A plea
puis darrien continuance waives all prior pleas,
and amounts to an admission of the plaintiff's cause of action.
A commission merchant and factor who sells for others is not
indebted in a fiduciary capacity within the bankruptcy acts by
withholding the money received for property sold by him, and this
rule applies to a broker carrying stocks on margin who sells the
same and does not pay over the proceeds to his principal.
A change in phraseology of a statute reenacted creates a
presumption of
Page 195 U. S. 177
change of intent of the legislative body from that expressed in
the former statute.
While punctuation may shed some light on the construction of
statutes, so little is it a part thereof that courts will read the
statutes with such stops as will give effect to the whole.
The language of paragraph 4 of section 17 of the Bankruptcy Act
of 1898 is different from that of section 33 of the act of 1867,
and the words "fiduciary capacity" extend back to and qualify the
words "fraud, embezzlement and misappropriation," and an
unliquidated claim of a principal against his broker for
fraudulently selling stocks carried on margin is not within the
exception of section 17, but is a provable debt, and is barred by
the discharge in bankruptcy.
A debt, originating or founded upon an open account or upon a
contract express or implied, is provable against the bankrupt's
estate, though the creditor may have elected to bring his action in
trover as for a fraudulent conversion instead of in assumpsit upon
an open account.
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 willful 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 stockbrokers 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 defendants 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, willfully, and fraudulently, and without his
knowledge or consent, sold said shares of stock and willfully 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
plaintiff's
Page 195 U. S. 178
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, to review which judgment this writ
of error was sued out.
Page 195 U. S. 185
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;
East St.
Louis v. Renshaw, 153 Ill. 491;
Angus v. Chicago Trust
& Savings Bank, 170 Ill. 298;
Kimball v.
Huntington, 10 Wend. 675,.
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
Page 195 U. S. 186
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 willful 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."
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 section 63, a copy of which
appears in the margin.
* Paragraph
a of this section includes
Page 195 U. S. 187
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,
190 U. S. 350.
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
section 63
a 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.
Page 195 U. S. 188
The question whether the claim thus set forth is barred by the
discharge depends upon the proper construction of section 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 obtaining
property by false pretenses, or false representations, or for
willful 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."
Do these words apply to all debts created by the fraud,
embezzlement, misappropriation of the bankrupt, or only to such as
were created while he was acting as an officer or in some fiduciary
capacity? The fact that the second subdivision of section 17
excepted from the discharge "all judgments in actions for frauds,
or of obtaining property by false pretenses, or false
representations" indicates quite clearly that, as to frauds in
general, it was the intention of Congress only to except from the
discharge such as had been reduced to judgment, unless they fall
within the fourth subdivision, of those created by the fraud,
embezzlement, misappropriation, or defalcation of the bankrupt
while acting as an officer or in a ficuciary capacity. Unless these
words relate back to all the preceding words of the subdivision --
namely the frauds and embezzlements as well as misappropriations or
defalcations, it results that the exception in subdivision 2 of all
judgments for fraud is meaningless, since such judgments would be
based upon a fraud excepted from discharge by subdivision 4,
whether judgment had been obtained or not.
This conclusion is fortified by reference to corresponding
sections of the former bankrupt acts. Thus, by the first section of
the act of 1841, 5 Stat. 440, the benefits of that act were
extended to all persons 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."
It is entirely clear
Page 195 U. S. 189
that, under this section, a discharge was not denied to the
bankrupt by reason of debts fraudulently contracted, but only to
such as were created by his defalcation as an officer or while
acting in a fiduciary capacity.
We may remark here, in passing, that ever since the case of
Chapman v.
Forsyth, 2 How. 202, this Court has held that a
commission merchant and factor who sells for others is not indebted
in a fiduciary capacity within the Bankruptcy Acts by withholding
the money received for property sold by him. This rule was made
under the Bankruptcy Act of 1841, and has since been repeated many
times under subsequent acts.
Neal v. Clark, 95 U.
S. 708;
Hennequin v. Clews, 111
U. S. 679;
Noble v. Hammond, 129 U.
S. 68;
Upshur v. Briscoe, 138
U. S. 375 -- as well as in cases in the state courts too
numerous for citation.
Under the Bankruptcy Act of 1867, the list of debts excluded
from the operation of the discharge was considerably larger. In
section 33, Revised Statutes, 5117, it was declared that:
"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 under this act, but the
debt may be proved, and the dividend thereon shall be a payment on
account of said debt."
