Lawrence et al. v. Harrington

Full title: WILLIAM F. LAWRENCE et al., Respondents, v . ARVIN W. HARRINGTON, Appellant

Court: Court of Appeals of the State of New York

Date published: Oct 28, 1890

122 N.Y. 408 (N.Y. 1890)

33 N.Y. St. Rptr. 717

25 N.E. 406

Opinion

Argued October 14, 1890

Decided October 28, 1890

G.B. Wellington for appellant. James M. Hunt for respondents.

BROWN, J.

There is no dispute between the parties but that the two notes which matured February twenty-sixth and March third respectively, were covered by the discharge in bankruptcy, but the respondents assert that the other notes having had their origin in the conversion by defendant's firm of the proceeds of the note of $671 on July 10, 1877, were taken out of the operation of the discharge in bankruptcy by the 33d section of the Bankrupt Act (R.S. § 5117), which declares that "no debt created by fraud or embezzlement of the bankrupt, or by his defalcation as a public officer, or while acting in a fiduciary character, shall be discharged under this act."

This question, we think, is settled by authority against the respondents' contention. ( Hennequin v. Clews, 111 U.S. 676; 77 N.Y. 427; Neal v. Clark, 95 U.S. 704; Chapman v. Forsyth, 2 How. [U.S.] 202; Palmer v. Hussey, 87 N.Y. 303; Stratford v. Jones, 97 id. 586; Cronan v. Cotting, 104 Mass. 245.)

These authorities have established the rule that conversion is not a "fraud," within the meaning of the Bankrupt Act, and that the expression "fiduciary character" has reference to cases of technical trust actually and expressly constituted, and does not include those which the law implies from the contract of the parties.

The fraud intended by the law is a positive fraud or fraud in fact, as distinguished from constructive fraud, founded upon some breach of duty.

The case of Bradner v. Strang ( 89 N.Y. 299; 114 U.S. 555), is not in conflict with the authorities cited. In that case certain promissory notes were obtained from the plaintiffs by the defendants by false representations, and hence the case was one of positive fraud. It was clearly distinguished in this court and in the Supreme Court of the United States from the cases I have cited, and it illustrates the class of fraudulent debts and obligations which it was intended should not be discharged by the bankrupt law. It has no application to the present case.

The defendant's firm came rightfully into possession of the note and its proceeds. They were the plaintiffs' agents to procure its discount. They violated their duty in appropriating to their own use the proceeds, and were guilty of conversion in so doing, but within the principle of the cases cited the debt was discharged by the bankruptcy proceedings.

To overcome, however, the effect of the discharge in bankruptcy, the plaintiffs gave evidence from which the court found as a fact a new promise to pay the debt made by the defendant and his firm after the filing of the petition in bankruptcy.

As to the two notes which matured February twenty-sixth and March third, we think this finding is sustained.

These notes were renewed on or about February 25, 1878, by new notes made by the plaintiffs to the order of Rousseau Harrington, and by that firm indorsed and passed to the bank holding the original notes, and having been given for the accommodation of the defendant's firm, we think the new promise to pay is to be implied from the contract of indorsement on the renewal notes. And such promise saved the debt from the operation of the discharge. ( Stillwell v. Coope, 4 Den. 225; Lewis v. Wilmarth, 7 Allen, 463.)

But as to the balance of the claims we are of the opinion that the finding is without evidence to support it.

The General Term appear to have been of the opinion that a payment made upon the account in May or July, 1881, revived the same from the bankrupt discharge.

In this we think that the learned court erred.

All the authorities agree that a promise by which a discharged debt is renewed, must be express and distinct. It cannot be implied or inferred; and so it was held that a payment of interest by the maker on a promissory note from which he had been discharged in bankruptcy, did not revive his liability on the note. ( Inst. for Saving v. Littlefield, 6 Cush. 210.)

That payment of a part of a note so discharged and the indorsement thereon by the debtor of the sum paid was not sufficient to authorize a finding of a new promise to pay the residue of the debt. ( Merriam v. Bayley, 1 Cush. 77; Allen v. Ferguson, 18 Wall. 1.)

A different rule prevails in case of a debt discharged in bankruptcy from that applied to the defense of the Statute of Limitations. In the latter case payment of a part of the debt is regarded as an acknowledgment of the existence of the debt, and the law implies a promise to pay the residue. But in the case of a debt discharged in bankruptcy a promise cannot be inferred, but must be express, and so all the cases agree that partial payments will not revive the debt. (Hilliard on Bankruptcy, 266, 267.)

"Nothing," said Judge HUNT, in Allen v. Ferguson, "is sufficient to revive a discharged debt unless the jury are authorized by it to say that there is an expression by the debtor of a clear intention to bind himself to the payment of the debt."

It follows from these authorities that a new promise could not be implied from the payment referred to.

The other evidence in the case showed only a promise to do certain work for the plaintiffs and apply it upon the account. This could not be construed into a promise to pay the debt in any other way than that stipulated in the agreement.

And the expressions contained in defendant's letters to the effect that "we do not calculate you will suffer any loss by us," "we will do the best we can and all that is in our power to save you harmless," are not indicative of an intention to pay at all events. ( Allen v. Ferguson, supra; Elwell v. Cumner, 136 Mass. 102.)

In the cases cited, language of similar import was used, but the court held it insufficient to revive the debt. We are of the opinion that the finding of a new promise to pay the indebtedness is not supported by the evidence except as to the two notes renewed in February, 1878. And as to these notes the question still remains whether the cause of action thereon was not barred by the Statute of Limitations.

The renewal notes matured May 28 and June 4, 1878, and were then paid by the plaintiffs, and the cause of action thereon was then complete.

In the years 1883 and 1884 work was performed by defendant's firm for the plaintiffs under an agreement that the amount thereof should be credited upon the old account, and credits were accordingly given, and the question now is whether such credits may be considered as payments which will take the case out of the operation of the Statute of Limitations.

We are of the opinion that they should have that effect. A payment generally upon a debt within six years before the commencement of an action thereon will take it out of the statute, and it makes no difference whether the payment is in money or goods. The claim of the appellant is that these credits having been made under a special agreement have no greater effect than that stipulated in the agreement under which the work was performed, and in the absence of any evidence as to the refusal of the defendant to fulfill that agreement they cannot be taken as an acknowledgment of the debt, or as evidence of a promise to pay in money.

There would be some force in this argument if the debt had been barred by the statute at the time the work was performed; but the debt was at that time an existing obligation enforceable against defendant's firm. The evidence was that defendant's firm did the work and agreed to allow plaintiffs to credit one-half thereof on the old account.

There was no condition attached to the credit, and it must be treated as if the payment had been made in money. Its effect was to arrest the operation of the statute and to enlarge the time during which an action upon the debt could be brought. This action was commenced within six years after the first credit, made in 1883, and the defense of the Statute of Limitations was, therefore, properly overruled.

The judgment should be reversed, a new trial granted, with costs to abide the event, unless the respondents shall, within twenty days, stipulate to reduce the judgment by deducting therefrom $671.43, with interest thereon from January 4, 1879, in which case the judgment so reduced is affirmed, without costs to either party in this court.

All concur.

Judgment accordingly.