75 N.Y.S. 40 | N.Y. App. Div. | 1902
Lead Opinion
The pleadings in the Municipal Court were oral. The record shows that the complaint was “ for money obtained by fraud.”
On the 13tli day of October, 1898, the defendant made a general assignment for the benefit of his creditors which was filed the next day ; and on the seventeenth day of December thereafter, on the petition of his creditors, he was duly adjudged a bankrupt by the United States District Court. In the bankruptcy proceedings the plaintiff filed proof of a claim in the same amount for “ money deposited ” with the defendant “ while acting in the capacity of banker.” On the 29th day of March, 1899, the defendant was duly discharged by said court from all debts provable in bankruptcy which existed on the day he was adjudged a bankrupt “ excepting such debts as are by law excepted from the operation of a discharge in bankruptcy.”
The appellant, without conceding fraud on his part in contracting this indebtedness, rests his appeal solely upon the grounds: (1) That respondent having proved his debt upon contract waived his right to recover upon the ground of fraud ; and (2) that even if there was actual fraud on his part, still the debt has been discharged by the discharge in bankruptcy. The trial court and the Appellate Term have determined that there was fraud on the part of appellant in receiving these deposits when he was hopelessly insolvent. .We do not deem it necessary, inasmuch as the appellant has not seen fit to present the point, to scrutinize the evidence, in the light of the decisions applicable, for the purpose of determining whether a finding that positive fraud, involving moral turpitude or intentional wrong, might be inferred therefrom.
The effect of the discharge in bankruptcy must be determined by a consideration of the Bankruptcy Act of July 1, 1898, and the decisions thereunder, and those construing the corresponding provisions of the former Bankruptcy Laws.. Section 17 of the present Bankruptcy Law, so far as material to our inquiry, provides as follows : “ A discharge in bankruptcy shall release a bankrupt from all. of his provable debts, except such as * * * (2) are judgments in
The provisions of the Bankruptcy Act of 1867, corresponding with the two subdivisions quoted, so far as that act contained provisions on the subject, were embracéd in section 33 of the act of 1867 (14 U. S. Stat. at Large, 533), which is the same as section 5117 of the United States Revised Statutes, which provided as follows: “ Uo debt created by the fraud or embezzlement of the bankrupt, or by his defalcation as a public officer or while acting in any fiduciary character, shall be discharged by proceedings in bankruptcy.”
The appellant contends that the words “ while acting as an officer or in any fiduciary capacity,” in subdivision 4 of section 17 of the act of 1898, related not only to defalcation ” but also to the words “fraud,” “embezzlement” and “misappropriation.” In other words, he contends that debts created by fraud are not necessarily dischargeable in bankruptcy, but in order not to be that the fraud must have occurred while the defendant was acting as an officer or in some fiduciary capacity. This was neither the grammatical nor judicial construction of section 5117 of the United States Revised Statutes. (Sheldon v. Clews, 13 Abb. N. C. 41; Bradner v. Strang, 89 N. Y. 299 ; affd., 114 U. S. 555; Schroeder v. Frey, 60 Hun, 58; affd., 131 N. Y. 562 ; Stokes v. Mason, 10 R. I. 261; Bradenberg Bank. [2d ed.] 273.)
The construction of subdivision 4 herein quoted has been frequently discussed judicially, but we find no controlling precedent. The view presented by appellant seems to have been adopted by the Appellate Division in the fourth department in Matter of Bullis (68 App. Div. 508; 73 N. Y. Supp. 1047), but the construction of subdivision 4 was not essential to the decision in that case. The question there was whether a judgment had1 been discharged by a discharge in bankruptcy of the judgment debtor, and the point decided was that the judgment had been recovered in an action for fraud, and, therefore, was excepted from the operation of such discharge by subdivision 2 of said section 17. It is true that the provisions with reference to
It seems to be the view of • the text writers and of the Federal judges, so far as this question has been considered, that Congress in this change of phraseology intended no change whatever with reference to the character of the debts created by fraud which are not dischargeable. (Collier Bank. [3d ed.] 198, 991; Loveland Bank. §§ 293, 295; Matter of Thomas, 1 Am. Bank. Rep. 515 ; Matter of Moreau Lieber, 3 id. 217.) If the words “fraud,” “embezzlement ” and “ misappropriation ” are all qualified by the clause “ while acting as an officer or in any fiduciary capacity,” it is difficult to see the purpose of the use of the word “ fraud ” at all.
The respondent’s claim not having been merged in a judgment, subdivision 2 of section 17, hereinbefore quoted, has no application and we do not think that said subdivision tends to sustain the appel
The application of subdivision 4, relating to debts not in judgments, depends on how the debts were created ; while the application of subdivision 2, which is confined to debts merged in judgments, depends not on how the debts were originally created, but on the form of action on which the recovery was had as shown by the judgment, pleadings and record. (Matter of Rhutassel, 96 Fed. Rep. 597; Matter of Thomas, 1 Am. Bank. Rep. 515 ; Burnham v. Pidcock, 58 App. Div. 273; Matter of Bullis, supra ; Collier Bank. [3d ed.] 194.)
. We are of the opinion, therefore, that this indebtedness having been created by the fraud of the appellant was not discharged by the decree in bankruptcy.
• The appellant’s contention that the respondent is estopped from prosecuting this action by his election to prove his claim in bankruptcy remains to be considered. A binding election can only be made where a party, with full knowledge of all the material facts, adopts a remedy which is inconsistent with another remedy then open to him. (Crossman v. U. R. Co., 127 N. Y. 34.) We fail to discover any inconsistency between the remedy pursued by the respondent in the bankruptcy court and that adopted by bringing this action. It does' not necessarily appear ■ that the respondent waived the tort by filing proof of his claim in bankruptcy. If not, merely proving the indebtedness which concededly existed and which was induced by fraud, would not be inconsistent with subsequently bringing an - action to recover the money obtained by the fraud. (Stokes v. Mason, 10 R. I. 261; Sheldon v. Clews, supra; Bickford v. Barnard, 8 Allen, 314.) But if the neces
These views lead to an affirmance of the determination of the Appellate Term, with costs.
Dissenting Opinion
I dissent.- I am of the opinion that the proving of the claim in bankruptcy was an election.
Determination of Appellate Term affirmed, with, costs.