1. A debt due to the United States, though it be by one who owes
it as a surety only, is not barred by the debtor's discharge with
certificate under the Bankrupt Act of 1867, although the United
States may prove its debt and has priority of other creditors, and
though the act provides in general terms that the certificate shall
release the bankrupt "from
all debts, claims, liability,
and demands, which were or might have been proved against his
estate in bankruptcy," and that it may be pleaded "as a full and
complete bar of any such debts, claims, liabilities, or
demands."
2. No general words in a statute divest the government of its
rights or remedies.
The Bankrupt Act of 1867 -- which in its general outlines, as in
many of its details, follows (as did prior bankrupt acts of the
United States passed in 1800 and 1841) the British Bankrupt Acts --
enacts that a discharge duly granted under the act shall, with the
exceptions of debts created by the
Page 87 U. S. 252
fraud or embezzlement of the bankrupt or by his defalcation as a
public officer, or while acting in any fiduciary character,
"release the bankrupt from
all debts, claims, liabilities,
and demands which were or might have been proved against his estate
in bankruptcy, and may be pleaded . . . as a full and complete
bar to all suits brought on any such debts, claims, liabilities, or
demands. [
Footnote 1]"
Under the act, the United States may prove its debt, and it has
a priority given to it by the act. But it is not mentioned by name
as among the creditors whose debts will be released by the
certificate which the act authorizes.
This statute being in force, the United States brought suit on a
bond executed by one Collins as principal and Herron and others as
sureties. Herron pleaded a discharge under the said Bankrupt Act,
and the question, of course, was whether a discharge under the act
barred a debt due to the government.
The court below thought that it did, and gave judgment in favor
of Herron, whereupon the government brought the case here.
Page 87 U. S. 253
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Proceedings in bankruptcy are deemed to be commenced from the
filing of the petition in bankruptcy, either by a debtor in his own
behalf or by any creditor against a debtor, and if it appear to the
court that the bankrupt has in all things conformed to the
requirements of the Bankrupt Act, it is made the duty of the court
to grant him a certificate, under the seal of the court, that he be
forever discharged from all debts and claims that by said act are
provable against his estate, which existed on the day the petition
for adjudication was filed, excepting such debts, if any, as are by
said act excepted from the operation of a discharge in bankruptcy.
[
Footnote 2]
With the exception of the debts specified in the thirty-third
section, the act provides that a discharge duly granted under the
act shall release the bankrupt from all debts, claims, liabilities,
and demands which were or might have been proved against his estate
in bankruptcy.
Page 87 U. S. 254
Collectors of internal revenue taxes are required by law to give
bond for the faithful discharge of their duties, and the record
shows that Lewis Collins, having been duly appointed to that office
for the Third District of Louisiana, gave the required bond, and
that the present defendant was one of his sureties. Default having
been made by the principal, the United States brought an action of
debt on his official bond, joining all the sureties with the
principal.
They alleged two breaches, as follows:
(1) That the principal did not pay over all the public moneys he
received for the use and benefit of the plaintiffs.
(2) That he did not do and perform all such acts and things as
were required of him by the Treasury Department.
Service was made and the defendant appeared and pleaded, as a
peremptory exception, that on the thirtieth day of May, 1868, he
filed his petition in the district court to be adjudged a bankrupt,
and that the court, on the eighteenth of January following, in due
course of law, granted him a discharge under the provisions of the
Bankrupt Act, in the words and figures set forth in the record,
which, as he alleges, is a full and complete bar to the plaintiff's
demand. Hearing was had and the court awarded judgment for the
defendant, and the plaintiffs sued out a writ of error and removed
the cause into this Court. Since the case was entered in this
Court, the plaintiffs assign for error that a discharge under the
Bankrupt law does not bar a debt due the United States.
