1. If goods sold by a debtor with intent to defraud his
creditors are attached as his property in a chancery suit to
recover a debt and set aside the sale, which is brought against him
and the purchaser, and the latter, with sure ties, executes to the
complainants a replevin bond, authorized by statute and conditioned
that he, claiming the goods as his property, will pay the
ascertained value of them as expressed in the bond should he be
cast in the suit, and they be decreed to be subject to the
attachment and liable thereunder to the satisfaction of the debt
sued for, his liability on the bond is not a debt created by fraud
within sec. 5117 of the Revised Statutes, which provides that such
a debt shall not be barred by a discharge in bankruptcy; but if the
petition in bankruptcy was filed after the execution of the bond,
and before the rendition of the decree determining the right of
property in the goods, his liability is a contingent one which,
under sec. 5068 of the Revised Statutes, is provable against his
estate in the proper bankrupt court.
2. His discharge in bankruptcy releases him from further
liability, but does not affect that of his sureties on the
bond.
On the 8th of December, 1866, Louis Stix & Co. commenced a
suit in the Chancery Court of Shelby County, Tennessee, against
Marks, Pump, & Co. and M. Wolf, to recover a debt owing by
Marks, Pump, & Co., and to set aside a sale of goods by the
latter firm to Wolf on the ground, as alleged, that it had been
made to defraud creditors. In accordance with the
Page 99 U. S. 2
practice in that State, a writ of attachment was sued out and
levied upon the goods in the possession of Wolf.
The Code of Tennessee provides that (sec. 3509):
"The defendant to an attachment suit may always replevy the
property attached by giving bond with good security, payable to the
plaintiff in double the amount of the plaintiff's demand, or, at
defendant's option, in double the value of the property attached,
conditioned to pay the debt, interest, and costs or the value of
the property attached, with interest, as the case may be, in the
event he shall be cast in the suit,"
and that (sec. 3514):
"The court may enter up judgment or decree upon the bond, in the
event of recovery by the plaintiff, against the defendant and his
sureties for the penalty of the bond, to be satisfied by delivery
of the property or its value, or payment of the recovery, as the
case may be."
As soon as the attachment was served, Wolf moved the court to
ascertain the value of the goods and fix the amount of the bond to
be given in replevying them. This was done and the value
ascertained to be $10,000, and on the 24th of December, 1866, Wolf
as principal and Lowenstein and Helman as his sureties, filed in
the cause their bond, a copy of which is as follows:
"We, M. Wolf, as principal, and Elias Lowenstein and Leon
Helman, as sureties, hereby bind ourselves unto Louis Stix &
Co. in the sum of $20,000."
"The condition of the above bond is that whereas, in the suit
now pending in the Chancery Court at Memphis in favor of said Louis
Stix & Co. and against Marks, Pump, & Co., and in which
said Wolf is joined as a defendant, an attachment has been issued
against said Marks, Pump, & Co. for $18,699.54, besides
interest and costs, and has been levied upon a stock of goods and
other property as the property of said Marks, Pump, & Co.,
which were in the possession of said M. Wolf, and were and are
claimed by him as his property, and this bond given by him for the
purpose of replevying said stock of goods and other property
attached, being, altogether, as it is agreed by the parties, of the
value of ten thousand ($10,000) dollars. Now in the event said M.
Wolf shall be cast in said suit, and said stock of goods and other
property shall be found and decreed by the court to have been
subject to said attachment, and liable thereunder to the
satisfaction of the debts of complainants against Marks, Pump,
& Co., then and in that
Page 99 U. S. 3
event, should said Wolf pay to complainants, as the court may
order and direct, the said sum of $10,000, the value of said stock
of goods and other property, with interest thereon from this date,
this bond shall be void, otherwise to remain in full force and
effect."
"Witness our hands and seals, this ___ day of December,
1866."
"M. WOLF [L.S.]"
"ELIAS LOWENSTEIN [L.S.]"
"L. HELMAN [L.S.]"
