Cumberland Glass Manufacturing Company v. Charles De Witt

• Decision Date: 10 May 1915
• Docket Number: No. 191,191
• Citation: 59 L.Ed. 1042,237 U.S. 447,35 S.Ct. 636
• Parties: CUMBERLAND GLASS MANUFACTURING COMPANY, Plff. in Err., v. CHARLES DE WITT, Trading as Charles De Witt & Company
• Court: U.S. Supreme Court

237 U.S. 447

35 S.Ct. 636

59 L.Ed. 1042

CUMBERLAND GLASS MANUFACTURING COMPANY, Plff. in Err.,

v CHARLES DE WITT, Trading as Charles De Witt & Company.

No. 191.

Argued March 10, 1915.

Decided May 10, 1915.

Messrs. Arthur L. Jackson and Henry H. Dinneen for plaintiff in error.

Messrs. Lewis W. Lake and Thomas G. Hayes for defendent in error.

Mr. Justice Day delivered the opinion of the court:

Defendant in error, Charles De Witt, trading as Charles De Witt & Company, plaintiff in the court below, and, hereinafter spoken of as the plaintiff, brought his action in the superior court of Baltimore City, Maryland, to recover of the Cumberland Glass Manufacturing Company, hereinafter called the Glass Company, upon the ground that DeWitt, having entered into a written contract with the Mallard Distilling Company of New York to supply them with certain lettered flasks, the Glass Company, with knowledge of that contract, by and through the medium of their agents, did visit the Mallard Distilling Company, and maliciously and without just cause, with the intent to injure the plaintiff and to derive a benefit for itself, did cause, induce, and procure the said Mallard Distilling Company to rescind, break, and violate its contract with the plaintiff. Pleas were interposed, and a trial was had in the superior court, resulting in a verdict and judgment in favor of the plaintiff, which judgment was affirmed in the court of appeals of the state of Maryland (120 Md. 381, 87 Atl. 927, Ann. Cas. 1915A, 702), and the case was brought here.

Summing up the defenses made in the state court, the Maryland court of appeals said (120 Md. 386): 'The defendant interposed three pleas—first, that it did not commit the wrong alleged; secondly, limitations; thirdly res judicata, based upon certain proceedings had in the United States district court for Maryland, and particularly set out in the pleas.'

The Federal question, which is the basis of jurisdiction here, arises upon the plea of res judicata to which a demurrer was sustained in the Maryland court of original jurisdiction, which judgment was affirmed by the court of appeals. This presents a Federal question because the plea of former judgment in a Federal court adjudicating a right of Federal origin asserts a right which, if denied, made the case reviewable here under § 709, Revised Statutes, § 237, Judicial Code [36 Stat. at L. 1156, chap. 231, Comp. Stat. 1913, § 1214]. Deposit Bank v. Frankfort, 191 U. S. 499, 48 L. ed. 276, 24 Sup. Ct. Rep. 154.

From this plea, it appears that the plaintiff, trading as Charles De Witt & Company, was adjudicated a bankrupt in the United States district court of Maryland, on the 8th day of February, §910; that in the list of creditors, plaintiff listed the Glass Company as a creditor in the sum of $790.03 (which claim was upon a promissory note); that proof was duly made of this claim against the plaintiff, in the bankruptcy proceedings; and that among the unliquidated assets reported to the bankruptcy court by the plaintiff was a chose in action against the Glass Company, listed as a claim of De Witt's against the defendant, of unliquidated damages for commissions and breach of contract, in the sum of $940. (The testimony showed that this was the same claim sued upon in the Maryland state court so far as the demand for $800 damages is concerned.) The plea shows that afterwards, on the 26th day of March, 1910, the plaintiff filed a petition in the United States district court, setting out that he had submitted a composition to his creditors whereby they were to accept 20 cents on each dollar of their respective claims in full settlement of their demands against him and his bankrupt estate; further, that a majority in amount of said creditors had agreed to accept the terms of the composition agreement, wherefore he prayed that the same be ratified by the court; that the Glass Company did not agree in writing, pursuant to the provisions of the bankruptcy act, or otherwise, to accept said settlement, but as a majority in amount of said creditors did accept the same, it was ratified by the Federal court, and there was allowed to the defendant the sum of $158.01, as a dividend on its claim of $790.03; that no debit was made against the Glass Company by reason of the alleged claim of De Witt against it for the sum of $940.

