JAMES v. GRAY. In re JAMES et al. Ex parte JAMES, 131 F. 401

PUTNAM, Circuit Judge. This is a case of a bankrupt partnership. Proof of a claim of $20,469.46 for money loaned the partnership was offered by the wife of one of the bankrupt partners, and rejected by the District Court on the strength of In re Talbot, 110 Fed. 924. In re Talbot rested on Woodward v. Spurr, 141 Mass. 283, 6 N. E. 521, and Bank v. Tyndale, 176 Mass. 547, 57 N. E. 1022, 51 L. R. A. 447. The District Court also made reference to Clark v. Patterson, 158 Mass. 388, 33 N. E. 589, 35 Am. St. Rep. 498. All the transactions were in Massachusetts, and all the parties are residents of that state.

The common and statutory laws of Massachusetts relating to this loan are, as we will see, in harmony with the common-law text writers and authorities, so that, so far as they are concerned, the claim could not be allowed in either the federal or state courts, because, on the ground of the unity of the persons of the husband and wife, no contract could ever exist. Therefore, if we had no separate estate as known to the chancery courts, and no statutory separate estate, the decision of the District Court would necessarily be affirmed. The case involves the statutes which were re-enacted in Rev.

Daws Mass. 1902, c. 153, §§ 1, 2, as follows: “Section 1. Tlie real and personal property of a woman shall upon her marriage remain her separate property, and a married woman may receive, receipt for, hold, manage and dispose of property, real and personal, in the same manner as if she were sole. But no conveyance by a married woman of real property shall, except as provided in

section 30, extinguish or impair her husband’s tenancy by the curtesy by statute or his rights to curtesy which existed at the time this

chapter takes effect in such property unless he joins in the conveyance or otherwise releases his said rights. “Sec. 2. A married woman may make contracts, oral and written, sealed and unsealed, in the same manner as if she were sole, except that she shall not be authorized hereby to make contracts with her husband.” It will be observed that, unlike the statutes of many states, this legislation does not enlarge the common law so far as contracts between husband and wife are concerned.

If any relief is found, it must be on equitable principles, treating the property vested in the wife under the statute as a separate estate in equity, or analogous thereto. The existing statutes in bankruptcy make no special provision in reference to claims of this character; but that full equitable principles are accepted by the courts in bankruptcy was determined by us in Batchelder & Lincoln Co. v. Whitmore, 122 Fed. 355, 58 C. C. A. 517, and in Franklin Chase et al., Petitioners, 124 Fed. 753, 59 C. C. A. 629.

There can be no question that equitable claims, as, for instance, claims arising out of a breach of trust in the technical sense of the word “trust,” are provable under Act July 1, 1898, c. 541, § 63, 30 Stat. 562, 563 [U. S. Comp. St. 1901, p. 3447]. They are to be regarded either as “unliquidated claims” or as claims founded “upon a contract, express or implied,” because every trust involves such a contract. There never has been any question on this score in the United States, and in England the rule is the same.

Williams’ Bankruptcy Practice (7th Ed. 1898) at page 120, says: “A breach of trust, although it would afford a good ground for an action of tort for unliquidated damages, is always, even without express enactment, held to create a debt in equity.” The learned author makes this observation as part of his description of debts provable in bankruptcy.

At pages 36 and 37 the learned author, speaking of the words describing provable debts in the act of 1869, “due at law and in equity,” says: “These words do not appear in the present act, but it would not seem that the law has been changed by the omission of them.” In Ex parte Wells,2 M.,D. & De G.504,the value of a legacy of stock, bequeathed to the wife’s separate use, but transferred to the name of her husband, who sold it out and became bankrupt, was held provable.

In Ex parte Greer, 2 D. & Ch. 113, it was decided that the income of an estate settled in trust for the wife might be used by the husband with her consent without creating a debt, yet the whole theory of the case was that, if the principal had been so used, it would create a debt provable in bankruptcy. These decisions are in all respects analogous, as they arise with reference to a claim of a married woman against her husband in connection with her separate estate.

It must be conceded that the decisions of the Supreme Judicial Court of Massachusetts, which have been referred to by the learned judge of the District Court, would, if they controlled this court, compel us to sustain his decree. Clark v. Patterson, 158 Mass. 388, 33 N. E. 589, 35 Am. St. Rep. 498, was a bill in equity, brought by a wife against a partnership of which her husband was a member, for relief with reference to a loan made to the partnership from her separate estate. The court held that relief could not be granted even in equity, stating, at page 391, 158 Mass., page 591, 33 N. E., 35 Am. St.