The property attached was thereupon surrendered to Wolf. All the
members of the firm of Marks, Pump, & Co. were afterwards
discharged in bankruptcy, and in due time, by leave of the court,
they severally filed formal pleas setting up their respective
discharges. Wolf put in his answer claiming title to the goods and
denying all fraud. Testimony was taken, and on the 13th of
December, 1872, after hearing, the chancery court found and decreed
that there was no fraud in the sale to Wolf and dismissed the suit
as to him. As Marks, Pump, & Co. had been discharged in
bankruptcy, it was also dismissed as to them. From this decree Stix
& Co. appealed to the supreme court on the 21st of March, 1873.
On the 28th of March, 1874, Wolf obtained on his petition therefor
a discharge under the bankrupt law. On the 28th of April, 1877, the
supreme court, upon hearing, reversed the decree of the chancery
court and, after finding the amount due from Marks, Pump, & Co.
and ordering a recovery, concluded as follows:
"And this court being of opinion, as before recited, that said
sale was fraudulent and void, and that said stock of goods,
fixtures, &c., so attached and replevied, were subject to said
attachment and liable for complainants' said debt. And it further
appearing from simple calculation that said sum of $10,000, with
interest from the date of said bond, Dec. 24, 1866, to the present
time, amounts to the sum of $16,200, it is therefore further
ordered, adjudged, and decreed by the court that said fraudulent
sale be and is hereby set aside and for naught held as to
complainants' said debts herein against defendants Marks, Pump,
& Co., and that the complainants Louis Stix & Co. in their
own right, and also for the use of Rinskoff Bros. & Co., do
have and recover of and from the defendant M. Wolf, and Elias
Lowenstein and L. Helman his
Page 99 U. S. 4
sureties on the aforesaid replevin bond, the said sum of
$16,200, the value of the property replevied, and interest thereon
to this date, for which execution may issue. And it further
appearing from the record that the said defendants, Marks, Pump,
& Co., have been since the filing of complainants' bill
discharged in bankruptcy, no execution is awarded against them for
complainants' recoveries herein, and the cost of this cause and the
court below will be paid out of the said recovery of $16,200
against defendant M. Wolf and his aforesaid sureties on replevin
bond."
On the third day of May, 1877, after this decree was rendered,
Wolf and his sureties petitioned the court for leave to come in and
plead in that court the discharge of Wolf in bankruptcy, but this
was denied, as no new defense could be made in that court and it
was not allowable to set up the defense of bankruptcy by any
proceedings there for that purpose.
On the 26th of May, 1877, these appellants filed this bill in
the Chancery Court of Shelby County setting forth the facts
substantially as above stated and praying that the judgment or
decree of the supreme court might be decreed to be satisfied and of
no force and effect by reason of the discharge of Wolf in
bankruptcy, and that Stix & Co. might be enjoined from
enforcing the collection.
The case was afterwards removed to the Circuit Court of the
United States for the Western District of Tennessee. The answer of
Stix & Co. does not deny any of the material facts alleged in
the bill, but sets up as a defense:
1. That the discharge of Wolf does not release him from his
liability upon the decree of the supreme court, because the decree
is founded upon a debt created by fraud;
2. That if Wolf is discharged, his co-complainants, the sureties
upon his bond, are not, and,
3. That the appellants have been guilty of such laches as to cut
them off from relief in a court of equity.
The circuit court dismissed the bill, and from a decree to that
effect this appeal has been taken, the appellants assigning for
error that the court below erred 1. in dismissing the bill; 2. in
not decreeing that the appellees should be perpetually enjoined
from enforcing the decree rendered by the Supreme Court of
Tennessee in their favor against the appellants.
Page 99 U. S. 6
MR. CHIEF JUSTICE WAITE, after stating the case, delivered the
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 defense 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.
Page 99 U. S. 7
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 sec. 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.
Page 99 U. S. 8
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 sec. 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 Wall. 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. Everything 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 defense 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.
Sec. 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, endorser, 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
Page 99 U. S. 9
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 jointly 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
Page 99 U. S. 10
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.
