Poillon v. Lawrence

Headnote

Bankrupt Discharge.

1. IMPEACHING IN STATE COURT.

(a.) Fraud.'—Cannot be impeached in State court on the ground that it was fraudently obtained.

(5.) Jurisdiction, want of.—Cannot be impeached in State court for want of jurisdiction on the ground that the petitioner had not resided nor carried on business, for the six months next preceding the filing of his petition, nor for the longest period during such six months, in the judicial district where the same was presented.*

2. DEBT NOT MENTIONED IN PETITION OR SCHEDULES.

(a.) Effect of discharge on.—It is a discharge therefrom.

(1.) Ignorance of creditor.—Although the creditor was in fact

* Note.—This follows from the decision sustaining the demurrer.

wholly ignorant of the bankruptcy proceedings, and his debt was not mentioned nor set forth in the petition or schedules, yet the discharge in bankruptcy discharges the debt.

This is an action brought by the plaintiff, as •■assignee of Joseph Kittell and Alexander Klingenberg, judgment creditors of one Charles L. Lazarus ■(whom the complaint alleges to be defendant Charles L. Lawrence), to subject certain real estate, standing-in the name of defendant Zipporah N. Lawrence, his wife, to the payment of the judgment, on the ground that the same was conveyed to the wife after the recovery of the judgment, the consideration for the conveyances being all paid by the husband, and that consequently the conveyances were taken to, and in the name of the wife, in fraud of the creditors of the husband, and of the plaintiff in particular, and to prevent the same from being- made liable for his debts.

The defendants answer separately. Each defendant alleges that defendant Charles L. Lazarus, was, on March 24, 1865, duly authorized by an order of the •court of 8 common pleas, made pursuant to the provisions of chapter 464 of the laws of 1847, as amended by chapter 80 of the laws of 1860, to change his name from Charles Louis Lazarus, to Charles Iiouis Lawrence ; which change of name was duly returned to the office of the secretary of the State, and was published in the session law-s of this State, of 1866 ; and, among other things, pleaded in bar, a discharge in bankruptcy, granted by the district court of the United States for the southern district of New York, in bankruptcy, after the recovery of judgment by Kittell & Klingenberg, to the defendant, Charles L. Lawrence.

Under an order of the court, plaintiff replied to the - new matters contained in the answers as to the discharge in, bankruptcy of defendant, Charles L. Lawrence.

The facts set out in the replies are in substance as follows :

1st. That although the plaintiff and the persons in whose name the judgment was recovered, have been, ever since the rendition of it, doing business prominently and conspicuously in the city of New York, they had never known or heard of the change of name of their judgment debtor, Lazarus, until after January,, 1876, and just before the commencement of this action, and that they never knew or heard of his bankruptcy proceedings until his discharge was set up in the answer in this action.

2nd. That the petition and proceedings in bankruptcy of Charles L. Lawrence, do not set out, or mention or allude to the change of name, nor set out the plaintiff’s debt, or judgment, or any debts of C. L. Lazarus, or of Lazarus & Wolff.

3rd. That the debt and judgment of the plaintiff, and all other debts contracted under the name of Lazarus, or of Lazarus & Wolff, were intentionally and fraudulently omitted from his schedules.

4til. That the change of name was used as part of a fraudulent scheme, contrived for the purpose of enabling the defendant, Lawrence, to get through bankruptcy proceedings, and obtain a discharge, without notice to the plaintiff, and other creditors of C. L. Lazarus, or of Lazarus & Wolff.

5th. That the scheme was successful, and enabled the defendant to go through and get his discharge in bankruptcy, without any notice of any such proceedings having reached the plaintiff, except accidentally, four or five years after he obtained his discharge.

The replies also raised an issue, as to whether defendant, Charles-L. Lawrence, had resided or carried on business for the six months next preceding the filing of his petition in bankruptcy, or for the longest period during such six months, in the judicial district where the same was presented.

. The defendants severally demurred to the replies for insufficiency, and upon hearing at special term before Judge Sandeord, he ordered judgment for the defendants upon the demurrers, with costs.

Judgment was entered accordingly.

Plaintiff appeals from the order and judgment.

The following opinion was delivered at special term.

Sandeord, J.—The case of Ocean National Bank v. Olcott ( 46 N. Y. 12 ), establishes the proposition that a discharge in bankruptcy cannot be impeached in any other court than that by which it was granted, on the ground that it was fraudulently obtained. In the present case, which is closely analogous, being, like that, an action in the nature of a creditor’s bill, the plaintiff, as assignee of judgments against the defendant, 0. L. Lawrence, seeks to enforce them against property standing in the name of the judgment debtor’s wife, but held by her colorably and in secret trust for her husband. Both husband and wife answer separately, and each sets up, tiy way of defense, a discharge in bankruptcy, granted to him by the district court of the United States for the southern district of New York.