Rep. 498, that the note was void as between the original parties, having been given to a wife by a partnership of which her husband was a member, and, with-a citation of prior decisions of the same court, adds that equity does not relieve in such a case. The reason for this decision appears in Woodward v. Spurr, 141 Mass. 283, 286, 6 N.

E. 521, where it was held that, with reference to the rights of a wife having a separate estate against her husband with regard to that estate, relief, even in equity, will not be granted on an alleged debt strictly contractual, nor unless there are some elements of spoliation on the part of the husband, or elements raising a trust on his part, either express, implied, or resulting, or something analogous thereto. We should also refer to the expressions of the then Chief Justice Gray, earlier than any decisions already referred to, found in Atlantic National Bank v. Tavener, 130 Mass. 407.

This was in 1881, subsequent to the enactment of any statute the substance of which is found in the sections which we have cited from

chapter 153 of the Revised Laws, which could possibly affect the case now before us. We shall have occasion to turn again to this case; but for the present, we notice only the fact, stated at page 409, that, while it had not then been determined in Massachusetts whether a loan by a wife to her husband from her separate property creates an equity in her favor, “it has generally, if not unanimously, been decided in the affirmative by other courts.” That such is the general rule which the federal courts will apply in equity, notwithstanding any local decisions, cannot be questioned.

It is so stated by all the text writers to whom we look for the general rules of the equity law.

The latest English work, and a very satisfactory one, Eversley’s Law of the Domestic Relations (2d Ed. 1896), giving the law as it was before the modern legislation in England, says at page 291: “But in equity a married woman was permitted to contract with her husband in respect to her separate estate, and sue him with regard to it” Again, at page 297, the author says: “A husband formerly at common law could not make a valid loan to his wife, both because it was in the nature of a contract, and whatever property might have passed by delivery reverted to him in virtue of his marital right..

But in equity the husband was enabled to sue his wife in respect to her separate estate. The husband can make a valid loan to his wife of property, whether specific chattels or other things. * * * In equity the capacity of a wife who had a separate estate to make a valid loan to her husband was clearly recognized, and she might have sued her husband, or proved against his estate after death, like any other creditor.” The same rule, so far as concerns loans by the wife to her husband from her separate estate, was authoritatively held by Lord Westbury in Woodward v. Woodward, 3 De G., J. & S. 671, 674.

We will observe that any suggestion that there can be no transactions between husband and wife enforceable in equity, except through the medium of a trustee or some other third person, finds no support in the authorities, and was positively ignored in Woodward v. Woodward, where the loan was a direct one. The same rules were stated in Wallingsford v. Allen, 10 Pet. 583, 593, 9 L. Ed. 542. The opinion rendered by Mr. Justice Wayne says: “Agreements between husband and wife, during coverture, for the transfer from him of property directly to the latter, are undoubtedly void at law.

Equity examines with great caution, before it will confirm them. But it does sustain them, when a clear and satisfactory case is made out that the property is to be applied to the separate use of the wife. * * * In More v. Freeman, Bunb. 205, it was determined that articles of agreement between husband and wife are binding in equity without the intervention of a trustee.” Alore v. Freeman was decided in 1726. It was affirmed by the House of Lords, as appears at page 207, and has apparently been ever since regarded as authoritative. These expressions in Wallingsford v.

Allen, in connection with the other decisions of the Supreme Court to which we will hereafter refer, like the English authorities which we have cited, require that we should disregard the limitations established in Massachusetts, so far as they bear upon any considerations dealt with in courts of equity with reference to the case before us. Therefore it is an established proposition that the claim offered in proof must be allowed, if it came from the separate estate of the wife in any sense in which the chancery courts can accept that expression. We are left, then, to determine this condition.

The case does not expressly show from what estate the funds were advanced by tire proponent of the claim offered for proof, in that it does not expressly appear whether they came from her separate estate in any sense which the rules of equity or the statutes recognize. The record stands on the certificate of the referee, which states as follows: “Upon hearing the defense offered, I find as a fact that the money had been advanced by Mrs. James to the firm as set forth in the account.” Thereupon he allowed the claim, which proceeding was reversed by the District Court on a point of law only.

