Richard Crawford v. John Burke

• Decision Date: 07 November 1904
• Docket Number: No. 22,22
• Citation: 195 U.S. 176,49 L.Ed. 147,25 S.Ct. 9
• Parties: RICHARD C. CRAWFORD et al., Plffs. in Err. , v. JOHN E. BURKE
• Court: U.S. Supreme Court

195 U.S. 176

25 S.Ct. 9

49 L.Ed. 147

RICHARD C. CRAWFORD et al., Plffs. in Err.,

v JOHN E. BURKE.

No. 22.

Argued April 25, 26, 1901.

Decided November 7, 1904.

This was an action in trover instituted September 10, 1897, in the circuit court of Cook county, Illinois, by Burke against Crawford & Valentine, plaintiffs in error, to recover damages for the wilful and fraudulent conversion of certain reversionary interests of the plaintiff in 550 shares of Metropolitan Traction stock.

There were ten counts in the declaration. In each of the first five counts it was alleged that the defendant firm of Crawford & Valentine were stock brokers and dealers in investment securities; that plaintiff employed the defendants as his brokers and agents to buy, hold, and carry stocks for him, subject to his order; that defenants had in their possession, or under their control, certain shares of the capital stock of the Metropolitan Traction Company, which they were holding as a pledge and security for the amount due them from the plaintiff on said stock; that defendants wrongfully, wilfully, and fraudulently, and without his knowledge or consent, sold said shares of stock, and wilfully and fraudulently, and with intent to cheat and defraud the plaintiff, converted plaintiff's reversionary interest in said stock to their use, whereby it was wholly lost.

In each of the last five counts it was alleged that after defendants had wrongfully and fraudulently, and without plain- tiff's knowledge or consent, sold the plaintiff's stock, and converted the proceeds of such sales to their own use, they falsely and fraudulently represented to him that they still had the stock on hand and were carrying it for him; that their correspondents in Philadelphia, where the stock had been bought, were calling upon them for further demands or margins, and that it therefore became necessary to call upon the plaintiff to make further payments on the stock in order to comply with their correspondents' demands and to be secured against loss. It was averred in each of said counts that such representations were false and fraudulent, and by means thereof defendants obtained from the plaintiff the aggregate sum of $10,800.

To this declaration defendants pleaded not guilty, upon which issue was joined January 4, 1900, and on May 12, 1900, a jury trial was waived in writing. The case rested without action until January 3, 1901, when defendants filed their separate pleas of puis darrein continuance, setting up that on April 5, 1900, the defendants had received their discharge in bankruptcy, in the district court for the northern district of Illinois, and that plaintiff's claims were provable and not excepted from the operation of such discharge. The plaintiff replied, denying that his claim was provable, and averred that the same was excepted from such operation.

Notwithstanding the plea of puis darrein continuance, the plaintiff introduced evidence and proved the allegations in his declaration, and the amount of damages he had sustained. Defendants were found guilty upon all the counts, and judgment entered against them.

The case was taken to the appellate court, where, it appearing that one of the justices had taken part in the trial of the case below, and that the two remaining justices were unable to agree upon the case, the judgment of the circuit court was affirmed. The judgment of the appellate court was also affirmed by the supreme court of Illinois (201 Ill. 581, 66 N. E. 833), to review which judgment this writ of error was sued out.

Messrs. George Packard, Charles E. Vroman, and Harrison Musgrave for plaintiffs error.

[Argument of Counsel from pages 179-181 intentionally omitted] Mr. John E. Burke in propria persona for defendant in error.

Statement by Mr. Justice Brown:

[Argument of Counsel from pages 181-185 intentionally omitted] Mr. Justice Brown delivered the opinion of the court:

A year after this case was put at issue, and upon the opening of the trial, defendants filed their separate pleas puis darrein continuance, setting up their discharge in bankruptcy, and averring that plaintiff's claim was a provable debt, and the discharge a complete defense.

It is a well-settled principle of law, and was so held by the supreme court of Illinois in this case, that a plea puis darrein continuance waives all prior pleas, and amounts to an admission of the cause of the action set up in the plaintiff's declaration. Mount v. Scholes, 120 Ill. 394, 11 N. E. 401; East St. Louis v. Renshaw, 153 Ill. 491, 38 N. E. 1048; Angus v. Chicago Trust & Sav. Bank, 170 Ill. 298, 48 N. E. 946; Kimball v. Huntington, 10 Wend. 675, 25 Am. Dec. 590.

