Friend v. Talcott, 228 U.S. 27 (1913)

Proving a claim in the Bankruptcy Court or taking judgment in assumpsit does not waive the claimant’s right to sue for deceit. Katzenstein v. Reid, supra; Standard Sewing Machine Co. v. Kattel, 132 App. Div. (N. Y.) 539; In re Lewensohn, 99 Fed. Rep. 73, 74, aff’d 104 Fed. Rep. 1006; Standard Sewing Machine Co. v. Alexander, 68 S. Car. 506; Frey v. Torrey, 70 App. Div. (N. Y.) 166; S. C., 175 N. Y. 501; Mallory v. Leach, 35 Vermont, 156; Bowen v. Mandeville, 95 N. Y. 237; Sheldon v. Clews, 13 Abb. (N. C.) 41; Whittier v. Collins, 15 R. I. 90; Union Cent. Life Ins. Co. v. Scheidler, 130 Indiana, 214; Standard Sewing Machine Co. v. Owings, 140 N. Car. 503; Norton v. Huxley, 13 Gray (Mass.), 285; Brumbach v. Flower, 20 Ill. App. 219, aff’d 131 Illinois, 646; Bacon p. 32v. Moody, 117 Georgia, 207; Drainage District v. Dowd, 134 Ill. App. 499.

Talcott, the respondent, was allowed a claim for $3,204.91, the unpaid price of goods sold to the firm on credit. The firm, availing of the right to make a composition with its creditors, given by §§ 12 and 13 of the Bankruptcy Act of July 1, 1898, c. 541, 30 Stat. 544, 549, asked the court to approve a proposed composition. Talcott, among others, opposed, upon the ground that the bankrupt had procured the sale on credit of the goods, the price of which formed the basis of his (Talcott’s) allowed claim, by means of false reports made to a commercial agency of the financial condition of the firm. The vol . ccxxvii i—3 p. 34specification of the grounds of objection just stated is reproduced in the margin.1

“As to specification No. 8 of James Talcott, referred to, I am of the opinion that a reasonable and proper construction of section 146 (3) would require the ‘materially false statements in writing’ to be made directly to the creditor in question, and I deem the allegations in this specification which are to the effect that the alleged false statement was made to a commercial agency to be in- p. 35228 U. 8. Opinion of the Court.

In April, 1905—about a year after the composition—Talcott commenced this action to recover from the former bankrupt firm the damages suffered by him because of deceit practiced in procuring the sale of goods on credit. The deceit relied upon was the deceit which had been alleged as a basis for the opposition to the composition, that is, false reports made in writing to a commercial agency as to the financial condition of the firm, except that in one count no mention was made of the commercial agency. On the face of the declaration the sales asserted to have been made were the same sales the price of which formed the basis of the claim filed and allowed, and if not accurately, at least approximately the amount of the damage sought to be recovered was the difference between the aggregate price of such sales diminished by the extent of the distribution paid upon the composition. In addition to the general issue the defendants set up as res judicata the order arising from confirmation of the p. 36composition. The cause was heard upon the issue of former adjudication, and judgment was entered in favor of the defendants, the judgment reciting that the matters and things involved in the suit had been fully adjudicated in the bankruptcy proceedings. On reviewing the cause the Circuit Court of Appeals concluded that the act of Talcott in going into the bankruptcy proceedings and proving his claim as one on contract did not constitute an election by him to be bound by the discharge if otherwise under the Bankruptcy Act the claim was excepted from such discharge, and that the fact of participating in the bankruptcy proceeding for the purpose of obtaining the benefits of the distribution therein made was not a waiver by Talcott of his right to proceed in an action for deceit to collect the deficiency notwithstanding the discharge. The court, moreover, decided that the opposition to the composition, its confirmation and the resulting general discharge did not constitute the thing adjudged, estopping Talcott from asserting that his claim for damages suffered by the deceit was not embraced by the discharge.