1. Debts created by the fraud or embezzlement of the bankrupt,
or by his defalcation as a public officer, or while acting in any
fiduciary character, are not discharged by the certificate required
to be given to the bankrupt by the thirty-second section of the
Bankrupt Act, nor will any such certificate release, discharge, or
affect any person liable for the same debt for or with the
bankrupt, either as partner, joint contractor, endorser, surety, or
otherwise. Such debts -- that is, debts created by the fraud or
embezzlement of the bankrupt or by his defalcation as a public
officer or as a fiduciary agent -- may be proved, and the dividend
thereon, it is provided,
Page 87 U. S. 255
shall be a payment on account of said debt, but the provision
that no such certificate shall release, discharge, or affect any
person liable for the same debt, for or with the bankrupt as
surety, does not apply to this case, as it is
the surety
here who pleads the certificate of discharge, and not
the
principal in the bond set forth in the declaration. [
Footnote 3]
Instead of that, the question presented by the assignment of
error in this Court must depend upon other provisions of the
Bankrupt Act, when properly construed, in view of the settled rule
of construction that the sovereign authority of the country is not
bound by the words of a statute unless named therein if the statute
tends to restrain or diminish the powers, rights, or interests of
the sovereign. [
Footnote 4]
Where an act of Parliament is made for the public good, as for
the advancement of religion and justice or to prevent injury and
wrong, the King is bound by such act though not particularly named
therein; but where a statute is general, and thereby any
prerogative, right, title, or interest is divested or taken from
the King, in such case the King is not bound unless the statute is
made to extend to him by express words. [
Footnote 5]
Acts of Parliament, says Chitty, [
Footnote 6] which would divest or abridge the King of his
prerogatives, his interest, or his remedies in the slightest degree
do not in general extend to or bind the King unless there be
express words to that effect. Therefore, says the same learned
author, the statutes of limitation, bankruptcy, insolvency, setoff
&c., are irrelevant in the case of the King, nor does the
statute of frauds relate to him, which last proposition is doubted
by high authority. Exceptions exist to that rule undoubtedly, as
where the statute is passed for the general advancement of
learning, morality, and justice or to prevent fraud, injury, and
wrong,
Page 87 U. S. 256
or where an act of Parliament gives a new estate or right to the
King, as in that case it will bind him as to the manner of enjoying
or using the estate or right as well as the subject.
Debts due to the United States, it is expressly provided, shall
be entitled to preference or priority over all other claims except
the claims for fees, costs, and expenses of suits and other
proceedings under the Bankrupt Act and for the custody of the
bankrupt's property.
Five classes of claims are recognized as claims entitled to
priority or preference by the twenty-eighth section of the Bankrupt
Act, and the provision is that they shall "be first paid in full in
the following order:" first, fees, costs, and expenses; second, all
debts due to the United States and federal taxes and assessments;
third, all debts due to the state in which the proceedings in
bankruptcy are pending and all state taxes and assessments; fourth,
wages due to any operative, clerk, or house servant, to an amount
not exceeding fifty dollars, for labor performed within the period
therein specified; fifth, all debts due to any persons who, by the
laws of the United States, are or may be entitled to a priority or
preference, in like manner as if the act had not been passed.
Attempt is made in argument to show that the preference given to
debts of the United States does not exclude such debts from the
operation of the certificate of discharge, because such debts are
not named in the proviso annexed to the description of the fifth
class of claims entitled to priority and full payment in preference
to general creditors, but the Court is not able to concur in that
proposition, as it is quite clear that the proceedings in
bankruptcy would very much embarrass tax collectors without some
saving clause in that behalf, and to that end it was provided that
"Nothing contained in this act shall interfere with the assessment
and collection of taxes by the authority of the United States or
any state." Consequently taxes, whether federal or state, may be
collected in the ordinary mode, but if not collected and the
property of the bankrupt passes to and is administered by the
assignee, the taxes are then entitled to the priority
Page 87 U. S. 257
and preference provided in the same section of the Bankrupt Act.
Nothing, therefore, can be inferred from that proviso inconsistent
with the proposition that the sovereign authority is not bound by
the provisions of the Bankrupt Act unless therein named.
Confessedly the United States is not named in any of the
provisions of the act providing for the discharge of the bankrupt
from his debts, nor in any of the required proceedings which lead
to that result, unless it can be held that the sovereign authority,
having debts against the bankrupt, is included in the word
"creditor or creditors" as used many times in the several sections
of the Bankrupt Act. Examples of the kind are numerous, of which
the following are some of the most material:
Persons applying for the benefit of the Bankrupt Act are
required to annex a schedule to the petition, verified by oath,
containing a full and true statement of all their debts, and, as
far as possible, to whom due, with the place of residence of each
creditor, if known to the debtor, and if not known, the fact must
be so stated, and the sum due to each, and the nature of each debt
or demand, whether founded on written security, obligation,
contract, or otherwise, and also the true cause or consideration of
such indebtedness in each case, and the place where such
indebtedness accrued, and a statement of any existing mortgage,
pledge, lien, judgment, or collateral or other security given for
the payment of the same.
