Myers v. Int'l Tr. Co., 263 U.S. 64 (1923)

The petitioners have argued that the Bank had the option of remaining silent in the bankruptcy court as to the fraud and later avoiding the effect of the discharge by showing that the petitioners’ liability was for obtaining property by false representations, or of trying out p. 67the issue of fraud in objecting to the discharge in the bankruptcy court.

Nor can the doctrine of estoppel have any application. The parties in the bankruptcy proceedings are not the same as the parties in this suit. It was the bankrupt p. 68estate against the bankrupt and not one individual creditor against the bankrupt. Troxell v. Delaware, Lackawanna & Western R. R. Co., 227 U. S. 434; Postal Telegraph Cable Co. v. Newport, 247 U. S. 464. Bates v. Bodie, 245 U. S. 520, distinguished.

This action was begun in the Superior Court of Massachusetts by the International Trust Company, a bank, against Samuel A. and Harry Myers, brothers and partners, for damages for deceit in that the defendants had obtained credit from the Trust Company by a false statement of their financial condition. The action resulted in a verdict for $14,304.49. The amended answer of the defendants pleaded res judicata in the cause by a decree of the United States District Court for Massachusetts in bankruptcy, and on the trial the defendants offered the record therein as evidence of an estoppel by judgment p. 69against the plaintiff as to the fact of falsity. The trial court excluded the record. The case was taken by bill of exceptions to the Supreme Judicial Court, which overruled the exceptions and sent down the rescript and pursuant thereto final judgment was entered on the verdict. The Massachusetts courts held that the bankruptcy proceedings neither were res judicata as to the cause nor estopped the plaintiff as to the fact of falsity. The case here turns on the effect of the bankruptcy record, and so presents the federal question whether full faith and credit was given to the judgment of a federal court. Radford v. Myers, 231 U. S. 725, 730; National Foundry & Pipe Works v. Oconto Water Supply Co., 183 U. S. 216, 233.

In January, 1917, an involuntary petition in bankruptcy was filed against the Myers brothers. * They made an offer of composition. A majority of the creditors accepted the offer. The Referee recommended that it be confirmed. The Myers brothers applied for confirmation. The International Trust Company entered its appearance as a creditor and opposed the confirmation on the ground, among others, that the Myers brothers had • obtained loans from the Trust Company by the statement made in writing on the first day of January, 1916, that the accounts receivable amounted to $58,425.06; that the statement was materially false and was made for the purpose of obtaining certain aforesaid sums on credit “ said falsity being that the alleged bankrupts concealed and omitted to set forth in said statement the fact that of the said accounts receivable a certain portion in the neighborhood of $20,000, the exact ¡sum being unknown to your petitioner, had been assigned and set over to the Commercial Investment Trust, and, further, that the accounts receivable, as set forth in said statement, did not amount to the sum of $58,425.06”. The Referee to whom the objections were referred reported that Myers brothers had made the statement and the Trust Company had relied on p. 70it in making them loans, but that when it was made it was a true statement and correctly set forth the financial condition of the bankrupts on January 1, 1916, as shown by their books kept according to the custom of the bankrupts at that time by an experienced and competent bookkeeper, and he found no evidence that the bankrupts or either of them falsely or purposely concealed or omitted to set forth in said statement the amount of the accounts assigned to the Commercial Investment Company and that the objection could not be sustained. The District Judge (245 Fed. 110) confirmed the finding of the Referee. The International Trust Company carried this ruling on appeal to the Circuit Court of Appeals for the First Circuit, and that court (245 Fed. 110, 112) affirmed the ’order confirming the composition.

“In considering the operation of this judgment, it should be borne in mind, as stated by counsel, that there is a difference between the effect of a judgment as a bar p. 71or estoppel against the prosecution of a second action upon the same claim or demand, and its effect as an estoppel in another action between the same parties upon a different claim or cause of action. In the former case, the judgment, if rendered upon the merits, constitutes an absolute bar to a subsequent action. It is a finality as to the claim or demand in controversy, concluding parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose. ...

In the bankruptcy proceedings after the bankrupts’ application was made to confirm the composition, the International Trust Company entered its appearance and filed its specification as it was required to do under General Order XXXII before it could oppose the confirmation and the consequent discharge of the bankrupts. Then followed before the Referee, to whom the issue thus made was referred, what was equivalent to a hearing in equity. This was the beginning of a distinct, separate and new suit. In re Guilbert, 154 Fed. 676; In re Amer, 228 Fed. 576. This suit between respondent and petitioners was decided by the Referee and the two courts against the respondent and the composition was confirmed because it was found that the statement of January 1, 1916, was true and not false. This is exactly the same issue which arose in the suit for deceit which is before us. Recovery of the judgment under consideration can not be sustained except upon the finding that the statement was false. Thè respondent, the Trust p. 73Company, can not litigate again that issue in this case, because it is bound by the finding against it in its opposition to the confirmation of the composition. This follows necessarily from the rule in the second class of cases laid down by Mr. Justice Field in the language already quoted.

