Court Opinion

ID: 8256811
Source: CourtListenerOpinion
Date Created: 2022-10-16 15:32:34.363917+00
Date Added: 2024-06-11T16:43:01.291628
License: Public Domain

Mr. Justice HaNdy
delivered the opinion of the court.
This was a bill filed in the superior court of chancery by the appellee against the appellants, to recover a very large sum of money, exceeding a million of dollars, and to that end, to set aside and annul the certificates of discharge granted to the appellants as bankrupts under the act of congress of 1841. The material facts stated in the bill are, in substance, as follows : —
That the appellants and M. JB. Hamer in the years 1841 and 1842, and for several years anterior, were partners in the commercial business in New Orleans, where Buckner resided, under the name and firm of Buckner, Stanton & Co., — in Natchez, under the name and firm of Stanton, Buckner & Co., Stanton being the resident partner there, — and at Yazoo City, where Hamer resided, under the firm of M. B. Hamer & Co., Buckner, Stanton, and Hamer being the only members of the three firms; that they carried on their commercial business and partnership trade at each of the places named, and that the three firms were entirely distinct and separate from each other, and kept their business books and accounts accordingly; that in the year 1841, the three firms, and each of the individual members became hopelessly insolvent, but continued to transact their partnership business under their firm names, at the three places, up to the time of the bankruptcy of Buckner and Stanton, though Hamer died in April, 1842; that Stanton filed his petition in bankruptcy on 21st July, 1842, in the district court U. S. in Mississippi, was declared a bankrupt in November, 1842, and in February, 1843, was finally discharged from all his debts, both as an individual and as a member of the three firms; that on the 18th July, 1842, Buckner filed his petition as a bankrupt, in the district court U. S. in Louisiana, was so declared in September, 1842, and in December, 1842, obtained his final discharge in like manner as Stanton had done; that these proceedings were taken by them in concert, it being understood between them that the firms were insolvent and bankrupt, and that it was necessary in order to their future business, that they should each obtain a discharge from his debts as an individual and as a member of the firms, the latter indebtedness being the prinei-*576pal, if not the sole canse of their insolvency; that Joseph Sill was appointed assignee in bankruptcy of Buckner, and thereby became vested with all the property and rights of property of Buckner, and Buckner, Stanton & Co. by operation of law; that among the effects of Buckner, Stanton & Co. vested in the assignee, in pursuance of the understanding between Buckner and Stanton, express or implied, that they would apply to be discharged as bankrupts, were two claims, being balances of accounts due the firm of Buckner, Stanton & Co., one from Stanton, Buckner & Co. for about $254,987.21, and the other from M. B. Hamer & Co. for about $392,463.92; which debts were returned in the bankrupt schedule of Stanton as a part of his indebtedness, and these debts were surrendered by Buckner in his schedule, with the knowledge and approbation of Stanton; that on the 9th May, 1844, the district court U. S. in Louisiana ordered a sale of the assets of Buckner and of Buckner, Stanton & Co., surrendered by Buckner in bis inventory of the assets of that firm, amongst which were the two claims, which had been considered by the firms as stated accounts due the firm of -Buckner, Stanton & Co.; and in June, 1844, Samuel "W. Oakey became the purchaser of those claims at the sale made by the assignee, and in November, 1844, filed his petition in the district court U. S. in Mississippi, claiming to be a creditor of Stanton, and of the two firms of Stanton, Buckner & Co. and M. B. Hamer & Co., in virtue of his purchase, and praying to be allowed his pro rata share of the estates, — whereupon it was decreed and adjudged that Oakey was a creditor of said firms in Mississippi, and of Stanton, and entitled to his allowance, and he afterwards received his dividend accordingly; that Oakey afterwards and in March, 1854, transferred and assigned all his right, title, and interest in and to the balances and claims proved and allowed as aforesaid to the appellee.
The bill further states, that the firm of Stanton, Buckner & Co. was indebted to Montgomery & Boyd in the sum of $1,315.51, which debt was proved in the bankrupt court in Mississippi and a dividend received thereon, and was afterwards transferred to the appellee.
*577It further charges, that shortly before the appellants went into bankruptcy, and in contemplation thereof, they made sundry preferences of particular creditors by means of negotiations in bank and appropriations of their assets to that purpose, in violation of the bankrupt act and fraudulently, and also concealed and secreted a considerable amount of their assets and property of which they have ever since had the use and possession, which property and assets were fraudulently concealed and not returned in their schedules in bankruptcy; and that, therefore, the decrees discharging the appellants as bankrupts were obtained by fraud, and should be declared void.
The bill further states that the appellee and Oakey and Montgomery & Boyd had no notice of these fraudulent acts, nor of any facts calculated to put them on inquiry, but were in entire ignorance of the same until within eighteen months next before the filing of the bill', but since that time, they have used all diligence and every effort in their power to ferret out the frauds complained of.
To this bill a demurrer was filed, raising many objections to its sufficiency and relying on the statute of limitations as a defence. The demurrer was overruled in the court below, and from that decree this appeal is taken.
This case involves many important questions arising from the complex and peculiar state of facts presented in the record; and it has received from the court that careful investigation and consideration due to the large interests and the important legal principles involved, as well as to the distinguished ability and learning with which it has been argued by the counsel for the respective parties. We now proceed to state the conclusions to which we have come upon the principal points which are decisive of the merits of the case.
I. The first and most important question to be examined is, "What right or claim against Buckner, or against Stanton or Stanton, Buckner & Co., passed to the assignee in New Orleans in virtue of the proceedings in bankruptcy there ? What was its character, extent, and legal force? Whatever that claim was, it passed to the assignee in bankruptcy, and from him to Oakey and from Oakey to the complainant; but in being trans*578mitted through these several hands, it is plain that it could acquire no greater extent, as a debt, than it had when it passed, to the original assignee.
