American Surety Co. of New York v. Greenwald

• Decision Date: 20 December 1946
• Docket Number: No. 34229.,34229.
• Citation: 223 Minn. 37,25 N.W.2d 681
• Parties: AMERICAN SURETY CO. OF NEW YORK v. GREENWALD.
• Court: Minnesota Supreme Court

25 N.W.2d 681

223 Minn. 37

AMERICAN SURETY CO. OF NEW YORK v. GREENWALD.

No. 34229.

Supreme Court of Minnesota.

December 20, 1946.

Appeal from District Court, Hennepin County; William A. Anderson, Judge.

Action by the American Surety Company of New York, as assignee of the Travelers Indemnity Company, against Daniel J. Greenwald to recover on a claim for boiler insurance premiums collected for assignor by defendant and allegedly converted by defendant to his own use. Defendant pleaded a discharge in bankruptcy. Judgment was ordered for defendant and from an order denying its motion for new trial, plaintiff appeals.

Reversed and remanded.

Fowler, Youngquist, Furber, Taney & Johnson, of Minneapolis, for appellant.

Robins, Davis & Lyons, of Minneapolis, for respondent.

CHRISTIANSON, Justice.

Appeal from an order denying a motion for a new trial.

This matter arises out of an action brought by plaintiff to recover on a claim of $3,838.79 assigned to it by the Travelers Indemnity Company (hereinafter called Travelers), which claim represents a balance, after deduction of defendant's commissions, on boiler insurance premiums collected by defendant. It was alleged in the complaint that the premiums, belonging to Travelers, were collected by defendant while acting in a fiduciary capacity and, with intent to defraud Travelers, were wrongfully and fraudulently embezzled, misappropriated, and converted to his own use between May 2, 1940, and January 16, 1941. There is no denial of the fact that defendant, by reason of the retention of the collections, became indebted to Travelers in the amount above stated, nor is there any denial by defendant that the indebtedness was never paid to Travelers or to its assignee, plaintiff herein. It appears that after the collection of the premiums and while he was indebted to Travelers therefor in the sum above stated, defendant filed a voluntary petition in bankruptcy on July 13, 1942, and that he listed in the petition the above indebtedness of $3,838.79 in his schedule of debts. It also appears that the bankrupt (defendant) received a discharge in bankruptcy after proceedings in bankruptcy had been completed. By reason of this discharge, defendant now asserts that the indebtedness which is the subject of this action was discharged.

Thereafter action was brought by plaintiff herein, as the assignee of Travelers, to collect the claim. It was and is the claim of plaintiff that because of the provisions of § 17, sub. a(2) and (4) of the Bankruptcy Act, as amended, 11 U.S.C.A. § 35, sub. a(2) and (4), which will hereinafter be more specifically referred to, the debt was not discharged by defendant's discharge in bankruptcy.

After trial of the matter before the court without a jury, the court made findings of fact, conclusions of law, and order for judgment in favor of defendant. Such findings, among other things, were to the effect that although there had been collections in the amounts alleged in the complaint and despite the fact that there was a balance due in the amount of $3,838.79, the debt had been discharged in the bankruptcy proceedings, the court stating that defendant had not acted in a fiduciary capacity in the course of said transactions so as to make applicable § 17, sub. a(4) of the Bankruptcy Act, which provides: "a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as * * * (4) were created by his fraud, embezzlement, misappropriation or defalcation while acting as an officer or in any fiduciary capacity; * * *."

