Geery's Appeal from Probate

| Conn. | Jan 15, 1876

Carpenter, J.

The facts of this case may be briefly stated. The appellant is a creditor of the Guinness Sewing Machine Company, a corporation, and attached property to secure his claim. The appellee, another creditor, instituted proceedings in insolvency under the statute of this state for the purpose of procuring an equal distribution of the property of the corporation among its creditors. The court of probate appointed a trustee, and the attaching creditor appealed to the Superior Court, claiming that the bankrupt act of the United States suspends the operation of the state law. The corporation is unable to pay its debts, and those debts exceed the sum of three hundred dollars. The company is in a condition to apply voluntarily for the benefit of the bankrupt act, but it lias committed no act of bankruptcy, and is not subject to compulsory proceedings.

We are impressed with the magnitude and importance of the questions now before us. All questions relating to the conflict of a state law with the constitution or laws of the United States are necessarily of a delicate nature, and should receive careful consideration. We have endeavored to give them all the consideration their importance demands.

The case is a close one and by no means free from doubt and difficulty. After careful consideration, looking as far as possible to probable consequences and practical results, and at the same time bearing in mind our obligation to respect and uphold the constitution and laws of the United States, a majority of the court, with some hesitation, have come to the conclusion that the action of the court of probate should be affirmed. In doing so wo recognize the supremacy of the act of Congress, and recognize and approve the well established principle that, so far as that act assumes and takes jurisdiction of the parties and the subject matter, just so far is the jurisdiction of the state court excluded. On the other hand, we contend that in respect to all persons and matters over which the bankrupt act declines to take jurisdiction, the statute of this state remains in full force.

The question then for us to determine is, whether this case, upon the facts stated, is within the jurisdiction of the act of Congress. In determining this question we must have regard primarily and principally to the intention of Congress as expressed in that act. That intention, when discovered, will be a sure guide to a correct conclusion.

There arc two divisions of the bankrupt act;—voluntary, where the debtor himself sets in motion its machinery; and involuntary, where it is set in motion by creditors. In either case an act of bankruptcy is essential. Without an act of bankruptcy the federal court can have no jurisdiction.

The filing of the petition by the debtor is expressly made an act of bankruptcy, and authorizes the bankrupt court to proceed and settle the estate of the debtor. No such petition has been filed in the present case, and therefore the jurisdiction of the court, under the voluntary branch of the act, does not attach. It is true a case exists; the corporation is owing over three hundred dollars, and is unable to pay its debts. It may, if it will, institute proceedings in bankruptcy; but it has not yet done so, and it is wholly at its own option whether it ever will. There is and can be no compulsion.

The right of the debtor to file a petition, and the possibility that he may do so, do not of themselves bring the act of Congress in conflict with the state law; for the right, and the power to exercise the right, exist in all cases of insolvency; and yet the debtor may voluntarily make an assignment under the state law, and such assignment and proceedings under it will be valid unless proceedings in bankruptcy are instituted within six months thereafter. Maltbie v. Hotchkiss, 38 Conn., 80" court="Conn." date_filed="1871-02-15" href="https://app.midpage.ai/document/maltbie-v-hotchkiss-6579247?utm_source=webapp" opinion_id="6579247">38 Conn., 80; Mayer and others v. Hellman, 91 U. S. Reports, 496.

It seems clear that voluntary assignments under the state law are only contingently affected by the act of Congress. We see no good reason for holding that compulsory proceedings by a creditor are prohibited, where, as in the present case, the debtor declines to go into bankruptcy, there has been no act of bankruptcy, and the proceedings are not in fraud of the bankrupt act; the sole object and effect being to prevent a preference of other creditors and compel an equal distribution of the assets.

We have come to the conclusion, therefore, that the first branch of the bankrupt act does not apply to the case before us, and that the case is not yet within the purview of that act in such a sense as to suspend the operation of the state law.

The second branch of the bankrupt act—involuntary bankruptcy—remains to be considered.

