharge and certificate in said third plea mentioned should not be granted. To the first replication, the defendant rejoined, 1. That he did not in contemplation of bankruptcy make a transfer of property in manner and form as alleged, &c. 2. Thatsaid supposed transfer of property was made before he petitioned for the benefit of the bankrupt law. To the second replication, the defendant rejoined, 8. That he did not, in contemplation of bankruptcy, make a transfer of property, and for the purpose of giving a preference to Tilden, Shaw and Brown, &c. 4. That said supposed transfer was made before he petitioned for the benefit of the bankrupt law. — 480 — To the third replication, the defendant rejoined, 5. That he did not fraudulently ancí with intent to deceive and defraud said plaintiff, fail to give notice, &c, 6. That said plaintiff might, without the notice, have shown cause, if any such existed, &e. Issues were taken on the first, third and fifth rejoinders and demurrers filed to the second, fourth and sixth. Judgment was given on the demurrer for the defendant. As the rejoinders demurred to were clearly bad, the demurrer must have been sustained, either because the replications were bad or the declaration did not set out a sufficient cause of action. It is unnecessary to notice the first replication, as the second sets up more definitely the same matter intended to be relied on in the first. This replication, (we mean the second) is based upon the provisions contained in the second and fourth sections of the bankrupt act. The second section declares, that all transfers of property, in contemplation of bankruptcy, and for the purpose of giving any creditor a preference or priority over the general creditors of such bankrupt, shall be deemed void and a fraud upon the act; and the assignees shall be entitled to sue for and receive the same as a part of the assets of the bankrupt, and the person making such unlawful preference shall receive no discharge. The fourth section povides, that if any bankrupt be guilty of any fraud or wilful concealment of his property, or shall have preferred any of his creditors, contrary to the provisions of this act, he shall not be entitled to any discharge or certificate. It is further declared in the same section, that the final certificate may be pleaded in bar to any action brought against such bankrupt, unless impeached for some fraud or wilful concealment of property, contrary to the provisions of the act. A transfer of property, in contemplation of bankruptcy, and for the purpose of giving a preference to any creditor over the general creditors of the bankrupt, is declared to be a fraud upon the act, and this fraud upon the act, is expressly authorised to be set up as an answer to the certificate, whenever it is pleaded. There can be tno doubt, then, that the matter intended to be relied on in the second replication, constitutes a sufficient answer to the plea of bankruptcy, if it has been properly pleaded.. The objections to the replication are that it does not specify the particular property conveyed, nor the person to whom the transfer was made. If the amount or character of the property transfered could have any influence in determining the nature of the transfer, it should certainly be stated; but — 481 — as all transfers, made with the motives and objects specified in the replication, are declared to be frauds upon the bankrupt act, and to avoid the certificate, whatever may be the amount or nature of the property transfered, it cannot be material that these particulars should be stated, unless they are essential to inform the adverse party of the conveyance or transfer intended to be relied on. So also the omission to state the nominal parties to the instrument, which constituted the evidence of the transfer, could not be very material, when the parties, who were benificially interested, are stated. The third replication is bad. The want of notice for which the statute provides, is nowhere declared to avoid the certificate. The regulations on this subject are directory to the court trying the cause, but a failure to comply with such regulations does not necessarily avoid its judgments. It is nowhere so declared in the act, and upon general principles, it would not have such an effect. If there has been no fraud, and no transfer of property contrary to the provisions of the act, it cannot matter whether every step in the proceeding was regular or not. The only question remaining to be examined, is the sufficiency of the breaches set forth in the plaintiff’s declaration. The deed declared on, contains the words “grant, bargain and sell,” and after reciting, that on the lot so conveyed, there was a mortgage executed by the grantor to one Languemare to secure the payment of five thousand dollars, contains a special covenant on the part of the grantor, his heirs, executors and administrators, that he will forever warrant and defend the premises conveyed, against all persons lawfully claiming or to claim the same, in law or equity, and against all titles, liens, and incumbrances whatever, and particularly against the mortgage above described. The breaches assigned in the declaration are : 1. That the defendant covenanted with the plaintiff, amongst other things, that said defendant would pay said mortgage debt, with interest, &c., but that said defendant did not pay said mortgage debt, &c., but hath wholly failed to do so, and that the plaintiff had paid a large sum, to wit: seventeen hundred dollars, in discharge of said mortgage. 