Thus the presumption is that the funds so loaned came from such an estate as Airs. James could control in her own right. If it also appeared that the loans were made from an estate vested to her separate use according to the chancery rules, we would have occasion to go no further. There is no statement in the record express^ or impliedly assuming such an equitable separate estate, and therefore for us to accept its existence from what appears before us involves too violent a presumption. Taking the record together, the reasonable construction of it is that the loan was made from an estate vesting in Mrs.

James in accordance with

chapter 153 of the Revised Laws. As, therefore, in order to sustain the proof of debt, we must proceed under the rules of the chancery courts, it is necessary for us to determine that those courts hold, or would hold, that an estate of personal property vested in a married woman in accordance with the statutory provision which we have cited would be regarded by them as, for all substantial purposes, the same as an estate vested for separate uses according to the equity rules, and be protected substantially to the same extent and in like manner. On the reason of the thing there can be no distinction.

The underlying purpose of the Legislature to secure the interests of married women could not otherwise be made effective. The case at bar is a striking illustration that, unless equity thus regards the statutory estate, the anxiety of the Legislature in behalf of married women would fail, in most significant cases, of accomplishing a practical result. Of course, this observation would not apply to legislation which expressly authorized contracts between husband and wife and common-law suits between them.

Section 2 of

chapter 153 neither aids this case nor tends otherwise. It vests in married women the right to make contracts independently of any question of holding separate estates. It contains a limitation forbidding her to make contracts with her husband; but as this, also, has no relation to a “separate estate” or “separate property,” it is to be regarded only as a limitation on the general authority to make contracts, and therefore is an exception in favor of the common law only, and does not at all concern the chancery rules. This provision existed at the time of the decision in Atlantic National Bank v.

Tavener, 130 Mass. 407, already cited. The question there was with reference to a loan from a married woman to her husband, without any intimation that the loan was from an estate vested for her separate use under the general rules in equity. In this respect the record stands precisely as it does at bar, and the presumption is that the loan was made from property vested in her in accordance with the Massachusetts statutes.

Yet the opinion discusses, as we have already said, the extent of the rules in equity with reference to transactions concerning an estate vested to the separate use of a married woman, without making any distinction of the kind we are considering. This discussion would have been superfluous, unless the court assumed that, in equity, property held in accordance with the statute was to be regarded the same as an estate in express trust to the separate use of the wife.

Various other decisions tend to show that the Supreme Judicial Court of Massachusetts makes no distinction with reference to the equity rules under discussion, as limited by it, between a statutory estate and an estate vested by a deed of trust, or otherwise, for the sole use of a married woman. Among others is Willard v. Eastham, 15 Gray, 328, 335, 79 Am. Dec. 366.

Throughout this opinion, which held that, as the law then stood', the statutory separate estate of a married woman could not be charged for a debt contracted by her, unless it in some way related to that estate, the discussion takes up and applies, especially at page 335, without discrimination, the rules recognized by the equity courts. The same is the fact with reference to Lombard v. Morse, 155 Mass. 136, 140, 29 N. E. 205, 14 L. R. A. 273. Frankel v. Frankel, 173 Mass. 214, 53 N. E. 398, 73 Am. St.

Rep. 266, is a marked case in this particular, wherein it was held that a bill in equity may be had by a wife against her husband to recover her separate property obtained from her by his fraud and coercion. An examination of the record in the clerk’s office discloses that the proceeding originated out of real estate in Boston of which the wife was seised in fee in her sole right.

The opinion, at page 215, after referring to the fact that according to the statutes of Massachusetts the wife could not maintain an action at law against her husband, adds that, unless the bill could be maintained, she would be without a remedy, and that that of itself would be a sufficient reason for a decree in her favor.

It continues that the statutes do not forbid suits between husband and wife, but simply provide that they shall not be construed to authorize them; and it adds: “It would seem, therefore, that equitable remedies may be availed of as between husband and wife, in eases where they apply.” These authorities establish that, in the view of the Supreme Judicial Court, the statutory estate is to be construed for all the purposes we have in hand the same as an estate vested under a trust deed.

Our observations in reference to the decisions of the Supreme Judicial Court of Massachusetts, if we correctly understand them, aid the result which we have reached, because it is of assistance if that court has assumed that the statutes of that state are to be construed as vesting estates subject to equitable rules. Yet, even if we were mistaken in that respect, the result could not change our conclusion. It would not bar the federal courts from applying their own equitable rules according to their own methods of procedure. Examining what has been determined by those courts, the result seems to be clear.

