Perry v. Commerce Loan Company/Dissent Harlan

Mr. Justice HARLAN, dissenting.

The result reached by the Court may well be desirable, but in my opinion it is one that cannot be attained under the present statute within the proper limits of the judicial function.

Chapter XIII of the Bankruptcy Act establishes procedures for the relief of wage earners who are unable to meet their debts as they mature. Two types of procedures are made available: extension plans under which the wage earner's debts are intended to be paid off in full over a period of time, and composition plans under which only a percentage of debts are recoverable. Referring to both type of plans, § 656 of the Bankruptcy Act, 11 U.S.C. § 1056 (1964 ed.), provides that 'a plan' shall not be confirmed if the debtor has 'been guilty of any of the acts or failed to perform any of the duties which would be a bar to the discharge of the bankrupt * *  * .' To ascertain what would be a bar to the discharge of a bankrupt one must turn to § 14(c), 11 U.S.C. § 32(c) (1964 ed.), which provides, among other things, that no discharge may be granted if the bankrupt has been granted a previous discharge within six years. § 14(c)(5). It is undisputed that petitioner here was so discharged, and there is no question but that he would have been refused another discharge in bankruptcy at the time he applied for this extension plan. The statutory scheme this plainly seems to bar him from obtaining Chapter XIII relief as well.

The process by which the Court has undertaken to release the debtor from the impact of these straightforward statutory provisions seems to me wholly unavailing. The Court's major argument is built upon its reading of the word 'guilty' in § 656(a)(3). As already noted that section denies confirmation to an extension plan if the debtor has been 'guilty' of any act that would bar a discharge in bankruptcy. The argument is that since receiving a prior discharge is neither unlawful nor morally reprehensible one cannot be 'guilty' of it, and hence that the six-year 'discharge' provision cannot be a bar to a Chapter XIII extension plan.

This argument presupposes that the word 'guilty' was intentionally used in § 656 in a discriminating sense, that is, to distinguish among those acts catalogued in § 14(c) which under § 656 would bar confirmation of an extension plan. The fact of the matter is, however, that when Congress in 1938 enacted Chapter XIII, 52 Stat. 930-938, it took as its model the form and language of the prior bankruptcy act, more specifically § 12, subd. d, 30 Stat. 550, dealing with compositions. The 'guilty' phrase was appropriate in that 1898 statute because at that time the only bars to a discharge in the predecessor of § 14(c) were offenses punishable by imprisonment or fraudulent concealment. Section 14, subd. b, 30 Stat. 550. In 1903, Congress amended § 14, subd. b to include the six-year bar, 32 Stat. 797, and over the years other grounds for refusing confirmation have been added to that section. But the word 'guilty' was never changed, and has obviously remained in several chapters of the Act merely as a shorthand way of referring back to those items that preclude the granting of a discharge. Thus, Chapter XI of the Bankruptcy Act, which deals with arrangements, has almost an exact duplicate of § 656(a)(3) containing the same 'guilty' phraseology. § 366(3), 11 U.S.C. § 766(3) (1964 ed.). Chapter XII, which deals with real property arrangements, contains a similar provision. § 472(3), 11 U.S.C. § 872(3) (1964 ed.). And of course Chapter XIII, dealing with both compositions and extensions for wage earners, uses this language. These parallel provisions all derive from the same section framed in 1898.

This history and this parallelism indubitably demonstrate two things: first, that the Congress did not devise the 'guilty' terminology in 1938 as a means of making a subtle distinction between the morally reprehensible bars to bankruptcy contained in § 14(c) and the other bars there enumerated; and second, that the word 'guilty' means the same thing when applied to general arrangements in § 366, to real property arrangements in § 472, and to compositions and extensions in § 656. If the word 'guilty' excludes the six-year bar for extension plans, it is impossible to see what sort of statutory interpretative sleight of hand would save it for general arrangements, real property arrangements, and wage-earner composition plans. Moreover, it seems already accepted that as applied to Chapter XI arrangements, the 'guilty' provision does refer back to the six-year bar. See In re Jensen, 200 F.2d 58; 9 Collier, Bankruptcy 9.19, at 310-311 (14th ed 1964); Kennedy, Hospitality for Repeaters Under the Bankruptcy Act, 68 Com.L.J. 117, 119-120 (1963). The same would appear to be true of the meaning of 'guilty' in Chapter XII. See 9 Collier, supra, 9.07, at 1146. And the Court in its present opinion appears to concede that when applied to compositions, § 656 is somehow transformed to include the six-year bar.

