Larrabee v. Talbott

Martin, J., delivered the opinion of this court. By the sixth section of an act of Assembly of 1816, ch. 221, entitled an act relating to insolvent debtors in the city and county of Baltimore, it is enacted:— “ That all deeds, conveyances, transfers, assignments or sales of any property, real, personal or mixed, or of any debts, rights, or claims to any creditor or creditors, security or securities which have been or shall hereafter be made, by any person, with a view, or under an expectation of being or becoming an insolvent debtor, and with an intent thereby to give an undue and improper preference to such creditor or creditors, security or securities, shall be absolutely null and void, and the title to property or claims so attempted to be conveyed, transferred, assigned or sold, shall vest in the trustee or trustees of such insolvent debtor as effectually as any property specified in the schedule of such insolvent debtor.” And by the first section of the act of 1834, ch. 293, entitled “ a further supplement to the act relating to insolvent debtors in the city and county of Baltimore,” it is declared: “ That in all cases of applications hereafter to be made for the benefit of insolvent debtors under the act to which this is a supplement, all conveyances, assignments, sales, deliveries, payments, conversions or dispositions of property, &c. that shall be made or allowed to be made, whether upon request or otherwise, by any applicant with a view to the advantage or security of, and with intent to prefer any creditor or creditors, &c. of such applicant, when such applicant shall have no reasonable expectation of being exempted from liability — 434 — or execution for or on account of his debts without applying for the benefit of the insolvent laws as aforesaid, shall be deemed within the meaning and effect of the sixth section of the act to which this is a supplement, to have been made with a view or under an expectation on the part of the applicant, of being or becoming an insolvent debtor, and with an intent thereby to give an undue and improper preference with a proviso, u that the provisions of this section of the act, shall not apply as against any person claiming by virtue of any assignment, &c., for valuable' consideration, from or under the creditor or creditors, &c.; nor to any case where the said creditor, or security, shall appear not to have had notice of the, condition of insolvency aforesaid, of said debtor.” ...It appears from the evidence in this case, as incorporated into the bill of exceptions, that D. Berrien & Co., merchants, residing in the city of New York, sold and delivered at New. York to Rogers &f Frick, merchants, residing in the city of Baltimore, goods amounting to the sum of one thousand and seventy-one dollars and seventy three , cents; that D. Berrien, Jr. visited. Baltimore at the instance of Rogers Frick, for the purpose of settling his account; that on the 12th May, 1841, the promissory note set out. in the bill of exceptions was given by Rogers & Frick to D. Berrien, Jr. & Co., on account of their said indebtedness to them, and that on the same day the. merchandise, and promissory notes and bills receivable, mentioned in the declaration, were delivered by Rogers fy Frick to D. Berrien Sf Co., or to the defendant, as their agent, in payment of their promissory note; and that the note was can-celled and surrendered by Berrien & Co. into the possession of Rogers & Frick. It further appears from the record, that Rogers & Frick applied for the benefit of the insolvent laws of Maryland, and obtained their personal discharge on the 30th August, 1841; and that the appellee was appointed their provisional trustee on the 30th August, and their permanent trustee on the 20th December, 1841. It also appears from .the bill of exceptions, that the. plaintiff at the trial of the cause, introduced evidence to show that on — 435 — the 12th May, 1841, Rogers & Frick were actually insolvent, and that this condition of insolvency was known to D. Berrien, Jr. & Co., and that Rogers Sf F,ick intended at that time tó apply for the benefit of the insolvent laws. And offered testimony to prove that the property mentioned in the declaration came into the possession of the defendant, as the agent of B. Berrien, Jr. & Co., and that a demand was made by the plaintiff upon the defendant for the delivery of this property on the 20th January, 1842, and was by him refused. With respect to this portion of the case, there was conflicting testimony offered by the defendant, with the exception of the demand and refusal: that was conceded, and in this condition of the cause, the plaintiff asked the court to give to the jury the following instructions: 1. If the jury shall fmd from the evidence, that at the time Rogers & Frick assigned and delivered the merchandise and notes in question to Berrien or Larrabee, they had no reasonable expectation of being exempted from liability or execution, for or on account of their debts, without applying for the benefit of the insolvent laws, then the said transfer was made with a view, or under an expectation on the part of Rogers & Frick, of being or becoming insolvent debtors, and said transfer is void; and shall further believe, that Rogers Frick did afterwards apply for the benefit of the insolvent laws of the State of Maryland, the plaintiff is entitled to recover, provided the jury shall believe that Berrien had notice of the condition of insolvency of said Rogers & Frick. Notwithstanding, they shall also believe that Larrabee acted as the agent of Berrien in the receipt of the property, and had shipped the goods to Gilbert, before the demand of the plaintiff. 