Myers v. International Trust Co

• Decision Date: 12 November 1923
• Docket Number: No. 89,89
• Citation: 68 L.Ed. 165,44 S.Ct. 86,263 U.S. 64
• Parties: MYERS et al. v. INTERNATIONAL TRUST CO
• Court: U.S. Supreme Court

263 U.S. 64

44 S.Ct. 86

68 L.Ed. 165

MYERS et al.

v INTERNATIONAL TRUST CO.

No. 89.

Argued Oct. 18, 1923.

Decided Nov. 12, 1923.

Mr. Edward F. McClennen, of Boston, Mass., for petitioners.

Mr. John R. Lazenby, of Boston, Mass., for respondent.

[Argument of Counsel from pages 64-68 intentionally omitted] Mr. Chief Justice TAFT delivered the opinion of the Court.

This action was begun in the superior court of Massachusetts by the International Trust Company, a bank, against Samuel A. and Harry Myers, brothers and partners, for damages for deceit in that the defendants had obtained credit from the trust company by a false statement of their financial condition. The action resulted in a verdict for $14,304.49. The amended answer of the defendants pleaded res adjudicata in the cause by a decree of the United States District Court for Massachusetts in bankruptcy, and on the trial the defendants offered the record therein as evidence of an estoppel by judgment against the plaintiff as to the fact of falsity. The trial court excluded the record. The case was taken by bill of exceptions to the Supreme Judicial Court, which overruled the exceptions and sent down the rescript and pursuant thereto final judgment was entered on the verdict. The Massachusetts courts held that the bankruptcy proceedings neither were res judicata as to the cause nor estopped the plaintiff as to the fact of falsity. The case here turns on the effect of the bankruptcy record, and so presents the federal question whether full faith and credit was given to the judgment of a federal court. Radford v. Myers, 231 U. S. 725, 730, 34 Sup. Ct. 249, 58 L. Ed. 454; National Foundry & Pipe Works v. Oconto Water Supply Co., 183 U. S. 216, 233, 22 Sup. Ct. 111, 46 L. Ed. 157.

In January, 1917, an involuntary petition in bankruptcy was filed against the Myers Brothers. They made an offer of composition. A majority of the creditors accepted the offer. The referee recommended that it be confirmed. The Myers Brothers applied for confirmation. The International Trust Company entered its appearance as a creditor and opposed the confirmation on the ground, among others, that the Myers Brothers had obtained loans from the trust company by the statement made in writing on the first day of January, 1916, that the accounts receivable amounted to $58,425.06; that the statement was materially false and was made for the purpose of obtaining certain aforesaid sums on credit, 'said falsity being that the alleged bankrupts concealed and omitted to set forth in said statement the fact that of the said accounts receivable a certain portion in the neighborhood of $20,000 (the exact sum being unknown to your petitioner), had been assigned and set over to the Commercial Investment Trust and, further, that the accounts receivable, as set forth in said statement did not amount to the sum of $58,425.06.' The referee to whom the objections were referred reported that Myers Brothers had made the statement and the trust company had relied on it in making them loans, but that when it was made it was a true statement and correctly set forth the financial condition of the bankrupts on January 1, 1916, as shown by their books kept according to the custom of the bankrupts at that time by an experienced and competent bookkeeper, and he found no evidence that the bankrupts or either of them falsely or purposely concealed or omitted to set forth in said statement the amount of the accounts assigned to the Commercial Investment Company and that the objection could not be sustained. The District Judge (International Trust Co. v. Myers, 245 Fed. 110) confirmed the finding of the referee. The International Trust Company carried this ruling on appeal to the Circuit Court of Appeals for the First Circuit, and that court (245 Fed. 110, 112, 157 C. C. A. 406) affirmed the order confirming the composition.

The declaration of the Trust Company in this action for deceit has put the case on the falsity of the same statement of January 1, 1916.

The general principles which must govern here are laid down in an oftquoted opinion of Mr. Justice Field in Cromwell v. Sac County, 94 U. S. 351, 24 L. Ed. 195. In that case suit had been brought upon coupons attached to bonds issued by the county for the erection of a schoolhouse, and it was adjudged that the bonds and coupons were invalid in the hands of one not a bona fide holder for value before maturity, and, as the plaintiff had not shown himself to be such a holder, he could not recover. In a second suit on other coupons from the same bond, he proved that he was a holder for value before maturity, and the county sought to defeat the second suit by pleading the judgment in the first as res judicata. It was held that the cause was different and that the first judgment was not a bar. Mr. Justice Field said (94 U. S. 352, 353 ):

'In considering the operation of this judgment, it should be borne in mind, as stated by counsel, that there is a difference between the effect of a judgment as a bar or estoppel against the prosecution of a second action upon the same claim or demand, and its effect as an estoppel in another action between the same parties upon a different claim or cause of action. In the former case, the judgment, if rendered upon the merits, constitutes an absolute bar to a subsequent action. It is a finality as to the claim or demand in controversy, concluding parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose. * * *

'But where the second action between the same parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered. In all cases, therefore, where it is sought to apply the estoppel of a judgment rendered upon one cause of action to matters arising in a suit upon a different cause of action, the inquiry must always be as to the point or question actually litigated and determined in the original action, not what might have been thus litigated and determined. Only upon such matters is the judgment conclusive in another action.'

See, also, Southern Pacific R. R. Co. v. United States, 168 U. S. 1, 50, 18 Sup. Ct. 18, 42 L. Ed. 355; Troxell v. Del. Lack. & West. R. R., 227 U. S. 434, 440, 33 Sup. Ct. 274, 57 L. Ed. 586.

Coming, now, to apply these principles to the case before us, it is very clear that the opposition to the composition in the bankruptcy court was not the same cause of action as the suit for deceit here. That is settled by the decision of this court in Friend v. Talcott, 228 U. S. 27, 33 Sup. Ct. 505, 57 L. Ed. 718, in a case involving similar facts, to be more fully stated. The defense of res judicata as to the cause was therefore not established by the judgment confirming the composition.

Counsel for the petitioners, however, urge that in spite of this the bankruptcy record was admissible in evidence. What he contends is that the essential fact found as between the petition and respondent in the bankruptcy proceedings and the confirmation of the composition was the truth of, and lack of falsity in, the statement of January 1, 1916, that in the trial of this action for deceit the burden of the trust company was to prove the falsity of the statement or fail, and that the Myers Brothers were entitled to introduce as evidence conclusively rebutting the trust company's evidence of such falsity, the record of the bankruptcy proceedings showing that the question of such falsity in the statement had been adjudged against the trust company and in favor of the Myers Brothers in a cause to which both were parties and in which the fact of falsity was a relevant and indispensable issue.

In the bankruptcy proceedings after the bankrupts' application was made to confirm the composition, the International Trust Company entered its appearance and filed its specifications as it was required to do under General Order XXXII (18 Sup. Ct. ix) before it could oppose the confirmation and the consequent discharge of the bankrupts. Then followed before the referee, to whom the issue thus made was referred, what was equivalent to a hearing in equity. This was the beginning of a distinct, separate and new suit. In re Guilbert (D. C.) 154 Fed. 676; In re Amer et al. (D. C.) 228 Fed. 576. This suit between respondent and petitioners was decided by the referee and the two courts against the respondent, and the composition was confirmed, because it was found that the statement of January 1,...