Case Name: Columbia Bank, Respondent, v. Clarence T. Birkett, Appellant
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1903-03-06
Citations: 174 N.Y. 112
Docket Number: 
Parties: Columbia Bank, Respondent, v. Clarence T. Birkett, Appellant.
Judges: 
Reporter: New York Reports
Volume: 174
Pages: 112–123

Head Matter:
Columbia Bank, Respondent, v. Clarence T. Birkett, Appellant.
Bankruptcy—When Action upon Creditors’ Claim Is not Barred —Effect of §§ 15, 17 and 57, Subd. N, of Federal Bankruptcy Act. A discharge in bankruptcy is no defense to an action against voluntary bankrupts by the holder of a promissory note executed by them who had no notice or actual knowledge of the bankruptcy proceedings prior to the discharge, the note having been scheduled in the name of the original payee with knowledge that it had been transferred, and not in the name of the holder, although the plaintiff under subdivision N of section 57 of the Bankruptcy Act had five months after the discovery of the discharge in which it could have proved its claim and under section 15 could in a proper case have applied for the revocation of the discharge on account of fraud, since under section 17 the discharge is confined in its- operation to creditors who have been duly scheduled and are thus enabled to receive the notices for which the act provides, and to take part in the selection of a trustee or in the examination of the bankrupt as a preliminary to opposition to the discharge.
Oolumbia Bank v. Birkett, 65 App. Div. 615, affirmed.
(Argued February 18, 1903;
decided March 6, 1903.)
Appeal from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered November 8, 1901, affirming a judgment in favor of plaintiff entered upon a decision of the court at a Trial Term without a jury.
The action is upon a promissory note for $/T50 ; dated .February 15th, 1899, and payable April 5th, 1899 ; made by the firm of Russell & Birkett, of which defendant is the'surviving member, to the order of the Manhattan Railway Adver-, tising Company and by the payee transferred to the plaintiff before maturity. Defendant set up in his1 answer the discharge of his firm in bankruptcy proceedings. • The case being tried without a jury, findings of fact were made; which, after stating the formal facts of the making of the note¿ its acquisition by the plaintiff by indorsement of the payee, before maturity and for value, and its non-payment, proceeded to find that prior to the maturity of the note, the makers “ had actual knowledge of the fact that plaintiff was then the owner and holder of the same; ” that Russell & Birkett, upon their own petition, were adjudicated bankrupts on April 13th, 1899, and on September 12th, 1899, were discharged in bankruptcy; that “ the claim of the plaintiff upon said promissory note and the debt of said firm of Russell & Birkett, and of said defendant, upon said promissory note to the plaintiff, were not duly scheduled in time for proof and allowance, with the name of the plaintiff, which, at the time of filing their schedules in bankruptcy, was known to the bankrupts to be the owner and holder thereof, and the creditor of said bankrupts by reason thereof, and that such plaintiff had no notice or actual knowledge, or other knowledge, of said proceedings in bankruptcy, prior to the discharge of the bankrupts therein.” It was, also, further found “ that no notice of any of said proceedings in bankruptcy was at any time given to the plaintiff by, or by the direction of, said bankrupts, or either of them.” As his legal conclusion, the trial judge found that the plaintiff’s claim was not, and is not, barred, or discharged, and he directed judgment for the plaintiff. This judgment vras affirmed by the Appellate Division, in the first department, and the defendant has appealed to this court.