Further, 'that under and by virtue of the provisions of § 68a of said Federal bankruptcy act it was and became the duty of the referee in bankruptcy and the trustee in bankruptcy representing the bankrupt estate of said De Witt to investigate and determine the existence and validity of any claim asserted by said bankrupt against any creditor filing his claim against said estate; and thereupon to set off the claim of such bankrupt against his said creditor against the claim of said creditor against the said bankrupt, and pay, or demand the payment to the bankrupt estate of, the difference between the accounts thus stated; that as the said referee, trustee, and bankrupt De Witt, the latter the plaintiff herein, did not assert or claim, in said composition account, that any portion of the aforesaid sum of $940 was justly due and owing by this defendant to the then bankrupt estate of the said plaintiff, as claimed by said De Witt in his schedule of assets; that this defendant, being led to believe by the action of the said referee, trustee, and bankrupt in remaining silent and ignoring said bankrupt's alleged claim against this defendant when it was their duty to have spoken and set out the same, if it was found by them or any of them to be due, against said defendant in said composition agreement, did not exercise its right to except to the ratification of said composition account, but suffered said composition account to be finally ratified and confirmed, and unwillingly accepted the settlement of 20 cents on the dollar made according to the tenor of said composition agreement; that this defendant received and accepted its dividend of 20 per cent therefrom in satisfaction of all its claims against said DeWitt, and in exoneration by said De Witt from any and all claims which said De Witt at that time had or claimed to have, and this defendant says that the payment to it by said bankrupt of said dividend, and its acceptance by this defendant, operated as a final settlement and adjustment, in a court of competent jurisdiction, of any and all claims which the parties to this suit then had, or claimed to have, against each other. Wherefore, this defendant says that the alleged cause of action set out in the plaintiff's amended narr. is res judicata.'

As it was the effect of the judgment of the state court to deny this plea of res judicata, it will be necessary to consider somewhat the nature of the proceeding.

Compositions in bankruptcy are provided for by the bankruptcy act of 1898 [30 Stat. at L. 544, chap. 541, Comp. Stat. 1913, § 9585]. By § 12 of the act, the bankrupt is permitted to offer a composition after he has been examined in open court or at a meeting of his creditors, and after he has filed in court a schedule of his property and a list of his creditors. Since the amendment of 1910 [36 Stat. at L. 838, chap. 412, Comp. Stat. 1913, § 9586] the offer may be made either before or after adjudication. In order that the composition be effectual, it must be accepted in writing by a majority in number of all the creditors, and the consideration to be paid by the bankrupt to his creditors, and the money necessary to pay debts having priority, and the cost of proceeding, must be deposited in a place to be designated by, or subject to the order of, the judge. The judge shall confirm the composition if satisfied that it is for the best interests of the creditors, that the bankrupt has not been guilty of any of the acts nor failed to perform any of the duties which would be a bar to his discharge, and that the offer and acceptance are in good faith and have not been made or procured by the means prohibited in the act. Upon confirmation of the composition, the consideration is distributed as the judge shall direct, and the case dismissed. Whenever the composition is not confirmed, the estate shall be administered as otherwise provided in the bankruptcy act.

Under § 70f of the act, it is provided that, upon the confirmation of a composition offered by a bankrupt, the title to his property shall thereupon revest in him. By § 21g of the act it is also provided that a certified copy of the order of confirmation shall constitute evidence of the revesting of the title, and when recorded, shall impart the same notice that a deed from the trustee to the bankrupt, if recorded, would impart. The order of confirmation becomes in effect a discharge, and is pleaded in bar with like effect. It operates to discharge the bankrupt from all debts, other than those agreed to be paid by the terms of the composition and those not affected by a discharge. It is thus apparent that, although the composition is provided for by the bankruptcy act, it is in some respects outside of the act, for it is provided that, if the composition is not confirmed, the estate shall be administered in bankruptcy, as in the act provided.

The nature of composition proceedings is nowhere better stated than by Judge Lowell in Re Lane, 125 Fed. 772, 773, in which it is said:

'The case of composition is in some respects exceptional. It is a proceeding voluntary on both sides, by which the debtor of his own motion offers to pay his creditors a certain percentage of their claims in exchange for a release from his liabilities. The amount offered may be less or more than would be realized through distribution in bankruptcy by the trustee. The creditors may accept this offer or they may refuse it. For the purposes of the composition all the creditors are treated as a class, and the will of the majority is enforced upon the minority, provided the decision of the majority is...