First. As to Buckner individually, the right surrendered to the assignee was not a debt against’ him, but his individual property and rights of property and his interest in the assets of Buckner, Stanton & Co., including the balance due that firm from the Mississippi firms and his interest in those firms. It could not be considered as having greater force or effect than a claim due him and which vested in his assignee; nor could it possibly be converted into a claim against him which could be used to impeach his discharge, or otherwise be used as a debt against him, any more than a private assignment of his individual property or of his interest in the firm could have rendered the right so assigned a debt against him. It was the means appropriated by law to pay his old debts, and not the creation of a new liability. If he failed to return a true schedule of his property, rights, and assets, the assignee would have been competent to pursue them wherever they could be found, because they were all vested in him by the decree, whether specified in the schedule or not. But the assignee had no right to impeach his certificate, and to raise up a debt against him which did not exist when he was declared a bankrupt, and that founded upon the very assets which he had surrendered as the means of paying his debts. When the bankrupt delivered to the assignee his property and rights of property, he had no further claim upon him. His power was confined to the collection and appropriation of the debts due the bankrupt for the payment of debts against him. And it is manifest as he could assert no claim against the bankrupt on account of the debts surrendered by him, he could transfer no such right to any subsequent assignee or purchaser of the bankrupt’s assets. This conclusion appears to be palpable beyond the possibility of successful controversy.
So far, then, as the bilk seeks to render Buckner liable by any title of the complainant deduced from the assignee in virtue of Buckner’s individual rights which passed under his bankruptcy, it is obvious that it cannot be maintained.
Secondly. Let us inquire what passed against the Mississippi *579firms, or against Buckner and Stanton, or either of them, by the sale of the assignee in bankruptcy. The bill is founded on the idea that the entire interest in the balances of account due the New Orleans firm by the Mississippi firms, vested in the assignee and was transferred to the complainant, and this presents a question' of vital importance in the case.
The bill alleges in substance, on this point, that Buckner and Stanton severally made their applications, the former in Louisiana and the latter in Mississippi, each alleging that he had been unable to meet his debts, and that each filed schedules showing that he was largely indebted both individually and as a member of the three firms.; that the applications and proceedings thereunder were made and had iti concert with each other under an agreement and understanding to obtain their several discharges, on the understanding between them that the firms were insolvent and bankrupt, and that it was necessary in order to their future business, that they should obtain, each of them, discharges in bankruptcy from their individual indebtedness and from their indebtedness as members of said firms, the debts of the firms being the principal cause of their insolvency; that Buckner and Stanton were upon their petitions severally declared bankrupts, and each of them was “ decreed and allowed a full discharge from all his debts and engagements ; ” that one Sill was appointed assignee of Buckner by the court in Louisiana, “ and thereby all the property and rights of property of every name and nature, whether real, personal, or mixed, of the said Buckner, and said Buckner, Stanton & Co., were, by operation of law, from the time of said decree in bankruptcy, divested out of said Buckner, and said Buckner, Stanton & Co. and vested in said Sill;” that among the effects surrendered by Buckner, by and with the knowledge and approbation of Stanton under the understanding and agreement before that time express or implied between Stanton and Buckner, that they would apply for the benefit of the bankrupt act, were two claims, being balances of accounts due the firm of Buckner, Stanton & Co., from the two Mississippi firms; that an order of sale was made by the bankrupt court in Louisiana, directing “ a sale of all the assets real and personal of Bubkner and Buckner, Stanton & Co. surrendered by Buckner, and set forth in the inventory of the assets of Buckner, Stan*580ton & Co. annexed to Buckner’s petition, amongst which assets were the two claims or balances of account; ” that in pursuance of this order, the assignee made the sale of the two balances of account, and Oakey became the purchaser, and was afterwards, in the bankrupt court in Mississippi, allowed to prove his claim founded thereon, and to receive a dividend from the estate of Stanton.
It appears from this statement of the contents of the bill, that the application of Buckner to be discharged as a bankrupt was made in behalf of himself as an individual and on account of his liabilities for the firms mentioned. The recital of the proceedings in relation to the bankruptcy does not show that the firm of Buckner, Stanton & Co. went into bankruptcy, that it was declared bankrupt or that any fiat or decree was made by the court sitting in bankruptcy ordering the assignee to take possession of the assets of the firm as a bankrupt firm under the provisions of the 14th section of the bankrupt act. It does not appear that the court ever undertook or intended to act upon the firm; and without a special order for that purpose, the assignee could have had no power to take and dispose of the assets of the firm, so as to divest the rights of the other partners, and to vest the entire interest in the assets of the firm in a purchaser at his sale. This is an extraordinary power, only to be exercised by the special order of the court, which it is incumbent on any party claiming title under it to show affirmatively. Parker & Blanchard in re Muggridge and others, 5 Law Reporter, 351-359; Ayer v. Brastow, Ib. 498; and upon well-recognized principle, in the absence of a special showing, that the power was exercised by the court, it cannot be presumed to have been exercised under the provisions of the fourteenth section.
The order alleged in the bill is, that the assets surrendered by Buckner, in his own right, and as a partner of Buckner, Stanton & Co., should be sold. Now those assets were not surrendered by him in behalf of the firm, but the whole proceeding, as it is recited in the bill, shows that the object was his individual discharge from his private debts and liabilities as a member of the firms. This is plain from his petition and the decree as stated, and it is rendered more manifest by the fact, *581that Stanton, although acting under an agreement that both he and Buckner should 'obtain discharges as bankrupts, and the firm debts were the principal cause of their insolvency, filed his separate petition and was separately decreed a bankrupt in Mississippi and discharged. This would have been unnecessary, if, as was most desirable to them, it had been intended to include the firm in bankruptcy as well as the individual members of it; for all this could have been effected by the one proceeding in New Orleans, by the provisions of the fourteenth section.
