Case Name: Morris v. Creed
Court: Tennessee Supreme Court
Jurisdiction: Tennessee
Decision Date: 1872-09
Citations: 11 Heisk. 155
Docket Number: 
Parties: Morris v. Creed.
Judges: 
Reporter: Tennessee Reports
Volume: 58
Pages: 155–168

Head Matter:
Morris v. Creed.
1. Bankrupt Law. State Court can not Impeach Discharge for Fraud. To. a plea in equity tliat before the filing of the bill the defendant had filed his petition in bankruptcy, it is no good answer that the defendant had fraudulently concealed certain property and failed to include it in his assignment. A State court has no jurisdiction to attack a discharge in bankruptcy as obtained by fraud. The jurisdiction is exclusively in the courts of the United States.
2. Same. Law of 1841 and 1867 differ. The decision of Qwplon v. Connor, 11 Hum., 87, was made under the provision of the bankrupt law of 1841. It dqes not apply to the present laws of the United States.
[The transcript was not furnished reporter.]
Barton, for complainant,, with whom was J. T. Shields, who insisted:
.The replication to the plea is valid, and if true (as it unquestionably is) is conclusive of the case, and the proceedings in bankruptcy are no bar to the relief sought by the bill.
Courts of equity have jurisdiction to declare void verdicts, judgments, decrees and other judicial proceedings procured by fraud. 1 Story’s Eq., sec. 252, 2.
Story’s Eq., sec. 1574; and Heiskell’s Dig., 415, where the Tennessee cases are cited and digested, showing that a void judgment may be so declared in equity.
In James’ Bankrupt Law, 136, it is said: “The bankrupt has still another ordeal to pass through.. If sued by a creditor for a debt due before the adjudication of bankruptcy, such creditor proceeds with his action, and does hot prove under the bankrupt’s. «state, and the bankrupt having obtained his order of discharge, pleads it in bar to such action, the creditor may, by way of replication to such plea, impeach such discharge upon any of the grounds in respect of which the act invalidates it; and the question thus raised by the pleadings is that which is to be tried by the jury.'”
Numerous cases are cited by this author showing that a State court may, on such a replication to a plea of discharge, entertain jurisdiction to declare the discharge void, — among which are Flournoy v. Newton, 8 Georgia, 306; Tompkins v. Bennet, 3 Texas, 36; Swan v. Littlefield, 4 Wash., 474; Beekman v. Nelson, 9 Met., 434.
And more recently, in the cases of Beardely v. Hall, 36 Ct., 270; ' Perkins v. Gay, reported in Bankrupt Register, 189; in the American Law Times, 192, in the Chicago Legal News, 279; and in the Pitts-burg Legal Journal, 98, the same doctrine is held.
And these were all cases in which a final discharge was pleaded, whereas in this case only the institution of proceedings is pleaded.
And it was held in Bernes v. Moore, 2 Bankrupt Register, 174, that in no event was any creditor precluded from attacking a discharge in a State court who had no legal notice of the filing of the petition; and that a creditor to whom notice was not given as required by the act of Congress, was not bound by the proceeding.
And, by reference to the schedule of Creed, it will be seen that the claims of Shields & Fulkerson, trus tees, etc., and of Morris, are not inserted, and they, therefore, had no notice and -were not bound.
■ The trial of the issue of fact on the plea and replication is conclusive. James’ Bank. Law, 136, and cases there cited; see, also, Adams’ Eq., 342, as to the effect of trial on a plea.
Creed rests his defense on his plea. He does not demur to the relief on any ground, nor does he answer. He can not, therefore, raise any of the questions as to the necessity of judgments at law, returns of nulla bona, etc, even if there were anything serious in them, attempted to be raised by Mrs. Creed in her answer. He submits to the jurisdiction by failing to demur. And as to Mrs. Creed, she has no right to make any defense for him. We have conceded her right to have the use of the trust fund so long as she may live, and that done, she has no further interest in the case.
The complainants caused the property in question to be attached, which was done, and they thereby acquired an attachment lien on the' same, which remains undisturbed and in full force and effect.
When the cause was heard, it was admitted that Creed had obtained a final discharge; but this is immaterial, as the fraud vitiates the whole proceedings. See the authorities herein before cited.
T. A. R. Nelson, for defendants, said:
William S. Creed’s plea to the jurisdiction, on the ground of a pending suit previously commenced in bankruptcy, is set out in the record.
The replication that William S. Creed fraudulently omitted to return a valuable part of his estate in his schedule, and that defendants have not, in any manner, filed their claims or become parties to the proceeding in bankruptcy, is contained in the record. .