In Ankeney v. Hannon, 147 U. S. 118, 128, 13 Sup. Ct. 206, 37 L. Ed. 105 et seq., the court considered, discussed, and settled, on the rules of the chancery, questions with reference to an estate vested in the wife under state statutes which, in substance, so far as any present issues are concerned, were the same as those of Massachusetts; and this it did in a manner which impliedly holds that there is no distinction, so far as those rules are concerned, of the class which we are discussing. Indeed, on this point and on the entire case, Sykes v. Chadwick, 18 Wall. 141, 148, 21 L.

Ed. 824, seems to be most persuasive in favor of the proponent of the proof of debt before us. It is true that, in this case, which came from the Supreme Court of the District of Columbia, there was a reference to a statute of the District regulating the rights of property of married women; and, both in the syllabus and in some citations, it seems to have been thought that the decision rested on the local statutes, and not on the general rules of equity.

An examination of the facts and of the opinion, however, shows that the reverse of this is necessarily true, except to the limited extent otherwise which we will hereafter state. The transaction began with an inchoate right of dower, which existed only at common law, or by statute affirming or modifying the common law. The wife joined with her husband in a sale of the property, releasing her inchoate right, and obtaining in exchange therefor a promissory note signed by her husband and the purchaser.

According to the strict rules of the common law, the note was joint, and void; but, under a statute of the District of Columbia, the only statute relied on by the counsel, it became a several obligation, so that a suit against the promisor other than the husband was successfully maintained by the wife, according to the judgment both of the Supreme Court of the District and the Supreme Court of the United States. The portion of the opinion with which we have to do is at page 148, 18 Wall., 21 L. Ed. 826.

This refers to a statute of the District, which, so far as we are concerned, is substantially, if not in literal terms, the same as

section 1 of

chapter 153 of the Revised Raws of Massachusetts. It states that by force thereof the plaintiff acquired the capacity at law to receive property to her separate use. This expression, “to her separate use,” was borrowed by the court from the chancery, because the phraseology of the statute is like that of the Massachusetts act, “separate property.” The opinion proceeds: “Having this capacity, she did receive and acquire, for a good and valid consideration moving from herself, the promissory note in question.

This note, then, being her separate property, not acquired by gift or conveyance from her husband in the sense in which the statute uses those terms, she is entitled to the benefit of the statute in reference to the exclusive possession and enjoyment of the note, and to the exclusive right of suing upon it. As to it, she is relieved from the incapacity which the common law imposed upon her, and is as if she were unmarried.

The technical reasons, therefore, which at the common law rendered void a note or other obligation made by the husband to the wife, no longer exist in this case; and if there are still any such reasons which would compel the ifiaintiff, in enforcing the note as against her husband, to seek the aid of a court of equity; there are none to prevent her from suing the defendant upon it in a court of law.” At page 146, 18 Wall., 21 L. Ed. 826, the opinion elaborates what is said at page 148, 18 Wall., 21 L.

Ed. 826, in reference to the necessity of the aid of a court of equity if the plaintiff had sought to proceed against her husband. It goes into the whole question of the rules of chancery which we have been discussing; and at page 147, 18 Wall., 21 L.

Ed. 826, it says: “We may therefore regard the transaction under consideration as valid and binding in equity, both on the defendant and the husband of the plaintiff.” Therefore, although the suit was brought under a statute of the District which allowed a severance, and so was at common law, yet the transaction was regarded by the court as binding in equity as between the wife and the husband, and this without the interposition of a trustee, or other third person, and though dealing with what was the estate of the wife at common law and under the statute.

The trend of the opinion supports the conclusion that, on questions like this before us, there is no distinction under the chancery rules arising out of the formal nature of the wife’s separate estate, with reference to whether it vested at common law or by statute or in equity. The result of the authorities is summed up in Pomeroy’s Equity Jurisdiction (2d Ed. 1892). In sections 79 and 80, the author points out the fact that the late married women’s acts of various states have, most of them, superseded the necessity of applying the chancery rules. Legislation of this kind he describes as the first class.

