Henry Friend v. James Talcott 30 31, 1931

• Decision Date: 07 April 1913
• Docket Number: No. 155,155
• Parties: HENRY FRIEND et al., Petitioners. v. JAMES TALCOTT. Augued January 30 and 31, 1931
• Court: U.S. Supreme Court

228 U.S. 27

33 S.Ct. 505

57 L.Ed. 718

HENRY FRIEND et al., Petitioners.

v JAMES TALCOTT.

No. 155.

Augued January 30 and 31, 1931.

Decided April 7, 1913.

Messrs. Chester E. Cleveland, Jacob Newman, Salmon O. Levinson, and Benjamin v. Becker for petitioners.

Messrs. Albert M. Kales, Horace Kent Tenney, and Roger Sherman for respondent.

[Argument of Counsel from pages 27-33 intentionally omitted] Mr. Chief Justice White delivered the opinion of the court:

On February 1, 1904, the commercial firm of Friend, Moss, & Morris, and its members, were adjudicated bankrupts. As the issues here to be considered are unaffected thereby and the subject was treated as irrelevant by the courts below and no question concerning it is insisted on by the respondent, we put out of view an order subsequently made, setting aside the adjudication as to the members of the firm individually.

Talcott, the respondent, was allowed a claim for $3,204.91, the unpaid price of goods sold to the firm on credit. The firm, availing of the right to make a composition with its creditors, given by §§ 12 and 13 of the bankruptcy act, asked the court to approve a proposed composition. Talcott, among others, opposed, upon the ground that the bankrupt had procured the sale on credit of the goods, the price of which form the basis of his (Talcott's) allowed claim, by means of false reports made to a commercial agency of the financial condition of the firm. The specification of the grounds of objection just stated is reproduced in the margin.

Before a master the bankrupt contended that the objection of Talcott was insufficient, because, even if the facts were true, they were inadequate to prevent the approval of the composition. The master, accepting that view, without taking testimony, reported in favor of approval. The report on the subject was as follows:

'As to specification No. 8 of James Talcott, referred to, I am of the opinion that a reasonable and proper construction of § 14b (3) [32 Stat. at L. 797, chap. 487, U. S. Comp. Stat. Supp. 1911, p. 1496] would require the 'materially false statement in writing' to be made directly to the creditor in question; and I deem the allegations in this specification, which are to the effect that the alleged false statement was made to a commercial agency, to be insufficient,

That said bankrupts obtained from said James Talcott and from other creditors property upon credit upon a materially false statement in writing made to said creditors for the purpose of obtaining such property on credit; that said statement was so made on or about the 21st day of January, 1903, to Woods Dry Goods Commercial Agency, which, as said bankrupts knew, was a commercial agency engaged in the business of receiving statements of the financial condition of persons applying for the purchase of goods upon credit, and to be communicated to those from whom they sought such credit; that said statement was duly communicated to said James Talcott and to others by said Commercial Agency for the purpose of being acted upon by them in selling goods to said bankrupts upon credit, and that thereafter said James Talcott and others did sell and deliver goods to said bankrupts upon credit, relying upon said statement; that by the statement so made in writing by said bankrupts it was averred that they had a net surplus on January 1st, 1903, of $92,988.95 over and above all debts and liabilities, whereas, in truth and in fact, they had no surplus over and above their debts, but were sholly insolvent. All of which facts were well known to said bankrupts at the time the statement was made, but were not known to said James Talcott and other creditors who sold goods to said bankrupts in reliance upon said statement, until after the filing of the petition in bankruptcy herein and I am of the opinion that the specification should be overruled for this reason.'

This report was objected to by Talcott on the ground that the master erred in refusing to take proof as to the alleged false statements, and in treating them as legally insufficient. The objections were overruled and the report was confirmed. The order of confirmation, following the requirements of paragraph d of § 12, recited that the composition was 'for the best interests of the creditors,' and that 'the bankrupt has not been guilty of any of the acts or failed to perform any of the duties which would be a bar to his discharge.' [30 Stat. at L. 550, chap. 541, U. S. Comp. Stat. Supp. 1911, p. 1495.] The result was to give the bankrupt a general discharge in virtue of subdivision c of § 14, which says: 'The confirmation of a composition shall discharge the bankrupt from his debts, other than those agreed to be paid by the terms of the composition, and those not affected by a discharge.'

In April, 1905,—about a year after the composition,—Talcott commenced this action to recover from the former bankrupt firm the damages suffered by him because of deceit practised in procuring the sale of goods on credit. The deceit relied upon was the deceit which had been alleged as a basis for the opposition to the composition; that is, false reports made in writing to a commercial mercial agency as to the financial condition of the firm, except that in one count no mention was made of the commercial agency. On the face of the declaration the sales asserted to have been made were the same sales the price of which formed the basis of the claim filed and allowed, and if not accurately, at least approximately, the amount of the damage sought to be recovered was the difference between the aggregate price of such sales, diminished by the extent of the distribution paid upon the composition. In addition to the general issue the defendants set up as res judicata the order arising from confirmation of the com- position. The cause was heard upon the issue of former adjudication, and judgment was entered in favor of the defendants, the judgment reciting that the matters and things involved in the suit had been fully adjudicated in the bankruptcy proceedings. On reviewing the cause, the circuit court of appeals concluded that the act of Talcott in going into the bankruptcy proceedings and proving his claim as one on contract did not constitute an election by him to be bound by the discharge if otherwise under the bankruptcy act the claim was excepted from such discharge, and that the fact of participating in the bankruptcy proceeding for the purpose of obtaining the benefits of the distribution therein made was not a wavier by Talcott of his right to proceed in an action for deceit to collect the deficiency notwithstanding the discharge. The court, moreover, decided that the opposition to the composition, its confirmation, and the resulting general discharge, did not constitute the thing adjudged, estopping Talcott from asserting that his claim for damages suffered by the deceit was not embraced by the discharge.

The judgment of the trial court was therefore reversed ( L.R.A.(N.S.) ——, 103 C. C. A. 80, 179 Fed. 676), and the case is here on the allowance of a certiorari.

There is a contention that the questions of waiver and election, although passed on by the court below, are not open for our consideration because it is asserted they were not raised in or considered by the trial court. As we think the contention is without merit, we proceed to dispose of the propositions concerning election and waiver and res judicata. In doing so we shall direct our attention to four propositions taken from one of the printed arguments on behalf of the petitioners, and which we think embrace all the...