Alcott v. Avery — 1 Barb. Ch. 347

Majority

p. 347

Alcott & Lee vs. Avery and others.

Headnote

Where a suit is commenced against a bankrupt, subsequently to his discharge, it is his duty to set up the discharge, as a defence; so as to give the adverse party an opportunity to impeach it, for fraud, if he wishes to do so.

A bankrupt must also set up the discharge, in a suit pending against him at the time it is obtained, as a bar to the further continuance of such suit, to obtain satisfaction of the debt from him personally, or out of his future acquisitions, provided the situation of the suit, at the time of obtaining such discharge, is such as to enable him to se.t up his discharge as a defence.

In cases of that kind the court will not relieve the bankrupt, where he has lost the benefit of his discharge by his own negligence.

But where a judgment or decree, obtained subsequently to the discharge, will be binding on the defendant, or his after acquired property, and where he has had no opportunity to set up such discharge, the court will grant him relief, upon a summary application.

In such a case, if the validity of the discharge is disputed, the relief granted is to put the parties in the way of trying the validity of the discharge; but without interfering, in the meantime, with the rights which the creditor has acquired by his judgment or decree.

It is irregular to issue an execution, upon a judgment, or decree, which is prima fació discharged by a bankrupt certificate, so as to be no longer in existence as a subsisting debt against the defendant, or his property; without a previous application to the court, and upon due notice to the discharged bankrupt.

And where the creditor of a bankrupt, who has been discharged subsequently to the decree, issues an execution against his property without having taken any steps to test the validity of such discharge, the court of. chancery will grant relief, by setting the execution aside, upon motion.

The appropriate remedy of a complainant, in the court of chancery, where he wishes to contest the validity of a defendant’s discharge under the bankrupt act, and to obtain satisfaction of the decree out of the defendant’s subsequently acquired property, is to file a supplemental bill; stating the obtaining of the decree, the alleged or pretended discharge of the defendant, and the fraud which renders it invalid; and praying that the decree may be carried into full effect against the defendant, and his property, notwithstanding his alleged discharge.

And if the complainant wishes to protect and preserve his lien upon the defendant’s subsequently acquired real estate, as against those who may become bona fide purchasers thereof without notice of the alleged invalidity of the defendant’s discharge, he should file a notice, in the county clerk’s office, of the pendency of such supplemental suit.

It seems that in a proper case, the court may allow the complainant to proceed by petition; for leave to take out an execution, upon his decree, notwithstanding the discharge of the defendant under the bankrupt act. But the defendant must be served with a copy of such petition, and with notice of the time and place c f presenting the same.

p. 348

This was an appeal from an order of the vice chancellor of the eighth circuit. The hill in this cause was filed to foreclose a mortgage; and the proceeds of the sale of the mortgaged premises being insufficient to pay the debt and costs, the complainants obtained the usual decree, for the payment of the deficiency, against Avery and Patterson, two of the defendants, who were personally liable for the debt secured by the mortgage. Subsequently to the entry and docketing this decree for the deficiency, Avery applied for and obtained a discharge under the bankrupt act of 1841; which discharge was granted in 1843. In November, 1845, the complainants, without any previous application to the court for leave to take out an execution against Avery or his property, caused a writ of fieri facias to be issued against the real and personal estate of both of those defendants, generally; including the real estate of which they were seised, when the decree was docketed, in'January, 1840, or at any time thereafter. Under that execution the sheriff levied upon the personal property of the defen dant Avery, which he had acquired subsequent to his dischai’ge. Avery thereupon applied to have the execution set aside as to him, and for a perpetual stay of proceedings against him upon the decree; or for such other relief as he was entitled to under these circumstances. In opposition to this application, the complainants produced affidavits, tending to show that the discharge of Avery was procured by a fraudulent concealment of his property. The vice chancellor, instead of setting aside the execution as to Avery, directed a reference, to a master to take proof of the facts and circumstances stated in the affidavits on the part of the complainants, and to report such proofs to the court; and he reserved the decision of the questions, involved in the application, until the coming in of the master’s report. From this order the defendant Avery appealed.

