VAN DENBURGH v. GOODFELLOW ET AL (1941)

Plaintiff appeals from an order, and from the judgment subsequently entered, recalling, annulling and dissolving a writ of execution; ordering the sheriff to release all property held by him under the writ of execution; enjoining plaintiffs from securing any further writ of execution, or from attempting to enforce a judgment against defendants. The basis of the trial court's decision was that the judgment secured by plaintiff against defendants, upon which the execution was predicated, had been released by the discharge of the defendants in bankruptcy proceedings instituted by them.

The facts are as follows: Plaintiff, as administrator of the estate of Mrs. Arthur J. Clark, secured a judgment against the two defendants on a note secured by a mortgage. The mortgaged premises were thereafter on September 10, 1935, sold, and a deficiency entered against the two defendants in the sum of $9,274.37, with interest. On May 3, 1937, plaintiff secured a writ of execution and levied on a safety deposit box and a checking account in the name of Walter V. Goodfellow. The money in the banking account represented earnings of Walter V. Goodfellow earned since the discharge in bankruptcy. Thereafter, the defendants moved to recall the execution and to restrain future executions, on the ground that the judgment was discharged by bankruptcy decrees secured by them. On the hearing of this motion the following material facts were developed: On September 23, 1936, the two judgment debtors, the defendants, filed petitions in bankruptcy in the federal District Court, and on the same day were adjudicated bankrupts. A referee was appointed and the first meeting of creditors was held on October 13, 1936. Because of the manner in which the judgment of plaintiff was listed by the bankrupts in their schedule of debts, the plaintiff had no notice of the bankruptcy proceedings until April 8, 1937. On May 24, 1937, the plaintiff filed in the Walter V. Goodfellow bankruptcy proceeding a petition for leave to file a claim based on the deficiency judgment above–mentioned. Thereafter, the referee granted plaintiff permission to file a claim in the Walter V. Goodfellow proceeding and such a claim was actually filed. At the time this claim was filed no distribution of any portion of that bankrupt's assets had been had. Both defendants were finally discharged as bankrupts on June 7, 1937. The question presented is whether the judgment here involved was discharged, as held by the trial court.

The two bankrupts listed the judgment in the schedule of debts attached to each bankruptcy petition. Under the caption “Creditors Whose Claims Are Unsecured” in each petition there was listed “Harry G. Van Denburgh, Admr. of Estate of Mrs. Arthur J. Clark, deficiency on foreclosure judgment and sale in case of Harry G. Van Denburgh, Admr., etc., v. Walter V. Goodfellow, et al., Superior Court, Los Angeles County, Cal., No. 387,406 ․ $20,000.00”. The same indebtedness was also listed in each petition under the caption “Creditors Holding Securities” as follows: “Mrs. Arthur J. Clark, deceased, care of Harry G. Van Denburgh, 1010 Title Guarantee Building, Los Angeles ․ $26,000.00”. Underneath this listing in each petition appeared full information concerning the foreclosure and the amount of the deficiency judgment. It is to be noted that the only address given for the creditor is “Mrs. Arthur J. Clark, deceased, care of Harry G. Van Denburgh, 1010 Title Guarantee Building, Los Angeles.” Van Denburgh neither resided nor had an office at that address. He resided elsewhere in Los Angeles and his name and proper address appeared in the Los Angeles telephone book and in the city directory. The evidence also shows that Van Denburgh's attorneys in the matter of the estate of Mrs. Clark had offices on the tenth floor of the Title Insurance Company building in Los Angeles, but not in room 1010. Their address was either 1019, 1020 or 1022––the record being somewhat confusing on this point. It is to be noted that in the schedule the names of the attorneys are not given. The result was that Van Denburgh received no notice of either bankruptcy proceeding, the notices mailed to him by the referee at the address given in the schedules being returned undelivered. The evidence shows also that the Goodfellows had no intent of deceiving the plaintiff. They appeared at the first meeting of their respective creditors, and made full disclosure of the existence of the debt in question.

There can be no doubt that the judgment was not duly scheduled as required by the Bankruptcy Act, and that therefore, prima facie, the judgment was not discharged. The bankruptcy act is to be found in Title 11 of the U.S.C.A. Section 25 of the act as amended in 1926 provides for the duties of the petitioning bankrupt. Among other things it is therein provided that he must “prepare, make oath to, and file in court within ten days after adjudication, if an involuntary bankrupt, and within ten days after the filing of a petition, if a voluntary bankrupt (unless in either case further time is granted), a schedule of his property * * * and a list of his creditors showing their residence, if known; if unknown, that fact to be stated * * *”. (Emphasis added.) Section 35 lists the debts not affected by the discharge. It provides in part that, “A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as * * * (third) have not been duly scheduled in time for proof and allowance, with the name of the creditor, if known to the bankrupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy * * *”.

Inasmuch as the debt was not properly scheduled under § 25, supra, under § 35, supra, it was not affected by the discharge in bankruptcy, unless the subsequent filing of the claim cured the defect. Brown v. Tropp, 106 Cal.App. 605, 289 P. 648; Birkett v. Columbia Bank, 195 U.S. 345, 25 S.Ct. 38, 49 L.Ed. 231; Marshall v. English–American Loan & Trust Co., 127 Ga. 376, 56 S.E. 449; In re Quackenbush, 122 App.Div. 456, 106 N.Y.S. 773; Horbach v. Arkell, 172 App.Div. 566, 158 N.Y.S. 842; Haack v. Theise, 51 Misc. 3, 99 N.Y.S. 905. Since no claim was filed in the Mrs. Goodfellow proceeding in so far as the trial court held that the judgment against her was discharged, the court was clearly in error.

