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[Ch. III.

Discharges, When Revoked - History.

tled to a discharge under the express provisions of the statute. In the case of Hill v. Harding, 130 U. S. 699, the unqualified statement of Mr. Justice Clifford above quoted that stockholders could not be held liable in such case of the corporation's discharge was practically repudiated and in the Marshall Paper Co. case in the Circuit Court of Appeals it is expressly laid down that a discharge of a corporation does not prevent creditors from taking judgment in the State court against the corporation in such limited form as may enable them to reap the benefit of the director's or stockholder's secondary liability, under a state statute. Judge Lowell in the court below doubted the right of the creditors of the corporation to reach the secondary liability of stockholders and directors unless a judgment was first obtained against the corporation. The decision of the Circuit Court of Appeals settles this question.

SEC. 15. Discharges, When Revoked.-a The Judge may, upon the application of parties in interest who have not been guilty of undue laches, filed at any time within one year after a discharge shall have been granted, revoke it upon a trial if it shall be made to appear that it was obtained through the fraud of the bankrupt, and that the knowledge of the fraud has come to the petitioners since the granting of the discharge, and that the actual facts did not warrant the discharge.

Analogous Provisions of Former Acts.

R. S. section 5120; act of 1867, section 34; act of 1841, section 4; act of 1800, section 34.

History. In its general provisions as to the grounds upon which a decree of discharge may be impeached and the courts in which impeachable, the act of 1898 is similar to the act of 1867, but both differ materially from the acts of 1841 and 1800. The act of 1841 provided that a discharge might be impeached "in all courts of justice" for certain causes and in a manner in the act stated. The act of 1800 in effect provided that a discharge might

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be impeached when pleaded as defense, by proving the same facts as would have prevented the granting of it, had they been shown in a court of bankruptcy. Neither act contained any provision for a direct proceeding to annul the discharge in the court of bankruptcy.

The only ground for revocation of discharge under the present act is fraud. But few cases have been decided under this section. In the case of In re Meyers (3 Am. B. R. 722; 100 Fed. 775), an application was made within the year based upon the testimony of the bankrupt in subsequent proceedings, tending to show that he had considerable property at the time of his bankruptcy and application for discharge, which was concealed. His verified schedules stated no assets and therefore no trustee was appointed. The court granted a petition for revocation of discharge, laying stress upon the fact that the application made within the year showed that a knowledge of the facts indicating fraud was first acquired by the petitioner long after the discharge, and that no evidence of laches was attributed to the petitioner. The practice on an application for revocation of discharge, which is nowhere outlined in the statute or general orders, is indicated by this case. A petition is filed with the clerk of the court and a reference is thereupon ordered to ascertain and report upon the facts alleged in the petition upon due notice to the bankrupt to take such evidence as may be offered by the parties. Presumably the practice is analogous to that upon applications for discharge (q. v.). Another case arising in the same district (the Southern District of New York) was In re Dietz (3 Am. B. R. 316; 97 Fed. 563), where the fraud alleged was the buying off through the procurement or privity of the bankrupt of the opposition of the creditor, which was held prima facie evidence that the bankrupt was not entitled to discharge.

It must not be forgotten that though this is the only section in the Bankruptcy Act which directly bears upon the question of revocation there is nothing to negative the right of courts to recall their own decrees and vary or annul them as justice may require if the application is promptly made. This power however only

Discharge Cannot be Collaterally Attacked.

[Ch. III.

extends to cases of actual default under circumstances which render the exercise of such power equitable. See In re Dupee (6 N. B. R. 89; 8 Fed. Cas. 108).

As to jury trials under this section see section 19, post.

Discharge Cannot be Collaterally Attacked.-Although the decisions of the courts under the act of 1867 were not all in harmony, the weight of authority was that a discharge once granted by a court having jurisdiction was unassailable in any court except the court of bankruptcy, for any cause which would have prevented the granting of it, or which would have been sufficient ground for annulling it. That a discharge shall not be collaterally impeached for any cause which might have been urged against granting it, is but an application of the general principle of law that a judgment of a court of competent jurisdiction is conclusive of all matters adjudged, as between the parties thereto, and cannot be collaterally attacked or questioned before any tribunal. A discharge in bankruptcy is an adjudication between the bankrupt and all the defendants, his creditors, a decree binding and conclusive on all who are made parties in accordance with the provisions of the act. The creditors having had notice of the proceedings must be treated as also having had opportunity to make objections; and having neglected to do so, they ought not to be allowed to impeach the adjudication collaterally. Bankruptcy proceedings are in the nature of proceedings in rem before a court of record having jurisdiction, and it is well settled that in proceedings in rem a decree is conclusive against all parties having the right under the proceedings to control the decree. Jurisdiction confers the power to render the judgment and it is binding (even if irregularities or errors exist), until set aside by the court in which it was rendered, or some court of appeal or review, in an action for that purpose. (Hudson v. Bingham [Sup. Ct. Tenn.], 8 N. B. R. 494. citing Shawhan v. Wherritt, 7 How. 627; Dolson v. Pierce, 12 N. Y. 156, and Kinnier v. Kinnier, 45 N. Y. 535; Reed v. Bullington, II N. B. R. 408; s. c. 49 Miss. 223, citing Voorhees v.