The Chancellor’s decree sustaining the plea to the jurisdiction, on the grounds that this suit was not commenced until the 12tb of July, 1868, nearly seven months after the petition in bankruptcy was filed on the 29th of December, 1868, and that William S. Creed had obtained his discharge, appears in record.
1. The first and most interesting question in the. record is, whether a State court has jurisdiction to declare that a discharge in bankruptcy is void for fraud. To show that it has not, I rely upon the well-considered case of Carey v. Ripley, 57 Maine, 69; in 2 Am. R., 19; the 34th section of the Bankrupt .Law in Brightly’s Annotated Dig., p. 71, No. 80; in Shawhan v. Wherrity, 7 How., 627.
Opinions to the contrary, cited in James’ Bankrupt Law, 136-138, seem to have been founded upon the Act of 1841, which contained no provision similar to that in the Act of 1867, sec. 34. See Rice’s Man., 71.
When two tribunals have concurrent jurisdiction, the one which first obtains possession of the subject must adjudicate, and neither party can be forced into another jurisdiction. Smith v. Mclver, 9 Wheat., 32; Shelby v. Bacon, 10 How., 56; Buck v. Colbath, 3 Wall., 334.
And, wherever a tribunal has decided upon a matter within its regular jurisdiction, its decision must be presumed proper, and is binding until reversed by a superior tribunal. It cannot be affected, nor can the rights of .persons dependent upon it be impaired, by any collateral proceeding. Elliott v. Piersoll, 6 Pet., 328; Coche v. Halsey, 16 Pet., 71; Hopkins v. Lee, 6 Wheat., 100; Nations v. Johnson, 24 How., 105; Huff v. Hutchinson, 14 How., 586; Christmas v. Wallace, 5 Wal., 200; Britton v. Corven, 5 Hum., 315; Thacker v. Chambers, 5 Hum., 313; Hall v. Heffley, 6 Hum., 442; see, also, 4 Sneed, 371; 3 Sneed, 59; 1 Yer., 296; 4 Hum., 174.
It is admitted that a judgment or decree may be attacked and set aside for fraud, according to 8 Hum., 363; Story’s Eq. Jur., secs. 426-7; 1 Sch. & Lef., 355, 374, 375, 386; 1 J. C. R., 402; 4 J. C. R., 118; but this can only be done in a suit brought for that direct purpose, and not collaterally. The judgment or decree of a court of the United States cannot be so assailed in a State court. The remedy is in the courts of the United States, either by appeal from the proceedings in bankruptcy or by bill in equity. See Thompson v. Tonliquo, 2 Pet., 157; Wilcox v. Jackson, 13 Pet., 498; United States v. Ar-redondo, 6 Pet., 691; Voorhees v. Bank of the United States, 10 Pet., 49; Cocke v. Halsey, 16 Pet., 71; Hickey v. Stewart, 3 How., 750.
As to the plea and replication, see Story’s Eq. PI., secs. 697, 878-882.

Opinion:
Feeeman, J.,
delivered the opinion of the court.
The bill in this case was filed July 12, 1869. It seeks to enforce the collection of certain debts of complainants, due from defendant Creed, by sale of property mentioned in the bill, which is attached.
To this bill the defendant Creed filed a plea, set-ing up the fact that on the 29th December, 1868, before the filing of this bill, he had filed his petition in the District Court of the United States, at Knoxville, to be declared a bankrupt, under the bankrupt law of 1867; that he had been regularly adjudged a bankrupt, ,and an order regularly made for meeting of creditors, on the ,23d of September, 1869, for the purpose of choosing an assignee; that said suit in bankruptcy was still pending and undetermined, and that the District Court had acquired jurisdiction of all the assignable property of said Creed, had exclusive jurisdiction over the matters in complainants' bill, etc.
To this plea complainants file a replication, in' substance, "that said Creed fraudulently, willfully, and with the design and intent to defraud his creditors, omitted from the schedule annexed to his petition in bankruptcy certain valuable property," proceeding to describe the said property with particularity, and concluding with the averment, that, as the result of said alleged fraudulent concealment, the said proceedings in bankruptcy, under which these complainants have in no manner filed their claims, are utterly void.
Proof was taken on the question raised by this replication, but before the hearing, a certificate of discharge in bankruptcy was filed as evidence in the cause, which seems to have been considered by the court below; and on final hearing, the court being of opinion that the Chancery Court had no jurisdiction to grant the relief sought in the bill, under the facts shown in the record, dismissed complainants' bill, from which they appealed to this court.
