1. The creditor of a manufacturing corporation which was duly
adjudicated a bankrupt, who proved his claim and received a
dividend thereon, does not thereby waive his right of action for so
much of the claim as remains unpaid.
2. A decree adjudging a corporation bankrupt is in the nature of
a decree
in rem as respects the status of the corporation,
and, if the court rendering it has jurisdiction, can only be
assailed by a direct proceeding in a competent court, unless it
appears that the decree is void in form or that due notice of the
petition was not given.
Page 91 U. S. 657
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Corporations, whether moneyed, business, or commercial, and
joint stock companies are subject to the provisions of the Bankrupt
Act, and the thirty-seventh section of the act provides to the
effect that upon the petition of any officer of any such
corporation or company, duly authorized by a vote of a majority of
the corporators at any legal meeting called for the purpose, or
upon the petition of any creditor or creditors of the same, made
and presented in the manner provided in respect to other debtors,
the like proceedings shall be had and taken as are required in
other cases of voluntary or involuntary bankruptcy; but the same
section provides that no allowance or discharge shall be granted to
any corporation or joint stock company or to any person or officer
or member thereof. 14 Stat. 535.
Nine overdue promissory notes executed by the corporation
defendants were held by the corporation plaintiffs, amounting to
the sum of $5,266.94, and they instituted the present suit in the
supreme court of the state to recover the amount.
Service being made, the defendants appeared and set up as a
defense in their answer that they, the defendants, had on their own
application been declared bankrupt and that the plaintiffs had
proved the claim in suit in the bankrupt proceedings, and had been
paid a dividend on the same, and that they were thereby prevented
under the Bankrupt Act from recovering the claim or any part of the
same in a subsequent action.
Issue being joined, the parties went to trial, and, the bankrupt
proceedings having been introduced in evidence, the defendants
moved the court to dismiss the suit, insisting that the plaintiffs,
having proved the claim in the bankrupt proceedings and received a
dividend on the same, had waived the cause of action; but the
presiding justice denied the motion and directed the jury to render
a verdict in favor of the plaintiffs for the balance due on the
notes. Exceptions were duly filed by the defendants, and they
appealed to the general term, where the judgment was affirmed, the
court holding that the bankrupt court had no jurisdiction to
adjudge the defendant corporation bankrupt and that the proceedings
in bankruptcy were void.
Brass & Copper Company v. Lamp
Chimney Company, 64 Barb. 436.
Page 91 U. S. 658
Still dissatisfied, the defendants appealed to the Court of
Appeals of the state, where the parties were again fully heard, and
the Court of Appeals affirmed the judgment rendered by the court
sitting in general term, holding that the decree of the bankrupt
court adjudging the defendant corporation bankrupt, and the
subsequent proceedings in pursuance of the same, did not have the
effect to discharge the corporation from the claim in suit beyond
the amount paid to the plaintiffs as dividends, even though the
claim was proved by the plaintiffs in the bankrupt proceedings.
Same v. Same, 53 N.Y. 124.
Sufficient appears to show that the defendants are a
manufacturing corporation organized under the law of the state,
which authorizes three persons to form such a corporation and
requires that the trustees shall be stockholders of the company.
Sess.Laws (1848), ch. 40, p. 54.
Nothing being alleged to the contrary, it must be assumed that
the corporation was duly organized. It appears that a meeting of
the trustees was duly called and notified to inquire into the
condition of the affairs of the corporation; that the meeting was
regularly held, and, it having been ascertained to the satisfaction
of the meeting that the corporation was insolvent, it was voted and
resolved by a majority of the trustees present that the president
of the company be required to file a petition in the district court
that the corporation may be adjudged bankrupt. Such a petition was
accordingly filed, and if the president of the company was duly
authorized to sign and file it, the plaintiffs do not deny that the
bankrupt proceedings were regular.
Two objections are taken to the jurisdiction of the bankrupt
court which in point of fact involve the same considerations. They
are that the majority of the stockholders did not sign the petition
filed in the district court and that the president of the
corporation was not authorized to sign it, which is a mere
inference from the fact that the meeting, when the vote and
resolution were adopted, was a regular meeting of the trustees; but
inasmuch as the statute of the state requires that the trustees
shall be stockholders, and no objection is made to the organization
of the company, it may well be presumed that the trustees were
stockholders as required by law.