A. Taber, for the appellant.

H. R. Selden, for the respondents.

The regularity of the proceedings of Avery, to obtain his discharge under the bankrupt law, are not called in question in this case. It would therefore be a matter of course to set aside the execution, as to the property acquired by him subsequent to the decree in bankruptcy, were it not for the alleged fraud in those proceedings. The fourth section of the bankrupt act of 1841, makes the discharge, or certificate, when duly granted, a full and complete discharge of all debts which are provable under that act, unless it is impeached for some fraud or wilful concealment of his property or rights of property, contrary to the provisions of the act; and on prior reasonable notice, specifying in writing such fraud or concealment. Where a suit is commenced against the bankrupt subsequent to his discharge, it is his duty to set up his discharge as a defence; so as to give the adverse party an opportunity to impeach it for fraud, if he wishes to do so. He must also set up the discharge, in a suit which is pending against him at the time it is obtained, as a bar to the further continuance of that suit to obtain satisfaction of the debt of him personally, or out of his future acquisitions; provided the situation of the suit is such as to enable him to set up such a defence in that suit. (Valkenburgh v. Dederick, 1 John. Cas. 133. Cross v. Hobson, 2 Caines’ Rep. 102 . Desobry v. Morange, 18 John. Rep. 336 .) In cases of that kind the court will not relieve the bankrupt, upon motion, where he has lost the benefit of his discharge by his own neglect. But where a judgment, or decree, obtained subsequent to the discharge, would be binding on the defendant or his property, although he has had no opportunity to plead his discharge, the court will give him relief upon a summary application. (Lister v. Mundell, 1 Bos. & Pul. 427. Baker v. The Judges of Ulster, 4 John. Rep. 191 .) But in such a case, if the validity of the discharge is disputed, the relief granted is to put the bankrupt in the way of trying its validity, without, in the meantime, interfering with the rights which the creditor has acquired by his judgment, or decree, that has been regularly obtained. (Baker v. Taylor, 1 Cowen's Rep. 165.)

There is still another class of cases, in which the court may

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be called upon to interfere upon motion; where the discharge is subsequent to the judgment, or decree, but where the creditor, notwithstanding such discharge, proceeds to issue his execution without permission of the court, and without having taken any proceedings on his part to test the validity of the defendant’s discharge. In cases of that description, the better opinion appears to be that it is irregular to issue an execution, upon the judgment, or decree, which prima facie is no longer in existence as a subsisting debt, against the defendant or his property, without a previous application to the court, and upon due notice to the discharged bankrupt. In the case of Russell and Hall v. Packard, ( 7 Wend. Rep. 431 ,) where the defendant had been discharged from his debts, under the insolvent act, after the recovery of the judgment, but was subsequently arrested upon an execution, issued against him on such judgment, the supreme court ordered him to be discharged; although the plaintiff attempted to impeach both the regularity of the defendant’s proceedings and the validity of the discharge itself. Mr. Justice Sutherland there said, “the court will not, upon a motion of this kind, try the validity of a discharge, upon affidavits.” So in the case of Billings v. Skull, (1 John. Cas. 105,) where the debtor, previous to his discharge, had given a bond and warrant, upon which the creditor entered up a judgment subsequent to such discharge, the court set aside the judgment ; saying that, if the plaintiff meant to contest the validity of the discharge he ought to have brought a suit upon the bond, in the ordinary course. And in the recent case of Boyd v. Vanderkemp and others, (ante, p. 273,) where one of the defendants, after the final decree obtained his discharge under the bankrupt act, and the complainant afterwards took out an execution against the defendant’s subsequently acquired property, this court set it aside as irregular. (See also 9 John. Rep. 259 .) I am aware that in the case of Hunt v. Brooks, ( 18 John. Rep. 5 ,) the supreme court refused to set aside an execution, issued subsequent to the defendant’s discharge, upon a judgment recovered previous to that time; and compelled the defendant to resort to an audita querela. But that was the case of a discharge under

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the act of April, 1811, which the supreme court of the United States had declared to be unconstitutional as to debts contracted before the passing of that act. The court refused to set aside the execution upon that ground alone; but permitted the defendant to bring the audita querela, to enable him to cany the question to the court of dernier resort, upon a writ of error, for its decision.

