Sidor som bilder

the character of the parties. By the judi- the citizenship of defendant was not dis

| cial act, the jurisdiction of the circuit court closed. The headnote asserts that the paris extended to cases where the constitutional ties were citizens of Kentucky. But the cerright to plead and be impleaded, in the tificate of the clerk, as appears from our courts of the Union, depends on the charac- files, sets forth “that it is stated in the bill ter of the parties; but where that right de- that the deft. Rawleigh Colson is a citizen pends on the nature of the case, the circuit of the state of Virginia.” courts derive no jurisdiction from that act, In both cases the parties were citizens of except in the single case of a controversy be the same state, and the cases were originally tween citizens of the same state claiming commenced in the state courts, and the cirlands under grants from different states." cuit courts acquired jurisdiction by removal.

And that jurisdiction was conferred by The judiciary act of 1789 vested the circuit the 12th section of the act, which provided courts with original jurisdiction on the that “if in any action commenced in a state ground of diversity of citizenship, but not court the title of land is concerned, and the where title was claimed under grants of difparties are citizens of the same state," either ferent states. Congress manifestly accepted party might remove the cause to the circuit the letter of the Constitution, and, as the court on the fact being made to appear that judicial power extended to controversies the parties claimed under grants of different where citizens of the same state claimed tistates. This section was carried forward as tle under grants of different states, assumed § 647 of the Revised Statutes, U. S. Comp. that cases presenting such controversies Stat. 1901, p. 524, and reappears in sub- would be commenced in the state courts, and stance in § 3 of the act of March 3, 1875. 18 provided that those cases might be removed Stat. at L. 470, chap. 1, 37, U. S. Comp. Stat. when that fact was made to appear. The 1901, p. 510.

particular constitutional provision was By the 1st section of the latter act orig- treated as not open to a construction which inal jurisdiction was given to the circuit would make it embrace citizens of different courts of cases, among others, "arising un- states.

states. Naturally enough, as the reason for der the Constitution or laws of the United the extension of the Federal judicial power States, or treaties," or in which there was to controversies between citizens of different “a controversy between citizens of the same states, and to controversies between citizens state claiming lands under grants of differ- of the same state claiming lands under ent states."

grants of different states, was in substance The acts of March 3, 1887 (24 Stat. at L. the same. 2 Story, Const. § 1696. 552, chap. 373), and of August 13, 1888 (25 And when the act of 1875 enlarged the Stat. at L. 433, chap. 866), are to the same original jurisdiction, no view to the contrary purport.

was indicated. Two cases arising under the judiciary act Ayres v. Polsdorfer, 187 U. S. 585, 47 L. of 1789 are cited: Pawlet v. Clark, 9 ed. 314, 23 Sup. Ct. Rep. 196, was an action Cranch, 292, 3 L. ed. 735, decided March 10, of ejectment brought in the circuit court by 1815, and Colson v. Lewis, 2 Wheat. 377, 4 citizens of one state against those of anL. ed. 266, decided March 14, 1817.

other, and the case, having gone to judgIn Pawlet v. Clark it appeared that the ment, was carried to the circuit court of apparties were citizens of Vermont, and that peals, and the judgment affirmed. A writ of the

were pending in the circuit error from this court was then sought to be court for the district of Vermont, but the sustained because, as was contended, the evireporter's statement does not show that the dence disclosed, though the pleadings did case was commenced in the state court. The not, that the parties claimed under grants record on file in this court, however, dis- of different states. But we held that if the closes that such was the fact, and that the emergence of such a question might have cause was removed into the circuit court un justified taking the case directly to this der the 12th section.

court, having gone to the court of appeals, Colson v. Lewis is not well reported. It it could not, after judgment, then be brought was a bill in equity in which Lewis and here. others were complainants and Rawleigh Col- As Congress has not conferred jurisdiction son was the sole defendant. It came here on the circuit courts over controversies beon certificate, and the title was "Lewis and tween citizens of different states because, others against Colson," and not as given in apart from diversity of citizenship, they may the report. The case stated shows that the have claimed title by grants from different case was removed from the state court into states, even if it had power to do so, which the circuit court of Kentucky, and that the is not conceded, the result is that the appeal complainants were citizens of Virginia; but I must be dismissed.


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(195 U. S. 176) RICHARD C. CRAWFORD et al., Plffs. in recover damages for the wilful and frauduErr.,

lent conversion of certain reversionary inter0.

ests of the plaintiff in 550 shares of MetroJOHN E. BURKE.

politan Traction stock.

