Bernhardt v. Curtis

PROVOSTY, J. There is no dispute in this case as to the facts, both sides submitting the case on the question of law involved. That question is whether a lessee’s adjudication in bankruptcy under the bankruptcy act of 189S [U. S. Comp. St. 1901, p. 3418] has the effect of liberating the surety on the rent notes given for that portion of the term of the lease subsequent to the adjudication. It is not contested by plaintiff, and the law seems to be settled, that a lessee’s adjudication in bankruptcy puts an end to his lease as of the date of the adjudication. In re Jefferson (D. C.) 93 Fed. 951; Bray v. Cobb (D. C.) 100 Fed. 270. From this the liberation of the surety would seem to follow as a necessary consequence. If there is no longer any lease, and the leased premises have reverted to the lessor, and no rent can possibly accrue, the surety, if he were made to pay, would be made to pay a debt that had never and could never come into existence. Nor is there any technical obstacle to his urging his liberation. He may plead exceptions “inherent to the debt” (Civ. Code, art. 3060); and this exception is pre-eminently of that character. He may plead the failure of the consideration of the principal obligation. Adams v. Cuny, 15 La. Ann. 485. Plaintiff’s counsel submits two reasons why the surety is not liberated, as follows: “(1) Because one of the reasons for requiring, a surety is to protect the lessor and property owner from the bankruptcy of his tenant. To hold otherwise would be to hold that the obligation of suretyship is doubly conditional, — that the surety binds himself to pay not only upon condition that the maker does not pay, but also upon condition that the maker does not go into bankruptcy. “(2) Because the very act of congress of which the maker avails himself to go into bankruptcy, the bankrupt act of 1898, § 16 [U. S. Comp. St. 1901, p. 3428], provides that ‘the. liability of a person who is co-debtor with-or guarantor, or in any manner a surety for a bankrupt, shall not be altered by a discharge of such bankrupt.’ ” That these grounds have a striking plausibility is undeniable. The first derives its plausibility from the fact that the word “bankruptcy” has two meanings, — one the popular meaning, in which it is convertible with the word “insolvency,” describing the mere inability of the debtor to pay; and the other the technical meaning, describing a legal process by which the lease is put an end to. In the latter meaning of the word the lessee’s not going into bankruptcy does enter as a condition into the obligation of the surety. The obligation is conditional upon the continuation of the lease; and, if the lease is put an end to from any cause, the obligation also is put an end to. What the cause may be is immaterial, so long as the effect is realized. Plaintiff would not deny that the possible destruction of the leased premises enters as a con [173] dition into the lease. Why not, then, the possible destruction of the lease? Will it be said that the destruction of the leased premises is more efficacious in checking the obligations that were to flow from the lease than is the destruction of the very lease itself? (June 28, 1902.) (Dec. 15, 1902.) The second reason derives its plausibility from the false assumption that the surety claims his liberation from the bankruptcy law, when in point of fact he claims it from the force of circumstances. After the lease is abrogated, and the leased premises have reverted to the lessor, there can accrue no rent, and, if -the surety were made to pay, he would be made to pay a nonexistent debt. This is what liberates him. Under the plenary delegation of power to enact a bankruptcy law congress may wipe out contracts, but cannot provide that, after the contract is wiped out, obligations shall still continue to flow from it; nor has congress undertaken to provide any such impossibility. The point is not a new one. In the case of Wolf v. Stix, 99 U. S. 8, 25 L. Ed. 313, the supreme court of the United States said: “As to the sureties, section 5118, Rev. St., provides that no discharge shall release, discharge, or affect any person liable for the same debt with the bankrupt, either as partner, joint contractor, indorser, surety or otherwise. The cases are numerous in which it has been held — and, we think, correctly— that if one bound as surety for another to pay any judgment that may be rendered in a specified action, if the judgment is defeated by the bankruptcy of the person for whom the obligation is assumed, the surety will be released. The obvious reason is that the event has not happened on which the liability of the surety was made to depend.” . In the case of Carpenter v. Turrell, 100 Mass. 452, the supreme court of Massachusetts said: “A discharge in bankruptcy bars proceedings against the principal and surety on an attachment bond. Such bond is given for the payment absolutely of the judgment when recovered in the suit. The plaintiffs also rely upon the provisions of the bankrupt act, which continues the liability of the sureties and other persons collaterally bound, notwithstanding the discharge of the principal. But we understand that provision to apply to persons who are liable for the debts of the bankrupt which existed before, and is discharged by the proceedings in bankruptcy. This bond is not such a debt. It does not become of the nature of a debt until the contingency arises upon which it is made to be made operative, to wit, a judgment valid against the principal. So, when judgment is rendered for the defendant upon the plea of a discharge in bankruptcy, the bond is discharged, not by the proceedings in bankruptcy, but by the determination of the contingency upon which the obligation of the bond is made to depend.” In our case the contingency upon which the obligation of the surety* was to arise was the continuation of the lease during the time for which the notes were given, and, since the lease cannot thus continue, the debt cannot arise, and the surety cannot be bound. It is therefore ordered, adjudged, and decreed that the judgment heretofore rendered herein by the court of appeals be set aside, and that this case be rejected, and the plaintiff pay all costs. BREAUX, J., dissents.