Bank of North America v. Crandall

• Decision Date: 31 October 1885
• Citation: 87 Mo. 208
• Parties: BANK OF NORTH AMERICA, Appellant, v. CRANDALL.
• Court: Missouri Supreme Court

87 Mo. 208

BANK OF NORTH AMERICA, Appellant,

v.CRANDALL.

Supreme Court of Missouri.

October Term, 1885.

Appeal from St. Louis Court of Appeals.

REVERSED.

Hermann & Reyburn and W. C. Marshall for appellant.

(1) The fraud spoken of in the bankrupt act involves, it is true, moral turpitude, but it need not amount to a crime. It is a fraud of the same character as would entitle the party defrauded to rescind a contract on account of it. Stewart v. Emerson, 52 N. H. 301; In re Devoe, 2 Bank Reg. 27; Harner v. Spelman, 78 Ill. 206; Morse v. Hutchins, 102 Mass. 439. The fraud may consist either in the statement of a known falsehood, or in the concealment of material facts. Stewart v. Emerson, supra. (2) A record is conclusive of all the material facts litigated therein against the parties thereto. Lawrence v. Hunt, 10 Wend. 80; Walsh v. Ostrander, 22 Wend. 180; Kreheler v. Ritter, 62 N. Y. 374; Thompson v. Roberts, 24 How. (U. S.) 233; Corcoran v. Canal Co., 4 Otto, 740; In re Chiles, 22 Wall. 166. (3) The chief manager of a corporation will not be permitted to set up his own ignorance of those transactions which fall within his own sphere of action. Wannel v. Kem, 57 Mo. 478, and cases there cited; Union National Bank v. Hunt, 76 Mo. 445. (4) It is an inflexible rule of law that no secondary evidence is admissible where it is shown that better evidence is in existence; especially when it is within the reach or control of the party. A party cannot be compelled to accept an admission as to what facts a record will establish in lieu of the record itself. Sims v. Gray, 66 Mo. 613; State v. Fulkerson, 10 Mo. 682; 1 Greenl. on Evid., secs. 96 and 203; Goodell v. Smith, 9 Cush. 594; Dickinson v. Breeden, 25 Ill. 186; Wood v. Cullen, 13 Minn. 394. (5) An instruction which assumes the existence of a fact, concerning which there is no evidence, is erroneous, although it may state correctly an abstract proposition of law. Lester v. K. C., St. J. & H. Ry., 60 Mo. 268; Condin v. Mo. Pac. Ry., 78 Mo. 574; Chubbuck v. H. & St. J. Ry., 77 Mo. 592; Utley v. Tolfrey, 77 Mo. 309; Bowen v. H. & St. J. Ry., 75 Mo. 428.

Thos. C. Fletcher and Wm. C. Bragg for respondent.

(1) All the facts in the case consist with honesty and fair dealing in contracting the debt on the part of respondent. The burthen of proving that the debt was created by fraud, was on the plaintiff, and cannot be presumed, but must be proven by competent testimony. Ames v. Gilmore, 59 Mo. 537; Henderson v. Henderson, 55 Mo. 534. (2) The word “fraud,” as used in the thirty-third section of the bankrupt law, which provides that “no debt created by the fraud, etc., of the bankrupt, etc., shall be discharged under this act,” means positive fraud in fact, involving moral turpitude, or intentional wrong, and not implied fraud, or fraud in law, which may exist without bad faith, or immorality. Neal v. Clark, 95 U. S. 704. It means an active, expressed fraud, not one implied from an unjustifiable act, as, for instance, the conversion of securities held by one as collateral, etc. Henequin v. Clews, 77 N. Y. 427. The debt must be tainted with fraud in its inception. The vice must come into existence with the debt. If the contract was fair and honest when made, the discharge will release the bankrupt, even though he was guilty of fraudulent conduct subsequently, in respect to the debt. Brown v. Beach, 52 Miss. 536; Wolf v. Stix, 99 U. S. (9 Otto) 1.

SHERWOOD, J.

This is an action on a promissory note for the sum of $11,384.56. The answer and the replication of the defendant narrowed the issues down to the single one, whether there was fraud in contracting the debt, evidenced by the note, thus preventing defendant's discharge in bankruptcy from being a bar to plaintiff's action. There was a trial by a jury resulting in a verdict for the defendant, and judgment accordingly, and on appeal this judgment was affirmed.

There is ample evidence in the record, consisting of defendant's own admissions when on the witness stand, showing that when the debt was originally contracted the bonds of the Iron Mountain & Texas Railway Company, were pledged as collateral for that debt. If this pledging was done malo animo, knowing the worthlessness of the collaterals, and the fraudulent circumstances attendant on their origin, this would clearly constitute such fraud as would bring the case within the exception of the bankrupt act, and prevent a discharge from operating as a bar. Stewart v. Emerson, 52 N. H. 301; Morse v. Hutchins, 102 Mass. 439; Bump on Bankruptcy, 728, 729, and cases cited. Viewing the matter in this light the trial court very properly submitted the issue to the jury for them to determine, as triers of the facts, whether or not fraud was mingled with the debt at its inception, thus tainting the whole transaction. And if a party intentionally misrepresents a material fact, or produces a false impression in order mislead another, or to entrap or cheat him, or to obtain an undue advantage of him, this constitutes positive or actual fraud, in the truest sense of the terms. And the misrepresentation is not confined to words or positive assertions; it may well consist of deeds, acts or artifices to mislead. 1 Story Eq. Jur., sec. 192. Of course, if the fraud occurred long after the debt was contracted, at the time the note which evidenced the debt was executed, such fraud would not come within the purview of the bankrupt act. Brown v. Broach, 52 Miss. 536; Wolf v. Stix, 99 U. S. 1.

There was...