Where the debts exceed three hundred dollars, it is the duty of
the judge to issue a warrant directed to the marshal authorizing
him to publish notices in such newspapers as the warrant specifies
and to serve written or printed notices on all creditors whose
names are included in the schedule or whose names may be given to
him in addition by the debtor, and to give such personal or other
notice as the directions of the warrant require.
(1) That a warrant in bankruptcy has been issued against the
estate of the debtor.
(2) That the payment of any debts or the delivery of any
property belonging to such debtor to him or the transfer of any
property by him are forbidden by law.
(3) That a
Page 87 U. S. 258
meeting of the creditors of the debtor will be held at a court
of bankruptcy to be holden at the time designated in the
warrant.
Due notice to the creditors in that regard is indispensable, as
the provision is that if it be not given the meeting shall be
adjourned and a new notice given as required. Assignees of the
estate of the debtor are to be chosen by the creditors at their
first meeting. Creditors not only appoint the assignee or assignees
but, in certain cases and under certain conditions, they may remove
any assignee, and vacancies in certain cases may be filled by the
creditors, as provided in the eighteenth section of the act. Debts
due and payable from the bankrupt at the time he is adjudged as
such, and all debts then existing but not payable until a future
day, a rebate of interest being made when no interest is payable by
the terms of the contract, may be proved against the estate of the
bankrupt. Contingent debts and liabilities of the bankrupt may also
be claimed by creditors, and such claims may be allowed, with the
right to share in the dividends, if the contingency shall happen
before the order for the final dividend. When a creditor has a
mortgage or pledge of real or personal property of the bankrupt or
a lien thereon for securing the payment of a debt owing to him from
the bankrupt, he shall be admitted as a creditor only for the
balance of the debt. No creditor proving his debt shall be allowed
to maintain any suit at law or in equity therefor against the
bankrupt. Resident creditors are required to make proofs before one
of the registers of the court in the district where the proceedings
are pending, but all such proofs in behalf of nonresident creditors
may be made before a commissioner or before a register in the
judicial district where the creditor resides, and corporations may
verify their claims by the oath or affirmation of their president,
cashier, or treasurer.
Claims against the estate of the bankrupt are required to be
signed by the claimant and to be verified by his oath, and the
requirement also is that the assignee shall register, in a book to
be kept by him for the purpose the names of the
Page 87 U. S. 259
creditors who have proved their claims, in the order in which
such proof is received, stating the time of its receipt and the
amount and nature of the debt. Claimants are forbidden to accept
any preference, and the provision is that if anyone does so
contrary to the prohibition of the act, he shall not prove the debt
or claim, nor shall he receive any dividend until he shall first
have surrendered to the assignee all property, money, benefit, or
advantage received by him under such preference.
Preferences are forbidden in order that equal distribution may
be effected, and the act provides that all creditors whose debts
are duly proved and allowed shall be entitled to share in the
bankrupt's property and estate
pro rata, without any
priority or preference whatever except that wages due from the
bankrupt to any operative or clerk or house servant, to an amount
not exceeding fifty dollars, for labor performed within six months
next preceding the adjudication of bankruptcy shall be entitled to
priority and shall be first paid in full. Annexed to that clause
there is also a proviso that any debt proved by any person liable
as bail, surety, guarantor, or otherwise for the bankrupt shall not
be paid to the person so proving the same until satisfactory
evidence shall be produced of the payment of such debt by such
person so liable.
Just and true accounts are to be kept by the assignees, and they
are to make full report of the same to the creditors at a meeting
to be called for the purpose, and the creditors are to determine
whether any and what part of the net proceeds of the estate shall
be distributed as a dividend, and if the creditors order a
dividend, it is made the duty of the assignee to prepare a list of
the creditors entitled to the same and to compute and set opposite
to the name of each creditor the dividend to which he is entitled
out of the net proceeds of the estate set apart for that purpose.
Preparatory to the final dividend, the assignee shall submit his
account to the court and file the same, and give notice to the
creditors of such filing, and shall also give notice that he will
apply for a final settlement of his account.
