
    Karol v. Stewart Stores, Inc.
    
      Bankruptcy — Discharge of debt though not scheduled — Knowledge c bankruptcy.
    
    1. A creditor of a bankrupt corporation, not scheduled In the bankrupt’s list c creditors and not proving his debt, but disclosing his knowledge of the bankruptc in his answer to a scire facias sur recognizance in a foreign attachment, is barred b the confirmation of a composition agreement and cannot subsequently maintain a action on the original debt against another corporation to which the bankrupt assets have been transferred by way of purchase after the composition.
    2. A bankrupt is released from a provable claim under a composition where tí creditor had notice or actual knowledge of the proceedings in bankruptcy, eve though his claim was not scheduled or considered in the composition.
    
      Assumpsit for debt. Affidavit of defence raising questions of law. C. P. Lehigh Co., Sept. T., 1926, No. 79.
    
      Dallas Dillinger, Jr., and Edwin K. Kline, for plaintiff.
    
      Butz & Rupp, for defendant.
    Feb. 21, 1927.
   Iobst, J.,

The plaintiff instituted his suit against the Stet art Stores, Inc., for the recovery of $4120.10, with interest. The defendai filed an affidavit of defence raising questions of law, alleging failure of tl plaintiff to sufficiently plead any contractual relationship between the partii or claim upon which a judgment could legally be entered in favor of the plat tiff and against the defendant.

In his statement of claim the plaintiff alleges that on Oct. 7,1921, he becan surety for Star Stores, Inc., in the sum of $10,000 upon a writ of foreij attachment to No. 181, October Term, 1921, wherein Finance Trust Company was plaintiff and Star Stores, Inc., defendant, which proceedings are made a part of plaintiff’s statement of claim. On Dec. 13, 1921, the Finance Trust Company, plaintiff in No. 181, October Term-, 1921, had judgment entered against the Star Stores, Inc., in the sum of $5072.52. On Feb. 17, 1922, the Finance Trust Company, as use-plaintiff to William F. Clauss, Sheriff of Lehigh County, in No. 84, April Term, 1922, Common Pleas of Lehigh County, caused a sdre faeias sur recognizance to be issued against Gabriel Karol, 'plaintiff in the instant case, upon the bond entered by the Star Stores, Inc., and on which bond the said Gabriel Karol was surety. On March 13, 1922, the Within plaintiff, as defendant in No. 84, April Term, 1922, filed his answer to the scire facias sur recognizance. As a determination of that case, the Court of Common Pleas entered judgment in favor of the Finance Trust Company and against Gabriel Karol in the sum of $5469.02. On appeal to the Supreme Court of Pennsylvania, the judgment of the Common Pleas Court was sustained with leave, as set forth to Nos. 75 and 76, January Term, 1924. in accordance with the opinion of Mr. Justice Simpson, the judgment was reduced to $4070.74, which sum was then paid by Gabriel Karol to the use-plaintiff. The record to No. 84, April Term, 1922, is made a part of plaintiff’s statement of claim.

[| The Star Stores, Inc., defendant in No. 181, October Term, 1921, was djudged a bankrupt by the United States District Court for the Southern listrict of New York, and from the record papers in No. 181, October Term, L921, we find the adjudication in bankruptcy as of Dec. 7, 1921. Subsequent ;o the adjudication in bankruptcy, Star Stores offered a composition to its Creditors, which composition was accepted by a majority in number and in imount of creditors, whereupon the referee in bankruptcy filed his report recommending the acceptance of said composition, the confirmation of the recommendation being subject to call on March 13, 1922. Gabriel Karol, vithin plaintiff, was not listed by the Star Stores, Inc., as one of its creditors, lor did he file any claim with the referee in the bankruptcy proceedings. The United States District Court, confirming the aforesaid composition, entered he following order: “Ordered that upon the entry of an order confirming this iomposition, all of the assets of the bankrupt estate be turned over to Max Libert, as trustee for New Star Stores, Inc., to which order said alleged bank-upt hereby consents.” Whereupon all of the assets of the bankrupt were urned over to and delivered to the said Max Albert, trustee for New Star Stores, Inc. Subsequent to this arrangement, a new corporation was created nder the laws of the Commonwealth of Pennsylvania, and a charter granted nd letters-patent issued by the Governor of the Commonwealth of Pennsyl-ania to the New Star Stores, Inc. Subsequent to the charter, Max Albert, lustee, for a consideration of stock issued by the corporation, executed bills f sale for all of the assets formerly the property of the Star Stores, Inc., to he New Star Stores, Inc. Again, subsequent to the incorporation of the New ¡tar Stores, Inc., a merger was formed by the later company with the rational Outfitting Company, and a new charter secured in the name of Stew-rt Stores, Inc., the defendant in this case, conditioned that the said merged orporation, under the name of Stewart Stores, Inc., assume all of the liabili— es of the New Star Stores, Inc., and the National Outfitting Company.

