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Supreme Court of Iowa.
HAWLEY v. HUNT.
State insolvent laws have no extra-territorial operation : and a creditor cannot be compelled by a state of which he is not a citizen or resident to become a party to insolvent proceedings therein ; and such proceedings cannot discharge a debt due to a non-resident creditor, unless he voluntarily submits to the jurisdiction by becoming a party to the proceedings, or claiming a dividend thereunder.
A non-resident and non-assenting creditor is not bound by a debtor's discharge under state insolvent laws, no matter where the debt originated, or is made pay. able : citizenship of the parties governs, and not the place where the contract was made or where it is to be performed.
This rule applies to a case where a non-resident creditor has recovered judgment against his debtor in the state where the latter resides; and also to the case where the judgment has been assigned to a non-resident creditor and notice given to the debtor, before the latter commenced proceedings to obtain his discharge.
The history of the Federal and state adjudications on the subject of the effect of discharges under state insolvent laws, examined by Dillon, C. J.
APPEAL from Jackson District Court.
The plaintiff sued on two judgments rendered against the defendant in New York. The defence relied on was a discharge of the defendant under the insolvent law of that state.
In 1854, two judgments were rendered against the defendant in the Supreme Court of New York. The defendant was at that time a resident and citizen of that state. Those judgments (as would appear from copies of the complaints), were rendered upon promissory notes executed by the defendant respectively to one Pierce (who assigned the note to one Rulsion), and to one Thomas. Where the notes were executed did not otherwise appear than by averment in the complaints in the actions in New York, that one of the notes was executed at “Denmark," and the other at “ Gouverneur,” but in what state was not alleged. Of what state Rulsion and Thomas, who recovered the judgments in New York against the defendant, were citizens, did not appear.
In 1856, the defendant removed from New York and became a resident of Iowa, and was a resident of Iowa at the time of the commencement of the present action, and at the time the judgment therein was rendered in his favor, from which the plaintiff prosecutes the present appeal. In 1860, one of the judgments obtained in New York against the defendant was assigned by the judgment-plaintiff to Hawley, the plaintiff in the present action, then and now a resident and citizen of Iowa.
In 1861, the other judgment was likewise assigned to Hawley.
In 1862, Hawley commenced the present action on the abovementioned judgments against the defendant in the District Court of Jackson county, Iowa (defendant being a resident of that county), and obtained personal service of process upon him. Defendant appeared, and in March 1862, filed an answer, admitting the rendition of judgment against him in New York as alleged, and pleaded payment, &c. The cause was continued from time to time, until, in March 1865, an amended answer was filed, in which the defendant alleged that “on the 3d day of August 1863, he was duly discharged from all his debts under the statute of the state of New York, providing for the discharge of insolvents." A
copy of the discharge was annexed to the answer. The certificate of discharge was dated on the 3d day of August 1863, and the officer, after reciting the proceedings, declares that “he does hereby discharge the said insolvent from all his debts and from imprisonment, pursuant to the provisions of the statute.”
The foregoing facts were uncontroverted. On the trial the plaintiff maintained that the defendant was not a resident of New York at the time he applied for and obtained a discharge under the insolvent law of that state. This the defendant denied, and on this issue both parties introduced evidence.
A jury was waived and the cause tried by the court, which gave judgment for the defendant. The plaintiff appealed.
C. M. Dunbar, for appellant.
W. E. Leffingwell, for appellee.
The opinion of the court was delivered by
DILLON, C. J.-Respecting the validity of discharges under state insolvent laws, where the creditor is a non-resident of the state granting the discharge, there has been much discussion, much conflict of view, and, until quite recently, on some points much doubt.
But in view of the authoritative adjudications of the Supreme Court of the United States, presently to be referred to, and of the leading decisions of the state courts, cited below, the law, so far as relates to the present case, may be stated in a single sentence.
The settled doctrine now is, that a debt attends the person of the creditor, no matter in what state the debt originated or is made payable; that a creditor cannot be compelled by a state of which he is not a citizen or resident, to become a party to insolvent proceedings therein; that such proceedings are judicial in their nature, so that jurisdiction over the person of the creditor is essential; that notice is requisite to jurisdiction in such cases, and can no more be given in insolvent proceedings than in personal actions where the party to be notified resides out of the state, and hence a discharge under a state insolvent law will not and cannot discharge a debt due to a citizen of another state, unless the latter appears and voluntarily submits to the jurisdiction of the court by becoming a party to the proceeding, or claiming a dividend thereunder.
As direct authority for this statement of the law, we refer to the following decisions of the Supreme Court of the United States : Baldwin v: Hale, 1 Wallace 223, 1863 ; s. c. 3 Am. Law Reg. (N. S.) 462, and note by Judge REDFIELD; Ogden v. Saunders, 12 Wheat. 213; Boyle v. Zacharie, 6 Pet. 348; Cook v. Moffat, 5 How. 310; Suydam et al. v. Broadnax, 14 Pet. 75.
