Neal v. Clark - 95 U.S. 704 (1877)
U.S. Supreme Court
Neal v. Clark, 95 U.S. 704 (1877)
Neal v. Clark
95 U.S. 704
1. The word "fraud," as used in the thirty-third section of the bankrupt law of 1867, which provides that
"No debt created by the fraud or embezzlement of the bankrupt, or by defalcation as a public officer, or while acting in a fiduciary capacity, shall be discharged under this act,"
means positive fraud or fraud in fact involving moral turpitude or intentional wrong, and not implied fraud or fraud in law, which may exist without the imputation of bad faith or immorality.
2. Accordingly, where a party paid an executor for a portion of the assets of an estate which he purchased at a discount, but without any actual fraud, and where he was, with the executor, who failed to account therefor, held liable for a devastavit, held that his subsequent discharge in bankruptcy was a complete defense to an action against him for such devastavit.
The facts out of which this case arises, so far as it is material to state them, are substantially these:
William Fitzgerald, Jr., of the State of Virginia, by his will, which was admitted to probate in 1857, directed his executor to sell his entire landed estate and distribute the proceeds among those entitled to them according to the provisions of the will. The lands were sold as directed in the same year, the purchasers giving bonds, with security, payable to the executor as such. Two of these bonds, each dated Dec. 1, 1857 -- one for $1,000, due Nov. 18, 1859, with interest from Nov. 18, 1858, and the other for $2,293, due, with like interest, Nov. 18, 1860 -- were sold and assigned by the executor, in June, 1859, to Griffith D. Neal, the plaintiff in error, for the sum of $2,780, who sold them to Richard Jones for $3,056. The latter collected them. When this transaction occurred, the executor, who was a brother of the testator, was a man of large property and undoubted solvency. Neal made no inquiry as to the condition of the estate, but the executor gave as a reason for selling the bonds that the estate was in debt to him for moneys advanced.
In 1860, a suit was instituted against the executor in the Circuit Court for Pittsylvania County, Virginia, to obtain a settlement of his accounts and a distribution of the estate. In 1861,
in obedience to an order of court, he gave a new bond, with Clark and Holland as sureties, and in 1868 they were made defendants, and a decree was asked against them for whatever sum should be ascertained to be due from the executor. In 1869 -- ten years after Neal had purchased the bonds, about seven years after the executor had become insolvent and removed from the state, and without any question having been previously raised as to Neal's liability -- Clark and Holland exhibited their bill in the same court against the executor, the distributees, Neal, Jones, and others. They allege that the executor, in disposing of the bonds, committed a devastavit of the estate, and that, in view of the circumstances under which he received them, Neal became a participant in that devastavit, and is liable to the distributees for the amount of the bonds. They ask that as sureties of the executor, they be substituted to the rights which the distributees have against Neal by reason of his alleged unlawful appropriation of the testator's assets. In the event of any judgment against them, they pray that it be rendered to be first satisfied by the purchaser of the notes.
In the District Court of the United States for the District of Virginia, Neal was duly adjudged a bankrupt, and received his certificate, dated Feb. 11, 1869, showing his discharge from all debts and claims which, by the bankrupt law, were provable against his estate, and which existed on the 25th of January, 1868, "except such debts as were exempted from the operation of a discharge in bankruptcy."
Neal pleaded his discharge in bar of the action against him, but the Circuit Court for Pittsylvania County gave judgment against him and Jones for the amount of the two notes purchased from the executor. That judgment, so far as it held Neal liable, was affirmed in the Supreme Court of Appeals of Virginia, but, so far as it related to Jones, was reversed. Thereupon Neal brought the case here.