stated by Mr. Justice Curtis in the case of Hall | preme Court of Louisiana has recognized the validity of the transfer to individuals, of those rights and franchises of a railroad company without which the road could not be successfully used. V. Sullivan R. R. Co., 21 Law Rep., 138, where 08] he said: "The franchise to be a corporation is therefore not a subject of sale and transfer unless the law by some positive provision made it so and pointed out the modes in which such sale and transfer may be effected. But the franchise to build, own and manage a railroad and to take tolls thereon are not necessarily corporate rights. They are capable of existing in and being enjoyed by natural persons, and there is nothing in their nature inconsistent with their being assignable." 5091 In the case of Chaffee v. Ludeling, 27 La. Ann., 607, it was declared that the defendants, by their purchase at sheriff's sale of the property of the Vicksburg, Shrevesport and Texas Railroad Company, a Louisiana corporation, acquired "the privileges and franchise of the corporation, its powers to operate the railroad. The sheriff's sale made them the owners of the road, its right of way, its property, its franchise, but did not and could not make them a corporation. *** This sale conveyed to them the rights and property of that company; it made them joint owners thereof."* There is, therefore, nothing in the nature of a corporate franchise under the law of Louisiana which forbids its transfer with the other property of the corporation. The same subject was considered by this court in the case of Morgan v. Louisiana, 93 U. S., 217 [Bk. 23, L. ed. 860], where it was held that exemption from taxation was a right personal to the railroad corporation to which was granted, and did not pass upon a sale of its property and franchises. Mr. Justice Field, who delivered the opinion of the court, distinguished such an immunity from taxation from those rights, privileges and immunities which, And such must be the conclusion whenever accurately speaking, are the franchises of a a railroad company is authorized by law to railroad company. He said: "The franchises mortgage its tangible property and franchises. [510] of a railroad corporation are rights or privi- When there has been a judicial sale of railleges which are essential to the operations of road property under a mortgage authorized by the corporation, and without which its works law, covering its franchises, it is now well setand road would be of little value. *** They tled that the franchises necessary to the use and are positive rights and privileges without the enjoyment of the railroad passed to the purpossession of which the road of the company chasers. This was assumed to be the law by could not be successfully worked. Immunity the opinion of this court pronounced by Mr. from taxation is not one of these. The former Justice Matthews in the case of Memphis R. R. may be conveyed to the purchaser of the road Co. v. Commissioners, 112 U. S., 609 [Bk. 28, as part of the property of the company; the. ed. 837], when it was said: "The franchise latter is personal and incapable of transfer with- of being a corporation need not be implied as out express statutory direction." necessary to secure to the mortgage bondholders or the purchasers at a foreclosure sale the substantial rights intended to be secured. They acquire the ownership of the railroad and the property incident to it and the franchise of maintaining and operating it as such. See also, Hall v. Sullivan R. R. Co., 21 Law Rep., 135; Galveston R. R. Co. v. Cowdrey, 11 Wall., 459 [78 U. S., bk. 20, L. ed. 199]. We are of opinion that those franchises wnich in the case just cited are described as necessary to the use and enjoyment of the property of a railroad company are assignable in Louisiana, and that there is no warrant in the jurisprudence of that State for holding the contrary. That the quality of being transferable attaches to such franchises of a railroad as are essential to its use and enjoyment by the company is conclusively shown by section 2396 of the Revised Statutes of Louisiana (Act of 1856, p. 205), which was in force when the first Canal Street, City Park and Lake Railroad Company was organized, and has been in force ever since. That section provides as follows: "In addition to the powers conferred by law upon railroad companies, any railroad company established under the laws of this State may borrow, from time to time, such sum of money as may be required for the construction or repairs of any railroad, and for this purpose may issue bonds, or other obligations secured by mortgage, upon the franchises and all the property of said companies." The authority to mortgage the franchises of a railroad company necessarily implies the power to bring the franchises so mortgaged to sale, and to transfer them with the corporeal property of the company to the purchaser. It could not be held that, when a mortgage on a railroad and its franchises was authorized by law, the attempt of the mortgagor to enforce the mortgage would destroy the main value of the property by the destruction of its franchises. Since the passage of the Act of 1856, the Su " It follows that if the franchises of a railroad corporation essential to the use of its road, and other tangible property, can by law be mortgaged to secure its debts, the surrender of its property, upon the bankruptcy of the company, carries the franchises, and they may be sold and passed to the purchaser at the bankruptcy sale. The plaintiff, therefore, by virtue of the bankruptcy sale, and the subsequent