Lead Opinion
The pleadings and findings in this record show that on the twenty-eighth day of August, 1878, the plaintiffs, as copartners under the name of M. D. Wells & Co., commenced an action upon an account for goods sold and delivered, against the defendant, by personal service of process, in the circuit court for Buchanan county, in the State of Iowa, which was a court of general -jurisdiction. The defendant made no appearance or answer, and at the October term of 1878, on the twenty-ninth day of October, judgment was rendered against him for §577.50, and costs. After the commencement of that action, and on the thirty-first day of August, 1878, the defendant filed his petition in bankruptcy in the United States district court for the Southern district of Iowa, and such proceedings were had therein that in April, 1880, he obtained a discharge in the usual form. This action was brought upon the judgment, and the only defense interposed by the defendant is the discharge in bankruptcy. The trial court held, for the purposes of this case, that the demand in judgment was discharged, and that the plaintiffs could not recover. Judgment dismissing *the action, and for costs, was entered against the plaintiffs, from which the appeal is taken.
The sole question presented upon this appeal is whether a discharge granted under the late bankrupt law impairs, or at
“The ruling of the court below was in accordance with a series of decisions of this court, by which it has been held that if, after the institution of proceedings in insolvency or bankruptcy, judgment is rendered upon a debt provable under those proceedings, the original debt is merged, and extinguished in the judgment, and the judgment is not provable against the estate of the debtor, nor discharged by the certificate; and this not merely because such a merger takes effect by the rules of the common law, but because the creditor, by taking judgment, and so changing the form of his debt, and securing to himself the benfit of conclusive aiid permanent evidence of it, and an extension of the period of limitation of an action thereon, is held, on his part, to have elected to look to the debtor personally, and to abandon the right to prove against his estate; and the debtor, on the other hand, who might have protected himself by moving the court in which the action was pending for a continuance, in order to afford him an opportunity to obtain and plead a certificate of discharge, is held, by omitting to make such a motion before judgement, to have waived the right to set up his certificate against the plaintiff’s claim; and therefore the rights of both parties must be governed by the judg*48 ment which the one has moved for, and the other has suffered to be rendered.”
This decision is followed and approved in later cases in the same court. Cutter v. Evans, 115 Mass. 27; Ray v. Wright, 119 Mass. 426. In Boynton v. Ball, 105 Ill. 627, the same conclusion was reached in the circuit, appellate, and supreme court upon the question here involved. The supreme court reviews the question upon both the grounds stated in the Massachusetts case, and, while recognizing the conflict which has existed in the courts concerning the doctrine of merger by judgment, says on this point: “We are satisfied the better doctrine, and that, too, established by the later decisions! is that a judgment rendered after an adjudication in bankruptcy creates a debt which cannot be proved against the bankrupt’s estate; that the indebtedness existing prior to the recovery' becomes merged in the judgment.” Then, referring to the other ground of decision in the Massachusetts case, the court says: “The circuit court did not lose jurisdiction of the case because Boynton was adjudged a bankrupt; but, as was held in Eyster v. Gaff, 91 U. S. 521, it was the duty of the court to proceed with the cause until, by some pleadings, the court was informed of the changed relations of the parties. See, also. Holden v Sherwood, 84 Ill. 92. The circuit court could do nothing less than proceed with the case to final judgment; and as the judgment is to be regarded as the joint act of Boynton, who, of his own choice, allowed it to be rendered, and of the plaintiff, upon whose motion it was rendered, the rights of these two parties must be regarded as finally settled by that judgment. We are rot aware of any case that holds that where a defense might have been made to a pending cause of action, but was not set up, solely through the negligence of a defendant, such defendant may afterwards interpose the same defense to the judgment which has been rendered against him. It is ordinarily enough that a party has had a day in court and an opportunity to plead his defense. The bankrupt act in clear terms provides for the stay of an action which may be instituted against the bankrupt until his discharge is passed upon. This statutory provision
These decisions are sustained by numerous authorities in like cases. In re Williams, 2 N. B. R. 80, by Judge Shipman; In re Gallison, 5 N. B. R. 353, by Judge Lowell; In re Mansfield, 6 N. B. R. 388; Hollister v. Abbott, 31 N. H. 442; Holbrook v. Foss, 27 Me. 441; Pike v. McDonald, 32 Me. 418; Sampson v. Clark, 2 Cush. 173; Faxton v. Baxter, 11 Cush. 35; Cutter v. Evans, 115 Mass, supra; Steadman v. Lee, 61 Ga. 58; Revere Copper Co. v. Dimick, 90 N. Y. 33. The cases cited contra, appear to have been decided upon a limited' and exceptional view of the doctrine of merger.
