Clark v. . Rowling , 3 N.Y. 216 ( 1850 )

In the year 1840, the defendants, John Joseph Rowling, who were partners in the milling business in Madison county in this state, were indebted to the plaintiff and others in various sums, which were secured by seven promissory notes. In the year 1841, the plaintiff instituted a suit upon these notes, and after some litigation, finally obtained a verdict upon them on the 18th day of April, 1843, for the sum of $929, 27, upon which a judgment was perfected on the 13th day of May of that year for $1052,75, including $123,48 as costs of suit; and execution was returned unsatisfied in the month of August thereafter.

The present suit was commenced in the late court of chancery on the 7th day of February, 1845, by bill in the usual form of a creditor's bill, for the purpose of obtaining satisfaction of the judgment out of the property of the defendants, which the plaintiff had not been able to reach by execution at law.

The defendant John Rowling jun. set up in his answer, that on the 29th day of December, 1842, he duly presented his petition to the district court of the United States for the northern district of New-York, and applied for the benefit of the bankrupt act of 1841. That such proceedings were thereupon had, that he was duly declared a bankrupt, and afterwards on the 10th day of July, 1843, a decree was made by that court whereby he was fully discharged from all the debts owing by him at the time of the presentation of his petition, and a certificate of such discharge was duly granted him. A like defense was set up by the answer of Joseph Rowling, except that his petition in bankruptcy was presented on the 27th day of January, 1843, and his discharge was granted on the 25th day of August, of the same year.

It therefore appears from these answers, that the suit at law was pending on the notes when the defendants respectively presented their petition in bankruptcy, and that their certificates of discharge were granted, the one in about two and the other in about three months after the judgment was perfected. There was no opportunity for them to plead their discharge during the pendency of the suit at law; and the question now presented is, whether in answer to this bill, which is a species of equitable suit upon the judgment, the defendants can set up their discharge with the same effect as in an action on the notes upon which the judgment was founded; it not being denied that the discharge operated upon the debt which was secured by the notes — the same being provable under the proceedings in bankruptcy — but the plaintiff contending that the notes were merged in the judgment; that the latter is a new debt which did not exist at the time the bankrupts petitioned, and that therefore it ought not to be affected by their discharge.

It is true, that the notes as evidence of an indebtedness were merged in the judgment; which being greater security, operated to extinguish the lesser; but does it therefore follow, that the judgment to all intents became a new debt, and that the merger or extinguishment of the notes was so complete, as that for the purpose of protecting the defendants in an equity connected with their original indebtedness, we may not look behind the judgment and see upon what it was founded? A judgment, instead of being regarded strictly as a new debt, is sometimes held to be merely the old debt in a new form, so as to prevent a technical merger from working injustice. And this exception to the doctrine contended for by the plaintiff, has obtained, especially in cases of insolvency and bankruptcy, for the protection as well of the creditor as the debtor, and has been applied impartially for the benefit of both. An example in favor of the creditor is found in the case of Wyman v. Mitchell, (1 Cowen's Rep. 316.) This was an action of debt on a judgment of the supreme court of this state, of August term, 1816; the plea was, that the defendant on the 30th day of December, 1817, was discharged under the insolvent act of this state, of 1813; to which there was a replication that the judgment declared on was rendered on a judgment obtained in the year 1814, in the court of common pleas of Cumberland in the state of Maine, which last judgment was rendered upon certain notes made by the defendant to the plaintiff, in the state of Maine, prior to the New-York insolvent act of 1813. And the court held, that although the original undertaking of the defendant was so merged in the judgment that no suit could be maintained upon it, yet that it was proper to inquire into the time and circumstances of the contract upon which the first judgment was founded, for the purpose of taking the case out of the operation of the defendant's discharge. (Seealso Raymond v. Merchant, 3 Cowen's Rep. 147.) An example of a similar kind, but in favor of the debtor, may be found in the case of Betts v. Bagley, 12 Pick. Rep. 572,) which was an action of debt on a judgment recovered in October, 1823, in the court of common pleas of Berkshire county in the state of Massachusetts. The defendant pleaded with proper averments, a discharge under the insolvent laws of the state of New-York, of 1813, which was granted on the 17th day of May, 1828, but which could not have operated upon a judgment in the state of Massachusetts, unless the court had inquired into the circumstances of the case and the nature of the debt upon which the judgment was founded. Upon such inquiry, it appeared, that when the suit was commenced in the common pleas of Berkshire, and the original judgment was rendered, both parties were citizens of this state, and that the judgment was upon promises made and to be executed here; and under these circumstances the court gave effect to the defendant's discharge, refusing to carry the technical doctrine of merger to such extent as to defeat the equities of the defendant arising from the nature and circumstances of the original debt.

We have been referred to cases of bankruptcy in England, where the judgment was obtained before the certificate on a debt which existed previous to the bankruptcy, so that the defendant had no opportunity to plead his discharge, and where the courts have given effect to the discharge on motion. But as this practice was expressly enjoined by the 13th section of the statute of 5 Geo. 2, entitled an "act to prevent the committing of frauds by bankrupts," and other bankrupt acts, many of the cases cited do not come with the same authority as if they had been determined in administering the common law powers of the British courts. Some of these cases, however, base the relief which is granted to the bankrupt, under such circumstances, upon broader ground. (See Lester v. Mundell, 1. Bos. Pull. 427.) This was an application to have a writ of fieri facias set aside and the goods and money levied under it restored to the defendant, on the ground of his having become a bankrupt subsequent to the time when the cause of action accrued, and having obtained his discharge after the fi. fa. was issued. The court entertained the motion rather than drive the defendant to his audita querela, saying that by the modern practice, the defendant might obtain the same relief as by au. quer. in a summary way. But upon its being suggested by counsel that for a particular cause stated the defendant was deprived of the benefit of the bankrupt act, and that he had frequently promised payment since his certificate; the court said that when they entertained summary jurisdiction, in order to relieve a party from the necessity of having recourse to an au. quer., they would look into the circumstances of the case, and see whether there was any thing to prevent the au. quer. from taking effect; and ordered the rule to stand over, the plaintiff to deliver a declaration, and the defendant to plead his certificate; and the parties to go to trial at the ensuing assizes.