Page 91 U. S. 659
As before remarked, three persons may form such a corporation.
The record shows that a majority of the trustees present adopted
the vote and resolution, which necessarily implies that a minority
did not concur, and if not, then certainly there must have been
three or more present. The record does not show that the whole
capital stock of the company is not owned by three persons.
Viewed in the light of these suggestions, it follows that the
want of jurisdiction in the bankrupt court is not clearly shown,
and that the case is plainly one where every presumption should be
that the action of the court was rightful.
Due notice, it is conceded, was given to all concerned, and that
the defendants appeared in the bankrupt court, and that they never
made any objection to the jurisdiction of the court, and in view of
these circumstances, the rule is that every presumption is in favor
of the legal character of the proceedings.
Voorhees v.
Bank, 10 Pet. 473.
Concede that, still it is said that courts created by statute
cannot have jurisdiction beyond what the statute confers -- which
is true, but no such question arises in the case before the Court,
as all concede that the district court had jurisdiction of the
subject matter and that the defendants appeared and claimed and
exercised every right which the Bankrupt Act confers. They are
therefore estopped to deny the jurisdiction of the court, nor are
the plaintiffs in any better condition unless it appears that the
bankrupt proceedings are actually void. Void proceedings, of
course, bind no one not estopped to set up the objection, and in
order to establish the theory that the proceedings in this case are
void, the plaintiffs deny that the president of the corporation was
authorized to make and file the petition in the district court.
McCormick v. Pickering, 4 Comst. 279.
Such a petition might properly be made by the president of the
company, and be by him presented to the district court, if he was
thereto duly authorized at a legal meeting called for the purpose
by a vote of a majority of the corporators, and whether he was so
authorized or not was a question of fact to be determined by the
district court to which the petition was presented, and the rule in
such cases is that if there be a total
Page 91 U. S. 660
defect of evidence to prove the essential fact, and the court
find it without proof, the action of the court is void; but when
the proof exhibited has a legal tendency to show a case of
jurisdiction, then, although the proof may be slight and
inconclusive, the action of the court will be valid until it is set
aside by a direct proceeding for that purpose. Nor is the
distinction unsubstantial, as in the one case the court acts
without authority, and the action of the court is void, but in the
other, the court only errs in judgment upon a question properly
before the court for adjudication, and of course the order or
decree of the court is only voidable.
Staples v.
Fairchild, 3 Comst. 46;
Miller v. Brinkerhoff, 4 Den.
119;
Voorhees v.
Bank, 10 Pet. 473;
Kinnier v. Same, 45
N.Y. 539.
Jurisdiction is certainly conferred upon the district court in
such a case if the petition presented sets forth the required facts
expressly or by necessary implication, and the court, upon proof of
service thereof, finds the facts set forth in the petition to be
true, and it is equally certain that the district court has
jurisdiction of "all acts, matters, and things" to be done under
and in virtue of the bankruptcy until the final distribution and
settlement of the estate of the bankrupt and the close of the
bankrupt proceedings. 14 Stat. 518.
Power, it is true, is vested in the circuit courts in certain
cases to revise the doings of the district courts, and in certain
other cases an appeal is allowed from the district court to the
circuit court; but it is a sufficient answer to every suggestion of
that sort that no attempt was made in the case to seek a revision
of the decree in any other tribunal. Nothing of the kind is
suggested, nor can it be, as the record shows a regular decree
unreversed and in full force.
Grant that, and still the proposition is submitted that the
decree was rendered without jurisdiction for the reason assigned,
and that that question is open to the defendants, even though the
decree was introduced as collateral evidence in a suit at law or in
equity in another jurisdiction. But the Court here is entirely of a
different opinion, as the district courts are created by an act of
Congress which confers and defines their jurisdiction; from which
it follows that their decrees rendered in pursuance of the power
conferred are entitled in every
Page 91 U. S. 661
other court to the same force and effect as the judgments or
decrees of any domestic tribunal, so long as they remain unreversed
and are not annulled.
Shawhan v.
Merritt, 7 How. 643;
Huff
v. Hutchinson, 14 How. 588;
Parker v.
Danforth, 16 Mass. 299;
Pecks v. Barnum, 24 Vt. 76; 2
Smith's Lead.Cas. (7th ed.) 814.
