Wolf v. Stix (99 U.S. 1)/Opinion of the Court

This cause may be considered as supplementary to that of Wolf v. Stix, 96 U.S. 541. It is in fact the suit in chancery referred to in the opinion in that case as furnishing the complainants an appropriate remedy for enforcing their rights growing out of the discharge of Wolf in bankruptcy during the pendency of the original cause on appeal in the Supreme Court, and before the final judgment as rendered in that court. In addition to Anderson v. Reaves, cited in the argument of the other case, we are now referred to the following cases as establishing the same practice: Ward v. Tunstall, 58 Tenn. 319; Riggs v. White, 4 Heisk. (Tenn.) 503; and Longley v. Swayne, id. 506. In Ward v. Tunstall the rule is thus stated: 'On the record when presented, to which we can alone look, in our view of the case, a judgment can be rendered, and then if the debtor desires to be relieved he will find no difficulty in being protected from payment of improper judgments in the bankrupt court, or by an original proceeding in the State court, where he can make such issues as will raise the question, and as he is precluded from interposing his defence arising out of his bankruptcy, the judgment will not interfere with his case in any way.' But it is unnecessary to pursue this branch of the case further, as we do not understand that the position assumed by the appellants is disputed.

The two questions which have alone been argued here in behalf of the appellees are:--

1. Whether the liability of Wolf was one created by fraud, within the meaning of sect. 5117, Rev. Stat., which provides that 'no debt created by fraud. . . shall be discharged in bankruptcy.' And,

2. Whether if Wolf was discharged his sureties were also.

1. As to Wolf.

In Neal v. Clark (95 U.S. 704) it was decided that 'fraud,' as used in this section of the bankrupt law, 'means positive fraud or fraud in fact, involving moral turpitude or intentional wrong, as does embezzlement; and not implied fraud or fraud in law, which may exist without imputation of bad faith or immorality.' With this definition we are content. It is founded both on reason and authority. Clearly it does not include such fraud as the law implies from the purchase of property from a debtor with the intent thereby to hinder and delay his creditors in the collection of their debts. But if it did, such a purchase does not create a debt from the purchaser to the creditors. As between the debtor and the purchaser the sale is good, but as between a creditor and the purchaser it is void. The purchaser does not subject himself to a liability to pay to creditors the value of what he buys. All the risk he runs is that the sale may be avoided, and the property reclaimed for their benefit. To come within this exception in the Bankrupt Act the debt must be created by fraud. The debt of Wolf in this case was not created by his purchase of the goods, but by his bond to pay their value if he failed to sustain his title. In this there was no fraud. It was a right the statute gave him as the claimant of the property, and he availed himself of it in a lawful way. He thus perfected his title to the goods by agreeing to pay their value if his original purchase should be held to be invalid. A debt thus incurred cannot be said to be created by fraud. It occupies in this respect the same position it would if Wolf, acknowledging the invalidity of his original purchase, had, without suit, given his note to the creditors for the value of the goods in order to perfect his title.

The debt thus created was provable under the Bankrupt Act. It was payable upon the happening of an event which might never occur, and was, therefore, contingent. The bond was in full force when the petition in bankruptcy was filed. The sum to be paid was certain in amount. Whether the event would ever occur which would require the payment was uncertain; but if it did occur, the amount to be paid was fixed. This clearly is such a case as was provided for in sect. 5068, Rev. Stat., which is, that 'in all cases of contingent debts and contingent liabilities contracted by the bankrupt,. . . the creditor may make claim therefor, and have his claim allowed, with the right to share in the dividends, if the contingency happens before the order for the final dividend.' There is nothing in the case of Riggin v. Magwire (15 Walls. 549) in conflict with this. That case arose under the bankrupt law of 1841, which was somewhat, though perhaps not materially, different from that of 1867 in this particular, and not only the happening of the event on which payment was to be made, but the amount to be paid, was uncertain and contingent. The amount to be paid depended materially upon the time when the event happened. Every thing was uncertain. The obligation in this case is to pay $10,000 and interest, if, upon the trial of the suit in the progress of which the bond was executed, it should be adjudged that the goods attached were subject to the attachment, and liable thereunder to the satisfaction of the debt sued for. As, therefore, the debt of Wolf was not created by fraud, and was provable under the act, it follows that his discharge released him from his liability on the bond. The discharge would have been a bar to a judgment against him, if, before the judgment, it could have been pleaded as a defence to the action. It follows that, under the practice which prevails in Tennessee in this class of cases, Wolf is entitled to the relief he asks for himself.

2. As to the sureties.

Sect. 5118, Rev. Stat., provides that 'no discharge shall release, discharge, or affect any person liable for the same debt for or with the bankrupt, either as partner, joint contractor, indorser, surety, or otherwise.' The cases are numerous in which it has been held, and we think correctly, that if one is bound as surety for another to pay any judgment that may be rendered in a specified action, if the judgment is defeated by the bankruptcy of the person for whom the obligation is assumed, the surety will be released. The obvious reason is that the event has not happened on which the liability of the surety was made to depend. Of this class of obligations are the ordinary bonds in attachment suits to dissolve an attachment, appeal bonds, and the like. But here the bond was not given to dissolve the attachment. That was issued against the property of Marks, Pump, & Co.; and in order to get possession of the goods which had been attached, and which Wolf claimed as his own, he subjected his bond to the operation of the attachment which was to continue in force, and took the goods away. In legal effect, he purchased the interest of the creditors in the goods, and, with Lowenstein and Helman as his sureties, agreed to pay the creditors $10,000, if, upon the trial of the suit in which the attachment was issued, it should appear that they had any interest to sell. In this obligation Lowenstein and Helman were joingly bound with Wolf, and their liability was made to depend, not upon the recovery of a money judgment against him, but upon a judgment that the title he acquired by his purchase from Marks, Pump, & Co. was void as against the attaching creditors. The case stands precisely the same as it would if Wolf and his sureties had entered into a contract with the attaching creditors, in a form authorized by law, to take the goods from the sheriff and pay $10,000, if on the trial it should be determined that the attachment was valid, and this was a suit on that contract. Clearly, under such circumstances, it could not be successfully contended that Wolf's bankruptcy released his sureties.

As we understand the practice in Tennessee, the parties are to have the same relief in this action they would have been entitled to in the original suit, if, before the judgment, Wolf's discharge in bankruptcy could have been pleaded. This proceeding performs the office of such a plea, and enforces the same rights.

Had the plea been filed, it would have shown a discharge of Wolf from his liability, but not that of his sureties. They were bound not to pay any judgment which might be rendered against him, but to pay the debt he had agreed to pay in a certain event, which had happened. The judgment which the Code of Tennessee authorizes in such cases is upon the bond according to its tenor and effect, and if the principal debtor is discharged his sureties must respond, as in other cases of joint liability. They are no more released by his discharge than they would be from a note or ordinary money bond which they had signed as his sureties.

No question has been raised as to the effect of the bankruptcy of Marks, Pump, & Co., and it is unnecessary, therefore, to take time to consider it.

Our conclusion is, that as to Wolf the decree is erroneous, and should be reversed, but as to Lowenstein and Helman, that it was right, and should be affirmed.

The cause is remanded with instructions to modify the decree below in such manner as to give to Wolf the benefit of his discharge in bankruptcy, as stated in this opinion, but to leave it in all other respects in force. The costs in this appeal must be paid by the appellees; and it is

So ordered.