But, independently of this doctrine of merger, we are clearly of the opinion that the defense here interposed cannot prevail without violating another principle, that the judgment is final and conclusive as to every matter of defense existing at the time. That the act of 1867 provides an ample remedy whereby the suit in the Iowa court might, upon the application of the defendant, have been stayed to await the determination of the court in bankruptcy on the question of the discharge, and judgment therein prevented, is no longer an open question. Rev. St. U. S. § 5106; Hill v. Harding, 107 U. S. 631; S. C. 2 Sup. Ct. Rep. 404; Ray v. Wright, 119 Mass. 426; Page v. Cole, 123 Mass. 93. But no such application having been made, that court retained complete jurisdiction, and could properly proceed to judgment. Doe v. Childress, 21 Wall 642; Eyster v.
These cases show the remedy of the statute is in the nature of a personal privilege on the part of the bankrupt. It is said by Justice Gray, in the last case cited, as he had before declared, when chief justice of the Massachusetts court, (Ray v. Wright, 119 Mass. 428,) that if neither the bankrupt nor his assignee in bankruptcy applies for a stay of proceedings, the court may of course proceed to judgment. And the extent of this statutory remedy is to afford a complete defense in the action. The stay of proceedings is to await the determination of the court in bankruptcy “on the question” of the discharge, “evidently for the purpose of enabling the bankrupt to obtain his discharge, and plead it in bar of the action.” It is so held in the Indiana, Illinois, and Massachusetts cases, and assumed, or conceded to be so, in the other cases cited. In Ray v. Wright, supra, the court plainly says that one of the objects of this provision is ‘ ‘to protect the bankrupt, in case he obtain his certificate, from having his original cause of action against him merged in a judgment.” And the same principle is declared by the court of appeals in Revere Copper Co. v. Dimock, 90 N. Y. 37, Where the discharge was obtained after default, and five days before the entry of judgment. The court there says: “The defendant was not without a remedy. He could have applied to the Massachusetts court to open his default and permit him to set up his discharge. ”
This remedy of the statute, therefore, being in the nature of a personal privilege, and the defendant having waived it as he did, how can he now avoid the legal consequences of the obligation created by the judgment of the court? This obligation no longer rests upon contract or consent, for ‘ ‘judicium rednitur in invitum. ” A judgment is essentially different from a contract in its nature and elements, and is deemed in law an ‘ ‘obligation of record.” 2 Amer. Lead. Cas. 819, 820; O’Brien v. Young, 95 N. Y. 428, and cases cited; State v. City of St. New
In Jordan v. Van Epps, supra, the plaintiff sought to recover dower in certain lands. In a former partition suit she had neglected to assert her statutory remedy for the admeasurement of dower, and it was held that the judgment was conclusive of the matter omitted in her defense. The court there states the rule: ‘ ‘The judgment is final and conclusive between the parties, not only as to the matter actually determined, but as to every other matter which the parties might have litigated and have decided as incident to or essentially connected with the subject-matter of the litigation,'within the purview of the original action.” And in the Sac County Case, 94 U. S. 352, it is said that, where the former judgment wras upon the same claim or demand in any subsequent action, ‘ ‘it is a finality as to the
We conclude, therefore, that the discharge of the defendant, which might, by obtaining a stay of proceedings, have been pleaded in bar of the former action, is no defense to an action on the judgment, and that the plaintiffs are entitled to recover.
Judgment reversed.
Dissenting Opinion
dissenting. The single question presented by this appeal is this: Is a discharge in bankruptcy under the act of 1867, properly pleaded and proved, a bar to an action brought in a district court of this territory, upon a judgment recovered in a circuit court of Iowa, after the filing of the petition in bankruptcy, and prior to the granting of the dis
One of the elements essential to this beneficent operation was the protection guaranteed by the discharge against all enumerated debts and claims existing at the time of filing the petition, and provable against the estate of the bankrupt, and it certainly was never intended or contemplated that any creditor of the class designated should, by any mere failure or refusal to avail himself of the provisions of the act, or to share in the distribution of the estate, or by any act or device of his own, obtain any undue advantage over the debtor, his fellow-creditors, or the public, and defeat the wise and salutary purposes of the law. Yet, if the discharge here pleaded and proved is not a bar to the present action, this is precisely what will be accomplished by this creditor. If he is to succeed in
The reasons assigned for this conclusion may be summarized as follows: The debts from which the bankrupt is released by his discharge are those which were, or might have been, proved against his estate. The debts made provable are those belonging to certain designated classes, which existed on the day on which the petition was filed. By operation of law, the original debt became wholly merged and extinguished in the judgment, which thereby became the debt, — a new debt; and this judgment not having been in existence on the day when the petition was filed, was, manifestly, not provable against the bankrupt’s estate, and therefore not affected by the discharge. It is further urged that this judgment imports absolute verity, and is conclusive of the defendant’s indebtedness at the time, in the amount thereof, and that he had then no defense to the action.
