In re Kimball

BDATCHFORD. District Judge. This application is made under that clause of the twenty-sixth section of the bankruptcy act which provides that “no bankrupt shall be liable to arrest during tbe pendency of the proceedings in bankruptcy, in any civil action, unless the same is founded on some debt or claim from which his discharge in bankruptcy would not release him.” Under this provision it has been held by this court-In re Kimball [Case No. 7,767] — that if tlie arrest is founded on a claim from which a discharge in bankruptcy would not release the bankrupt he is liable to the arrest, whether the action in which the arrest is made is founded on. such claim or not. it frequently happening, in the practice of the courts of the state of New York, that the complaint in the action discloses a simple contract debt, while the affidavits on which the arrest is founded show that the debt was contracted by fraud, and is one which would not be discharged by a discharge in bankruptcy. Where a bankrupt is under arrest in a civil action during the pendency of the proceedings in bankruptcy, and his discharge from arrest is applied for on the ground that, under the said provision of the twenty-sixth section, he is not liable to such arrest, this court must determine whether the claim on which the arrest is founded is one from which a discharge in bankruptcy would not release him. The district court of Massachusetts has held — In re Devoe [Case No. 3,843] — that where it appears, by inspection of the proceedings in the state court on which the arrest was made, that the arrest was founded by the state court on a claim which appears, on the face of such proceedings, to be one of damages for fraud, the district court is concluded, and canDOt inquire whether such claim is well founded or ill founded. Although I have, heretofore, in some cases, been inclined to take, a different view of the construction of this provision of *the twenty-sixth section, and to hold that this court is called upon to inquire wffiether, upon all the facts existing between tbe parties to the claim in reference to its creation, it is or is not such a claim as is by the thirty-third section excepted from the operation of a discharge, yet I am satisfied, upon full consideration, that this view is erroneous, and that the interpretation given to the twenty-sixth section by the district court of Massachusetts in the case of In re Devoe, before cited, is the correct one. It is true that the state court has never passed upon the question whether the claim made by the creditor is one from which a discharge in bankruptcy would not release the debtor, but has only passed upon the question whether, by the state laws, the debtor was liable to arrest, and that this court is called upon to say whether the claim is one that would not be released by a discharge in bankruptcy. But, by the express terms of the twenty-sixth section, the claim to be inquired about is the one on which the state court founded the arrest. the one presented by the creditor to the state court, and on which it acted as the foundation for the arrest, the one in respect of which, as presented to it at the time, it decided that the debtor should be put or kept under arrest. The proceeding in this court to discharge a debtor from arrest, when he is held under arrest contrary to the provisions of the twenty-sixth section, is very limited in its scope. The action of this court is confined, in point of time, to the pendency of the proceedings in bankruptcy. They are pending, so far as the debtor is entitled to relief by virtue of this provision of the twenty-sixth section, only until the termination of proceedings for.the discharge of the bankrupt. It was not intended, by the twenty-sixth section, or any other provision in the bankruptcy act, that this court in bankruptcy should pass in a plenary manner upon the question whether a particular debt or claim will or will not be released by a discharge in bankruptcy. That question must be passed uj>on by the [478] court in which the debt is sued on, and the discharge is pleaded, and it is replied that the debt is one excepted by the thirty-third section from the operation of the discharge. This court only passes on the question whether the state court has founded its arrest upon a claim which on the face of the papers which were before it as the foundation for the arrest, is a claim from which the debtor would not be released by a discharge in bankruptcy. Applying this view to the ease at bar, the state court had before it as the foundation on which it ordered the arrest, merely the affidavit before referred to. The order of arrest is dated June 5 th, 1S6S. The complaint in the action was not sworn to until June 8th, 1S68, and of course was not before the state court when it granted the order of arrest., and it is not shown that the state court has ever had before it as a foundation for making or retaining such order of arrest any other paper than such affidavit. The only question to be determined, therefore, is, whether the claim as stated in that affidavit, is one from which the debtor would not be released by a discharge in bankruptcy. The claim stated in that affidavit is, that a quantity of buckwheat flour was sent by tile plaintiffs to the bankrupt to be sold by him on commission; that he received it to sell on commission, and undertook to pay to flic plaintiffs the proceeds of sale less his commission; and that he sold the flour, and received for it $75S.79 over and above his commission, but has not paid to the plaintiff such proceeds, or any part thereof. Is such a claim a debt created by the defalcation of the debtor while acting in a fiduciary capacity? I have heretofore decided, in the case of In re Seymour [Case No. 12.6S4], that such a claim is a debt of that character, and will not be discharged by a discharge in bankruptcy. My views as there stated are confirmed by the very thoroughly considered opinion of the supreme court of New York in the recent case of Duguid v. Edwards, 50 Barb. 288. The application for the discharge of the bankrupt from arrest is denied. This decision was affirmed by the circuit court, on review [Case No. 7,709].