2. Although the jury should believe that Rogers & Frick had reasonable expectations of being exempted from liability or execution, for or on account of their debts, at the time of the assignment and delivery, as referred to in the first instruction, yet if the jury find the said assignment and delivery, and that the same was made with the view of being or becoming insolvent debtors, and with intent thereby to give an undue and — 436 — improper preference, and that they afterwards applied for the benefit of the insolvent laws, that then said assignment is void, although the jury should believe that said assignment was made in satisfaction of a bona fide debt due from said Rogers ¿¡f Frick, and although they should find that Berrien had no notice of the condition of insolvency of said Rogers 8f Frick, if such insolvent condition existed at the time of said assignment; and the plaintiff is entitled to recover, although the defendant acted as mere agent of Berrien, if the jury shall find that the defendant shipped the goods before action brought, to Gilbert of JYew York. These prayers were granted by the court below, and exceptions having been taken to the ruling of the court, the question presented for our consideration is, whether they erred in the instructions which they appear to have given to the jury, with respect to the law of the case. It is apparent from the statement we have given of this case, that the material and prominent question raised by the record, is that which respects the validity of the transfer of the 12th May, 1841. And upon this point, the counsel for the appellant have contended, that as Berrien ¿r Co. were citizens of JYew York, the insolvent laws of Maryland could not prevent Rogers 8f Frick from discharging their bona fide indebtedness to them by a delivery of the property mentioned in the declaration; and that as the contract by which they were so indebted to Berrien fy Co. wras made in JYew York, such insolvent laws could not prevent the debt being discharged, in the mode and manner stated in the bill of exceptions. We did not understand the counsel for the appellee as controverting the proposition advanced by the counsel for the appellant, that the contract between Berrien &/• Co. and Rogers Frick was to be considered as a JYew York contract. The goods were purchased by Rogers §• Frick in JYew York, and there is no doubt that in legal contemplation, the contract was to be performed there, and to be governed by the laws of that State. The fact that a promissory note was subsequently — 437 — drawn at Baltimore by Rogers Frick, in favor of Berrien fy Co., as evidence of tbeir indebtedness, cannot be treated as altering the locality of the contract. The original cause of action is never considered as extinguished by the mere taking of the promissory note of the debtor, and therefore, if the note is not paid, and is surrendered, it has always been held, that an action may be maintained on the common courts for the sale and delivery of the goods. We have then before us a contract made and to be performed in JYew York, between citizens of Maryland and citizens of New York, and it is now settled by the adjudications of the Supreme Court, that the discharge obtained by Rogers §• Frick under the insolvent laws of Maryland, could not affect the right of Berrien Sr Co. to obtain against them in the Maryland courts, au absolute and unqualified judgment, and to place their execution upon any property of the insolvent debtors, to be found undistributed in the hands of their trustee. In the case of Cook vs. Moffat & Curtis, 5 How. Rep. 295, it appeared that Moffat & Curtis, merchants of New York, sold goods to Cook, who was a merchant and resident of Baltimore ; that on a settlement of their accounts, Cook transmitted his promissory notes to his attorney in New York, who delivered them to Moffat & Curtis, and that after the notes became due, Cook applied for and obtained the benefit of the insolvent laws of Maryland. An action was instituted against Cook in the Circuit Court for the District of Maryland on the common money courts. Cook pleaded his discharge under the Maryland insolvent laws, insisting that the contract was to be performed in Maryland, and governed by the laws of Maryland in existence at the time it was made, and that therefore his discharge under her laws was a good defence to the action. The case was presented to the Circuit Court, upon an agreed statement of facts, and the court overruled the plea and gave an absolute judgment for the plaintiff. This judgment was affirmed by the Supreme Court at the January term, 1847. This case in its leading facts is strikingly similar to the one under consideration, and