Opinion
Argued October 23, 1930 —
Decided October 19, 1931.
On appeal from a judgment of the Essex County Circuit Court, in which Judge Dungan filed the following opinion:
"Under the agreed state of facts in this case, it appears that the defendant was adjudicated a bankrupt; that prior to the adjudication and within four months of such adjudication, a judgment has been obtained against him. Subsequent to the adjudication in bankruptcy, the defendant purchased a property, which he agreed to sell to the plaintiff, and upon which the plaintiff paid $500. At the time fixed for the taking of title, it was agreed between the plaintiff and the defendant that the time should be extended, but at the time to which the closing of the transaction had been extended, the defendant had not yet been discharged in bankruptcy.
"The plaintiff claims that by reason of that fact, and the possibility that the defendant might not thereafter be discharged, this constituted a cloud upon the title, which permitted him, under the New Jersey statute of 1915, to require the defendant to repay the deposit, including any search fees, and fees for survey. In this case there was no survey.
"This suit is brought to recover the $500 deposited, with interest from the date of its payment, which was July 12th, 1928, and also search fees, amounting to $147.41.
"The question, therefore, is, what the status of the judgment as to this property was between the date of adjudication and the date of discharge, the plaintiff claiming that since, upon failure of discharge, the judgment-creditor might enforce his judgment against an after-acquired property, the plaintiff was justified in refusing to take the title; the defendant claiming that between the adjudication and the discharge in bankruptcy, if applied for within the time required by the Bankruptcy law, no lien could attach on a judgment obtained within four months of bankruptcy, until after the discharge had been denied.
"Regardless of the effect of section 67-f, whether for the benefit of the creditors or both the creditors and the debtor, I think we ought to consider the beneficent purposes of the Bankruptcy act. There seem to be some decisions that 67-f is for the benefit of the creditors only; some to the effect that it is for the benefit of both the creditors and the debtor, that section holding that any judgment obtained within four months is absolutely void as to such judgment-creditors, but the Bankruptcy act, as a whole, is for the benefit of both the creditors and the debtor, regardless, as I have said, of the effect of that particular section. It is designed to provide for a pro rata distribution of the bankrupt's property among all of his creditors, up to the time of the adjudication in bankruptcy. It is also designed, it has been said, to release, as practically dead wood in the commercial life of our country, those who are hampered by debts which they cannot pay, and to enable them to get a fresh start in life. Therefore, a liberal construction of the Bankruptcy act — and it must be liberally construed — must provide a time when the bankrupt can start out upon his new adventures, become something in the commercial world, and support his family.
"What is that time? It seems to me that time must be from the time of the adjudication in bankruptcy, depending, of course, upon his eventual discharge. All the events covered by the agreed state of facts in this case occurred, as I have already said, between the adjudication and the time when the bankrupt might obtain his discharge. A reading of the Bankruptcy act would indicate, and the decided cases would indicate, that during that period he might go ahead and transact his business, free from any lien or interference of those who were his creditors prior to the time of his adjudication, and that any property which he acquired after his adjudication, and before his discharge, would not be subjected to the lien of his creditors who were such prior to that adjudication, certainly if that property were disposed of before the discharge.
"This, of course, makes it unnecessary to decide the question of whether or not, if his discharge had been applied for and refused, the judgment debt would have been a lien subsequent to such refusal.
"In this case the property was after-acquired, as I have already stated. The time when the property was to be conveyed under the agreement was prior to the time when application might have been made for the bankrupt's discharge, and the date to which it was extended was prior to that time; so that the time when it was agreed that the plaintiff in this case should take title to the property was prior to the time when the defendant might have obtained his discharge, and the proofs show that he actually did obtain his discharge after that time.
"The result of these views is to deny the motion to strike out the answer; and, under the agreement that the court may give judgment in this case upon this agreed state of facts, judgment will be given for the defendant and against the plaintiff."
For the appellants, Joseph S. Zemel.
For the respondents, Harley, Cox Walburg.
The judgment appealed from will be affirmed, for the reasons given in the opinion of Judge Dungan.
For affirmance — THE CHIEF JUSTICE, TRENCHARD, CAMPBELL, LLOYD, BODINE, HETFIELD, DEAR, WELLS, JJ. 8.
For reversal — CASE, DALY, DONGES, VAN BUSKIRK, KAYS, JJ. 5.