Majority — Day J.
Syllabus
ERROR TO THE SUPREME COURT OF THE STATE OF NEW YORK.after making the foregoing statement, delivered the opinion of the court.
This action involves the construction of section 17 of the bankrupt act of 1898, 30 Stat. 544 , 550, as it stood prior to the amendment of February 5, 1903. So far as it pertains to this case, this section is as follows:
“ A discharge in bankruptcy shall release the bankrupt from all of his provable debts, except such as . . . (2) are judgments in actions for frauds, or obtaining property by false pretenses or false representations, or for willful and malicious injuries to the person or property of another; ; . . (4) were created by his fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity.”
In Crawford v. Burke, decided at this term, ante, p.- 176, this court held that subdivision 4 of this act was limited to frauds, embezzlements, misappropriations or defalcations while acting in an official character, or in a fiduciary capacity, and did not apply to other debts or obligations fraudulently created. The question therefore presented in this case is, was the judgment against Bullís and Barse as finally reached in the New York courts one in an “ action for fraud” within the meaning of the act ?
As, was said of the action and the relief granted, in the opinion of the Appellate Division, 68 App. Div. 508 , affirmed in 171 N. Y. 689 : “ The action for specific performance in the strictest sense thereof was founded upon the actual positive fraud of the defendants Bullis and Barse. They had in fact, in pretended compliance with their agreement, conveyed to the'designated trustee 30,000 acres of land. The. plaintiff al-' Téged that the defendants fraudulently included in this conveyance lands not owned by the grantors,- and that the bulk .of'the tract was not timber land, was encumbered, and- was
Considerable argument was made by the learned .counsel for the plaintiff in error as to the essential allegations of a pleading where relief for fraud is sought. It is said that there is no averment in the complaint in this case of knowledge or intent to deceive upon the part of the plaintiff in error, but it is averred that the representations were falsely and fraudulently made with the intent to further the pecuniary interest of the plaintiff in error, and were known to be false when made. Such allegations have frequently been held the equivalent pf averments of specific intent. Indeed it is difficult to perceive how a statement falsely and fraudulently made can be otherwise than intended to deceive. A statement fraudulently made with knowledge of its falsity must necessarily .be intended to deceive. Bank of Montreal v. Thayer, 7 Fed. Rep. 622 , and cases cited in the opinion. It is argued that Bullis, one of the defendants, regarding the case as one for fraud, demanded a jury trial, which was denied him, and that this shows the character of the case. But, as appears in the.opinion of the New York Court of Appeals, 158 N. Y. 466 , 468, when the demand for a jury trial was made the defendants, had not set up their inability to perform the contract, but had taken issue upon the allegations of fraud and misrepresentation. In this attitude of the case it was held that a jury trial was properly denied.
But it is unnecessary to further consider questions of practice peculiar to the jurisdiction where the judgment was rendered. Whether the complaint sufficiently charged fraud to warrant the judgment given is not a Federal question. Forsyth v. Vehmeyer, 177 U. S. 177 , 180. The question for this court is whether the judgment rendered by the New York court is in an action for fraud. If so, it is excepted from the effect of a discharge in bankruptcy.
“ The theory of the complaint and the tendency of the proof upon the trial were that a fraudulent scheme was devised by Bullís and Barse; having for its object the consolidation of certain railroad properties, owned and controlled by them, and the issuance of a large number of bonds by the consolidated company, which should be placed with the public at par through the cooperation of Newcombe & Company, whose assistance to the scheme, in the negotiation of the bonds, should be gained by representations and agreements of such a nature, as to the timber tracts to be furnished as additional security under the mortgage that the bonds would appear to be attractive and salable securities. We are not called upon, at the present time, to pass upon the liability of Bullís and Barse for the. parts they have played in the development and consummation of this scheme, inasmuch as they have gone back to a new trial; but on the face of this record that the evidence amply warranted the findings by the trial court is not to be denied, and it would have justified the granting of relief to the plaintiff had the case been in a shape to make that possible.” 151 N. Y. 372 , 384.
When the case was sent back for trial, after it had been held that it might be retained for the assessment of damages, in its conclusions of law the Supreme Court at special term decided that it “ had jurisdiction to proceed in the cause by reason of the fraud practiced by the’ defendants Bullís and Barse in the premises.” This manner of exercising jurisdiction by the lower court was expressly affirmed by the Supreme Court at general term, 2 App. Div. 545 , and finally by the Court of Appeals of New York, 158 N. Y. 466 . In the' latter case the court said:
“ The theory upon which the decision proceeded was that they [Bullís and Barse] devised a fraudulent scheme for the consolidation of certain railroads owned and controlled by them, issued bonds upon false representations as to the timber lands to be furnished as added security under the mortgage to make the bonds secure and salable, that upon those facts the court would have been justified in granting relief to the plaintiff against them, and that the corporation having been the instrumentality employed by them, was also liable. Thus it was that the liability of the appellants was involved in that decision. We adhere to the principle of our decision upon that appeal.”
It is thus apparent that the courts of New York, in conformity to' their own practice, have rendered a judgment against Bullis and Barse by reason of the fraudulent scheme found, and because of the fraudulent representations made to and relied upon by the parties, to whom the relief was granted. The Federal question is, is such a judgment entitled to be discharged in bankruptcy ? Under the bankrupt law of 1867 it was provided: “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. 5117.
In the law of 1898, for reasons which have been the subject of much diversity of view, in the courts, but which were sufficient in the judgment of Congress in passing, the act to necessitate a change, it is provided, instead of exempting debts created by fraud from the operation of the discharge, that only judgments in actions for fraud shall be discharged. Under this act, (as. it was before the passage of the act of February 5, 1903), claims grounded in fraud will not be discharged unless reduced to judgment, but the essential character of the fraud which is here meant has not been changed. By. the decisions of this court, which are collected in the
As thus interpreted, we think there can be no question that the judgment rendered in this case was based upon the fraud of Bullís and Barse. The facts charged arid found showed false and fraudulent representations as to the character of the property which was to be the security of those who should
The judgment of the Supreme Court of New York is, therefore,
Affirmed.
Cases cited
- Forsyth v. Vehmeyer 177 U. S. 177 p. 613, p. 617, p. 620
- Van Weel v. Winston 115 U. S. 228 p. 614
- Neal v. Clark 95 U. S. 704 p. 614, p. 620