we refer to the opinion of the court, as con438 tabling what must now be regarded as the final adjudication of the Supreme Court, upon a question, which has produced since it was first agitated, much conflict of opinion, and has given rise to many perplexing doubts. Mr. Justice Grier, who delivered the opinion of the court, when speaking of the locality of the contract, at page 307 says— “ That the contract declared on in this case was to be performed in Maryland, and to be governed by her laws, is a position that cannot be successfully maintained, and was therefore very properly abandoned on the argument here. For although the notes purport to have been made in Baltimore, they were delivered in New York, in payment of goods purchased there, and of course, were payable there, and governed by the laws of that place.” He says— “ That the question to be decided is, whether the bankrupt law of Maryland can operate to discharge the plaintiff in error from a contract made by him in New York, with citizens of that State ?” He controverts the proposition that the opinion in Ogden vs. Saunders is liable to the imputation of having established the doctrine, that a State court would be justifiable in giving effect to a bankrupt discharge, which the courts of the United States would declare invalid, and affirms that such a decision has never been made by this court. Upon this subject his language is— “ The Constitution of the United States is the supreme law of the land, and binds every forum, whether it derives its authority from a State, or from, the United States.- When this court has declared State legislation to be in conflict with the Constitution of the United States, and therefore void, the State tribunals are bound to conform to such decision. A bankrupt law which comes within this category, cannot be pleaded as a discharge, even in the forums of the State which enacted it. ■ “It is true, that as between the several States of this Union, their respective bankrupt laws, like those of foreign States, can have no effect in any forum beyond their respective limits, unless by comity. But it is not a necessary consequence, that State courts can treat this subject as if the States Were wholly — 439 — foreign to each other, and inflict her bankrupt laws on contracts and persons not within their limits.” Again he says—■ “Accordingly, we find that when in the case of Sturgis vs. Croioninshield, this court decided that a State has authority to pass a bankrupt law, provided there be no act of Congress in force to establish a uniform system of bankruptcy, it was nevertheless considered to be subject to the further condition, that such law should not impair the obligation of contracts within the meaning of the Constitution of the United States, art. 1, sec. 10. It followed as a corollary from this modification and restraint of the power of the State to pass such laws, that they could have no effect on contracts made before their enactment, or beyond their territory.” We have quoted largely from the opinion of the learned Judge in this case, because it contains the views of a court whose decisions upon all questions of constitutional law, are to be received as conclusive; and it appears to us, that the principles enunciated in that opinion clearly establish, that the provisions of the insolvent laws relied on by the counsel for the appellee as invalidating this transfer, can have no effect upon the rights of these creditors. In other words, to use the language of the court, in Cook vs. Moffat, the State of Maryland has no constitutional power to inflict her insolvent laws on contracts and persons not within her limits. The counsel for the appellee have however contended, that the provisions of the Maryland insolvent laws, as contained in the sixth section of the act of 1816, ch. 221, and the first section of the act of 1834, ch. 293, are not open to the constitutional objection that has been urged against them, because they leave unimpaired the obligations of this contract. But it is impossible to maintain this proposition. What is the obligation of the contract in the sense in which this term is used, in the eighth section of the first article of the Constitution of the United States? This question is to be answered by referring to the exposition which has been given to this clause of the Constitution, by the Supreme Court. — 440 — In Sturgis vs. Crowninshield, 4 Wheat. 