Meier Credit Co. v. Yeo

• Decision Date: 18 September 1942
• Docket Number: No. 17.,17.
• Citation: 129 N.J.L. 82,28 A.2d 227
• Parties: MEIER CREDIT CO. v. YEO.
• Court: New Jersey Supreme Court

28 A.2d 227

129 N.J.L. 82

MEIER CREDIT CO.

v. YEO.

No. 17.

Court of Errors and Appeals of New Jersey.

Sept. 18, 1942.

Syllabus by the Couft.

1. A discharge in bankruptcy does not discharge the bankrupt from liability for having obtained money or money's worth upon representations that were false and were known by the person afterward adjudged to be bankrupt to be false when he made them and that were relied upon, and were intended by the debtor to be so relied upon, by the creditor in parting with his property.

2. In order that a judgment may constitute a bar to another suit it must involve a determination of the merits.

3. The striking, in a bankruptcy court, upon the ground of technical insufficiency in form, of an objection to the discharge of the bankrupt, and the granting by that court of a general order of discharge, do not constitute res judicata against a subsequent suit by the creditor to recover from the bankrupt for goods which the latter had purchased upon representations that were false and were known by him to be false when he made them and that were relied upon, and were intended by the debtor to be relied upon, by the creditor in parting with his property.

Appeal from Supreme Court.

Suit by the Meier Credit Company, trading as Michaels, against Ferdinand James Yeo to recover unpaid balance on merchandise sold to defendant. From a judgment of the Supreme Court, 127 N.J.L. 429, 23 A.2d 293, reversing a judgment for plaintiff, plaintiff appeals.

Reversed.

John B. Applegate and Besson & Applegate, all of Hoboken, for appellant.

Murray Greiman, of Jersey City, for respondent.

CASE, Justice.

The substantial question, recognized as such by the Supreme Court and so accepted by us, is whether the debt sued upon had been discharged by an order in a prior bankruptcy of the defendant.

Meier Credit Company sued in the District Court of the City of Hoboken to recover the balance remaining unpaid on divers purchases of merchandise, the credits thereon having been allowed, according to the allegations in the state of demand, in reliance upon statements made in writing by Yeo concerning his financial condition that were false and fraudulent, that were known by Yeo to be false when he made them and that were tendered by him to the plaintiff with the intent that the latter should extend credit to Yeo thereon. At the trial defendant moved for a nonsuit on the ground that the plaintiff had not relied upon the financial statements. The trial judge, sitting without a jury, denied the motion for nonsuit, and we find that there was evidence to support that ruling. Defendant put in evidence an objection to the defendant's discharge in bankruptcy which plaintiff had filed in the bankruptcy proceedings in the United States District Court for the District of New Jersey, together with defendant's notice of motion to strike the same and the court order thereon. It is not clear from the transcript, and it is perhaps immaterial, in what order the above mentioned proceedings, that is to say, the motion for nonsuit, the submission of the bankruptcy record and the taking of defendant's testimony, occurred. Sufficient to say that notwithstanding them and defendant's further motion for a "direction of verdict" the court gave judgment for the plaintiff and that there were proofs, either oral, stipulated, or contained within the exhibits, from which a fact finding tribunal could reasonably conclude that the allegations in the state of demand were established.

The reference to the bankruptcy proceedings requires some elaboration. The creditor, in accordance with the practice in bankruptcy, caused its formal objection to the bankrupt's discharge to contain the "specification" upon which the objection was rested. The bankrupt thereupon gave notice that he would apply to the referee in bankruptcy for an order to strike out the specification of objection to the discharge upon the grounds (a) that the creditor had not entered an appearance in opposition to the discharge in season, (b) that the specification was too indefinite and uncertain to apprise the bankrupt of the nature of the charges against him and that the specification was therefore insufficient, (c) that the specification in the manner and form as pleaded contained no lawful reason or excuse why the bankrupt should not be granted his petition for discharge. So far as the record discloses, the referee in bankruptcy heard no testimony on the alleged fraudulent transactions; he heard only the argument of counsel on the narrow question of the motion to strike, and upon a finding that "the specification of objection is vague and indefinite, as well as wanting in the essential allegations necessary to make such specifications sufficient" granted the motion to strike the specification of objection to the discharge and thereupon granted to the bankrupt the usual discharge "from all debts and claims which are made provable by said Act against his estate, except such debts as are, by said Act, excepted from the operation of a discharge in bankruptcy". There was no finding and, so far as we know, no argument that the acts charged to be fraudulent were not, in fact, such.

The Supreme Court, whose opinion is reported in 127 N.J.L, at page 429, 23 A. 2d at page 293, considered that the subject matter of the suit was res judicata, because of the proceedings in bankruptcy, and reversed. Our study leads us to the opposite conclusion.

There are two questions involved: (1) Does a discharge in bankruptcy release a bankrupt from a claim founded in fraud wherein the bankrupt had obtained goods upon false representations? (2) Did the striking...