no such right existed. But this theory has been expressly decided to be without foundation. Crawford v. Burke, 195 U. S. 176. In that case the ruling was that where a debt was of such a character as to cause it to be within the power of the creditor to enforce the same as an obligation arising on contract or if he chose to do so as one in tort, as from the point of view of contract the debt was provable in bankruptcy, even conceding that it might not be so provable if the tort was relied upon, that it was the duty of the creditor to prove as under contract, and if he abstained from so doing his debt or claim being provable was operated upon and barred by the proceedings. The theory of election and waiver being thus established to be unreal, there is of course nothing left for the proposition to rest upon. But it is said Crawford v. Burke is inapposite because in that case although the claim under consideration involved both the elements of contract and tort, as no judgment had been entered establishing the tort, under the bankrupt law as then existing the debt was not excepted from a discharge, while here, in consequence of the amendment of 1903, the debt if there has been no waiver is excepted from the discharge. This being the case it is urged that an election and waiver resulted from the act of the debtor in proving his claim as on contract and thus taking advantage of the bankruptcy proceedings and thereby obtaining rights or benefits which he would not have had if he had stayed out and thus saved his right to be freed from the operation of the discharge. But this distinction is also wholly without foundation. Its error lies in assuming that the right which the bankrupt act confers upon enumerated classes of debts to be exempt from the operation of a discharge rests upon the conception that such debts are exempt because they are excluded from the act and may not participate in the distribution of assets. That is to say, the confusion lies in not distinguishing between creditors who are ex- p. 39eluded from the bankrupt act and those who although included therein have had conferred upon them the benefit of an exception from the operation of the discharge. Even a superficial analysis of the text of the Bankruptcy Act will make this clear. Thus § 63a and b (30 Stat. 562) enumerates the debts which may be proved and which are therefore entitled to participate in the benefits of the act and are bound by its provisions, including a discharge. Section 17 (30 Stat. 550) enumerates the debts not affected by a discharge, that is, those exempted from its operation. It is apparent that the exemptions do not rest upon any theory of the exclusion of the creditor from the bankrupt act or of deprivation of right to participate in the distribution, but solely on the ground that although such rights are enjoyed, an exemption from the effect of the discharge is superadded. The text leaves no room for any other view, since the exceptions in terms are accorded to certain classes of debts which are provable under § 63, and therefore debts which are entitled to participate in the distribution, the language being:11A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as,” etc.

And a brief reference to the more important of the prior bankruptcy acts throws abundant light on the text. The Bankruptcy Act of August 19,1841, c. 9, 5 Stat. 440, in the first section comprehensively stated the classes of claims which were embraced within its scope and expressly excluded certain enumerated classes. No exemption from the operation of a discharge when granted was conferred, and therefore all who were within the scope of the act, while enjoying its benefits, were bound by its burdens. Under this act, in Chapman v. Forsyth, 2 How. 202, it was held that although a claim was excluded from the law if brought in by the voluntary act of the creditor and he thereby participated in the distribution, the creditor by such election waived his right to p. 40be treated as not bound by the statute, and consequently the debt or claim was discharged. . The Bankruptcy Act of March 2, 1867, c. 176, 14 Stat. 517, presumably to correct the injustice which arose from excluding from all participation in the distribution of assets those creditors whom it was thought because of the meritorious nature of their debt should not be bound by the discharge, departed from the system of excluding such creditors from the act and on the contrary adopted the principle of including them in the benefits of the act and yet at the same time exempting them from the operation of the discharge. To accomplish this result, § 19 of the act (14 Stat. 525) made a most comprehensive enumeration of provable debts, including as well unliquidated damages for torts as for breaches of contracts. Those things which in the act of 1841 were stated to be excluded from the operation of the act were embodied in a particular section (§ 33, 14 Stat. 333) dealing with exemptions from discharge, and to avoid all possible misconception the section provided 11 . . . but the debt may be proved, and the dividend thereon shall be a payment on account of said debt.” It is obvious that the present act embodies the same policy, since the exemptions from discharge which are given by the statute are found in a section devoted to that subject and are stated in words, as we have said, to be exemptions from discharge allowed in favor of provable debts, that is, debts entitled to participate which are given the benefit of an exemption from the operation of the discharge.

While the considerations just stated dispose of the question of waiver and election, they virtually also serve to indicate the error which underlies the contention as to res judicata, that is, a confusion of thought arising from treating things which are different as one and the same. To constitute res judicata, it is elementary that there must be identity of cause between the two cases. In view of p. 41the text of the bankrupt law, the distinction which it makes between the general discharge and the right of a particular creditor to be exempt from the operation of such discharge it needs but statement to demonstrate the difference of cause which necessarily obtains between determining on the one hand in favor of the bankrupt whether he is entitled to a general discharge and of deciding on the other, as between a particular creditor and the bankrupt, whether the claim of that creditor is of such a character as to be exempt from the operation of a discharge. Nothing could more clearly emphasize the distinction which exists between the two subjects—that is, the granting of a general discharge and the question after it is granted whether a particular debt is exempted by law from its operation—than does the provision of the statute (§ 14c, 30 Stat. 550) authorizing a general discharge as the result of an approval of a composition, since it expressly reserves from the operation of such discharge of the bankrupt from his debts, “those not affected by a discharge.” It is elaborately argued, however, that whatever be the infirmity of the decree of confirmation as res judicata in the complete sense, that decree was necessarily binding in so far as it established relevant facts which were at issue between the parties and therefore is here conclusive. But the proposition rests upon an unfounded assumption, as nothing in the assertion of the right to be exempt from the operation of the discharge here relied upon involves a traverse or denial of any relevant fact established as a result of the approval of the composition. On the contrary, as we have seen, the facts here relied upon to establish the exemption from discharge, are the facts which were conceded to exist and were not traversed for the purpose of the hearing on the composition.

