This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The fact that the fraud is not of such a nature that it will prevent the granting of a discharge to the bankrupt, does not show the absence of fraud conclusively; and it is possible that the discharge may be granted over the objection of the creditor, but the discharge when granted may not be a bar against the debt in question.1
9 Bank v. Crandall, 87 Mo. 208. (The court points out that a different result would have been reached had the fraudulent use of the bonds been made after the debt had been incurred.)
10 Strang v. Bradner, 114 U. S. 555, 29 L. ed. 248 [affirming, 89 N. Y. 299].
11 Forbes v. Thomas, 22 Neb. 541, 35 N. W. 411.
1 "To constitute res judicata, it is elementary that there must be identity of cause between the two cases. In view of the text of the bankrupt law, the distinction which it makes between the general discharge and the right of a particular creditor to be exempt from the operation of such discharge it needs but statement to demonstrate the difference of cause which necessarily obtains between determining on the one hand in favor of the bankrupt whether he is entitled to a general discharge and of deciding, on the other, as between a particular creditor and the bankrupt, whether the claim of that creditor is of such a character as to be exempt from the operation of a discharge. Nothing could more clearly emphasize the distinction which exists between the two subjects - that is, the granting of a general discharge and the question after it is granted whether a particular debt is exempted by law from its operation - than does the provision of the statute (Sec. 14c, 30 Stat. 550) authorizing a general discharge as the result of an approval of a composition, since it expressly reserves from the operation of such discharge of the bankrupt from his debts, 'those not affected by a discharge.' It is elaborately argued, however, that whatever be the infirmity of the decree of confirmation as res judicata in the complete sense, that decree was necessarily binding in so far as it established relevant facts which were at issue between the parties and therefore is here conclusive. But the proposition rests upon an unfounded assumption, as nothing in the assertion of the right to be exempt from the operation of the discharge here relied upon involves a traverse or denial of any relevant fact established as a result of the approval of the composition. On the contrary, as we have seen, the facts here relied upon to establish the exemption from discharge are the facts which were conceded to exist and were not traversed for the purpose of the hearing on the composition." Friend v. Talcott, 228 U. S. 27, 57 L. ed. 718 [affirming, Talcott v. Friend, 179 Fed. 676, 43 L. R. A. (N.S.) 649].
Conversely, the act of the debtor in proving a judgment rendered in an action for fraud or a debt created by fraud, as a claim in the bankruptcy proceeding,2 and accepting a dividend thereon,3 does not make the debt one which is barred by a discharge in bankruptcy.