Brown v. Causey

Walker, P. J. Com. App.— Proceedings in bankruptcy, under the bankrupt law lately in force, for the .sake of uniformity were exclusively within the jurisdiction of the United States district court; and the act of congress regulating the same was enforceable alone under federal judicial jurisdiction, and subject exclusively to the interpretation of those courts having cognizance of the subject matter. The discharge from debts which is contemplated by the bankrupt law is of conclusive force and effect until the same shall be impeached and set aside in the mode, and subject to the provisions, contemplated' by and provided for by the bankrupt law itself. That law contemplates that for such causes as it deems adequate for the purpose, and within the time which that law prescribes, all persons who may be entitled to attack or impeach the integrity or validity of the proceedings in bankruptcy, and the discharge under them, may do so in the forum where said proceedings have been had. Failing to do so, however, within the time prescribed, the remedy thus saved to those that may have been injuriously affected fraudulently or otherwise, or by irregularities in the proceedings in bankruptcy, will have been lost to such parties, and the discharge granted to the bankrupt cannot be collaterially impeached in the state courts; the discharge will be a conclusive defense against debts which are embraced within the scope óf the bankrupt proceedings. See Bump on Bankruptcy, 9th ed., 285, 286. “The necessity of meeting and contesting them (facts [343] which warrant a discharge) in every court in which the discharge may be pleaded is a hardship that congress never intended to impose upon the bankrupt, and is, moreover, so flagrantly unjust and contrary to all the ordinary principles of jurisprudence, that nothing but the plainest and most imperative terms of the statute could justify or warrant such a construction.” Bump on Bankruptcy, 9th ed., p. 286; citing Corey v. Ripley, 4 Bank. Reg., p. 502; S. C., 57 Me., 69; Oates v. Parish, 47 Ala., 157; Bachelder v. Low, 8 Bank. Reg., 571; S. C., 43 Vt., 662; Ocean Nat’l Bank v. Olcott, 46 N. Y., 12; Parker v. Atwood, 51 N. H., 181; Way v. Howe, 4 Bank. Reg., 677; S. C., 108 Mass., 502; Alston v. Robinett, 9 Bank. Reg., 74; S. C., 37 Tex., 56; Hudson v. Bingham, 8 Bank. Reg., 494; S. C., 6 L. T. B., 326; Dusenbury v. Hoyt, 10 Bank. Reg., 313; S. C., 14 Abb. Prac. (N. S.), 132; S. C., 53 N. Y., 521; S. C., 36 N. Y. Sup. Ct., 94; Reed v. Bullington, 11 Bank. Reg., 408; S. C., 49 Miss., 223; Stephens v. Brown, 11 Bank. Reg., 568; S. C., 49 Miss., 5.97; contra, Perkins v. Gay, 3 Bank. Reg., 772; S. C., 1 L. T. B., 221; Beardsley v. Hall, 36 Conn., 270. Whilst the. bankrupt law contained specific directions requiring all debts to be scheduled, and notice by mail to be given to the supposed creditors, it does not follow therefore that the actual service of such notices or the actual scheduling of a debt constituted jurisdictional elements upon which depended the power of the court to proceed, and by its action bind and conclude all creditors, notwithstanding the irregularities which may have existed as to scheduling all the debts, or giving personal notice to all the creditors. The bankrupt act contemplated other notices of the bankrupt proceedings than the mere speculative chances, as it often would in fact be, of reaching all creditors, by transmitting to them by mail the notice above alluded to, depending as it often would upon dubious information as [344] to where such persons might be found, if their places of residence could indeed be ascertained at all. The law contemplated (see sec. 11) “that on the filing of the petition for bankruptcy, the judge or register should issue a warrant authorizing the marshal to publish notices in newspapers, according to the form contemplated by the act of congress, giving full notice to all creditors and others interested in the proceedings had and to be had relating to said proceedings in bankruptcy.” (See form So. 6, which is made a part of the bankrupt law by the act itself.) Section 11 provided not only for this newspaper publication, but authorized the judge or register to direct written or printed notices to be sent by mail, or personally served on all creditors upon the schedule filed with the debtor’s petition. Other public notices, under varying necessities for the proper administration of the bankrupt’s estate, are provided for by the bankrupt act, down to the final act of settlement of the estate and the discharge of the bankrupt from his debts. The proceedings are in rem,— operating