Sloan v. Lewis

ERROR to the Supreme Court of North Carolina; the case being thus:

The Bankrupt Act enacts that any person owing debts and committing certain acts,

'Shall be adjudged a bankrupt on the petition of one or more of his creditors, the aggregate of whose debts provable under this act amounts to at least $250.'

This enactment being in force, Bell filed a petition in the District Court of the United States of North Carolina, praying that a certain Rhyne might be decreed a bankrupt. The petition alleged,

'That your petitioner's demands against the said Rhyne exceed the sum of $250, and that the nature of them is as follows.'

It then set forth three sealed notes amounting in the aggregate to $249.35; and on comparing the dates of the three notes with the date when the petition in bankruptcy was filed, it appeared that several years' interest was due on them.

The 'debt' therefore, using the word 'debt' in its strict common-law parlance, was less than $250; though, with the interest added, it much exceeded that sum.

The debtor was, on this petition, decreed, against his will, a bankrupt, and one Lewis was appointed his assignee.

Lewis now sued one Sloan in a State court of North Carolina to set aside certain conveyances made by the bankrupt, in fraud, as was alleged, of the Bankrupt law; and one of the defences in the action was that the adjudication of bankruptcy was void, because the record showed that the debt owing to the petitioning creditor was less than $250, and consequently that the court had no jurisdiction in the premises.

The State court in which the suit was brought, considered that the District Court of the United States which made the adjudication in bankruptcy had, in fixing the amount of the debt, properly added the interest to the principal of the debt. In addition it refused to allow the defendant to show that the debt of $249.35 had been reduced by a credit of $64 which the creditor petitioning in bankruptcy had not allowed; a reduction, it may be noted, which was not alleged in the pleadings. Its view was that 'the petition of Bell in the bankrupt court had been passed on by that court and the matter presented by it there adjudicated; and that other courts, no appellate, could not go behind the record.' And fraud on the Bankrupt Act being found in the conveyances made by the bankrupt, it set them aside. This decree being affirmed by the Supreme Court of the State, the case was now brought here by Sloan, claiming under the conveyances.

Mr. H. W. Guion, for the plaintiff in error:

I. Bankrupt acts are in the nature of penal acts. By a short, sharp process they take a man's property right out of his own hands. Such statutes are to be construed strictly.

1. Now the terms 'debt' and 'interest' are both technical terms in the common law, each having a specific sense of its own. Those senses have never been confounded. Even in the process of the courts, mesne or final, the distinction between debt and interest is persistently preserved. In the ''fi. fa.'' the sheriff is commanded to make a certain debt, and also a certain other sum, as damages for the detention of said debt, and also for the costs; these damages being interest.

The rule as to interest in England, previous to 3 and 4 William IV, ch. 42, is stated by Mr. Chitty, as follows:

'The general common-law rule is, that the law does not imply a contract on the part of the debtor to pay interest on the sum he owes, although the debt may be a fixed amount, and may have been frequently demanded. Nor is interest due as a matter of right in the absence of an express stipulation, even in the case of written instruments, unless they be commercial instruments of a negotiable nature, such as bills of exchange and promissory notes.'

Interest is thus but an incident to the debt, and not a part of the debt itself. But it is not the only incident, and if it is to be computed, why not the other incidents also, that at different times and in varied forms present themselves. Ex. gr. In the District Court of North Carolina, a petitioning creditor in bankruptcy some time since, when gold coin was forty per cent. in value above legal tender notes of the United States, set forth as his debt, a note for $200, payable in gold coin, and asserted that the amount was sufficient to confer jurisdiction, as with the then premium on gold coin his debt amounted to $280, in lawful money; and this was undeniably true. The court refused to compute this incident as a part of the petitioning creditor's debt. But if the argument of opposing counsel is right it committed, plainly, an error. Indeed, where-when you depart from a rule-are you to stop? In some States compound interest is allowed; in others but simple interest. Some notes and bills are payable in foreign currency, and might demand that the par of exchange be added. Some bills payable at different places may be protested, and the holder become entitled to damages by reason of the non-payment. All the incidents are damages, like interest, strictly due, and they are related to the debt, as intimately as the 'interest' itself.

2. Further than all this, and as respects this particular case. The petitioning creditor in his petition fails to claim interest as any part of his debt, and does not pretend or aver that the proceedings are founded on such interest. In Udall v. Steamship Ohio, this court held 'that no computation of interest will be made to give jurisdiction, unless it be specially claimed in the libel.' 'This,' it said, 'would certainly be the case at law,' and added that 'no reason is perceived why the rule should be relaxed in case of libel.'

3. Our whole Bankrupt Act is derived from the bankrupt acts of Great Britain; and when our act uses the same words which that act does, and the meaning of those words has been long settled by the judgments of the highest British courts, there is great reason why we should adhere to the interpretation so given. Those courts well deserve our respect; for the judges in them are, generally, consummate lawyers; able intellectually, and thoroughly trained in their profession. In addition to this, it is desirable, in the vast and constant commerce between the countries, that similar enactments on a subject intimately affecting both, should be similarly construed. The English act of 6 George IV, ch. 16, § 15, after presenting the form of commission reads thus:

'No such commission shall be issued unless the single debt of such creditor, or of two or more persons, being partners petitioning for the same, shall amount to 100 or upwards, or unless the debt of two creditors so petitioning shall amount to 150 or upwards, or unless the debt of three or more creditors so petitioning shall amount to  200 or upwards.'

The older English bankrupt acts used the same expressions.

Now, so far back as 1746, Lord Hardwicke upon this word 'debt' decided that interest could not be added to the principal; and that decision has been followed steadily to this day, alike in the bankrupt court, in the Common Pleas, and in the King's Bench.

If a question in law can become settled, this should be.

II. The point was made in the court below, that the adjudication making Rhyne a bankrupt, was not only erroneous but void for want of jurisdiction apparent on the record, and that the question whether he was properly adjudged a bankrupt was examinable in every court where the record was produced and relied upon by the party claiming the benefit thereof. The court summarily disposed of this question by saying: 'That the petition of Bell in the bankrupt court had been adjudicated by that court, and that this court could not go behind the record.'

But assuredly if a court acts without authority, its judgments and orders are nullities. Now here a 'debt' of a certain amount was indispensable to give jurisdiction. No such 'debt' was shown. It was alleged; but the evidence of the debt, as set out on the face of the record, disproved the allegation; for the evidence consisted of three sealed notes which on their face were less than $250.

Mr. Samuel Field Phillips, contra.

The CHIEF JUSTICE delivered the opinion of the court.