Lewis v. Shaw

106 N.Y.S. 1012 | N.Y. App. Div. | 1907

Lead Opinion

Williams, J.:

The judgment and order should be affirmed, with costs.

The action was brought for the conversion of $150 in money. The complaint alleged a delivery of the money by plaintiff to defendant for safe-keeping, with an agreement to keep safely and return on request, a request and demand and refusal, and, therefore, a wrongful and unlawful conversion. The answer denied' the allegations of the complaint and set up a discharge of defendant in bankruptcy. The reply alleged that the money was held by defendant in a fiduciary capacity when it was converted, and, therefore, the discharge in bankruptcy did not release him from paying the claim.

Upon the trial it appeared, without contradiction, that the $150 was delivered to defendant for safe-keeping, to be returned to plaintiff when requested; that return was requested and refused, the defendant having used the same. The defendant testified that he used the money with plaintiff’s consent. Plaintiff denied he gave any such consent. The bankruptcy proceedings and discharge were also proven. . The court submitted tó the jury the question whether consent was given by plaintiff to defendant’s using the money, and the jury found there was no consent. The question of nonsuit having been reserved until after the verdict was rendered, the court, after hearing counsel, granted the motion.

The question involved upon this appeal is whether by the defendant’s discharge in bankruptcy he was released from the claim here being prosecuted. Formerly it was held that a simple claim for conversion was not barred by a discharge in bankruptcy (Watertown Carriage Co. v. Hall, 75 App. Div. 201; affd., 176 N. Y. 313 ; Frey v. Torrey, 175 id. 501), but such is not now the law of this State, (Tindle v. Birkett, 183 N. Y. 267, following Crawford v. Burke, 195 U. S. 176.)

In order that a claim for conversion be barred by the discharge, it must have been put in judgment. (Bankr. Act, § 17, subd. 2.) ^*

It is claimed, however, that the conversion in this case constituted embezzlement and misappropriation,, and was, therefore, excepted from the discharge under subdivision 4 of section 17 of the Bankruptcy Act,^* but in order to be so excepted, such a claim must be against a person acting in a “ fiduciary capacity.”'

' This brings us to the consideration of the only real question involved in this appeal, whether at the timé of the conversion ánd misappropriation of the money in this case the defendant held it in a “ fiduciary capacity.”

This term has been used in the various Bankruptcy Acts of 1841,^† 1867^‡ and 1898, and its meaning manifestly has been the same under all of them.

The United States Supreme Court in 1844 laid down the rule as to the scope and meaning of this term, which has been approved of and followed ever since by that court and by the courts of this State.

In Chapman v. Forsyth (2 How. [U. S.] 202) one of the questions submitted was.: “ Is a commission merchant and factor, who sells for others, indebted in a fiduciary capacity within the act [1841] provided he withholds the money received for property sold by him, and which property was sold on account of the owner and the money received on the owner’s account % ” •

The court answered this question in the negative, saying among other things :' “ If the act embrace such a debt, it will, be difficult to limit its application. It must include all debts arising from agencies, and indeed all cases where the law implies an obligation from the trust reposed in the debtor. Such a construction would have left but few debts on which the law could operate. In almost all the commercial transactions of the country confidence is reposed in the punctuality arid integrity of the debtor, arid a violation of these is, in a commercial sense, a disregard of a trust. But this is not the relation spoken of in the- first section of the act. The cases enumerated, ‘the defalcation of a public officer,’ 'executor,’ 'administrator,’ ‘ guardian ’ or ' trustee,’ are not cases of implied but special trusts, and the ‘ other fiduciary capacity ’ mentioned must mean the same class of trusts. The act speaks of technical trusts, and not those which the law iinplies from the contract. A factor is not,' therefore,, within the act.”

The Supreme Court of the United States in 1877, in a case arising under the Bankruptcy Act of 1867, in Neal v. Clark (95 U. S. 704) quoted the language used in the Chapman case above, with approval, and said that a like process of reasoning led to the conclusion that the fraud referred to in the 33d section of the act under consideration meant positive fraud, o.r fraud in fact, involving moral turpitude or intentional wrong, as does embezzlement; and not implied fraud, or fraud in law which may exist without the imputation of bad faith or immorality. That case did not involve the meaning of the term “fiduciary character,” but quoted and approved of the language used in the Chapman case.

The Court of Appeals, in 1879, in a case arising under the Bankruptcy Act of 1867, involving both the questions of “fiduciary character” and “fraud,” in Hennequin v. Clews (77 N. Y. 427) approved of and followed both of the United States Supreme Court cases above. The debtor was a pledgee of stock, and he sold the same, contrary to the terms of the pledge, and was thus guilty of a conversion. As the term “ fiduciary character ” the court quoted the language from the Chapman case, and among other things said: “ It is claimed that the Bankrupt Act of 1867, by omitting the particular trusts specified in the act of 1841 and inserting only the general words any fiduciary character,’ is more comprehensive than the act of 1841. But I think a more reasonable inference is that the Supreme Court of the United States having determined that these general words meant only trusts of the character specified in the act of 1841, Congress deemed it necessary to insert them. * * * Here the relation rested entirely in contract.* * * If he [defendant] violated that obligation, he is liable for conversion of the property, and in a general sense he violated' a trust, but not in that particular and technical sense which the Bankrupt Act contemplates. Trust and confidence are reposed in nearly all commercial transactions, and the precepts of strict business integrity regard every debtor as- a quasi trustee for his creditors, but the Bankrupt Act would have a very limited operation if the language of this section embraced cases of such general fiduciary incidents.”

