Case Name: Richard Hardenbrook et al., respondent, agt. John W. Colson, appellant
Court: New York Supreme Court
Jurisdiction: New York
Decision Date: 1881-03
Citations: 61 How. Pr. 426
Docket Number: 
Parties: Richard Hardenbrook et al., respondent, agt. John W. Colson, appellant.
Judges: 
Reporter: Howard's Practice Reports
Volume: 61
Pages: 426–432

Head Matter:
SUPREME COURT.
Richard Hardenbrook et al., respondent, agt. John W. Colson, appellant.
Bankrupt act — Discharge in composition proceedings — Effect of on a debt created in a fiduciary character.
A debt due from a factor for goods sold by him on commission is a debt created in a “ fiduciary character,” within the meaning of the bankrupt act of 1867, and is not cut off by a discharge in bankruptcy.
Fourth Department, General Term, March, 1881.
Before Talcott, P. J., Smith and Hardin, JJ.
The defendant appeals from a judgment, entered in Steuben county, upon the verdict of a jury, taken at a court in that county. The plaintiffs were copartners in 1868 to 1876, at Bath, Steuben county, and delivered at divers times, articles of hardware, upon the agreement that the defendant should receive and sell them for plaintiffs, and pay over to the plaintiffs the moneys received upon the sales after deducting ten per cent for commissions to defendant for making such sales. The defendant failed to pay over sixty-six dollars and eighty-five cents. This action was brought to recover the same. The defense was: 1. That defendant did not receive the goods in a fiduciary character and, was therefore discharged from the debt by a composition in bankruptcy, and a tender of the money in court representing the dividend under such composition; and, 2. A counter-claim of twenty dollars.
J. F. Parkhurst, for appellant.
I. The debt to plaintiff was not incurred by defendant while acting, in a fiduciary character, within the meaning of the bankrupt act, and was discharged by the bankruptcy com position. It is now a well settled law in this state at least, that the debt due from a factor to his principal, for goods sold upon commission, is discharged by a bankruptcy composition, or a discharge in bankruptcy (Hennequin agt. Clews, 77 N. Y., 427). Before this question was Anally settled by the court of appeals for this state, the decisions in this and other states were far from being uniform. Under the act of 1841, the supreme court of the United States held that a factor who received the money of his principal was not a Aduciary, within the meaning of that act (Chapman agt. Forsyth, 2 How. [U. S.] R., 202). Soon after the passage of the banknrpt act of 1867, the question came up before judge Blatchfobd, then holding the United States district court for the southern district of Hew York (In re Seymour, 1 N. B. R., 27), whether such an obligation was discharged by a bankruptcy discharge, under the act of 1867. The court held that the rale laid down in Chapman agt. Forsyth (supra), .by reason of a slight difference in the phraseology in the two statutes, did not obtain under the act of 1867, and this decision was afterward approved in the case of Kimball (2 N. B. R., 204). This decision in the Seymour case was also soon afterward approved and followed by this general term in the case of Whittaker agt. Chapman (3 Lansing, 155), which is the only reported case in which this general term have passed on the question. The doctrine of the Seymour case was, however, not generally adopted as the correct construction of the law, a large majority of the courts holding that the rule laid-down in Chapman agt. Forsyth (supra), was also the rule under the act of 1867 (Grover & Baker agt. Clinton, 8 N. B. R., 312—Davis; Owsley agt. Cobin, 15 N. B. R., 490—Waite ; Keime agt. Graff & C., 17 N. B. R., 319; Woolsey agt. Cade, 15 N. B. R. 238; 54 Ala., 378; Neal agt. Scroggs & al., 17 N. B. R., 102 — Harlan; Cronin agt. Cutting, 104 Mass., 245; Am. Law J., vol. 8, p. 35). It will be observed that three of the above decisions were by judges of the supreme court of the United States, sitting in the circuit court, and they uniformly adopted the rule laid down in Chapman agt. Forsyth (supra). The case of Neal agt. Scroggs dk al., went to the supreme court of the Únited States (5 Otto, 708), and the court there followed- the case of Chapman agt. Forsyth. Soon after the latter decision the same question came again before the district court for the southern district of New York, the same court which had decided the Seymour case, and the court then decided that the case of Seymour was overruled by the case of Neal agt. Scroggs (5 Otto), and adopted the rule laid down in the case of Chapman agt. Forsyth (supra) (In re Smith & al., 18 N. B. R., page 24). This question has lately come before our court of appeals in the case of Hennequin agt. Clews et al. (77 N. Y., 427), and that court has decided that such debt is discharged by the bankruptcy composition.
