Case ID: daly-ny_8/html/0548-01.html
Source: Caselaw Access Project
Author: {"author": "Charles P. Daly, Chief Justice.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of Frank W. Fowler, an Imprisoned Debtor.
    (Decided April 5th, 1880.)
    It is no objection to the discharge of a judgment debtor from imprisonment under the insolvent laws of this State, that the judgment was obtained for fraudulent representations as to the solvency of a person to whom credit was given, no pecuniary benefit to the judgment debtor having resulted therefrom.
    Ire the Hatter of Roberts (ante, p. 95) to the contrary, overruled.
    Nor that after the commencement of the action, and before the judgment was rendered, he filed a petition in bankruptcy on which he was adjudged a bankrupt, it appearing by a recital in the order discharging the assignee in bankruptcy that no assets had come to the hands of the assignee. It would have been a good objection, however, if the debtor had tiled his petition in bankruptcy after the judgment had been rendered against him.
    
      The Ouse of Fitzgerald (ante, p. 188) limited and explained.
    Tlie provision in the statute (2 R. S. 32, § 8), that the debtor is not to be discharged if the judge is satisfied that the proceedings have liot been just and fair, relates to the truth of the matters contained in the affidavit which the debtor is obliged, to annex to bis petition ; that is, that the account set forth in his petition is not true, and that lie has made such a disposition of his property as in the affidavit lie has sworn he has not; the truth of the statements made in the affidavit being the key for ascertaining whether the proceedings have been “ just and fair.”
    The various statutes relating to the discharge from imprisonment for debt discussed and explained by Daly, Chief Justice..
    Appeal from an order of this court made at special term by Van Hoesen, J., denying the application of Frank W. Fowler, an imprisoned debtor, for bis discharge from imprisonment under an execution and judgment obtained against him by Brick, and Campbell.
    The judgment creditors opposed the application on the grounds: 1st. That the judgment had been obtained for
    damages suffered by them on account of a false and fraudulent representation made to them by the defendant in regard to the solvency of the Peekskill Iron Company, by which they had been induced to supply them goods on credit; and 2d. That the defendant, after the commencement of the suit, but before verdict or judgment therein, filed a petition in bankruptcy, on which he had been adjudged a bankrupt and an assignment of all bis property had been made, and he had obtained a discharge. It appeared that no assets had ever come to the hands of the assignee in bankruptcy.
   The following opinion was written by Judge Van Hoesen on denying the discharge :

“ If Fowler had applied for his discharge as a bankrupt after judgment had been rendered against him, and he had been arrested on execution in the action brought by Brick, I should be compelled to apply the rule laid down in the Case of Fitzgerald (ante, p. 188), and hold that having elected to avail himself of the benefit of the bankruptcy act he could not resort to a remedy inconsistent with it, and obtain a discharge from imprisonment which, under the law which he last invoked, could be granted only upon his complying with certain conditions, which his proceedings in bankruptcy had made it impossible for him to perform. In other words, the Fitzgerald case applied to the case of a debtor imprisoned on execution, the doctrine of the election of remedies, and it went no further. In the matter now before me, however, that doctrine cannot be applied. Fowler was not imprisoned on execution, and it was not in his power, therefore, to apply for his discharge from imprisonment under article six; he did not do as Fitzgerald did, choose between relief from his debts by a discharge in bankruptcy and the exoneration of his person from imprisonment, by proceedings under article six. Relief under article six not being open to him, it cannot be said that he rejected that remedy and adopted in its stead the inconsistent remedy of bankruptcy. But it is said by the counsel for the creditor opposing the application, that Fowler, by going into bankruptcy, placed his property in such a situation that the creditor lost the preference which he would necessarily have had if a petition in bankruptcy had not been filed. If Fowler had not gone into bankruptcy, such property as he had would have been reached by the creditor, at whose suit he was imprisoned; but the bankruptcy law required'that all creditors having provable debts should share equally, and furthermore it excluded the creditor who arrested Fowler from all participation in the bankrupt’s estate, because his claim, being for deceit (false representations as to the credit of a third party), could not be proved as a debt payable out of the estate. The result naturally expected would be that the creditor would lose his claim, and that by the act of his fraudulent debtor. It is contended that such a proceeding on the part of the debtor could not be just and fair, and that a discharge should on that ground be denied; but in the case under consideration, the debtor assigned no property to the assignee in bankruptcy, for the alleged reason that he had none to assign, and an order of the court of bankruptcy was produced, discharging the assignee and reciting that no property had come into his hands. In point of fact then, the creditor lost nothing by the bankruptcy proceedings, because no property which he could have reached passed beyond the control of the courts of this State by virtue of those proceedings. But if the act of the debtor in going into bankruptcy had prevented the creditor who caused his arrest from getting any share of his estate, it may be a question whether the surrender of his property for distribution according to the bankrupt law was a proceeding of the debtor which the courts of the State should pronounce not just and fair. It is not necessary to express any opinion on the point, for no loss occurred to the creditor through the bankruptcy proceedings. It may be said, however, that the bankrupt law was not made for the protection of fraudulent debtors, and that it prevents the victim of a tort such as the debtor committed upon the creditor in this case from proving his claim for damages and sharing in the bankrupt’s estate. A discharge in bankruptcy does not debar an action for damages for deceit, and the creditor may thereafter sue and enforce his demand, and it may be argued that the bankrupt should not derive any advantage from his resort to proceedings, the effect of which he knew must be to take from him the means of satisfying the creditor whom he had defrauded.