The respondent however contends, and the Supreme Judicial Court of Massachusetts held, that this case is controlled upon this point, as well as in respect to general defense of res judicata, by Friend v. Talcott, 228 U. S. 27, and must be affirmed on the authority of that case. That was a case like this in which a creditor, having opposed a composition in bankruptcy, was defeated in his effort and brought suit in tort for deceit for damages equal to the balance of his claim after deducting what he had received on his provable claim for goods sold. The deceit alleged in the specification was a false report of p. 74financial condition of the bankrupt made to a commercial agency whose report the opposing creditor relied on. The bankruptcy court held that these facts thus alleged did not bring the case within paragraph (3) of § 14b of the Act of July 1, 1898, c. 541, 30 Stat. 550, as amended by Act of February 5, 1903, c. 487, § 4, 32 Stat. 797, which provided that “ the judge shall hear the application for a discharge, and such proofs and pleas as may be made in opposition thereto by parties in interest, at such time as will give parties in interest a reasonable opportunity to be fully heard, and investigate the merits of the application and discharge the applicant unless he has . . . (3) obtained property on credit from any person upon a materially false statement in writing made to such person for the purpose of obtaining such property on credit.” It confirmed the composition. The reasoning of the bankruptcy court was that paragraph. (3) required that the materially false statement, to be effective to prevent a discharge, should be made directly to the creditor or his representative whom the debtor intended to deceive and that as the specification only showed a statement made to a commercial agency, it did not aver facts sufficient to constitute a bar to the composition and the bankrupt’s discharge.

This Court held that the causes of action were not the the same, that the first concerned the general discharge of all the creditors under one section, and the second the exception from such general discharge of a particular p. 75creditor under another section and that the defense of former adjudication was bad.

“If on the other hand, it be conceded that the composition was rightfully approved, as the determination of that subject did not under the very terms of the statute involve passing upon the separate and distinct claim of creditors to be exempt from the operation of the discharge, it results p. 77that in no view of the case is there merit in the contention as to res judicata.”

company may condemn land not only for the right of way but also additional land adjacent thereto for use as borrow pits in making fills and embankments, or for use as spoil banks or dumps for the earth excavated from tunnels and cuts. Such adjacent land would certainly be devoted to the public use for which the railway was being constructed. If so, then the purchase of a town site on which to put the people and buildings of a town that have to be ousted to make the bed of a reservoir would seem to be equally within the constitutional warrant. The purchase of a site to which the buildings of a town can be moved and salvaged and the dispossessed owners be given lots in exchange for their old ones is a reasonable adaptation of proper means toward the end of the public use to which the reservoir is to be devoted. The transaction is not properly described as the condemnation of the land of one private owner to sell it to another. The incidental fact that, in the substitution and necessary adjustment of the exchanges, a mere residuum of the town-site lots may have to be sold does not change the real nature of what is done, which is that of a mere transfer of the town from one place to another at the expense of the United States. The usual and ordinary method of condemnation of the lots in the old town, and of the streets and alleys as town property, would be ill adapted to the exigency. It would be hard to fix a proper value of homes in a town thus to be destroyed without prospect of their owners’ finding homes similarly situate on streets in another part of the same town or in another town near at hand. It would be difficult to place a proper estimate of the value of the streets and alleys to be destroyed and not to be restored in kind. A town is a business center. It is a unit. If three-quarters of it is to be destroyed by appropriating it to an exclusive use like a reservoir, all property owners, both those ousted and those in the remaining quarter, as well as the State, whose subordinate agency of government is the p. 83municipality, are injured. A method of compensation by substitution would seem to be the best means of making the parties whole. The power of condemnation is necessary to such a substitution.

Our conclusion is not in conflict with that class of cases with which the Justices of the Supreme Judicial Court of Massachusetts dealt in the Opinion of Justices, 204 Mass. 607. It was there proposed that the City of Boston, in building a street through a crowded part of the city, should be given power to condemn lots abutting on both sides of the proposed street with a view to sale of them after the improvement was made, for the promotion of the erection of warehouses, mercantile establishments and other buildings suited to the demands of trade and commerce. The Justices were of opinion that neither the development of the private commerce of the city nor the incidental profit which might enure to the p. 84city out of such a procedure could constitute a public use authorizing condemnation. The distinction between that case and this is that here we find that the removal of the town is a necessary step in the public improvement itself and is not sought to be justified only as a way for the United States to reduce the cost of the improvement by an outside land speculation.