There were ten counts in the declaration. Bankruptoy

In each of the first five counts it was alprovable debts discharge.

leged that the defendant firm of Crawford & 1. A claim arising out of the conversion by Valentine were stock brokers and dealers in

stockbrokers of shares purchased and held investment securities; that plaintiff emby them on a customer's account, charging him with commission and interest, and credit ployed the defendants as his brokers and ing him with amounts received as margins, agents to buy, hold, and carry stocks for is provable under the bankruptcy act of July him, subject to his order; that defendants 1, 1898 (30 Stat. at L. 562, chap. 541, U. S. had in their possession, or under their conComp. Stat. 1901, p. 3447), s 63a, as a debt trol, certain shares of the capital stock of “founded upon an open account, or upon a the Metropolitan Traction Company, which "

contract, express or implied." 2. Only such debts created by the fraud of a they were holding as a pledge and security

bankrupt as were so created while he was act for the amount due them from the plaintiff ing as an officer or in a fiduciary capacity are on said stock; that defendants wrongfully, excepted from the operation of a discharge in wilfully, and fraudulently, and without his bankruptcy by the act of July 1, 1898 (30 knowledge or consent, sold said shares of Stat. at L. 550, chap. 541, U. S. Comp. Stat. 1901, p. 3428), 17, subd. 4, since to hola stock, and wilfully and fraudulently, and that the language of this subdivision, making with intent to cheat and defraud the plainan exception in favor of debts "created by tiff, converted plaintiff's reversionary interbis fraud, embezzlement, misappropriation, or est in said stock to their use, whereby it was defalcation while acting as an officer, or in wholly lost. any fiduciary capacity,” includes all debts

In each of the last five counts it was alfraudulently contracted, would render mean. ingless the exception in subd. 2, in favor of leged that after defendants had wrongfully such claims for fraud as have been reduced and fraudulently, and without plaintiff's to judgment.

knowledge or consent, sold the plaintiff's 3. A creditor, by electing to bring an action stock, and converted the proceeds of such

in trover, as for a fraudulent conversion, does sales to their own use, they falsely and not deprive his debt of its provable character under the bankruptcy act of July 1, 1898 (30 fraudulently represented to him that they Stat. at L. 562, chap. 541, U. S. Comp. Stat. still had the stock on hand and were carry1901, p. 3447) § 63a, where it is “founded ing it for him; that their correspondents in upon an open account or upon a contract, ex. Philadelphia, where the stock had been press or implied,” in view of the recognition bought, were calling upon them for further in general, inferable from the exception from demands or margins, and that it therefore

' the operation of a discharge in bankruptcy became necessary to call upon the plaintiff which § 17 of that act makes in favor of to make further payments on the stock in claims for fraud which have been reduced to order to comply with their correspondents' judgment, or which originated in the bank- demands and to be secured against loss. It rupt's acts while acting as an officer or in a fiduciary capacity.

was averred in each of said counts that such

representations were false and fraudulent, [No. 22.]

and by means thereof defendants obtained Argued April 25, 26, 1904. Decided Novem- from the plaintiff the aggregate sum of $10,ber 7, 1904.

800. N ERROR to the Supreme Court of the IN

To this declaration defendants pleaded not State of Illinois to review a judgment guilty, upon which issue was joined January which affirmed a judgment of the Appellate 4, 1900, and on May 12, 1900, a jury trial Court in and for the First District of that was waived in writing. The case rested Court in and for the First District of that without action until January 3, 1901, when State, which had in turn affirmed a judgment defendants filed their separate pleas of puis of the Circuit Court of Cook County in favor darrein continuance, setting up that on of plaintiff in an action in trover in which defendants had set up their discharge in April 5, 1900, the defendants had received bankruptcy as a defense. Reversed and re

their discharge in bankruptcy, in the district manded for further proceedings.

court for the northern district of Illinois, See same case below, 201 III. 581, 66 N. E. not excepted from the operation of such dis

and that plaintiff's claims were provable and

Ill 833.

charge. The plaintiff replied, denying that Statement by Mr. Justice Brown: his claim was provable, and averred that the

This was an action in trover instituted same was excepted from such operation. September 10, 1897, in the circuit court of Notwithstanding the plea of puis darrein Cook county, Illinois, by Burke against continuance, the plaintiff introduced eviCrawford & Valentine, plaintiffs in error, to'dence and proved the allegations in his dee

