Woolsey v. Cade , 54 Ala. 378 ( 1875 )

BRICKELL, C. J. —

The first section of the bankrupt law of 1841, provided: “All persons whatsoever residing in any State, territory, or district of the United States, owing debts, which shall not have been created in consequence of a defalcation as a public officer, or as executor, administrator, guardian, or trustee, or while Acting in any other fiduciary capacity,” should,( on compliance with its terms, receive a discharge from the payment of debts. The exception--was of debts, fvorñ the operation of the discharge, not of yierscms owing such debts, from the privileges of'the law. In Chapman v. Forsyth, 2 How. 202, the supreme court of the United States, determined that a debt due from a factor to his principal, for moneys received on a sale of cotton, was not a debt created by defalcation, in a fiduciary capacity, and was within-the operation of the bankrupt’s discharge. The decision was followed in Austell & Marshall v. Crawford, 7 Ala. 335. It was urged by counsel, in the argument of that case, that the law of this State, the parties residing and contracting, and the agency having been executed here, must fix the character of the relation of factors to their principals, and of the debts due from them in the execution of. their agency. The statute punishing criminally a willful conversion by a factor of the goods or moneys of his principal, it was insisted, fixed the character of the debts due from him, as created in consequence of a defalcation, while acting in a fiduciary capacity. It was said by the court, the pleadings did not disclose the offense punishable by the statute; but, independent of that consideration, the operation and construction of the bankrupt law must be the same all over the United States, not váried by the local laws of the several States; and the meaning of the terms employed in it must be ascertained from the common law.

The 33d section (§ 5117 of the Bevised Statutes) of the present bankrupt law, declares: “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 by proceedings in bankruptcy,” &c. The current of decision is, that a claim against a factor for withholding the proceeds of the sales of goods consigned to him to be sold on commission, is a debt contracted by him in a fiduciary character, excepted from the operation of a dis- . charge in bankruptcy. The decisions are collected in Bump on Bankruptcy, 8th Ed. 724; see, also, Treadwell v. Halloway, 46 Cal. 547; (S. C.) 12 Nat. Bank. Reg. 61. The difference of decision, under the present law, from that prevailing under the law of 1841, is founded on the difference in the phraseology, and the reason of it is thus expressed by Judge Blatchford, whose opinion is the authority on which the other and subsequent concurring opinions rely: “The act of 1841 excluded from its benefits ‘all persons owing debts created in consequence of a defalcation as a public officer, or as executor, administrator, guardian or trustee, or while acting in any other fiduciary capacity.’ The supreme court held, in Chapman v. Forsyth, that a discharge under the act of 1841 did not release the bankrupt from any such debts, and that no debt fell within the description of a debt created by a defalcation while acting in any other fiduciary capacity, unless it was created by a defalcation while acting in a capacity of the same class and character as the capacity of executor, administrator, guardian and trustee. The court held that the language of the act of 1841, was not broad enough to include every fiduciary capacity, but was limited to fiduciary capacities of a specified standard or character. That was clearly so under that act. But in the act of 1867 the language seems to have been intentionally made so broad as to extend to a debt created by a defalcation of the bankrupt, and while acting in any fiduciary capacity, and not to be limited to any special fiduciary capacity. Therefore, under the act of 1867, no debt created by the defalcation of a bankrupt, while acting in any fiduciary capacity, will be discharged, and a bankrupt, can be imprisoned during the pendency of the proceedings in bankruptcy by or against him on a civil action founded on any such debt.” — In re Seymour, 1 Nat. Bank. Reg. 29. This reasoning has not been satisfactory to all the courts. The supreme court of Massachusetts, in a well considered opinion, declined to follow it, holding the phrase, debt created tuhile acting in any fiduciary character, implied a fiduciary relation existing previously to, or independently of the particular transaction from which the debt arises. That the omission of the enumeration of the specific trusts named in the act of 1841, from the act of 1867, it was quite as legitimate to infer, was because the term “fiduciary capacity” had, by judicial construction, received a fixed definition, and with the intent to adopt that definition, as to enlarge its meaning, so as to embrace any fiduciary capacity whatsoever.—Cronan v. Cotting, 104 Mass. 245. The question can be finally settled only by a decision of the supreme court of the United States.

