Court Opinion

ID: 3581318
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:32:26.662683+00
Date Added: 2024-06-11T13:53:35.200046
License: Public Domain

The trial court found that, upon his own petition, the defendant was adjudged a bankrupt on the 15th of April, 1899, and was discharged in bankruptcy on the 12th of September following; that the claim of the plaintiff was not duly scheduled in its name in time for proof and *Page 118 
allowance, and that it had no notice or knowledge of the proceedings in bankruptcy prior to such discharge.
The court did not find that the plaintiff did not know of the proceedings in bankruptcy in time to prove its claim and have it allowed, but simply that it had no knowledge until after the discharge was granted. The uncontradicted evidence, consisting of the plaintiff's letters, showed that it knew that the defendant was in bankruptcy, and as early as the 18th of November, 1899, had specific information as to the name and address of the referee in charge. The plaintiff, then, had five months within which to prove its claim.
The debt in question was for goods sold to the bankrupt and his copartner and the evidence thereof was a note given by them to the vendor therefor, which became due on the fifth of April, 1899. It was duly scheduled in the name of the vendor, but not in the name of the plaintiff bank, to which it had been transferred, as the defendant knew.
The National Bankruptcy Act, approved July 1st, 1898, provides that "any person may, after the expiration of one month and within the next twelve months subsequent to being adjudged a bankrupt, file an application for a discharge in the court of bankruptcy in which the proceedings are pending." The judge upon hearing the application "and such proofs and pleas as may be made in opposition thereto by the parties in interest," must discharge the applicant, unless he has violated certain specified provisions of the act. (§ 14.)
The judge may revoke the discharge "upon the application of parties in interest who have not been guilty of laches, filed at any time within one year after a discharge shall have been granted," provided it was obtained through fraud, that knowledge thereof "came to the petitioners since the granting of the discharge and that the actual facts did not warrant the discharge." (§ 15.)
"A discharge in bankruptcy shall release a bankrupt from all his provable debts, except such as (1) are due as a tax levied by the United States, the state, county, district or *Page 119 
municipality in which he resides; (2) are judgments in actions for frauds, or obtaining property by false pretenses or false representations, or for willful and malicious injuries to the person or property of another; (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 actualknowledge of the proceedings in bankruptcy; or (4) were created by his fraud, embezzlement, misappropriation or defalcation, while acting as an officer or in any fiduciary capacity." (§ 17.)
A certified copy of an order granting a discharge "shall be evidence of the jurisdiction of the court, the regularity of the proceedings and of the fact that the order was made." (§ 21, par. f.)
Claims may be proved and allowed against a bankrupt's estate at any time within one year after the adjudication. (§ 57.)
Creditors are entitled to "at least ten days' notice by mail to their respective addresses as they appear in the list of creditors of the bankrupt," of all examinations of the bankrupt, hearings upon application for discharge and all meetings of creditors, declarations of dividends, etc. (§ 58.)
The amendments made by the act of February 5, 1903, are not alluded to, as they are not material in this controversy. General Order number eleven, made by the Supreme Court of the United States as authorized by the act, provides that the schedules may be amended, but it does not specify the time within which an amendment may be allowed.
A discharge in bankruptcy is presumptive evidence that every provable debt contracted prior to the date when the petition was filed is discharged thereby. A debt created by the purchase of goods on credit, whether merged in a promissory note given therefor or not, is provable under the act. (§§ 17 and 57.) In order to defeat the discharge, not only duly pleaded and proved by the defendant but found by the court, the burden was upon the plaintiff to establish by sufficient evidence and an appropriate finding that its *Page 120 
claim was one of those excepted from the effect of a discharge. This was the rule under prior bankruptcy acts, which excepted certain debts from the operation of a discharge, and there is no reason why it should not be applied to the one now in force. (Sherwood v. Mitchell, 4 Denio, 435; Brereton v. Hull, 1 Denio, 75; McCabe v. Cooney, 2 Sand. Ch. 314; Harrison v.Lourie, 49 How. Pr. 124, 128; Stevens v. King, 16 App. Div. 377;Chapman v. Forsyth, 2 How. [U.S.] 202, 208; Cutter v.Folsom, 17 N.H. 139, 149; Johnson v. Ball, 15 N.H. 407;Brown v. Broach, 52 Miss. 536, 541; Bump on Bankruptcy [11th ed.], 725; Collier on Bankruptcy [3rd ed.], 202; Potter's Dwarris on Statutes, 118; Sedgwick's Stat. Con. 50.)
