This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The act of 1898 made provision in section 17, clause 2, excepting "judgments in action for fraud " from the operation of a discharge; and in clause 4, excepting debts which were created by the bankrupt's " fraud, embezzlement, misappropriation or defalcation while acting as an officer or in any fiduciary capacity." Accordingly if a debt has been created by fraud but has not been reduced to judgment and the fraud was not committed by one acting in a fiduciary capacity, there is a divergence of judicial opinion as to whether such debt is barred by discharge. By one view a claim for fraud is held to be included under the head of "judgments in actions for fraud/' even if not reduced to judgment, and hence by clause 2 of section 17 of the bankrupt act of 1898, is not affected by the discharge.1 By another view, such a debt is not affected by a discharge because of clause 4 of section 17. This conclusion is reached by holding that the clause " while acting as an officer or in any fiduciary capacity " does not refer to debts " created by his fraud," but only to the classes of debts subsequently enumerated.2 A third view is that such a debt is not exempt from the operation of a discharge. This conclusion is reached on the ground that such a claim is not a "judgment " under clause 2; and if not incurred in a fiduciary capacity is not-included under clause 4.3 The question has in part been settled by the amendment of 1903 which substitutes the word "liabilities " for " judgments " in section 2. It is still an open question as to prior discharges; and the meaning of section 4 is still open to question. Provisions similar to those of the amendment of 1903 are found in earlier bankrupt acts. The word " judgment" is not employed; some expression like "claim" " debt" or " liability " being found in its place.4 Proving a judgment rendered in an action for fraud or a debt created by fraud,5 and accepting a dividend thereon,6 does not make the debt one which is barred by a discharge in bankruptcy. An averment that the defendant 'embezzled ' plaintiff's money has been held to impart a fiduciary relation; and hence the defense of a discharge in bankruptcy is an insufficient answer to such a petition.7
6 Barnes Mfg. Co. v. Norden, 67 N. J. L. 493; 51 Atl. 454.
7 In re Rhutassel, 96 Fed. 597.
8 Morse v. Kaufman. 100 Va. 218; 40 S. E. 916.
9 Goodman v. Herman, 172 Mo. 344; 60 L. R. A. 885; 72 S. W. 546.
10 In re Lewensohn. 104 Fed. 1006; 44 C. C. A. 309; affirming 99 Fed. 73.
11 Cooke v. Plaisted, 181 Mass. 82; 62 N. E. 1054.
12 Crosby v. Miller, 25 R. I. 172; 55 Atl. 328.
1 In re Wallock, 120 Fed. 516.
2 In re Butts, 120 Fed. 966; Crawford v. Burke, 201 111. 581; 66 N. E. 833; affirming 102 111. App. 566.
3 J. C. Smith, etc., Co. v. Lambert. 69 N. J. L. 487: 55 Atl. 88; Crosby v. Miller, 25 R. I. 172; 55 Atl. 328.
4 Warner v. Cronkhite, 6 Biss. (U. S. C. C.) 453; Taylor v. Farmer, 81
Ky. 458; Wilson v. Hawley, 158 Mass. 250; 33 N. E. 522; In re Kaeppler, 7 N. D. 435; 75 N. W. 789; Hughes v. Oliver. 8 Pa. St. 426: Stokes v. Mason, 10 R. I. 261.
5 Strang v. Bradner, 114 U. S 555; Forsyth v. Vehmeyer, 176 111. 359; 52 N. E. 55.
6 Forsyth v. Vehmeyer, 176 111. 359; 52 N. E. 55.