But notwithstanding this, plaintiff was permitted to introduce evidence in proof of the fraud alleged in his declaration; and upon the conclusion of the trial the court found there had been a conversion of plaintiff's reversionary interest in the stock, for which he "had a right to recover in trover," and that it was not such a debt as was barred by the bankruptcy act. Upon appeal to the supreme court it was held that it was not necessary to the judgment to decide whether the allegations of the declaration were admitted by the pleadings, as they were established by the proof which had been adduced by plaintiff, "and, the propositions held as law on that branch of the case being correct, judgment for plaintiff necessarily follows." That court also held that the case, being on of fraud, was not covered by the defendants' discharge in bankruptcy.

The only Federal question involved in the case is whether the supreme court of Illinois gave the proper effect to the discharge pleaded by the defendants. If plaintiff's claim was not a provable debt, or was expressly excepted from the operation of the discharge the decision of that court was right; but if it was covered by the discharge, such discharge was a complete defense.

Section 17 of the bankruptcy act of 1898 contains, among other things, the following provisions:

"Sec. 17. A discharge in bankruptcy shall release the bankrupt from all of his provable debts, except such as . . . (2) are judgments in actions for frauds, or obtaining property by false pretenses or false representations, or for wilful 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." [30 Stat. at L. 550, chap. 541, U. S. Comp Stat. 1901, p. 3428.]

Under this section, whether the discharge of the defendants in bankruptcy shall operate as a discharge of plaintiff's debt, it not having been reduced to judgment, depends upon the fact whether that debt was 'provable' under the bankruptcy act,—that is, susceptible of being proved; second whether it was or was not created by defendant's fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity.

1. Provable debts are defined by § 63, a copy of which appears in the margin. Paragraph a of this section includes

Sec. 63. Debts which may be proved.—(a) Debts of thee bankrupt may be proved and allowed against his estate which are (1) a fixed liability, as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, with any interest thereon which would have been recoverable at that date, or with a rebate of interest upon such as were not then payable and did not bear interest; (2) due as costs taxable against an involuntary bankrupt who was, at the time of the filing of the petition against him, plaintiff in a cause of action which would pass to the trustee, and which the trustee declines to prosecute after notice; (3) founded upon a claim for taxable costs incurred in good faith by a creditor before the filling of the petition in an action to recover a proable debt; (4) founded upon an open account, or upon a contract, express or implied; and (5) founded upon provable debts reduced to judgments after the filing of the petition, and before the consideration of the bankrupt's application for a discharge, less costs incurred and interests debts arising upon contracts, express or implied, and open accounts, as well as for judgments and costs. As to paragraph b, two constructions are possible: It may relate to all unliquidated demands, or only to such as may arise upon such contracts, express or implied, as are covered by paragraph a.

Certainly paragraph b does not embrace debts of an unliquidated character and which in their nature are not susceptible of being liquidated. Dunber v. Dunbar, 190 U. S. 340, 350, 47 L. ed. 1084, 1092, 23 Sup. Ct. Rep. 757. Whether the effect of paragraph b is to cause an unliquidated claim which is susceptible of liquidation, but is not literally embraced by paragraph a, to be provable in bankruptcy, we are not called upon to decide, as we are clear that the debt of the plaintiff was embraced within the provision of paragraph a, as one "founded upon an open account, or upon a contract, express or implied," and might have been proved under § 63a had plaintiff chosen to waive the tort, and take his place with the other creditors of the estate. He did not elect to do this, however, but brought an action of trover, setting up a fraudulent conversion of his property by defendants. In the first five counts of his declaration he charges a fraudulent conversion of his interest in the stock, and, in the last five counts, that the defendants had induced him to make further payments on such stock in the way of margins, by false and fraudulent representations.

The question whether the claim thus set forth is barred by the discharge depends upon the proper construction of § 17, which declares that the discharge in bankruptcy relieves the bankrupt from all of his "provable debts," except such as ". . . (2) are judgment in actions for frauds, or...