94 F. 476 -

'94 FEDERAl. REPORTER.

, In re BLUMBERG. (District 'Court,E. D. Tennessee, S. D. 1. 1899.)
BA1IIl'RUPTOY-J.)EBTS AFFECTED Bt DISOHARGE.,....JUDGMENTS 1111 AOTIONS FOR '
c Where, In an action for the prlceof,goods sold, property In the pos'sesslon'of a third person was attached, on an allegation tha,t it had been conveyed to hlQ! by the defendant IPI fraud of the latter's creditors. and sucb vendee, to obtain the release of the property executed a replevin bond With sureties, and judgment was rendered against him, which the sureties were forced to and he was then adjudged bankrupt, held, that the claim of such 'sureties against their principal, by subrogation to the rights of the original creditor, was not a "judgment in an ltction for fralld." within the meaning of Bankruptcy Act, § H (30 Stat. 550), providing that such jlidgments shall not be released by the bankrupt's disCharge; the language of the statute referring only to judgments In actions where the fraud of the bankrupt is the ground of action and basis of the right of recovery. '

2.

WhHe a discharge in bankruptcy releases the bankrupt from a provable debt which is !lot within the excepted classes, and takes away the creditor's right to proceed :against him therefor in personam, it does not affect the lien of 11 valid attachment levied on the bankrupt's goods more than four months,before th,efiling of the petition in bankruptcy.

ON PRIOR ATTAOHMENT.

In Bankruptcy. , ' , .' in opposition to the' bankrupt's application for discharge were filed, as follows: '
& Dryzer, of Knoxville, in the county' of Knox and state of Tennessee, parties interested in the estate of H. Blumberg. bankrupt, do hereby oppose the granting to him of a discharge from his debts. aud for I/:rounds for ,.:nch opposition do file thefoUowlng specifications: The aebt of Shaplra & Dryzer against said bankrupt is one which arose from the following circumstances: .Two suits, we,re brought in the chancery court of Loudon county, Tenn., by Hamburger Bros. and Adams & Beyer, two creditors, of one Paletz, alleging that certain goods bel'onglng to Said Paletz had' been secreted and concealed by the said bankrupt, H. Blumberg; and others, with the Intention to cheat, wrong, and defraud said creditors of said Paletz. Under said bill the goods in the possess.ion of said Blumberg and others were attached, and at the solicitation of said H. Blumberg, the firm of Shapira & Dryzer, as sureties, signed a replevin bond for, said goods; . lind afterwards, on a decree being rendered against said Blumberg'and others, they signed the appeal hond as sureties. The court of chllnCe'I,'Y. appeals and the supreme court of Tennessee, in said causes, decreed that said pankrupt, H. Blumberg, and others, had committed a fraud in concealing goods, etc., and entered a decree against them; the final decree in the supreme court being :S-ovember 11, 1897. On this decree execution issued, and, on default of payment by said Blumberg and others, principals, said Shapira & Dryzer" as sureties, were forced to pay said decree, and are SUbrogated to the right of said original complainants in said cause. These creditors, therefore, represent to the court that said decrees are judgments obtained In actions for fraud, and are, therefore, such debts as are excepted from the operation of the bankrupt llct, , and are debts from which said banl,rupt cannot be discharged.. These creditors further show to the court that aboutli'ebruary, 18j}8, they filed an attachment suit at Jasper, Tenn., against said Blumberg and others, upon said indebtedness, and attached certain property 'alleged to belong to said Bankrupt, H. Blumberg; that saill attachment suit is now pending in the chancery court at Jasper, Tenn. They show that a discharge of said H. Blumberg might indirectly operate to affect the right of these creditors in said suit, as it might be pleaded therein by said bankrupt. Certified copies of the decrees of the court of chancery appeals and of the supreme court, and all other pertinent records, will be filed on or before

IN RE BLUMBERG.

477

the hearing upon this matter. These creditors ask that a time be set at which these matters may be heard, and that it be decreed by the court that said bankrupt be not discharged from the payment of !laid debt, and for general relief."