Among the authorities cited in support of these propositions are Bowen v. Eichel, 91 Ind. 22; Boynton v. Ball, 105 Ill. 627; Bradford v. Rice, 102 Mass. 472; the opinion in the lattér case being delivered by Chief Justice Gray, now a member of the United States supreme court. Evidently the controlling principle in these cases is that the debt is wholly merged and extinguished in the j udgment, which thus becomes a new debt, and therefore was not provable against the estate. This particular branch of the question came before the United States district courts for adjudication in the early history of the bankrupt law, and met with various determinations; Judge Ship-man holding that such judgments were not provable. (Re Williams, 2 N. B. R. 79,) while Judges Blatchford, Withey, Longyear and Hillyer maintained the contrary views, (Re
Upon the main question the courts of New York have almost or quite uniformly held that such judgments were released by the discharge. I cite but a few of the cases from that state. Dresser v. Brooks, 3 Barb. 429; Arnold v. Oliver, 64 How. Pr. 452; Fox v. Woodruff, 9 Barb. 498; Johnson v. Fitzhuh, 3 Barb. Ch. 372; Clark v. Rowling, 3 N. Y. 216; Monroe v. Upton, 50 N. Y. 593. Of these I shall only quote a few words from the opinion of G-ridley, J., in Dresser v. Brooks, supra, 'who says: “A sound construction of the provision in the bankrupt act declaring the effect of a discharge, when duly granted, requires us to hold the certificate to be a bar to a debt extinguishing when the petition was filed, notwithstanding such debt has passed into a judgment. It was provable under the act, and the plaintiff was entitled to receive upon it bis dividend of the bankrupt’s estate. It was therefore precisely such a debt as the policy and spirit of the act intended should be discharged. ” To hold that, because the debt had passed into the new form of a judgment, it was therefore exempt from the operation of the discharge, he says, “might, in some cases, utterly defeat the benign objects of the act, and leave the unfortunate debtor subject to a great portion of his debts after every dollar of his estate had been faithfully devoted to their payment.”
The courts of England, under their bankrupt acts, have almost uniformly held that the discharge operated upon judgments recovered pending the proceedings in bankruptcy, and Judge G-ridley clearly shows that these decisions have their foundation in the doctrine is that the original debt is not extin guished in the judgment, but that the judgment is a higher security therefor. See Drake v. Mitchell, 3 East, 258, and the important case of Executors of Froud v. Foote, Cowp. 138,
I have not overlooked the case of Revere Copper Co. v. Dimock, 90 N. Y. 33, supposed by counsel for appellants to sustain the opposite views, but I find nothing'in that case inconsistent with the earlier cases cited. On the contrary, the court expressly places its decision upon the ground that the judgment was recovered five days after the discharge. was granted, and therefore held that in an action upon that judgment it was not open to this collateral attack. It is difficult to see how they could have held otherwise. Nor have I omitted to notice that the earlier New York decisions were upon the bankrupt act of 1841, which contained no such specific provision as the act of 1867, authorizing the court, upon proper applicanion, to stay proceedings in the pending action to await the result of the proceedings in bankruptcy. The answer to this is twofold: First. It would seem that, notwithstanding such omission in the act of 1841, the same protection was in fact afforded by the courts to the debtor under that act. 4 Wait, Pr. 579; 2 Barb. Ch. Pr. 169, 179, 589, note 11, 626; Re Bellows, 3 Story, 428; Dresser v. Brooks, 3 Barb. 433, (opinion of Allan, J.) Second. The mere existence or non-existence of such a provision, either by express enactment or by acknowledged practice, could not affect the legal character or effect of a judgment.
If the New York courts were right in their decisions, it must be because these judgments did not possess the character now sought to be attributed to them. Right here, then, I think, we must seek the solution of the question before us, for this is the point around which the inquiry revolves. Is a debt upon which a judgment is recovered not only merged, but also extinguished, in that judgment? That it is merged, in a certain sense, I freely concede. That it is extinguished, I must ven
In Drake v. Mitchell, supra, Lord Ellenborough, O. J., says: “I have always understood the principle of transit in rem judicaium to relate only to the particular cause of action in which the judgment is recovered, operating as a change of remedy, from its being of a higher nature than before; but a judgment recovered in any form of action is still but a security for the original cause of action until it be made productive in satisfaction to the party, and therefore, till then, it cannot operate to change any other collateral, concurrent remedy which the party may have.” Gross, Lawrence andLs Blanc, JJ., all express similar views. See, also, Bank of Metropolis v. Guttschlick, 14 Pet. 19, at 32.