II. The composition proceedings were absolute, and a subsequent payment or tender of the amount, to which plaintiffs were entitled under the composition, was not necessary to give effect to the composition (Citing Revised Statutes of the United States, section 5103; Constitution, section 2, art. 6; In re James T. Hurst, 13 N. B. R., 455; In re Lissberger, 18 N. B. R., 240; Case of Kohlsaat, 18 N. B. R., 574; Case of Bailey et al., 19 N. B. R., 75; Deford et al. agt. Hewlett, 18 N. B. R., 518; In re Rogers et al., 18 N. B. R., 253; In re Bailey et al., 19 N. B. R., 77; In re Haskell, 11 N. B. R., 164; Wells agt. Lamprey, 16 N. B. R., 205; In re Beckel, 12 N. B. R., 201; In re Shaffer et al., 17 N. B. R., 116; Bamberg agt. Stern, 18 N. B. R., 24)
M. Rumsey Miller, for respondent.
I. The facts alleged in complaint showed a breach of trust by defendant, and therefore a tort. The identical moneys here received were to be paid over (Swift agt. Wylie, 5 Robertson, 680, 684; and cases cited on page 684; Barber agt. Sterling, 68 N. Y., 267, et seq; Merwin agt. Playford, 3 Robertson, 703). Where the obligation is to pay over specific proceeds, the action is a tort (Robbins agt. Falconer, 43 N. Y. Superior Ct. Reports, 11; Jones & Spencer, 371; Duguid agt. Edwards, 50 Barb., 288; Standard Sugar Refinery agt. Dayton, 70 N. Y., 486). Where the note given is the obligation of the debtor only, is not paid at maturity, the plaintiff still holds it and makes profert of it at the trial, the note does not extinguish the original demand, and defendant is still liable in the fiduciary capacity (Shipman agt. Shafer, 14 Abb. Pr., 449, 456; Nichols agt. Michael, 23 N. Y., 264, 272, 273; Central City Bank agt. Dana, 32 Barb., 296, 298 ; Pettengill agt. Mather, 12 Abb. Pr., 436). The above proposition is entirely settled and the original debt is not discharged (Cole agt. Lachett c& ano., 1 Hill, 516, 518; Edwards on Bills and Notes [2d ed.], marg. pp. 201, 234; Higby agt. N. Y. & Harlem R. R. Co., 3 Bosw., 497; Nichols agt. Nuchael, 23 N. Y., 264, 272, 273). But even if the allegations in complaint as to receiving the money by defendant were immaterial, the defendant denied them and them alone in his answer, and thereby made them a material issue which he could not evade on the trial (Ayres agt. O'Farrell, 10 Bosw., 143-145; Livingston agt. Miller, 4 Selden, 283, 289).
II. The court properly refused to direct a verdict for defendant as asked, because: (a.) A composition in bankruptcy could not be available here as a defense, except upon the theory of a tender before suit of amount due under composition, for it is of no effect until the terms, are complied with by debtor, viz: payment of amount due under composition (In re Beehet, 12 Nat. Bankruptcy Register, 201). (b.) In this case defendant did not pay any money into court till on the trial. There was no proof of any—the answer contained no allegation of paying money into court. Such tender cannot be available unless defendant pay money into court and allege that fact in his answer (Becker agt. Boon et al., 61 N. Y., 317, 321; Simpson agt. French, 25 How. Pr., 464, 465; Gray agt. Green, 9 Hun, 339; Eddy agt. O'Hara, 14 Wend., 221). (c.) And an answer omitting this allegation does not state facts sufficient to constitute a defense, and plaintiff may avail himself of the objection on the trial (Becker agt. Boon, supra), (d.) Plaintiff does not waive his right to insist on the objection by going to trial where there are other issues in the answer (Becker agt. Boon, supra). The cases of Sheridan agt. Smith (2 Hill, 538), and Knight agt. Beach (7 Abb. Pr. [new series], 241), do' not interfere with this position, because in Sheridan agt. Smith the plaintiff took issue by reply upon the tender, and case is put upon that point, and in Knight agt. Beach the answer only contained one defense, viz.: tender, and the decision there is put on that ground, (e.) Another fatal defect to the tender is that there is no allegation in the answer “ that defendant has at all times been ready to pay,” nor was there any proof of that fact in the case (Roosevelt agt. Bull’s Head Bank, 45 Barb., 579, 584; Brooklyn Bank agt. DeGraw, 23 Wend., 342, 345; Ayres agt. Pease, 12 Wend., 393; Wilder agt. Seelye, 8 Barb., 408).
