In re Herbst

• Court: U.S. District Court — Southern District of New York
• Writing for the Court: Henry H. Salzberg, of New York City, for bankrupt
• Citation: In re Herbst, 22 F.Supp. 353 (S.D. N.Y. 1937)
• Decision Date: 07 September 1937
• Parties: In re HERBST.

22 F. Supp. 353

In re HERBST.

District Court, S. D. New York.

September 7, 1937.

Jones, Clark & Higson, of New York City, for creditor.

Henry H. Salzberg, of New York City, for bankrupt.

PATTERSON, District Judge.

The motion is by a creditor to vacate an ex parte order staying it from further proceedings against the bankrupt.

The bankrupt was receiver of rents in a foreclosure action in the New York Supreme Court. From time to time he had been awarded compensation as receiver, his compensation down to August, 1934, totaling $42,000. On August 25, 1934, an order was entered allowing him the sum of $5,674.54 as further compensation. He withdrew this sum from the funds in his charge. The date of such withdrawal does not appear; it may be assumed, in favor of the bankrupt, that the date was after entry of the order and prior to notice of appeal. Central Hanover Bank & Trust Company, the plaintiff in the foreclosure action, appealed from the order awarding this compensation, and on appeal the order below was modified by the Appellate Division so as to disallow the award of $5,674.54. The bankrupt did not repay the amount taken, except to the extent of $543.28. There is no reason to doubt his statement that he did not have the necessary money. Central Hanover Bank & Trust Company took judgment against him for the deficit. He later filed a petition in bankruptcy and obtained an ex parte order staying proceedings to collect the judgment. The present motion to vacate the stay raises only one question, whether the debt owed by the bankrupt was one dischargeable in bankruptcy.

By the Bankruptcy Act, § 17, as amended, 11 U.S.C.A. § 35, a discharge releases the bankrupt from all debts, except, among others, those "created by his fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity." The bankrupt, a court receiver, was an "officer"; he was also a person in a "fiduciary capacity." And it is plain that his failure to turn over the trust fund intact was a "defalcation." As used in this statute, "defalcation" means the failure of one who has received moneys in trust to pay it over as he ought. It is a broader word than fraud, embezzlement, or misappropriation, and covers cases where there was no fraud, embezzlement, or willful misappropriation on the part of the bankrupt. Judge Andrews so held in Syracuse v. Roscoe, 66 Misc. 317, 123 N.Y.S. 403, where the bankrupt, a city treasurer, was short in his funds...