Reid v. Martin

The motion was denied by the court below solely on the ground that the debt for which the judgment was recovered, was not discharged by the decree in bankruptcy, because it was contracted by fraud. Section 33 of the act of congress, known as the bankruptcy act, declares that “ no debt created by the fraud * * * of the bankrupt * * * shall be discharged under this act, but the debt- may be proved, and the dividend thereon shall be a payment on account of said debt.” _

The federal courts sitting in bankruptcy, have given this section a construction consistent with the manifest intention of congress. “ Whenever the debt,” says Blatchford, J. (In re Paterson, 1 *593Nat. Bankr. Reg., 307), “ no matter whether it be in the shape of a judgment or in any other form, was created by fraud and had its root and origin in fraud, then it is not to be discharged.” We are to look, therefore, on such motions as this, to the origin of the indebtedness, and if, in so doing, we clearly see that the debt was created in fraud, we must hold the discharge to be inoperative to extinguish it, and that the creditor is entitled to all the remedies given him by the laws of the State in which his action may be prosecuted, or his judgment recovered.

In this case it is insisted that fraud is not the subject-matter of the action, and that therefore all the allegations of the complaint, tending to show fraud in the creation of the debt, are immaterial, and that no issue could have been taken upon them, and therefore the judgment cannot be held to have determined anything in respect of them. It is true the complaint in this action is upon contract for the purchase-price of goods sold and delivered ; but that fact is by no means conclusive upon the question whether or not the debt was created by fraud. It is well settled, that where goods are sold upon credit, if it appear, before the term of credit has expired, that the sale and credit have been procured by the fraud of the purchaser, the seller is not bound to wait for the expiration of the credit, but may instantly sue upon an implied promise to pay forthwith the value of the goods, and recover upon proof of the fraudulent acts or representations. The fraud is, in such case, necessarily involved in the issue as part of the evidence necessary to establish the right of recovery. Under the former system it would not be set forth in the pleadings, which would usually and might always have been simply the common counts in indebitatus assum/psit. • Under the present system, the assertion of such allegations in the complaint, if unnecessary, would not be prejudicial to the defendant, and after issue of fact joined as in this case, would be obnoxious to no objection on the part of the defendant. In this case the plaintiffs sue for the whole purchase-price of the goods sold, and they show on the face of their complaint that the sale was made upon credit, payable by installments, varying from thirty days to four and one-half months from the date of the sale. The full term of credit had not expired when they brought their suit for the whole amount, and hence, as one *594ground entitling them to an immediate recovery, they allege that they were induced to make the sale by certain false and fraudulent representations made by defendant, on the faith of which they relied. After issue joined, and judgment rendered upon such pleadings, it will hardly do to hold that the record shows that the recovery was upon a simple contract for a debt not created by fraud. But it appears by the papers that an order of arrest was made by one of the justices of this court, upon affidavits showing the case to be one within section 179 of the .Code of Procedure. The affidavits upon which" this order was founded, are brought before us without objection by the respondent, and it is fair to presume that they were also before the special term. The defendant was arrested on the order and gave bail, as is stated in his own affidavit. The affidavits abundantly show that the debt was created by fraud. There is no merger of the fraud in the judgment, so that the plaintiffs are precluded from establishing that fact. Their right to imprison the debtor may depend upon their ability to show an order of arrest, founded upon affidavits sufficient to give jurisdiction to make the order; and whenever a discharge after arrest is sought for, upon any ground which involves the power to enforce the judgment by that remedy, we think it competent to meet the effort by showing not only the primary order, but that the debt which has ripened into judgment, was created by fraud.

We are of opinion that it does appear that the debt in this case was one that is not discharged by the decree in bankruptcy and the bankrupt’s discharge granted thereon. The order should be affirmed, with "ten dollars costs, besides disbursements.

Brady and Daniels, JJ., concurred.

Ordered accordingly.