But a different situation exists as to Walter V. Goodfellow. Van Denburgh secured actual notice of the bankruptcy proceedings on April 8, 1937. This was before the discharge of the bankrupts. Van Denburgh, after securing such notice, could have elected not to ask for permission to file a claim. If he had done so, the judgment would not have been barred by the discharge even though he had actual notice in time to file a claim. That was the precise point decided in Brown v. Tropp, and Birkett v. Columbia Bank, supra. But Van Denburgh did not elect to do this. He asked for permission to file a claim, which permission was granted. At that time no dividends had been paid. The only material rights that the creditor had lost by reason of the delay was the right to vote for the trustee, and other rights incidental to the administration of the estate.

There is a complete lack of controlling authority on the legal effect of filing a claim under such circumstances. There is some conflict in the dicta in the various cases. It is our opinion that the better reasoning supports the following rules:

(1) Where the debt is improperly scheduled, and the creditor does not have knowledge of the proceedings in time to attend the first meeting of the creditors, the fact that he obtains actual knowledge of the proceedings before the time of the discharge will not bar the creditor if he does not seek and secure permission to file a claim. Brown v. Tropp, supra, and Birkett v. Columbia Bank, supra.

(2) Where the debt is of the type that because of its inherent nature it is not discharged by the bankruptcy proceedings, the mere fact the creditor obtains actual knowledge in time to file a claim and such a claim is filed, will not bar the creditor from later claiming the debt is not discharged. Section 35, supra, in addition to listing improperly scheduled debts, lists many other types of provable debts that are not barred by the discharge. Thus, taxes levied by the United States, or by the state, county, district or municipality in which the bankrupt resides, liabilities for obtaining property by false pretenses or false representations, or for willful and malicious injuries to person or property, or for alimony or maintenance of wife or child, or for seduction, or for breach of promise accompanied by seduction, or liabilities created by the bankrupt's fraud, embezzlement or misappropriation while acting as an officer or in any fiduciary capacity, or liabilities for wages of a designated type or for moneys of an employee held by the bankrupt to secure the faithful performance of the terms of employment are not barred by the discharge. As to all these debts it will be noted there is no statutory exception. The Congress has determined that these debts, because of their inherent nature, shall not be barred by a bankruptcy proceeding. Accordingly, the courts have quite uniformly held that the mere fact the creditor files a claim, and participates in dividends, will not bar him from later enforcing the debt. Friend v. Talcott, 228 U.S. 27, 33 S.Ct. 505, 57 L.Ed. 718, a fraud case; Allard v. La Plain, 147 Wash. 497, 266 P. 688, a claim for alienation of affections; see, also, Meyer v. Price, 250 N.Y. 370, 165 N.E. 814.

(3) The above rule, however, does not apply to a debt of such a nature that if properly scheduled it would be barred, and the sole ground of claiming it is not barred is that it was improperly scheduled. In such a case, if the creditor secures knowledge before the discharge and then elects to file a claim, the bankruptcy proceedings should be a bar to the collection of the debt. The cases generally discussing the problem are collected and discussed in annotations appearing in Ann.Cas.1912A, p. 547; 10 Ann.Cas. 742.

The only argument that has been advanced as to why the creditor, in such a case, should not be barred when he files a claim after securing knowledge, is that, since the debt was improperly scheduled, no notice was received in time to vote for the trustee and otherwise participate in the administration of the bankruptcy proceedings. Where, as here, the failure to properly schedule the debt was not the result of an intentional attempt to mislead the creditor, and where the creditor filed a claim in time to participate in all dividends, so that he will ultimately receive the same amount as all creditors whose claims were properly scheduled, and where the creditor will receive exactly the same amount he would have received had the debt been properly scheduled, it would seem to be a very technical rule to hold that the debtor is barred from relief simply because the creditor did not have a chance to vote for the trustee. It is our view that, so far as an improperly scheduled debt is concerned, if the creditor gets knowledge of the proceedings before the discharge, and elects to seek relief in the bankruptcy proceeding by requesting permission to file a claim, and such claim is filed, he has elected his remedy, and the discharge releases the debt. It should also be pointed out that it is admitted in the briefs that not only did plaintiff file a claim in the Walter V. Goodfellow proceeding, but he also participated with the other creditors in dividends.

Appellant contends it was error for the trial court to award costs in this proceeding. We think costs were properly allowed in the discretion of the court. Section 1032, Code of Civil Procedure.

As already pointed out, the judgment and the order appealed from not only quashed the execution, but declared the judgment against both defendants had been released by the discharge in bankruptcy, and permanently enjoined the plaintiff from attempting to enforce his judgment against either defendant. It is quite clear, for reasons already stated, that the judgment and order, in so far as they apply to defendant Elizabeth B. Goodfellow, were erroneous and should be and they are hereby reversed. But as to Walter V. Goodfellow the judgment was released by the discharge in bankruptcy, and the order and judgment of the trial court as to him should be and hereby are affirmed. Both sides should bear their own costs on this appeal.

PETERS, Presiding Justice.

We concur: KNIGHT, J.; WARD, J.