Upshur v. Briscoe

138 U.S. 365 (1891)

UPSHUR
v.
BRISCOE.

No. 146.

Supreme Court of United States.

Submitted January 12, 1891. Decided February 2, 1891. ERROR TO THE SUPREME COURT OF THE STATE OF LOUISIANA.

Mr. Wade R. Young for plaintiffs in error.

Mr. Assistant Attorney General Maury for Mary E. Briscoe, one of the defendants in error.

MR. JUSTICE BLATCHFORD, after stating the case, delivered the opinion of the court.

In regard to the character of the obligation assumed by Briscoe, we concur with the views of the Supreme Court of Louisiana in its second opinion. By the instrument signed on the 25th of January, 1857, the relation of debtor and creditor was created between Briscoe and the beneficiaries. It was stated expressly that the annual payment of $700 was to "be considered as interest upon the said amount of $10,000;" and that, in case Annie M. Andrews should marry and leave issue, the $10,000 should remain invested as theretofore in the hands of Briscoe, and the "interest" should continue to be paid as theretofore mentioned. These terms made Briscoe the owner of the $10,000 in his own right. He had the right to use the money in any way he thought proper. Presumably, he could not pay interest on it unless he invested it. The right to use it in any way he thought proper was repugnant to the idea of any fiduciary relation to the money, for there was no obligation upon him to keep it separate from his own money, or to put upon it any marks of identification, or to invest it in any particular securities. The statement in the paper signed by Andrews, that Briscoe accepts the "trust," the statement in the paper signed by Briscoe, that he accepts the "mandate," and the statement in the paper signed by Annie M. Andrews, that she accepts the appointment of Briscoe "as her trustee," do not create a "trust" in its technical sense, or make the debt of Briscoe one created by him while acting in a "fiduciary character." The relation created was merely the usual one of contract between debtor and creditor. Within the meaning of the exception in the bankruptcy act, a debt is not created by a person while acting in a "fiduciary character," merely because it is created under circumstances in which trust or confidence is reposed in the debtor, in the popular sense of those terms.

The case of Chapman v. Forsyth, 2 How. 202, arose under the bankruptcy act of August 19, 1841, c. 9, 5 Stat. 440, the first section of which provided for the discharge from 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." In that case, it was said that the exception applied to the debts and not to the person, if he owed other debts; and that, if the act embraced, as a fiduciary debt, the debt of a factor who retains the money of his principal, it would be difficult to limit its application. The court added: "It must include all debts arising from agencies; and indeed all cases where 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. The cases enumerated, ``the defalcation of a public officer,' ``executor,' ``administrator,' ``guardian' or ``trustee,' are not cases of implied, but special trusts, and the ``other fiduciary capacity' mentioned, must mean the same class of trusts. The act speaks of technical trusts, and not those which the law implies from the contract. A factor is not, therefore, within the act."

The construction by this court of section 33 of the bankruptcy act of 1867 has been as follows:

In Neal v. Clark, 95 U.S. 704, the question was as to the meaning of the expression in that section, of the exception of a debt created by "the fraud" of the bankrupt; and it was held that the "fraud" referred to in that section meant positive fraud, or fraud in fact, involving moral turpitude or intentional wrong, as does "embezzlement," with which "fraud" was directly associated in the section, and not implied fraud or fraud in law, which might exist without the imputation of bad faith or immorality.

In Wolf v. Stix, 99 U.S. 1, the case of Neal v. Clark was approved; and it was held that the "fraud" intended by section 33 of the act of 1867 did not include such fraud as the law implied from the purchase of property from a debtor with the intent by him thereby to hinder and delay his creditors in the collection of their debts.

