• The petitioner upon this motion was adjudicated a bankrupt September 19, 1900. There were two judgments entered against him in 1895, one of $3,586.40 and one of $341,745.65, and this motion was for the purpose of relieving the petitioner from the liability of these judgments. The judgment creditor contests the application on the ground that the judgments were recovered by reason of the fraud of the said Bullís and one Barse.
The question before us involves the construction of subdivisions 2 and 4, of section 17 of .the National Bankrupt Law of 1898. ■ (30 U. S. Stat. at Large, 550.) Section 17, so far as applicable, provides:
“ Debts not affected by a discharge. * * * A discharge in bankruptcy shall release a bankrupt irom all of his provable debts, except such as * * * (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; * * * or (4) were created by his fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity.”
The action in which the judgments were rendered was not one at law for fraud and deceit, but was a suit in equity, and in order to appreciate the situation it becomes necessary to analyze the complaint and the decision of the court.
The allegations of the complaint with the exhibits attached show that on the 8th day of October, 1899, Spencer S. Bullís and Mills W. Barse owned the capital stock' of three railroad companies, to wit, the Allegany and Kinzua Railroad Company, a corporation organized under the laws of Pennsylvania, a New York corporation of like name, and the Bradford and Oorydon Railroad Company, also a Pennsylvania corporation.. These railroad lines were constructed for the purpose of reaching the timber on a large tract near the Allegany river. The combined length of the railroads .at that time was sixteen miles, but the length contemplated with the *510radiating lines completed was thirty miles.. Said Bullís and Barse also owned 30,000 acres of timber land in McKean county, Penn., and also other tracts of timber latid in. that vicinity. They desired financial .aid in the development of their scheme, and on the date mentioned entered into a written agreement with I. B. Newcombe & Co., a firm of New York bankers, and this agreement is designated Schedule “ A ” of Exhibit “ A.”
By the terms of this agreement said Bullís and Barse were to execute a trust mortgage or deed to the Central Trust Company of New York, as trustee, as security for first mortgage bonds to the amount of $250,000, bearing interest at five per cent and payable thirty years from date. The said mortgage was to cover the properties and franchises of said railroad corporations and also the said 30,000 acres of land. All of said property was to be under the management of a new corporation capitalized at $250,000. The said bankers undertook to negotiate at par $210,000 of said bonds and to pay over the avails to said Bullís and Barse as the railroad was completed along in Sections of five miles. The new corporation was to be managed by seven directors, three of whom were to be elected by said bankers, so that Bullís and Barse were to retain a majority in the management of the company. There are various other provisions in the agreement; for instance, as to an option given to the bankers to purchase all the capital stock of the corporation at a fixed price, and that the real estate within the dominion of said corporation was to be “ contiguous or tributary, to one or the other of said several railroads, and they shall be timbered ahd profitable to said corporation,” and that the new corporation should be organized and the title transferred to it, and the trust instrument executed and the bonds ready to be delivered on or before January 1, 1890. A modification of said agreement was made by another contract entered into between the same parties on the 9th day of December, 1889: This agreement provided for the merger and consolidation of these railroads with a capital stock of $500,000 at par value and for the issue of a “ first mortgage or deed of trust ” upon all of the property of the corporation to said Central Trust Company of New York as trustee for $500,000' to secure gold bonds to that amount. The scheme designed by the modified agreement was the extension of the railroad lines to seventy miles and the inclusion of 16,000 *511acres of additional timber land, thus bringing within the ownership of the new company 46,000 acres all told. By this agreement only $300,000 of the bonds issued were to be put upon the market at once, and they were to represent forty-six miles of completed railroad. Rewcombe & Go. undertook to dispose at par of $260,000 of this bond issue to be used as the road was completed and put in operation by sections, of five miles and in the manner set out at length in the 2d paragraph of the agreement. The time for the consummation of the agreement by the transfer of the title, etc., was by this contract extended to February 1, 1890. Bullís and Barse were empowered to enter into a contract with the Interior Oonstruction and Improvement Company for the purpose of causing-the merger and consolidation of said several, railroads and to cause the construction and completion thereof into one connected system. Two agreements were accordingly, on the 9th day of December, 18.99, entered into by said construction company, one with the Allegany and Kinzua Railroad Company, which was owned by Bullís and Barse, and one with them individually, providing for the construction and consolidation of these railroads, and the contract outlined the manner in which the moneys arising from the bond issues were to be distributed, a large part of which was to be paid, to Bullís and Barse, and also provided for the deposit of a certain amount with the trustees named.
