Actual knowledge of the proceedings contemplated by section 17
of the Bankruptcy Act is a knowledge in time to avail a creditor of
the benefits of the law and to give him an equal opportunity with
other creditors, and not a knowledge that may come so late as to
deprive him of participation in the administration of the affairs
of the estate or to deprive him of dividends.
This is an action on a promissory note for $750. The defense is
discharge in bankruptcy. The making of the note
Page 195 U. S. 346
was admitted, and the only question presented is the effect of
the discharge.
The facts as found by the court are: plaintiff in error and one
Calvin Russell, who died before the commencement of this action,
were partners, doing business under the name of Russell &
Birkett, and in that name made and delivered to the Manhattan
Railway Advertising Company a promissory note for $750. The latter
company indorsed the note to defendant in error, of which Russell
& Birkett had knowledge before its maturity. On the April 13,
1899, the firm of Russell & Birkett and plaintiff in error,
upon their own petition, were adjudicated bankrupts in the United
States District Court for the Northern District of New York, and
were discharged September 12, 1899. The claim of defendant in error
was not scheduled, either as a debt of the firm or of plaintiff in
error, in time for proof and allowance with the name of the
defendant in error, though defendant in error was known, at the
time of filing the schedules, to be the owner and holder thereof by
plaintiff in error, and that defendant in error had no notice or
actual knowledge or other knowledge of the proceedings in
bankruptcy prior to the discharge of the bankrupts. No notice of
the proceedings in bankruptcy was at any time given to defendant in
error by or by the direction of the bankrupts or either of them. It
was decided that the claim of defendant in error was not barred by
the discharge in bankruptcy, and judgment was directed for
defendant in error.
Page 195 U. S. 349
MR. JUSTICE McKENNA delivered the opinion of the Court.
The judgment was successively confirmed by the appellate
division of the supreme court and the Court of Appeals. 174 N.Y.
112. Thereupon judgment was entered in the supreme court in
accordance with the direction of the court of appeals. This writ of
error was then sued out.
Section 7 of the Bankrupt Law of 1898 devolves a number of
duties upon the bankrupt, all directed to the purpose of a full and
unreserved exposition of his affairs, property, and creditors.
Among his duties, he is required to
"prepare, make oath to, and file in court, within ten days . . .
a schedule of his property showing the amount and kind of property,
the location thereof, its money value in detail, and a list of his
creditors, showing their residences, if known; if unknown, that
fact to be stated, the amounts due each of them, the consideration
thereof, the security held by them, if any, and a claim for such
exemptions as he may be entitled to, all in triplicate, one copy of
each for the clerk, one for the referee, and one for the trustee. .
. ."
To the neglect of this duty the law attaches a punitive
consequence. Section 17 provides:
"A discharge in bankruptcy shall release a bankrupt from all of
his provable debts, except such . . . 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. . . ."
But plaintiff in error urges that defendant in error did have
actual knowledge of the proceedings in bankruptcy, and that
Congress contemplated that there might be an intentional or
inadvertent omission of the names of creditors from the schedule of
debts, and provided against it by other provisions of the
Page 195 U. S. 350
law, especially by that which makes it the duty of the referee
to give notice to creditors (sec. 38) and by that which imposes the
duty on the bankrupt to appear at the meeting of creditors for
examination.
The finding of the trial court is that defendant "had no notice
or actual knowledge, or other knowledge, of said proceedings in
bankruptcy prior to the discharge of the bankrupt therein." This is
made more definite as to time by the Court of Appeals. Defendant in
error, upon making an inquiry by letter November 6, 1899, about
Russell & Birkett was informed that they had gone through
bankruptcy, and subsequently (November 17), the Northern District
was given as the district of the proceedings. The discharge was
September 12, 1899. Knowledge therefore, it is contended, came to
defendant in error in time to prove its claim (section 65), and to
move to revoke the discharge of the bankrupt (section 15). It is
hence argued that defendant in error must be held to have had
"actual knowledge of the proceedings in bankruptcy," as those words
of section 17 must be construed. We do not think so, nor is that
construction supported by the other provisions of the law urged by
plaintiff in error. Actual knowledge of the proceedings,
contemplated by the section, is a knowledge in time to avail a
creditor of the benefits of the law -- in time to give him an equal
opportunity with other creditors -- not a knowledge that may come
so late as to deprive him of participation in the administration of
the affairs of the estate, or to deprive him of dividends (section
65). The provisions of the law relied upon by plaintiff in error
are for the benefit of creditors, not of the debtor. That the law
should give a creditor remedies against the estate of a bankrupt,
notwithstanding the neglect or default of the bankrupt, is natural.
The law would be, indeed, defective without them. It would also be
defective if it permitted the bankrupt to experiment with it -- to
so manage and use its provisions as to conceal his estate, deceive
or keep his creditors in ignorance of his proceeding, without
penalty to him. It is easy to see
Page 195 U. S. 351
what results such looseness would permit -- what preference
could be accomplished and covered by it.
Judgment affirmed.