In Hennequin v. Clews, 111 U.S. 676, it was held that one hypothecating, to secure a debt due from himself, securities which had been pledged to him to secure the obligation of another to him, and failing to return them when the latter obligation was discharged, did not create thereby a debt by fraud, or in a fiduciary character, so that such debt was excepted by section 33 of the act of 1867 from the operation of a discharge in bankruptcy. Mr. Justice Bradley, delivering the opinion of the court said: "There is no more — there is not so much — of the character of trustee in one who holds collateral securities for a debt as in one who receives money from the sale of his principal's property — money which belongs to his principal alone, and not to him, and which it is his duty to turn over to his principal without delay. The creditor who holds a collateral, holds it for his own benefit under contract. He is in no sense a trustee. His contract binds him to return it when its purpose as security is fulfilled; but if he fails to do so, it is only a breach of contract and not a breach of trust."

In Palmer v. Hussey, 119 U.S. 96, the case of Hennequin v. Clews was affirmed and followed, in holding, on similar facts, that there was no such fraud in the creation of the debt, and no such trust in respect to the possession of the securities, as to bar the operation of a discharge in bankruptcy. See also Strang v. Bradner, 114 U.S. 555; Noble v. Hammond, 129 U.S. 65; and Ames v. Moir, (decided herewith,) ante, 306.

There is no appreciable distinction between the failure of the bankers to return the collaterals, in Hennequin v. Clews, and the failure of Briscoe to pay the interest in question.

In Cronan v. Cotting, 104 Mass. 245, it was held, that the provision of section 33 of the bankruptcy act of 1867, excepting from the effect of a discharge debts created by the bankrupt while acting in any fiduciary character, did not include the obligation of a creditor, to whom the debtor delivered property with directions to sell it and apply in satisfaction of the debt so much of the proceeds as might be necessary for the purpose, to pay over to the debtor the balance of the proceeds of the sale remaining after such satisfaction; but rather implied a fiduciary relation existing previously to, or independently of, the transaction from which the excepted debt arose; and that, if such an obligation constituted a fiduciary relation such as the statute contemplated, almost all pecuniary obligations, especially those implied by law, would be included in the exemption. The court said: "The debt, in this case, arose exclusively out of a single transaction between the parties. Its creation involved no element other than that of contract. The existence of the liability did not spring from any breach of trust. The only default consisted in the non-payment of the balance due to the plaintiff, after satisfying the purpose of the pledge. The debt did not result from, but preceded, that default." In the present case, the debt of Briscoe preceded his default, and was not created by his failure to carry out the provisions of the mandate.

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."

It is also assigned for error that the plea of the discharge of Briscoe in bankruptcy was personal to him and his representatives, and could not avail his widow; and the case of Moyer v. Dewey, 103 U.S. 301, is relied on to sustain this view. But it is not applicable. In that case the bankrupt, after his discharge, confessed judgments founded on debts which existed prior to his discharge, and the suit was brought to reach property which had been conveyed by him to the defendants, before his bankruptcy, in fraud of his creditors. The defendants other than the bankrupt pleaded the discharge in bankruptcy, and he failed to answer. This court held that, so far as the discharge was concerned, its only effect was personal to the bankrupt, and did not avail to release the fraudulent grantees from liability for the fraud committed by them. It is manifest that the discharge would not have availed the bankrupt if he had pleaded it, and that it could not avail his fraudulent grantees. Moreover, in Moyer v. Dewey, the transfer of property which was attacked took place prior to the bankruptcy, while that assailed in the present case was made subsequently thereto, so far as Mrs. Briscoe is concerned; and in that case the judgments which were rendered against the debtor subsequently to the discharge, were founded on debts which existed prior to the discharge. Therefore, the attacking creditors in that case were creditors at the date of the fraudulent transfer, and remained such, by the subsequent judgments, at the date they brought their suit to set aside the fraudulent transfer. But in the present case the transfer to Mrs. Briscoe took place after the bankruptcy, and the debts here sued on were barred, and they were not revived by judgments taken subsequently to the discharge. As she derived her title, as is alleged, from Briscoe, she is entitled to the full benefit of the position in which he stood at the time the alleged fraudulent transfer was made, and to all defences resulting therefrom. She is entitled to plead the discharge in her own defence, and cannot be deprived of its benefit by the failure of his heirs to plead it. See also Botts v. Patton, 10 B. Mon. 452, 455.

Judgment affirmed.