“ A second ground of objection to the discharge is that the action in which the debtor was arrested was for deceit in falsely representing the Peekskill Iron Company to be a solvent company, and thereby inducing the plaintiffs to sell to that concern goods of the value of more than. $13,000. Fowler was an officer of the Peekskill Iron Company, and he expected to obtain $30,000 worth of its stock, when the stock should be redeemed from certain persons who held it in pawn. It was not shown that any part of the goods which were sold by the plaintiffs, or any part of the proceeds of those goods, came to the possession or was used to the advantage of Fowler, though it may, perhaps, be inferred, that he did derive some benefit from the use of the goods by the company of which he was vice-president. The counsel for the creditors insist that the proceedings of the debtor in obtaining, by fraud, goods for the use of another, were no more just and fair than the obtaining, by fraud, of goods for his own use would be.

“ I think it must be considered settled, that if a person is proved to have obtained goods by fraud or forgery he cannot obtain his discharge without paying the debt, though he offers the most indubitable evidence, that before an action was brought against him he had spent or lost the entire proceeds of his crime.

“ But it is, as yet, an open question whether a debtor who is proved to have committed a fraud, which did not bring money to his own purse, shall be denied a discharge where it is not shown that he has disposed of an}-" property with a view to the future benefit of himself or his family, or with intent to injure or defraud any of his creditors.

“ I think that there is a marked difference between the two cases. Where a debtor has by fraud or forgery obtained money or property from another, any disposition which he may make of what he has so received is unjust and unfair to the creditor whom he has defrauded, and when he applies for discharge from imprisonment in the action which his swindled creditor has brought against him, it is no reason for granting the discharge that he has lost or spent his creditor’s money; no proof need be offered that he has wrongfully disposed of any other property, it is enough that he does not restore the propert}' out of which he has swindled his creditor. An intent to injure the creditor must be conclusively presumed from the bare fact that the debtor has wrongfully disposed of the property of the creditor.

“ But where no property of the creditor can be traced to the hands of the debtor; where the fraud he practised brought no profit to him, I think the debtor is not to be refused a discharge because a clear case of fraud has been established against him. It is not, in my opinion, the nature of the offense proved against him that ought to debar him from a discharge; the obstacle to his discharge is not that he has been guilty of a fraud. In determining whether or not he shall be discharged, the court must satisfy itself whether his proceedings have been just and fair. What proceeding ? Certainly not his fraudulent practices upon his creditor; but his proceedings respecting property out of which his creditor’s claim could have been satisfied. If he has not wrongfully disposed of any property with intent to benefit himself or his family, or with intent to injure any creditor, he is entitled to a discharge.

“I am aware that these views are not consistent with the opinion of Judge J. F. Daly, in the Matter of Roberts (ante, p. 95), and I think it of great importance that the general ternrshould dispose of the question. I shall, therefore, deny the application for a discharge, and leave Mr. Fowler to his remedy by appeal, though the views I have expressed would lead necessarily to my granting the discharge upon the case that has been presented to me. There is no evidence that Fowler profited by his fraud, and there is no evidence that he has disposed of any property in violation of the statute.

“ Discharge denied for the reason given.”

W. O. Holbrook, for appellant.

Geo. W. Van Slyck, for respondent.

Charles P. Daly, Chief Justice.

I fully concur in the conclusions arrived at by Judge Yah IIoeseh. Before the passage, in 1831, of the act to abolish imprisonment for debt, no distinction was made between the fraudulent and the honest but unfortunate debtor; but both were alike subject to arrest and imprisonment for the non-payment of their debts. In the language of Chief Justice Savage in Townsend v. Morrell (10 Wend. 581), “previous to the passage of that act, all debtors who had been held to bail must, by the theory of our laws, have been stripped of their property by a writ of fieri facias before they could be imprisoned, and they were then to be imprisoned, not because they would not pay, but because they could not—a state of things exhibiting, in the most glaring point of view, the inhumanity as well as the impolicy of imprisoning an honest debtor.”