Judgments or decrees rendered in the district courts may be
impeached for the purpose of showing that the particular judgment
or decree was procured for the purpose of avoiding the effect and
due operation of the Bankrupt Act, and competent evidence is
admissible for that intent and purpose, but the judgment or decree
of the district court in a case like the present is no more liable
to collateral impeachment, except to show that it was designed to
prevent the equal distribution of the debtor's estate, than it is
to such impeachment in the court where it was rendered.
Palmer
v. Preston, 45 Vt. 159;
Miller v. United
States, 11 Wall. 300.
Authority to establish uniform laws upon the subject of
bankruptcy is conferred upon Congress, and, Congress having made
such provision in pursuance of the Constitution, the jurisdiction
conferred becomes exclusive throughout the United States. By the
Act of Congress, the jurisdiction to adjudge such insolvent
corporation as are described in the thirty-seventh section of the
act to be bankrupts is vested in the district courts; and it
follows that such a decree is entitled to the same verity, and is
no more liable to be impeached collaterally than the decree of any
other court possessing general jurisdiction; which of itself shows
that the case before the court is controlled by the general rule
that where it appears that the court had jurisdiction of the
subject matter, and that process was duly served or an appearance
duly entered, the judgment or decree is conclusive, and is not open
to any inquiry upon the merits. 2 Smith's Lead.Cas. (7th ed.) 622;
Freeman on Judgments (2d ed.), sec. 606;
Hampton v.
McConnel, 3 Wheat. 234;
Gelston v.
Hoyt, 3 Wheat. 312;
Slocum v.
Mayberry, 2 Wheat. 10;
Nations v.
Johnson, 24 How. 203;
D'Arcy
v. Ketcham, 11 How. 166;
Webster v.
Reid, 11 How. 437.
Such a decree adjudging a corporation bankrupt is in the nature
of a decree
in rem, as respects the status of the
corporation,
Page 91 U. S. 662
and if the court rendering it has jurisdiction, it can only be
assailed by a direct proceeding in a competent court unless it
appears that the decree is void in form or that due notice of the
petition was never given.
Way v. How, 10 Mass. 503;
Ex
Parte Wieland, Law Rep. 8 Chan.App. 489;
Ocean Bank v.
Olcott, 46 N.Y. 15;
Revell v. Blake, Law Rep. 7 C.P.
308.
Suppose that is so, then it is insisted by the defendants that
the case before the court is controlled by the twenty-first section
of the Bankrupt Act, which, among other things, provides that no
creditor proving his debt or claim shall be allowed to maintain any
suit at law or in equity therefor against the bankrupt, but shall
be deemed to have waived all right of action and suit against the
bankrupt &c. 14 Stat. 526.
Debtors, other than corporations and joint stock companies, are
certainly within that provision, and if corporations are also
within it, then it follows that the judgment must be reversed, as
the plaintiffs are not entitled to recover. Instead of that, the
plaintiffs deny that corporations or joint stock companies are
within that provision, and insist that the case before the court is
controlled by the thirty-seventh section of the Bankrupt Act, which
provides that no allowance or discharge shall be granted to any
corporation or joint stock company, or to any person or officer or
member thereof, which is the view of the case taken by the Court of
Appeals of the state whose judgment is brought into review by the
present writ of error.
Id., 535;
Brass & Copper
Co. v. Lamp Chimney Co., 53 N.Y. 124.
Difficulties perhaps insurmountable would attend the theory of
the plaintiffs if the twenty-first section of the Bankrupt Act
stood alone, but it does not stand alone, and, being a part of a
general system of statutory regulation, it must be read and applied
in connection with every other section appertaining to the same
feature of the general system, so that each and every section of
the act may, if possible, have their due and conjoint effect
without repugnancy or inconsistency.
Statutes must be interpreted according to the intent and meaning
of the legislature, and that intention must, if practicable, be
collected from the words of the act itself, or if the language is
ambiguous it may be collected from other acts
in
Page 91 U. S. 663
pari materia, in connection with the words, and
sometimes from the cause or necessity of the statute; but where the
language of the act is unambiguous and explicit, courts are bound
to seek for the intention of the legislature in the words of the
act itself, and they are not at liberty to suppose that the
legislature intended anything different from what their language
imports. Potter's Dwarris, 146.