Where the defendant has obtained a discharge, subsequently to the judgment or decree against him, which discharge is upon its face a discharge of his person and his subsequently acquired property from liability, upon such judgment or decree, it would be very inconvenient, and would frequently produce great injustice, to permit the plaintiff to deprive him of the possession and control of his property, by seizing it upon an execution, and leaving it in the custody of the sheriff until the question can be decided whether he has or has not been guilty of a fraud in obtaining his discharge. Again; the bankrupt law requires that the defendant shall have prior notice in writing, specifying the particular fraud charged against him in obtaining his discharge. This he cannot have if the execution is issued against him in the first instance, and the charges of fraud are made, for the first time,-in affidavits read in opposition to his motion to set aside the execution and to have his property restored to him. In the supreme court, the plaintiff has a very convenient and appropriate remedy to test the validity of the discharge; by bringing a suit upon the judgment, in which suit the bankrupt will be compelled to plead his discharge or lose the benefit of it. And this will give the plaintiff an opportunity in his replication to such plea to specify the fraud upon which he relies. -Or if the plaintiff wishes to preserve his lien upon the lands which belonged to the defendant at the time of docketing the judgment, or which he has subsequently acquired, his remedy is by a scire facias. And if the defendant in the judgment, upon being personally served with that writ, neglects to appear and set up his discharge as a bar to the execution against him or his subsequently acquired property, the judgment upon that proceeding will be conclusive against him, as to the right

p. 352

of the plaintiff to have execution upon his original judgment, notwithstanding the alleged discharge.

The appropriate remedy of the complainant, in this court, where he wishes to contest the validity of the defendant’s discharge, subsequent to the decree, and to obtain satisfaction of the decree out of subsequently acquired property, is to file a supplemental bill; stating the obtaining of the decree, the alleged or pretended discharge of the defendant, under the bankrupt act, subsequent to such decree, and the fraud of the defendant which renders the alleged discharge invalid; and praying that the decree may be carried into full effect against the defendant, and his property, notwithstanding his pretended discharge. And if the complainant wishes to protect and preserve his lien upon the defendant’s subsequently acquired real estate, against those who might become bona fide purchasers thereof without notice of the alleged invalidity of the defendant’s discharge, he may file a notice of the pending of this supplemental suit, in the county clerk’s office, as required by the statute.

Perhaps, in a proper case, this court might allow the complainant to proceed by petition, for leave to take out execution upon the decree; setting out in such petition the fraud which renders the alleged discharge invalid, and giving due notice to the defendant of the time and place of presenting such petition, and serving a copy thereof upon him. For upon such a petition, if the alleged fraud was denied, the court could award an issue to try the question of fraud. Or it might order a reference to a master to inquire and report whether the defendant had been guilty of the fraud stated in the petition of the complainant; and might grant or deny the application, for an execution upon the decree, according to the result of such trial or reference.

The order appealed from in this case must be reversed, and the execution must be set aside as to the appellant; but without prejudice to the right of the complainants to contest the validity of the alleged discharge, of such appellant, as they may hereafter be advised. They are also to be at liberty to file a supplemental bill, before the vice chancellor, to carry the original decree into

p. 353

effect, notwithstanding the discharge; or to apply to the vice chancellor, by petition, for leave to take out an execution, against the appellant, upon such decree. This being a new question here, and the affidavits on the part of the complainants making out a strong prima facie case of fraud, no costs are allowed to the appellant, either upon this appeal’ or upon the motion to the vice chancellor. Nor is the appellant to be permitted to bring any suit against the complainants, or their solicitor, or the sheriff,, for any thing done under the execution; without the special leave of the vice chancellor. But if the complainants do not eventually succeed in showing the discharge to he fraudulent, the vice chancellor is to direct compensation to be made, to the appellant, for any actual damage which he has sustained by the seizure of his property under the execution; to be ascertained in such manner as the vice chancellor may think proper to direct.