State Ex Rel. Mock v. Howell

Smith, C. J. (after stating the case.) The plaintiff assigns as error in the intimated ruling that the discharge has no effect upon the demand, in that the debt was fiduciary, and further, was contingent and not provable against the bankrupt’s estate. These are the only questions raised by the appeal and argued upon the hearing in this Court. *445 The exception to the general operation and effect upon debts and claims provable against the bankrupt’s estate of the discharge when granted, is contained in this section: “ No debt created by the fraud or embezzlement of the bankrupt, or by his defalcation as a public officer, or while acting in any fiduciary character, shall be discharged by. proceedings in bankruptcy, but the debt may be proved and the dividend thereon shall be a payment on account of such debt.” Rev. Stat. of U. S., § 5117. Was a fiduciary obligation incurred in placing this fund,, the proceeds of the sale of realty and impressed with the quality of realty, in the hands of the deceased for preservation, and to be accounted for when called on to return the same at his death, or upon the order of the Court, he not being responsible for interest meanwhile? The interpretation of the words, “ while acting in his fiduciary character,” has given rise to many conflicting decisions, and especially when it was extended to the misuse of funds in the hands of brokers, factors, commercial and other agents, and the predominant rulings seem to be that such are not within the term. Such was the construction put upon very similar words used in the bankrupt act of 1841 by the Supreme Court in Chapman v. Forsythe, 2 Howard U. S., 202; Coonan v. Cathey, 104 Mass., 245; Hayman v. Pond, 7 Met., 328; Armstill v. Crawford, 7 Ala., 335. The underlying and governing rule in determining the character of the debt is that the liability must be incurred by one “ while acting in a fiduciary ” capacity which has been before created, and not when the relation arises out of the act itself. The cases on the subject are collected and judiciously distributed by the author in his discussion of the clause in Blumensteil’s Law and Practice in Bankruptcy, at page 540. It is manifest, we think, that the decree which placed the money in possession of the intestate constituted him a trus *446 tee and invested him with the duties and liabilities which attach to a fiduciary, for the safe keeping and ultimate return of the fund, for the benefit of such as would be entitled at his death, or into office if he should be sooner so required, his status is essentially the same in this respect as that of a guardian, receiver, representative, or otherfiduciary entrusted with the property of another. The bond, with its sureties, is a recognition of the trust and a security for its discharge. The fund has itself disappeared, not kept specifically for the ultimate owners and the deceased trustee and his administrator failed to make it good. No recourse is made to the sureties on thebond who are discharged. Simpson v. Simpson, 80 N. C., 332; Councill v. Horton, 88 N. C., 222. But the action is against the principal upon the liability assumed in accepting the trust and receiving the money under it for which the bond is but an additional security or guaranty. This, then, being a debt or liability incurred by the intestate while acting in a fiduciary character, by a misuse of the trust fund, he remains responsible and the discharge is not operative against the recovery. This renders it unnecessary to consider the other point, and we forbear to undertake to solve the problem which is presented. There is error, and the judgment must be reversed to the end that the cause proceed in the Court below. Error.