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 provable debts created by the fraud, embezzlement, misappropriation or defalcation of the debtor while acting as an officer or in any fiduciary capacity.1 Similar provisions have appeared in other bankrupt acts.2 These words in the act of 1898 are the same as those in the acts of 1867 and 1841, and have the same meaning.3
The question whether the words "while acting as an officer or in any fiduciary capacity" apply to all the classes of debts named in this clause or only to the latter classes is discussed elsewhere.4 A debt incurred by the defalcation of a public officer,5 or by the fraud of an officer of a corporation, as of a bank,6 is not barred by a discharge in bankruptcy. The term "fiduciary capacity" includes technical trusts, but not such trusts as the law implies from contract relations or from relations of general trust and confidence.7 Thus it includes technical trustees,8 receivers,9 executors and administrators,10 guardians,11 and surviving partners,12 as far as they are acting in a trust capacity. If a trustee has embezzled property and has secured such liability by mortgage, such liability is not merged in the subsequent promise; and it is to be regarded as an embezzlement. while acting in a fiduciary capacity.13 An averment that the defendant "embezzled" plaintiff's money has been held to import a fiduciary relation, and hence the defense of a discharge in bankruptcy is an insufficient answer to such a petition.14
2 United States. Strang v. Bradner, 114 U. S. 556, 29 L. ed. 248; Friend v. Talcott, 228 U. S. 27, 57 L. ed. 718 [affirming, Talcott v. Friend, 179 Fed. 676, 43 L. R. A. (N.S.) 649]; In re Lewensohn, 99 Fed. 73 [affirmed, 104 Fed. 1006].
Illinois. Forsyth v. Vehmeyer, 176 111. 369, 52 N. E. 55.
North Carolina. Standard Sewing Machine Co. v. Owings, 140 N. Car. 503, 53 S. E. 345.
Rhode Island. Stokes v. Mason, 10 R. I. 261; Whittier v. Collins, 15 R. I. 90.
South Carolina. Standard Sewing
Machine Co. v. Alexander, 68 S. Car. 506, 47 S. E. 711.
3 Friend v. Talcott, 228 U. S. 27, 57 L. ed. 718 [affirming, Talcott v. Friend, 179 Fed. 676, 43 L. R. A. (N. S.) 649]; Forsyth v. Vehmeyer, 176 111. 359, 52 N. E. 55.
1 Williams v. Virginia-Carolina Chemical Co., 182 Ala. 413, 62 So. 755; American Agricultural Chemical Co. v. Berry, 110 Me. 528, 45 L. R. A. (N.S.) 1106, 87 Atl. 218.
2 Chapman v. Forsyth, 43 U. S. (2 How.) 202, 11 L. ed. 236; Herrlich v. McDonald, 80 Cal. 472, 22 Pac. 299; Mayberry v. Cook, 121 Cal. 588, 54 Pac. 95; Mock v. Howell, 101 N. Car. 443, 8 S. E. 167; Pawlet v. Kelley, 69 Vt. 398, 38 Atl. 92.
3 Crosby v. Miller, 25 R. I. 172, 55 Atl. 328.
4 See Sec. 3147.
5 Madison v. Dunkle, 114 Ind. 262, 16 N. E. 593; Johnson v. Auditor, 78 Ky. 282; Grantham v. Clark, 62 N. H. 426.
This provision does not include debts created by special contract between the parties in fiduciary capacities.15 It does not include the liability of a surety on the bond of a trustee. If such surety obtains a discharge in bankruptcy this clause of the bankrupt act will not prevent such discharge from barring liability on such bond;16 nor does it include the liability of one who has made default in his trust capacity and who has given his note to his sureties to reimburse them for sums advanced to cover such defalcation.17 Actual intent to deprive the beneficiary of the property or fund permanently is not necessary. Thus A, a trustee for the creditors of X, and afterwards appointed as receiver of X's property, loaned the trust funds to a firm of which he was a member, taking their note therefor. He concealed the fact of this loan as long as he could. It was held that this debt was contracted in a fiduciary capacity, and was not barred by A's discharge in bankruptcy.18
6 Gerner v. Yates, 61 Neb. 100, 84 N. W. 596. (An action for defrauding third persons by a false statement of the condition of the bank.)
7 United States. Crawford v. Burke, 195 U. S. 176. 49 L. ed. 147.
Kansas. Inge v. Stillwell, 88 Kan. 33, 42 L. R. A. (N.S.) 1093, 127 Pac. 527.
Maryland. American Surety Co. v. Spice, 119 Md. 1, 85 Atl. 1031.
Nebraska. Martin v. Starrett, 97 Neb. 653, 151 N. W. 154.
Vermont. Johnson's Administrator v. Parmenter, 74 Vt. 58, 52 Atl. 73; First National Bank v. Bamforth, 90 Vt. 75, 96 Atl. 600.
8 Donovan v. Haynie, 67 Ala. 51; Field v. Howry, 132 Mich. 687, 94 N. W. 213; Mock v. Howell, 101 N. Car. 443, 8 S. E. 167; Warren v. Robinson, 21 Utah 429, 61 Pac. 28.
9 Field v. Howry, 132 Mich. 687, 94 N. W. 213.
10 Laramore v. McKinzie, 60 Ga. 532; Waller v. Edwards, Litt. Sel. Cas. (Ky.) 348; Johnson's Administrator v. Parmenter, 74 Vt. 68, 62 Atl. 73.
11 Simpson v. Simpson, 80 N. Car. 332.
12Haggerty v. Badkin, 72 N. J. Eq. 473, 66 Atl. 420.
13 Field v. Howry, 132 Mich. 687, 94 N. W. 213.
14 Watertown Carriage Co. v. Hall, 176 N. Y. 313, 68 N. E. 629.
15Amoskeag Mfg. Co. v. Barnes, 49 N. H. 312.
16 Jones v. Knox, 46 Ala. 63, 7 Am. Rep. 583; Eberhardt v. Wood, 74 Tenn. (6 Lea) 467; Davis v. McCurdy, 60 Wis. 569, 7 N. W. 665.
17 Light v. Merriam, 132 Mass. 283.
This clause of the statute includes both active and passive wrongdoing. If the liability was incurred through neglect, as distinguished from active wrongdoing, such debt is not barred .by a discharge.19 If a debt is created by fraud in a fiduciary capacity, the interest thereon is a mere incident of the debt and is not affected by such discharge.20