The act of 1831, therefore, commonly called the Stilweli Act, forbade the arrest or imprisonment of any person upon civil process, in any suit or proceeding instituted for the recovery of money, founded upon contract, or for damages for the non-performance of one, except in certain cases—such as the contracting of a debt fraudulently, or the removal or disposition of property with intent to defraud creditors—and provided for an arrest and warrant in such exceptional cases, and for a course of procedure by which the property of the fraudulent debtor, if he had any, could be secured and applied to the payment, of the judgment, if one existed or should be recovered ; or if he had no property, for his discharge, as an insolvent debtor, under what was known as the Fourteen-day Act, which is now the 6th section, 1st article, chap. v. of the 2d part of the Revised Statutes.

The Fourteen.-day Act, which was passed in 1789, and re-enacted with modifications on the 21th of March, 1801, was passed for the purpose of mitigating the severity of the previous law, by which, if a debtor had no property to satisfy the debt, he was imprisoned upon final process, after the recovery of judgment-, and after the issuing and return of an execution against his property unsatisfied, and had to remain in prison until the debt was paid ; for there was no other means for his release, nor even any provision for his maintenance and support whilst in prison. The harsh severity of the law in this respect may be illustrated by a declaration of Justice Hyde, in Many v. Scott (1 Mod. 132), which I have heretofore had occasion to quote, which was in these words: “ If a man be taken in execution, and lie in prison for debt, neither the plaintiff at whose suit he is arrested, nor the sheriff who took him, isloound to find him meat', drink or clothes; but he must live on his own or on the charity of others, and if no man will relieve him, let him die in the name of God, says the law, and so say I.”

The act of 1801 provided for the absolute discharge of a defendant, imprisoned upon an execution for a debt not exceeding $25, after he had been imprisoned for thirty days ; and the 4th section provided that a debtor imprisoned upon final execution for a sum not exceeding $500, or who should have remained in jail for the space of three months upon an execution for a sum not exceeding $2500, and, in the language of the act, if the debtor imprisoned should “ in either case be minded to deliver up to the creditor or creditors who shall so charge him in execution all his estate and effects towards satisfaction of the debt or debts with which he stood charged,” that he might petition the court, accompanjdng this petition with the true account of his estate as it existed at the time of exhibiting his petition, giving also fourteen days’ notice to the creditor by whom he was charged in execution of the time and place when the prisoner would make his application to the court; upon which the court, upon the appearance of the prisoner on the day stated, should, if it thought proper, tender to him an oath, that the account set forth in his petition was in all respects just and true; that he had not, at any time, or in any manner or way whatsoever, disposed of or made over any part of his estate, real or personal, in law or in equity, with the view to the future benefit of himself or family, or with the view or intent to injure or defraud any of his creditors ; and the act then declared that if the court should be satisfied that the proceedings on the part of the prisoner were just and fair that they should then immediately order an assignment of the estate, the account of which was contained in the petition for the benefit of the creditors who had charged the prisoner in execution, and that upon the prisoner executing the assignment that he should be discharged from custody.

This act made no distinction between the honest bat unfortunate and the fraudulent debtor; but either was entitled to be discharged if they complied with its provisions. The purpose of it was to discharge the debtor from imprisonment if, in the language of the act already quoted, he “ was minded” to deliver up all his property to the creditors that it might be applied to the satisfaction of the debt, and did so, it appearing that he had not disposed of any part of it at any time with a view to the future benefit of himself or of his family, or with intent to defraud his creditors, and which he was obliged to declare on oath that he had not, if the court required it, which in practice it invariably did. The act precluded no debtor after three months’ imprisonment on final process from the benefit of the act, unless one who had disposed of his property for the future benefit of himself or his family, or with an intent to defraud his creditors, and in this respect, but in this alone, distinguished the 1 honest but unfortunate debtor from one who had fraudulently sought to evade the payment of his debts by dishonest^- making away with his property. The provision of the act that the court should be satisfied that “ the proceedings on the part of the prisoner were just and fair,” meant that it should be satisfied that his proceedings in this respect (that is, in respect to his property) had been just and fair; whereupon, by the language which follows, the court was then immediately to order the estate contained in the account presented by the petition, or so much of it as might be sufficient to satisfy the creditor, to be assigned in the manner provided by the act, which when done the prisoner was to be discharged by the court from custody. The act further provided that if the creditor should not be satisfied with the prisoner’s oath, and desired further time to inform himself, that a future day should be assigned for the hearing of the parties, and unless the creditor should then be able to satisfy the court that the proceedings on the part of the prisoner were not just and fair, the assignment should be ordered, and the prisoner discharged.