It is certainly true, as a general rule in the construction of statutes, that general words preceded or followed by particular words, in the same or a subsequent clause, are qualified and restrained by the particular words. Though the supreme court of the United -States, in Chapman v. Forsyth, assigned as a reason for holding the debt of a factor not excepted from the operation of his discharge in bankruptcy, that the trust of his relation was an implied, not an express trust, and, therefore, not ejusdem generis, with the express trusts particularized, as those of an “executor,” “administrator,” “guardian,” or “trustee,” and that the general words or “other fiduciary capacity” must be limited to the class of trusts particularized, we do not understand the decision to rest on that reasoning alone. It rests on the broader ground, stated by the court in these words: “If the act embraces such a debt it will be difficult to limit its application. It must include all debts arising from agencies"; and, indeed, all cases when 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.” • *

In England bankrupt laws were originally framed to operate only on traders or merchants. The statute of 6 Geo. 4, collected in one clause the various denominations of traders, subject to bankrupt proceedings, in these general words: “All persons using the trade' of merchandise by way of bargaining, bartering, commission, consignment, or otherwise, in gross or by retail, and all persons who, either for themselves or as agents or factors for others, seek their living by buying or selling,” &c. — 1 Eden on Bank. 3. The bankrupt law of 1800, following the English precedents, was limited in its operation to “merchants, or other persons, residing within the United States, actually using the trade of merchandise, by buying and selling in gross or by retail, or dealing in exchange, or as a banker, broker, factor, underwriter or marine insurer.” The law of 1841 embraced the characteristics, not only of a bankrupt, but of an insolvent law, and extended to all persons, excepting the fiduciary debts, expressly mentioned from its operation. The constitutionality of that law was doubted and denied by learned judges, because it embodied the distinctive characteristics of a bankrupt, and of an insolvent law. It was urged, that bankruptcy was essentially an 'adversary proceeding by a creditor against a defaulting trader, who had done acts indicative of an intent to defraud creditors, or of present or impending insolvency. Such was the character of proceedings in bankruptcy known when the constitution was formed, and the power conferred on Congress, “to establish uniform laws-on the subject of bankruptcies throughout the United States,” must be taken as. referring to laws, similar to those prevailing then, operating only on merchants or traders, and which were designed as remedies for the collection of debts, and the prevention of frauds on creditors. — See dissenting opinion of Bronson, J., in Sackett v. Andross, 5 Hill, 328. It was, however, settled, and is not now a matter of controversy, that the power conferred on Congress, is plenary, including the power residing in the several States, before the adoption of tlie constitution, to pass laws upon the subject of bankruptcy and insolvency.—2 Story Cons. §§ 1105-15. It has often been remarked, that the clause of the constitution conferring this power is referred to by the Federalist in only a brief sentence: “The power of establishing uniform laws of bankruptcy, is so intimately connected with the regulation of commerce, and will prevent so many frauds, where the parties or their property may lie or be removed into different States, that the expediency of it seems not likely to be drawn in question.” — Federalist, No. 42 (Hamilton’s Ed. of 1875, 336).

Bankrupt laws are inseparably associated with commerce and its pursuits. They had their origin in commercial countries, and were intended to advance the interests and promote the convenience of commerce. Whether including or omitting the discharge of a debtor from all further liability, on a cession or surrender of his property; and whether confining its remedies to involuntary proceedings against a debtor, or permitting him voluntarily to make the surrender, entitling .him to a discharge; whether subjecting only particular classes, or all debtors to their operations, is matter of legislative policy. The law remains an outgrowth of commerce, intended for its interest and convenience. A bankrupt law excluding any class of merchants from its operation, -would to that extent depart from the policy and purposes such, laws are now and have been framed to promote. Factors, commission merchants, brokers and bankers, who have not only the character of merchants or traders, but the relation, also, of agents, are liable to accidental losses, and to misfortune, which may often reduce them to insolvency. The present bankrupt law, and that of 1841 was, and is, founded as much in the spirit of affording relief to meritorious and unfortunate debtors, as with an intent to provide remedies for the collection of debts from the reckless or dishonest. The trustee of an express trust, such as an executor, administrator or guardian, or a mere collecting agent, cannot, without a dereliction of duty, more or less censurable, become indebted to his cestui que trust, or to his principal. A fiduciary relation between him and _ the persons he represents, exists previously to, and independent of, the particular transaction from which a debt can originate. Because of his want of fidelity, and his dereliction of duty, it may be just to withhold from him the relief intended only for the unfortunate.