§ 15.]

Impeaching the Discharge by One Creditor, for Fraud.

U. S. Bank, 10 Pet. 449; Sturges v. Crowninshield, 4 Wheat. 122; in re Winn, Fed. Cas. 17,876; 1 N. B. R. 499; Pennington v. Sale, et al. Fed. Cas. 10,939; 1 N. B. R. 572; in re Barrow, et al. Fed. Cas. 1,057; 1 N. B. R. 481; Cassard, et al. v. Kroner, 4 N. B. R. 569; Markson, et al. v. Heany, Fed. Cas. 9,098; 4 N. B. R. 510; in re Snedaker, 3 N. B. R. 629; in re Salmons, Fed. Cas. 12,268; 2 N. B. R. 56; in re Brinkman, Fed. Cas. 1,884; 7 N. B. R. 421; in re Sacchi, Fed. Cas. 12,200; 6 N. B. R. 497; Stevens v. Brown, 11 N. B. R. 568, citing Ocean National Bank v. Olcott, 46 N. Y. 15; Alston v. Robinett, 9 N. B. R. 74; S. c. 37 Tex. 56; Stetson v. The City of Bangor, 56 Me. 286.)

Not only is the discharge a conclusive judgment as to all matters which might have been urged as an objection to granting it, but by the better opinion the jurisdiction conferred by the bankruptcy act upon courts of bankruptcy to revoke a discharge, prevents any other court from revoking it upon any of the grounds upon which it may be revoked by the bankruptcy court. The mode of impeaching the validity of a discharge, prescribed by the statute excludes all other modes. The impeaching tribunal being specified, this designation, according to well-established principles of interpretation, forms a part of the remedy and excludes all others. (Corey v. Ripley, 4 N. B. R. 503; s. c. 57 Me. 69, citing Dudley v. Mayhew, 3 N. Y. 10; Stevens v. Evans, 2 Barr. 1,157; City of Boston v. Shaw, I Met. 130.) Congress under the power conferred upon it to establish a uniform system of bankruptcy, may prescribe not only the conditions on which a discharge may be granted, but the effect of it. (Way v. Howe, 4 N. B. R. 677 S. c. 108 Mass. 502, citing Payson v. Payson, I Mass. 283; Burnside v. Brigham, 8 Met. 75.)

Impeaching the Discharge by One Creditor, for Fraud.-It is to be noted, however, that under the act of 1867 the discharge was revocable for what were termed fraudulent acts, but which were in fact acts done, not in procuring the discharge, but done prior to it, and made by law grounds for refusing a discharge. While the law said that the discharge could be revoked "if fraudulently ob

curement.

Impeaching the Discharge by One Creditor, for Fraud.

[Ch. III. tained," it limited the right of revocation to one of the acts specified as grounds for refusing a discharge. In other words the effect of that section was to permit a proceeding to reopen the judgment of discharge if new evidence was discovered, which tended to establish any ground for refusing a discharge; rather than a proceeding to revoke the decree because of fraud in its proThese fraudulent acts, considered with reference to the proceeding to secure a discharge, were fraudulent only in so far as the applicant had to swear in his application for a discharge that he was guilty of none of them. It was said in the case of Poillon v. Lawrence (77 N. Y. 207, at 214), “There is no provision authorizing (under the act of 1867) an application to annul a discharge on the general ground that the discharge was fraudulently obtained." And in this case it was held that the remedy by an application to the bankruptcy court for a revocation of the discharge was exclusive only when the invalidity of the discharge was based upon some of the grounds upon which a discharge could have been refused, but that where the fraud was of a peculiar and exceptional nature, not one of those specified in the act as a ground upon which the bankruptcy court could revoke the discharge, and not one which necessarily affected the validity of the discharge except as to the creditor upon whom the fraud was specially practiced, then it was competent for the defrauded party to impeach the discharge for such fraud. And following Batchelder v. Low (43 Vt. 662 ; s. c. 8 N. B. R. 571), a distinction was taken between a proceeding in the bankruptcy court to set aside the discharge in toto, and an impeaching of the discharge by one individual creditor, when the discharge was pleaded as a defense to his action.

This case seems to have been opposed to the weight of authority even under the old law. (See cases cited, supra.) And it is very doubtful whether it applies at all under this law, which makes the fact that a discharge was obtained through the fraud of the bankrupt the sole ground for revocation.

The intention of Congress in giving a proceeding by which any creditor, whose debt was proved or provable, may upon proving a

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