
    Frederick W. Kavanaugh, Respondent, v. Thomas A. McIntyre and Others, Defendants, Impleaded with John G. McIntyre, Appellant.
    Third Department,
    November 11, 1908.
    Conversion — when demand unnecessary — Bankruptcy Act construed — willful and malicious injury to property defined — conversion of stock by brokers — when claim not discharged by bankruptcy — arrest of bankrupt in civil action.
    Where a person lawfully in possession of property unlawfully disposes of it so that he cannot return it, the owner suing for conversion is not required to allege or prove a demand for its return.
    Since the amendment to subdivision 2 of section 17 of the Bankruptcy Act, made in 1903, a wrong to property must he both “willful and malicious” in order that an' action founded thereon shall survive the discharge of. the wrongdoer in bankruptcy.
    The words “willful” and “malicious” defined.
    
      Where brokers holding stock bought for a customer as security for a balance due on the purchase price sell it to third parties from time to time without the knowledge of the owner, and continue to do so after they have realized enough to pay the balance due and apply the avails to their own purposes, so that their acts in fact constitute larceny, a claim for such conversion is not discharged by bankruptcy, and the bankrupts are liable to arrest in a civil action for such conversion brought in a State court.
    Although the complaint in such action does not show the circumstances, so that the willful and malicious character of the defendant’s acts cannot be determined therefrom, resort may be had to the entire record, including affidavits used on a motion for an rder of arrest, to determine the character of the wrongful acts.
    Appeal by the defendant, John G. McIntyre, from part of an order of the Supreme Court, made at the Rensselaer Special Term and entered in the office of the clerk of the county of Saratoga on the 14th day of July, 1908, denying the said defendant’s application to vacate an order of arrest.
    
      Patton & Patton [Robert H. Patton of counsel], for the appellant.
    
      Myer Nussbaum, for the respondent.
   Cochrane, J.:

The complaint alleges the copartnership of the defendants; that on February 5, 1908, plaintiff was the owner of certain specified stocks, the certificates of which were in the possession of the firm of A. O. Brown & Co.; that the're was due upon such stocks the sum of $3,853.32, and that the plaintiff on the day mentioned was entitled to the possession of said stocks on payment of said amount; that on said day the plaintiff instructed the defendants to take over said stocks from said firm of A. O. Brown & Co., and to advance thereon said sum of $3,853.32 and that such stocks were turned over and delivered by A. O. Brown & Co. to the defendants as such copartners, the latter advancing thereon said sum of $3,853.32. The complaint then alleges that subsequent to the sale and disposition of said stocks by said defendants as thereafter alleged, and on or about the 27th day of April, 1908, an involuntary petition in bankruptcy was filed against the defendants as such copartners in the District Court of the United States for the southern district of New York and that receivers of said firm were subsequently appointed and duly qualified ; that. on April 28, 1908, the plaintiff tendered to said receivers the balance due and interest upon said stocks and demanded delivery of the same which was refused ; that subsequent to said 5th day of February, 1908, the said defendants as such copartners wrongfully converted and disposed of said- stocks and the' avails thereof to their own use to the damage of plaintiff in the sum of $30,000, for which sum judgment is demanded.

On this complaint and on an affidavit setting forth more in detail the facts of the alleged conversion plaintiff procured an order of arrest directing the sheriff of New York county to arrest the defendants and to hold each of them to bail in the sum of $5,000. This order has been executed and the appellant having given the bail ■ thereby required moved to vacate the. order of arrest and from an order denying such motion this appeal is taken.

The complaint is- assailed for insufficiency on the ground that there is no allegation of a demand on the defendants for a return of the property which lawfully came into their possession. From the entire complaint it appears that after the defendants procured possession-of the stocks, and before the petition in bankruptcy was filed against them, they sold and disposed of the stocks and devoted the avails thereof to their own uses. When a person, although'' lawfully in possession of property, unlawfully disposes of the same, and puts it out of his power to make return thereof, a demand for such, return would be a useless performance, and the law requires neither the allegation nor proof of'such demand. This complaint alleges an unlawful sale and disposition of the property, and it' is such unlawful act which constitutes the conversion. While the ■ circumstances of the sale and disposal of the stocks are not alleged, and the complaint in that particular may be vague and indefinite, yet I entertain no doubt as- to its sufficiency as against a demurrer were one interposed. The appeal, therefore, cannot be sustained on the ground that the complaint will be dismissed.

A more difficult question arises concerning the effect of the Bank-' ruptcy Act on the cause of action alleged. The provisions of that act applicable to the present situation are as follows: “ Sec. 9. Protection and Detention of Bankrupts.— a A bankrupt shall be exempt from arrest upon civil process except in the following cases: * * * (2) when issued from a State court having jurisdiction, and served within such State, upon a debt or claim from which his discharge in bankruptcy would not be a release. * * * .”

“ Sec. 17. Debts not Affected by a Discharge.— a A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as % * * (2) are liabilities for obtaining property by false pretenses or false representations, or for willful and malicious injuries to the person or property of another, * * * or (4) were created by his fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity.”