mortgage sale and the several mesne conveyances mentioned, acquired with the tangible property of the original Canal Street, City Park and Lake Railroad Company the franchise granted by the City of New Orleans to lay its track over the streets and public grounds designated in the ordinance of August 6, 1873, and the amendatory ordinance of March 24,1874. This right of way so vested could not be affected by the ordinance of the City of New Orleans to grant a similar right of way over the same streets and route to the second Canal Street, City Park and Lake Railroad Company, and *The sale in this case was made by virtue of a writ of seizure and sale issued upon a mortgage executed [511] the acceptance of the grant by the latter rail- | sponsibility therefor upon the ground that the mis- The defendants are seeking to sell, upon exe Argued April 13. 1885. Decided May 4, 1885. cution, the right of way which the City of New IN ERROR to the Supreme Court of New York. Orleans, by its ordinance No. 4,523, dated This action was brought in the court below, So much of the decree of the Supreme Court The facts of the case are stated by the court. Messrs. William F. Cogswell and James [556] Wood, for defendants in error. Mr. Justice Harlan delivered the opinion of the court: On the 1st day of June, 1877, each of the ap pellants, who were defendants below, received from the District Court of the United States for the Southern District of New York his discharge from all debts and demands, which, by the Revised Statutes of the United States, title Bankruptcy, were made provable against his estate, and which existed on the 3d day of July, 1875-other than such debts as were by law excepted from the operation of a discharge in bankruptcy. The statute excepts from the James H. McKenney, Clerk, Sup. Court, U. S. the fraud or embezzlement of a bankrupt, or operation of a discharge any "debt created by Cited-115 U. S., 534. True copy. Test: by defalcation as a public officer, or while acting in a fiduciary capacity; but the debt may be proved, and the dividend thereon shall be a payment on account of such debt." R. S. § [555] PETER O. STRANG ET AL., Piffs. in Err., 5117. To this action, brought by appellees v. AMARIAH H. BRADNER ET AL. (See S. C., Reporter's ed., 555-562.) Bankruptcy force of term "fraud"-discharge *1. The rule reaffirmed that the term "fraud" in 2. A claim against a bankrupt for damages on account of fraud of deceit practiced by him, is not discharged by proceedings in bankruptcy; nor is a where it was proved against his estate, and a divia debt, created by his fraud, discharged, even dend thereon received on account. 3. If, in the conduct of partnership business, and with reference thereto, one partner makes false or against appellants upon a cause of action accru- [557] The evidence before the jury tended to es- *Head notes by Mr. Justice HARLAN. The present suit, brought to recover a judg ment for the amount plaintiffs were compelled to pay to bona fide holders of the March notes, proceeds upon the ground that the appellees have sustained damages by reason of the false and fraudulent representations made by Strang, on behalf of his firm, whereby the appellees were induced to execute and deliver to that firm the four notes dated in March, 1875. Is that claim for damages of the class from which the bankrupts were relieved by their respective discharges in bankruptcy? In Neal v. Clark, 95 U. S., 709 [Bk. 24, L. ed. 587], it was held that, looking to the object of Congress in enacting a general law by which the honest citizen might be relieved from the burden of hopeless insolvency, the term "fraud," in the clause defining the debts from which a bankrupt is not relieved by a discharge under the Bankrupt Act, should be construed to mean positive fraud, or fraud in fact, involv ing moral turpitude or intentional wrong, and nor implied fraud or fraud in law, which may exist without the imputation of bad faith or immorality. This principle was affirmed in the recent case of Hennequin v. Clews, 111 U. S., 682 Bk. 28, L. ed. 568], where will be found a reference to the leading cases in this country and in England. Under this rule it is impossible to avoid the conclusion that the debt in question was created by positive fraud upon the part of Strang, representing his firm, if it be true and the jury proceeded upon the ground that such was the fact that he procured the notes, dated in March, by representing that the February notes had not been and could not be used by his firm, and that they desired other notes, so drawn as to be readily negotiated, to take their place, when, in fact, the February notes had been previously put into circulation by the firm, and had then become obligations upon which the appellees were liable to the holders. There is no pretense in the evidence that the course of business between Strang & Holland Bros. and the plaintiffs would have entitled the former to obtain the March notes, so long as those dated in Febru ary were outstanding obligations against the latter. Hence the necessity of deluding the plaintiffs by the false representation that the February notes had not been negotiated at the time the notes in question were obtained. to the defendants, as commission merchants, to sell on account; that plaintiffs, for the accommodation of defendants, often furnished them with promissory notes. for the purpose of enabling them to carry on business; that the defendants took care of these notes, paying the same at maturity out of the proceeds of the property consigned, and with money remitted by the plaintiffs; that