It is evident, therefore, that all that passed by operation of the order of court, and the sale made under it, was the interest which Buckner, whose rights alone were acted upon, had in the accounts due the firm of Buckner, Stanton & Co.
The agreement and understanding between Buckner and Stanton, alleged in the bill, are but private acts which are not shown to have been acted upon by the court in Louisiana, or to have been represented to that court; and if that could have warranted the assignee in disposing of the assets of the firm in any event, so far as the interests of Buckner and Stanton were concerned, they could not be allowed to affect the interest of Hamer; for he was then dead, and the partnership was thereby dissolved, and, under the law of Louisiana, the partnership property could not be transferred without the consent of his heirs. 4 La. R. 32; 8 Ib. 568; 18 Ib. 332.
What, then, was the position of Buckner as a member of the firms in Mississippi, in consequence of the sale of his interest in the New Orleans firm, and in the stated accounts due that firm from the Mississippi firms ? It is clear that the transfer of his interest in the New Orleans accounts against the Mississippi firms, did not create or continue an indebtedness against him as a member of the Mississippi firms; for he was discharged as a bankrupt both from his indebtedness individually, and as a member of all the firms. He surrendered his interest in the firms, but was necessarily discharged from further liability as a member of the debtor firms to the creditor firm; for, otherwise, the declared object of his application, as stated in the bill, would have been defeated, and it would produce the *582absurd conclusion that he surrendered, as part of his assets, a claim against himself jointly with the other partners of the Mississippi firms, which remained a debt against him, notwithstanding his discharge from all his debts both as an individual and as a member of those firms.
The debt due the New Orleans firm, which passed to the assignee there, could, therefore, only be against Stanton and Hamer. Let us see what was its nature and legal effect.
The three partners being all members, and the sole members of the three firms, and being, in legal presumption, equal partners, when the assignee asserts his claim against Stanton or Hamer, in virtue of the assignment of Buckner’s interest in the debt due the New Orleans firm, he learns that Buckner was indebted on account of the Mississippi firms, precisely in the same sum that he was creditor against them in the New Orleans firm. Buckner surrendered no greater right against his copartners than he could have exercised himself. If he had died, and his estate had passed into the hands of his administrator, it will not be denied that he would have been entitled against the copartners to such sum only as should be found due him upon a settlement of all accounts between the partners and firms, after the payment of all their debts. If he had assigned to an individual his interest in the accounts due the firm in New Orleans, it will not be pretended that the assignee could have taken any greater right than he had himself. He could but have taken his place in the settlement of the affairs of the firms. Brown v. Heathcote, 1 Atkyns, 160; Mitford v. Mitford, 9 Ves. 87; 6 Law Reporter, 347. Nor could such an assignee have claimed any equity, because the books of the firm in New Orleans showed, and it was a conceded fact, that there was a balance against the two other firms in favor of the New Orleans house; for he would have taken it subject to all the equities existing between the partners themselves. The very fact that all the firms were composed of tlie same members, would have been notice in law to him that if his assignor was a creditor on the New Orleans books, he was at the same time a debtor on the Mississippi books to the same amount; and if, under such circumstances, he had purchased the interest of the *583New Orleans partner, under the delusion that he obtained it discharged of all responsibilities and equities attached to it in the assignor’s hands, it would certainly give him no right to enforce such a demand in equity. The same result as to Buckner’s interest would have taken place, if, upon the death of Hamer, instead of going into bankruptcy, there had been a private settlement, or by accounting in chancery of the partnership affairs. One could not have been equitably settled, to the exclusion of the other; and in any event, Buckner was only entitled to call upon the other partners for a settlement of all partnership accounts, and could only claim what should be due him after the payment of all the debts of the firms, and upon an account of the respective interests of the partners inter se. And we think it clear that the assignee of Buckner’s bankruptcy acquired no greater right than this.
But suppose the interest of Stanton in the stated accounts of the New Orleans firm passed under the surrender of Buckner. According to the bill, this was done as a matter of private agreement and consent on the part of Stanton, in order that he might be discharged of all his debts, and especially those of the firms. The surrender of his interest was not by judicial proceeding, and is not shown to have been acted upon by any of the parties claiming as purchasers of the New Orleans debt, nor by the assignee in bankruptcy. . Under such circumstances, he would not be bound to surrender his interest; and unless he should be discharged of all his debts, he might well refuse his consent, the object of which had failed; and surely a court of equity would hesitate long, before it would hold that an interest-intended to be surrendered for such a purpose, should be used as the very means of preventing his discharge from his debts, in the hands of strangers who were not creditors either of the individual or of the firms, and not representing such creditors.
Again. There can be no pretence that the interest of Hamer in the assets of the New Orleans house, passed by the bankruptcy of Buckner; for the proceedings on his petition did not embrace the firm of Buckner, Stanton & Co., as is above shown, and it is not alleged that there was any thing apart from that which caused Hamer’s interest to pass to the assignee in New Orleans.
*584It is clear, therefore, that the debts due the firm of Buckner, Stanton & Co., cannot be considered as having vested in the assignee in bankruptcy, and to have passed to Oakey as a purchaser, so as to constitute him a creditor of the Mississippi firms, in virtue of being the holder of those debts, and give him a right to sue thereupon; and that the assignee, and Oakey and Calcóte, who derived title from him, only succeeded to the interest and rights of Buckner, which was to call for a settlement of the partnership accounts, and to demand any balance that should be found to be due thereupon to Buckner. This bill looks to no such purpose, but is founded on the claim that the complainant is the assignee of the entire debt due the firm of Buckner, Stanton & Co.