The referee in bankruptcy to whom the case was referred found and reported as follows:
"This cause is before me upon an order of reference from the honorable C. D. Clark, JUdge, based upon an application for discharge, filed by the petitioner, Blumberg, and upon objections thereto filed by Shapira & Dryzer, of Knoxville, Tenn., creditors of said petitioner, together with an agreed statement as to proof, which said application and specifications of objections were set for hearing this date; the said reference directing me to report the faets, and whether or not petitioner is entitled to his diseharge as to the debt of said creditor. There are two grounds of objection raised by said creditor to the application for discharge. The faets upon which said objections are predicated are all matters of record in the suits referred to, and will be briefly noticed as to the first ground: "On Oct. 19, 1894, Hamburger Bros., a mercantile firm of Cincinnati, Ohio, filed a bill in the chancery court of Loudon county, Tenn., against L. Paletz, I. Gary, and H. Blumberg, to collect an account of $516.99, for a bill of goods sold L. Paletz, who. when the goods were sold him. was a merchant doing business in Dayton, Rhea county, Tenn., while I. Gary and H. Blumberg, the petitioner in the application for discharge, were at the same time conducting business In Loudon, Tenn., under the name of Blumberg Dry-Goods Company and I. Gary. It is alleged In the bill that Paletz had fraudulently disposed of his property to defraUd and defeat his creditors; that he owned eertaln goods. wares, merchandise, then In the county of Loudon. and that defendapts. I. Gary and Dry-Goods Company. were fraudulently concealing and covering up this property of Paletz to keep It out of the reach of creditors; that said Blumberg Dry-Goods Company and Gary had In their possession a small stock of goods in Loudon county. the most, if not all, of whieh was the property of Paletz; and that said defendants and Paletz had colluded and conspired together to cheat and defraud complainants, and to fraudulently conceal some of the property of Paletz. An attachment was asked for, based upon these charges, which was issued and levied upon the goods then In possession of the Blumberg Dry-Goods Company and I. Gary, who subsequently replevined the goods, giVing bond in double the amount of the debt sued for. conditioned to pay the debt, Interest, and costs, if cast in this suit; said creditors, Shapira & Dryzer, becoming sureties thereon. SaId Gary and H. Blumberg each filed separate anSWers to the bill, denying all material allegations. After proof taken, the cause was heard by the chancellor, Xovember 16, 1896, and a decree rendered for complainants against defendants and said sureties on their replevin bond, to wit, Shapira & Dryzer, for the amount sued on and interest, amounting to $580.50. From this decree 1. Gary and H. Blumberg, composing the firm of Blumberg Dry-Goods Company, and I. Gary, individually, prayed an appeal to the supreme court of Tennessee; said creditors, Shapira & Dryzer, becoming also surety on their appeal bond. This cause. upon appeal, was heard by the court of chancery appeals May 29, 1897; the opinion of said court, fully setting out the above facts, being reported in 42 S. W. 807, from which It appears that the decree of the chancellor was sustained in all respects, and decree rencleretl against the appellants and said Shapira & Dryzer, sureties, on appeal, for the amount due complainants. with interest and costs. This decree was also appealed from, but affirmed by the supreme court of Tennessee, in an oral opinion rendered November 6, 1897, and said creditors. Shapira & Dryzer, as sureties aforesaid, paid the full amount thereof, as appears from reference to the certified copy of the execution issued thereon. filed with me upon the hearing of this application. By reference to the opinion of the court of chancery appeals, it appears that they were unable to resist the conclusion 'that Paletz, doing business at Dayton, something like a month before his failure, determined to put as many of his goods as possible beyond the reach of his creditors, and that these appellants (I. Gary and H. Blumberg) entered into bis fraudulent scheme to assist him in carrying it out.' That this decree, as