in the transactions be tween the parties the plaintiffs were credited with those notes, with the proceeds of property sold on their account, and with money remitted by them, and were charged with the amounts paid to take up the notes; that on or about March 1, 1875, the defendants requested the plaintiffs to furnish them with four promissory notes, of about $4,000 each, to enable them to raise money thereon, and to be credited to plaintiffs on their account, in accordance with the course of business existing between the parties-such notes to be of odd amounts and made as of different dates before the time they were transmitted to the defendants, so that they might appear to be given for real indebtedness; that pursuant to that request, the plaintiffs made and transmitted to defendants their four promissory notes, for $4,325.50, $4,326.25, 558] $4,327.13, and $4,327.15, each at four months, dated respectively, on the 1st, 9th, 15th and 20th days of February, 1875, and each payable to the plaintiffs at the office of the defendants, in the City of New York, and indorsed by the plaintiffs; and that, on or about April 4, 1875, Strang represented to plaintiffs that his firm had not used, nor been able to use, those notes, because they were made payable at their office, and requested plaintiffs to lend them four other notes of the same amount, payable at the Metropolitan National Bank, in New York City,to be used in the place of those dated in February. There was also evidence tending to prove that the plaintiffs, relying upon the representation that the February notes had not been used, and that the defendants desired other notes to be used in their place, executed and delivered to the latter four other promissory notes, each at four months, for $4,850, $4,951.25, $4,860.30, and $4,970, respectively, dated 13th, 14th, 16th, and 20th of March, 1875, payable four months after date to their own order at the Metropolitan National Bank, New York, and by them indorsed; that, at the time defendants requested to be furnished with the notes last described, That representation-as the jury, in effect, they had, in fact, discounted and put in circu-found-was made with the intent to deceive the lation the February notes, whereby the plain- plaintiffs in reference to the actual state of tiffs, as makers and indorsers, were compelled things, and to induce them to do what defendto pay the same to the holders; that when ants knew they would not otherwise have done, Strang applied for the March notes, the defend- or been asked to do. If Strang's conduct does not ants knew that they were insolvent, but that constitute positive fraud, or fraud in fact, infact was not known to plaintiffs; that he made volving intentional wrong, it is difficult to consuch representations and procured said notes ceive what circumstances would have amountwith the intent to defraud the plaintiffs; and ed to fraud of that character. they the latter was compelled to pay such part of the March notes as amounted, principal and interest, to the sun, for which they obtained judgment below. In the misrepresentations made by Strang to Lowery and Bradner there was no active participation by his partners, the Messrs. Holland. But it was proven that the proceeds of the notes last obtained from plaintiffs, as well as the proceeds of the February notes, all went into the business of Strang & Holland Brothers. It is contended, however, that as Strang & Holland Bros. were under a legal obligation, apart from any responsibility for the alleged fraudulent representations by Strang, to protect the plaintiffs against liability on the notes dated in March, the latter could have made a claim against the estates of the several bankrupts, for such amounts as they were compelled to pay on account of their being accommodation makers and indorsers; consequently, it is argued, the defendants are released, by their [559] [560] [511] the acceptance of the grant by the latter rail- The defendants are seeking to sell, upon exe cution, the right of way which the City of New Orleans, by its ordinance No. 4,523, dated So much of the decree of the Supreme Court 1878. sponsibility therefor upon the ground that the mis- Argued April 13. 1885. Decided May 4, 1885. IN ERROR to the Supreme Court of New York. This action was brought in the court below, by the defendants in error, to recover certain amounts paid by them to take up certain ac commodation notes alleged to have been fraudu lently procured from them by the defendants. The answer set up the discharge in bankruptcy of two of the defendants, as a bar. The trial resulted in a verdict and judgment for the plaintiffs for $17,517.86. This judg ment was affirmed, on appeal, by the court below, in General Term, and by the Court of Appeals, the record being then remitted to the court below. Whereupon the defendant sued out this writ of error. The facts of the case are stated by the court. Mr. Justice Harlan delivered the opinion of the court: On the 1st day of June, 1877, each of the appellants, who were defendants below, received from the District Court of the United States for the Southern District of New York his discharge from all debts and demands, which, by the Revised Statutes of the United States, title Bankruptcy, were made provable against his estate, and which existed on the 3d day of July, 1875-other than such debts as were by law excepted from the operation of a discharge in bankruptcy. The statute excepts from the James H. McKenney, Clerk, Sup. Court, U. S. the fraud or embezzlement of a bankrupt, or operation of a discharge any "debt created by True copy. Test: Cited-115 U. S., 534. by defalcation as a public officer, or while acting in a fiduciary capacity; but the debt may be proved, and the dividend thereon shall be a payment on account of such debt." R. S. § [555] PETER O. STRANG ET AL., Piffs. in Err., 5117. To this action, brought by appellees v. AMARIAH H. BRADNER ET AL. (See 8. C., Reporter's ed., 555-562.) Bankruptcy-force of term " "fraud”-discharge *1. The rule reaffirmed that the term "fraud" in 2. A claim against a bankrupt for damages on account of fraud of deceit practiced by him, is not discharged by proceedings in bankruptcy; nor is a a debt, created by his fraud, discharged, even where it was proved against his estate, and a divi dend thereon received on account. 