But it is insisted in support of the bill, that the debt due on the books of the New Orleans firm, as stated accounts against the Mississippi firms, were debts admitted to be due from the latter firms to the former, thus establishing the relation of debtor and creditor between them; that the three firms being, according to the allegations of the bill, entirely separate and distinct concerns, must be regarded as separate existences, and, though composed of the same members, capable of sustaining the independent relation of debtor and creditor, and that debts due to the New Orleans firm from the Mississippi firms, were assets of the creditor firm, to which the creditors of that firm were entitled without regard to the condition of the firms as between the individuals composing them. Upon this point many authorities from the English courts of bankruptcy have been cited, to show that a debt existed in favor of the New Orleans firm, which was available to the creditors of that firm. Without pursuing the many nice distinctions and artificial rules upon which those cases for the most part turn, it is to be observed, that the principle on which they appear to be founded, is, that when the firms are entirely separate and distinct, a debt due, upon distinct dealings, from the one to the other is, as to the creditors of the latter, considered as assets of the latter, and a trust fund for the payment of the creditors who have dealt with it; and that such creditors, in case of bankruptcy of the firms, are entitled to assert their claim against the debtor firm *585in virtue of their claim as creditors of the creditor firm, the firms being considered as distinct concerns, for the purpose of distribution of their assets among their respective creditors.
But this appears to be a rule of administration of assets peculiar to courts of bankruptcy, which is only applied under the following circumstances: —
1. The firms must not only be separate and distinct, but there must be some of the members belonging to one firm, either actually or in law as to the rights of creditors, and not belonging to the other firm. This was the case in Ex parte Cook, Collyer on Part. § 1004; Ib. § 1000.
2. When the partners are all the same persons, not only the “ firms ” but the “ trades ” must be perfectly distinct. Ex parte St. Barbe, 11 Ves. 414; Shakeshaft, Stirrup, and Salisbury, Cooke’s Bank. L. 538; for, otherwise, they will be considered as “ one partnership arranging different concerns belonging to them in different ways.” Lord Eldon lays down the rule in Ex parte Stilletoe to be, “ that a partner in a firm against which a commission' issues, shall not prove a personal debt against that firm, in competition with the creditors of that firm, who are, in fact, his own creditors; and that this general rule admits of no exception, unless where the partner to whom the firm was indebted carried on a distinct trade, and the debt from the firm was in respect of that distinct trade; that the case of two or more partners carrying on a distinct trade, is the same as that of one partner carrying on a distinct trade; ” that the question to be considered is merely, “ whether the transaction is to be considered as one between trade and trade?” Collyer on Part. § 1003.
3. The rule has reference to the proof in behalf of one bankrupt firm against another, when all the partners are. included in the commission. The court, in such case, has both estates under its administration, and the question for decision is simply whether the claim asserted is entitled to a dividend out of. the debtor firm upon an equal footing with the proper creditors of that firm, or whether the partner or minor firm has only a general partnership account against the other firm, to be settled upon an adjustment of the partnership affairs inter se. And *586the principle appears to be acted on in all the cases, that the one firm will not be held to be a creditor of the other, unless it be clearly shown that it is entitled to occupy that position under the rules above stated; for unless such claims are scrutinized with jealousy, it enables the partner “to come in competition with the creditors of the firm, who are in fact his own creditors.”
Let us apply these principles to the facts appearing in this case.
The bill shows that all the partners were the same persons in the three firms; that “ they transacted their commercial business and carried on their partnership trade ” at three points, under three different “ partnership names, firms, and styles,” and that “ said three firms were entirely separate and distinct from each other, and kept their business books and accounts accordingly;” that said three partners “continued to transact their partnership business under the said three firms, names, and styles,” &c.
We think it manifest that these allegations do not bring the claim within the rules laid down.
First. The partners in all the firms are the same persons, and in such cases the claim is not allowed. It is allowed where “ two or more, part, but not all, of a larger firm are partners in a distinct trade.” Ex parte Castell, 1 Chit. Eq. Dig. 113 ; Eden on the Bankrupt Law, 178; Story, Partnership, § 394; Coll. Part. § 1004. But no case is cited where a claim has been allowed where all the partners were the same, unless it be Ex pan'te Johns; and there a third person was held out to the world as a partner in one of the firms who was not a partner in the other.
Secondly. It is not sufficient that the “ firms ” should be separate and distinct, it must also appear that the claim arose from “distinct dealings in the articles of distinct trades.” Story, Part. § 394. It appears by the bill that all the partners were engaged in one “commercialbusiness” and “partnership trade,” but that the three firms were entirely separate and distinct from each other. This language is justly susceptible of no other construction than that the business of each firm was kept sep*587arate and distinct from the others. Suppose the New Orleans firm advanced money to the Mississippi firms for the purpose of purchasing cotton, or making advances to planters, and a balance thereby became due the New Orleans firm, it could not be said to be a debt in respect to a distinct trade, for aught that appears in the bill. If all the firms were engaged in the business of cotton factors, it would be but an advance by one firm to the others, in the course of their business; and though the business of each was kept distinct and separate, the advance would constitute no debt capable of proof by the New Orleans firm against the Mississippi firms, but would be but a matter of account between the partners inter se. And if the New Orleans house had advanced money generally to the Mississippi houses, the result would not be materially different. It would be but a transfer of a part of their means in New Orleans for their own benefit in Mississippi. And yet, such transactions might have been carried on, and the three firms have been “ entirely separate and distinct from each other, and kept business books and accounts accordingly.”