Page 87 U. S. 260
Application for a discharge from his debts may be made by the
bankrupt, as provided in the twenty-ninth section of the act, and
the provision is that the court shall thereupon order notice to be
given to the creditors, as therein specified, to appear on a day
appointed for that purpose and show cause why a discharge to the
applicant should not be granted.
Insolvent debtors may also in certain cases be adjudged
bankrupts on the petition of one or more of their creditors.
Matters necessary to be alleged in such a petition are specifically
set forth in the Bankrupt Act, which provides that if the facts
alleged are found to be true, the court shall forthwith make the
required adjudication and issue a warrant to take possession of the
estate of the debtor, which shall be directed as in the former
case, and the property of the debtor shall be taken thereon and be
assigned and distributed in the same manner and with similar
proceedings to those provided for taking possession, assignment,
and distribution of the property of the debtor upon his own
petition.
Sufficient appears from this summary of the proceedings required
under the Bankrupt Act to establish two propositions beyond all
doubt or cavil:
(1) That the United States are not named in any of the
provisions of the act except the one which provides that all debts
due to the United States and all taxes and assessments under the
laws thereof shall be entitled to priority or preference, as
heretofore fully explained.
(2) That many of the provisions describing the rights, duties,
and obligations of creditors are in their nature inapplicable to
the United States, and that if held to include the United States,
could not fail to become a constant and irremediable source of
public inconvenience and embarrassment.
Viewed in the light of these suggestions, and of the language
employed in the act, the court is of the opinion that the words
"creditor or creditors," as used in the several provisions of the
Bankrupt Act, do not include the United States.
Twice before since the federal Constitution was adopted,
Page 87 U. S. 261
the Congress has enacted similar laws, and it is matter of
history that the framework of those acts, as well as much of their
details, was drawn from the various acts of Parliament upon the
same subject, and the remark is equally applicable to the principal
features of the act under consideration in respect to all the parts
of the same whose construction is involved in the case before the
Court. Such acts of Parliament have never in terms included debts
due to the sovereign of the country, and the decisions of the
courts of Westminster Hall for more than a century have held
without an exception that such acts or the proceedings under the
same do not discharge debts due to the Crown. [
Footnote 7]
Text writers also, of the highest authority, have uniformly
promulgated the same rule. Speaking of the order of discharge,
Deacon says [
Footnote 8] it
does not release the bankrupt from a debt due to the Crown, for as
the Crown is not bound by any statute unless specifically named,
and crown debts not being mentioned among those of the creditors in
general, in any part of the statute relating to the proof of debts
or the certificate of discharge, the Crown of course will not be
barred of the peculiar privileges it possesses for the recovery of
its own debts.
Nor does the Bankrupt Act impair or supersede the laws for the
collection of taxes, and that rule also is founded upon the same
canon of construction, to-wit, that the Crown is not bound by the
bankrupt laws, and therefore, says Shelford, [
Footnote 9] the appointment of assignees does not
relate to the Act of bankruptcy
as against the Crown
process, but the bankrupt's personal property is bound under
an extent even when tested subsequently to the appointment of the
assignees. To which he adds that the bankrupt's certificate is no
discharge as against the Crown. [
Footnote 10]
Such a certificate, says Robson, [
Footnote 11] will not release the bankrupt from any debt
or liability incurred by means of any
Page 87 U. S. 262
fraud, nor from debts due to the Crown, nor from debts with
which the bankrupt stands charged
at the suit of the
Crown, or of any person for any offense against a statute relating
to any breach of the public revenue, or at the suit of the sheriff
or other public officer on a bail bond entered into for the
appearance of any person prosecuted for any such offense.
With a single exception not material in this case, the views of
Cooke are the same as those expressed by Shelford. He says the
Crown is not bound by the acts relating to bankrupts, not being
named in them; therefore, an extent served upon the property of the
bankrupt will bind it from the teste of the writ and until the
actual assignment of the commissioners, but the King is bound by an
actual assignment, because the property is then absolutely
transferred to a third person. [
Footnote 12]
Different explanations have been given as the reason of the rule
in different adjudications, but perhaps there is none more
satisfactory than the original one, that the sovereign is not bound
by the act because not named as a creditor in any of its
provisions. But the reason for the rule assigned in a recent
decision in the Exchequer Chamber is also entitled to much
consideration as supporting the original rule. Throughout the
Bankrupt Acts, the word "creditor," says Mr. Justice Blackburn, is
used in the sense of a person having a claim which can be proved
under the bankruptcy, to which he might have added, and one not
required by the act to be paid in full in preference of all other
creditors. [
Footnote 13]
Greater unanimity of decision in the courts or of views among
text writers can hardly be found upon any important question than
exists in respect to this question in the parent country, nor is
there any diversity of sentiment in our courts, federal or state,
nor among the text writers of this country.