upon all of the estate of the bankrupt under a general law, and in a court of general and exclusive jurisdiction. Of the beginning, progress and final end of proceedings of this character — similar to those of probate jurisdiction,—it has been held that jurisdiction over the subject matter so fully attaches after publication and advertisement of notice of the pendency of such proceedings in bankruptcy, that the world must take notice at its peril of that which is adjudicated by the court. “The proceedings in bankruptcy are in no just sense ex parte in their character for notices required to be given to the creditors, either personally or by publication.” Lathrop v. Stewart, 5 McLean, 167. “After the public notice required by the statute has been given, creditors must be treated as having notice of [345] the proceedings.” Smith v. Brinkerhoff, 6 N. Y., 305; S. C., 8 Barb., 519. It was held in Shawhan v. Wherritt, 7 How. (U. S.), 643, under the bankrupt act of 1841, “that the public notice required by the act having been given, the creditors must be treated as having notice of the proceedings, and an opportunity to make their objections to them, and having neglected or refused so to do, they ought not to be allowed to impeach them collaterally, as they are in the nature of a proceeding in rem, before a court of record having jurisdiction.” It was decided in Blum v. Ricks, 39 Tex., 112, that a bankrupt can plead his discharge in bankruptcy in bar of an action against him by a creditor whose debt had not been scheduled, and who had not been served with notice from the bankrupt court, which case is of course decisive of the question presented by this appeal, if it might be looked to as an authoritative precedent. The brief of-counsel for defendant in error refers us to the case of Black v. Blago, 117 Mass., 17, as deciding the same point as it was held in Blum v. Ricks, supra. The volume referred to is inaccessible to us at present. These views and authorities it is believed are sufficient to rest an affirmance of the judgment of the court below; nevertheless a brief and cursory reference may be made to that portion of the plaintiffs’ replication which charges a willful and fraudulent concealment of material matters, specified in said pleas, with intent to defraud the plaintiffs. This charge does not vary, we conceive, the result as to this plea. The bankrupt law of 1841, as was correctly remarked in Alston v. Robinett, 37 Tex., 58, did not confer upon any particular court the power to impeach a discharge in bankruptcy; but the act of 1867, under which the proceedings in this case were had, does in terms confer the power on the federal court. The opinion in Alston v. Robinett, supra, points to a line [346] of decisions indicating the construction given to the act of 1841 to be, that because there was no reservation in the act conferring upon the federal court a power to set aside, impeach or withhold a decree of discharge on account of fraud, that therefore such power was possessed and might be exercised in a state court. But the opinion decides upon the authority of 'other cases which are cited, that under the act of 1867, which, as has been seen, in terms confers the power on the United States district court to withhold a discharge for fraud, or if granted to invalidate the same for fraud, that a bankrupt’s discharge cannot be impeached in a state court for any of the causes which would have prevented the United States district court from granting the discharge. [Opinion delivered March 6, 1882.] The ground of fraud complained of by the plaintiffs is, we think, fully embraced in section 29 of the act of 1867, giving to the federal court jurisdiction to set aside a discharge obtained under circumstances of fraud such as are imputed to the defendant in plaintiffs’ replication; — for example, among other things it is provided in said section as follows, to wit: “No discharge shall be granted, or if granted be valid, if the bankrupt has willfully sworn falsely in his affidavit annexed to his petition, schedule or inventory, or upon any examination in the course of the proceedings in bankruptcy, in relation to any material fact concerning his estate ■ or his debts, or to any other material fact; , . . or if he has given any fraudulent preference contrary to the provisions of this act.” We are of opinion, therefore, that the court did not err in holding that the defendant’s discharge could not be impeached in this suit on account of the afieged fraud set up by the plaintiffs. Upon the whole case we conclude that the judgment ought to be in all things affirmed. Affirmed.