As to specific authority to make regulations concern- p. 45228 U. S. Argument for Appellants. .

It appears on the face of the bill that the title to the land sought to be acquired is in the United States, and that the proceedings to acquire that title are still in fieri, in the only forum, i. e., the Land Department, appointed by law to adjudicate such matters, involving, as they do, the exercise of judgment and discretion; and that the courts are, therefore, without jurisdiction to interfere in equity or at law, by review or otherwise, with the exercise of that judgment and discretion. Brown v. Hitchcock, 173 U. S. 433, 476, 478; Knight v. Land Association, 142 p. 47U. S. 161; Litchfield v. Register and Receiver, 9 Wall. 575; Nagandb v. Hitchcock, 202 U. S. 473; Oregon v. Hitchcock, 202 U. S. 60; Roberts v. United States, 176 U. S. 221; Ness v. Fisher, 223 U. S. 683; Riverside Oil Co. v. Hitchcock, 190 U. S. 316; United States v. Schurz, 102 U. S. 373, 396.

The appellants prosecute this direct appeal from a decree p. 48sustaining a demurrer to a bill by them filed and dismissing the cause for want of jurisdiction. The suit concerned the right of the complainants under the laws of the United States to purchase certain coal lands belonging to the United States, and the defendants were the local land officers of the United States at Pueblo, Colorado.

In June, 1910, the land in question, with other land, was restored to entry, and on June 28, 1910, the register notified the complainants in writing that they would be allowed sixty days from the receipt of the communication in which to make a formal claim to the land as to which they had previously filed a notice of claim, and that the price fixed by the United States Geological Survey for certain of the land was one hundred and twenty-five dollars per acre and for the remainder one hundred and fifteen dollars per acre, aggregating thirty thousand dollars for the entire tract. It was alleged that soon afterwards the complainants filed in the local land office a written application for the purchase of the land and by direction of the register a notice of the application was published and copies thereof were posted as required by statute, and due proof of the performance of such acts was filed in the land office. In September following, in response to communications from the complainants, the local land office notified complainants that payment for the land must be made within thirty days or the application to purchase would be rejected. Within the time fixed a tender of forty-eight hundred dollars was made to the receiver, as being the price fixed by § 2347, Revised Statutes. The receiver refused to accept the money or to give any receipt therefor. The bill then averred that it was the intention of the land officers to refuse to permit the complainants to purchase the land unless they Were willing to pay, not the alleged statutory price, but the sum of thirty thousand dollars, arbitrarily fixed by the Secretary of the Interior as the price of the lands. The prayer of the bill was for both a restraining and a mandatory injunction, the one forbidding the defendant land officers from carrying out the orders of the Secretary of the Interior and the Commissioner of the General Land Office and the other commanding the defendant land officers to accept the application of the complainants and allow them vol . ccxxvm—4 p. 50to purchase the lands upon the payment of the sum of $20 per acre. It was, moreover, prayed that defendants be restrained from receiving or accepting the application of any other person for the entry of the lands.

In testing the correctness of the ruling we treat as negligible the averments of the bill assailing the validity of the rejection on January 30, 1909, of the application then pending to enter the land. We do this because if complainants had a remedy in the courts growing out of such rejection it was their duty to invoke and pursue that remedy, and not having done so, but on the contrary having for more than a year and a half acquiesced in the judgment of the Land Department and having made subsequently an entirely new application, we think their rights must be measured by the later application. Considering the issue in that respect, we are of opinion that the principle which caused the Circuit Court to hold that it had no jurisdiction to award the relief prayed and hence to dismiss the bill was a correct one. The United States had not parted with the legal title to the land. The defendants were subordinate officials of the Land p. 51Department, and the acts and omissions complained of were done pursuant to instructions from the head of the Land Department, vested by law with the power to control the conduct of his subordinates in matters of this character.