Hennequin v. Clews

• Decision Date: 05 May 1884
• Citation: 4 S.Ct. 576,111 U.S. 676,28 L.Ed. 565
• Parties: HENNEQUIN and another v. CLEWS and another
• Court: U.S. Supreme Court

111 U.S. 676

4 S.Ct. 576

28 L.Ed. 565

HENNEQUIN and another v. CLEWS and another.

May 5, 1884.

C. Bainbridge Smith, for plaintiff in error.

Albert A. Abbott, for defendant in error.

BRADLEY, J.

In October, 1871, Henry Clews & Co. opened a line of credit on their London house of Clews, Habicht & Co., for £6,000 in favor of Hennequin & Co., a firm doing business in New York and Paris, authorizing the latter to draw from time to time bills of exchange on the London house at 90 days from date, with the privilege of renewal; it being agreed that Hennequin & Co. should remit to Clews, Habicht & Co., a few days before the maturity of each bil , the necessary funds to meet and pay the same, so that Clews, Habicht & Co. should not have to advance any money to pay it. In consideration of such accommodation acceptances, Hennequin & Co. deposited with Clews & Co. certain collateral securities, for the purpose of securing them, in case Hennequin & Co. failed to remit the requisite funds to pay the said bills of exchange, among which collaterals were 29 Toledo Railroad mortgage bonds, for $1,000 each. Clews & Co. used the said bonds by depositing them with third parties as collateral security to raise money for their own purposes, although not called upon to make any advances to pay the bills of Hennequin & Co., all of which were protected and paid according to agreement. After the bills were all retired, Hennequin & Co. demanded a return of the collaterals; but Clews & Co., having failed in business, did not return them. Thereupon, to recover the bonds, or their value, and damages, this suit was brought in the superior court of New York city by Hennequin & Co. against Clews & Co. and the parties with whom they had deposited the bonds. The suit was dismissed as to the latter parties, and Clews & Co., among other things, pleaded that on the eighteenth of November, 1874, they were adjudged bankrupts under the laws of the United States. and that a trustee was appointed, who succeeded to all their interest in said securities; and by a supplemental answer, filed afterwards, they pleaded their discharge in bankruptcy. The following is a copy of the substantial part of this answer, namely: 'The supplemental answer, as amended, of the defendants Henry Clews and Theodore S. Fowler to the complaint in this action, served by leave of the court first had and obtained, shows to the court that subsequent to the service of the original answer herein, in pursuance of the bankruptcy proceedings mentioned in said answer and the order of the court of bankruptcy, the district court of the United States for the Southern district of New York, sitting as a court of bankruptcy, did make an order and grant to said defendants certificates of discharge under seal of said court on the twenty-fourth day of December, 1875, discharging the above-named defendants, and each of them, from all debts and claims which, by the Revised Statutes, title 'Bankruptcy,' are made provable against the estate of said defendants which existed on the eighteenth day of November, 1874, excepting such debts, if any, as are by said law excepted from the operation of a discharge in bankruptcy. * * * And the defendants further allege that the claim and indebtedness set forth in the plaintiffs' complaint herein, is one that was discharged by the operation of said bankruptcy discharge, and was provable in said bankruptcy proceedings, and was not one which was exempt from the operation of the bankruptcy statutes.' Copies of the certificates of discharge were annexed to the answer.

The parties thereupon went to trial, and the facts disclosed by the evidence were substantially in accordance with the above statement. The certificates of discharge of the defendants were given in evidence under objections, and the plaintiff asked to go to the jury on the question as to whether the debt was created by fraud, and also on the question whether it was a debt created by the defendants while acting in a fiduciary character, both of which requests were refused, and the court directed the jury to render a verdict for the defendants; to all which rulings and directions plaintiffs duly excepted. Judgment being entered for the defendant, the plaintiffs appealed to the court of appeals of New York, which affirmed the judgment, and remitted the record to the superior court. The case is brought here by a writ of error, and we have to decide the question whether a discharge in bankruptcy under the act of 1867 operates to discharge the bankrupt from a debt or obligation which arises from his appropriating to his own use collateral securities deposited with him as security for the payment of money or the performance of a duty, and his failure or refusal to return the same after the money has been paid or the duty performed; or whether a debt or obligation thus incurred is within the meaning of the thirty-third section of said act, (section 5117 of the Revised Statutes,) which declares that '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 under this act.' The New York courts decided that the effect of the discharge in bankruptcy was to discharge the debt; holding that the debt was not created by fraud, nor by embezzlement, nor while the bankrupt was acting in a fiduciary character.

The question first came up for discussion in the case upon an order for arresting the defendants on a charge that the debt was fraudulently contracted. After obtaining their discharge in bankruptcy the defendants moved to vacate the order of arrest, which motion the superior court denied, but the court of appeals reversed this judgment and granted the motion. The opinion of the court on this occasion is reported in 77 N. Y. 427, and was referred to as the ground of judgment when the case finally came up on its merits.

The question, so far as relates to the principle involved, is not a new one. It came up for consideration under the bankrupt act of 1841, which withheld the benefits of the act from all debts 'created by the bankrupt in consequence of a defalcation as a public officer, or as executor, administrator, guardian, or trustee, or while acting in any other fiduciary capacity,' (5 St. p. 441, § 1;) and which further declared (among other things) that no person should be entitled to a discharge who should 'apply trust funds to his own use.' Id. § 4. In the case of Chapman v. Forsyth, 2 How. 202, these clauses were brought before this court for examination. The case was an action of assumpsit for the proceeds of 150 bales of cotton shipped to and sold by the defendants, as brokers or factors of the plaintiff. One of the defendants pleaded a discharge in bankruptcy, and the judges of the circuit court were divided in opinion on the question whether a commission merchant or factor, who sells for others, is indebted in a fiduciary capacity within the act if he withholds the money received for property sold by him, and if the property is sold and the money received on the owner's account. The opinion of this court was delivered by Mr. Justice McLEAN, and the above question was answered in the following terms: 'If the act embrace such a debt, it will be difficult to limit its application. It must include all debts arising from agencies; and, indeed, all cases where the law implies an obligation from the trust reposed in the debtor. Such a construction would have left but few debts on which the law could operate. In almost all the commercial transactions of the country confidence is reposed in the punctuality and integrity of the debtor, and a violation of these is, in a commercial sense, a disregard of a trust. But this is not the relation spoken of in the first section of the act. The cases enumerated—'the defalcation of a public officer,' 'executor,' 'administrator,' 'guardian,' or 'trustee'—are not cases of implied, but special trusts, and the other 'fiduciary capacity' mentioned must mean the same class of trusts. The act speaks of technical trusts, and not those which the law implies from the contract. A factor is not, therefore, within the act. This view is strengthened, and, indeed, made conclusive, by the pro- vision of the fourth section, which declares that no 'merchant, banker, factor, broker, underwriter, or marine insurer' shall be entitled to a discharge 'who has not kept proper books of accounts.' In answer to the second question, then, we say that a factor, who owes his principal money received on the sale of his goods, is not a fiduciary debtor within the meaning of the act.' This decision was, of course, authoritative; it was not only followed, but approv d, by the highest courts of several of the states. In Hayman v. Pond, 7 Metc. (Mass.) 328, the supreme court of Massachusetts, speaking through Chief Justice SHAW, after referring to the decision in Chapman v. Forsyth, said: 'We have no doubt that this is the true construction of the law.' In Austill v. Crawford, 7 Ala. 335, and in Com. Bank v. Buckner, 2 La. Ann. 1023, the same views were expressed, though the contrary was held in Matteson v. Kellogg, 15 Ill. 547, and in Flagg v....