In out, cOllsti'Ac.. tJPll. t.or tl:.llwt: .'YI I.tbi.q. the. nrovlslons '. of ,supsection . ,vv111cb ,tbe operation of a discharge in 19ankruptcy, I bave no doubt, and so hold; and tbe language : f{fji ;;<lWIn;, pf. qlJotedc, ;cle,$.l',Iy im@<lates the. petitioner, H. Blumberg, as particeps criminis to sucb fraud.," I ;am,. therefore, of opinion tbat tbis first ground of objection to the discha:rgeprayed for is well tlikell.,-!n so far as its operation upim'we debt due said objecting creditors Is . concerned. iand:/being oftbisopinion, itbecdmes unnecessary. 'to determine the second ground of objection rlaised' by the specifications; , ". : .: "COURSel 'for :thepetitilmer,: H. Blumberg, 6fJ'ered tesfimony aUuri.lie tlie record in tbe caSe Mrejj(l)fore :r'efetred: to, for the· purpose of showing (1)' certain facts not dlsdlosedin the record, :but toucbing tbesame transaction; (2) to show that these objectingcredltors, ,Shapira & Dryzer, 'had full knowledge, at: the time of signing: said replevin bon{l and appeal bond, of the facl§ upon which said decree was afterwards predicated; (3,'thatsald"replevlhM'goods, after tbe exeeutlonof ' the replevin 'bond, were delivered to Shapira & Dryzer, and sold by them, and proceeds converted to their own use. I see no force in either of theSe conten1;ipns." IdecllnetQconsUler·.any evidence of fraud outside the record in upon wpi9)1,the j»dgm.ent, for: fraud is.predicated, because, in my opini()J;!" I.aIIl:concluded, thE!reby; sllid judgment being ,rendered by a court of competent Jl1dsdlction, and all the PIlrtie.s being properlybeJ'ore it, Neither do I regard ·qffered to show rthe. kn(jlwledgeof Sb.apira&Dryzer at. the t!lne Qf .Pond as matllrilli. for several, reasons: (1) Because theys!gned, I1t ,t1/.e ;the petitloneI;; .(2) because. they were in no wa:r in; tbe,fraud Ill: rthi,s IrecorQj;, (3), tpeir right,· as .credltors, to resist the discbarge, i arose out ,pt: their subrogatioll. to the' rigbt . of complainants, Hamburger Brps., ,by. ;virtue, pf :haviJlg, as, sureties. :paid off and discharged. the judgmentrep.dere(lIW favor of, Hamburger, Bros., and Ilven If estopped tor any .reason, ontbei/.O,ow,jl aCCol1Jlt, they· may, well settled principles, assert a couw, ::not maintain directly. Se.e Motley v. right by .subrogl1tion Which· Harris, 1 is held that; 'where a ,surety attacks a trust assigmp,ent of fOIl' fraud, the bene;fits of whi(lh are accepted by the creditors, and ,the; is sustained, the surety is not estopped by such action from tllerightpf"subrQgation 1:9 the creditor'Whose claim has been slj,tisfied",for So UlUCh ther,fpf,ashe maybave paid.' As to the last evidence offered ,to.sh\>w;conversion :by. J,;.ryzer of the goods retaken under the replevmwrit, it is l:luftlQl,ent to statetbat Shaplra & Dryzer held a demand on Blumberg,Dry-GopdsOompany and I. GarYillt the time of this conversion, for about $700, tQr go04s spld tl,1emon their which was Judepep.dentQf tl:le ,demll,ndgrowiq.g out oftheirli!\lbility,,On 'this bond, and said conversionw,ljtS Pri9r to, tbe,.l!rdjudication oj' such liabmty,. In addition to this, it does not,aWlllllr tl,l;at the'l,aIue of the goods converted: .and sold exceeded the two .debts, :llf<)pellaid. n.or Wlj,S any :oPjectionraised by the' petitioner,. BlUnlberg. or his c0unllel, tp, the,PNQfof claimIUed.by, saldereditor l!-t the first creditors' -!lieeting, in the· .;presence ,said, Blumberg and said (lounsel, based upon this "erY J ,therefore conelude that,underthe . presented, the petit!oner, ..IUumberg, not be discbarged from tlie debt due 'said Shapira & Dryzer, bllt t,uat -of dis<lharge, when. roodered, should contain a reservation tp tPis effect. ':" I, , "Counsel j'qr' ,Sbapira &Pryzer 1baJVe, called my attElUtion to the fact that they were the ,replevin and appeal bond!! in the case of Adams & .and otbers, referred to inrthellpecifications in oppofiled',py :a:nd1iltewise paid tlui,i!udgment rendered in ail·am>elj,r.s [from ,the .certifiedcollY of the e:KMution before me. This Adams, lJeyel' case was: br{)ught against the; same defendllJIlts,. and involved Precisely th,e same litigation, and therefore,as by .said,sluipira &;Dryzer intbis case,'to wit, discharge of petitloneJl, Blumberg, should likewise. beinope'JJative. "D.. ,L." Grayson, . '.

,by . '.. e.nt in..

CreedF.

fpr for

,IN RE BLUMBERG.

479

CLARK., Judge. For the purpose of this case, the debt due to the creditors 'of Paletz may be identified as the "original debt/' and his credito:rs as tl).e "original creditors," and the judgment 'on the replevin bond executed in the attachment suits in order to release the property may be called the "replevin bond judgment" or' "replevin bond debt." In regard to, the effect of a discharge the language Of the, bankruptcy act, so far as it affects t,he matter now under consideration, is:
"A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as (1) are due as a tax levied by the United States, the state, county, district, or municipality in which he resides; (2) are judgments in actions for frauds, or obtainingpl'operty by false pretenses or false representations, or for willful and malicious injuries to the person or property of another."