The question, mainly urged in argument, is not precisely presented by the plea and replication in this case — that is, whether a court of a State has the right to declare a discharge in bankruptcy} under the Act of 1867, void, as having been obtained by fraud, such as suppression of assets, or not returning a full and true inventory of his property, by the bankrupt, — but only the question as to whether the pendency of a suit in bankruptcy, and adjudication that a party is a bankrupt, may be defeated in its effects on the rights of creditors to sue in a State court, by showing a fraudulent suppression of property, or failure to return the same in his inventory by the bankrupt. But as the discharge was obtained before decree, and filed as evidence, and seems to have been in part the basis of the Chancellor's decree, it is perhaps proper to decide the question in both aspects.
The Constitution of the United States gives "the Congress" of United States power to establish an uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States; and it has been held, we believe, without any contrary view in the courts of the United States — that is, the Federal courts — since the leading case of Sturgis v. Crowninshield, decided in 1819, that when Congress has deemed fit to exercise this power — the power to pass such laws, or such laws that may already ex ist in the States are suspended — the exercise of the power by the Federal Government being incompatible with the exercise of the same power by the States. Congress chose to exercise the power granted by the Act of 1867, and passed the law now in force, authorizing a debtor upon petition, as therein prescribed, to bring his suit in the District Court of the United •States, seeking a discharge from his indebtedness. In the language of a late work on the subject — Bump on Bankruptcy, p. 51: "The commencement of proceedings in bankruptcy on the part of the debtor, is •the commencement of a suit ,in the District Court by him against all his creditors, in which action he is plaintiff and the creditors defendants — the debtor asking the court for a judgment against the defendants discharging him from indebtedness to them." This is perhaps as accurate a statement of the proceeding and its purpose as will be found, when taken in connection with the additional idea that it is commenced in the only court having jurisdiction to administer the law of Congress, passed in the exercise of its exclusive power over the subject, as granted in the Constitution. It is true it is not a proceeding in rem, where the seizure of the property gives the court jurisdiction, but it is a case where the creditor, being a party, is entitled to his day in court. As soon as the petition is filed, the property of the bankrupt is placed under the custody of the court, in sueh a sense at least, that, upon an appointment of an as-signee, and assignment executed, it relates back to the day of filing the petition, and vests the property in him from that time: Bump on Bank., 325, 326. And from the date of filing the petition, the property is not subject to interference or seizure under any proceeding of any other court instituted after the commencement of the bankrupt proceedings. See Bump, 276, and cases cited. This-must necessarily be so, or otherwise bankrupt proceedings would be a mere form, so far as distribution of a debtor's property among his creditors is concerned; for if it could be seized under State process after the filing of his petition, eager creditors, seeking to avoid a pro rata distribution, would readily absorb it, or cover it with individual suits in order to gain a preference for their claims. And it is provided by sec. 21, second clause, "that no creditor, whose debt is provable, shall prosecute to final judgment any suit at law or equity therefor against the bankrupt until the question of the •debtor's discharge shall have been determined." It has been held in several cases that the object of this section is to prevent a race of diligence between creditors, and applies to all cases where the personal liability of the debtor is sought to be fixed or ascertained by a final judgment, pending the determination of the question of discharge: 2 Bank. Reg., 81; Bump, on Bankr., 377.
The question of whether a discharge in bankruptcy will discharge a particular debt, is one that can only be tried, after the discharge is obtained, when the debt shall be sought to be enforced and the discharge is pleaded in bar of a recovery.
Without elaborating this question, we hold that, pending the proceedings for a discharge in bankruptcy, when a plea is interposed as in this case of such pendency, no suit can be sustained to enforce a provable claim; and if any has been commenced before-the commencement of the bankrupt proceedings, it is-provided, that on application to the Court — that is, District Court — they will be stayed to await the question of a discharge, under the terms laid down in the third clause of the above section. So far, then, 'as the matter of the replication seeks to avoid the effect of the adjudication of the party to be a bankrupt on account of his failure to render a perfect schedule, and defeat or avoid the effect of the pending of the proceedings in bankruptcy in advance, we think it is clearly insufficient. In addition to this, the very matter sought to be set up, is a ground on which a discharge may be successfully resisted if interposed in the suit already pending, and if that court should fail to decide correctly on the question, an appeal is given to a higher tribunal for its correction. It is true the statement is made, in conclusion of the replication, that complainants have in no manner filed their claims; but this does not exclude the idea that they are parties to the proceedings, as parties to such a suit are not made by filing their claims, but are so by service of the notices founded in the law of Congress.