Under the general allegations of the bill, the indebtedness of the Mississippi firms to the New Orleans firm cannot be considered as more than a general indebtedness without specification as to its character. Being a matter of indebtedness between the same persons engaged in commercial business, though acting under different partnership styles, in the absence of any thing showing the contrary, the reasonable and legal presumption would be, that the indebtedness grew out of the regular trade in which the partners were engaged, and did not arise from a distinct trade. In order to test this, let us suppose that the Mississippi firms had become bankrupt, the New Orleans house remaining solvent; could it be said for a moment that, under the allegations of this bill alone, without showing that the debt claimed was founded on dealings distinct from the partnership trade in Mississippi, the New Orleans firm could have come in pari passu with the creditors of the Mississippi firms, and received its dividend of their assets? We apprehend not; and yet this is the attitude in which the debt claimed to be derived from the New Orleans house is presented by the bill. *588For the fact that the balances were entered on the books of the New Orleans house against the Mississippi houses -would not tend in the least to show that they were founded on distinct trading between the firms, unconnected with their partnership, any more than it would show that they originated in partnership dealings, and as balances due in the regular course of their partnership trade. Indeed, the latter would be the more reasonable presumption. Taking all the allegations of the bill with respect to the nature of the claim together, and giving them their just legal force, we think the debt set up in right of the New Orleans firm cannot be treated as a debt due from one distinct trade to another, but that these transactions of the firms are rather to be considered as falling under the rule in Shake-shaft;, Stirrup & Salisbury, “ as one partnership arranging different concerns belonging to them all, in different ways, for the benefit of that joint concern,” and that the claim was, therefore, not provable under the bankruptcy of Stanton, in Mississippi.
Third. But another objection to the proof is that there must be joint bankruptcies of all the firms before it can be made. Eden on Bankrupt. 178; Story, Part. § 394; Cooke, Bank. L. 538. When that is not the case, the individual interest only of the bankrupt partner passes to the assignee, who would not be entitled to the entire claim, whatever it might be, of the creditor firm against the debtor firm, but only entitled to take the place of the bankrupt partner, and have an account taken between the partners as individuals ; and, as is above shown, this is the only right which the assignee in bankruptcy, or the complainant claiming under him, could have acquired. He could not in any just legal sense claim to be the creditor of the debtor firm for any other purpose than to call for a settlement of the partnership affairs among the individual partners.
. There is another view of this branch of the case, which has much force in respect to the equity of the complainants’ demand.
The right of partners or minor firms, in England, to prove against the general firm in which they were partners, seems to be limited to the right of receiving a, dividend, and the firms are regarded as distinct concerns only for the purpose of distri*589bution of assets among their respective creditors. Eden, Bank. Law, 180. No case has been cited by the learned counsel for the appellee, where a greater right has been claimed for the creditor firm than to receive a dividend, and this has always been in right and for the benefit of their creditors. When the assignee of the creditor firm has come in and received his dividend in behalf of the creditors he represents, he has obtained all that he was entitled to, and there is no precedent brought to our notice holding that he can assert a further claim against the bankrupt. He has claimed to be a creditor in the distribution of the bankrupt’s assets in competition with his other creditors, treating the proceedings as valid. The claim is allowed in right of the creditors of the creditor firm; and after its avails have been received for their benefit, it would appear that the object of the equitable rule allowing the claim was accomplished, and that it would be any thing else than equity to permit it to be still further used at the instance of a mere volunteer, not a creditor, to compel the bankrupt to retrace his steps, to lose all that he had surrendered, a. part of which the complainant or his assignor had received, and, without any offer to restore him to his condition, to have all his debts reinstated against him. This is the attitude which the assignee in bankruptcy, and his immediate assignee, would occupy, and it is the position to which the complainant has succeeded by his purchase from Oakey. In point of mere equity, it is not a position that commends itself very forcibly to the consideration of a court of equity.
We, therefore, think it abundantly manifest that neither the assignee in bankruptcy in New Orleans, nor the complainant claiming title under him, can occupy the position of a creditor of Buckner, Stanton ¿6 Co. or of Stanton, Buckner & Co., in virtue of the rights acquired under the bankruptcy of Buckner, and the assignee’s sale of assets under that proceeding, so as to confer' a right to impeach the discharge of Buckner or Stanton, or to sue them on account of the claim which passed to the assignee in bankruptcy.
■ In opposition to this view, the decision of the circuit court of the United States for the southern district of this State, on *590appeal from the district court, allowing the claim of Oakey as a purchaser of the claims under consideration, and as a creditor of Stanton, has been confidently relied on. As to the soundness of the views taken in that decision, we can only say with great respect for the distinguished judge who made it, that we are unable to agree with the conclusion that Oakey became a creditor of the firm of Stanton, Buckner & Co., or of Stanton, by his purchase at the sale of the assignee in bankruptcy, except to the extent above stated. As to the effect of the decision ■as an adjudication of that point by a court of competent jurisdiction, which we are to consider as final and conclusive, we are bound by the judgment, but not by the reasons stated by the court, as the ground of it. So far as that judgment proceeds, there is no effort to disturb or to question it in this case. The judgment was that Oakey should prove his claim, and receive his dividend out of Stanton’s estate. And that judgment has been carried into effect by Oakey’s receipt of his dividend. It was a judgment in rem, and having been executed, it is func-tus officio, and, upon well-settled doctrine, cannot be made the basis of another suit, or otherwise enforced in an independent proceeding in another court. The grounds upon which the court placed its judgment, are not part of the res adjudícala, and cannot be the basis of a further proceeding founded thereon. We are only bound by what the court has ordered and adjudged to be done.