Then he adds, in

section 79, as follows: “By the second class, which prevails in most of the states, the wife’s capacity is limited to agreements made with reference to her property. These contracts are wholly equitable in their nature and obligation, and can only be enforced by an equitable action against the property itself, and not against the wife personally.” . In

section 80 he observes; “In all the other states where the wife’s contracts are not yet made legal, the equitable jurisdiction is to a certain extent enlarged. It is no longer confined in its operation to her separate equitable estate held in trust for her by an express or implied trustee. It reaches to and operates upon all her property of which she holds the full legal title and interest.

While the wife’s power to make contracts which shall be a charge upon her property is not increased, the property thus affected, and which can be reached by a court of equity, is all which the wife holds in her own name and right by a legal title.” He repeats, and somewhat elaborates, to the same effect in

section 1099. Therefore the authorities are in harmony with the natural, underlying principles which suggest no reason why the chancery courts should not protect an estate vested in, or for the benefit of, the wife, equally, whether at the common law, or by statute, or under a deed of trust for her separate use.

The case may be summarized as follows; While the federal courts are required by the statutes creating them to accept, as rules of decision in trials at common law, the laws of the several states, except where the Constitution, treaties, or statutes of the United States otherwise provide, their proceedings in equity suits, involving equitable rights, cannot be impaired by the local rules of the different states in which they sit. The principles of equity as applied by them are the same everywhere in the United States.

Of course, there may necessarily exist exceptional circumstances, as, for example, in Louisiana, where there never has been any law of uses and trusts as in England, so there can be no such thing as an estate limited to the separate use of the wife. There the whole topic of the rights and obligations of the wife is a part of the Code or statutory law of the state. So, also, if any state, say Massachusetts, had peculiar legislation relating to estates vested to the separate use of the wife, that legislation might have to be regarded by the federal courts in equity as well as at law.

Such exceptional cases ordinarily fall within those chancery rules which relate to giving special remedies for rights existing only at common law or under a statute. The general rule which we state is well laid down in Curtis’ Jurisdiction of the United States Courts (1880) 13, 14, and strikingly illustrated in Russell v. Southard, 12 How. 138, 147, 13 L. Ed. 927, Neves v. Scott, 13 How. 268, 271, 14 L. Ed. 140, Babcock v. Wyman, 19 How. 289, 299, 300, 301, 15 L. Ed. 644, Brick v. Brick, 98 U. S. 514, 516, 25 L. Ed. 256, and Kirby v. Lake Shore Railroad, 120 U. S. 130, 137, 138, 7 Sup. Ct. 430, 30 L. Ed. 569.

Even in Massachusetts it appears, as we have already shown, that the topic which we are discussing is recognized as one concerning a right in equity limited or regulated in accordance with rules peculiar to that state. We refer to this as merely illustrating our proposition. It could not control it, because,, under the decisions of the Supreme Court, it remains for the federal courts, not only to occupy the field of equitable rights according to their own rules, but also to determine what are the boundaries of that field.

The first question to be determined in the case at bar is whether an equitable right is involved. We find that the real issue presented is whether, under the federal bankruptcy statutes, which permit the allowance of equitable claims, a loan by a wife to her husband from property secured to her by the Massachusetts statutes creates an equity in her favor. This is a question of general equity.

The Massachusetts courts hold that the general principles of equity jurisprudence are to be applied to the statutory separate estates of married women, the same as to an estate vested in trust for her separate use under the general rules' of law. The only difference between the Massachusetts courts and, courts elsewhere, with respect to the particular question now under consideration, is that the former hold to a limited rule; so that all courts agree that the general topic relates to an equitable right, and the only distinction is that the local treatment of it is peculiar.

In cases’where parties seek in equity only a concurrent remedy to enforce a legal right, the right is ordinarily determined by the common law of the state where the litigation is pending; but, as we have seen, this proceeding asserts an equitable right, so that we are not bound by the local rule. As the record comes to us, we are justified in holding that it authorizes us to make a final disposition of the case. There is nothing to suggest that the findings of the referee, or the assumptions which we have made, are not in conformity with the substantial facts.

The decree of the District Court is reversed; the case is remanded to that court, with directions to allow the proof offered by the appellant, Clitheroe D. James, as a valid proof of an unsecured claim against the partnership estate, and against the several estates of the individual partners, so far as such several estates are subject to the jurisdiction of the District Court in bankruptcy, subject to the rules for marshaling between partnership and individual estates; and the appellant recovers her costs of appeal.