Words and phrases are often found in different provisions of the
same statute which, if taken literally, without any qualification,
would be inconsistent and sometimes repugnant when, by a reasonable
interpretation -- as by qualifying both, or by restricting one and
giving to the other a liberal construction -- all become
harmonious, and the whole difficulty disappears, and in such a case
the rule is that repugnancy should, if practicable, be avoided, and
that, if the natural import of the words contained in the
respective provisions tends to establish such a result, the case is
one where a resort may be had to construction for the purpose of
reconciling the inconsistency, unless it appears that the
difficulty cannot be overcome without doing violence to the
language of the lawmaker.
Sec. 21, if taken literally, would require that the whole claim
of every creditor proving his claim, who is included within its
operation, should be forever discharged; but the thirty-third
section of the act provides that no debt created by the fraud or
embezzlement of the bankrupt, or by his defalcation as a public
officer, or while acting in a fiduciary character, shall be
discharged under the Bankrupt Act. Such debts may be proved, and
the provision is that the dividend shall be a payment on account of
the debt; but it is incorrect to suppose that the creditor, by
proving such a debt, waives "all right of action and suit against
the bankrupt." On the contrary, it is well settled that no
consequences can be allowed to flow from proving a debt which are
inconsistent with the provisions of sec. 33.
Ex Parte
Robinson, 6 Blatch. 253;
In re Rosenberg, 2 N.B.R.
81.
Where the bankrupt has in all things conformed to his duty under
the Bankrupt Act, he is entitled to receive a discharge, and the
thirty-fourth section provides that a discharge duly granted shall,
with the exceptions specified in the preceding
Page 91 U. S. 664
section, release the bankrupt from all debts, claims,
liabilities, and demands which were or might have been proved
against his estate in bankruptcy.
Debts due to the United States are not enumerated in the
exceptions contained in sec. 33, but all admit that such debts may
be proved in the bankrupt proceedings, and yet it is settled law
that the certificate of discharge does not release any debt which
the bankrupt owes to the United States.
United
States v. Herron, 20 Wall. 253.
Other examples of the kind might be referred to where it has
become necessary to qualify, restrict, or limit certain provisions
of the Bankrupt Act in order to reconcile seeming incongruities and
inconsistencies, but those mentioned will be sufficient for the
present investigation.
Beyond all question, corporations of the kind and joint stock
companies are brought within the provisions of the Bankrupt Act by
the thirty-seventh section, and the whole administrative
proceedings in respect to such bankrupt corporations and joint
stock companies are specifically regulated by that section as a
separate feature of the bankruptcy system. Much of the system
applicable to such corporations and companies, it is true, is
borrowed by general phrases from the other sections of the same
act, but only such portions of the same as are expressly or
impliedly adopted by that section are applicable to such
corporations and companies as clearly appears from the distinct
features of the regulations prescribed, which are as follows:
1. That the officer signing the petition for voluntary
bankruptcy must be duly authorized by a vote of the majority of the
corporators at a legal meeting called for the purpose.
2. That the petition for involuntary bankruptcy may be made and
presented by any creditor or creditors in the manner provided in
respect to debtors, without any specification as to the number of
the creditors or the amount of their debts.
3. That the like proceedings shall be had and taken as provided
in the case of debtors.
4. That all the provisions in the act which apply to the debtor,
or set forth his duties in regard to furnishing schedules and
inventories, executing papers, submitting to examination,
disclosing, making over, secreting, concealing, conveying,
assigning, or paying away his money or property, shall
Page 91 U. S. 665
in like manner, and with like force, effect, and penalties,
apply to each and every officer of such corporation or company in
relation to the same matters concerning the corporation or company,
and the money and property thereof.
5. That all payments, conveyances, and assignments declared
fraudulent and void by the act, when made by a debtor, shall in
like manner, and to the like extent, and with like remedies, be
fraudulent and void when made by a corporation or company.
6. That no allowance or discharge shall be granted to any
corporation or joint stock company, or to any person or officer or
member thereof.
7. That all the property and assets of any corporation declared
bankrupt by proceedings under the Bankrupt Act shall be distributed
to the creditors of the corporation in the manner therein provided
in respect to natural persons. 14 Stat. 535.