3. If, in the conduct of partnership business, and with reference thereto, one partner makes false or fradulent misrepresentations of fact to the injury of innocent parsons dealing with him, as representing the firm, and without notice of any limitations upon his general authortly as agent for the partnership, his partners cannot escape pecuniary re *Head notes by Mr. Justice HARLAN. against appellants upon a cause of action accru- [557] The evidence before the jury tended to establish the following facts: That for some years prior to June, 1875, the plaintiffs were doing business in the City of Rochester, New York, as partners, under the style of Lowery & Bradner, while during the same period the defendants were engaged in business in the City of New York, under the style of Strang & Holland Bros.; that the special business of plaintiffs was the purchase of wool, which they forwarded to the defendants, as commission merchants, to sell on account; that plaintiffs, for the accommodation of defendants, often furnished them with promissory notes. for the purpose of enabling them to carry on business; that the defendants took care of these notes, paying the same at maturity out of the proceeds of the property consigned, and with money remitted by the plaintiffs; that in the transactions be tween the parties the plaintiffs were credited with those notes, with the proceeds of property sold on their account, and with money remitted by them, and were charged with the amounts paid to take up the notes; that on or about March 1, 1875, the defendants requested the plaintiffs to furnish them with four promissory notes, of about $4,000 each, to enable them to raise money thereon, and to be credited to plaintiffs on their account, in accordance with the course of business existing between the parties-such notes to be of odd amounts and made as of different dates before the time they were transmitted to the defendants, so that they might appear to be given for real indebtedness; that pursuant to that request, the plaintiffs made and transmitted to defendants their four promissory notes, for $4,325.50, $4,326.25, 558] $4,327.13, and $4,327.15, each at four months, dated respectively, on the 1st, 9th, 15th and 20th days of February, 1875, and each payable to the plaintiffs at the office of the defendants, in the City of New York, and indorsed by the plaintiffs; and that, on or about April 4, 1875, Strang represented to plaintiffs that his firm had not used, nor been able to use, those notes, because they were made payable at their office, and requested plaintiffs to lend them four other notes of the same amount, payable at the Metropolitan National Bank, in New York City, to be used in the place of those dated in February. There was also evidence tending to prove that the plaintiffs, relying upon the representation that the February notes had not been used, and that the defendants desired other notes to be used in their place, executed and delivered to the latter four other promissory notes, each at four months, for $4,850, $4,951.25, $4,860.30, and $4,970, respectively, dated 13th, 14th, 16th, and 20th of March, 1875, payable four months after date to their own order at the Metropolitan National Bank, New York, and by them indorsed; that, at the time defendants requested to be furnished with the notes last described, they had, in fact, discounted and put in circulation the February notes, whereby the plaintiffs, as makers and indorsers, were compelled to pay the same to the holders; that when Strang applied for the March notes, the defendants knew that they were insolvent, but that fact was not known to plaintiffs; that he made such representations and procured said notes with the intent to defraud the plaintiffs; and they the latter was compelled to pay such part of the March notes as amounted, principal and interest, to the sun, for which they obtained judgment below. In the misrepresentations made by Strang to Lowery and Bradner there was no active participation by his partners, the Messrs. Holland. But it was proven that the proceeds of the notes last obtained from plaintiffs, as well as the proceeds of the February notes, all went into the business of Strang & Holland Brothers. The present suit, brought to recover a judg; [559] In Neal v. Clark, 95 U. S., 709 [Bk. That representation-as the jury, in effect, It is contended, however, that as Strang & Holland Bros. were under a legal obligation, apart from any responsibility for the alleged fraudulent representations by Strang, to protect the plaintiffs against liability on the notes dated in March, the latter could have made a claim against the estates of the several bankrupts, for such amounts as they were compelled to pay on account of their being accommodation makers and indorsers; consequently, it is argued, the defendants are released, by their [560] |