Fid. & Cas. Co. Of N.Y. v. Colombosky.

• Decision Date: 19 December 1946
• Court: Connecticut Supreme Court
• Parties: FIDELITY & CASUALTY CO. OF NEW YORK v. COLOMBOSKY.

133 Conn. 317

50 A.2d 817

FIDELITY & CASUALTY CO. OF NEW YORK

v.COLOMBOSKY.

Supreme Court of Errors of Connecticut.

June 7, 1946.

On Reargument Dec. 19, 1946.

Appeal from Superior Court, Fairfield County; Quinlan, Judge.

Action by the Fidelity & Casualty Company of New York against Adolph Golombosky to recover upon a judgment obtained in the Court of Common Pleas, in Luzerne County, Pennsylvania. From an order of the superior court in Fairfield County staying the execution of a judgment against the defendant's wages, the plaintiff appeals

Error, judgment set aside, and case remanded.

DICKENSON, J., dissenting.

John S. Barton, of Bridgeport, for appellant.

Philip Reich, of Bridgeport, for appellee.

Before MALTBIE, C. J., and BROWN, JENNINGS, ELLS and DICKENSON, JJ.

MALTBIE, Chief Justice.

The plaintiff brought this action to the Superior Court in Fairfield County seeking recovery upon a judgment it had obtained in the Court of Common Pleas in Luzerne County, Pennsylvania. The Superior Court rendered judgment in its favor. The defendant made motions to stay the execution on the judgment, and, while the pleadings are somewhat confused, the parties have regarded them as presenting this issue: The defendant on October 24, 1944, filed a petition in bankruptcy and on December 13, 1944, received a discharge, and he claims that the debt evidenced by the Pennsylvania judgment was included within that discharge; the contention of the plaintiff is that, while the Pennsylvania judgment was based upon a note executed by the defendant which contained a confession of judgment, the note was without consideration other than a pre-existing debt owed by the defendant to the plaintiff which, as alleged in an ‘answer’ it filed to the first motion of the defendant, was created by his ‘fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity,’ and that the discharge was no defense. At the hearing on the last motion to stay the execution, the plaintiff offered evidence in support of this allegation, but the trial court excluded it, ruling that the defendant's debt to the plaintiff was ‘created’ by the Pennsylvania judgment and that it was, therefore, included within the discharge. Intrinsic in this ruling, as an examination of the memorandum of the trial court shows, was the conclusion that the plaintiff, seeking to enforce a judgment it had secured upon a note, could not show, to avoid the effect of the defendant's discharge, that the note in fact represented an obligation created by the defendant's misappropriation of money of the plaintiff while acting in a fiduciary capacity. No question was raised as to the right of the court, if the debt was discharged, to stay execution, or as to the sufficiency of the pleadings and judgment to present the question, and we do not consider these matters.

The Bankruptcy Act (§ 17) provides: ‘A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as * * * (4) were created by his fraud, embezzlement, misappropriation or defalcation while acting as an officer or in any fiduciary capacity * * *.’ 52 Stat. 851, 11 U.S.C. § 35, 11 U.S.C.A. § 35. The decisive question is: Does the fact that the judgment was based upon a note preclude the plaintiff from showing that the debt which it represented was created by fraud, embezzlement, misappropriation or defalcation within the clause quoted from the act?

Upon this question the Supreme Court of the United States has not, so far as we have discovered, spoken the final word. In Strang v. Bradner, 114 U.S. 555, 5 S.Ct. 1038, 29 L.Ed. 248, the court had before it the question whether, upon the facts, a debt was within the exception from the effect of a discharge in bankruptcy which we are considering; the plaintiffs had secured a judgment against the defendant upon a claim based on false and fraudulent misrepresentations; the court held that it was excepted from the effect of the discharge and said (114 U.S. p. 560, 5 S.Ct. 1041): ‘But had the plaintiffs waived their right to claim damages specifically for the deceit practiced upon them, and made a claim against the estate of the bankrupts, based wholly upon their legal obligation to save plaintiffs harmless on account of their being the makers and indorsers of the notes in question, or if the present action had been based upon that obligation, and not upon the fraud committed by defendants, it would not follow that the defendants would be protected by their discharges in bankruptcy; for the statute expressly declares that a discharge is subject, even in respect of claims provable in bankruptcy, to the limitation that no debt created by the fraud of the bankrupt shall be discharged by the proceedings in bankruptcy, and that a debt so created may be proved, and the dividend thereon shall be a payment on account of such debt. * * * It is therefore clear that, whether the claim asserted by the plaintiffs is regarded as one arising out of the deceit or fraud of the defendants, or as a debt created by their fraud, the discharges in bankruptcy do not constitute a defense.’ The action to which reference is made in the quotation would have been one founded on contract, Platt v. Ives, 86 Conn. 690, 694, 86 A. 579, 45 L.R.A.,N.S., 1068; and, while the statement is undoubtedly obiter dictum, it is of weight upon the question before us. In Wetmore v. Markoe, 196 U.S. 68, 72, 25 S.Ct. 172, 174, 49 L.Ed. 390, 2 Ann.Cas. 265, it is said: ‘The mere fact that a judgment has been rendered does not prevent the court from looking into the proceedings with a view of determining the nature of the liability which has been reduced to judgment’; but the court did not limit the inquiry to the record of the case. See State of Wisconsin v. Pelican Ins. Co. of New Orleans, 127 U.S. 265, 292, 8 S.Ct. 1370, 32 L.Ed. 239.