The plaintiff replies, and insists that the discharge is inoperative and of no effect as against his claims, not because they were fraudulently contracted, or incurred or created by the embezzlement or defalcation of the debtor, or while he was acting in any fiduciary

character, but because the discharge itself was fraudulently obtained.

The grounds, upon which he assails it, affect its validity, and are such as, if duly presented in the bankrupt court, would have sufficed to prevent or annul it. The plaintiff’s claims were provable against the estate of the bankrupt, and he might have had relief, had he duly applied for it, under and pursuant to the provisions of the bankrupt act, which accord to the bankrupt court exclusive jurisdiction to render it. Having omitted so to do, he is precluded from asserting, elsewhere and collaterally, the objections which, at the proper time and place, he omitted to urge. That such omission resulted from his ignorance of the facts and of the proceedings, is immaterial. The point has been expressly adjudicated in at least two well considered cases, each of which seems to me to have been correctly decided. They are Black v. Blazo, 117 Mass. 17 ; Thurmond v. Andrews, 10 Bush, 400 .

The defendants are entitled to judgment on their demurrers, with costs.

—I. It is not within the scope, or meaning, or intent of the bankrupt law, that a debtor under a changed name, should obtain a discharge from his debts contracted under a different name, without setting out or alluding to the change of name in his petition, or in any of the proceedings, or setting out in his schedules any debts contracted under his original name. Such a proceeding absolutely nullifies and avoids all the provisions of the law in favor of such creditors. It deprives them of all notice of the proceedings, and of all the provisions for notice contained in the act, and thereby of all participation in the assets of the debtor, and of all opportunity to be heard upon the question of his discharge. Such a pro

ceeding, as to such creditors, under such circumstances, can be of no validity or effect whatever. It is not within the purview of the act. Especially is that the case when the change of name is taken advantage of and used as part of a _ fraudulent scheme, to get a discharge without creditors having a chance or opportunity for any notice. To deprive a creditor of his debt by a discharge so obtained, would be in violation of a fundamental principle of jurisprudence and of constitutional law. It would be to deprive him of his property and Ms rights without any notice to him, and where he was intentionally and fraudulently deprived of the benefit of all the provisions for notice prescribed by the act.

II. So far as the rights of creditors are concerned, the fact that the defendant had procured a change of name by legal proceedings is immaterial. Creditors are not affected with notice of the change of name by virtue of such proceedings. The statute does not provide that the pre-existing rights of any parties shall be affected by the change of name, or that creditors or others shall be charged with notice of such proceeding. It simply provides that “ thereafter he shall be known by the new name” (L. of 1847, c. 464; L. of 1860, ch. 80). The proceeding for the change of name is one simply and solely for the gratification or benefit of the applicant. It is simply a permission, as a favor to the applicant, to use thereafter a new name, without intending to affect thereby in any way the rights of creditors or others (See Matter of Snook, 2 Hilt. 566). The publication of the change of name in the session laws was not intended as a notice to creditors, but to furnish permanent evidence of the change in case it might be important with reference to the title or succession to property, or otherwise.

III. If the defendant wished to obtain a discharge from Ms debts contracted under the name of Lazarus,

as well as those under the name of Lawrence, he should have set out, in his petition, his change of name, and the debts so contracted under the name of Lazarus' in his schedules, so that the provisions of the act for notice to creditors and for the protection of their rights might have become applicable to the plaintiff and the other creditors of Lazarus. ¡Not having done so, his discharge does not affect such debts. Such creditors were, in no sense, constructively parties to the proceeding, nor affected by it in any way. The discharge may be valid as to creditors of Lawrence, having debts contracted in that name. That is not the question. But how can it be valid against the creditors of Lazarus, who have, in no way, been made parties to the proceeding or had any opportunity of notice? The constitution provides that no man shall be deprived of his property without due process of law. And due process of law implies some judicial proceeding to which the person to be affected is a party, and of which he has such notice as the law provides for (Taylor v. Porter, 4 Hill, 140 ). Upon proof of a want of notice, and especially of a fraudulent deprivation of it, any judgment will be set aside (Ogden v. Saunders, 12 Wheat. 366 ). The notice required to render a judgment or decree valid need not be, in all cases, personal, but it must be, at all events, such as the legislature has seen fit to prescribe in reference to the proceeding under which the judgment or decree is make (Empire City Bank, 18 N. Y. 189 ; 8 Abb. Pr. 192 ). In bankruptcy proceedings the legislative power has seen fit to dispense with personal notice, and has substituted instead of it: 1st. A publication of various notices to creditors in the newspapers. 2nd. A notice to each of the creditors named in the schedules, sent usually by mail. But a publication in the newspapers that one Lawrence has filed a petition in bankruptcy, is no notice to a crédito^ of Lazarus, or of Lazarus and

Wolff. Again, the provision for sending notices by mail or otherwise, to creditors named in the schedules, could be of no avail to creditors of Lazarus, because no such debts or creditors were set out or named. The plaintiff and other creditors of Lazarus were therefore absolutely and necessarily deprived of the benefit of all the provisions for notice prescribed by the act.

