In re Ennis & Stoppani

HAND, District Judge (after stating the facts as above). Roche had two possible remedies open against the bankrupt. He could either sue them for willful conversion of his stock (which he did), or he could sue to rescind the whole contract for fraud, first, because of the imposition originally practiced on him by the bankri pts through their fraudulent agent, and, second, because of the imposition by which they obtained the additional margin. Had he sued to rescind the contract, he might possibly have some color to claim that under the second subdivision of section 17 of Act July 1, 1898, c. 541, 30 Stat. 550. (U. S. Comp. St. 1901, p. 3438), this was a liability for obtaining property by false pretenses or false representations; but he has not adopted this course, for he affirmed the sale and sued for the stock which was converted. As he cannot, therefore, now sue upon the fraud, to succeed upon this motion Roche must bring his case within the second or fourth subdivision of section 17. Prior to 1903 his case would have come squarely within the rule of Crawford v. Burke, 195 U. S. 176, 25 Sup. Ct. 9, 49 L. Ed. 147, and Tindle v. Birkitt, 205 U. S. 183, 27 Sup. Ct. 493, 51 L. Ed. 762, and the question is whether the amendment of 1903 changed the law as' there laid down. That amendment (Act Feb. 5, 1903, c. 487, § 5, 32 Stat. 798 [U. S. Comp. St. Supp. 1907, p. 1026]), so far as here material, changed subdivision 2 so that, instead of excepting judgmentr for fraud, obtaining property under false pretenses or representations, or for malicious injuries to person or property, it excepted liabilities for obtaining property under false pretenses or-representations or willful injuries to person or property. As I have already shown. Foche [757] cannot claim here for fraud, because he has affirmed his purchase by suing for conversion. l,t is true that tinder Bullis v. O’Beirne, 195 U. S. 606, 25 Sup. Ct. 118, 49 L. Ed. 340, the form of the complaint is not conclusive; but the trouble here is that the action is not brought for fraud at all, but for conversion of a title obtained through 'the very fraud on which the victim now seeks to rely. Having, with full knowledge of the fraud, sued for the value of the stock, he can no longer as matter of law rely upon the fraud. He is therefore relegated to the second part of subdivision 2, which excepts liabilities for malicious injury to property. The only injury to his property rights considered in its conversion, and if that he a “malicious injury” to his property, so is every fraud or embezzlement, and.the earlier part of subdivision 2, as well as the whole of subdivision 4, is merely elaborate tautology. This cannot be the correct meaning of the words. Injury to person and property means causing damage to the subject-matter of the rights, not depriving the owner of them. It is so used generally in the law, and Tinker v. Colwell, 193 U. S. 473, 24 Sup. Ct. 505, 48 L. Ed. 754, is no exception to the rule, because the theory was, not that the husband is deprived of his rights in his wile, but that her seduction is an actual assault upon her person. No doubt it is hard to think of any claim which would at once be provable and,also a liability for such injuries, unless it be a judgment for them. Still it may be that the clause might cover such claims as at once arose from injury to the subject-matter of property and resulted in such profit to the wrongdoer as permitted an action on the common counts. Be that as it may, 1 cannot interpret those words in a way so entirely at variance with their traditional meaning as to cover willful conversion, merely because I am uncertain whether they really cover any other cases than they did prior to 1903. Besides, the facts in Re Adler, 152 Fed. 422, 81 C. C. A. 564, although not the reasoning, make that case an authority to the contrary, because, though the money there appropriated by the factor may have been the principal’s only in equity, it would be an unreasonable distinction to say that there was an “injury to property” only when the wrongdoer converted that to which the victim had legal title. Kavanaugh v. McIntyre, 128 App. Div. 722, 112 N. Y. Supp. 987, undoubtedly bears out the petitioner here, there being tio valid distinction .between that case and this; but it is not an authority binding upon me, and I regret that I cannot assent to its reasoning. Moreover, it is contradicted by Maxwell v. Martin, 130 App. Div. 80, 114 N. Y. Supp. 349, in the First department, a court of equal authority. I cannot, therefore, agree that the case comes within either of the clauses of the second subdivision. Coming now to the fourth subdivision, the question is whether the amendment of 1903 has had the much-to-be-desired effect of attributing the words “in a fiduciary capacity” to “defalcation” alone. The answer to this, at least upon authority, is to be again found in, Re Adler, 152 Fed. 422, 81 C. C. A. 564. As res integra I should have thought it possible that the omission of the word “fraud” in subdivision 2 might have indicated that after 1903 the same word in subdivision 4 was meant to cover all frauds, since the contrary seems to involve the [758] result that now, judgments for fraud not committed in a technically fiduciary capacity are discharged where formerly they were not, a result the direct contrary of the obvious general purpose of the amendment; but it may be that “false pretenses or representations” were thought to cover all the cases which were formerly covered by those words and by the word “fraud,” even though such a construction does render tautologous the word “fraud” in subdivision 4. However that may be, In re Adler, supra, concludes me from holding that the words “embezzlement” or “misappropriation” may be construed independently of the clause “in a fiduciary capacity,” and I must follow that case. While, therefore, I cannot disguise my regret that the bankrupts should be discharged from a claim arising out of a deliberate conversion of this property, accompanied by very shameful fraud, which involved the greatest moral turpitude, yet, as I understand the authorities, I cannot see that, the amendment of 1903 has changed the rule of Crawford v. Burke. Though I cannot wholly vacate the stay, I can, however, permit the petitioner to enter his judgment against the bankrupts, and to do so much else as may be necessary to perfect any rights he may have under the undertaking, if any. The undertaking was taken out more than four months before the petition was filed; and, assuming that the indemnity given the surety created a lien under section 67c or 67f, which it is not necessary to decide, such a lien is not invalid. If the petitioner can enforce the undertaking, I will aid him to do so. Let an order be entered, therefore, vacating the stay so far as to permit the entry of judgment against the bankrupts, and thereafter to take such proceedings against the sureties as the claimant may be advised. If the undertaking only provides that the bankrupts shall answer a body execution, I shall not be able to aid the claimant, as I could not permit the bankrupts to be arrested for a claim which will be discharged; but, if the undertaking be.in form a security for the payment of the judgment, I may be able to allow the claimant to fulfill the conditions of the undertaking, if they involve only such matters as property execution and the like. These are questions which I can decide upon the settlement of the order, when I can learn the form of the undertaking and what should be allowed. Settle such order upon one day’s notice on any morning at 10 a. m. at my chambers.