Case ID: misc_74/html/0222-01.html
Source: Caselaw Access Project
Author: {"author": "Kellogg, J. A., J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Frederick W. Kavanaugh, Plaintiff, v. Thomas A. McIntyre et al., Defendants.
    (Supreme Court, Saratoga Trial Term,
    November, 1911.)
    Bankruptcy — Discharge of bankrupt — Debts affected — Cause of action for conversion; Wilful or malicious conversion.
    G-. being indebted to his brother, the plaintiff, transferred to him his interest in a stock account and on a certain day plaintiff was indebted on said account in about $4,000- which was secured by listed corporate stocks valued at more than six times the amount of said indebtedness and on the same day by direction of plaintiff defendants, another firm of.stock brokers, took over said account, received the certificates-,of stock and paid the amount due to the ...other brokers. Almost immediately after the 'defendants came into possession of the property they began to sell it to different parties and continued to make such sales from time to time without plaintiff’s knowledge after they had realized more than sufficient to pay the amount due from plaintiff, and applied the avails to their own purposes, and about a month thereafter filed a petition in bankruptcy. In an action for conversion of said stocks, the answering defendants pleaded their discharge in bankruptcy, which had been granted after this action had been commenced. ■ An order denying a motion to vacate an order of arrest granted in . the action was affirmed on appeal, upon, the ground that said order was properly issued. Held:
    The decision o-f the Appellate Division (third department) is conclusive upon the trial court as- a holding that a liability for a conversion which is “ wilful and malicious ” within the meaning of section 17 (2-) of the Bankruptcy Act of 18-98.is not released by a bankrupt’s discharge.
    The decision of said Appellate Division though disregarded by the Appellate Division in the first department would be followed by a trial court held within any judicial district within the third department.
    
      Any wrongful act done intentionally, without just cause or excuse, is malicious within the meaning of said section.
    The proceed® of the conversion of plaintiff’s stocks having gone into defendants’ bank account and been used for their benefit, all of the members of the firm were civilly liable.
    Action for conversion of stocks.
    Myer Mussbaum, for plaintiff.
    Patton & Patton, for defendants John G. McIntyre and, Thomas A. McIntyre, Jr.
    John J. O’Connell, for defendant Edward T. White.
   Kellogg, J. A., J.

The answering defendants, together with Thomas A. McIntyre, now deceased, and one Ryan, named as a defendant in this action but not served, constituted, in the early months of the year 1908, a brokerage firm engaged in business as such in the city of Mew York under the name of T. A. McIntyre & Co.

One George W. Kavanaugh, a brother of the plaintiff; had, at some time prior to the transactions hereinafter detailed, a cotton account and also a stock account with another brokerage firm, known as A. 0. Brown & Co. Being indebted to his brother, the plaintiff, he transferred to him his interest in this stock account with A. C. Brown & Co.

On the 5th day of February, 1908, the plaintiff was indebted to A. 0. Brown & Co., upon this stock account, to the amount of $3,853.32; and they held, as security therefor, stocks i-n various corporations listed upon the Mew York Stock Exchange of the value of approximately $25,000, being more than six times the amount of the indebtedness.

On that day, by direction of the plaintiff, the firm of T. A. McIntyre & Co. took over this account, received the certificates of stock and paid the amount due Brown & Co., thus succeeding to their interests. They also, apparently through a misunderstanding, took , over the cotton account, which was shortly afterward closed out at a small profit which is still due to the plaintiff or his brother, but which does not in any way affect the questions here to be considered.

Almost immediately thereafter and commencing on the very next day, this firm, without any. notice to the plaintiff or demand of any kind upon him, disposed of these various securities, placing the avails thereof in their own bank account.

The various stocks had all been disposed of prior to the 18th of March, 1908;. and three-fourths in value thereof had been disposed of on or prior to February fourteenth, or within nine days after the acquisition of the possession thereof by defendants firm.