IY. Even in the ordinary case, where there has been no change of name, the weight of authority is to the effect, that an intentional or fraudulent omission of a debt, invalidates the discharge as to that debt so omitted, and that the creditor can avail himself of it in reply to the discharge when pleaded (Bump on Bankr. 731; Batchelder v. Low, 43 Vt. 662 ; Beardsley v. Hall, 36 Conn. 270 ; Alcott v. Avery, 1 Bart. Ch. 347; Hubbel v. Camp, 11 Paige, 310; 1 Denio, 75 , 332, 619).

y. We come therefore to the inquiry, whether, when a discharge is pleaded as a bar to a debt, the creditor has- a right to set up, in reply to it, its invalidity as against his debt—especially when in a case where he has not, and never has had an opportunity to contest in the bankruptcy court. The plaintiff is.not'precluded by section 5130 of the bankrupt act, or by any provision of that act, or by any principle of law, from contesting the discharge as a bar to his action in this court, where it is set up and pleaded as a bar to the action. First. He is not precluded by section 5130. This section does not, and from the nature of the case cannot, apply to creditors, not in any way made parties to the proceeding, and who have had no notice (Bump on Bankr. [8th Ed.] 756; Barnes v. Moore, 2 B. R. 573 ; Bump on Bankr. 729, 273). It is clear that the plaintiff cannot be precluded by the provisions of that section. 1. Because the grounds upon which the plaintiff relies to resist the discharge as a bar to his action,—i. e., the proceeding under a new name, and the fraudulent deprivation of all notice of

the proceedings,—are not among the grounds specified in the act, upon which to apply to annul the discharge in the United States court (See § 5110 of the act). 2. The time within which the application to annul the discharge could be made (two years from the date of it), had expired years before plaintiff had any notice of the change of name or of any bankruptcy proceedings. 3. What plaintiff complains of, is not a ground for annulling the discharge. He does not dispute the validity of the discharge as against debts contracted under the name of Lawrence. But he claims that the discharge is of no validity or effect against his debt. That as against him and other creditors of Lazarus, there has been no legal proceeding in bankruptcy, whatever. There is no provision in the bankrupt act for raising that question in the bankruptcy court. It can only be raised and decided where the discharge is pleaded (Bump on Bank. [8th Ed.] 729, 273; In re Kimball, 2 B. R. 204 ; Same case, 2 Ben. 554 ; affirmed on appeal, 6 Blatchf. 292 ; In re Rosenberg, 2 B. R. 236 ; S. C., 3 Ben. 14 ; In re Wright, 2 B. R. 142 ; S. C., 36 How. Pr. 167 ; S. C., 2 Ben. 509 ; Batchelder v. Low, 43 Vt. 662 ; Beardsley v. Hall, 36 Conn. 270 . See also Knobe v. Hayes, 71 N. C. 109 ; Perkins v. Gray, 3 B. R. 772 ; Bames v. Moore, 2 Id. 573; Hays v. Blore, 14 Mees. & Weis. 387). But this is a very different case from any reported. If the plaintiff cannot be heard in opposition to the discharge, here, where it is pleaded, he has been deprived of his debt without any opportunity for a hearing, either before the discharge, or afterwards. Second. He is not precluded by the provision of the bankrupt act, that the discharge may be pleaded as a complete bar against all debts, that were proved or provable (Act, § 5119). But that does not mean that when pleaded as a bar, it must necessarily be adjudged to be a bar. The question whether it is valid as a bar against the

creditor’s debt, is to be determined upon the plea. The section referred to means no more than this. The discharge may be pleaded as a complete bar of the debt sued upon ; but if it can be shown not to cover or apply to the plaintiff’s debt, the court must so determine upon the plea (Bump, 729; 2 B. R. 204 ; 2 Ben. 554 ; Dusenbury v. Hoyt, 53 N. Y. 521 , and cases cited above).

VI. The question whether the State court is precluded from adjudicating upon the main question raised in this case, is much more than covered by a recent decision of the supreme court of the United States, in which it is held, that the common law jurisdiction of the State courts, in matters growing out of bankruptcy proceedings, is not abrogated or divested, except where the jurisdiction of the United States court is expressly made exclusive by the act (Claflin v. Houseman, 93 U. S. 130 . See also Cook v. Whipple, 55 N. Y. 150 ).

