Hibbard v. Henderson

Mr. Chief Justice Moore, after stating the facts in the foregoing terms, delivered the opinion of the court. The question brought up for review is whether a judgment creditor of a bankrupt can, after the latter’s discharge, levy on and sell his property because of the fraud practiced in securing such release. Congress is authorized to establish uniform laws on the subject of bankruptcies throughout the United States: Constitution United States, Art. I, § 8. And in exercising the power thus conferred, the federal courts have been clothed with exclusive jurisdiction of all proceedings in bankruptcy, as distinguished from independent actions at law or suits in equity : Bardes v. Hawarden Bank, 178 U. S. 524 (20 Sup. Ct. 1000). Section 17 of the act of Congress of July 1,1898, c. 541, 30 Stat. U. S. 544, 550 (U. S. Comp. St. 1901, p. 3428), provides, in effect, that a discharge in bankruptcy shall release the bankrupt from all provable debt, except (1) taxes; (2) judgments in actions for fraud; (3) claims that have not been duly scheduled in time for proof and allowance ; or (4) debts created by fraud or defalcations while acting in a fiduciary capacity.* The debts so excepted may be recovered in an [321] action instituted for that purpose against the bankrupt after his discharge : 5 Cyc. 404. Thus, in Columbia Bank v. Birkett, 73 N. Y. Supp. 704 (36 Misc. Rep. 391), a voluntary bankrupt scheduled a note in the name of the payee, knowing at the time that it had been discounted; and, the bank to which the note was assigned having no notice or actual knowledge of the proceedings, it was held that the discharge afforded no immunity to the bankrupt, who was liable in an action instituted to recover on the note. To the same effect, see Sutherland v. Lasher, 84 N. Y. Supp. 56 (41 Misc. Rep. 249); Santa Rosa Bank v. White, 139 Cal. 703 (73 Pac. 577). In Schreck v. Hanlon, (Neb.) 92 N. W. 625, it was held that the trustee in bankruptcy might maintain a suit to sot aside a conveyance made by the bankrupt at any time within two years after the estate was closed, provided the suit was not barred by the laws of the State at the time the petition in bankruptcy was filed, the court saying: “As the trustee alone could maintain an action to reach property fraudulently conveyed by the bankrupt, we are clearly of the opinion that the statute of limitation was not a defense available to the defendants, as by section 11 of the bankrupt act (U. S. Comp. St. 1901, p. 3426*) the trustee has two years in which to commence the action.” See, also, Sheldon v. Parker, (Neb.) 92 N. W. 923. In Barnes Mfg. Co. v. Norden, 67 N. J. Law, 493 (51 Atl. 454), it was held that, after a debtor had secured a discharge in bankruptcy, his creditor could not use a judgment not exempt from the operation of a discharge in bankruptcy under section 17 of the United States bankrupt act of July 1, 1898, to set aside as fraudulent a conveyance made by the debtor of his property, the court saying: “The company further insists that, because of its bill in equity, and the allegations there made, [322] it has obtained a right outside of the bankrupt act, which should be enforced for its benefit, and cannot be enforced except by itself. But section 70, cl. ‘ e,’ 30 Stat. 566* (U. S. Comp. St. 1901, p. 3452), of the bankrupt act, answers this contention by providing that the trustee in bankruptcy may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, etc. This provision is inconsistent with the continuance in the creditor of the right to avoid the transfer and avail himself of the property, and prevents his exercise of the right by transferring it to the trustee.” In Falco v. Kaupisch Creamery Co. 42 Or. 422 (70 Pac. 286), it was held that the trustee in bankruptcy, under the act of Congress of July 1, 1898, was the only person who could sue to recover unpaid stock subscriptions from the stockholders of an Oregon corporation. In Bilafsky v. Abraham, 183 Mass. 401 (67 N. E. 318), it was held by the Supreme Court of Massachusetts that, after the expiration of two years from the settlement of a bankrupt’s estate, the administration might be reopened on petition showing that certain solvent claims had not been collected by the trustee, who was authorized to maintain an action in the state court to recover such claims, which were not barred by section 11 of the bankruptcy act of July 1, 1898, providing that suits shall not be brought by or against a bankrupt’s trustee subsequent to two years after the estate has been closed. This latter case is cited to show that, notwithstanding more than two years have elapsed since plaintiff secured his discharge in bankruptcy, if the release from his indebtedness was procured by the practice of fraud, which usually vitiates all proceedings, it would appear that the assignee of the judgment is not wholly [323] remediless, but that, by moving in the district court of the district of Oregon to reopen the administration of the bankrupt’s estate, a trustee could be appointed, who would be authorized to maintain a suit to determine the bona fides of plaintiff’s conveyance of the lots and blocks in question to O. C. Hibbard. AVhether the federal court would follow the rule so announced in Massachusetts it is not necessary to inquire, but, believing, as we do, that the defendants cannot interpose the defense relied on, no error was committed in sustaining the demurrer, or in rendering the decree complained of, which is affirmed. Affirmed. Footnotes [*] 1 Fed. Stat. Ann. p. 578. [*] 1 Fed. Stat. Ann. pp. 563, 565, § 11, d. [*] 1 Fed. Stat. Ann. p. 702.