In re Butts

• Decision Date: 27 February 1903
• Citation: 120 F. 966
• Parties: In re BUTTS.
• Court: U.S. District Court — Northern District of New York

120 F. 966

In re BUTTS.

United States District Court, N.D. New York.

February 27, 1903

Gibbs &amp Wilbur, for the motion.

Edson A. Hayward, opposed.

RAY District Judge.

In the month of October, 1901, the American Agricultural Chemical Company shipped and delivered to the said James P. Butts at Oneonta, N.Y., certain goods under and pursuant to the terms of certain agreements, partly printed and partly in writing (both being the same in terms, and therefore treated here as one), which provide as follows:

'We hereby agree to ship you, under the conditions and stipulations hereinafter named, the following fertilizers at prices and terms named below. The terms and conditions of this contract are as follows, and the prices named below are net to us.'

Then follows a description of the goods shipped, with prices, etc.

'Full settlement for spring and fall shipments shall be made by you not later than November 1st, 1902, in cash or by notes (given by purchasers of these goods) received and indorsed by you. If settlement is made in cash at above date, we will allow you a discount of five per cent. (5 per cent) from the face of invoices. For all cash received prior to November 1st 1902, we will allow you an additional discount from the face of invoices at the rate of eight per cent. (8 per cent) per annum, from the date of such prepayment to November 1st 1902.

'For conditions of settlement, see reverse side of contract.

'This contract, written and printed, constitutes the entire agreement, and no verbal understanding will be recognized. The above named provisions of this contract, as well as those on the reverse side of this agreement, which are, and are to be considered as a part of this contract, shall not be in force until accepted by the home office.'

This was signed by said company by its salesman. Immediately below, the defendant (now bankrupt) signed the following:

'Accepted on conditions named. J. P. Butts.' On the back of this order so accepted was printed the following:

'The following terms and conditions are, and are to be considered as a part of the terms and conditions stated on the opposite side of this contract form:--

'You agree to render us an account of goods unsold on July 1st and also on November 1st, 1902. It is agreed that you will hold in trust and separate for the settlement of our account with you, all of said goods unsold and all currency, open accounts, notes, liens, mortgages or other values received for goods sold.

'If settlement is made in purchasers' notes, said notes shall be made out on blanks furnished by us, payable to our order at some bank, &c.

'If we request it, you agree to give your own note, payable on bank, with the express understanding that said note is to be received by us as evidence of sales and in confirmation of your guarantee as above stated and not as payment: and notwithstanding the reception of said note, all accounts and notes and moneys received for goods, are to remain our property, but your note shall be enforcible to the extent of all losses suffered by us on all sales made and guaranteed by you.'

Under these agreements, goods to the amount of $1,997.30 were delivered to the said defendant, Butts, and disposed of by him, and not paid for.

The complaint, which sets out the contracts in full, alleges, after stating a proper demand:

'But the said defendant refused, and refuses and neglects, to deliver to the plaintiff the proceeds of any sale, or to return to the plaintiff any of said goods, or any money or property received therefor, or an account thereof; and defendant refuses to account for said property so intrusted to him, or for the proceeds thereof, and has wrongfully, unlawfully, and fraudulently converted said goods and property, and embezzled and misappropriated the proceeds thereof, and converted the same to his own use, which said goods and the proceeds thereof were received by him in his said fiduciary capacity. (The complaint alleges that he received same in such capacity.) That he has fraudulently and wrongfully converted and disposed of said goods and the proceeds thereof to his own use, to the plaintiff's damage in the sum of one thousand one hundred ninety-seven dollars and thirty cents.'

That this debt or claim is provable in bankruptcy cannot be successfully questioned or denied. The claim is founded on an express contract, and that the bankrupt was liable for the value of these goods, as fixed by the agreements, cannot be questioned. The legal effect of the allegations of the complaint is not broader than the legal effect of the contract made a part thereof. By section 17 of the act of July 1, 1898 (30 Stat. 550 (U.S. Comp. St. 1901, p. 3428)), 'An act to establish a uniform system of bankruptcy throughout the United States,' it is provided:

'A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as * * * were created by his fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity.'

Must the embezzlement, misappropriation, or defalcation have occurred while the person charged was acting as an officer or in a fiduciary capacity, and with direct reference to the funds or property in his hands as such officer or person acting in such fiduciary capacity? This question seems not to have been settled. In re Basch (D.C.) 97 F. 761, Brown, District Judge, held:

'A debt due by a bankrupt in the character of a commission merchant, arising out of his failure to account for the value of goods consigned to him for sale on commission, on a contract to return the goods or their specific proceeds, is not a debt created by the bankrupt's 'fraud, embezzlement, misappropriation, or defalcation while acting in a fiduciary capacity,' and, therefore, will be released by his discharge in bankruptcy.'

In Upshur v. Briscoe, 138 U.S. 378, 11 Sup.Ct. 317, 34 L.Ed. 931, the court, in speaking of section 33 of the act of 1867 (14 Stat. 533), says:

'It is to be noted that the language of section 33 of the act of 1867 excepts debts created by the bankrupt 'while acting in any fiduciary character'; and the language would seem to apply only to a debt created by a person who was already a fiduciary when the debt was created. In this view, it was said in Cronan v. Cotting, supra: 'We are inclined to the opinion that the phrase implies a fiduciary relation existing previously to, or independently of, the particular transaction from which the debt arises. The collocation tends to favor this interpretation. If the phrase, 'while acting,' etc., be referred to that which immediately precedes, it implies something in the nature of defalcation. If it be referred to the first branch of the provision, its association with fraud and embezzlement carries the implication of a debt growing out of some fraudulent misappropriation, or, at least, breach of trust."

In Matter of Bullis, 68 A.D. 508, 73 N. Y. Supp. 1047, it was stated (while not necessary to the decision of the case) that:

'Subdivision 4 of section 17 of the national bankruptcy law (30 Stat. 550 (U.S. Comp. St. 1901, p. 3428)), excepting from the operation of the discharge debts 'created by his fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity,' does not, in the use of the words 'fraud,' 'embezzlement' and 'misappropriation,' relate to an individual, and by the word 'defalcation' alone apply to one 'acting as an officer or in any fiduciary capacity.''

In Frey v. Torrey, 70 A.D. 166, 75 N. Y. Supp. 40, it was held:

'The words 'while acting as an officer or in any fiduciary capacity,' used in subdivision 4 of section 17 of the United States bankruptcy law, excepting from the operation of the discharge in bankruptcy an indebtedness 'created by his fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any...