Trustees and agents of the character of which we speak, cannot mingle with their own the funds they may receive in their representative character. If deposited in a bank, they must be deposited as trust funds. Mingling or depositing them as his own, is a destruction of the means of tracing and identifying them, and is a conversion rendering him absolutely liable for them. The business of a factor is not confined to a single transaction, with a single individual. It extends to a number of persons, and varied transactions. A cotton factor but seldom sells, or can- in one sale dispose of the cotton of one customer only. He sells a certain number of bales classified according to quality, the price varying according to the classification, and the aggregate proceeds of sale are paid to him. The cotton was the property of several customers, to whom he must separately account, when it is ascertained how much of the differing qualities of cotton each owned. Until then the proceeds of sale are necessarily mingled with his own funds, or if deposited, are incapable of deposit otherwise than in his own name. If lost because of such mingling, or of such deposit, it cannot be properly said he is guilty of a defalcation, which imports a breach of duty, legal and moral.—Vail v. Durant, 7 Allen, 408. A debt would be due from him to his principal he would be bound to pay, but it could not be said he had appropriated or embezzled the money of his principal.

The course of business pursued by cotton factors, certainly involves, as does all business, trust and confidence, extended by those who consign to them. The trust and confidence is also extended by them to those from whom they receive consignments. They make advances in anticipation of consignments, and for a longer or shorter period, the owner Of the cotton is them debtor. This case is an illustration. The factors, before the cotton was grown, had made advances to the planter, and when it was received and sold, he was indebted to them near one-half of the proceeds of sale. The course of dealing was that in which mutual debts are incurred ; the one being the creditor at the one time, while at another time he may be the debtor. Such a course of dealing we cannot think is the fiduciary relation which is excepted from the operation of the bankrupt law. It has in it no other element than that of contract, and creates no other relation than that of debtor and creditor. The bankrupt law would not accomplish the beneficent purposes designed by congress in its enactment, if construed to exclude from its privileges a class of merchants pursuing such a course of business.

It is a general rule of statutory construction, that when a statute has received a known judicial construction, and is substantially re-enacted, the legislature is presumed to adopt such construction. The words of the act of 1841, “fiduciary capacity,” and the words of the present law, “fiduciary character,” are the same in signification in the connection in which they are found. The words of the act of 1841 had received a well known and fixed judicial construction. It was in view of this construction, as we believe, that only these general words, embracing the specific trusts enumerated in the act of 1841, and all kindred trusts, were employed to denote the fiduciary debts, which should remain unaffected by the bankrupt’s discharge. There is now, as there was in the act of 1841, an express exclusion of debts created by fraud or embezzlement, or by defalcation as a public officer, but trust or fiduciary debts, are defined only by the general words, “while acting in any fiduciary character.” Because of the judicial construction these words had received, no necessity existed for an enumeration of the specific fiduciary capacities with which they had been previously associated.—Cronan v. Cotting, supra. If congress had intended the meaning given them by judicial construction should be enlarged, and the operatioñ of the law lessened by the exclusion of a class of persons, who had been the subjects of all former bankrupt laws, the intention would have been expressed in clear and well defined terms, such as are employed in reference to debts, created by fraud or embezzlement, or by defalcation as a public officer.

We hold a debt due from a factor for the proceeds of goods sold, is barred by his discharge in bankruptcy. The rulings of the circuit court were adverse to this view, and the judgment must be reversed and the cause remanded.