The language of this section is so clear as to require no
construction. It is plain and explicit to the effect that the fraud
and embezzlement of the bankrupt need not have been committed by
him while acting as an officer or in a fiduciary character, and
that this character relates only to his defalcation. But under the
act of 1898 there is no such severance in the fourth paragraph as
would authorize us to say that the term "fiduciary capacity" did
not extend back to the words "fraud, embezzlement, and
misappropriation." It was the opinion of the Supreme Court of
Illinois that
"a mere change in phraseology, apparently for the sake of
brevity, rendering the meaning somewhat obscure, cannot be regarded
as showing a legislative intent to depart so radically from
precedents established
Page 195 U. S. 190
by previous bankruptcy legislation and judicial decisions as to
provide that debts created by the fraud or embezzlement of the
bankrupt should be released by his discharge in bankruptcy, unless
such fraud or embezzlement should be committed while the bankrupt
was acting as a public officer, or in a fiduciary capacity."
Our own view, however, is that a change in phraseology creates a
presumption of a change in intent, and that Congress would not have
used such different language in section 17 from that used in
section 33 of the act of 1867 without thereby intending a change of
meaning. The view generally taken by the bankruptcy courts has been
that the terms "officer" and "fiduciary capacity" extend to all the
claims mentioned in paragraph 4, and are not confined to cases of
defalcation.
In re Rhutassel, 96 F. 599;
In re
Lewensohn, 99 F. 73;
In re Hirschman, 104 F. 69;
In re Cole, 106 F. 837;
In re Freche, 109 F. 620;
Hargadine-McKittrick Dry Goods Co. v. Hudson, 111 F. 361.
This is the natural and grammatical reading of the clause.
The cases in the state courts are almost uniformly to the same
effect. Thus, in
Smith & Wallace Co. v. Lambert, 69
N.J.L. 487, the defendant pleaded to an action on a book account
his discharge in bankruptcy, to which the plaintiff replied that
the cause of action was created by the fraud of the defendant. The
Supreme Court of New Jersey held the replication to be
insufficient. "We think," said the court,
"that under section 17 of the Bankrupt Law, to which reference
has been made, there is no provision that would except from the
discharge the debt upon which the present suit is brought."
In
Morse v. Kaufman, 100 Va. 218, it was pleaded
against the discharge that the goods were procured by false
pretenses. After holding that the case had not fallen within
subdivision 2 of section 17, as there was no judgment for fraud,
the Supreme Court of Virginia observed:
"It would seem to be equally clear that the demand of plaintiffs
in error is not within the exception of subdivision 4
Page 195 U. S. 191
of section 17. It is not pretended that the claim was created by
the bankrupt's 'fraud, embezzlement, misappropriation, or
defalcation while acting as an officer, or in any fiduciary
capacity.'"
"The contention that 'fraud' should be segregated from the
qualifying language 'while acting as an officer or in any fiduciary
capacity' is without merit. Such interpretation would not only
destroy the grammatical construction of the sentence and contravene
its plain meaning, but would likewise be inconsistent with
paragraph 2 of the same section, that a creditor should have
obtained a judgment in an action for fraud in order to override a
discharge in bankruptcy."
A like construction was given to subdivision 4 by the Supreme
Court of Missouri in
Goodman v. Herman, 172 Mo. 344, by
the Supreme Court of Minnesota in
Gee v. Gee, 84 Minn.
384, by that of Rhode Island in
Crosby v. Miller, 25 R.I.
172, and by the Supreme Court of New York, Fourth Department, in
In re Bullis, 68 App.Div. 508. In this case, the question
was discussed at considerable length, the court saying:
"If
any debt created by fraud, embezzlement, or
misappropriation is to be excepted from the application of the
statute, then there is no necessity of subdivision 2, making a
judgment essential to prevent the granting of the discharge under
the statute."
We have not overlooked the fact that the New York Supreme Court
of the First Department reached a different conclusion in
Frey
v. Torrey, 70 App.Div. 166, affirmed by the Court of Appeals
in a per curiam opinion, 175 N.Y. 501, but, so far as we know, this
is the only case that supports the construction given to section 17
by the Supreme Court of Illinois.
Why an ordinary claim for fraud should be released by the
discharge, while a judgment for fraud is not released, is not
altogether clear, although this distinction may have been created
to avoid the necessity of going into conflicting evidence upon the
subject of fraud, while, in cases of judgments for
Page 195 U. S. 192
frauds, the judgment itself would be evidence of the fraudulent
character of the claim. If a creditor has a claim against a debtor
for goods sold which would ordinarily be covered by a discharge in
bankruptcy, he is strongly tempted to allege, and if possible to
prove, that the goods were purchased under a misrepresentation of
the assets of the buyer, and thus to make out a claim for fraud
which would not be discharged in bankruptcy. It was probably this
contingency which induced Congress to enact that an alleged fraud
of this kind should be reduced to judgment before it could be set
up in bar of a discharge.