In Sherwood v. Mitchell, Judge JEWETT, speaking for the court, said: "When a cause of action or matter of defense under a statute is pleaded, which statute contains a proviso or exception in the same substantive clause on which the action or defense is founded, although the declaration or plea must deny that the cause of action or defense is within the proviso or exception, yet it is not necessary for the party to prove the negative; but it rests with the other party to prove the affirmative. * * * The discharge is presumptive evidence of all the facts asserted in it, and is conclusive until overthrown by evidence of some fact which by the act avoids it. Debts arising out of a violation of an official or private trust are not affected by it, unless the creditor chooses to prove the demand under the bankruptcy. The discharge, it is true, is general in its terms, and prima facie
is a discharge of the bankrupt from all his debts. But the creditor may, notwithstanding, show that his debt is of the excepted class. The onus, however, is on him, and if he fails to make the proof, the debt will be taken to be one of an ordinary character."
In McCabe v. Cooney, Vice Chancellor SANFORD said: "Nor do I think it necessary for the answer to allege that the complainant's debt was not within the excepted debts which are excluded from the operation of the law. That fact, like any other matter, intended to avoid the effect of the discharge, *Page 121 
must be shown by the complainant. In support of the answer the certificate of the defendant's discharge is sufficient evidence for him until it is impeached or avoided."
In Chapman v. Forsyth the court said: "From these considerations, we are led to say in answer to the third question, that, unless a fiduciary creditor shall come into the bankrupt court, prove his debt, etc., he is not bound by the discharge, but may sue for and recover his debt from the discharged bankrupt, by showing that it was within one of the exceptions of the first section."
While the cases are not uniform upon the subject, according to the decided weight of authority it is not necessary for the defendant to prove a negative by showing that the debt is not one of those excepted by the act, but it is necessary for the plaintiff to show as an affirmative fact in answer to the plea of a discharge in bankruptcy that the debt sued upon falls within the exceptions. Any other rule would be clumsy and inconvenient, for it would require the defendant to prove the negative of at least a dozen propositions. The plaintiff in this action failed to meet the burden of proof which the law casts upon it. There was neither a finding, nor evidence to warrant a finding that the debt was one of those excepted by section seventeen. While it appeared that the debt was not scheduled in the name of the plaintiff, it also appeared that it was scheduled in the name of the payee of the note and the vendor of the goods for which the note was given, and that notice of the bankruptcy proceedings was given accordingly. Furthermore, it appeared that the plaintiff had actual knowledge of the proceedings in bankruptcy, in time to prove its debt and to apply for a revocation of the discharge.
Thus the discussion is narrowed to the real meaning of paragraph three of section seventeen, which I repeat for convenience; debts are not discharged which "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." The failure to schedule is not conclusive, for if the *Page 122 
creditor had knowledge of the proceedings in bankruptcy it does not affect the discharge. While the statute does not, in terms, provide the date when notice must be given or knowledge acquired in order to take the debt out of the exception, the context shows that it must be "in time for proof and allowance." The words last quoted show the reason upon which the exception is founded and indicate the time when notice or knowledge must come to the creditor in order to do away with the exception. The object of the act is to discharge the debtor from his provable debts, and the object of proving a debt is to enable the creditor to share in the distribution of the estate. If he has time for that, the statute is satisfied and the debt is discharged, whether he actually proves his debt or not. If the court should hold that any other date is meant, the construction would be arbitrary and without foundation in the language of the statute, which must be the sole guide. One case is cited which is directly in point upon the question under discussion. In Fider v. Mannheim
(81 N.W. Rep. 2) the action was upon a promissory note and the answer set forth a discharge in bankruptcy. Before the defendant was adjudged a bankrupt he knew that the note had been transferred to the plaintiff, but, notwithstanding, he scheduled the note as held by the original payee and no notice was given to the plaintiff in the bankruptcy proceedings. It appeared, however, that the plaintiff had actual knowledge of such proceedings in time to prove his claim and have it allowed, and the court held that the note was barred by the subsequent discharge in bankruptcy.
While in the case before us the plaintiff lost the right to oppose the application for a discharge, it did not lose the right to apply to revoke it, if any ground existed therefor, which is not suggested. Moreover, if the statute means that paragraph three of section seventeen does not apply when the creditor knew of the bankruptcy proceedings in time to prove his claim, the loss of the right to resist the discharge in the first instance does not enable the plaintiff to take advantage of a technical omission to defeat the primary object of a great *Page 123 
remedial act, which is to relieve honest debtors from the burden of their debts, so that they can start in business again and add to the wealth of the country.
I think that the findings of fact, even when supported by the usual presumptions in aid of a judgment, do not sustain the conclusions of law and, hence, that the judgment should be reversed and a new trial granted, with costs to abide event.
PARKER, Ch. J., O'BRIEN, BARTLETT, HAIGHT and CULLEN, JJ., concur with GRAY, J.; VANN, J., reads dissenting opinion.
Judgment affirmed.