“Sec. 63. Debts which may be- Proved — a Debts of- the bankrupt may be proved and allowed against his estate which are * * * (4) founded upon an open account, or upon a contract express or implied; * * *”

The case of Crawford v. Burke (195 U. S. 176) was a case arising-in the State of Illinois to recover for the conversion of stocks which the defendants had in their .possession as security for the amount due them from plaintiff and which they had wrongfully and fraudulently sold and converted to their own use. It was held by the Supreme Court of the United States reversing the State court of Illinois that plaintiff might have waived the tort and proved his claim in the bankruptcy court and that the claim was one “ founded upon an open account or upon a contract express or implied ” within the meaning of said section 63 and was, therefore, a provable debt within the meaning of said section 17. It was further held that it did not fall within the exception contained in subdivision 4 of said section 17 and that a discharge in bankruptcy wouljl relieve the bankrupt from such claim. That case is analogous to this and would be conclusive in favor of appellant except for the amendment of the statute to which reference will now be made. (See, also, Tindle v. Birkett, 183 N. Y. 267.)

Prior to 1903 subdivision 2 of section 17 was as follows: (2) are judgments in actions for frauds, or obtaining property by false pretenses or false representations, or for willful and malicious injuries to the person or property of another.” It was in reference to the statute in that form that the cases of Crawford v. Burke and Tindle v. Birkett (supra) were decided, and as the claims under considez-ation in those cases, had not been z-educed to judgments no question could arise that such claims were covered by the phraseology of the statute as it was before 1903. But in the latter year subdivision 2 of section 17 was entirely changed in its scope and purport and made to read as follows: “ (2) are liabilities for obtaining property by false pretenses or false representations, or for willful and malicious injuries to the person or property of another, or for alimony due or to become due, or for maintenance or support of wife or child, or for seduction of an unmarried female, or for criminal conversation.” The question here presented is whether plaintiff’s claim is one for a “ willful and malicious [injury] to the * * * property ” of himself.

That such claim is still a provable debt must be conceded' under the-authority of Crawford v. Burke. But although provable it is not immune as against a discharge in bankruptcy provided- it falls within one of the exceptions enumerated in subdivision 2 of section 17. In order to constitute such an exception the claim must constitute both a willful and malicious injury to plaintiff’s property.

It is doubtless true that in the popular and ordinary sense the term “ malice ” implies the idea of hatred, spite, or ill will, but in legal parlance the term is frequently used in a different sense. There have been many and various definitions or descriptions of the term malice ” depending on the connection in which the word is used, the object sought to be obtained, and the consequences dependent oh its use.

In Words and Phrases Judicially Defined (Vol. 5, p. 4298) it is said: Malice,’ in common acceptation, means ill will against a person ; but in its legal sense it, means a wrongful act done intentionally, without just cause or excuse.” And, again, “The term malice’ is variously used according to the nature of the litigation hr which it is sought to be established. In legal parlance, malice may, be actually implied whenever 'there is a deliberate intention to do a grievous wrong without legal justification or excuse. In civil controversies the very essence of malice is a disposition or willingness to do a-wrongful act greatly injurious to another.”

In Cyc. (Vol. 25, pp. 1666,1667) the authorities are collated bearing on the definition or description of this word, and it is said : “ In its legal sense, however, the term has been said to denote a wrongful • act done intentionally without just cause or excuse; and this definition has been substantially adopted in a great many cases with immaterial alteration of phraseology, as follows: The intentional doing of a wrongful act toward another without legal justification or excuse; the willful doing of an injurious act without lawful excusé; the doing a wrongful act intentionally without just cause or excuse.”

The Century Dictionary, in defining the word, says : “ In law a design or intention of doing mischief to another; the evil intention (either actual or implied)-with which one deliberately and without justification or excuse does a wrongful act which is injurious 'to others. * - * * Constructive malice, implied malice, imputed malice, malice in law, that which, irrespective of actual intent to injure, is attributed by tile law to an injurious act intentionally done, without proper motive as distinguished from actual malice, either proved or presumed.”

In Collier on Bankruptcy (6th ed. p. 225) it is said of the statute under consideration: “ The word willful ’ as here used means nothing more than intentional, while the malice here intended, is nothing more than that disregard of duty which is involved in the intentional doing of a willful act to- the injury of another.”

In Davis v. Standard National Bank (50 App. Div. 210, 213) it is said : “ But while, to establish malice for certain purposes, such a willful intent is necessary, that intent is not involved in the legal definition of the term ' malice.’ Whenever the wrongful act is done intentionally, without just cause or excuse, a legal inference of malice arises therefrom. (Bromage v. Prosser, 4 B. & C. 247, 255 ; Commonwealth v. Snelling, 15 Pick. 321, 340.) ”

In Commonwealth v. York (50 Mass. [9 Met.] 104) it is said: “Malice., although in its popular sense it means hatred, ill will or hostility to another, yet, in its legal sense, has a very different meaning, and characterizes all acts done with an evil disposition, a wrong and unlawful motive or purpose; the willful doing of an injurious act without lawful excuse.”