VII. The case of the Ocean Bank v. Olcott ( 46 N. Y. 12 ) does not conflict with any position taken by the plaintiff in this case. In that case the plaintiff insisted that the discharge of the bankrupt was void, by reason of a fraudulent transfer of property to his wife before the bankruptcy proceedings. Ho thing else was set up against the validity of the discharge. He was a party to the proceedings in bankruptcy, and had made an application in the United States court, which was then pending and undetermined, to annul the discharge upon the very same ground. Under such circumstances the pourt held, of course, that the question could not be raised in the State court, as it would or might result in a conflict of jurisdiction. In that case, the ground of disputing the validity of the discharge was a ground upon which to contest the granting of the discharge, or to move to annul it, and the plaintiff had actually resorted to that course. There is a de

cisión in Massachusetts and another in Kentucky, that the fraudulent omission of a debt from the schedules does not invalidate the discharge as to that creditor’s debt ( 117 Mass. 17 ; 10 Bush, 400 ); but those decisions are against the whole current of authority, against principle and good morals. But if admitted to be law, they are no authority for this case. In those cases there was no change of name, nor a failure to discover the bankruptcy proceedings until after all opportunity for redress in the United States courts was gone.

VIII. The bankruptcy proceeding in this case was not a proceeding involving the partnership of Lazarus and Wolff, and a discharge upon his individual petition does not discharge a partnership debt (Bump on Bankruptcy, 732, 762; Hudgins v. Lane, 11 N. B. R. 462 ; In re Noonan, 10 Id. 330; 2 Id. 78). It has frequently been so decided by Judge Blatci-ieoed.

IX. The discharge is void for want of jurisdiction. To give jurisdiction, the bankrupt must have resided within the jurisdiction of the court, for a length of time before his application. In the reply to the answer of Mrs. Lawrence, plaintiff denies, and takes issue upon that question. In the reply to the answer of the defendant, Charles L. Lawrence, plaintiff makes the same issue of fact. The fact of residence within the district is jurisdictional (Bump, 731, 749; In re Penn, 3 N. B. R. 582 ; 4 Ben. 99 ; In re Goodfellow, 3 N. B. R. 452 ; Johnson v. Ball, 15 N. H. 407 ; Morrison v. Woolson, 23 N. H. 11 ; McCormick v. Pickering, 4 N. Y. 276 ; 24 Barb. 649 ; 68 Id. 416).

X. The discharge is a personal privilege. No one but the debtor can set it up. Mrs. Lawrence could not plead it (Dewey v. Mayer, 16 N. B. R. 1 ; Bennett v. Caswell, 7 Gray, 153 ).

—I. The discharge in bankruptcy extin

guished the debt which is the foundation of this action, and when this action was commenced the plaintiff was not a creditor within the meaning of the statute of uses and trusts (Ocean National Bank v. Olcott, 46 N. Y. 12 ).

II. The discharge in bankruptcy cannot be impeached in this court on the ground that it-was improperly granted. The validity of the discharge can only be attacked in the Federal court, and that in the manner prescribed by section 5120 of the bankrupt act. The jurisdiction of the Federal court for that purpose is exclusive (Ocean National Bank v. Olcott, 46 N. Y. 12 ; Stern v. Nussbaum, 5 Daly, 382 ; Stevens v. Brown, 11 N. B. R. 568 ; Black v. Blazo, 117 Mass. 17 ; 13 N. B. R. 195 ; Corey v. Ripley, 4 Id. 503; May v. House, 4 Id. 677).

III. The facts that the plaintiff’s judgment was not mentioned in the bankruptcy schedules, and that neither the plaintiff nor his assignors had any notice of the proceedings, are immaterial. The discharge, nevertheless, is a defense (Stern v. Nussbaum, 5 Daly, 382 ; In re Archenbrown, 11 N. B. R. 149 ; Black v. Blazo, 117 Mass. 17 ; 13 N. B. R. 195 ; Thurmond v. Andrews, 10 Bush, 400 ; 13 N. B. R. 157 ; Lamby v. Brown, 12 Id. 522).

IV. The fact that the debt was a partnership debt, and the bankruptcy petition an individual petition, is immaterial. Under some of the authorities that fact might be material, if it was also alleged, which it is not, that the copartnership was in actual existence, and that there were assets belonging to the firm (In re Winkins, 2 N. B. R. 349 ; In re Little, 1 Id. 341; In re Abbe, 2 Id. 75; Wilkins v. Davis, Id. Feb. 15, 1877, p. 60).

V. The plaintiff’s judgment was provable in the bankruptcy proceedings, even though it was a partner

ship debt-, and the petition was an individual petition (In re Frear, 1 N. B. R. 660 ).

VI. The allegation in the replies, ühab the name was changed with the fraudulent intent to procure a discharge in bankruptcy, is shown to be erroneous by the fact that the name was changed in 1865, while the bankrupt act was not passed for two years afterwards.