J. Murray Downs and Thomas Gcm-mody for appellant.
The findings of fact of the trial court do not sustain its conclusions of law. (Tyrel v. Hammerstein, 33 Misc. Rep. 505.) It was incumbent upon the respondent to show affirmatively the facts necessary to bring the claim sued upon within the exceptions contained in section 17 of the Bankruptcy Act. (Code Civ. Pro. § 532 ; Livingston v. Oaksmith, 13 Abb. Pr. 183 ; Schermerhorn v. Talman, 14 N. Y. 93 ; Harrison v. Lourie, 49 How. Pr. 124 ; Stevens v. King, 16 App. Div. 377 ; McCormick v. Pickering, 4 N. Y. 276 ; Morse v. Cloyes, 11 Barb. 100 ; Small v. Graves, 7 Barb. 577 ; Hall v. Robbins, 61 Barb. 33 ; Rayl v. Lapham, 27 Ohio St. 452 ; Fider v. Manheim, 81 N. W. Rep. 2.) The discharge was sufficiently pleaded. (Code Civ. Pro. § 532; Sedg. on Stat. Const. [2d ed.] 50 ; Potter’s Dwarris on Stat. 118, 119 ; U. S. v. Dickinson, 15 Pet. 141 ; Minis v. U. S., 15 Pet. 423 ; Spiers v. Parker, 1 T. R. 141.) The claim of the respondent was discharged by the bankruptcy proceedings. (Dresser v. Brooks, 3 Barb. 429.)
Julius J. Frank and I. S. Isaacs for respondent.
The discharge was insufficiently pleaded and plaintiff was entitled to judgment on the pleadings. (1 Kent Comm. 463 ; Harris v. White, 81 N. Y. 532 ; Rowell v. Janvrin, 151 N. Y. 60 ; Spiers v. Parker, 1 T. R. 141 ; Jones v. Axen, 1 Ld. R. 119.) The effect of a discharge in bankruptcy on a particular debt must be determined by the court in which the discharge is pleaded to defeat enforcement of the debt. (Poillon v. Lawrence, 77 N. Y. 207, 214 ; Barnes v. Moore, 2 Nat. Bank Reg. 573 ; Batchelder v. Low, 8 Nat. Bank Reg. 571 ; Loveland on Bankruptcy, § 288 ; Collier on Bankruptcy [3d ed.], 191.) The plaintiff’s claim was not barred or discharged by defendant’s discharge in bankruptcy. (Ogden v. Alexander, 140 N. Y. 356 ; Windsor v. McVeigh, 93 U. S. 274; Poillon v. Lawrence, 77 N. Y. 207 ; Batchelder v. Low, 8 Nat. Bank Reg. 571 ; Matter of Kalish, Deady, 575; Tyrrel v. Hammerstein, 33 Misc. Rep. 505.) The burden of proof was throughout on the defendant. (Galpin v. Page, 18 Wall. 350 ; Settlemeir v. Sullivan, 97 U. S. 444; Morse v. Presby, 5 Foster, 302 ; Moore v. Moore, 47 N. Y. 467 ; People ex rel. v. Gates, 43 N. Y. 40 ; O'Farrell v. Ins. Co., 22 App. Div. 495) Defendant failed to sustain the burden of proof. (Koehler v. Hughes, 148 N. Y. 507.)

Opinion:
Gray, J.
The appellant does not dispute that the findings of fact are supported by the evidence ; but he does dispute that they support the legal conclusion. Indeed, the evidence, upon which the finding as to the defendant's knowledge of plaintiff's ownership and holding of the note is based, leaves no doubt possible as to that fact. The note was due April 5th, 1899. On March 27th, 1899, in response to a request of the defendant's firm for an extension of their note, its payee, the advertising company, informed them that it was held by the plaintiff, whose president refused to give any extension. Thereupon, and on April 4th, the firm wrote to plaintiff that if it would hold their note " due at your bank to-morrow until the 12tli instant, we will endeavor to pay the same." Their petition in bankruptcy was filed April 13th, and in their schedule of creditors they inserted, under the heading of " names of creditors and last holders known to debtors," the payee named in the note and not the plaintiff. In the following September, they obtained the decree discharging them from their debts. In the following Hovember, the plaintiff's president wrote to the president of a bank in Penn Tan, H. Y., making inquiry about the firm of Bussell & Birkett and " what condition their affairs are in." Upon hearing, in reply, that they had " been through bankruptcy," plaintiff's president asked, " in which district Bussell & Birkett passed through bankruptcy, as we were not aware and never received notification that any such proceedings had taken place." He then learned that the proceedings were in the H orthern District of Hew York. However singular those facts, we are not further concerned with them ; as we are not assuming, in this action, that the defendant was guilty of fraud in procuring his discharge in bankruptcy. _ The contention of the defendant is that, notwithstanding the facts, his discharge is a perfect defense to this action, and that involves a construction of the present Federal Bankruptcy Act, which was passed in 1898. Section 17 of that act provides that " a discharge in bankruptcy shall release