Special regulations in respect to petitions are enacted by sec.
37 of the Bankrupt Act, where the insolvent is a corporation or
joint stock company, different from those prescribed in cases where
the insolvent party is a natural person or partnership. But,
subject to the exception that no allowance or discharge shall be
granted to any such corporation or joint stock company, all of the
administrative proceedings are to be the same as in case of
bankrupt individuals, not because corporations are within the words
of the other provisions of the Bankrupt Act, but because the
thirty-seventh section of the act provides that the provisions of
the act shall apply to such corporations and joint stock companies,
and it appears that all the administrative proceedings, with that
exception, are required to be in conformity to the regulations
prescribed in respect to individual bankrupt debtors.
By the terms of the section, corporations adjudged bankrupt are
also made subject to the same duties as individual bankrupt debtors
in regard to all the matters therein specified; but the emphatic
exception to all those general regulations is that no allowance or
discharge shall be granted to any corporation or joint stock
company, or to any person, officer, or member thereof.
Examined in the light of these suggestions, it is as clear as
anything dependent upon the construction of a statute well
Page 91 U. S. 666
can be, that Congress, in giving jurisdiction to the district
courts to adjudge moneyed, business, and commercial corporations
and joint stock companies bankrupt, never intended to adopt the
introductory paragraph of sec. 21 or sec. 32 as applicable to such
corporations or companies. Neither corporations of the kind nor
joint stock companies are within the words of either of those
sections, and it is equally clear that nothing is contained in sec.
37 to support such a conclusion, from which it follows that the
claim of the plaintiffs, beyond the amount received as dividends,
is not discharged by the proceedings in bankruptcy.
Good and sufficient reasons may be given for granting a
discharge from prior indebtedness to individual bankrupts which do
not exist in the case of corporations, and equally good and
sufficient reasons may be given for withholding such a discharge
from corporations which do not in any sense apply to individual
bankrupts. Certificates of discharge are granted to the individual
bankrupt "to free his faculties from the clog of his indebtedness,"
and to encourage him to start again in the business pursuits of
life with fresh hope and energy, unfettered with past misfortunes
or with the consequences of antecedent improvidence, mismanagement,
or rashness.
Many corporations, it is known, are formed under laws which
affix to the several stockholders an individual liability to a
greater or less extent for the debts of the corporation, which, in
case certain steps are taken by the creditors, become in the end
the debts of the stockholders. Such a liability does not in most
cases attach to the stockholder until the corporation fails to
fulfill its contract, nor in some cases until judgment is recovered
against the corporation, and execution issued, and return made of
nulla bona. Stockholders could not be held liable in such
a case if the corporation is discharged, nor could the creditor
recover judgment against the corporation as a necessary preliminary
step to the stockholder's individual liability.
Consequences such as these were never contemplated by Congress,
and the fact that they would flow from the theory of the
defendants, if adopted, goes very far to show that the theory
itself is unfounded and unsound. Instances of such
Page 91 U. S. 667
individual liability are not rare, and it appears that the law
under which the defendants were organized makes the several
stockholders individually liable to the creditors of the company,
in an amount equal to the amount of their stock, for all debts and
contracts of the company until the whole amount of the capital
stock is subscribed and paid. Sess.Laws of N.Y. 1848, p. 56, sec.
10.
Bankrupts other than corporations or joint stock companies, if
they have conformed in all things to their duty under the Bankrupt
Act, are entitled to receive a certificate of discharge, and the
provision is that such certificate shall operate to discharge such
a bankrupt from all debts and claims which by said act are made
provable against his estate, subject, of course, to the exceptions
described in the thirty-third section of the same act.
Bennett
v. Goldthwait, 109 Mass. 494;
Wilson v. Capuro, 41
Cal. 545;
In re Wright, 36 How.Pr. 174.
Since this litigation was commenced, Congress has amended the
twenty-first section of the Bankrupt Act and provided that where a
discharge has been refused or the proceedings have been determined
without a discharge, a creditor proving his debt or claim shall not
be held to have waived his right of action or suit against the
bankrupt. 18 Stat. 179.
Comment upon that provision is unnecessary, as it clearly
appears that the unamended act did not discharge the claim of the
plaintiffs.
Judgment affirmed.