Seats, Matter of, 75-1689

• Decision Date: 05 April 1976
• Docket Number: No. 75-1689,75-1689
• Citation: 537 F.2d 1176
• Parties: In the Matter of Richard Johnson SEATS, Bankrupt. MARYLAND HOTEL SUPPLY COMPANY, Appellant, v. Richard Johnson SEATS, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1176

537 F.2d 1176

In the Matter of Richard Johnson SEATS, Bankrupt.

MARYLAND HOTEL SUPPLY COMPANY, Appellant, v. Richard Johnson SEATS, Appellee.

No. 75-1689.

United States Court of Appeals, Fourth Circuit.

Argued Dec. 1, 1975.

Decided April 5, 1976.

Israel Steingold, Richmond, Va. and (Jeffrey M. Steingold, Richmond, Va., on brief), for appellant.

Ronald E. Mynes, Richmond, Va., and (D. J. Esposito, Richmond, Va., on brief), for appellee.

Before HAYNSWORTH, Chief Judge, CRAVEN, Circuit Judge and KAUFMAN, ^* District Judge.

CRAVEN, Circuit Judge:

This is an appeal from the refusal of the bankruptcy judge to reopen and modify his discharge order. Because of neglect in the office of its attorney, Maryland Hotel Supply failed to file an objection to the bankrupt's discharge within apt time. He missed it 18 days. Ordinarily, the appeal would turn on whether there was excusable neglect. But Maryland's complaint may be viewed as a broader attack on what occurred below: that the discharge which was granted in due course was gratuitously harmful to claims against property never a part of the bankrupt estate, and that the bankruptcy judge should have limited sua sponte the discharge to affect only bankruptcy assets. We need not go so far. But we think the refusal to modify the discharge at a time and under circumstances not prejudicial to anyone was an abuse of discretion, and on the principle that equity does what ought to have been done, we reverse and remand with instructions.

I.

The bankruptcy judge denied relief largely because of his apprehension that to revoke the discharge would "leave the way open to utter chaos in the orderly administration and disposition of bankruptcy cases." We do not share his apprehension because we view what was sought, however labeled, as in no sense a revocation of a discharge under 11 U.S.C. § 33. There is no suggestion of misconduct or wrongdoing on the part of the bankrupt that would justify a revocation. But a bankruptcy court is a court of equity and possesses inherently and by statute the power to modify an order of discharge improvidently broad and unjust in its application. Bankruptcy Rule 515 provides as follows:

A case may be reopened on application by the bankrupt or other person to administer assets, to accord relief to the bankrupt, or for other good cause.

Though inartfully styled, we will regard Hotel Supply's petition as one to reopen the estate pursuant to Bankruptcy Act § 2a(8) and Rule 515 in order that the discharge order might be modified.

Requests to reopen estates or to modify or vacate orders lie within the sound discretion of the bankruptcy court. Curtis v. O'Leary, 131 F.2d 240 (8th Cir. 1942); Texas Western Financial Corp. v. McCraw Candies, Inc.,347 F.Supp. 445 (N.D.Tex.1972); In re Reid, 198 F.Supp. 689 (W.D.Va.1961); In re Dixon, 49 F.Supp. 977 (S.D.Ga.1943). Our inquiry is then restricted to whether or not the bankruptcy court abused its discretion in refusing to reopen the estate and limit the effect of the discharge. This question is to be answered with regard for the overriding responsibility with which bankruptcy courts are charged: "There is an overriding consideration that equitable principles govern the exercise of bankruptcy jurisdiction." Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 277, 17 L.Ed.2d 197 (1966).

II.

In 1972, real property located in Chesterfield County, Virginia, was conveyed to Richard Johnson Seats and his wife, Elmira C. Seats, as tenants by the entirety. The deed was duly recorded, and Seats and his wife continue to hold this property.

In March 1973, Seats and his wife "jointly, severally and individually," executed a contract of guaranty in favor of Maryland Hotel Supply "in order to induce it to extend credit to or to continue to grant credit in connection with the sale of its products to" two companies owned or controlled by Seats. This contract guaranteed payment of "all indebtedness" of the two companies.

On February 28, 1974, Hotel Supply instituted an action against Seats and his wife on their contract of guaranty in the Circuit Court of Chesterfield County. On March 25, 1974, Seats filed a voluntary petition in bankruptcy. Hotel Supply was listed as a creditor in the bankruptcy schedules and received notice of the bankruptcy. Pursuant to the Bankruptcy Act, the state court action was suspended and stayed pending administration and distribution of the bankrupt's estate.

The first meeting of creditors was held on April 11, 1975. Hotel Supply was represented at this meeting and, as a result of examination of the bankrupt by the firm's attorney, it was disclosed that Seats and his wife owned real property as tenants by the entirety. As of this date, then, the trustee in bankruptcy had actual knowledge that Seats owned property which would not and could not pass to the trustee as part of the bankrupt estate. Had either the trustee or counsel for Hotel Supply brought the matter to the attention of the bankruptcy judge, presumably the stay order as to the suit against Seats and his wife in the Circuit...