a bankrupt from all of his provable debts except such as (3) have not been duly scheduled in time for proof and allowance, with the name of the creditor, if known to the bankrupt, unless such creditor had notice, or actual knowledge of the proceedings in bankruptcy," etc. The argument is made that, although the plaintiff had no notice, or actual knowledge, of the bankruptcy proceedings prior to the discharge, by subdivision H of section 57, claims may be proven within a year after the adjudication in bank ruptcy, and when, in ¡November, 1899, following the defendant's discharge, the plaintiff learned of that fact, that it had still, five months left to make proof of its claim. Then reference is made to section 15 of the act, whose provisions allow a discharge to be revoked, upon the application of parties in interest, filed within a year from the discharge, for fraud of the bankrupt, etc., and, from these provisions of the Federal statute, it is inferred, and it is insisted, that no substantial rights of the plaintiff have been affected and that, within the intent of the act, it was bound by the decree in bankruptcy and its claim is barred. ,
While there may be some difficulty in the way of the statutory construction, I think the plaintiff's claim has never been discharged, as the result of the bankruptcy proceedings. In my opinion, there are features in the present Bankruptcy Act, which differentiate it from preceding acts and which indicate a legislative intent that greater strictness shall prevail in notifying the creditor of the various proceedings in bankruptcy. It is provided that the voluntary bankrupt must file " a list of his creditors, showing their residences, if known," and that notices must be sent to the creditors at " their respective addresses as they appear in the list of creditors of the bankrupt, or as afterwards filed by the creditors." (Sec. 58a and sec. 7, subd. 8.) While in the previous acts of 1841 and of 1867, substituted service of notices by publication was provided for, in the present act, it is actual notice that is required to be given. The schedule of debts, which the bankrupt is to file with his petition, furnishes the basis for the notices which the referee, or the court, is to give thereafter to the creditors, and, thus, the bankrupt appears to be made responsible for the correctness of the list of his creditors. That he is to suffer, in the case of his failure to state the name of the creditor, to whom his debt is due, if known to him, seems to me very clear from the reading of section 17 of the act. That excepts from the release of the discharge all debts, which " have not been duly scheduled in time for proof and allowance, with the name of the creditor." That is very emphatic language, and how is it possible to obviate its effect by the argument that the plaintiff still had time left, after the discharge was granted, to prove his claim % The excepting clause of the act excludes from-the bankrupt's discharge debts, which " have not been duly scheduled in time for proof," etc. Can we say that such debts as may be proved within a year from the adjudication in bankruptcy are discharged ? I think, clearly, not. The present act, differing in such respects from the preceding acts, requires strict notification of the various steps in the bankruptcy proceedings to be given to the creditors of the voluntary bankrupt, according to his schedule, and it excepts from the release of the bankrupt's discharge provable debts, which had not been duly scheduled, etc. I think it was intended that the decree discharging the voluntary bankrupt should be confined in its operations to the creditors, who had been duly listed and who were enabled to receive the notices which the act provides for.
If or can I agree with the suggestion that is made that plaintiff's substantial rights were not affected. Whether that is a • necessary factor in the case, I do not say; but they certainly were, in my opinion. The plaintiff enjoyed none of the opportunities provided by the act for the creditors of a debtor who is seeking a discharge from his debts; such as the selection of a trustee, or the examination of the bankrupt, as preliminary to opposition to the discharge. Those were rights accorded by the act, and I am quite unable to perceive how it can be held that the plaintiff could be deprived of them and remitted for all remedy to an attack upon the decree of discharge.
For these reasons, I advise the affirmance of the judgment, with costs.