p. 717Simon S. Stern et al., Resp’ts, v. Abraham Meyer et al. App’lts.(New York Common Pleas, General Term,Headnote
1. Judgment—Release—Bankrupt’s discharge. -On a motion to discharge a judgment on the ground that it was extinguished by a discharge in bankruptcy, an objection that the debt which is the basis of such judgment was created by fraud is unavailing where it is a simple money judgment and no order of arrest was ever obtained in the action and no claim to that effect was made until more than seventeen years after the entry of such judgment.
3. Same—Section 5117 op U. S. R. S.
Section 5117 of the U. S. Revised Statutes was not intended to nor did in any way effect or change the laws of the several states as to what constitutes a fraud, embezzlement, defalcation or fiduciary relation.
Appeal from an order entered at special term, denying defendant’s motion to be discharged from the plaintiffs’ judgment entered against them, on the ground that that judgment and claim were discharged by the defendant’s discharge in bankruptcy, and referring the question whether the debt or claim in suit was created by the fraud of the defendants or of either of them.
JBoadly, Lauterbach and Johnson {Williain F. Cohen and B. JD. Washburn, of counsel), for app’lts; James Murphy {Myer J. Stein, of counsel), for resp’ts.
The motion was made under section 1268 of the Code of Civil Procedure, which provides that “ at any time after two years have elasped since a bankrupt was discharged from his debts pursuant to the Acts of Congress relating to bankruptcy, he may apply upon proof of his discharge to the court in which the judgment was rendered against him for an order directing the judgment to be canceled and discharged of record. If it appears that he has been discharged from the payment of that judgment, an order must be made accordingly, and thereupon the clerk must cancel the discharge the docket thereof as if the proper satisfaction piece of the judgment was filed.” These provisions are mandatory and imperative, and entitle the defendants to the release asked for unless the j udgment is one of those excepted by § 5117 of the Revised Statutes of the United States. Am. Exch. Bk. v. Brandreth, 12 Hun, 384 ; Arnold v. Oliver, 64 How. Pr. 452 ; Townsend v. Simpson, 13 Week. Dig. 450; Fellows v. Kittredge, 56 How. Pr. 498 . The plaintiffs do not in these proceedings attack the validity of defendant’s discharge in bankruptcy, but oppose his application on the ground that under § 5117, supra, the judgment sought to be canceled is not such a claim or debt as the bankrupts were or could be discharged from under that act. The section is as follows: “Ho 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.” Plaintiffs claim that the debt on which their judgment was
p. 718founded was created by fraud. This is the first that any such claim has been made by the,plaintiffs so far* as appears from the papers submitted to us. From these papers it appears that the defendants purchased certain goods of the plaintiffs in the fall of 1871, which were not paid for. The action resulting in the judgment under consideration was not commenced until January, 1877, more than five years after the cause of action accrued. The summons was the ordinary summons for a money judgment only ; the complaint was the ordinary complaint for goods sold and delivered; the demand was the ordinary demand for a money judgment. The judgment was entered without any application to the court and is a simple money judgment. No order of arrest was ever obtained in the action, and we think the plaintiffs cannot now after the expiration of more than twenty-two years from the time of the original sale and purchase and more than seventeen years after the'entry of judgment, be allowed to come into court and show for the first time by proof
aliunde that there was fraud on the part of the defendants in contracting the debt sued upon. In
Shuman v. Strauss, 52 N. Y. 404 , the proceedings were in every respect similar to those in this place, except that the complaint in that case contained allegations of fraud which the court said if properly verified would have justified an order of arrest. And the court there held that the plaintiff had waived his right to arrest, and that the question of fraud was entirely eliminated.from the case so far as the rights and obligations of the parties depended upon the laws of this state. And in
Palmer v.
Preston, 45 Vt. 154 , it was held that the recovety of a judgment upon a contract induced by a fraud is a waiver of the fraud, and the judgment is not a debt created by fraud within the meaning of the Bankrupt Act, and the plea of a discharge in bankruptcy was a good defense to an action of debt founded upon such judgment. See also Bump on Bankruptcy, 10th ed. p. 743. It is quite true that a number of cases are cited by the plaintiffs in support of their contention, but we think in all of the cases so cited, it will be found that there were either allegations of fraud in the complaint " itself and the judgment, or that an order of arrest had been obtained in the action founded upon affidavits which were of record in the court in.which the application was made; and that no case can be found where the application for a discharge of the judgment was successfully resisted by proof entirely outside of the record of the court in which the judgment was obtained. To allow such evidence at this late day would in effect be to convert a mere money judgment into one of fraud, and that without any opportunity for the defendants to contest such an issue before a juty, and notwithstanding more than six years have passed since the discovery of the fraud, which is the time limited for the commencement of such actions bj' § 382 of the Code. Moreover, we do not think that § 5117 of the U. S. Rev. St. was intended to or did in any way affect or change the laws of the several states as to what constitutes a fraud, embezzlement or defalcation or fiduciary relation, as is apparent from the conflicting decisions of the courts of the United States and of the several states in regard to
p. 719whether a factor or commission merchant does or does not act in a fiduciary capacity in the conduct o£ his business. § 3, Am. and Eng. Encycl. p. 389, note 3, and cases there cited.
We therefore think that the plaintiffs in obtaining the judgment they did, and in their subsequent proceedings, have waived any fraud there may have been in contracting the debt and cannot now be heard to assert it for the first time by proof aliunde the record of this court. Beside, this is not a question which should be determined upon a summary application of this kind as was said in Shuman v. Strauss, supra, 406 .
The order of the special term mnst therefore-be reversed with costs of this appeal, and an order entered discharging the judgment with $10 costs.
Daly, 0. J. and Bischoff, J., concur.