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laration, and the amount of damages he had The only Federal question involved in the sustained. Defendants were found guilty case is whether the supreme court of Illinois upon all the counts, and judgment entered gave the proper effect to the discharge against them,

pleaded by the defendants. If plaintiff's The case was taken to the appellate court, claim was not a provable debt, or was exwhere, it appearing that one of the justices pressly excepted from the operation of the had taken part in the trial of the case be discharge, the decision of that court was low, and that the two remaining justices right; but if it was covered by the discharge, were unable to agree upon the case, the such discharge was a complete defense. judgment of the circuit court was affirmed. Section 17 of the bankruptcy act of 1898 The judgment of the appellate court was contains, among other things, the following also affirmed by the supreme court of Illi- provisions : nois (201 Ill. 581, 66 N. E. 833), to review “Sec. 17. A discharge in bankruptcy. shall which judgment this writ of error was sued release the bankrupt from all of his provable out.

debts, except such as ... (2) are judgments

in actions for frauds, or obtaining property Messrs. George Packard, Charles E. by false pretenses or false representations, or Vroman, and Harrison Musgrave for plain- for wilful and malicious injuries to the pertitfs in error.

son or property of another,

or (4) Mr. John E. Burke in propria persona were created by his fraud, embezzlement, for defendant in error.

misappropriation, or defalcation while acting as an officer, or in any fiduciary capacity.'

[30 Stat. at L. 550, chap. 541, U. S. Comp. Mr. Justice Brown delivered the opinion Stat. 1901, p. 3428.] of the court:

Under this section, whether the discharge A year after this case was put at issue, of the defendants in bankruptcy shall opand upon the opening of the trial, defend-erate as a discharge of plaintiff's debt, it ants filed their separate pleas puis darrein not having been reduced to judgment, decontinuance, setting up their discharge in pends upon the fact whether that debt was bankruptcy, and averring that plaintiff's "provable” under the bankruptcy act,—that claim was a provable debt, and the discharge is, susceptible of being proved; second, a complete defense.

whether it was or was not created by deIt is a well-settled principle of law, and fendant's fraud, embezzlement, misappropriwas so held by the supreme court of Illinois ation, or defalcation while acting as an ofin this case, that a plea puis darrein contin- ficer or in any fiduciary capacity. uance waives all prior pleas, and amounts

1. Provable debts are defined by $ 63, a to an admission of the cause of the action copy of which appears in the margin.f Parset up in the plaintiff's declaration. Mount

Sec. 63. Debts which may be proved.- (a) v. Scholes, 120 Ill. 394, 11 N. E. 401; East Debts of the bankrupt may be proved and alSt. Louis v. Renshaw, 153 Ill. 491, 38 N. E. lowed against his estate which are (1) a fixed 1048; Angus v. Chicago Trust & Sav. Bank, liability, as evidenced by a judgment or an in170 Ill. 298, 48 N. E. 946; Kimball v. Hunt strument in writing, absolutely owing at the

time of the filing of the petition against him, ington, 10 Wend. 675, 25 Am. Dec. 590.

whether then payable or not, with any interest But notwithstanding this, plaintiff was thereon which would have been recoverable at permitted to introduce evidence in proof of that date, or with a rebate of interest upon such the fraud alleged in his declaration; and up- as were not then payable and did not bear in. on the conclusion of the trial the court terest; (2) due as costs taxable against an infound there had been a conversion of plain the filling of the petition against him, plaintiff

voluntary bankrupt who was, at the time of tiff's reversionary interest in the stock, for in a cause of action which would pass to the which he “had a right to recover in trover,” trustee, and which the trustee declines to proseand that it was not such a debt as was cute after notice; (3) founded upon a claim barred by the bankruptcy act. Upon appeal for taxable costs incurred in good faith by a

creditor before the filing of the petition in an to the supreme court it was held that it was

action to recover a provable debt; (4) founded not necessary to the judgment to decide upon an open account, or upon a contract, exwhether the allegations of the declaration press or implied; and (5) founded upon provwere admitted by the pleadings, as they were able debts reduced to judgments after the filing established by the proof which had been ad- of the petition, and before the consideration of

the bankrupt's application for a discharge, less duced by plaintiff, “and, the propositions costs incurred and interests accrued after the held as law on that branch of the case be filing of the petition, and up to the time of the ing correct, judgment for plaintiff neces- entry of such judgments.

(b) Unliquidated claims against the banksarily follows." That court also held that the case, being one of fraud, was not cov. rupt may, pursuant to application to the court, ered by the defendants' discharge in bank- and may thereafter be proved and allowed agraph a of this section includes debts aris- | defalcation of the bankrupt while acting as ing upon contracts, express or implied, and an officer or in a fiduciary capacity. Unopen accounts, as well as for judgments and less these words relate back to all the precosts. As to paragraph b, two construc- ceding words of the subdivision, namely, tions are possible: It may relate to all un- the frauds and embezzlements, as well as liquidated demands, or only to such as may misappropriations or defalcations, it results arise upon such contracts, express or im- that the exception in subd. 2 of all judg. plied, as are covered by paragraph a. ments for fraud is meaningless, since such

be liquidated in such manner as it shall direct, ruptcy.

against his estate.