This act of 1801 was again modified by the act of April 9th, 1813 (1 Rev. Laws of 1813, 348), and incorporated with further modifications in the Revised Statutes ; but none of those modifications affect in any way the purpose of'the act as respects the proceedings, which were required to be just and fair; the Revised Statutes providing a further means of testing the truth of the affidavit which the prisoner is required to make, by allowing the court to examine the prisoner himself, his wife, or any other person on oath, on the day appointed for hearing and determining, in a summary way, the proof and allegations of the parties.

I have had a great deal of experience in applications of this kind. Innumerable petitions have ■ been made to this court during the time that I have been in it for the discharge of persons from imprisonment in custody upon final process ; and the construction uniformly given, over a long number of years, by myself and my colleagues has been that what is required is, that the proceedings of the debtor have been just and fair in respect to the matters that he is required to swear to in the affidavit, upon presenting his petition ; that they relate to the inquiry whether he has made any such disposition of his property as in the affidavit he is obliged to swear that he has not; or, in other words, whether the judge is satisfied that the statement made in his affidavit is true, in respect to which the fullest inquiry may be made by the oral examination of the prisoner under oath, as well as the examination of his wife, or of any witnesses which the creditor has to offer.

This is the construction given to the statute in The People v. White (14 How. Pr. 500), in which Judge E. Darwin Smith says, as I have repeatedly said in these cases, .that the affidavit which the prisoner is required to make is a key to the meaning of the words that the judge is to be satisfied that the proceedings on the part of the prisoner have been just and fair ; that it must appeal1, as Judge Smith says, “ that the affidavit is true in its letter and spirit, or the proceedings of the applicant cannot be just and fair, within the sense and meaning and true intent of the statute.” The only difference in the construction of the statute, until the recent decision in the Matter of Roberts at the special term (ante, p. 95), referred to in the respondent’s points, is that Judge Smith, in the case above referred to, and Judge In-graham, in the dissenting opinion In the Matter of Watson (2 E. D. Smith, 429), said that nothing in the shape of property or interest in property, legal or equitable, existing at the time of the application, shall be kept back or withheld from creditors '; that this is the condition -upon which the law interposes to discharge the debtor from imprisonment, a construction in which Judge Woodruff and myself did not concur, as, in our opinion, it was engrafting upon the affidavit what was not contained in it, and that any disposition by the debtor of his property, made with the intent to defraud existing creditors, was what the affidavit meant; and that the statute intended that any such disposition on the part of the debtor, or any disposal of his property for the future benefit of himself or family, after his application precluded him from the benefit of the act; a construction which has since been sustained in The Matter of Brady (8 Hun, 487), which was affirmed by the Court of Appeals (69 N. Y. 215) ; and these cases, I think, may be relied upon as sustaining the view that his proceedings are not just and fair, where it appears that he has done any of the acts which, by the affidavit, he swears he has not done ; the sole object of the statute, as stated by Judge Earl, who delivered the opinion of the Court of Appeals, being the discharge of honest debtors who made an honest and full surrender of all their property for the benefit of all their creditors. This is, as I have always held, the full scope and intent of this act, from its first incorporation in the statutes, and in its several modifications in 1801, 1830, and in the Revised Statutes; and there is nothing in any of its provisions which, in my opinion, would authorize holding that a debtor cannot be discharged because he made a false or fraudulent representation as to the solvency of a person to whom credit was given by the person who has recovered a judgment for damages against the prisoner for the injury thus sustained; nor is the fact that he applied for his discharge as a bankrupt any such disposition of the property as is contemplated by the act, for such an application is not a disposition of property for the future benefit of himself or family, or to defraud creditors, for whatever property he possesses under such a proceeding goes to his creditors ; in addition to which there is the fact that he had no property to pass under his assignment in bankruptcy, and the only effect of his application would be to discharge' him from his debts.

I think, for these reasons, that the order below should be reversed, that the defendant may be at liberty to renew his application for his discharge from custody.

L arremore, J., concurred.

Joseph F. Daly, J., dissented, for the reasons stated in The Matter of Roberts (ante, p. 95) and Matter of Fink (Superior Ct. February, 1880).

Order reversed. 
      
       In The Matter of Andriot (2 Daly, 36).