Judgment for defendant was accordingly ordered. Thereupon plaintiff moved for amended findings or a new trial. The motion, among other things, prayed that the findings be amended to show that the acts and conduct of defendant in collecting the premiums belonging to Travelers and his failure to remit were done in a fiduciary capacity; that the resulting indebtedness and liability of defendant did not constitute a debt dischargeable under the Bankruptcy Act; and that judgment be entered for plaintiff. As stated, plaintiff also moved in the alternative, if the motion to amend the findings should be denied, for an order vacating the decision of the court and for a new trial. Thereafter the court made and filed amended findings, conclusions of law, and order for judgment in favor of defendant. In the amended findings, the court determined, among other things: "That defendant failed to promptly deduct his commissions and to then remit the balance of each of said premium collections to Travelers Indemnity Company when received, and, on the contrary, defendant wrongfully and with the intent to deprive said Travelers Indemnity Company thereof, misappropriated and converted to his own use, retained in his possession and fraudulently embezzled $3,838.78 of said moneys, over and above the foregoing credits and commissions due him and paid over to Travelers Indemnity Company only * * * [certain] amounts," and that prior to the commencement of the action herein Travelers assigned to plaintiff its claim and cause of action against defendant. The amended findings also contained a recital to the effect that under the arrangements and in the course of dealings between defendant and Travelers defendant did not act as an officer or in a fiduciary capacity so as to except the debt here in question from defendant's discharge in bankruptcy, and that by reason thereof defendant was not indebted to plaintiff in any amount.

At the time of making such amended findings, the court made no disposition of plaintiff's alternative motion to vacate the decision of the court and grant a new trial, but at a later date this omission was remedied by an order denying this portion of the motion. It is from the order denying a new trial that this appeal is taken.

It is the contention of plaintiff on this appeal that the trial court erred in its application of the law to the facts. It urges that, in view of the fact that defendant wrongfully converted the money collected by him while acting under an arrangement that gave his acts a fiduciary character, two separate provisions of the Bankruptcy Act apply to prevent defendant's debt to plaintiff from being discharged in the bankruptcy proceeding, and that as a result thereof judgment should be for plaintiff. The provisions which plaintiff seeks to invoke are those contained in § 17 of the act, as amended, 11 U.S.C.A. § 35, the material portion of which provides: "a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as * * * (2) are liabilities * * * for willful and malicious injuries to the person or property of another, * * * or (4) were created by his fraud, embezzlement, misappropriation or defalcation while acting as an officer or in any fiduciary capacity; * * *."

1. With respect to subd. a(2) above referred to, defendant contends that plaintiff cannot now resort thereto on appeal. He contends that this is an attempt by plaintiff to here invoke a theory not relied upon when the case was tried below. In this it appears that defendant is correct, for at the beginning of the trial the following discussion took place between the court and the attorneys representing the parties:

"The Court: What is the issue?

"Mr. Lyons [defendant's attorney]: That funds were collected by the defendant under claim of plaintiff in this case — it is a very narrow issue, that is true, and we might show a portion of the Bankruptcy Act in issue, Section 35, is that right, Mr. Furber?

"Mr. Furber [plaintiff's attorney]: Yes.

"Mr. Lyons: Paragraph 4 of that portion which arises from discharged debts created by `fraud, embezzlement, misappropriation, or defalcation while acting as an officer,' and that is not an issue, `or in a fiduciary capacity.' The question is whether or not under the law this money or this debt was caused or created by fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity.

"The Court: In what capacity are you?

"Mr. Lyons: Only an agent, commission man, broker or what-have-you, and that relationship under the facts will be shown in the evidence and are not such as to bring it within the meaning of the class of fiduciary capacity as used in the Bankruptcy Act."

Although subd. a(4) of § 17 above referred to had been thus specifically alluded to in the foregoing discussion as being the sole provision involved in the suit, plaintiff's counsel there present said nothing to indicate disagreement with the statement made by defendant's counsel. Thus, from what transpired there, it was natural to assume that the only legal question involved, and the only one on which the case was being tried, was the question whether defendant was acting in a fiduciary capacity within the contemplation of subd. a(4) of § 17 at the time of the transactions in question. That the trial court so believed and that it acted on that assumption clearly appears from the fact that, although the court's findings and memorandum treat and discuss the question of defendant's fiduciary capacity under subd. a(4), nothing appears there relative to subd....