An audita querela lay in behalf of a defendant in a judgment to be relieved upon good matter of discharge which happened after the judgment, but which he had no opportunity of pleading. It was in the nature of a bill in equity and was a writ of the most remedial nature, "and seems to have been invented," says Blackstone, "lest in any case there should be an oppressive defect of justice where a party who hath a good defense, is too late to make it in the ordinary forms of law." (3 Black. Com. 406, 407.) The relief formerly procured by this writ is now obtained summarily by motion; and yet it often happens that complete justice can not be administered in this summary manner, and the courts are compelled to frame an issue, or to direct an action to be brought, in order to determine the rights of the parties, as was done in the case of Lester v. Mundell. But an issue thus joined has no higher merit than if it were framed by the voluntary act of the parties themselves; and if in a suit upon a judgment, they frame an issue presenting the identical questions which might be raised upon a summary application, it is difficult to perceive any well founded objection to their determination in such suit.

The defendants in the present case, instead of moving summarily for the relief, to which it appears they would have been entitled, awaited the action of the plaintiff; and when he instituted an equitable suit upon the judgment, they set up in their answer by way of defense, the very matter upon which they might formerly have been relieved by au. quer: or according to the present practice, by motion. The court was thus relieved from the burthen of framing an issue to determine the validity of the discharge — it was presented to them by the pleadings in this suit — the plaintiff having asserted by his bill that the debt secured by his judgment was a valid and subsisting demand against the defendant, and of which he was entitled to satisfaction out of their assets; and the defendant having answered that the judgment was discharged by the decree in bankruptcy.

The issue thus presented was as complete as could be framed for the purpose of testing the effect of the defendant's discharge, and I am satisfied that the court below were correct in entertaining it.

The leading cases to which we were referred in support of the plaintiff's case do not uphold it. In Birch v. Charland, (1T.R. 715,) the bankrupt, after his bankruptcy, gave a bond and warrant of attorney to confess judgment, which was held not to be barred by his certificate, although the original debt was contracted before; because the judgment was regarded as a new debt, arising upon a new consideration, the bond and warrant of attorney having been given in order to procure the defendant's liberty.

In Thompson v. Hewitt, (6 Hill, 254,) the defendant moved for a perpetual stay of execution upon the judgment in that suit, on the ground that he had obtained a discharge as a voluntary bankrupt. The action was commenced in May, 1842, to recover the amount of a promissory note; on the 9th of January, 1843, the defendant presented his petition in bankruptcy; on the 6th of May following his attorney gave a relicta and cognovit, and judgment was perfected on the 29th of July. On the 7th of August following, the defendant obtained his discharge. It appeared, however, that the cognovit was given and received as a compromise for a less sum than was claimed to be due, and upon the express understanding that any discharge in bankruptcy which the defendant might obtain should not affect the judgment. And the court refused to grant the defendant a favor in direct violation of his agreement, and under the circumstances of the case, treated the judgment which was entered on the cognovit, as a new debt, which was not affected by the discharge; and it would seem there was enough in the case to enable the court to do so, upon the principle which obtained inBirch v. Charland, without determining that the judgment, divested of the circumstances under which it was rendered, was, of itself, a new debt.

The case of Kellogg v. Schuyler, (2 Denio, 73,) in strictness decided no more than that a cause of action in trespass was not affected by a discharge in bankruptcy, although a verdict had been rendered before the presentation of the petition to be declared a bankrupt; which is in harmony with all the cases.

The case of Stewart v. Green Bannister, (11 Paige's Ch.R. 535,) arose upon a creditor's bill, and the chancellor intimated, although he did not definitely pass upon the point, that the bankrupt's discharge of the defendant Bannister, which was obtained more than a month before the recovery of the judgment against him, could not avail him in the court of chancery while that judgment remained in full force; and that he ought to have pleaded his discharge in bar of the further maintenance of the suit at law. And this may be conceded, where the defendant has an opportunity for that purpose, which was not the case of the defendants in this suit. It seems, however, from subsequent decisions in the late court of chancery, that but for such opportunity of Bannister to plead his discharge at law, it would have been held a good answer to the plaintiff's bill in the suit referred to. For in Johnson v. Fitzhugh, 3 Barb. Ch.R. 360,) the chancellor held, that although to a certain extent a judgment technically changed the nature of a debt, yet its identity still remained, so far as that, if contracted previously to the institution of proceedings in bankruptcy against the debtor, it would be barred by a discharge obtained after the entry of the judgment. (See also Penniman v. Norton, 1 Barb.Ch. R. 246.)

As to the costs which were added to the original debt by the plaintiff's proceeding to judgment, these have always, in cases of bankruptcy, been regarded as accessory to the debt, and as standing upon the same foundation in reference to the discharge. (Cowp. R. 138; 1 Wils. R. 41.)

On the whole, I think it may be held both upon principle and authority, that the bankrupt discharges which the defendants have set up in their answers, are available as a defence to this suit. The decree of the supreme court must be affirmed.