But giving to that decision all the force that can be attached to it, we do not think that it was intended to extend further than to allow proof of the claim of Oakey with a view to a dividend out of Stanton’s estate, in reference to the principles above stated, upon which courts in bankruptcy in England proceed in like cases; and for that purpose alone must he have been declared a creditor. This would not give him the rights of a creditor in whose behalf a general judgment for so much money was rendered, which is the assumption on which the bill is based.
II. The second question which we will consider is, whether the debts against the appellants having been proved in bankruptcy, and dividends having been received upon them from the *591bankrupts’ effects, the creditor can afterwards bring any suit against the bankrupts founded on them.
This question depends upon the proper interpretation to be given to certain parts of the fifth section of the bankrupt act of 1841, which provide “ that all creditors coming in and proving their debts under such bankruptcy in the manner hereinafter prescribed, the same being bond fide debts, shall be entitled to share in the bankrupt’s property and effects, pro rata,” &c. “ and no creditor or other person coming in and proving his debt or other claim shall be allowed to maintain any suit at law or in equity therefor, but shall be deemed thereby to have waived all right of action and suit against such bankrupt; and all proceedings already commenced, and all unsatisfied judgments already obtained thereon, shall be deemed to be surrendered thereby,” &e.
The language here employed appears to have been well considered. It is plain, definite, and comprehensive in itself, without any thing in the other parts of the act tending to limit its force or extent. It had been provided in the fourth section, that the bankrupt’s discharge and certificate should be a complete bar to all suits against him, unless the same should be impeached for some fraud or wilful concealment by him of his property; thereby giving to all creditors the general right of impeaching the discharge for fraud. Then comes the fifth section which was plainly intended to be a limitation upon this right, by providing that if any creditor should come in and “ share in the bankrupt’s property and effects,” he should be deemed thereby to have waived all right of action or suit against the bankrupt. These provisions appear to be so definite and obvious that it is difficult to perceive how they can be restricted to any particular ’class of debts or claims, without doing violence to the general and comprehensive language, and, indeed, without interpolating upon the act exceptions and qualifications which congress has not seen proper to specify or indicate. The policy manifest from the provisions of the two sections is, that any creditor who did not come in and take the benefit of the bankrupt’s property and effects surrendered, should be permitted to impeach his discharge for fraud; but that if any creditor should make *592his election to come in and share the bankrupt’s property and effects, he should do so with full notice that he would thereby be concluded from all right of action either at law or in equity against the bankrupt. Ex parte Comstock, 5 Law Reporter, 165; Everett v. Day, Ib. 227; In re Tibbetts, Ib. 265.
The fourth section fixes the character and legal effect of the certificate, and expressly reserves to all persons having claims “ provable ” under the bankruptcy, the right to impeach it for fraud. The fifth section applies to claims “ proved,” and fixes the legal effect of that act. The two kinds of claims are thus placed in juxtaposition; and it is worthy of observation that, while as to those that are merely “ provable,” a right to impeach the certificate is expressly reserved, no such right is reserved as to those that are “ proved.” Why this reservation in the one case, and silence in the other? The answer is found in the plain and emphatic language of the fifth section, concluding the creditor of all further remedy whatever.
The correctness of this view is still more evident when we consider that unless the proof and receipt of a dividend were intended to conclude all further claim against the bankrupt, and as an adoption and ratification of his bankruptcy, these provisions of the fifth section are useless. For the right to impeach the certificate and discharge for fraud was already reserved in the fourth section; and if it was contemplated that the creditor should have the right to impeach them, notwithstanding his proof of his claim and receipt of a dividend, these carefully worded provisions of the fifth section mean nothing, and are wholly useless.
We think it clear, therefore, as well from the language as from the general purview of the act, that the fifth section intended to put an end to all further controversy whatever against the bankrupt, at the instance of a creditor who had come in and proved his claim and received his dividend.
Against this construction of the act, several objections are urged, which it is proper for us to examine.
1. It is said that the waiver was intended to apply to fiduciary debts and foreign creditors, and not to creditors generally, because fiduciary debts, &e., were exempted from the operation *593of the act, and were not barred by the discharge, and, therefore, that the provision was made in order to bring such debts within the operation of the act; but that no such provision was necessary as to general debts, which were discharged whether proved or not in bankruptcy.
We do not consider this position tenable for several reasons. 1. The language is general, and expressly embraces “ all creditors coming in and proving their debts,” “ no creditor or other person coming in and proving his debt or other claim,” “ all proceedings already commenced, and all unsatisfied judgments already obtained thereon,” &c. This language is altogether inconsistent with the idea that any particular class of creditors was in contemplation. 2. If it had been intended to embrace only such debts as were exempted from the general operation of the act, it is not to be supposed that these provisions would not have made special reference to such claims. And it would, indeed, be strange that, in an act so well considered and showing such careful phraseology, a provision should be made with regard to claims not affected by the bankrupt proceedings, and in such general and comprehensive terms as to include all debts within the operation of the act constituting the .great-mass of the bankrupt’s debts. It would be much more reasonable to conclude that the general provisions of the act were made without reference to those debts, which did not come within the operation of the act, and were not to be discharged under it. But if they were contemplated, it is clear that they are but put upon the same footing with general debts, and that all alike are within the operation of the rule established by this section. 2 How. S. C. R. 202. 3. If the provision be construed to conclude fiduciary creditors who have proved their claims and received their dividends, and not to apply to general creditors who have done the same thing, the result would be that the former, who are manifestly a favored class by the provisions of the act, would be placed in a worse condition than the latter, to whom no special indulgence was intended to be shown. The favored creditors would be concluded, and the less favored be at liberty to disregard the bankruptcy, though both classes had done but *594the same thing, proved their claims and received their dividends. Such a construction cannot be sustained.