So much for this aspect of the case. But as the discharge has already been obtained, and the .question of its validity is presented in argument before us on tiie grounds stated in the replication, and proof taken, we prooceed to investigate the question, can a State court, when a bankrupt's discharge is presented as a defense to a debt created before institution of bankrupt proceedings, inquire into the validity of such discharge, or declare it void for fraud in obtaining it, such as is alleged in this replication? Under the bankrupt law of 1841, it was held by this court, in the case of Gupton v. Connor, 11 Hum., 298, that this could be done. That decision, however, was based upon the following provision of the law of 1841: "The discharge and certificate, when duly granted, shall, in all courts of justice, be deemed a full and complete discharge of all debts, contracts and other engagements of such bankrupt, which are provable under this act, and shall and may be pleaded as a full and complete bar to all suits brought in any court of jurisdiction whatever, and the same shall be conclusive evidence of itself in favor of such bankrupt, unless the • same shall be impeached for some fraud, or willful concealment of his property or rights of property, as aforesaid, contrary to the provisions of this Act." The court held that, by this provision, the discharge was only made prima facie conclusive, subject, however, to be impeached by any creditor, in any court, wherever it might be pleaded. Such is the express provision of the law.
But the Act of 1867 has not this provision, but quite a contrary one. See. 34 of that Act provides: "That a discharge duly granted under this Act shall, with the exceptions aforesaid (that is, exceptions in •sec. 33), release the bankrupt from all debts, claims, liabilities and demands, which were or might have been proved, against his ' estate in bankruptcy, and may be pleaded, by a simple averment — that on the day of the date such discharge was granted to him,, setting the same forth in hceo verba — as a complete bar to all suits brought on any such debts, claims,, liabilities or demands, and the certificate shall be conclusive evidence, in favor of such bankrupt, of the-fact and the regularity of such discharge." It is then provided, "that any creditor or creditors of said bankrupt, whose debt was proved, or provable against the-estate in bankruptcy, who shall see fit to contest the-validity of said discharge, on the ground that it was-fraudule'ntly obtained, may, at any time within two-years after the date thereof, apply to the court which granted it, to set aside and annul the same."
From this section, as we have quoted it, it is clear-that the discharge is not made prima facie evidence; but "his certificate," says the Act, "shall be conclusive evidence in his favor, and of the fact and regularity of such discharge." And then, instead of the-provision of the Act of 1841, which we have quoted— that it shall be conclusive "unless the same shall be impeached for some fraud or willful concealment of his property," etc. — it is provided how it shall be impeached; that is, by any creditor or creditors whose-debt was either proven or provable against the estate, "at any time within two years after the date thereof,"' in the court in which it was granted.
The whole proceeding and subject is regulated by the Act itself, the whole matter being exclusively within the control of Congress, by virtue of the constitutional provision giving the Congress the power to pass uniform laws on the subject of bankruptcy. Having provided the mode . in which the decree of the-District Court might be impeached, it must be held that such mode is exclusive. • If we should sustain the view of complainant, we have the anomaly of a decree of a court of exclusive -jurisdiction being attacked collaterally, when presented as evidence, in violation of the universally settled principle that a decree of a court- of competent jurisdiction can only be attacked by a direct proceeding instituted for that purpose, and that the judgments and decrees of such, courts are to be held conclusive when collaterally presented, unless they are void on their face. See 6 Hum., 444; 4 Sneed, 371; 3 Sneed, 59.
In the case of Covey v. Ripley, 2 Amer. R., 20, the Supreme Court of Maine says: " The proceedings in bankruptcy are statutory proceedings. The powers-exercised and remedies given in bankruptcy, are given by statute. The impeaching tribunal is specified, and this designation, according to well established principles of interpretation, forms a part of the remedy and excludes all others." The court cites several cases in-support of the principle, and it is certainly a sound one. The. court, in the above case, says the authority conferred by Act of 1867 upon the United States courts to set aside and annul a discharge in bankruptcy, is incompatible with the exercise of the same power by the courts of the State; for, if such power can be exercised by the State courts, we might have the anomalous state of things presented of a discharge held to be valid by the United States court having exclusive jurisdiction to grant it, and clear power to test its validity, declared void by a State court where it incidentally came in question."
We think the decision cited is a sound view of the law, and well sustains the views we have presented in this opinion. We may add, that sound policy would favor the mode laid down in the statute, for there ought to be an end of litigation somewhere, and if the discharge can be attacked for causes such as alleged in this case, then it may be done at any and all times in the future, and in any case when presented, and such an attack might be made years after the discharged debtor was dead, when he could not explain circumstances alleged of apparent fraud, and when witnesses were dead, or their memory had failed with reference to the transactions in question. We therefore hold, that, under the Act of 1867, a discharge in bankruptcy cannot be attacked or impeached when collaterally brought in question in a State court, for causes such as are alleged in this case; but the same is conclusive, unless it be attacked in the manner prescribed by the Act of 1867.
This question is conclusive of the case, and renders it unnecessary to examine others.
The decree of the Chancellor will be affirmed.