Opinion
No. 77-214
Decided December 29, 1977.
In action on promissory note, plaintiff recovered judgment against wife, but was precluded from recovering against husband because of his discharge in bankruptcy; however, wife on cross-claim based on fraud recovered against husband, and he appealed that judgment.
Reversed
1. BANKRUPTCY — Dischargeability — Debt — Two Issues — Provable — Specified Type — Dischargeability Act — Exclusive Jurisdiction — Bankruptcy Courts — Not Applicable — Provability Issue. The dischargeability of a particular debt in bankruptcy requires a determination of two issues — first, whether the debt is provable under § 63 of the Bankruptcy Act, and second, whether it is of a type specified under § 17(a) of the Act; accordingly, since Federal Dischargeability Act conferring, in some situations, exclusive jurisdiction on the bankruptcy courts, affected only the second issue and not the first, the bankruptcy courts were not given exclusive jurisdiction to determine the provability of a claim.
2. Provability of Claim — State Courts — Jurisdiction — Determine — Effect of Discharge. Since the Bankruptcy courts do not have exclusive jurisdiction to determine the provability of a claim, and since non-provable debts are unaffected by a discharge in bankruptcy, state courts have jurisdiction to consider the provability of a particular claim in determining the effect of a bankruptcy discharge on it.
3. Fraud Claim — Wife Against Husband — Promissory Note — Quasi-Contractual — Contingency — Not Remote — Not Non-Provable — Husband's Bankruptcy — Claim Discharged. Since lawsuit on promissory note signed by husband for himself, and for his wife under a power of attorney, was pending as of the date of the husband's bankruptcy, the wife's tort claim against the husband involving the unjust enrichment of a fiduciary through his fraud and breach of trust could support a provable quasi-contractual claim under the Bankruptcy Act, and also the contingency upon which that claim was dependent was not so remote, fortuitous, or difficult to predict that it rendered the claim non-provable; hence, the wife was entitled to file and prove a claim against the husband in plaintiff's name in the bankruptcy proceeding, and her failure to do so caused the claim to be discharged.
Appeal from the District Court of the County of El Paso, Honorable Hunter D. Hardeman, Judge.
Addy, Otto Stauffer, John G. Otto, for defendant-appellant.
Murphy, Morris Susemihl, Peter M. Susemihl, for defendant and cross-claimant appellee.
Plaintiff sued defendants on a promissory note and obtained judgment against defendant Evamarie Blue (wife), but was unable to recover against defendant Earnest R. Blue (husband) because of his discharge in bankruptcy. Plaintiff's judgment is not appealed. However, wife recovered a similar judgment against husband on her cross-claim based on fraud. Husband appeals the wife's judgment. We reverse.
Co-defendants were married on December 26, 1972, separated on December 15, 1974, and their marriage was dissolved on July 1, 1975. Husband was a real estate salesman, and prior to their separation wife gave him a general power of attorney. On January 7, 1975, husband obtained a loan obligating himself and his wife, through the use of the power of attorney, on a promissory note for $4,275 secured by a deed of trust. Plaintiff, Lyle Schwartz, later became a holder in due course of the note and deed of trust, and on August 28, 1975, instituted this suit.
On October 8, 1975, husband filed his petition for voluntary bankruptcy. Though husband did not list wife in connection with this particular loan, the evidence is clear that she had notice of the bankruptcy proceedings and should be treated as a scheduled creditor. See Bankruptcy Act § 17(a)(3), 11 U.S.C. § 35(a)(3). Husband was discharged in bankruptcy on February 19, 1976. In the present action, wife filed a cross-claim against husband on September 8, 1976, alleging he had fraudulently used the power of attorney in obtaining the loan and in the execution of the note and deed of trust. Husband relied on his discharge in bankruptcy as a complete defense to wife's cross-claim.
In awarding judgment to wife, the court determined that the power of attorney was executed in order to allow husband to supply his wife's signature on real estate documents without inconveniencing her, that after the parties had separated, wife orally revoked the power, and that husband, in continuing to use it for his personal benefit, obtained the loan by fraud and breached his fiduciary relationship to his wife. The court held that wife was entitled to a judgment in the state court on the basis that her claim was not provable at the time of husband's bankruptcy because it was too contingent.
Two issues are presented for review: (1) Do state courts have jurisdiction to consider the dischargeability for claims involving fraud on the basis of the provability of such; and (2) if so, was this claim provable as of the date of bankruptcy and hence discharged.
I.