On April twenty-third of that year, the copartnership filed a petition in bankruptcy and, during the pendency of this action,' the answering defendants obtained their discharge in bankruptcy, which fact was thereafter pleaded herein as a defense. . ‘

At the commencement of this action, in May, 1908, an order of arrest was granted. A motion to vacate this order was. denied, and from the order of denial an appeal was taken to the Appellate Division of this department, which unanimously affirmed the order appealed from.

The opinion of the court, delivered by Mr. Justice Cochrane, reported in 128 App. Div. 722, renders unnecessary any elaborate consideration of the principles of law here involved.

■ The defendants claimed to be exempt from arrest. Section 9 of the Federal Bankruptcy Law provides that a bankrupt shall not be exempt from arrest upon civil process upon a claim from which his discharge in bankruptcy would not be a release, and, in section 17, in its second subdivision, provides that a discharge in bankruptcy shall not release a bankrupt from liability “ for wilful and .malicious injuries 'to the person or property of another.”'

The decision of the Appellate Division was to the effect that an order of arrést was properly issued in .this case and is, therefore, conclusive upon this court as_ a holding that a liability for a conversion which is wilful and malicious is not released upon discharge in bankruptcy.

The learned opinion of Hr. Justice Cochrane holds that the term malicious,” as used in the -statute, includes any wrongful act done intentionally, without just" cause or excuse,— a conclusion at which he arrives after a very elaborate and careful examination of the decisions of the courts and the works of the legal lexicographers.

The allegations of the complaint and the affidavit used on that motion, as stated by the learned justice, were to the effect “ that almost immediately after the defendants came into possession of this property they began to sell it to different parties and continued to make such sales from time to time, without plaintiff’s- knowledge, after they had realized more than sufficient to pay the amount due them from plaintiff and applied the avails to their purposes.” P. 129.

These facts, set forth in the affidavits upon which the order . of arrest was sustained by the Appellate Division, were amply proven upon the trial before this court.

The learned counsel for -the defendants urges that the decision in this case in this department has since been disregarded by the Appellate Division in the first department in Maxwell v. Martin, 130 App. Div. 80, and that the United States District Court in the southern district of ISTew York has expressly refused to follow the decision in the case of Matter of Ennis & Stoppani, 171 Fed. Rep. 155.

The decision in the Appellate Division is, of course, authority here, and would be followed in any event.

An examination of. the decision in Maxwell v. Martin shows that it was based upon the authority of decisions made before the amendment to the act in 1903, upon which amend.ment the decision of our own Appellate Division was, in a measure, founded; and an examination of the case of Matter of Ennis & Stoppani shows the decision of Judge Hand is based upon a narrow construction which holds that a “ conversion ” is not an “ injury to property.” He states, “ Injury to person and property means causing damage to the subject-matter of-the rights, not depriving the owner of them.” This narrow construction of the term “ injury to property ” is not in harmony with the accepted definition.

Bouvier expressly defines it as follows: Injuries to personal property are the unlawful taking and detention thereof from the owner; and other injuries are some damage affecting the same while in the claimant’s possession or that of a third person, or injuries to his reversionary interests.” See 1 Bouvier Law Diet. (Eawle’s Eev.) 1044.

To hold that a person is not injured in his property where some portion of it is actually taken away from him, hut only when it is all left in his possession, reduced in value, does not give effect to the accepted meaning of the phrase in legal parlance.

The definition of the Code of Civil Procedure (§ 3348, suhd. 10) is, “An injury to property ’ is an actionable act, whereby the estate of another is lessened, other than a personal injury, or the breach of a contract.” Although ex.pressly applicable only to that particular statute, this interpretation of the meaning of -the term is in full accordance with the generally accepted understanding.

The narrow construction contended for, which would permit the perpetration of such a barefaced wrong as in the case at bar without any civil liability surviving a discharge in bankruptcy, would be highly improper and should not be struggled for, if any other interpretation of the statute is in any view permissible.

