In re Crawford

| E.D. Mich. | Jun 15, 1870

LONGYEAR, District Judge.

Milton H. Butler held the bankrupt’s indorsement upon which his liability had become fixed, and a suit in a court of law had been commenced, and was pending at the time the petition for adjudication of bankruptcy was filed. Upwards of eight months intervened between the time of filing the petition and the adjudication, and in the meantime Butler had gone on and taken judgment. He now asks to have his judgment proven against the bankrupt’s estate, and makes a full showing of all the facts in relation to his claim as above stated. Two objections are urged to his application: First. That the judgment did not exist at the time the petition for adjudication of bankruptcy was filed. Second. That the original claim is merged in the judgment, and therefore it cannot be proved against the bankrupt’s estate.

The register, Mr. H. K. Clarke, after reciting the above facts, certifies that, in his opinion, botn objections ought to be sustained, and the debt rejected.

Held, as to the first objection: From a comparison of different provisions of the bankrupt act, I am satisfied that it is the n-tention of the act that such debts, and such only, as existed at the time of the filing of the petition for adjudication of bankruptcy, are provable against the bankrupt's estate. Any other construction would lead to endless complications and difficulty. The language of section 19, “that all debts due and payable at the time of the adjudication of bankruptcy,” may be proved, etc., has reference to the condition of the debt as to its maturity or time of payment. This construction is borne out by the very next sentence, which is as follows: “And all debts then existing, but not payable until a future day,” etc. This construction makes the provisions of the act harmonious. In re Patterson [Case No. 10,815].

I, therefore, fully concur with the register in his opinion that a debt not existing at the time of filing the petition for adjudication in bankruptcy is not provable against the bankrupt’s estate. I also fully concur with the register in his opinion that the debt upon which a judgment is founded is merged in the judgment, and that thereafter all remedies and proceedings for the collection of the debt must be based upon the judgment. These propositions are too well settled to admit of dispute, or need any argument to support them. But I entirely dissent from the opinion of the register in the application he would make of this doctrine. And in doing this I must also dissent from the opinion of Judge Shipman, district judge for the district of Connecticut, in Re Williams [Case No. 17,705]. Judge Shipman there says: “The debt, therefore, * * * was extinguished by the judgment" “It no longer existed.” “The judgment itself constitutes a debt; but it had no existence at the time of the adjudication of bankruptcy, and is not therefore provable against the bankrupt’s estate.” The whole difficulty in the application of this doctrine of merger by judgment to a case like the present, originates in a mistaken theory; and that theory is advanced in the first sentence of the language of the learned judge above quoted, viz., that the debt is extinguished by the judgment. The debt is not extinguished. The instrument, contract, or obligation upon which the debt arose is extinguished, but not the debt. The debt remains. If this were not so, the judgment would destroy itself by extinguishing the very foundation upon which it is built. The debt was founded on contract; it is now founded on judgment, but it is nevertheless the same debt. A judgment operates to extinguish a debt only when it produces the fruits of a judgment. See Bank of the Metropolis v. Guttschlick, 14 Pet. [89 U. S.] 19, 32; U. S. v. Hoyt [Case No. 15,409]; Clark v. Rowling, 3 Comst. [N. Y.] 216. The judgment operates as a change of remedy merely. It is a security of a higher nature than before. It is still but a security for the original cause of action. Drake v. Mitchell, 3 Bast, 258, 259.

Again: It is often permitted in equity, and sometimes at law for particular purposes, to inquire into the claim or debt upon which the judgment is founded, not as a means enforcing the claim anew, but of showing the relations of the judgment and the judgment creditor to other things and persons. For instance, in the case of an attempt to enforce the collection of a judgment against property alleged to have been conveyed in fraud of creditors, the judgment may not have been rendered until after the conveyance, in which case, so far as the judgment shows, the judgment creditor was not a creditor at all at the time of the conveyance, and therefore could not have been defrauded. In such cases the judgment creditor is always allowed to go back of his judgment and prove the claim or debt upon which it is founded; and if it appears that such claim existed at the time of the conveyance, the judgment creditor’s relation of creditor will for this equitable purpose be allowed to relate back to that time, although it was anterior to the rendition of the judgment. Here the judgment creditor is allowed to show that the debt upon which the judgment was founded existed at a certain time in order to establish his right to attack the validity of the conveyance as against the judgment, and to have the judgment satisfied out of the property conveyed. So, in the bankruptcy court, a court proceeding upon equitable principles, by parity of reasoning, the judgment creditor, in the absence of fraud or other evil practice in the obtaining of his judgment or in the use he has attempted to make of it, should be permitted to go back of his judgment and show what the claim or debt was upon which it was founded, and if it appears, as it does in this case, that such claim or debt was in existence at the time of filing the petition for adjudication of bankruptcy, his relation of creditor to the bankrupt’s estate, although it is by judgment, should on equitable principles be allowed to relate back to that time, notwithstanding it was anterior to the rendition of the judgment; and he should be permitted to prove his judgment against the bankrupt’s estate. The criterion is,.that the debt existed at the time of filing the petition, no matter whether the security or remedy has been changed or not, or in what form it may exist at the time it is presented; if it, the debt, existed at the proper time, it is provable.

It will be seen that I arrive practically at the same result as the learned district judge of the southern district of New York, in Re Brown [Case No. 1,975], although by a somewhat different route. JudgeBlatch-ford in that case uses the following language: “The judamoin as such is not to be proved, but the amount of the debt or claim as it stood * * * is to be proved.” In this I do not concur. The “debt or claim as ■it stood” at the time of filing the petition, Is merged in the judgment, and therefore the judgment must be proved, it anything; and I hold that the judgment is provable, not because it existed at the proper time, but because the debt constituting the foundation, the soul, the essence of the judgment, did ■exist at that time. By taking this view of the subject, all difficulties vanish; every person will receive what justly and equitably belongs to him, without violating any principle of law or equity, or unsettling or disturbing any established doctrine, or coming in conflict with any of the provisions of the bankrupt act; if the bankrupt receives his final discharge, the judgment being the thing ■directly acted upon by the bankruptcy proceedings, will be as effectually extinguished •as if it were discharged upon the records of •the court; and if he does not receive his discharge, the judgment will of course be satisfied to the full extent of the dividends which shall have been paid upon it. The ■costs, however, which accrued subsequent to the filing of the petition for adjudication .of bankruptcy do not stand upon the same footing as the judgment for the debt Costs are not, like interest, an incident of the debt. They are an incident of the legal proceedings instituted and prosecuted for the collection ■of the debt; they are for reimbursement merely. Therefore, any . costs which may have accrued subsequent to the time of filing the petition cannot be said to constitute a claim or debt existing at that time, and should be excluded in making up the amount upon which dividends are to be made in the bankruptcy proceedings.

Let it be certified accordingly.