2. It is said that the terms of the act would conclude a creditor who had merely come in and proved his debt, in order to contest the bankrupt’s discharge, and who had taken no dividend, and that such a claim would be barred though the bankrupt was not discharged.
This objection is not sustained by the spirit of the fifth section, nor by the general policy of the act. The policy of the act and the true intent of this provision had reference to all creditors coming in and proving their debts in order to “be entitled to share in the bankrupt’s property and effects,’.’ and who should receive their dividends of the same. And, accordingly, it has been held that persons coming in for the purpose of merely contesting the right to a discharge, were not embraced in the provision, and were not concluded. Morse v. City of Lowell, 7 Met. R. 152; Haxtun v. Corse, 2 Barb. Ch. R. 156. But the same cases hold that the creditor is concluded by receiving a dividend; and in the case of Chapman v. Forsyth, 2 How. 202, the supreme court of the United States say in reference to a fiduciary debt, “ if he not only proves it but receives his proportionate share of the dividend, he is estopped from saying that he was not within the law. As a creditor, he has a right to come into the bankrupt court and claim his dividend. He does not establish his claim as a fiduciary one, but as a debt provable under the statute, and having done this, he can never controvert the discharge.” 7 Met. R. 430.
3. But it is insisted, nevertheless, that if the bankrupt’s discharge was obtained in fraud of the act of congress, it affords him no protection, and may be impeached as a fraudulent judgment, upon general principles of equity jurisdiction.
Whatever may be the extent to which this general principle of equity should be justly applied, — whether to matters of fraud which took place before the judgment, and which the parties concerned had an opportunity of contesting, or to fraudulent acts done in the very fact of obtaining the judgment, and which could not have been contested, — we do not consider it applicable to a case of this particular nature*» by reason of a counter *595equitable rule established by the bankrupt act. That rule is, that when a party has made his election to take the benefit of the bankrupt’s effects, he shall thereby be precluded of all right of action either at law or in equity against him, and, in the language of the supreme court of the United States, above quoted, “ can never controvert his discharge.” All the cases that have been cited declare this rule either directly or by recognition, and none has been adduced holding to the contrary. This effect of the creditor’s act is so obviously created by the bankrupt law, that to hold the contrary would be to violate its positive provision and manifest design. Humphreys v. Swett, 31 Maine, 192.
III. The only remaining question which we deem it necessary to examine is, whether the complainant’s claim is barred by the statute of limitations.
In order to prevent the operation of the statute, the bill alleges that neither Oakey, nor Montgomery and Boyd, nor the complainant, had any knowledge or notice of the alleged frauds committed by the appellants before their discharges as bankrupts, nor of any facts calculated to put them upon inquiry in relation to the said frauds, until within eighteen months preceding the filing of the bill. It is not alleged that any fraudulent representations have been made by Buckner or Stanton to-the complainant or any of his assignors since their discharges, or that any direct acts of concealment of the alleged frauds have been practised by them upon the complainant or any of his assignors, before or since their discharges, by which the complainant and his assignors were prevented from discovering the frauds. Nor does it appear that any effort was made to discover the frauds until within eighteen months before the filing of the bill, the bill merely alleging that within that time every effort has been used to make the discovery. The frauds, as charged in the bill, consist in making fraudulent preferences of creditors by means of negotiations in bank and appropriating then.’ assets to that- purpose, and in fraudulent concealments of their property and assets, in fraud of their general creditors; all done before they filed their petitions, and in contemplation of bankruptcy.
*596The general rule is well established in courts of equity, that in cases of fraud, the statute of limitations begins to run only from the time of discovery of the fraud, and that in many cases of that nature, the court will interfere to prevent the bar of the .statute. But this rule is not without its restrictions, and will not be applied where, in reference to other principles of equity, it would defeat the policy and equitable operation of statutes of limitations; and, consequently, there are many limitations to the operation of this rule. Thus, it will not apply where the party affected by the fraud might with ordinary diligence have discovered it. In the leading case of Smith v. Clay, Ambler, 645, Lord Camden laid down the principle which has ever since been sanctioned, thus: — “A court of equity, which is never active in relief against conscience or public convenience, has always refused its aid to stale demands, when the party has slept upon his rights and acquiesced for a great length of time. Nothing can call forth this court into activity but conscience, good faith, and reasonable diligence. Where these are wanting, the court is passive and does nothing. Laches and neglect are always discountenanced.” In Bond v. Hopkins, 1 Sch. & Lef. 429, Lord Redesdale said: — “If the party be guilty of such laches in prosecuting his equitable title as would bar him if his title were solely at law, he shall be barred in equity.” And this principle has been repeatedly sanctioned by the most learned courts and ablest jurists of this country. Kane v. Bloodgood, 7 Johns. Ch. R. 90; 2 Story, Eq. Jur. § 1520, and the numerous cases there cited. The rule is thus stated in Angelí on Limit. 195: “ The presumption is, that if a party affected by any fraudulent transaction or management might, with ordinary care and attention, have seasonably detected it, he seasonably had actual knowledge of it.” In a very elaborate and learned opinion by Chief Justice Parker, in Farnam v. Brooks, 9 Pick. 246, he says: “ If the aggrieved party knew of the fraud when it was committed, or had full possession of the means of detecting it, which is the same as knowledge, neglect to bring forward his complaint for more than six years will deprive him of his remedy and ought to, upon the very principles and reasons upon which the statute of limitations was enacted.” *597“ Courts of equity will not interpose if a party slumber upon his right unreasonably after the detection of fraud, or the means afforded of detection.” Angell on Limit. 201; Johnson v. Johnson, 5 Ala. R. (n. s.) 90.