In the decisions of other courts, there is a sharp conflict. In the following cases it was held that it was not permissible, in determining whether a debt on judgment was discharged, to look beyond the judgment and the record of the action in which it was rendered. In re Stone, D.C., 278 F. 566; Rice v. Guider, 275 Mich. 14, 18, 265 N.W. 777; Palmer v. Preston, 45 Vt. 154, 12 Am.Rep. 191; Strauch v. Flynn, 108 Minn. 313, 122 N.W. 320; Karger v. Orth, 116 Minn. 124, 127, 133 N.W. 471; Ford v. Blackshear Mfg. Co., 140 Ga. 670, 677, 79 S.E. 576; Blackman v. McAdams, 131 Mo.App. 408, 411, 111 S.W. 599; Goodman v. Herman, 172 Mo. 344, 354, 72 S.W. 546, 60 L.R.A. 885; Aetna Casualty & Surety Co. v. Sentilles, La.App., 160 So. 149, 151; Chambers v. Kirk, 41 Okl. 696, 700, 139 P. 986; Scott v. Corn, Tex.Civ.App., 19 S.W.2d 412, 415. The defendant has cited in support of the conclusion reached in these cases two decisions of the United States Circuit Court of Appeals for the Second Circuit, In re Adler, 152 F. 422, 81 C.C.A. 564; In re Harber, 9 F.2d 551. These were both cases in which a stay of proceedings in an action against the bankrupt was sought under § 11(a) of the Bankruptcy Act; 52 Stat. 849, 11 U.S.C. § 29(a); 11 U.S.C.A. § 29(a); such a stay is a temporary order effective, generally speaking, only until the petition in bankruptcy is dismissed or the bankrupt is discharged; and the granting of the stay is not a final adjudication that the claim in suit is not dischargeable. Unless the debt is one which would clearly be within the discharge, federal courts have held that the stay should be granted. In re Nuttall, D.C., 201 F. 557, 559; In re Bernard, 2 Cir., 280 F. 715, 717. These considerations, no doubt, account for the guarded language of the court in the Harber case (9 F.2d p. 553): ‘We do not look to the affidavits, or beyond the pleadings and judgment, in determining such motions.’ On the other hand there are several decisions where it has been held that the origin of the indebtedness may be proved by evidence dehors the record of the case in which the judgment was rendered. Packer v. Whittier, 1 Cir., 91 F. 511, 513, 33 C.C.A. 658; Brown v. Hannagan, 210 Mass. 246, 96 N.E. 714; Stewart v. Emerson, 52 N.H. 301; Gehlen v. Patterson, 83 N.H. 328, 141 A. 914; Gregory v. Williams, 106 Kan. 819, 821, 189 P. 932; Madison Tp. v. Dunkle, 114 Ind. 262, 16 N.E. 593; Ames v. Moir, 130 Ill. 582, 593, 22 N.E. 535; Howland v. Carson, 28 Ohio St. 625, 629; Young v. Grau, 14 R.I. 340; Simpson v. Simpson, 80 N.C. 332, 334; Council v. Horton, 88 N.C. 222; and see State of Wisconsin v. Pelican Ins. Co. of New Orleans, supra, 127 U.S. 293, 8 S.Ct. 1370, 32 L.Ed. 239; Mackel v. Rochester, D.C., 135 F. 904; Hargadine-McKittrick Dry Goods Co. v. Hudson, 8 Cir., 122 F. 232, 236, 58 C.C.A. 596.

The decisions which have held that in determining the nature of the indebtedness a court cannot go behind the judgment and record seem generally to have overlooked two principles which the cases place beyond dispute: Where an action is brought upon a note, and a discharge in bankruptcy is set up as a defense, proof is admissible to show that the underlying debt was created by fraud or one of the othe excepted causes, American Surety Co. v. McKiearnan, 304 Mich. 322, 8 N.W.2d 82, 145 A.L.R. 1235, and note, 1238; Zimmern v. Blount, 238 F. 740, 745, 151 C.C.A. 590; and the rendition of a judgment upon an obligation does not change the character of the indebtedness. Boynton v. Ball, 121 U.S. 457, 466, 7 S.Ct. 981, 30 L.Ed. 985; Brown v. Hannagan, supra; Guernsey-Newton Co. v. Napier, 151 Wash. 318, 320, 275 P. 724; Argall v. Jacobs, 87 N.Y. 110, 113, 41 Am.Rep. 357; Wade v. Clark, 52 Iowa 158, 159, 2 N.W. 1039, 35 Am.Rep. 262; Young v. Grau, supra. In the light of these accepted principles, there would seem to be no escape from the conclusion that the rendition of a judgment based upon a note does not preclude proof by evidence extraneous to the record, in reply to a defense of discharge in bankruptcy, that the underlying...