Kaufman & Runge v. B. Alexander & Bro.

Gould, Associate Justice. Appellants assert that their demand against defendants is for a debt created by them “ whilst acting in a fiduciary character,” and is therefore not discharged by proceedings in bankruptcy. The evidence shows a written agreement in July, 1877, between B. Alexander & Bro., merchants in McLennan county, and Kaufman & Runge, [567] carrying on a general mercantile and commission business in Galveston, the purport of which was, that Kaufman & Runge were to furnish Alexander & Bro. the grip cotton tie on consignment, they agreeing “to handle the grip cotton tie as follows, viz.: Paying $2.50 per bundle, with invoice rendered (after first sixty days) every thirty days for number of bundles ties sold (less ten per cent.).” They to give K. & R. “ their entire shipments of cotton, and influence,” and to bear “all expenses on consignment, such as fire insurance, etc.” The account sued on embraces charges for grip ties, bagging and twine, in the fall of 1877, and is credited with net proceeds of different lots of cotton consigned during that season to K. & R. by Alexander & Bro. A subsequent credit is admitted, growing out of payments under the proceedings in bankruptcy, on a composition by B. Alexander & Bro. with their creditors, plaintiffs not having signed said composition proceedings. Plaintiffs say their demand is for goods delivered to defendants to be sold on commission, and is based on the failure of defendants to account for said goods in kind, or to pay for them. There is nothing in the evidence from which it can be inferred that Alexander & Bro. appropriated any of the articles consigned to them otherwise than by sale, as contemplated by their agreement. Their default is in failing to pay for ties sold at the end of every thirty days. From the terms of the written agreement, we think it clear that it was not contemplated by the parties that Alexander & Bro. should keep separate the proceeds of each sale to be handed over as the money of Kaufman & Runge. Indeed, it would seem that they were not prohibited from selling on time, or on such terms as they saw fit. For ties sold, Alexander & Bro. were to make report and payment at a stipulated price every thirty days. Kaufman & Runge looked to them for pay, not for the mere transmission of what they might have actually received for sales. In fact, the only payments made during the season were in shipments of cotton. [568] Our conclusion is that the demand of plaintiffs is for a debt due them by their agents, growing out of and contemplated by the contract between them, and not, so far as the evidence shows, involving any bad faith or breach of trust on the part of the agents in appropriating as their own that which, by reason of their fiduciary relation, they were bound to hold in trust for their principals. Whilst there is quite a conflict of decisions as to the proper construction of this clause of the bankrupt act, and especially as to its application to a demand by a consignor against a factor, it is not believed that any of the cases would require the exclusion from the benefits of the bankrupt law of all debts growing out of an agency to sell, or of such a debt as we understand this to be. An important element in this case, and not in some of the cases as to factors and commission merchants, is, that under the contract the proceeds of sales did not become the property of the principal, so as to make it wrongful in defendants to use those proceeds or mingle them with their own money. Bonning v. Bleakey, 27 La. An., 257. This court has held “ a debt growing out of the conversion by an attorney of his client’s money or property in his hands as such, ” to be a debt created whilst acting in a fiduciary character. Flanagan v. Pearson, 42 Tex., 1. Such a breach of duty involves moral delinquency by one held to be acting in a fiduciary capacity within the spirit of the decisions construing the bankrupt law of 1841. We are inclined to regard the better rule as laid down in those decisions which accept the clause in question as substantially the same as in the law of 1841, and thus adopt and retain the benefit of the “fixed judicial construction ” given to the expression “ fiduciary capacity,” under the act of 1841. Woolsey v. Cade, 54 Mo., 378; Cronan v. Cotting, 104 Mass., 245; Hennequin v. Cleves, N. Y. Court of Appeals, 1879 (8 Rep., 210); Kisme v. Graf & Co., U. S. C. C., West. Dist. Pa., 1878 (5 Rep., 489); Chapman v. Forsyth, 2 How., 202; Neal v. Clark, 95 U. S., 704. In the last cited case the supreme court of the United States, [569] whose decision “ would be authoritative on questions of federal cognizance,” quote largely from Chapman v. Forsyth, the quotation winding up with the proposition: “A factor is not, therefore, within the act.” But, according to our view of the present case, it is not necessary for us to go to that extent. “The demand of the plaintiffs, as developed in the record, was not of a fiduciary character, and was discharged by the proceedings in bankruptcy and composition.” The judgment is affirmed. Affirmed. [Opinion delivered June 4, 1880.]