See also the following cases and authorities: Donnelly v. Corbett, 7 N. Y. (3 Seld.) 500; Felch v. Bugbee, 48 Maine 9; s. C. 9 Am. Law Reg. (0. S.) 104; Beers v. Rhea, 5 Texas 349; Poe v. Duck, 5 Md. 1; Anderson v. Wheeler, 25 Conn. 603; Crow v. Coons, 27 Mo. 512; Pugh v. Bussel, 2 Blackf. 394; Beer v. Hooper, 32 Miss. 246; Woodhull v. Wagner, Baldw. C. C. Rep. 300; Byrd v. Badger, 1 McAll. 263; Springer v. Foster, 2 Story 387; 2 Story Const., § 1390; Confl. Laws, $ 341; 2 Kent Com. (9 ed.) 503; Kelly v. Drury, 9 Allen 27, 1864.
I have said that the settled law now is, that a non-resident and non-assenting creditor is not bound by the debtor's discharge under state insolvent laws, no matter where the debt originated or is made payable. In other words, the citizenship of the parties governs, and not the place where the contract was made, or where it is to be performed.
It is perhaps desirable to trace briefly the line of decision leading to and establishing the doctrine as above stated.
Respecting state insolvent laws the controlling constitutional provision is, that “no state shall pass any law impairing the obligation of contracts."
- Any law,” to use the language of Mr. Webster, in his argument in Ogden v. Saunders, 6 Webs. Works 26, impairs the obligation of a contract which discharges the obligation without fulfill
In Sturgis v. Crowninshield, 4 Wheat. 122, the Supreme Court of the United States held such laws to be invalid as to pre-existing contracts. Subsequently the great case of Ogden v. Saunders, 12 Wheat. 213, came before the court. Respecting just what that case decided there has been much difference of opinion; but these differences have been set at rest by the later decision in Baldwin v. Hale, before cited.
In Ogden v. Saunders, one point ruled or declared was, that a state insolvent law or bankrupt law was not a law impairing the obligation of contracts as respects debts contracted after the enactment of such law. This was upon the ground, largely if not wholly, that every contract made in a state must be taken to have relation to the existing law of the state which becomes, so to speak, a part of it, attached to it and attendant upon it; and since the insolvent law declares a right on the part of the debtor to be discharged from contracts thereafter made on certain terms, whoever becomes interested in such contracts takes them subject to this right, and the exercise of such right cannot be said to impair the obligation of the contract. It was this point in the case which has been the cause of much controversy in the state courts. In his argument Mr. Webster combated with great force the proposition “that the law itself was part of the contract, and therefore cannot impair it:" 6 vol. Webs. Works, 29.
At present we have no occasion to enter upon a discussion of this vexed proposition—the Supreme Court asserted that a state bankrupt law was not invalid as respects subsequent contracts. And the point ruled in Ogden v. Saunders, was that a state insolvent law cannot affect the rights of creditors who are citizens of other states.
The second opinion of Mr. Justice Johnson (12 Wheat. 258), says Judge CURTIS (Digest, p. 114, $ 4), was concurred in on the general question and settled the law involved therein. (On this
point see also, Boyle v. Zacharie, 6 Pet. 318, 613; Cook v. Moffat, 5 How. 310; Baldwin v. Hale, supra, per CLIFFORD, J.)
The principle of the decision in Ogden v. Saunders, as stated by Mr. Justice Johnson, is, “ that as between citizens of the same state, a discharge of a bankrupt by the laws of that state is valid as it affects posterior contracts; as against citizens of other states, it is invalid as to all contracts.”
In Cook v. Moffatt, 5 How. 309, the leading case of Ogden v. Saunders was reviewed, the soundness of many of the reasons assigned in former opinions questioned, but the court held, among other points, that “a certificate of discharge under an insolvent law will not bar an action brought by a citizen of another state on a contract made with him;" that state insolvent laws “can have no effect on contracts made before their enactment, or beyond their territory." This language, it will be seen, is not free from uncertainty, and does not necessarily exclude the notion if a contract is made originally between citizens of a state and is to be performed there, and a non-resident subsequently becomes interested in or the owner of such contract (for example, a bill of exchange), he shall not be bound by a discharge granted in pursuance of a state law in existence at the time when the contract was made. The Supreme Court of Massachusetts, admitting its duty to follow what was decided on this subject by the Supreme Court of the United States, held that even as between citizens of different states, a state insolvent discharge was effectual in cases where it appears by the terms of the contract that it was made and to be performed in the state granting the discharge. This was in Scribner v. Fisher, 2 Gray 43, Mr. Justice METCALF dissenting. This decision was followed in other cases in that state which, without reargument, were rested upon it.
In Demeritt v. Exchange Bank, 10 Law Rep. 606 (March 1858), Mr. Justice Curtis, then of the Supreme Court of the United States, in express terms denied the correctness of Scribner v. Fisher, stating that it was in conflict with Ogden v. Saunders and Boyle v. Zacharie. “It is urged,” says Judge CURTIS, “ that where the contract is to be performed in the state it is not within Ogden v. Saunders. It has been so held in Scribner v. Fisher, 2 Gray 43. But I cannot concur in that opinion. I consider the settled rule to be that a state law cannot discharge or suspend the