The intent of Congress in changing the language of the act of
1867 seems to have been to restore the act of 1841, which, as
already observed, extended the benefits of the law to every debtor
who had not been guilty of defalcation as a public officer or in a
fiduciary capacity, the act of 1898 adding, however, to the
excepted class those against whom a judgment for fraud had been
obtained.
Some stress is laid by the Supreme Court of Illinois upon the
punctuation of subdivision 4, section 17, presumably upon the
insertion of a comma after the word "misappropriation," thereby
indicating a severance of that which precedes from that which
follows. While we do not deny that punctuation may shed some light
upon the construction of a statute,
Joy v. St. Louis,
138 U. S. 1,
138 U. S. 32, we
do not think it is entitled to weight in this case. In the
enumeration of persons or things in acts of Congress it has been
the custom for many years to insert a comma before the final "and"
or "or" which precedes the last thing enumerated, apparently for
greater precision, but without special significance. So little is
punctuation a part of statutes that courts will read them with such
stops as will give effect to the whole.
Doe v. Martin, 4
J.R. 65;
Hammock v. Farmers' Loan & Trust Co.,
105 U. S. 77,
105 U. S. 84;
United States v. Lacher, 134 U. S. 624,
134 U. S. 628;
United States v.
Isham, 17 Wall. 496.
2. But it is strenuously insisted by the plaintiff that a
claim
Page 195 U. S. 193
for the conversion of personal property is not within the scope
of section 17 because it is not a "provable debt" within the
definition of section 63
a. Did the latter section stand
alone, there would be some ground for saying that a claim, though
"founded upon an open account, or upon a contract, express or
implied," would not be a provable debt if plaintiff elected to
treat the conversion as fraudulent, and sue in trover, though he
might have chosen to waive the tort, and bring an action for a
balance due on account. An early English case,
Parker v.
Crole, 5 Bingham 63, is cited to the effect that the operation
of the discharge is determined by the election of the creditor to
sue in assumpsit or case. A like ruling was made in certain cases
under the Bankruptcy Acts of 1841 and 1867.
Williamson v.
Dickens, 27 N.C. 259;
Hughes v. Oliver, 8 Pa. 426;
Bradner v. Strang, 89 N.Y. 299, 307.
But we think that section 63
a, defining provable debts,
must be read in connection with section 17, limiting the operation
of discharges, in which the provable character of claims for fraud
in general is recognized, by excepting from a discharge claims for
frauds which have been reduced to judgment, or which were committed
by the bankrupt while acting as an officer, or in a fiduciary
capacity. If no fraud could be made the basis of a provable debt,
why were certain frauds excepted from the operation of a discharge?
We are therefore of opinion that, if a debt originates or is
"founded upon an open account or upon a contract, express or
implied," it is provable against the bankrupt's estate, though the
creditor may elect to bring his action in trover, as for a
fraudulent conversion, instead of in assumpsit, for a balance due
upon an open account. It certainly could not have been the
intention of Congress to extend the operation of the discharge
under section 17 to debts that were not provable under section
63
a. It results from the construction we have given the
latter section that all debts originating upon an open account or
upon a contract, express or implied, are provable, though plaintiff
elect to bring his action for fraud.
Page 195 U. S. 194
In the case under consideration, defendants purchased, under the
instructions of the plaintiff, certain stocks, and opened an
account with him, charging him with commission and interest, and
crediting him with amounts received as margins. Subsequently, and
without the knowledge of the plaintiff, they sold these stocks and
thereby converted them to their own use. Without going into the
details of the facts, it is evident that the plaintiff might have
sued them in an action on contract, charging them with the money
advanced and with the value of the stock, or in an action of trover
based upon their conversion. For reasons above given, we do not
think that his election to sue in tort deprived his debt of its
provable character, and that, as there is no evidence that the
frauds perpetrated by the defendants were committed by them in an
official or fiduciary capacity, plaintiff's claim against them was
discharged by the proceedings in bankruptcy.
The judgment of the Supreme Court of Illinois is therefore
reversed, and the case remanded to that court for further
proceedings not inconsistent with this opinion.
*
"SEC. 63. Debts which may be proved. -- (a) Debts of the
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
probable 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 accrued after the filing of the
petition, and up to the time of the entry of such judgments."
"(b) Unliquidated claims against the bankrupt may, pursuant to
application to the court, be liquidated in such manner as it shall
direct, and my thereafter be proved and allowed against his
estate."