In re Cox, 12104.

• Decision Date: 09 July 1940
• Docket Number: No. 12104.,12104.
• Citation: 33 F. Supp. 796
• Parties: In re COX.
• Court: U.S. District Court — Western District of Kentucky

33 F. Supp. 796

In re COX.

No. 12104.

District Court, W. D. Kentucky.

July 9, 1940.

James M. Cuneo and Allen & Clarke, all of Louisville, Ky., for petitioner Cox.

Thos. S. Dawson and Woodward, Dawson & Hobson, all of Louisville, Ky., for Personal Finance Co.

MILLER, District Judge.

This matter comes before the Court on the petition of Harry B. Cox, bankrupt, for an injunction against the Personal Finance Company seeking to restrain the Finance Company from further proceeding against him in an action in the Jefferson Circuit Court of Kentucky.

Cox was adjudged a bankrupt on February 26, 1937. His application for a discharge was made within time, but has not yet been granted. Among the debts listed in the bankrupt's schedules was one for $276.34 in favor of the Personal Finance Company. On September 1, 1937, which was after adjudication, the Personal Finance Company instituted suit in the Jefferson Circuit Court of Kentucky on a note dated October 14, 1936 signed by the bankrupt and three co-signers. In the second paragraph of the petition it was alleged that on March 22, 1937, May 4, 1937, and May 24, 1937 Cox made new promises to pay the debt after having been adjudicated a bankrupt. On January 15, 1938 a default judgment was entered against Cox in favor of the Personal Finance Company, which, however, did not specify whether the judgment was upon the alleged cause of action set up in the first paragraph or in the second paragraph of the petition. On February 7, 1938 the Personal Finance Company instituted in the Jefferson Circuit Court equity action No. 254944 against Cox upon said judgment seeking a discovery and attachment. On October 24, 1939 the Personal Finance Company caused an order of attachment to be issued in said action and served upon the American Air Filter Company as garnishee. On October 30, 1939 the bankrupt filed his petition in the pending bankruptcy proceedings praying that the Finance Company be enjoined from further proceeding in action No. 254944 in the Jefferson Circuit Court. On the same day the Referee in Bankruptcy issued a stay and show cause order. The Personal Finance Company thereafter filed its response setting up in substance the new promises made by the bankrupt after his adjudication in bankruptcy, and alleging that the defendant was duly served with summons by the sheriff of Jefferson County in the action instituted in the Circuit Court of that county; that he failed to answer, and that the resulting default judgment was conclusive and binding upon him.

The bankrupt contends in support of his petition for an injunction, (1) that the bankruptcy court has jurisdiction to restrain a creditor from attempting to collect in a state court a claim dischargeable in bankruptcy; (2) that the judgment obtained by the Finance Company in the State court was on the old debt before the discharge in bankruptcy and was therefore a nullity; and (3) that a suit to recover on a debt revived by a new promise made after adjudication can not be brought until the question of the bankrupt's discharge has been determined. The Personal Finance Company contends that the action in the state court was upon the new promise made after the adjudication which created a valid obligation even though made before the discharge in bankruptcy.

The bankruptcy court, in which the bankruptcy proceedings are pending, has jurisdiction by reason of its inherent equitable powers of these proceedings to restrain a creditor from attempting to collect in a state court a claim dischargeable in bankruptcy. A court of bankruptcy is essentially a court of equity and has jurisdiction of a bill ancillary to an original proceeding in the same court, whether at law or in equity, to secure or preserve the fruits and advantages of a judgment or decree rendered therein. Bankruptcy Act, Section 2(15), 11 U.S.C.A. § 11(15); Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230, 93 A.L.R. 195; In re Skorcz, 7 Cir., 67 F.2d 187; In re Hunt, 7 Cir., 67 F.2d 998. If the action in the state court was upon a claim which was dischargeable in bankruptcy the judgment which was obtained before the bankrupt's discharge has no more validity than the original claim itself. The debt on which the judgment was rendered is the same old debt that it was before notwithstanding the change in its form from that of a simple contract debt or unliquidated claim by merger into a judgment of a court of record. Boynton v. Ball, 121 U.S. 457, 7 S.Ct. 981, 30 L.Ed. 985. This situation is materially different in legal effect from the case where judgment is rendered after the discharge in bankruptcy has been granted and the defendant fails to plead his discharge. In such cases the judgment has been held to be valid. Dimock v. Revere Copper Company, 117 U.S. 559, 6 S.Ct. 855, 29 L.Ed. 994; Jackson v. Shaw, 20 Cal.App. 2d 740, 68 P.2d 310. In the present case it was impossible for the debtor to plead his discharge in bankruptcy to the action instituted in the state court because no such discharge had been obtained at the time when the judgment was rendered.

If the judgment in the state court is upon the new promise rather than upon the old indebtedness, a different situation exists, because the new promise is not a claim provable or dischargeable in bankruptcy. The claim based on the new promise comes into existence after the adjudication. Until recently it was held by the Court of Appeals of Kentucky that the promise was of no validity if made prior to the discharge in bankruptcy, as it was made in the present case. Under such circumstances it was in effect merely another promise to pay an existing debt and was supported by no consideration. Ogden v. Redd, 13 Bush, Ky., 581; Graves v. McGuire, 79 Ky. 532. This rule was changed by the Kentucky Court in its recent decision in Richard v. Bosler, 281 Ky. 631, 136 S.W.2d 1071, decided February 6, 1940, in which the Court held in line with the great weight of authority that the date of the new promise is immaterial and that the promise is as effectual when made after the filing of the petition in bankruptcy and before the discharge as if made after the discharge. See, also, Zavelo v. Reeves, 227 U.S. 625, 33 S.Ct. 365, 57 L.Ed. 676, Ann.Cas.1914D, 664.

The present case is therefore subject to the well settled rule that a discharge in bankruptcy, while...