The real difficulty, I apprehend, arises from confounding the debt proper with that by which it is evidenced. The debt is the obligation which the debtor owes to his creditor. If wrhat he owes is money, then the debt is the obligation to pay that amount of money. This debt may be an open one, or it may be represented; that is, its character and amount may be preserved by the account of the merchant, or by a due-bill or a promissory note, or by a judgment. It may pass from the first of these through the series to the last, changing its form with each, gaining with each change higher character evidentially, but remaining the same debt or obligation throughout, until, by a judgment regularly obtained, its existence and amount are conclusively^ established. Why? Because it had
Mr. Bump, in his work on bankruptcy, (6th Ed.) 411, says ‘ ‘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 upon contract; it is now founded upon judgment, but it is none the less the same debt. A judgment operates to extinguish a debt only when it produces the fruits of a judgment. It operates as a change of remedy merely. It is a security of a higher nature. It is still but a security for the original cause of action. The theory that the debt is so merged in the judgment. as to has no applicability under the bankrupt act. ” this author, above quoted, is, I think, fully authorities already cited. be extinguished The doctrine of sustained by the
Another author states the doctrine thus: ‘It has been uni
A recent case in the supreme court of the United States strongly tends, in my opinion, to sustain this doctrine, A national bank having become insolvent, passed into the hands of the comptroller for liquidation. Certain claims against it being disputed, suits were brought and judgments recovered, whereupon the question arose whether the judgment creditors were entitled to dividends on the basis of the amount of their judgments, or on the basis of the amount of the claims as they existed at the date of suspension; the difference, which was quite large, being the interest which had accrued in the mean time. The supreme court held that the judgment established the claim as a claim against the bank at the time of the insolvency, and the amount due when the judgment was rendered, and that dividends were to be paid on the amount due at the date of insolvency. White v. Knox, 111 U. S. 784; S. C. 4 Sup. Ct. Rep. 686. See, also, Norton v. Switzer, 93 U. S. 355.
But again it is urged that, inasmuch as the bankrupt law provided a method by which the debtor might have prevented the recovery of the judgment, and he flailed to avail himself of its protection, he cannot now be heard to allege anything against the judgment. His mouth is closed. Rev. St. § 5106.
The supreme court of Illinois in Boynton v. Ball, supra, put the case thus: “We are not aware of any case that holds that where a defense might have been made to a pending cause of action, but was not set up solely through the negligence of a defendant, such defendant may afterwards interpose the same defense to the judgment which has been rendered against him. It is ordinarily enough that a party has had a day in court and an opportunity to plead his defense.” The answer to this is that the protection afforded by the statute is not in the form of, and
What is the real design of the provisions of Section 5106? Is it to impose upon the debtor certain conditions, on the observance or non-observance of which shall depend the question whether the debt sued for shall or shall not be released by the discharge which may be granted him? Or is it designed to protect the debtor, his estate, and all interested in it, from being harrassed by needless litigation? Surely there can be but one answer to this question, and I fail to see how the legal operation of the discharge can be affected by the omission of the bankrupt to avail himself of the provisions of this section.
I am not unmindful of those cases in the supreme court of the United States, referred to in the opinion of the court, which hold that until the pendency of the proceedings in bankruptcy
Upon a complete review of the authorities cited, and consideration of the reasons which have led to their decisions, I am satisfied that the sounder and better view, and the one most in harmony with the whole spirit and purpose of the bankrupt act is that which refuses to consider the debt as extinguished in the judgment, but regards it as a subsisting obligation, provable against the bankrupt’s estate, and therefore embraced within the operation and effect of the discharge, notwithstanding the judgment. Another point is presented by the respondent as a reason for the affirmation of the judgment, viz., that under the law as construed by the supreme court of the state of Iowa the discharge in bankruptcy would, in that state, be regarded as an effectual bar to any action on this judgment, and, therefore, by well-established rules of judicial comity, the same effect must be given to it by the courts of any state or territory where an action may be brought on the judgment. Although the precise question at bar has never, so far as I am aware, come before the supreme court of Iowa, a reference to the cases cited shows that that court has adopted such a view of the character and effect of judgment recovered pending proceedings in bankruptcy, as to lead to the result I have reached. Wade v. Clark and Knapp v. Hoyt, supra. The conclusion is sustained by the authority of Hagerty v. Amory, 7 Allan, 458.
For all the reasons above stated, I think the judgment of the district court should be affirmed, and must therefore dissent from the conclusion reached by a majority of the court.
Concurrence Opinion
concurring. I concur in the conclusions, but not upon the ground that the judgment is a merger of the debt. That I regard as a mere fiction. The judgment no more merges or extinguishes the debt than does a promissory note merge the debt when given on settlement of an account, or on settlement of an unliquidated or disputed claim of any kind. But I concur solely on the ground that the defendant has had his day in court, and, failing there to interpose the bar to the action, and permitting judgment to go against him, he cannot now, when sued upon the judgment, interpose a defense which he might have interposed to the original action.