And again, in 1882, the Court of Appeals, in.a case arising under the Bankruptcy Act óf 1867, involving both the questions of ''fiduciary capacity ” or "fiduciary character,’’and “ fraud ” in Palmer v. Hussey (87 N. Y. 303) followed the Chapman and Weal cases in the United States Supreme Court and the Hennequin case in the Court of Appeals. The action was for the conversion of bonds and moneys collected' upon coupons, which, were transferred to defendant, the agent and broker of plaintiff, under an agreement that they should be' held subject to the order of the plaintiff, the coupons to be collected by defendant for the account of plaintiff. It was claimed that the defendant held the bonds and proceeds of the coupons in a “ fiduciary capacity ” under the Bankruptcy Act, and fraudulently transferred them, and the debt was not, therefore, barred by his discharge in bankruptcy. The court held to the contrary, however, saying: “The complaint alleges that he received the bonds ‘ as agent and broker and in a fiduciary capacity,’ and upon an express written agreement to return them on ten days’ notice. .The referee finds that thoy were received in a fiduciary capacity. upon the terms of such agreement. The affidavits and the evidence show no other or different trust or fiduciary relation than such as may be said always to exist in a case of agency. In every such, case there is an element of trust and confidence so that" a breach of duty may be said to be a breach of trust, but the agent is, nevertheless, not a fiduciary within the meaning of the Bankrupt Act.” Then followed a discussion of the question of fraud.

And again,, in 1891, the Court of Appeals,fin a case arising under the Bankruptcy Act of 1867, involving the question of “ fiduciary character,” in Mulock v. Byrnes (129 N. Y. 23), followed the former' decisions referred to above, and held that this.term did not apply to cases of implied trusts, but'only to those-technical trusts which were expressly- constituted by the parties. The cause of action was for the failure of an agent to pay over to his principal rents collected by him. The court considered and quoted from the cases so followed in both the United States Supreme Court and the Court of Appeals.

The language of the present Bankruptcy Act of 1898 as to “fiduciary capacity ” is not materially different from that of the' act of 1867, and the same rule of construction should be applied.

In this case the defendant was a naked bailee of the moneys, under an express agreement to keep safely and pay over on request. He was not acting in a “.fiduciary capacity” under the Bankruptcy Act, and his discharge, therefore, released him from this debt or claim and the plaintiff was not entitled to recover.. The nonsuit was properly granted.

■ All concurred, except McLennan, P. J., who dissented in an opinion.

* See 30 U. S. Stat. at Large, 550, as amd. by 33 id. 798, § 5.— [Rep

* See 30 U. S. Stat. at Large, 550, as amd. by 32 id. 798; § 5.— [Rep.

† See 5 U. S. Stat. at Large, 441, § 1.— [Rep.

‡ See 14 U. S. Stat. at Large, 533, § 33; U. S. R. S. § 5117.— [Rep.

---

Dissenting Opinion

McLennan, P. J. (dissenting):

Upon the facts which are recited in the prevailing opinion and which, we will assume, were properly established upon the trial of this case, the defendant was guilty of the crime of larceny in having appropriated under the circumstances plaintiff’s money to his own use. Section 528 of the Penal Code provides:

“A person who, * * * 2. Having in his possession, custody or control as a bailee * * * any money * * * appropriates the same to his own use * * * steals such property and is guilty of larceny.”

Clearly upon the facts recited in the prevailing opinion the defendant was guilty of having stolen plaintiff’s money. We think no well-considered authority cambe found which sustains the proposition that under such circumstances such guilty party may avoid liability to the person whom he has thus wronged by filing a voluntary petition in bankruptcy and obtaining a discharge. The provisions of the Bankruptcy Law were not, in my opinion, intended to permit such a palpable wrong to be successfully consummated.' If the defendant in this case had taken from plaintiff’s till $150 without the knowledge or consent of the plaintiff he would only have been guilty of larceny, and yet it would hardly be contended that his liability to the plaintiff for such act might be discharged by filing a petition in bankruptcy and obtaining his discharge thereon.And yet he was only guilty of the crime of larceny. Under the facts assumed to have been proven in the case at bar the defendant was equally guilty of such crime. It seems to me absurd to say that he may avoid liability to the person whom he has wronged by any provision of the Bankruptcy Act.

If the views expressed in the prevailing opinion are correct, then it follows that one person may obtain the money of another by stealing the same and then be relieved from liability for such theft by a discharge in bankruptcy. However fine spun may be the argnment of some of the cases to which attention has been called, as to what is included or meant by “fiduciary capacity,” we think no case can he found where it has. been held that where a person obtains the property, or money of another under such circumstances as to constitute grand larceny, that the obligation to restore such property or' repay such money has been abrogated by discharge in bankruptcy.

I think the judgment and order appealed from should be reversed and a new trial granted, with costs to the appellant to abide the event.

Judgment and order affirmed, with costs.