Before a plaintiff can recover against a defendant in an action of assumpsit, íere must be some liability on the part of the defendant to the plaintiff, and íe pleadings upon which a plaintiff bases his action must set forth a cause action.

In the original cause the parties were Finance Trust Company, plaintiff and Star Stores, Inc., defendant. As a result of this case, a subsequent issue developed, the parties there being William F. Clauss, then Sheriff of Lehigl County, to the use of Finance Trust Company, plaintiff, and Gabriel Karol defendant. At that time New Star Stores, Inc., and Stewart Stores, Inc. were not in being. Neither were these latter two corporations in existenct at the time that the assets of the Star Stores, Inc., bankrupt, were deliverec to Max Albert, trustee, when the compromise with the creditors of Star Stores Inc., was effected.

The plaintiff in this action seeks to fix liability on the part of the presenj defendant by alleging in the 17th paragraph of the statement of claim “thai therein (referring to the schedule of creditors) plaintiff (Gabriel Karol) was not listed by said Star Stores, Inc., as one of its creditors, either in its orig inal or amended schedules filed in said bankruptcy cause.”

The plaintiff in this case surely had full knowledge of the bankruptcy prc ceedings of the Star Stores, Inc., in the United States District Court, for i; his answer as defendant in No. 84, April Term, 1922, which record has bee made a part of plaintiff’s statement of claim in this cause, he sets forth i detail those proceedings, and especially refers to the composition effected b the Star Stores, Inc., with its creditors, and refers to the final confirmatio: thereof as of March 13, 1922, which is the same date on which Gabriel Kar( swore to his affidavit of defence. On March 13, 1922, Gabriel Karol knew th amount for which he was liable on his bond in the attachment execution, judi ment having been taken by the Finance Trust Company against the Sts Stores, Inc., on Dec. 13, 1921, in the sum of $5072.52. Further proof <j knowledge is also evident when we examine the affidavit of Gabriel Karol ó his petition for a rule to open the judgment in No. 181, October Term, 192; which record has also been made a part of plaintiff's statement of clain This petition is sworn to by him on Feb. 6, 1922, and in it he alleges that “f had no knowledge of the entry of said judgment until a few days prior to tl date of this petition.”

“A discharge in bankruptcy shall release a bankrupt from all his provab debts, except such as . . . have not been duly scheduled in time for proof ai allowance, . . . unless such creditors had notice or actual knowledge of tl proceedings in bankruptcy:” Section 17; 1 Collier on Bankruptcy (13th e< 1923), 591.

Actual knowledge has been defined by the Supreme Court of the Unit States in these words: “Actual knowledge of the proceedings contemplated ¡ the section is a knowledge in time to avail a creditor of the benefits of t' law — in time to give him an equal opportunity with other creditors — not knowledgs that may come so late as to deprive him of participation in t administration of the affairs of the estate or to deprive him of dividends Birkett v. Columbia Bank, 12 Am. Bank. Reps. 691; 195 U. S. 345.

“Where a creditor of a bankrupt, holding a judgment note with a wai\ of exemption, does not present it in bankruptcy proceedings, although he b knowledge of such proceedings, ... he cannot thereafter enter up the jut ment note and enforce the judgment against the bankrupt or against got set apart by the trustee in bankruptcy to the bankrupt under his claim j exemption under the bankrupt law:” Claster v. Soble, 22 Pa. Superior 631 (Syl.).

It is very clear from these provisions, the plaintiff admitting actual £ seasonable knowledge of the proceedings in bankruptcy in his pleadings, t! his claim is, therefore, barred.

We might also add that at the time that the assets of the Star Stores, Inc., bankrupt, were turned over to Max Albert, trustee for New Star Stores, Inc., the latter was not in being. According to the pleadings, the incorporation of New Star Stores, Inc., took place some time subsequent thereto. It is not alleged that New Star Stores, Inc., became a successor of Star Stores, Inc., nor that it assumed any of its liabilities or obligations. If the New Star Stores, Inc., received all of the assets of the Star Stores, Inc., it did so by way of purchase, the pleadings setting forth that this was done in consideration of stock issued by the corporation.

We, therefore, come to the conclusion that the plaintiff in his statement of daim sets forth no cause of action, and judgment must, therefore, be entered n favor of the defendant.

Decree of court.

Now, Feb. 21, 1927, the affidavit of defence raising questions of law is sustained and judgment is, therefore, entered in favor of the defendant.

Prom Edwin L. Kohler. Allentown, Pa.  