Norton, In re
| Decision Date | 12 December 1969 |
| Citation | 306 N.Y.S.2d 387,61 Misc.2d 742 |
| Parties | In the Matter of the Application of William NORTON, a Bankrupt for an Order Cancelling of Record a Judgment in Favor of Household Finance Corporation against him. |
| Court | New York County Court |
Gerald N. Jacobowitz, Walden, for petitioner.
Louis H. Sherwin, Middletown, for Household Finance Corporation.
Petitioner Norton made application to this Court for an Order directing that a Discharge of Record be marked upon the docket of a Judgment recovered by Household Finance Corporation (hereinafter referred to as HFC) against petitioner and his wife.
HFC obtained a judgment in the amount of $945.75, which was docketed against Petitioner and his wife on November 27, 1967, in the City Court of the City of Middletown, New York. A transcript of judgment was filed in the Orange County Clerk's office on November 30, 1967. HFC's complaint in that action alleged that petitioner and his wife had obtained a loan from HFC by means of false representations of fact contained in a financial statement which petitioner knew to be false, which statement he submitted with the intent and purpose of inducing HFC to make the loan. The complaint further alleged that HFC was not aware of the falsity and was deceived into extending him credit and that the loan would not have been made if a true financial statement had accompanied petitioner's application. More specifically it was alleged in the complaint that petitioners listed debts of $1,466.96, whereas in fact, they owed at least the sum of $3,328.96. Also no portion of the note representing the loan has been paid.
The loan was made to the petitioners on November 15, 1965. Thereafter, petitioner filed a petition in bankruptcy and was adjudicated a bankrupt by the United States District Court for the Southern District of New York on June 20, 1966 and received a discharge in bankruptcy on August 22, 1966. The loan from HFC was scheduled in the bankruptcy proceedings and HFC admittedly received notice of the filing of the petition in bankruptcy, but HFC did not file any objections to the discharge.
The decretal paragraph of the petitioner's discharge in bankruptcy states:
'It is ordered that the said William W. Norton be, and he hereby is, discharged from all debts and claims which, by the Act of Congress relating to bankruptcy, are made provable against his estate, except such debts as are, by said Act, excepted from the obligation of a discharge in bankruptcy.'
The action leading to the judgment now before this Court was instituted by HFC after the adjudication, on November 5, 1966. More than one year later, on November 8, 1967, after petitioner failed to appear for trial, an inquest was taken, and the City Court of the City of Middletown entered judgment against petitioner and in favor of HFC.
The Congress of the United States in its wisdom, when amending Section 14(c) (3) of the Bankruptcy Act, 11 U.S.C.A. Sec. 32(c)(3) in 1960, made a distinction between debts incurred by business and non-business bankrupts. Congress provided that a discharge will not be denied to a non-business bankrupt solely on the ground that he had obtained money through the issuance of a false financial statement. Sec. 17(a)(2) of the Bankruptcy Act, 11 U.S.C.A. Sec. 35(a)(2). The penalty provided in the Act for obtaining credit by such means was a denial of the beneficial effects of the discharge as to the debt incurred. Section 17(a)(2), 11 U.S.C.A. Sec. 35(a)(2).
The creditor's remedy is therefore in the State Courts.
It has been noted that '* * * in the State Court, the bankrupt is free to plead his discharge and according to an array of authorities that Court is bound to consider the plea and make its own determination. * * *' Far from excluding his (the creditor's) entry into the State Court, it appears that his only opportunity to enforce his complaint is in the State Court. See In re Bell, E.D.Va.1962, 212 F.Supp. 300; Matter of Gadansky, Bankrupt, D.C., 249 F.Supp. 114, 115.
The question which must be decided in this Court is whether the judgment of the City Court of the City of Middletown, was based upon a finding that the loan from HFC was made as a result of a false financial statement furnished to it by the petitioner with the intention of defrauding HFC who relied thereon and was mislead by said statement, and that the loan was in fact based upon such false statement. See Personal Finance Corp. of Waterbury v. Robinson, Sup., 27 N.Y.S.2d 6, 8, 9.
Remington on Bankruptcy, Vol. 8, Sec. 3267, p. 110, states that the 'State Courts have jurisdiction to determine the dischargeability in bankruptcy of a particular obligation whenever the question is duly presented to them.' The decisions of the Courts of this State are in accord. The Appellate Division, Third Department, recently held that a discharge in bankruptcy 'would not prevent recovery if the creditor could prove that the debt was incurred under 'false pretenses or false representations ". Beneficial Finance Co. of N.Y. v. Wall, 25 A.D.2d 897, 269 N.Y.S.2d 220. To the same effect, First National Bank v. Haymes, 49 Misc.2d 939, 952, 268 N.Y.S.2d 820, 833; Tomaino v. Gigliotti, 15 Misc.2d 1077, 186 N.Y.S.2d 868.
The judgment roll must show that the debt was such that it cannot be discharged in bankruptcy. Matter of Paley (Ritholtz), 260 App.Div. 632, 637, 23 N.Y.S.2d 407, 413, affd. 285 N.Y. 641, 33 N.E.2d 559. The decision on this question is restricted to the record of the action resulting in the judgment. Matter of Proctor Securities Corp. v. Handler, 7 Misc.2d 9, 162 N.Y.2d 209; Application of Galich, 59 Misc.2d 836, 300 N.Y.S.2d 670, 673. See Security National Bank of Long Island v. Boccio, 60 Misc.2d 547, 548, 303 N.Y.S.2d 610, 611, where the Court found, contrary to the instant case, that there was no fraud shown in the record.
In the instant case...
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