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 earlier federal bankrupt laws contained no provision concerning the omission of debts from the schedule. It was accordingly held that, under the clause of the statute providing that the discharge should bar all debts with certain exceptions, of which a debt omitted was not one, a discharge barred debts omitted from the schedule,1 unless such omission was wilful and fraudulent.2
The bankrupt act of 1898 excepts from the operation of the discharge debts which "have not been duly scheduled in time for proof and allowance, with the name of the creditor if known to the bankrupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy." Accordingly, a discharge does not bar a debt omitted from the schedule where the omitted creditor has no notice or knowledge of the bankruptcy proceedings in time to prove his claim.3 The knowledge of the proceedings in bankruptcy means knowledge which is acquired in time to enable the creditor to take part in the administration of the estate of the bankrupt and to share in the dividends, and not knowledge which is acquired too late for such purpose, but in time to apply for a revocation of the discharge.4 If the bankrupt knows that a note has been discounted at a certain bank, and schedules such note in the name of the original payee, and the bank has no notice or actual knowledge of the proceedings in bankruptcy, such note is not barred by such discharge.5
20 Fulton v. Hammond, 11 Fed. 201.
21 Mntteson v. Kellogg, 15 111. 547.
22 Herman v. Lynch, 26 Kan. 435, 40 Am. Rep. 320.
23 Shipley v. Platts, 17 S. D. 357, 07 N. W. 1.
1 Alabama. Fox v. Paine, 10 Ala. 523.
District of Columbia. Hoffman v. Haight, 3 Mack. (D. C.) 21.
Michigan. Graves v. Wright, 53 Mich. 425, 10 N. W. 120.
Ohio. Mitchell v. Singletary, 10 Ohio 291.
Tennessee. Eberhardt v. Wood, 74 Tenn. (6 Lea) 467.
Wisconsin. Thomas v. Jones, 30 Wis. 124.
2 Shepard v. Abbott, 137 Mass. 224; Thomas v. Jones, 30 Wis. 124.
3 Birkett v. Columbia Bank, 105 U. S. 345, 40 L. ed. 231; In re Monroe. 114 Fed. 308; Hughes v. Clark, 100
111. App. 107; Smith v. Hill, 232 Mass. 188, 2 A. L. R. 1667, 122 N. E. 310; Columbia Bank v. Birkett, 174 N. Y.
112, 102 Am. St. Rep. 478, 66 N. E. 652 [affirmed, Birkett v. Columbia Bank, 105 U. S. 345, 40 L. ed. 231].
The fact that the debt was omitted in good faith does not bring it within the operation of the discharge.6 On the other hand, a debtor to whom no notice of an assignment has been given is protected if he gives notice to the original creditor,7 especially if such debt has been reduced to judgment and notice has been given to the judgment creditor of record.8
4Birkett v. Columbia Bank, 105 U. 8. 345, 40 L. ed. 231 [affirming, Columbia Bank v. Birkett, 174 N. Y. 112, 102 Am. St. Rep. 478, 66 N. E. 652].
"The finding of the trial-court is that the defendant 'had no notice or actual knowledge, or other knowledge, of said proceedings in bankruptcy prior to the discharge of the bankrupt therein.' This is made more definite as to time by the court of appeals. Defendant in error, upon making an inquiry by letter November 6, 1800, about Russell & Birkett, was informed that they had gone through bankruptcy, and subsequently (November 17th), the Northern district was given as the district of the proceedings. The discharge was September 12, 1800. Knowledge, therefore, it is contended, came to defendant in error in time to prove its claim (section 65), and to move to revoke the discharge of the bankrupt (section 15). It is hence argued that defendant in error must be held to have had 'actual knowledge of the proceedings in bankruptcy,' as those words of section 17 must be construed. We do not think so, nor is that construction supported by the other provisions of the law urged by plaintiff in error. Actual knowledge of the proceedings contemplated by the section is a knowledge in time to avail a creditor of the benefits of the law-in time to give him an equal opportunity with other creditors - not a knowledge that may come so late as to deprive him of participation in the administration of the affairs of the estate or to deprive him of dividends (section 65). The provisions of the law relied upon by plaintiff in error are for the benefit of creditors, not of the debtor. That the law should give a creditor • remedies against the estate of a bankrupt, notwithstanding the neglect or default of the bankrupt, is natural. The law would be, indeed, defective without them. It would also be defective if it permitted the bankrupt to experiment with it - to so manage and use its provisions as to conceal his estate, deceive or keep his creditors in ignorance of his proceedings without penalty to him. It is easy to see what results such looseness would permit - what preference could be accomplished and covered by it" Birkett v. Columbia Bank, 105 U. S. 345, 40 L. ed. 231 [affirming, Columbia Bank v. Birkett, 174 N. Y. 112, 102 Am. St. Rep. 478, 66 N. E. 652].
5 Columbia Bank v. Birkett, 174 N. Y. 112, 102 Am. St. Rep. 478, 66 N. E. 652 [affirmed, Birkett v. Columbia Bank, 105 U. S. 345, 40 L. ed. 231].
6 Santa Rosa Bank v. White, 130 Cal. 703, 73 Pac. 577.
7 Morency v. Landry, - N. H. -, 108 Atl. 855.
8 Morency v. Landry, - N. H. -108 Atl. 855.
If the creditor has actual knowledge of. the proceedings in bankruptcy, his claim is barred by discharge even if omitted from the schedule.9 If the creditor has actual notice of the proceedings in bankruptcy, in time to present his claim and to take part in the administration of the bankrupt's estate, it makes no difference how such knowledge or notice is acquired.10 A note is barred by discharge, which is scheduled by the debtor as being held by the original payee, although he knows it has been transferred if the transferee has actual knowledge of the proceedings in bankruptcy.11
By reason of the special provision of subdivision 5 of section 70a of the bankrupt act of 1898, the right of the bankrupt who has paid the cash surrender value of his life insurance policies to the trustee, to hold such policies free from the claims of the creditors, is limited to the creditors who participate in the distribution of his estate under the bankruptcy proceedings; and he can not hold such policies free from the claims of other creditors, even if they had notice of the bankruptcy proceedings and even if they presented their claims, but subsequently, on their own application, had such claims expunged from the list of claims and received no dividends thereon.12 If the debt is not listed in the schedule it is for the debtor to show affirmatively that the creditor had actual notice of the bankruptcy proceedings, to make the discharge operative as to such debt.13