Case Name: State of New York, Appellant, v. Whitney G. Wilkes, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1976-06-17
Citations: 52 A.D.2d 454
Docket Number: 
Parties: State of New York, Appellant, v Whitney G. Wilkes, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 52
Pages: 454–461

Head Matter:
State of New York, Appellant, v Whitney G. Wilkes, Respondent.
Third Department,
June 17, 1976
Louis J. Lefkowitz, Attorney-General (Lawrence J. Logan and Ruth Kessler Toch of counsel), for appellant.
Cooper, Erving & Savage (Freling H. Smith of counsel), for respondent.

Opinion:
Sweeney, J. P.
Intermittently from September, 1960 to June, 1969 defendant attended the State University of New York at Albany. He received his B. S. degree in 1968 and resumed studies for a Masters degree. While a student, defendant received approximately $6,900 in various student loans of which a total of $3,892.36 were National Defense Student Loans and the remainder, a loan for $3,000 was guaranteed by the New York Higher Education Assistance Corporation. By the terms of the notes, the first installment was due June, 1970, one year after defendant ceased to be a student. On September 11, 1969 defendant became employed by the New York State Education Department at an annual salary of $9,000. He is presently earning $11,000. On January 26, 1970, approximately five months before the first payment was due on the notes, defendant filed a petition in bankruptcy in the Federal court, listing as debts the $6,900. Defendant also listed various small bills totaling some $147. On this appeal we are concerned only with the notes totaling $3,892.36. Plaintiff advised the bankruptcy court by letter that it did not intend to file objections to the discharge of its claim, but reserved its right to State court action to recover the amount owed. Defendant was found insolvent and his debts discharged on October 8,1970.
The instant action was commenced on January 11, 1972 and defendant asserts the affirmative defense of discharge in bankruptcy. Special Term granted defendant's motion for summary judgment and denied plaintiff's cross motion therefor on the ground that the student loans were provable debts and allowable, and they, therefore, were discharged in bankruptcy. Special Term also concluded that plaintiff's sole remedy was to have filed an objection to such discharge in the bankruptcy court. This appeal ensued.
It is plaintiff's contention that defendant's discharge in bankruptcy did not release him from his obligation to pay his student loans and that the question of whether or not the loans were discharged is properly before this court. Defendant, on the other hand, maintains the bankruptcy discharge is a complete defense to this action and the question of whether the loans were discharged is not properly before this court.
As the latter issue is the more easily disposed of, we will consider it first. While the Bankruptcy Act was amended in 1970 and conferred power on the bankruptcy courts to determine the dischargeability of debts (US Code, tit 11, § 11, subd [a], par [12]), such provision did not become effective until December 18, 1970. Prior thereto the effect of a discharge was determined in the court in which a debt was proceeded upon. (Matter of Lowe, 36 F Supp 772, 773.) Since defendant's petition was filed prior to the effective date of the amendment, this court has authority to pass upon the question as to whether the loans were discharged or not by the bankruptcy proceedings.
The more vexing issue is whether the bankruptcy discharge is a valid defense to this action. The notes in question contain the following pertinent conditions.
"If the maker undertakes service as a full-time teacher in a public elementary or secondary school the amount of this note shall be reduced at the rate of 10 percentum of such amount plus interest thereon which was unpaid on the first day of such service for each complete academic year of such service, up to a maximum of 50 percentum of the principal plus interest thereon.
"In the event of the maker's total and permanent disability or death, the unpaid indebtedness hereunder shall be can-celled."
It is on the basis of these conditions that plaintiff contends the notes were not provable claims under the Bankruptcy Act because they did not constitute a fixed liability. In other words, plaintiff maintains that since the defendant might in the future commence teaching in a public school or he might become permanently disabled, or die, the amount due on the notes was not subject to reasonable estimation.
A discharge in bankruptcy releases the bankrupt only from all "provable" debts. (US Code, tit 11, § 35, subd [a].) The categories of provable debts are enumerated in subdivision (a) of section 63 of the Bankruptcy Act (US Code, § 103, subd [a]), the pertinent part of which reads as follows:
"§ 103. Debts which may be proved.
"(a) Debts of the bankrupt may be proved and allowed against his estate which are founded upon (1) a fixed liability, as evidence by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition by or against him, whether then payable or not, with any interest thereon which would have been recoverable at that date or with a rebate of interest upon such as were not then payable and did not bear interest (8) contingent debts and contingent contractual liabilities".
If a debt is contingent, however, it must also meet the test of allowability under subdivision [d] of section 57 of the Act (US Code, tit 11, § 93, subd [d]) which provides as follows:
"(d) Claims which have been duly proved shall be allowed upon receipt by or upon presentation to the court, unless objection to their allowance shall be made by parties in interest or unless their consideration be continued for cause by the court upon its own motion: Provided, however, That an unliquidated or contingent claim shall not be allowed unless liquidated or the amount thereof estimated in the manner and within the time directed by the court; and such claim shall not be allowed if the court shall determine that it is not capable of liquidation or of reasonable estimation or that such liquidation or estimation would unduly delay the administration of the estate or any proceeding under this title."
From an examination of these statutes, together with pertinent case law (cf. Maynard v Elliott, 283 US 273; Matter of Crisp, 521 F2d 172), we are constrained to conclude that the liability on the debts in question was fixed and existed at the time defendant filed his petition in bankruptcy. They were, therefore, provable. In any event, the fact that plaintiff did not file a proof of claim cannot be utilized to defeat and upset the discharge. To hold otherwise would frustrate the object of the Bankruptcy Act. (Matter of Hilton, 104 F 981.) In our view, Special Term properly granted summary judgment to defendant.
The order should be affirmed, without costs.