Standard Sewing Machine Co. v. Kattell

The complaint is fór damages for false and fraudulent representations made by the defendant for. the purpose of inducing the sale to the defendant -by the plaintiff of certain- sewing machines- and sewing, machine supplies, The. goods sold upon such fraudulent inducement amounted in, value to the sum*, of $42,60.0. Upon this amount certain payments have been made so- that at the time of the, commencement of the action there was due $17,667.98. Pbr this amount plaintiff demands judgment. The defendant served, an answer to this complaint which was afterwards superseded by an amended answer. The learned judge at Special Term correctly held that a- demurrer to any part of the original answer after the service of the amended answer was not authorized. The demurrer stands,, therefore,, as a. challenge to the fourth and sixth defenses set forth in the defendants amended answer. .

The- fourth defense is to the effect that since the incurring of the indebtedness alleged in the complaint, the defendant had duly *541petitioned to be adjudicated a bankrupt and that such proceedings were thereafter had that the defendant had been duly adjudicated a bankrupt and duly discharged from all his debts, except such debts, if any, as were excepted from the operation of a discharge in bankruptcy. The defendant further alleges in said answer that,the alleged and pretended claim and cause of action of the plaintiff arose before the commencement of such proceedings and before such discharge and was one of the claims that was provable in bankruptcy against the defendant and was not one of the claims which is excepted from the effect of a discharge under the said Bankruptcy Act. If this last allegation be an allegation of fact, then the demurrer was properly overruled, because under the allegations of the answer the discharge in bankruptcy was a complete defense to the plaintiff’s claim. But the allegation is one of law and not of fact. The intent of the plaintiff in its pleading is -unmistakable. There is no attempt to allege two causes of action, one in -contract and one in fraud. The complaint is not one of those from which a cause of action in contract could be spelled out regarding the allegations of fraud as surplusage. The false and fraudulent representations are so clearly made the basis of the plaintiff’s cause of action -that no recovery could be had upon any other cause of action without a clear violation of the rule that the judgment must follow the pleadings: From this interpretation of the complaint it follows that the allegation of the answer that the plaintiff’s claim- is not one of those excepted from the effect of a discharge in bankruptcy is an allegation of law and not an allegation of fact. Without such allegation-the fourth defense in the defendant’s answer would seem to set up the defendant’s discharge in bankruptcy as a complete defense to the plaintiff’s cause of action for damages for false and fraudulent representations. The demurrer to' the fourth defense, therefore, should have been sustained.

Defendant’s sixth defense is also challenged by plaintiff’s demurrer. In that defense it is alleged that in or about August, 1906, this plaintiff commenced an action against this defendant upon contract to recover the balance due as for goods sold and delivered; that such action is still pending; that upon April 25, 1907, the defendant was duly adjudicated a bankrupt, and that thereupon the plaintiff appeared in said bankruptcy proceedings and filed proof of *542its said claim, including the costs of said action, and accepted and received - the dividend thereon with the other creditors of defendant; that said bankruptcy proceeding is still pending, and that another dividend will eventually be declared; that intermediate the filing of said claim by the plaintiff and the payment, and acceptance of said dividend, plaintiff filed specific objections to defendant’s discharge upon substantially the same grounds of fraud as are alleged in its complaint, but that plaintiff subsequently and for /valid considerations withdrew the said opposition to said discharge, and that, by reason of the facts set. forth, plaintiff had made an election of remedies, and its alleged claim is barred, discharged and satisfied.

It cannot be claimed that plaintiff has elected to waive the fraud and rely upon the contract indebtedness. Being a claim upon an account, it was by the statute one which was provable in bankruptcy under section 63 of the Bankruptcy Act (30 U. S. Stat. at Large, 562, 563). By section 17 of that act (30 U. S. Stat. at Large, 550, as amd. by 32 id. 798, § 5) the discharge in bankruptcy does not relieve a defendant from all his provable debts, nor does it relieve him from a liability “ for obtaining property by false pretenses or false representations.” . Attention is called to the provisions in section 33 of the Bankruptcy Act of 1867 (14 U. S. Stat. at Large, 533; U. S. R. S. § 5117), which provided that no debt created by fraud of the bankrupt should be discharged, “but the debt may be proved and the dividend thereon shall be a payment on account of said debt.” This provision was left, out of the present Bankruptcy Act. Notwithstanding that fact, however, it has been held that, under the present Bankruptcy Act, the proof of a debt in bankruptcy proceedings is not such an election as waives the right to proceed to recover the same debt as created by fraud and not discharged by the Bankruptcy Act. (Frey v. Torrey, 70 App. Div. 166; affd., 175 N. Y. 501.)

While that case was overruled as to a construction of one part of the statute in Crawfords v. Burke (195 U. S. 186), this authority has never been questioned upon the proposition to which it is here cited, and by the amendment of the Bankruptcy Act in 1903 the holding in Crawford v. Burke (supra) has been made immaterial. We conclude, therefore, that, under the allegations in this defense, the plaintiff has not elected to proceed upon contract rather than .upon fraud.

*543It is further urged, inasmuch' as the plaintiff was a party to the bankruptcy proceedings and interposed objections to the discharge based upon these same allegations of fraud and afterwards withdrew them, that the decree discharging the defendant was an adjudication as between the plaintiff and the defendant that there was no fraud which could be raised as a barrier to the defendant’s discharge. I assumé that, as the plaintiff raised these objections and withdrew them, its position would be the same as though, while a party to the proceeding, this objection Was not raised. If such were the case, I think it could hardly be claimed that the discharge in bankruptcy would be deemed an adjudication as between the- plaintiff and the defendant that there was no fraud. The plaintiff might have elected to oppose a discharge, and have used the fraud for that purpose. On the other hand, it may . have been willing that the defendant should be discharged from all his provable debts except such as were excepted under the statute, in which class was its claim. Failure to present these facts, therefore,, as an objection to defendant’s discharge could not estop the plaintiff from thereafter maintaining an action for the defendant’s fraud. Otherwise the statute would be inoperative.' Because the statute, itself excepts liability for fraud from the effect of the discharge plaintiff’s rights were saved from the bar of the adjudication.

Hor can the defendant’s plea of another action pending prevail. This action is one for fraud. The other action is one on contract. The efficacy of this defense is tested by the rule that the same evidence .is necessary to establish both- causes of action. It will not here be claimed that this plea can be sustained upon this test. (Dawley v. Brown, 79 N. Y. 390; Cobb v. Cullen Bros. & Lewis, Steel Co., 68 App. Div. 179.)

The interlocutory judgment should, therefore, be reversed and the demurrers to the fourth and sixth defenses in the defendant’s amended answer sustained, with costs in this court and at Special Term.

All concurred.

Interlocutory judgment reversed and demurrers to the fourth and sixth defenses in the defendant’s amended answer sustained, with costs in. this court and at Special Term.