In 1970 Congress passed the Dischargeability Act, Pub.L. No. 91-467, 84 Stat. 990, amending §§ 2(a)(12), 14(f), 17(a) and (c) of the Bankruptcy Act, 11 U.S.C. §§ 11(a)(12), 32(f), 35(a) and (c). Under this Act, Congress gave bankruptcy courts exclusive jurisdiction to determine whether a particular debt is non-dischargeable because of fraud, false pretenses or malicious and willful acts of the bankrupt. Bankruptcy Act § 17(c)(2) (as amended), 11 U.S.C. § 35(c)(2) (as amended). Although the primary purpose underlying the Dischargeability Act was to eliminate "the resultant inefficiency and inherent inequity where a federal bankruptcy court granted a discharge and a state court determined the effect to be given to that discharge with an impecunious litigant being one of the parties shuttled between federal and state court," In re Copeland, 412 F. Supp. 949 (D. Del.), the Act did not entirely accomplish this goal.
[1] The dischargeability of a particular debt requires a determination of two separate issues — first, whether the debt is provable under § 63 of the Bankruptcy Act, 11 U.S.C. § 103, and second, whether it is of a type specified under § 17(a) of the Act, U.S.C. § 35(a). Crawford v. Burke, 195 U.S. 176, 25 S.Ct. 9, 49 L.Ed. 147. The provisions of the Dischargeability Act conferring, in some situations, exclusive jurisdiction on bankruptcy courts, affected only the second issue and not the first, [1970] U.S. Code Cong. Ad. News 4156, et seq.; see Countryman, the New Dischargeability Law, 45 Am. Bankr. L.J. 1; Note, Bankruptcy — 1970 Amendments to Bankruptcy Act — An Attempt to Remedy Discharge Abuses, 69 Mich. L. Rev. 1347; Dischargeability: a New Perspective, 32 Ohio St. L. Jour. 889; Comment, Bankruptcy: Effect of the 1970 Bankruptcy Act Amendments on the Discharge That Never Was, 1971 Wis. L. Rev. 1174, the result being that the bankruptcy courts were not given exclusive jurisdiction to determine the provability of a claim.
[2] Since non-provable debts are unaffected by a discharge in bankruptcy, 1A W. Collier, Bankruptcy ¶ 17.03 (14th Ed. 1975); In re Murphy, 381 F. Supp. 813 (N.D. Ala.), states courts have jurisdiction as in this case, to consider the provability of a particular claim in determining the effect of a bankruptcy discharge on it. Cf. State v. Wilkes, 41 N.Y.2d 655, 394 N.Y.S.2d 840, 363 N.E.2d 555.
II.
[3] The trial court erred, however, in its conclusion that wife's claim was non-provable at the time of bankruptcy. Since wife was jointly liable with husband on the note, she was entitled to file and prove a claim against husband in plaintiff's name in the bankruptcy proceeding. Bankruptcy Act § 57(i), 11 U.S.C. § 93(i); Bankruptcy Rule 304. In general, contingency of an obligation is not a bar to provability. State v. Wilkes, supra. Contingent debts and contingent contractual liabilities are provable if allowable. Bankruptcy Act §§ 63(a)(8), 63(d), 11 U.S.C. §§ 103(a)(8), 103(d). To be allowable, a contingent claim must, at the time of bankruptcy, be capable of liquidation or reasonable estimation, without unduly delaying the administration of the bankrupt's estate. Bankruptcy Act § 57(d), 11 U.S.C. § 93(d); In re Crisp, 521 F.2d 172 (2d Cir.). Here, husband's liability to wife was readily capable of reasonable estimation, because under the facts of this case it was limited by the terms of the promissory note. Since plaintiff's lawsuit was pending as of the date of bankruptcy, the occurrence of the contingency upon which her claim is based cannot be said to be too remote, fortuitous, or difficult to predict. Cf. Thompson v. England, 226 F.2d 488 (9th Cir.).
Furthermore, we do not agree with wife's contention that her claim in non-provable because it represents a tort claim which had not yet been made the subject of an independent action, as of the date of the bankruptcy. The type of unfiled tort claim presented here, i.e., involving the unjust enrichment of a fiduciary through his fraud and breach of trust, can support a provable quasi-contractual claim under § 63(a)(4) of the Act, 11 U.S.C. § 103(a)(4). 3A W. Collier, Bankruptcy ¶ 63.25 (14th ed. 1975); See also Crawford v. Burke, supra; Clarke v. Rogers, 228 U.S. 534, 33 S.Ct. 587, 57 L.Ed. 953.
In summary, the trial court had jurisdiction to determine whether this claim was provable at the time of the bankruptcy proceeding. However, since the claim was provable, it was discharged and wife was not entitled to judgment on her cross-claim.
Judgment reversed.
JUDGE COYTE and JUDGE PIERCE concur.