2. That the said defendant has not warranted and defended the said premises against the said mortgage, but hath hitherto wholly neglected and refused to do so, and by reason of this said plaintiff was compelled to satisfy said mortgage. 3. That said land was not free from incumbrances, suffered by the grantor at the time, &c. — 482 — The first and second breaches in the declaration are founded on the special covenant in the deed. That covenant is a covenant to warrant and defend the title and possession against all liens, and especially against the incumbrance specified in the deed. There is no covenant that the grantor will pay off the mortgage, nor is any such covenant implied by the covenant of general warranty. Nor is the payment of the mortgage by the grantee any breach of the covenant of general warranty, or of the covenant of quiet enjoyment. It seems to be well settled, that a disturbance of the possession is necessary to constitute a breach of these covenants. Among the numerous cases, which are to be found on this subject, both in the United States and England, I have met with none in which a mere payment of money for the purpose of buying in a paramount title or extinguishing a mortgage has been held to be a breach of this, covenant. The case of Sprague vs. Baker, (17 Mass. R., 586.) seems to countenance this idea to some extent; but even in that case, whose authority has been much questioned, the payment of the mortgage was made under threats of a suit for possession. There must be an eviction or something equivalent thereto, to constitute abreach of this special covenant. The third breach is upon the statutory covenant against incumbrances. In setting out a breach of this covenant, it is not necessary to state an eviction, but the existence of an incumbrance at the time of the conveyance is a breach of the warranty. The particular incumbrance relied on, must however be specifically stated; and this brings up the question, whether the special covenant against the mortgage to Languemare, does not restrain the general covenant against incumbrances created by the words “grant, bargain, and sell.” In the case of Hesse vs. Stevenson, (3 Bos. & Pul., 574,) Lord Alvanly said, “from all the cases upon this subject it appears to be determined, that however general the words of a covenant may be, if standing alone, yet if from other covenants in the same deed it is plainly and irresistibly to be inferred that the party could not have intended to use the words in the general sense which they import, the court will limit the operation of the general words.” Can we suppose, that, where a party in a deed makes a special covenant to warrant and defend against a particular mortgage recited in the deed, he at the same time intends, by a general covenant against incumbi’ances, to covenant against the existence of this particular mortgage? Can the two covenants stand together? If weallowthe covenant against incumbrances to include the mortgage of Languemare, we have a party first — 483 — recognising the existence of this mortgage and making a special covenant in relation to it, based upon the hypothesis of its existence and only providing against any disturbance or eviction under it, and at the same time covenanting that the land was free from all mortgages. Upon this construction of the deed, the grantor covenants against an incumbrance, the existence of which he acknowledges in the deed containing the covenant. Such a construction does violence to the language of the deed, and the manifest intention of the parties. It is true, that by confining the grantee to his special covenant,]he does not reap the same advantages from the payment of this incumbrance, which he would have done had no special covenant been inserted in the deed; but this is the result of the grantee’s own choice. He prefers a special covenant framed to suit his own views, we must suppose, to those general covenants which the law would have raised upon the language of the deed, and accordingly protects himself by this special covenant. If the special covenantprove less beneficial than the general one, it is his own fault. Parties are at liberty to make their own contracts, and upon a fair construction of this deed, it seems impossible to doubt, that the grantee designed to protect himself by special covenant against a known incumbrance, and that this special covenant was framed to meet the contingencies against which he desired to provide. That he has misunderstood the character of his covenant and paid up the mortgage, without waiting for a suit, much less an eviction, are circumstances which cannot vary the nature of his deed, or entitle him to relief in an action upon his covenant. The breach of the covenant against incumbrances is therefore not good — because the deed contains no covenant against the existence of the mortgage to Languemare, but on the contrary recognises its existence, and contains a special warranty against any disturbance under it. The other Judges concurring, judgment affirmed.