Perhaps the earliest decision in this country was that given in
the case of
United States v. King, [
Footnote 14] which was made almost at the
beginning of the present century. In that case,
Page 87 U. S. 263
the question was directly presented and was as directly
adjudicated, the court holding that debts due to the United States
are not within the provisions of the Bankrupt Act. Other decisions
of like character are found in the state reports.
It is a maxim of the common law, said Savage, C.J., that when an
act of Parliament is passed for the public good, as for the
advancement of religion and justice or to prevent injury and wrong,
the King shall be bound by such act though not named, but when a
statute is general and any prerogative, right, title, or interest
would be divested or taken from the King, in such a case he shall
not be bound unless the statute is made by express words to extend
to him, for which he cites both English and American authorities,
and adds that the people of the state, being sovereign, have
succeeded to the rights of the former sovereign, and that the
people of the state are not bound by the general words in the
insolvent law. [
Footnote
15]
Sanctioned as that principle is by two express decisions of this
Court, it would seem that further discussion of it is unnecessary,
as it has never been questioned by any well considered case, state
or federal, and is founded in the presumption that the legislature,
if they intended to divest the sovereign power of any right,
privilege, title, or interest, would say so in express words, and
where the act contains no words to express such an intent, that it
will be presumed that the intent does not exist. [
Footnote 16]
Such a conclusion, to-wit, that Congress intended that the
certificate of discharge given to a bankrupt should include his
liability as a surety for the faithful performance of duty by a
public officer, ought not to be adopted unless such an intention is
expressed in clear and unambiguous terms, as the rule, if
established, would, in all probability, lead to
Page 87 U. S. 264
great loss to the public Treasury and to great public
embarrassment. [
Footnote
17]
Judgment reversed and the cause remanded with directions to
issue a new venire.
[
Footnote 1]
Chapter 517, ยงยง 32, 34; 14 Stat. at Large 532, 533.
[
Footnote 2]
14 Stat. at Large 533.
[
Footnote 3]
14 Stat. at Large 533;
United States v. Davis, 3 McLean
483.
[
Footnote 4]
Anonymous, 1 Atkyns 262;
Rex v. Earl, Bunbury
33;
Rex v. Pixley, id. 202.
[
Footnote 5]
8 Bacon's Abridgment by Bouvier, title "Prerogative," E 5;
United States v.
Knight, 14 Pet. 315.
[
Footnote 6]
On Prerogative 383; 19 Viner's Abridgment, title "Statute," E.
10.
[
Footnote 7]
Attorney General v. Alston, 2 Modern 248;
Anonymous, 1 Atkyns 262.
[
Footnote 8]
On Bankruptcy, vol. 1 (3d edition), 784;
Rex v. Pixley,
Bunbury 202.
[
Footnote 9]
On Bankruptcy 303.
[
Footnote 10]
Craufurd v. Attorney General, 7 Price 5.
[
Footnote 11]
On Bankruptcy (2d edition) 553.
[
Footnote 12]
Eden on Bankruptcy 143.
[
Footnote 13]
Woods v. De Mattos, 3 Hurlstone & Coltman 995.
[
Footnote 14]
Wallace's Circuit Court 18.
[
Footnote 15]
People v. Herkimer, 4 Cowen 348;
see also
Commonwealth v. Hutchinson, 10 Pa. 466, which is to the same
effect; Hilliard on Bankruptcy (2d edition) 295.
[
Footnote 16]
United States v.
Knight, 14 Pet. 315;
Dollar
Savings Bank v. United States, 19 Wall. 239;
United States v. Hoar, 2 Mason 311;
Commonwealth v.
Baldwin, 1 Watts 54.
[
Footnote 17]
Regina v. Edwards, 9 Exchequer 50.