In re Seymour

| S.D.N.Y. | Aug 15, 1867

BLATCHFORD, District Judge.

The twenty-sixth section of the bankruptcy act provides as follows: “No bankrupt shall be liable to arrest during the pendency of the proceedings in bankruptcy, in any civil action, unless the same is founded on some debtor claim from which his discharge in bankruptcy would not release him.” The purport of this provision of the twenty-sixth section is, that no person shall be held under arrest, or suffer imprisonment, in any civil action, during the pendency of proceedings in bankruptcy by or against him, whether he is first put under arrest after the commencement of the proceedings, or is imprisoned at the time the proceedings are commenced, unless the action is founded on some debt or claim from which his discharge in bankruptcy would not release him: but that he may. notwithstanding the pendency of proceedings in bankruptcy by or against him, be held under arrest, and suffer imprisonment, in a civil action, if such action is founded on a debt or claim from which his discharge in bankruptcy would not release him.

The question, therefore, arises, whether the debt due to Rosswog is one from which Seymour’s discharge in bankruptcy would release him. In other words, is such debt, within the language of the thirty-third section of the act, a debt created by the fraud of Seymour, or by his defalcation while acting in a fiduciary .character? According to well settled authority, such a debt was created by the defalcation of Seymour while acting in a fiduciary character. The depositing of the property with.Seymour for sale on commission for Rosswog. established a fiduciary relation between them, and charged Seymour with the execution of a trust on behalf of Rosswog. under which it was his duty either to return the property to Rosswog or to remit to him its proceeds. His failure, to do so was a defalcation by him while acting in such fiduciary capacity, and such defalcation created the debt to Rosswog. Such debt will, therefore, not be discharged by the discharge of Seymour in bankruptcy, and consequently such debt is one for which, in a civil action founded on it. Seymour may be arrested and held under imprisonment during the pendency of proceedings in bankruptcy.

The case of Chapman v. Forsyth, 2 How. [43 U. S.] 202, only decides that a balance due from a factor to his principal, for goods of the principal’s sold by the factor, is not a 'fiduciary debt within the meaning of the bankruptcy act of 1841 [5 Stat. 440], The act of 1841 excluded from its benefits “all persons owing debts created in consequence of a defalcation as a public officer, or as executor, administrator, guardian or trustee, or while acting in any other fiduciary capacity.” The supreme court held, in Chapman v. Forsyth, that a discharge under the act of 1841 did not release the bankrupt from any such debts, and that no debt fell within the description of a debt created by a defalcation “while acting in any other fiduciary capacity," unless it was a debt created by a defalcation while acting in a capacity of the same class and character as the capacity of executor, administrator, guardian and trustee. The court held, that the language of the act of 1841 was not broad enough to include every fiduciary capacity, but was limited to fiduciary capacities of a specified standard or character. That was clearly so, under that act. But. in the act of 1867. the language seems to have been intentionally made so broad as to extend to a debt created by a defalcation of the bankrupt while acting in any fiduciary capacity, and not to be limited to any special fiduciary capacity. Therefore, under the act of 1867, no debt created by the defalcation of a bankrupt while acting in any fiduciary capacity will be discharged, and a bankrupt can be imprisoned, during the pendency of proceedings in bankruptcy by or against him. in a civil action founded on any such debt.

The twenty-first section of the bankruptcy act does not apply to the present case. As Rosswog has not proved his debt in the bankruptcy proceedings by Seymour, he is not within the inhibitions imposed by that section on a creditor who proves his debt or claim. There is another provision of the twenty-first section, which is as follows: “No creditor whose debt is provable under this act shall be allowed to prosecute to final judgment any suit at law or in equity therefor against the bankrupt, until the question of the debtor’s discharge shall have been determined. and any such suit or proceeding shall, upon the application of the bankrupt, be stayed, to await the determination of the court in bankruptcy on the question of the discharge; provided there be no unreasouable delay on the part of the bankrupt in endeavoring to obtain his discharge, and provided. also, that if the amount due the creditor is in dispute, the suit, by leave of the court in bankruptcy, may proceed to judgment for the purpose of ascertaining the amount due. which amount may be proved in bankruptcy, but execution shall be stayed as aforesaid.” This provision cannot be regarded as applying to any suit or proceedings brought to collect or enforce or satisfy any debt which would not be discharged by a discharge granted under the act.⁴ There can be no reason for staying any suit or proceedings to collect or enforce or satisfy a debt, until the question of the debtor’s discharge shall have been determined by the court, if the discharge, when granted, will not discharge the debt. The statute ought not to be interpreted as extending to the staying of any suit or proceedings to collect or enforce or satisfy a debt which cannot, be discharged, if any other interpretation is consistent with the language. If the reason for the stay ceases, the presumption is that the legislature did not intend that there should be a stay. No greater scope can be given to the' suits and proceedings and debts named in the provision, than is given to the discharge by the act, and, as the act does not extend the effect of a discharge to the releasing of a debt created by the defalcation of the bankrupt while acting in a fiduciary character, this provision of the twenty-first section cannot be regarded as referring to the staying of any suit or proceedings to collect or enforce or satisfy such a debt.

It was urged, that the twenty-seventh rule of the “General Orders in Bankruptcy,” provided for the release of Seymour, although the act might not in terms apply to the case. That rule provides as follows: “If the petitioner, during the pendency of the proceedings in bankruptcy, be arrested or imprisoned upon- process in any civil action, the district court, upon his application, may issue a writ of habeas corpus to bring him before the court, to ascertain whether such process has been issued for the collection of any claim provable in bankruptcy, and, if so provable, he shall be discharged; if not, he shall be remanded to the custody in which he may lawfully be.” Without deciding whether this rule can, in any case, be construed as extending the exemption from imprisonment further than it is extended by the act itself, it is sufficient to say that the rule applies only to the court in which the proceedings in bankruptcy are pending. In the present ease, the proceedings in bankruptcy are not pending in this court, and, therefore, the rule does not apply to this court.

If Seymour were restrained of his liberty under the process of a state court in violation of any law of the United States,, this court would, under the provisions of the act of February 5th, 1867 (14 Stat. 385), have power to release him on habeas corpus. That act extends the power of this court to such a case.

The result is, that Seymour must be remanded to the custody of the sheriff, and the prayer of his petition must be denied.

4 In the Case of Rosenberg [Case No. 12.054], decided in November, 1868, Judge Blatehford held that this view of the twenty-first section was erroneous, and that the effect of that, section was. that proceedings in a suit against the bankrupt to recover a provable debt must be stayed, whether that debt would be discharged or not by the discharge in bankruptcy.