Certainly paragraph b does not embrace judgments would be based upon a fraud exdebts of an unliquidated character and cepted from discharge by subd. 4, whether which in their nature are not susceptible of judgment had been obtained or not. being liquidated. Dunbar v. Dunbar, 190 This conclusion is fortified by reference to U. S. 340, 350, 47 L. ed. 1084, 1092, 23 Sup. corresponding sections of the former bank. Ct. Rep. 757. Whether the effect of para- rupt acts. Thus, by the lst section of the graph b is to cause an unliquidated claim act of 1841 (5 Stat. at L. 440, chap. 9), the which is susceptible of liquidation, but is benefits of that act were extended to all pernot literally embraced by paragraph a, to sons owing debts "which shall not have been be provable in bankruptcy, we are not called created in consequence of a defalcation as a upon to decide, as we are clear that the debt public officer; or as executor, administrator, of the plaintiff was embraced within the pro- guardian, or trustee, or while acting in any vision of paragraph a, as one "founded upon other fiduciary capacity.” It is entirely an open account, or upon a contract, express clear that under this section a discharge was or implied,” and might have been proved not denied to the bankrupt by reason of under § 63a had plaintiff chosen to waive debts fraudulently contracted, but only to the tort, and take his place with the other such as were created by his defalcation as an creditors of the estate. He did not elect to officer, or while acting in a fiduciary capacdo this, however, but brought an action of ity. trover, setting up a fraudulent conversion of We may remark here, in passing, that ever his property by defendants. In the first five since the case of Chapman v. Forsyth, 2 How. counts of his declaration he charges a fraud- | 202, 11 L. ed. 236, this court has held that ulent conversion of his interest in the stock, a commission merchant and factor who sells and, in the last five counts, that the defend- for others is not indebted in a fiduciary caants had induced him to make further pay- pacity within the bankruptcy acts by withments on such stock in the way of margins, holding the money received for property by false and fraudulent representations. sold by him. This rule was made under the

The question whether the claim thus set bankruptcy act of 1841, and has since been forth is barred by the discharge depends up repeated many times under subsequent acts. on the proper construction of § 17, which Neal v. Clark, 95 U. S. 708, 24 L. ed. 586; declares that the discharge in bankruptcy re-Hennequin v. Clews, 111 U. S. 679, 28 L. ed. lieves the bankrupt from all of his "provable 567, 4 Sup. Ct. Rep. 576; Noble v. Hamdebts,” except such as

(2) are mond, 129 U. S. 68, 32 L. ed. 623, 9 Sup. Ct. judgments in actions for frauds, or obtain. Rep. 235; Upshur v. Briscoe, 138 U. S. 375, ing property by false pretenses, or false rep- 34 L. ed. 934, 11 Sup. Ct. Rep. 313,--as well resentations, or for wilful and malicious in- as in cases in the state courts, too numerous juries to the person or property of another, for citation.

or (4) were created by his fraud, Under the bankruptcy act of 1867 the list embezzlement, misappropriation, or defalca- of debts excluded from the operation of the tion while acting as an officer, or in any discharge was considerably larger. In § 33, fiduciary capacity."

Revised Statutes, 5117, it was declared Do these words apply to all debts created thatby the fraud, embezzlement, misappropria- "No debt created by the fraud or embezzle. tion of the bankrupt, or only to such as were ment of the bankrupt, or by his defalcation created while he was acting as an officer or as a public officer, or while acting in any in some fiduciary capacity? The fact that fiduciary character, shall be discharged unthe 2d subdivision of § 17 excepted from the der this act; but the debt may be proved, discharge "all judgments in actions for and the dividend thereon shall be a payment frauds, or of obtaining property by false pre- on account of said debt.” [14 Stat. at L. tenses, or false representations,” indicates 533, chap. 176.] quite clearly that, as to frauds in general, The language of this section is so clear it was the intention of Congress only to ex- as to require no construction. It is plain cept from the discharge such as had been re- and explicit to the effect that the fraud and duced to judgment, unless they fall within embezzlement of the bankrupt need not have the 4th subdivision, of those created by the been committed by him while acting as an fraud, embezzlement, misappropriation, or officer or in a fiduciary character, and that this character relates only to his defalcation. not pretended that the claim was created But, under the act of 1898, there is no such by the bankrupt’s ‘fraud, embezzlement, misseverance in the fourth paragraph as would appropriation, or defalcation while acting as authorize us to say that the term "fiduciary an officer, or in any fiduciary capacity.' capacity” did not extend back to the words "The contention that 'fraud' should be "fraud, embezzlement, and misappropria segregated from the qualifying language tion.” It was the opinion of the supreme 'while acting as an officer or in any fiduciary court of Illinois that "a mere change in capacity is without merit. Such interprephraseology, apparently for the sake of tation would not only destroy the grammatibrevity, rendering the meaning somewhat ob- cal construction of the sentence and contrascure, cannot be regarded as showing a leg- vene its plain meaning, but would likewise islative intent to depart so radically from be inconsistent with paragraph 2 of the same precedents established by previous bank- section, that a creditor should have obtained ruptcy legislation and judicial decisions as a judgment in an action for fraud in order to provide that debts created by the fraud or to override a discharge in bankruptcy." embezzlement of the bankrupt should be re- A like construction was given to subd. 4 leased by his discharge in bankruptcy, unless by the supreme court of Missouri in Goodsuch fraud or embezzlement should be com- man v. Herman, 172 Mo. 344, 60 L. R. A. mitted while the bankrupt was acting as a 885, 72 S. W. 546, by the supreme court of public officer, or in a fiduciary capacity.” Minnesota in Gee v. Gee, 84 Minn. 384, 87

