Case ID: abb-pr-ns_11/html/0353-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Freedman, J.\n    ", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

LYON against ISETT.
    
      New York Superior Court;
    
    
      General Term, June, 1871.
    Cause oe Action.—Bankruptcy.—Supplemental Answer.
    Where a complaint alleges a conversion in general terms, but also states facts upon which, if proved, a recovery as upon contract may be had, defendant should be allowed, upon motion, to put in a supplemental answer, pleading a discharge in bankruptcy since joinder of issue.
    
      Appeal from order, at special term, denying defendant’s motion to be permitted to plead, by supplemental answer, their discharge in bankruptcy obtained since joinder of issue in the action.
    The complaint alleged a conversion of certain stock deposited by James E. Lyon, plaintiff, with the defendants, James M. Isett and others.
    At the time of said motion the trial of the action was pending before a referee. The motion was denied upon the sole ground that it appeared to the court “that the suit is in tort for the wrongful conversion of property, and that no recovery can be had therein, except in tort, and that said discharge would not, in any event, be a bar,” &c.
    
      Peabody & Baker, for defendants, appellants.
    
      Titus B. Eldridge, for plaintiff, respondent.
    
      
       In Cooper v. Troy Woolen Co. (Supreme Court, First District; Special Term, July, 1871), it was Held, that the fact that defendants against whom bankruptcy proceedings were pending, could not, by the act, have a discharge, and that, being a corporation, a judgment against them was necessary, in order to entitle plaintiff to enforce the individual liability of stockholders, were sufficient reasons for the State court refusing to stay proceedings against them.
      Brady, J.—The first clause of section 21 of the bankrupt act declares, that by proof of his debt or claim, the creditor shall be deemed to have waived all right of action against the bankrupt; and this provision, though absolute in terms, is so controlled by other clauses, in the same and other sections, that it has been held not to affect the right of creditors to enforce their claims against subsequently acquired property in actions like this, in case the bankrupt’s discharge is not granted (Hoyt v. Freel, 8 Abb. Pr. N. S., 220 ; S. C., 4 Bankr. Reg., 34). In other words, their right to enforce their claims in actions on contract, where the discharge is not granted, relates to assets other than those which passed to the assignee. They cannot seize them or ask their appropriation to the payment of the debt remaining. This result springs from the rule that only debts proved, can be regarded in the distribution of the bankrupt estate. There is no provision for payment to others (In re Hoyt, 3 Bankr. Reg., 13). The object of the stay of actions against the bankrupt provided for by the section, is to prevent a race of diligence between creditors, and to protect him from suits while proceeding in good faith to obtain his discharge and until he either obtains it or fails to do so (Bump on Bank., 831, and cases cited). The reason for this provision does not exist in this case. The defendants cannot have a discharge (Bankr. Act., § 37), and the plaintiffs are not, therefore, required to wait the determination of that question. The law has already disposed off it. They may proceed in the action, but cannot resort to any of the property of the defendants which by the proceedings in bankruptcy has passed away from them. That the plaintiff’s claim is disputed renders the objection to a stay more potent. It may be assumed, that they will not participate in the assets now in esse, but the consideration of that proposition is not necessary. It may also be said, that the propriety of declining to grant a stay is the more indisputable because the plaintiff may, as they assert, have a remedy against the stockholders, which must be predicated of a judgment against the defendants, and for the purpose of securing that remedy, iff for no other, the proceedings herein should be allowed.
      The motion must, for these reasons, be denied, but without costs, the question not being free from difficulty.
    
   By the Court.—Freedman, J.

A supplemental pleading can be allowed only by the court, on motion. It should not be allowed at the trial (Garner v. Hannah, 6 Duer, 262).

Consequently section 272 of the Code, which confers upon referees the same power to allow amendments to any pleading, and to the summons, as the court possesses upon the trial, does not apply to this case.

The cases and the manner in which a supplemental answer is to be allowed are prescribed by section 177 of the Code, and the practice is, upon a case being made within the terms of that section, to grant the order almost as a matter of course. If the sufficiency of the proposed answer is a matter of doubt, the court will not prejudge the matter on such motion, but permit the defense to be made upon such terms as are deemed just (Hoyt v. Sheldon, 4 Abb. Pr., 59; S. C., 6 Duer, 661; Palmer v. Murray, 18 How. Pr., 545; Morel v. Garelly, 16 Abb. Pr., 269 ; Stewart v. Isidor, 5 Abb. Pr. N. S., 68).

The defendants Kerr and Farr were not only regular in their application, but, it seems to me, made out a sufficient case within the terms of section 177 (as amended in 1866) and the principle established by the authorities above cited.

The complaint, it is true, alleges a conversion in general terms, but it also sets forth sufficient facts upon which, when proved, plaintiff may fall back and recover as upon contract. This precise point has been determined by the court of appeals in Conaughty v. Nichols (42 N. Y., 83). The effect and applicability of the discharge in bankruptcy will depend, therefore, rather upon the proof at the trial, than upon the form of the complaint.

The order appealed from should be reversed and the defendants Kerr and Farr severally permitted, upon payment of ten dollars, to plead by way of supplemental answer their respective discharges. Such permission should also be conditioned to be without prejudice to the proceedings already had before the referee. 
      
      Present, Jones, McCunn and Freedman, JJ.