In order to excuse the use of proper diligence, it is well settled, upon reason and authority, that there must exist some relation of trust and confidence, as principal and agent, client and attorney, cestui que trust and trustee, between the party committing the fraud and the party who is affected by it, which rendered it the duty of the former to disclose to the latter the true state of the transaction, and showing that it was through confidence in the acts of the party who committed the fraud that the other was prevented from discovering it. If the relation of trust and confidence does not exist, and the acts complained of were not committed while that relation existed, it must be shown that some positive act of fraudulent representation or concealment directly towards the party injured was done, which lulled him into security and caused him to rely upon the good faith of the other party. In the absence of these circumstances, it is clear that when the right of action results from the fraud, the cause of action accrues from the time of the commission. These principles will be found to have governed all the leading cases upon this subject; and in much the greater part of them, the relation of trustee and cestui que trust, or some other such relation, gave rise to the complaint. This was the case in Livermore v. Johnson, recently decided by this court, and which is much relied on in behalf of the appellee in this case. In that case, after stating that it was contended to be not only a case of implied trust, but that it was accompanied by fraud committed under circumstances which were calculated to keep concealed from the complainants a knowledge of the transaction, it is said: “ It has long been the settled rule in England, that where a party has been kept in ignorance of his rights by the fraud of the person sought to be charged, the statute shall not begin to run until after the fraud has been discovered.” But when this relation of trust and confidence does not exist in the nature of the transaction, and has not superinduced the injury, there must be actual fraud, or some positive act of mis*598representation, deceit, or continued concealment towards the party affected by the fraud, to prevent the running of the statute. In the case of Farnam v. Brooks, above cited, the learned judge sums up the parts of the rule thus concisely but comprehensively — “ that in cases of fraud, where the facts constituting the fraud are known, or where there is no subsisting trust or continuing influence, the same principle will apply,” — that is, the statute will not be impeded.
When we apply these principles to the statements of this bill, which are relied upon to prevent the running of the statute, we think it manifest that they are insufficient to prevent its operation.
It is not pretended that the relation of trust and confidence in any respect existed between Buckner and Stanton and the parties holding these claims, or that any actual fraud by positive acts towards those parties, or any continuing influence after the return of the bankrupt schedules, was used, by which the parties were prevented from using efforts to discover the frauds. For aught that appears in the bill, the frauds might have been as well discovered by the exercise of due diligence within eighteen months after their commission, as within eighteen months before the filing of the bill. From their nature as charged, they were open and entirely capable at all times of being detected. The proceedings in bankruptcy were open to examination, and all parties interested were notified to contest them, if they thought fit to do so. Thus all parties were placed at arms’ length, and each upon his own rights, with nothing of confidence or trust existing between them. The means of detecting the frauds in the bankrupts’ schedules were accessible by proper diligence, even before their discharges were granted; but if not then, certainly, for aught that is shown in the bill, within the period limited by law for bringing an action.
Apart from the technical defence of the statute of limitations, it is a well-established rule of equity, that judgments will not be disturbed nor new trials granted and matters of litigation reopened, unless it be shown that all proper diligence has been, used in the prosecution of the complainants’ rights. If this were not so, what length of time and what extent of laches *599would preclude a party from reopening settled transactions by a bill in equity ? It would all rest in the undefined and arbitrary discretion of a court of equity, and the citizen could never know when he might safely repose in the confidence that long-settled transactions and even solemn judgments were beyond the reach of this formidable power. He would be subject at all times to have his rights opened to new examination, with his evidences lost, his witnesses dead, and all his means of justification impaired by the great lapse of time. Nothing could be considered as settled finally, however solemnly adjudicated or long acquiesced in, and all confidence in the judgments of courts of justice would be shaken. It is for the purpose of suppressing this mischief, that courts of equity have sanctioned the principle of statutes of limitation, and applied it in all cases where the complainant does not bring his case within the recognized exceptions ; not that it may not in some instances work individual injustice or give a protection to fraud, but that it is better to act upon a rule which promotes the general peace of society, than to make an exception for an individual case, and thereby introduce a dangerous precedent.
In the present case, there was a lapse of about eleven years, according to the statements of the bill, before any efforts were made to investigate the alleged frauds, when from their nature as stated, they were open to detection all this period of time. It would be dangerous and mischievous in the extreme to sanction a rule that would, under such circumstances, permit transactions so long acquiesced in and involving immense interests, not only to the parties directly implicated, but in all reasonable probability to innocent persons whose rights are connected with, or dependent upon them, to be set aside and annulled without the clearest equity shown by the complainant, and the absence of all laches. Such rights are not to be disregarded at the instance of a mere volunteer. The laches of his assignee, not occasioned by the positive acts of the parties implicated since their discharge, is a sufficient ground for refusing the relief sought in equity; and that objection would apply with additional force to the complainant, who was not a creditor of these bankrupts and was not injured by the alleged frauds, but has voluntarily *600placed himself in the attitude of a speculator in litigation. He cannot complain that his claim fails under the application of the well-established rules of the court whose aid he has sought.
We are brought to the conclusion, by the foregoing views, that this bill cannot be maintained, and that the demurrer to it should have been sustained.
The decree of the chancellor is, therefore, reversed, and the bill dismissed.
A petition for a re-argument was filed by L. Madison Day, counsel for the appellee, but the court refused to grant a re-argument of the case.