Our own view, however, is that a change N. W. 1116, by that of Rhode Island in in phraseology creates a presumption of a Crosby v. Miller, 25 R. I. 172, 55 Atl. 328, change in intent, and that Congress would and by the supreme court of New York, not have used such different language in § fourth department, in Re Bullis, 68 App. 17 from that used in 833 of the act of 1867, Div. 508, 73 N. Y. Supp. 1047. In this without thereby intending a change of mean case the question was discussed at considering. The view generally taken by the bank- able length, the court saying: ruptcy courts has been that the terms "of- “If any debt created by fraud, embezzleficer" and "fiduciary capacity” extend to all ment, or misappropriation is to be excepted the claims mentioned in paragraph 4, and from the application of the statute, then are not confined to cases of defalcation. Re there is no necessity of subd. 2, making a Rhutassel, 2 N. B. N. Rep. 381, 96 Fed. 599; judgment essential to prevent the granting Rc Lewensohn, 99 Fed. 73; Re Hirschman, of the discharge under the statute.” 2 N. B. N. Rep. 1123, 104 Fed. 69; Re Cole, We have not overlooked the fact that the 3 N. B. N. Rep. 580, 106 Fed. 837; Re New York supreme court of the first deFreche, 109 Fed. 620; Hargadine-McKittrick partment reached a different conclusion in Dry Goods Co. v. Hudson, 111 Fed. 361. Frey v. Torrey, 70 App. Div. 166, 75 N. Y. This is the natural and grammatical read. Supp. 40, affirmed by the court of appeals ing of the clause.

in a per curiam opinion, 175 N. Y. 501, 67 The cases in the state courts are almost N. E. 1082, but, so far as we know, this is uniformly to the same effect. Thus in J. C. the only case that supports the construction Smith & W. Co. v. Lambert, 69 N. J. L. 487, given to § 17 by the supreme court of Il55 Atl. 88, the defendant pleaded to an ac- linois. tion on a book account his discharge in

Why an ordinary claim for fraud should bankruptcy, to which the plaintiff replied be released by the discharge, while a judg. that the cause of action was created by the ment for fraud is not released, is not altofraud of the defendant. The supreme court of New Jersey held the replication to be in- have been created to avoid the necessity of

gether clear, although this distinction may sufficient. “We think," said the court, “that under § 17 of the bankrupt law, to which going into conflicting evidence upon the subreference has been made, there is no pro- for frauds the judgment itself would be evi

ject of fraud; while in cases of judgments vision that would except from the discharge dence of the fraudulent character of the the debt upon which the present suit is

claim. If a creditor has a claim against a brought.”

In Morse v. Kaufman, 100 Va. 218, 40 debtor for goods sold which would ordiS. E. 916, it was pleaded against the dis- narily be covered by a discharge in bankruptcharge that the goods were procured by false cy, he is strongly tempted to allege, and if pretenses. After holding that the case had possible to prove, that the goods were purnot fallen within subd. 2 of $17, as there chased under a misrepresentation of the aswas no judgment for fraud, the supreme sets of the buyer, and thus to make out a

claim for fraud which would not be discourt of Virginia observed :

"It would seem to be equally clear that charged in bankruptcy. It was probably the demand of plaintiffs in error is not with this dontingency which induced Congress to in the exception of subd. 4 of $ 17. It is enact that an alleged fraud of this kind

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