Mr. Justice Peckham, in writing the opinion of the Supreme Court of the United States in Tinker v. Colwell, 193 U. S. 473, in discussing the meaning of the term “malice,” as used in this very section under consideration, wrote, “ We are not inclined "to place such a narrow construction upon the language of the exception. We do not think the language used was intended to limit the exception in any such way. It was an honest debtor and not a malicious wrongdoer that was to be dischargedP. 488.

The conversion of the stocks of the plaintiff by the defendants’ firm was in no sense the mistake of an “ honest ” debtor; it was, most decidedly, the act of a “ malicious wrongdoer.”

It is urged' in behalf of the answering defendants that "they knew nothing about the transaction; that it was consummated by some other member of the firm. . The proceeds, however, of the conversion went into the firm’s bank accounts and were used for its benefit, and all of the copartners therefore are liable for the act. Chester v. Dickerson, 54 N. Y. 1; Griswold v. Haven, 25 id. 595; Matter of Pierson, 19 App. Div. 478; Bradner v. Strang, 89 N. Y. 299 ; affd., 114 U. S. 555; Castle v. Bullard, 64 id. 172; Levy v. Abramsohn, 39 Misc. Rep. 781; Comen v. Reese, 21 How. Pr. 114; Sherman v. Smith, 42 id. 198.

In Castle v. Bullard, Justice Clifford laid down the principle as follows: “ Thus, for example, if one of the partners should commit a fraud in the course of the partnership business, all the partners may be liable therefor, although they may not all have concurred in the act. So, if one of the firm of commission merchants should sell goods consigned to the firm, fraudulently, or should sell goods so consigned in violátion of instruction, all the partners would be liable.” Citing ■Story Part., § 166; Collier Part. (Am. ed., 1848), §§> 445, 457; Nicoll v. Glennie, 1 Maule & S. 588.

■ However vigorously certain of the defendants may deny knowledge of the transaction, the act was performed by some member of the firm for the common benefit of all, and undoubtedly sustained for a time the credit of the firm, and postponed for -all the partners the evil day of admitted insolvency, with the resultant opportunity for recoupment of losses, which unfortunately proved unavailing. All of the members of the copartnership are, therefore, civilly liable.

There is no evidence which indicates, in the slightest degree, that any excusable mistake was made by the defendants in appropriating the securities belonging to the • plaintiff. It was a deliberate and intentional act.

Action was shortly brought thereafter and was prosecuted, at least for a time, with reasonable expedition.

The plaintiff is, therefore, entitled to recover the highest prices reached by his respective stocks down to the time of the trial; especially, in view of the fact that such highest prices were in- all cases reached during the months of December, 1908, to February, 1909, inclusive.

Hp to that time, certainly the action was progressed with reasonable celerity, and the rule as stated applies. Romaine v. Van Allen, 6 N. Y. 309; Markham v. Jaudon, 41 id. 235.

From such prices, however, there should be deducted the amount due from the plaintiff upon the stocks of $3,853.32. From a statement of prices which has been submitted by agreement of all parties, the following computation is made:

100 Missouri, Kansas & Texas...... 44% $4,487 50

100 Missouri Pacific.............. 73% 7,337 50

2% Missouri Pacific .............. 73% 183 44

200 Oast Iron Pipe................ 30% 6,175 00

100 Erie 1st Preferred............ 51% 5,150' 00

200 Missouri, Kansas & Texas, Preferred ........................ 75% 15,100 00

l(Er.ie Scrip..................... 0 0 00

Total..'.................../____ $38,433' 44

Deduct amount due. . . ............ 3,853 32

Balance...................'...... $34,580 12

The allegation of damage in the complaint is limited to the amount of $30,000.

The plaintiff is not entitled to interest under the rule of damages above indicated, and no application has been made to amend the complaint by increasing the amount stated in the allegation of. damage.

Judgment for "the amount of $30,000 only should be entered, and for that amount is directed to be entered, with costs.

Judgment accordingly.