Authorities might be multiplied to show that it is not essential in all cases that ill will should exist in order to establish malice. But we have an interpretation by the United States Supreme Court of the identical words under consideration. In Tinker v. Colwell (193 U. S. 473) Mr. Justice Peckham, in considering the meaning of these words in the statute as it was prior to the amendment of 1903, said: “ In United States v. Reed, 86 Fed. Rep. 308, it was held that malice consisted in the willful doing of an act which the person doing it knows is liable to injure another, regardless of the consequences, and a malignant spirit or a specific intention to hurt a particular person is not an essential element. Upon that principle-we think a willful disregard of what one knows to be his duty, an act which is against good morals and wrongful in and of itself and which necessarily causes injury and is done intentionally may be said to.be done willfully and maliciously so as to come within the exception. It is urged that the malice referred to in the exception is malice towards the individual personally such as is meant for instance in a statute for maliciously injuring or destroying property, or for. malicious mischief, where mere intentional injury without special malice towards the individual has been held by some courts not to be sufficient. Commonwealth v. Williams, 110 Massachusetts, 401. We are not inclined to place such a narrow construction upon the language of the exception. We do not think the language used was intended to limit the exception in any sncli way. ' It was an honest debtor and not a malicious wrongdoer that was to be' discharged.”

There are doubtless many torts against which a discharge .in bankruptcy is effective. The act is liberally construed in favor of an honest and well-meaning debtor. A conversion of property may exist entirely consistent with the utmost good faith on the. part of the converting debtor. In respect to such torts there is no injustice or inequity in.extending the provisions of the Bankruptcy Act applicable thereto in accordance with the beneficent and humane policy of such act. But a' conversion which shows a design or willingness to indict a wrong upon another or the reckless disregard of the rights of another rests on a different basis. In Matter of Bullís (68 App. Div. 517), cited with approval in Crawford v. Burke (supra), it is said : “ The statute is to be construed liberally to discharge the insolvent from the burden of .the obligations which he is unable to pay in full, but that liberality may not be extended to an insolvent to release him from a judgment which was. recovered against him by reason of his positive fraud ’ and ‘ intentional wrong,’ whatever may have been the form of the action in which the recovery.was had. The primary purpose of the statute is to enable an insolvent debtor to be relieved from the burden of his obligations. One exception that has pervaded all of our bankrupt laws is that where the insolvent lias become liable for the payment of a debt which had its origin in his own positive dishonesty, the way is not open for his discharge from that liability.”

While the complaint herein does not zshow the circumstances of the alleged conversion, and, therefore, the willful or malicious character of the defendants’ acts cannot be determined therefrom, yet the affidavit used on the motion supplements those allegations and shows that almost immediately after the defendants came into possession of this property they began to sell it to different parties and. continued to make such sales from time to time without plaintiff’s knowledge after they had realized more than sufficient to pay the amount due them from plaintiff and applied the avails to their own purposes. Resort may be had to the entire record to-determine the character of the wrongful acts. (Matter of Bullís, 68 App. Div. 518; Colwell v. Tinker, 169 N. Y. 531, 537; Palmer v. Hussey, 87 id. 303.) No explanation or justification of the alleged wrongful acts is proffered. The defendants in utter disregard of the rights of plaintiff, knowing they were injuring him and willing to do so in order to subserve their own wrongful purposes, converted his property. In short, the acts disclosed constituted larceny. There is neither reason nor justice in extending to such acts the protection of the Bankruptcy Act unless we are clearly required tó do so by its provisions. One of the purposes' which Congress probably had in view in making the amendment of 1903 referred to was to except from the benefits of the act just such conduct as is here disclosed on the part of the defendants.

Appellant cites with much confidence the case of Matter of Floyd, Crawford & Co. (15 Am. Bank. Rep. 277.) That case , is essentially different on the facts. There was no moral turpitude involved, or intent to inflict wrong on another. The case recog nizes the distinction, and by implication lends support to plaintiff’s position here. The commissioner in his report said : “ There is no moral turpitude or intentional wrong disclosed here, by the evidence, as for instance, embezzlement or misappropriation, which must exist to bring the ‘ liability ’ within the exception of debts which are released by a discharge in bankruptcy. Implied fraud or fraud in law, which may exist without the implication of bad faith or immorality, is not sufficient.. * . * * To recapitulate, the evidence having failed .to disclose * * . * any willful and malicious injury to the p'aintiff or her property, * * * I conclude that this debt is nut a liability embraced within the aforesaid exceptions.”

While the question is novel and not free from doubt, I am of the opinion that for the reasons heretofore stated the order so-far as appealed from should be affirmed, with ten dollars costs and disbursements.

All concurred.

Order so -far as appealed from affirmed, with ten dollars costs and disbursements.  