In short, construing 'guilty' to refer only to 'reprehensible' aspects of § 14(c) has no basis in legislative history, and requires a strained attempt to distinguish other applications of the identical section and of parallel sections which concededly are applied more generally. Because of its ramifications, this construction may do serious harm to the administration of Chapter XIII compositions, Chapter XII real property arrangements, and Chapter XI arrangements.

The Court also advances another argument in support of its conclusion that confirmation of this extension plan was not barred by virtue of §§ 656 and 14(c). This argument rests essentially on § 602 of the Bankruptcy Act, 11 U.S.C. § 1002 (1964 ed.). Section 602 provides that the provisions of Chapters I through VII shall apply to Chapter XIII 'insofar as they are not inconsistent or in conflict with the provisions of this chapter * *  * .' It seems to be said that the six-year bar is inconsistent with the provisions of Chapter XIII because the extension plan is designed to give wage earners relief, and the six-year bar would preclude some such people from receiving that relief without good reason.

This argument likewise does not withstand analysis. To be sure the six-year bar makes it impossible for certain wage earners to get relief by way of extension plans, but so do all the other restrictions on this form of relief. Nobody would suggest that it is 'inconsistent' with Chapter XIII to withhold extension-plan relief from those who engage in fraud on the ground that such a restriction cuts down the number of people who can take advantage of Chapter XIII. Section 656 clearly does establish restrictions on the class of people to whom relief is available; the question before us is whether the six-year bar is such a limitation; citation of § 602 is conclusory only, and makes no positive contribution to a meaningful analysis.

My conclusion that the statute should be read literally to preclude the confirmation of an extension plan if the applicant has been granted a discharge within the previous six years is reinforced by § 686(5) of Chapter XIII, 11 U.S.C. § 1086(5) (1964 ed.). Section 686(5) in its entirety declares that 'confirmation of a plan under this chapter shall not be refused because of a discharge granted or a composition confirmed prior to the effective date of this amendatory Act.' The inclusion of this provision indicates quite clearly that Congress did believe that a prior discharge would be a bar to a Chapter XIII plan, and that it decided to remove that restriction only for discharges granted before September 22, 1938, the effective date of the statute in question. See 10 Collier, supra, 33.05, at 477. Such a provision is perfectly understandable. Before the enactment of the extension-plan amendment, wage earners who sought a bankruptcy remedy could obtain only a discharge through straight bankruptcy or composition. There would be no reason to preclude wage earners who availed themselves of such relief prior to September 1938 from obtaining a more favorable extension plan subsequently. On the other hand, after enactment of Chapter XIII, wage earners would have the opportunity to apply for an extension plan. It is not difficult to understand why Congress should have refused to permit wage earners who chose a discharge in bankruptcy rather than an extension plan a second opportunity, within six years, to receive statutory relief. I am frank to say that I am unable to perceive the basis for the Court's contrary explanation of this provision.

The short of the matter is that the Court's arguments do not support the conclusion it reaches. The conclusion is of course supportable as a legislative judgment, even though arguments can be made for both sides. Thus, it might be argued for the six-year bar in a Chapter XIII context somewhat as follows: the wage-earner extension plan is a new and very advantageous procedure for the debtor, but it is a burden on the courts. It is also a constraint on creditors who will be delayed in collecting, will be precluded from garnishing, and may not receive full repayment if the debtor obtains a discharge under § 661 of the Act, 11 U.S.C. § 1061 (1964 ed.). It is therefore reasonable to limit the availability of this kind of relief to those wage earners who have not had the advantage of a discharge in bankruptcy in the previous six years. Furthermore, it is certainly arguable that the six-year bar encourages wage earners to make use of the Chapter XIII procedure. With the prior-discharge bar eliminated, a debtor might eschew an extension plan and decide instead to go through straight bankruptcy first, waiting a few months until the going once again 'gets tough' to take advantage of the extension plan.

I venture considerations such as these not as overcoming the countervailing ones relied on by the Court, and heretofore espoused by others, but simply to point up the fact that this is not one of those cases where seemingly straightforward statutory language must yield its literal meaning to a contrary congressional intent. What we have here are but two contrasting legislative policies, wherein the Court's duty is to take the statute as it is presently plainly written.

I would affirm the judgment of the Court of Appeals.