It is not to be doubted that the purpose oj'this statute is the as a' similar provision founc in the former bankruptcy law, and that the word "fraud" means moral turpit'll:de or intentional wrong, and thi,lt a part of the purpose of the statute was to, dis, courage and punish such moral turpitude or intentional wrong. 'fhere is, of course, a difference in .the phraseology between the former and the present statute; the former law designating the debt as one c,reated by fraud or embezzlement, etc., while, as will be the ,language. of the present act is "judgments in actions for frauds,'" etc. pnder the former bankruptcy law it Waf! not, and could not be, doubted that the debt which could not be discharged was one upon the fraud and theinjuryresulting from such fraud;' the fi>a:ud itself being the foundation of the right and of the ira recovery was had. In ,lny opinion, there is nothing in the 'present statute to warrant the conclusion that any different meaning is to be, attached to the language used. The statute, besides specifying jUdgments in actions for frauds, also enumerates, in the disjunctive, judgments for willful and mall. dous injuries to the person or property of another, or for obtaining property by false or by false representations. The meaning in each one of the cases thus enumerated, and following each other, is exactly the same, and means a judgment based on a right or injury growing out of the fraud, false pretenses, false representations, or willful and malicious injuries to the person or property of another. It could not possibly, I think, have any application to a case where the judgment is not based upon the fraud as a ground of recovery, or a willful or malicious injury as a ground for recovery. Take the case I am' now dealing with: The judgment is not one in an action for fraud, and the recovery, in the original attachment suits, was based upon a bona fide account and an unquestioned debt, having no connection with any fraud, even l3uggested, in its original creation. The action was one to collect a bona fide debt, and, as an obstruction in the way of collecting such debt, the suit sought to set aside the conveyance or concealment of property. There was not, in these suits, any judgment rendered against anyone which represented an injury done by any fraud. The jUdgment was for a perfectl,Y just debt, and nothing more,

480
and incidentally, in the way. ofcoUecting that jUdgment, a sale of property was .set aside Jralldulent; 1:)utthe judgment was'.i:n,:no wise bilse'd. upon that Jra)id, bnt, was for, the original account with the credo itdrsof,'l?,aletz; nor was there, noricould there be, anything connectetl with the repleviil. bond judgwent which could be called a fraud. .That was a statutory obligation, provided for in an attachment proceeding, by which a money obligation is substituted £.01' property, in specie, in order t9 release the property to the claimant; . and the judgment rendered on that bond was not on :accoU,nt of the fraudulent conveyance, but because the obligors on that bond had distinctly agreed that if the fraudulent sale should, be set aside, and the property demanded for the purpose of satisfying the original debt, they would either return the property, value,orpay the original debt. It was not open to the original creditors of Paletz, at any time, to assert that their debt was (me in an action for fraud" in which the recovery would represent the injury done by a fraud. Their suit was one based upon a jUBt debt, having its origin back of an.y suggestion of fraud, in which there was sought the incidental· relief of setting aside a fraudulent conveyance. Such a fraudulent conveyance itself, under the law of the state, gave nobody a right to a money judgment in the first instance. It simply rendered the sale void. and .enabled any creditor against wh:Om it was declared v,oid to have it set aside, just as if it never had been made, and to reach the property and subject it to a debt not created at all by the fraudulent conveyance, but created prior thereto, and to obstruct 'Collection of which the ,fraudulent conveyance was made. If the fraudulent vendee had disposed of the property, so that a judgment might be rendered against him for the value of the property, such a judgment w()uld be for' the property, on the ground that, the fraudulent sale. being void, it belonged to his fraudulent vendor, and thl;tt his disposition of it was a conversion. I do not think that I need to elliborate further to make plain my view that, 'c(inceding that the creditor,S no}V objecting are substituted to the'oi'iginaldebt due the creditors of Paletz, with all tM rights, including the l'ight to'make any objection which the original creditors' '. have. made, it seems to. me quite clear, that the objection to the' discharge of the petitioner .in this. case is not wflll founded. The creditors of Paletz, could not come, if tMir judgments had not been satisfied, and say that they had a judgment in an, action for fraud. It wpuld' obviously be a complete. answer to' this. to say that Jhei.r judgment .wl;ts based upon an account for',goods sold and delivered, and, that the jUdgment based upon this right, and notqpon any injury. done to them by it fraud, or their ease had t) lor 0 btaining any money by faJs,e pretense" or for willful ,pI' maliciollsj.riju'ry to their person or property. 't9,. the petiti01l,el"s discharge is not, in my opinion, ,Well taken; an<'Cto so hold be an entire. misapvlic\l'tion of 'the purPose, as. well as the very language, of. the . . upon any fair construction which must be given to ,-I

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