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 bankrupt act of 1898 excepts from the operation of the discharge judgments in actions for fraud or obtaining property by false pretenses or false representations.1 The practical difficulty which arises in applying these provisions is in determining whether a judgment is a judgment in an action for fraud or not, within the meaning of this section of the federal statute.
On the one hand, the United States courts will not review the question of the sufficiency of the charge of fraud in the petition or declaration, since pleading is a question of state law, and not a federal question.2 On the other hand, it is not necessary that the judgment should show on its face that it is a judgment for fraud; and it is sufficient if the record, taken as a whole, shows that the action was treated by the state court as an action for fraud.3
To constitute a judgment for fraud within the meaning of the bankrupt act of 1898, the fraud must have been the very basis of the action, and not merely a fact collateral thereto.4 A judgment in an action on a simple contract debt, and to set aside a transfer of property as in fraud of the debtor's creditors, is not a judgment for fraud within the meaning of the bankrupt act.5 If an action has been brought for fraud, and judgment recovered thereon, the judgment is not such a merger of the original cause of action as to prevent this section of the bankrupt act from applying and to prevent such judgment from being barred by a discharge in bankruptcy.6
7 Covington v. Rosenbusch, 148 Ga. 459, 97 S. E. 78.
1 Forsyth v. Vehmeyer, 177 U. S. 177, 44 L. ed. 723 [affirming, 176 111. 359, 52 N. E. 55]; Bullis v. O'Beirne, 195 U. S. 606, 49 L. ed. 340; In re Shepardson, 220 Fed. 186; Foreyth v. Vehmeyer, 176 111. 359, 52 N. E. 55 [affirmed, Forsyth v. Vehmeyer, 177 U. S. 177, 44 L. ed. 723]; Goodman v. Herman, 172 Mo. 344, 60 L. R. A. 885, 72 S. W. 546.
2 Forsyth v. Vehmeyer, 177 U. S.
177, 44 L. ed. 723; Bullis v. O'Beirne. 195 U. S. 606, 49 L. ed. 340.
3 Ames v. Moir, 138 U. S. 306, 34 L. ed. 951; Bullis v. O'Beirne, 195 U. S. 606, 49 L. ed. 340; Moody v. Muscogee Mfg. Co., 134 Ga. 721, 68 S. E. 604; Ziegler v. Suggit, 118 Minn. 74. 136 N. W. 411; In re Bullis, 171 N. Y. 689. 64 N. E. 1119.
4 In re Blumberg, 94 Fed. 476. 5 In re Blumberg, 94 Fed. 476.
6 Packer v. Whittier, 91 Fed. 511, 33 C. C. A. 658; Bennett v. Justices, 166 Mass. 126, 44 N. E. 121.
What is an action for fraud in such sense that a judgment rendered therein is not barred by a discharge in bankruptcy is a question on which there is some divergence of judicial opinion. If an action is brought against the debtor for deceit, and judgment recovered against him, such judgment is evidently not discharged in bankruptcy.7 If, on a similar transaction, the creditor waives the fraud, and sues to enforce the contract, this waiver of the fraud has been held binding upon the creditor for purposes of a discharge in bankruptcy, and he can not, after obtaining such judgment, claim, for the purpose of avoiding the effect of a discharge, that the cause of action was based on fraud.8 A judgment rendered on the common counts in an action the record of which does not contain allegations of fraud, is not a judgment in an action for fraud.9 If the debtor obtains a loan of money from the bank by means of false representations as to the amount of property owned by him, and gives his promissory note for the amount of the loan, a judgment taken upon such note is not a judgment in an action for fraud, within the meaning of this section of the statute.10 A judgment in an action for goods sold to a bankrupt, induced by his false representations and fraud, has been held not to be a judgment in an action for fraud or false pretenses,11 even if in that action a writ of attachment issued, one of the grounds of which was that the debt sued for was fraudulently contracted.12 On the other hand, a judgment for goods sold, the sale of which it is alleged and found by the court to have been procured by false representations, is a debt which is not barred by the debtor's discharge in bankruptcy.13 A judgment in an action to recover goods obtained by fraud is a judgment in an action for fraud within the meaning of this section.14 A judgment rendered in an action brought in part for money had and received, and also in part on an indebtedness created by the fraud and embezzlement of the debtor as trustee, where a general verdict is rendered without showing that it is in any part made up of the latter indebtedness, is not a debt created by fraud, and is barred by the discharge in bankruptcy.15 A judgment in an action of trover and conversion is not a judgment for fraud.16 If the action is based upon fraudulent representations, a judgment or a decree therein is a judgment in an action for fraud, although such proceeding was begun as a suit for specific performance.17 A judgment which has been rendered for costs in a criminal proceeding, is not a judgment in an action for fraud within the meaning of this section.18
7 In re Cole. 106 Fed. 837; Turner v. Atwood, 124 Mass. 411.
8 United States. Harsradine-McKit-trick Dry Goods Co. v. Hudson. 122 Fed. 232 [affirming, 111 Fed. 361].
Georgia. Ford v. Blaokshear Mfg. Co. 140 Ga. 670. 79 R. F. 576.
Minnesota. Ziegler v. Suggit, l18 Minn. 74 136 N. W. 411.
Missouri. Goodman v. Herman. 172 Mo 344 60 L. R. A. 885. 72 R. W. 546.
New Jersey. Barnes Mfg. Co. v.
Norden, 67 N. J. L. 493. 51 Atl. 454.
9 Barnes Mfg. Co. v. Norden, 67 N. J. L. 493, 51 Atl. 454.
10 In re Rhutassel. 96 Fed. 597.
11 Morse v. Kaufman, 100 Va. 218. 40 R. F. 916.
12 Goodman v. Herman, 172 Mo. 344. 60 L. B. A. 885 72 S. W. 546
13 In re Lewensohn. 104 Fed. 1006 44 C. C. A. 309 [affirming, 99 Fed. 731.
14 Nichols v. Doak, 48 Wash. 457. 125 Am. St Rep. 943, 93 Pac. 919.