Under this division proceedings can only be instituted by creditors; and such proceedings correspond very nearly to proceedings in bankruptcy as distinguished from proceedings in insolvency under the English practice; and proceedings instituted by the debtor under the first division bear some resemblance to proceedings in insolvency under that practice. This is partially true of our state law. And hence compulsory proceedings under it on account of their fancied or real resemblance to proceedings in bankruptcy in England, have been regarded, but without very good reason, as more obnoxious to the bankrupt act than voluntary assignments, and it has been supposed that the latter may be sustained while the former cannot. In this connection it may be well to notice the distinction between bankruptcy and insolvency, and call attention to the present state of the law on that subject in this country.

Bankruptcy applied only to merchants, traders, &e.; proceedings were instituted against the debtor by creditors, but only after an act of bankruptcy had been committed—such as absconding from the realm, secreting himself to avoid his creditors, disposing of his property with intent to defraud his creditors and the like; and the object was to secure an equal distribution of his property among creditors. As some compensation for compelling the debtor to give up all his property, the practice was early introduced of giving him a complete discharge from his debts. Thus bankruptcy was regarded as disgraceful, being in the nature of a punishment for some act, either wrong in itself or considered as contrary to good morals and strict integrity in trade, and something to be dreaded and avoided if possible.

On the other hand, insolvency applied to all persons, whether traders or not; no act of bankruptcy was essential (it was rather a hindrance than a help); proceedings were instituted by the debtor against a creditor or creditors; and the object mainly was, not to procure a discharge from his debts, but to exempt his body from imprisonment. Thus insolvent laws were intended to benefit the debtor. While they were more general than bankrupt laws in their application to persons, they were more limited in their operation in individual cases, effecting only a partial instead of a full discharge. Thus the law stood in England.

The constitution of the United States provides that Congress shall have power to establish “ uniform laws on the subject of bankruptcy throughout the United States.” The bankrupt act of 1841 embraced the essential features of both the bankrupt and insolvent laws of England. A question was made whether that part of it which was essentially an insolvent law was within the constitutional power of Congress. The question arose in the Supreme Court of the state of New York, and was elaborately and with great ability discussed by Cowen, J., in favor of the constitutionality of the law, and by Bronson, J., against it. Nelson, C. J., concurred with Judge Cowen. Kinzler v. Kohaus, 5 Hill, 317; Sackett v. Andross, 5 Hill, 327. Subsequently the question was decided in the same way by Mr. Justin Catron in Klein’s case, 1 Howard, 277, and that is now regarded as the law of the land.

Since that time, so far as the law of this country is concerned, the distinction between bankrupt and insolvent laws has been practically obliterated. In regard therefore to the effect of congressional legislation upon state legislation, we are unable to perceive that it makes' any difference whether the latter relates to voluntary or involuntary proceedings. In either case, if action by the state court contravenes the policy of the bankrupt act, such actiou is unauthorized and void. If it does not, and does not defeat or impair any right which the debtor or creditor has under the bankrupt act, we see no objection to its validity.

It may be suggested that involuntary proceedings under our state law may in some wray interfere with the debtor’s right to a discharge. There may be cases in which this suggestion would be entitled to great weight. If it should be made to appear that the operation of the state law would be to prevent the application of the debtor, or to prevent the payment of the requisite percentage in order to obtain a discharge, or if, the bankrupt court being open, the creditor resorts to the state court instead, thereby depriving the debtor of his discharge; in such cases we concede that the national law would be supreme. But in this case no such questions arise. This is a question between two creditors, and it nowhere appears that the debtor will be in any respect or to any extent prejudiced by the result. The corporation, though a party in the cause, makes no objection to this proceeding. The objection comes only from the attaching creditor, and he fails to show that the state Taw deprives him of any right or privilege secured to him by the United States law. The chief object of the latter, so far as creditors are concerned, is to give to each his proportional part of the assets of the debtor. Mayer and others v. Hillman, 91 U. S. Reps., 496. That is secured to him by giving effect to the state law. Our own law therefore does not contravene the policy of the bankrupt act, but is in harmony with it, and promotes, rather than defeats, the intention of Congress.