III. Even if there were a discharge in bankruptcy fully pleaded and proved by defendant in this case, it would not discharge the debt in this ease ( Whittaker agt. Chapman, 3 Lans., 155; In re Seymour, 6 Int. Rev. Rec., 61; Argall agt. Jacobs, 21 Hun, 114 ; Talcott agt. Harris, 18 Hun, 567; Libbey agt. Strasburger, 14 Hun, 120; 12 Hun, 658). (a.) A composition in bankruptcy is no more potent to bar creditors’ rights to sue on -a debt than a discharge in brankruptcy (Libbey agt. Strasburger, 14 Hun, 120; Ansonia. B. & C. Co. agt. New Lamp Chimney Co., 53 N. Y., 123).

Opinion:
Hardin, J.
It was decided by this department in Whittaker, treasurer, etc., agt. Chapman (3 Lansing, 155), that a debt due from a factor for goods sold by him on commission, is a debt created in a fiduciary character, within the meaning of the bankrupt act of 1867, and is not covered by the debtor's discharge in bankruptcy. This case'-has not been overruled. It has been referred to and approved by subsequent cases. It was quoted by Miller, J., in Barber agt. Sterling (68 N. Y., 273; see, also, 53 N. Y., 260); Platt agt. White (5 Denio, 271; 50 Barb., 288; 70 N. Y., 486). Section 5117 of the laws of the ¡Revised Statutes of United States is as follows, viz.: "Ho debt created by the bankiupt while acting in any fiduciary character shall be discharged by proceedings in bankruptcy." It has been held that the meaning of the words "fiduciary capacity " having been ascertained and declared by judicial construction of the act 1841, is affixed to the term, and the fixed definition is carried into the new statute 1867 (104 Mass., 245). It was held in Johns agt. Russell (11 B. R., 478), that an auctioneer acts in a fiduciary capacity, or character, and his discharge does not relieve him from his liability for goods placed in his charge for sale (See Cardin agt. Cardin, 8 Barb., 41, and Hullibent agt. Carter, 10 N. B. R., 359, and 155 Mass., 435 ; Treadwell agt. Halloway, 12 N. B. R., 61, and 46 California, 547). The appellant's learned counsel cite Hennequin et al. agt. Clews (77 N. Y., 427), and argues that it is an authority upholding a contrary doctrine. We do not so understand that case. The defendant had received certain securities as pledge, with no other rights with respect to them than such as that relation entitled him to—and had wrongfully hypothecated and sold them.
The court held that his discharge in bankruptcy operated upon the plaintiff's claim, and the defendant was not, after such a discharge, liable to an order of arrest.
Hor does the case of Neal agt. Clark (95 U. S. R., 704), aid the appellant. The case simply holds that an executor who, without any positive, active, affirmative fraud, had committed a devastavit, was discharged in proceedings in bankruptcy.
Hor can the composition proceedings have any greater effect than would a discharge. If one would not cut off the debt, the other would not (Libbey agt. Strasburger, 14 Hun, 120; Argall agt. Jacobs, 21 Hun, 115). The second defense predi cated upon a separate independent contract, was improperly stricken out (Patterson agt. Richardson, 22 Barb., 145; Bank agt. Monteith, 39 N. Y., 297; Chambers agt. Lewis, 11 Abbott, 110 ; Allen agt. Patterson, 3 Seldon, 476; 53 N. Y., 307; 42 N. Y., 83).
There was evidence upon which the jury were warranted in finding there was no authority to sell upon credit, and there was no proof of a custom to sell on credit shown to have been known to plaintiff (50 Barb., 288). We see no other error in the course of trial calling for a reversal of the judgment.
Judgment reversed and a new trial ordered, with costs to abide the event, unless the plaintiff stipulates to reduce the verdict and judgment by deducting therefrom twenty dollars and interest from the 30th day of "November, 1873, in which case the judgment as so modified is affirmed with costs.
Taloott, P. J., and Smith, J., concur.