Palmer v. Hussey/Opinion of the Court

This record shows that on the eighteenth of April, 1874, Acalus L. Palmer recovered a judgment in the supreme court of New York against Erwin A. Hussey for $32,128.57, on account of certain bonds of the United States which had been placed in his hands by Palmer, and for which he bound himself by a writing, the material part of which is as follows:

'These bonds we hold subject to the order of A. L. Palmer, at ten days' notice, agreeing to collect the coupons for his account free of charge, and to allow him two per cent. per annum interest on the par value of said bonds, said interest to commence and count June, 1, 1866. Interest on the 7-30 bonds payable June and December 15th; on 5-20, May and November 1st.

E. A. HUSSEY & CO.' The contract under which the bonds in question were deposited with Hussey, defendant in error, is as follows:

'NEW YORK, May 11, 1866.

'A. L. Palmer, Esq., Dorchester, N. B.-

DEAR SIR: We yesterday received from Messrs. Brown Bros. & Co., on your order, and receipted to them for the same, the following U.S. bonds:

Ten (10) 7 3-10 U.S. bonds, numbers 62,423, 62,422, and

62,441 to 62,448, of $500 each, is.. $5,000

One hundred and thirty-two (132) 7 3-10 U.S. bonds, number

136,109, 136,108, 136,001 to 136,100, 135,957 to 135,984,

125,153, and 125,154, of $100, is... 13,200

Eight (8) 7 3-10 U.S. bonds, numbers 69,021 to 69,028,

$50.00 each, is........................ 400

One (1) U.S. 6 per cent. 5-20, $1,000, is. 1,000

---

Total,............................. $19,600

'The 7 3-10 bonds only were received from Brown Bros. & Co.; the 5-20 was held by us as delivered December 23, 1865. These bonds we hold subject to the order of A. L. Palmer, at ten days' notice, agreeing to collect the coupons for his account free of charge, and to allow him 2 per cent. per annum interest on the par value of said bonds, said interest to commence and count June 1, 1866. Interest on the 7 3-10 per cent. bonds payable June and December 15th; on 5-20, May and November 1st.

[Signed] 'E. A. HUSSEY & CO.'

In support of his motion in the supreme court of New York for an order perpetually enjoining the collection of the judgment, Hussey submitted an affidavit, of which the following is a part: 'That it is true that I received the bonds set out in said agreement under the terms and conditions therein names; that on receiving said bonds I used them as I deemed I had a right to do under said agreement, and afterwards, as I required money, I hypothecated them for the purpose of raising the same; that at that time I was every way responsible, was a man of large means, being worth at least $500,000, and had no reason to believe that I should not be able, at any and all times, to return said bonds according to the terms of said agreement; but that owing to large and numerous losses by the failure of parties indebted to me, and otherwise, I subsequently became insolvent, and, when called upon to return said bonds, some three years after I had received them, on the second day of January, 1868, I was unable so to do; that thereupon this action was brought against me, and a judgment was rendered against me for the conversion of said bonds on the sixteenth day of May, 1874, for the sum $32,128.57; that no charge of intent to defraud, other than that technically inferred by law, could be charged or sustained against me, and that my entire conduct with reference to said bonds, and all my dealings with them, were upright and honorable.'

Plaintiff in error in the petition for the writ, and the writ itself, claims that the validity of the discharge in bankruptcy is involved; but no such question was raised below, nor any intimation of it, and the record does not show any such question, and therefore it cannot be considered here. Farney v. Towle, 1 Black, 350; Hoyt v. Shelden, 1 Black, 518; Worthy v. Commissions, 9 Wall. 611; Warfield v. Chaffe, 91 U.S. 690; Susquehanna Boom Co. v. West Branch Boom Co., 110 U.S. 57; S.C.. 3 Sup. Ct. Rep. 438; Simmerman v. Nebraska, 116 U.S. 54; S.C.. 6 Sup. Ct. Rep. 333.

In the complaint it was alleged that the bonds 'were received by the defendant from the plaintiff as his agent and broker, in a fiduciary capacity, upon the arrangement and agreement as contained' in the foregoing paper; 'that the said defendant, without the authority or permission of the plaintiff, has fraudulently and willfully sold, disposed of, and misapplied the said bonds, and has refused to deliver up the same to the said plaintiff, who has frequently demanded the same from him, and given the notice so to do, as required by the agreement.' This was denied in the answer. The suit was begun September 7, 1868.

On the twentieth of January, 1868, Hussey filed his petition in bankruptcy, and was duly adjudicated a bankrupt, January 24th. On the seventeenth of May, 1880, he received his final discharge. The record does not show when his application for a discharge was made to the bankrupt court. On the twelfth of June, 1880, he moved the supreme court to perpetually enjoin the collection of the judgment in favor of Palmer because of his discharge. In his affidavit in support of this motion, and which presents the grounds of the relief asked, it is stated 'that, among other grounds of objection to my discharge in bankruptcy made by the plaintiff, it was charged that I have been guilty of improper and undue delay in said proceedings; that that question was presented to the court, and fully explained, and the court decided that I was not guilty of laches, and was entitled to my discharge.'

In opposition to the motion the counsel of Palmer filed a counter-affidavit, setting forth the grounds of defense; and, among others, that the judgment was an adjudication that 'the bonds were received in a fiduciary capacity,' and were 'fraudulently and willfully sold, disposed of, and misapplied by Hussey.'

The supreme court, both at special and general term, denied the motion on the ground that the judgment on its face showed that the debt was created by fraud, and while Hussey was acting in such a fiduciary capacity as to prevent the discharge in bankruptcy from operating as a release. This order was reversed by the court of appeals, and the execution of the judgment perpetually enjoined, because the fraud and trust established by the findings were not of a character to bar the effect of the discharge. To reverse that judgment this writ of error was brought, which Hussey now moves to dismiss because no federal question was raised or decided, and with this motion he has united a motion to affirm under rule 6, § 5.

The motion to dismiss is denied. Palmer, in his affidavit, which in this case takes the place of technical pleading, specially set up and claimed an immunity, under section 5117 of the Revised Statutes, from the operation of the discharge in bankruptcy, because of the fraudulent and fiduciary character of his debt, and the decision was against him.

This gives us jurisdiction, since the exemption depends on the construction and effect of section 5117, which provides that 'no debt created by the fraud * *  * of the bankrupt, or *  *  * while acting in any fiduciary character, shall be discharged by proceedings in bankruptcy.' As the affidavit of Hussey set forth the date of the adjudication in bankruptcy, and the date of discharge, the question of delay in making an application, and the construction and effect of section 5108, may also, perhaps, have been raised on the record. The opinion of the court of appeals shows that both of these questions were actually presented to and decided by that court. 87 N. Y. 303.

Upon the facts set forth in the affidavit of Hussey, which are not denied in t e counter-affidavit of the attorney of Palmer, and upon the facts as they appear in the record of the judgment to be enjoined, it is clear that, under the ruling of this court in Hennequin v. Clews, 111 U.S. 677, S.C.. 4 Sup. Ct. Rep. 576, there was no such fraud in the creation of the debt, and no such trust in respect to the possession of the bonds by Hussey, as to bar the operation of the discharge. By section 5119 of the Revised Statutes, the certificate of discharge is made conclusive evidence, in favor of the bankrupt, 'of the fact and regularity of such discharge.' We must presume, therefore, that the application was made within the time required by section 5108, or, if not, that any delay there may have been was satisfactorily explained before the discharge was granted. The certificate is conclusive on this question.

As these are the only federal questions presented, and one has been already settled by our decision in Hennequin v. Clews, and the other needs no further argument, the motion to affirm is granted.