Johnson v. Fountain

CoNNOR, J. In Williams v. U. S. Fid. & Guar. Co., 236 U. S., 549, 59 L. Ed., 713, it is said: “It is tbe purpose of tbe bankrupt act to convert tbe assets of tbe bankrupt into cask for distribution among creditors, and tben to relieve an bonest debtor from tbe weight of oppressive indebtedness, and permit bim to start afresb free from obligations and responsibilities consequent upon business misfortunes.” Tbe provisions of tbe bankrupt act, enacted by Congress as authorized -by the Constitution of tbe United States, are just to creditors, and are founded upon a wise public policy. They assure each creditor that tbe assets of bis insolvent debtor will be equitably distributed among all bis creditors. They relieve an bonest debtor of liability for debts which be has no hope of paying and after bis discharge, enable bim to perform bis duties as a member of society, free from embarrassments which would destroy bis self-confidence and deprive bim of all hope of economic independence. In tbe instant case, there is no suggestion on tbe record that tbe creditors of Y. E. Fountain, bankrupt, who proved their claims against bis estate in bankruptcy, have not received, or that said bankrupt was not entitled to all tbe relief afforded by tbe .just and wise provisions of tbe bankruptcy act. It is provided, in section 35 of tbe bankruptcy act that “discharge in bankruptcy shall release a bankrupt from all bis. provable debts,” except such as are specified therein, including such as “have not been fully scheduled in time for proof and allowance, witb tbe name of tbe creditor, if known to tbe bankrupt, unless such .creditor bad notice or actual knowledge of tbe proceedings in bankruptcy.” Tbe note sued on in this action was a provable debt of tbe defendant, Y. E. Fountain, at tbe date of tbe filing of tbe petition by which tbe proceedings in which be was adjudged a bankrupt were instituted. This debt was not listed in tbe schedule filed by tbe bankrupt in time for its proof and allowance as a claim against bis estate. Tbe said defendant was not, therefore, released from liability on tbe note by bis discharge, unless, as alleged by bim, bis creditor bad notice or actual knowledge of tbe proceedings in bankruptcy against bim. Tbe uncontradicted evidence at tbe trial tended to show that tbe plaintiff, who was tbe creditor of tbe bankrupt, witb respect to the [395] note set out in the complaint, bad actual knowledge of tbe bankruptcy proceeding within ten days after the filing of the petition, and that he did not prove or file his claim on account of the note. It is further provided in the bankrupt act that “whenever a creditor whose claim is secured by the individual undertaking of any person fails to prove such claim, such person may do so in the creditor’s name, and if he discharge such undertaking in whole or in part, he shall be subrogated to that extent to the rights of the creditor.” Section 93 (i). Accordingly, it has been held that a claim provable under this provision, but not proved, is barred by the bankrupt’s discharge. Smith v. Wheeler, 55 App. Div., 170, 66 N. Y. S., 780. All the evidence at the trial tends to show that the defendant, Mrs. Sue Fountain, administratrix, had notice or actual knowledge of the bankruptcy proceedings against the defendant, Y. E. Fountain, some time during the month of January, 1927. The defendant was adjudged a bankrupt on 14 December, 1926. As a creditor or other person entitled to prove a claim against the estate of a bankrupt has six months from the date of the adjudication within which to prove and file his claim, the said defendant had ample time, after she first knew that Y. E. Fountain was in bankruptcy, to prove and file a claim on the note sued on in this action. There was error in the refusal of the court to instruct the jury as requested by the defendant, Y. E. Fountain, that if they believed all the evidence in this case, they should answer the second issue, “Yes.” It follows that there was error in the instructions of the court to the jury which the defendant, Y. E. Fountain, assigns as error in this appeal. The testimony of Mrs. Sue Fountain, administratrix, as to her conversation with the defendant, Y. E. Fountain, during the summer of 1927 — possibly in June — in which he told her that he had not listed the note sued on in this action in the schedule of his debts filed in the bankruptcy proceeding, and that he did not want her to file a claim on the note, was incompetent as evidence, and should have been excluded. This testimony was offered, manifestly, for the purpose of supporting a contention that the defendant, Y. E. Fountain, was estopped from pleading his discharge in bankruptcy as a bar to.a recovery against him in this action. It is sufficient to say that no issue as to such estoppel is raised by the pleadings. Nor was evidence tending to show an estoppel relevant to the matters involved in the second issue, which alone was submitted to the jury. For errors in the trial of the action the defendant, Y. E. Fountain, is entitled to a New trial.