197, the court said— “ It would seem difficult to substitute words, which are more intelligible, or less liable to misconstruction, than those which are to be explained. A contract is an agreement in which a party undertakes to do, or not to do a particular thing. The law binds him to perform his undertaking, and this is, of course, the obligation of his contract. In the case at bar, the defendant has given his promissory note to pay the plaintiff a sum of money on or before a certain day. The contract binds him to pay that sum on that day; and this is its obligation. Any law which releases a part of this obligation, must, in the literal sense of the word, impair it. Much more must a law impair it which makes it totally invalid, and entirely discharges it.” In McCracken vs. Hayward, 2 How. 612, Mr. Justice Baldwin said— “ In placing the obligation of contracts under the protection of the Constitution, its framers looked to the essentials of the contract more than to the forms and modes of proceeding, by which it was to be carried into execution; annulling all State legislation which impairs its obligation, it was left to the States to prescribe and shape the remedy to enforce it. The obligation of the contract consists in its binding force on the party who makes it.” Mr. Justice Story, in his Conflict of Laws, section 226, says: “ The obligation of a contract is the duty to perform it whatever may be its nature. It may be a moral obligation, or a legal obligation, or both. But when we speak of obligation generally, we mean legal obligation—that is, the right to performance, which the law confers on one party, and the corresponding duty of performance, to which it binds the other.” What was the obligation of this contract? It was the duty imposed by law upon Rogers & Frick to pay Berrien & Co. for the merchandise they had purchased, in money, or in goods, if goods were accepted by the creditors as an equivalent for money. It was decided in Gregory vs. Mack, 3 Hill, N. Y. Rep. 384,—“ That when the parties have agreed on a particular thing as a medium of payment, whether it be lands, goods — 441 — or labor, and the agreement has been carried into execution, it is the same thing in legal effect, as though the like sum had been paid in money.” Smith on Mercantile Law, 530. Now we find that Rogers Frick, in fulfilment of this obligation, transferred to Berrien & Co. on the 12th of May, 1841, the property sought to be recovered, in payment of their indebtment, and that it was so received and accepted by Berrien Co. And can it be maintained, that a law which invalidates this transfer, annuls this payment, takes from the creditors the property which they had fairly acquired in the exercise of a right conferred upon them by the common law, and places it in the hands of the trustee, to be distributed exclusively among the domestic creditors of the insolvent debtors, unless the foreign creditors will take their dividend upon the humiliating condition of surrendering their acknowledged constitutional privilege to object to the insolvent’s discharge,—is not a law impairing the obligation of the contract? We think not. A proposition of this kind cannot be maintained. The true view of the case is, that the right of these creditors to obtain a preference over the other creditors of the insolvent, and the privilege of the debtors to give this preference, stands precisely as if these insolvent laws were not to be found among the statutes of the state. And under circumstances, no exception could be taken to the validity of this transfer. In the case of Hickley vs. The Farmers & Merchants Bank, 5 G. & John. 380, the Court of Appeals recognize the principle :—• “ That by the common law, and apart from the provisions of the insolvent laws of this state, the debtor may secure one creditor to the exclusion of others, either by payment, or by a bona fide transfer of his property.” The late bankrupt law of the United States was passed on the 19th of August, 1841 ; but it was expressly provided by the seventeenth section of the statute, that it should take effect only from and after the first day of February, 1842. This is equivalent to declaring that the act should have no effect until that day; and therefore, there is no foundation for the point made by the counsel for the appellant: that the insolvent laws — 442 — of Maryland were suspended in their operation by the bankrupt act of the United States, at the period when the proceedings of Rogers 8f Frick under those laws were commenced, and consummated. At that time, the bankrupt act was not in force, and there could have been no conflict between the national and state legislation upon this subject. In Ex Parte, Eames, 2 Story Rep. 325, Mr. Justice Story said: “ That as soon as the bankrupt act went into operation, in February, 1842, it ipso facto suspended all action on future cases, arising under the state insolvent laws, where the insolvent persons were within the purview of the Bankrupt Act. I say future cases, because very different considerations would or might apply, where proceedings under any state insolvent laws were commenced, and were in progress before the bankrupt act went into operation. It appears to me, that both systems cannot be in operation, or apply at the same time to the same persons; and where the state and national legislation, upon the same subject, and the same persons, come in conflict, the national laws must prevail, and suspend the operation of the state laws. This as far as I know has been the uniform doctrine maintained in all the courts of the United States.” In the argument of this cause various other points were raised and discussed by the counsel, upon which it has become unnecessary to express an opinion, as the views we have taken of the insolvent laws of Maryland dispose of the whole case. We think the court below erred in the instructions given by them to the jury, and that their judgment must be reversed. JUDGMENT REVERSED.