In Hawkins’s Appeal from Probate, 84 Conn., 548, prominence is given to the fact that there was in that case a voluntaiy assignment, and tlie course of reasoning there adopted rests mainly upon that fact. But in Shepardson’s Appeal from Probate, 36 Conn., 23" court="Conn." date_filed="1869-02-15" href="https://app.midpage.ai/document/shepardsons-appeal-from-probate-6578884?utm_source=webapp" opinion_id="6578884">36 Conn., 23, which was a compulsory process, the proceeding was sustained on the ground that it did not appear that the debtor owed debts exceeding three hundred dollars.

After a careful consideration of this whole subject we are satisfied that the decisions in this class of cases cannot rest upon any supposed difference between voluntary assignments and proceedings in invitum. Independent but not inconsistent reasons were given for sustaining voluntary assignments in Hawkins’s Appeal from Probate and in Maltbie v. Hotchkiss, 38 Conn., 80. Proceedings in invitum stand upon somewhat different grounds; nevertheless they must be sustained, if sustained at all, upon principles essentially the same; the intention of Congress in this as in all other acts must determine the scope and extent of the law. We are not disposed to adopt and follow the arbitrary principle that the exercise of power by Congress to any extent absolutely annuls and renders inoperative all state legislation irrespective of the intention of Congress.

The equal distribution of á bankrupt’s property among his creditors is a leading and prominent feature of both national and state laws. It has now become a controlling principle in the laws relating to debtor and creditor. Upon the belief that it will be strictly applied and faithfully administered, in case of bankruptcy, the business of the country is carried on and credit given. The benefit .of this principle cannot be denied to a creditor who is in no fault without doing him injustice. It is a remedy upon which he relied in giving credit and to which he is fairly entitled. If that remedy is not to be found in the bankrupt act, it will not be presumed that Congress intended to take away the remedy provided by the state.

It is not pretended and was not claimed by the learned counsel for the appellant that the debtor was subject to proceedings in the bankrupt court at the instance of the appellee. There are two conclusive objections to such proceedings.

First: There has been no act of bankruptcy. That, as we have seen, is essential. In the 39tli section of the bankrupt act, as amended by the act of June 22d, 1874, the acts of bankruptcy are carefully enumerated. Unless some act therein described can be shown, the appellee can have no remedy in the bankrupt court. If the appellant would oust the state court of its jurisdiction it is incumbent upon him to show affirmatively the existence of some such act. This he has not done.

Secondly: Even if an act of bankruptcy has been committed, no facts are stated which show that the appellee could have invoked the action of the District Court. By the same amended section it is provided that a person committing an act of bankruptcy “ shall be adjudged a bankrupt on the petition of one or more of his creditors, who shall constitute one-fourth thereof at least in number, and the aggregate of whose debts provable under this act amounts to at least one-third of the debts so provable; provided that such petition is brought within six months after such act of bankruptcy has been committed.”

Now it does not appear that the appellee constitutes one-fourth in number of the creditors, nor that enough' are ready to join with him to make one-fourth; nor does it appear that his debt provable under the act amounts to one-third of the debts so provable; nor does it appear that the petition could have been brought, after there was occasion for doing so, within six months after the act of bankruptcy. We cannot presume that any of these jurisdictional facts exist, and none are proved to exist. Congress having thus limited and restricted the operation of the bankrupt act, leaving, as is obvious, a vast number of cases to which it cannot possibly apply, it will not be presumed that it was thereby intended to leave creditors in such cases entirely without remedy, as must be the case if the state law is inoperative.

There are conflicting decisions upon this general subject; but as most of the cases relate to voluntary assignments, and none of them are exactly in point, we deem it unnecessary to refer to them.

Wo advise the Superior Court to affirm the decree of the court of probate.

In this opinion Pardee and Loomis, Js., concurred, the latter ^1111 hesitation. Park, C. J., and Poster, J., dissented.