This was an action of assumpsit for the proceeds of 150 bales of cotton, shipped to and sold by defendants as the property of the plaintiff the defendants being factors. The defendant, Forsyth, pleaded that he had been duly discharged as a bankrupt, on his own voluntary petition. A replication was filed, to which there was a demurrer.
The suit was brought in the Circuit Court for the district of Kentucky; and on the argument of the demurrer the following points were made, on which the opinions of the judges were opposed; and at the request of the parties the points were certified to this court.
1. 'Could the defendant be discharged as a bankrupt from any part of his debts on his own petition, when he was indebted in a fiduciary capacity in part, within the exception in the first section of the bankrupt law; that is, were all persons indebted, excluded, that held and owed moneys in the capacity of trustees, (as a class,) from the benefit of the act, although they owed other debts besides the moneys held in trust?
2. 'Is a commission merchant and factor, who sells for others, indebted in a fiduciary capacity within the act, provided he withholds the money received for property sold by him, and which property was sold on account of the owner, and the money received on the owner's account?
3. 'Whether, when the decree of discharge and the regular certificate of being a bankrupt, have been obtained without contest in the district court, they are conclusive and binding on all persons named as creditors by the bankrupt in his petition and list of creditors; and whether a creditor, who did not prove his debt, and to whom the bankrupt was indebted in a fiduciary capacity, can come into court and sue the bankrupt for such fiduciary debt, notwithstanding the decree of discharge and certificate, the debt having been set forth in the petition and list as an ordinary debt, not due in a fiduciary character?'
These questions are far less important than they would have been had the bankrupt law not been repealed. But they are still important as affecting a large class of citizens and to a large amount.
The first section of the bankrupt law provides that, 'all persons whatsoever, residing in any state, territory, or district of the United States, 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,' shall, on a compliance with the requisites of the bankrupt law, be entitled to a discharge under it.
The debts here specified are excepted from the operation of the act. This exception applies to the debts and not to the person, if he owe other debts. The language is, all persons owing debts, not of the description named, may apply, &c. Now, an indebtment by an individual, not created as above stated, is within the provisions of the act, although he may be under fiduciary obligation. This is the natural import of the provision, and it is sustained by reason. It was proper that Congress should not relieve from debts which had been incurred by a violation of good faith, whilst, from other obligations a full discharge to the same person should be given. But, to have refused a discharge because the individual owed a fiduciary debt, would, by withholding a general privilege, have superadded a penalty to a past transaction without notice. That this consideration influenced the legislature is shown by the fourth section, which provides, 'that no person who after the passage of the act shall apply trust-funds to his own use,' shall be discharged. Now, if a person who owed a fiduciary debt, was not entitled to a discharge from other debts by the first section, this provision was useless. A misapplication of trust-funds, as declared, covers the enumerated cases in the first section. But, whilst the first section only withholds from the jurisdiction of the bankrupt court fiduciary debts, the fourth declares that if such debts have been contracted subsequent to the law, the individuals shall not be discharged. From this provision the strongest implication arises, that if the fiduciary debts were contracted before the passing of the act, the petitioner would, for other obligations, be entitled to a discharge. Viewing then the first and fourth sections of the act, we are of the opinion that fiduciary debts, contracted before the passage of the act, constitute no objection to a discharge of the same person for other debts.
The second point is, whether a factor, who retains the money of his principal, is a fiduciary debtor within the act.