“Having such right to compensation at a given time, it would seem that the owner ought to have interest upon p. 85the amount ascertained until paid. In the meanwhile he can claim nothing for added improvements, nor is he entitled to any advance that might affect the value of the property.”

In these cases, the value found was at the time of taking or vesting of title and the presumption indulged was that the valuation included the practical damage arising from the inability to sell or lease after the blight of the p. 86summons to condemn. Where the valuation is as of the date of the summons, however, no such elements can enter into it and the allowance of interest from that time is presumably made to cover injury of this kind to the land owner pending the proceedings. It often happens that in the delays incident to condemnation suits the loss to the owner arising from the delay between the summons and the vesting of title by judgment is a serious one. The interest charge under the Idaho statute has the wholesome effect of stimulating the plaintiff in condemnation to prompt action. Moreover the plaintiff may reduce to a minimum the rents and profits enjoyed by the defendant because, under the Idaho statute, the plaintiff may have a summary preliminary hearing before commissioners to fix probable damages and, by depositing the amount so fixed with the clerk of the court, if the defendant will not accept it, the plaintiff may obtain immediate possession. Within less than a month after bringing suit, he can thus appropriate to himself the rents and profits of the land, and in enjoyment of them can await the final judgment. Idaho Compiled Statutes, 1919, Vol. 2, § 7420; Idaho Revised Codes, 1908, Vol. 2, § 5226.

It is urged, however, that the federal conformity statute as to condemnation suits, which directs federal courts to conform the practice and procedure “ as near as may be ” to that of the courts of the State where the land is, does not require or authorize the federal courts to allow interest to the property holder except according to the rule laid down in the Shoemaker Case, the Bauman Case, Seaboard Air Line Ry. Co. v. United States, 261 U. S. 299, 305, and United States v. Rogers, 255 U. S. 163, in all of which interest was allowed only from the time of taking or vesting of title; that this is a matter of substance which a conformity statute was not intended to cover, as appears from the language of the opinions in the last two cases. It will be observed, however, that in those two cases the p. 87allowance of interest did conform to the state statutes, and that this was given by the Court as an additional reason for sustaining its conclusion. It is doubtless true that the conformity provision of the Act of 1888 does not bind the federal courts to follow the state statute in the matter of interest. But the disposition of federal courts should be to adopt the local rule if it is a fair one, and, as already indicated, we are not able to say that with the value fixed as of the date of summons, and the opportunity afforded promptly thereafter to take possession, interest allowed from the date of the summons is not a provision making for just compensation. North Coast R. R. Co. v. Aumiller, 61 Wash. 271, 274. In United States v. Sargent, 162 Fed. 81, the Government condemned land in Minnesota for a post office. Under the statute of that State the hearing was before three commissioners who were to report the damages sustained on account of the taking. Unless this resulted in payment and settlement, a hearing before a court or jury followed and judgment was entered on that, and possession was given on payment of the judgment, which included costs and interest from the time of filing the commissioners’ report. The commissioners’ report was filed June 12, 1907, the report was confirmed August 19, 1907, and interest was allowed from June 12th until the date when the damages were paid into the registry of the court. The Circuit Court of Appeals thought the rule a fair one. Speaking by Judge Adams (162 Fed. 84), it said:

The Board, in pursuance of the law and the constitution of the State, determined the value of the franchise granted by the State to be $120,000 and assessed and levied a tax p. 90thereon of one per cent, which amounted to the sum of $1,200. It is contended that the assessment and levy were and are void under § 1 of Amendment XIV of the Constitution of the United States, because thereby the Board assessed and taxed the Company on property the situs of which was, for more than a year prior to the assessment, and is, without the State of California and beyond the jurisdiction of the State for the purpose of taxation, and attempts to regulate and burden interstate and foreign commerce.

The basis of the contention is not a new one in this Court. It is not always easy to answer and has involved difference of opinion. Any property of a corporation engaged in interstate commerce may be said to take on p. 92value from such commerce and a tax on the property be increased as the commerce increases. The cases, however, have been careful to distinguish when such effect produces illegality and when it does not.

This is the field within which this case lies and we are not concerned with those which reach beyond that field. To this we confine ourselves. The State has taxed the right which it granted, and which it was competent to tax. Horn Silver Mining Co. v. New York, 143 U. S. 305. Postal Telegraph Cable Co. v. Adams, 155 U. S. 688; Kansas City, etc., Ry. Co. v. Botkin, 240 U. S. 227; Cream of Wheat Co. v. Grand Forks, 253 U. S. 325. And p. 93it has been recognized that its—the franchise’s—value may be constituted of its employment in interstate commerce, and have measurement in the property which is its instrumentality. Kansas City, etc. Ry. Co. v. Botkin, supra; St. Louis-San Francisco Ry. Co. v. Middlekamp, 256 U. S. 226.