The complaint further charges that said Bullís and Barse “ falsely and fraudulently pretended and represented to the said firm of I. B. Rewcombe & Co.” that said tract of 30,000 acres to be conveyed was free and clear from all incumbrances; that all of said land was. contiguous or adjacent to the line of said railroad as the same was-then constructed or surveyed and projected, and the said land was covered by a large quantity of merchantable timber capable of' yielding and producing seventy tons of freight in timber, lumber and bark for each acre of land for transportation over said railroad,. It is further alleged that in fulfillment of the said agreements the-defendant railroad corporation, on the 1st day of February, 1890,. executed its “first mortgage or deed of .trust” to said trust company, conveying to it said railroad properties and franchises and providing for an issue of bonds limited to $500,000, to be secured by said properties and the 46,000 acres of timber land to be con*512veyed- by said Bullis and Barse to said trustee. “ -That the defendants Bullis and Barse caused said Bullis and Sarah E., his wife, to join with said railroad company in said mortgage ” and that by said mortgage they assumed to convey to said trustee land contiguous to the line of said railroad and free' from incumbrances and covered by a large quantity of merchantable timber aggregating 30,954.10 acres and which by the terms of the said agreements was to be a condition precedent to the issue of $300,000 of said bonds to be used in the building and completion of said forty-six miles of said railroad; that in reliance upon the conveyance of the said land, bonds to the amount of $300,000 were issued and were sold by said jSTewcombe & Co., ten of which were purchased by the plaintiff in the action; that all of the proceeds of the said bonds have been used in the construction of said lines and in. the payment of prior, liens upon the property and the said constituent lines,' and that the ■defendant railroad company, which is the consolidated company, is wholly without funds and that the extension thereof is essential to enable it to obtain money to meet its liabilities; that said Bullis and Barse refused to convey to said trustee the remaining 16,000 acres of such land and to provide for the building of the balance of said railroad, whereby the construction company is unable to proceed with its work of completing the same.
The complaint further alleges that said 30,954.10 acres of land •conveyed by Bullis and his Wife were not free of incumbrances; that the same at. that time were subject to prior liens aggregating $159,000 besides interest; that $144,776.07 'of said indebtedness still remain unsatisfied; that said.land was not covered with merchantable timber, but was waste land, from which the salable timber had been removed and that a large portion of the said land was not adjacent to the line of said railroad and the timber thereon not accessible to be transported thereon; that a large portion of the land so assumed to be conveyed was not owned by either of the said ■defendants and was not conveyed at all by said deed. All of which facts the said Bullis and Barse “ well knew at the time they made ” ¡said pretended conveyance, and said conveyance “ is in reality false and fraudulent; ” that by reason' of the “ fraud and failure ” of ¡said Bullis and Barse to convey said land free of liens “ a great fraud has been committed ” by them which will cause irreparable *513injury to the bondholders, including the plaintiff, who is one of them, unless the performance of the said agreements and the conveyance of 30,000 acres, of unincumbered timber land to said trustee are specifically decreed.
The complaint further charges many derelictions of duty by said Bullís and Barse as directors of the said railroad corporation and the diversion from their proper use, “ fraudulently and secretly,” of steel rails and other properties belonging to said company, and they threaten further unlawful expenditures upon the credit and at the expense of the said company; that by reason of the unlawful acts of said Bullís and Barse the earning capacity of the company has been seriously impaired; that pursuant to a provision in said trust conveyance providing for the release from the lien of the said mortgage of “ any portion or portions of the timber land ” upon payment of the value of the portions so released to be ascertained by arbitrators appointed as the said conveyance provided, arbitrators were appointed upon the request of Bullís and Barse and appraised over 4,000 acres of said land at one dollar per acre; that it is apparent therefrom that said Bullís and Barse “ have perpetrated a gross fraud ” upon said railroad company and upon the bondholders as said land if timber land was of the value of twenty-five dollars per acre. The complaint then asked for specific performance, “ or that said defendants pay to said trustee, for the security of said bondholders, such a sum of money as the court shall ascertain to be equivalent to the value of said lands and real estate, conveyed as aforesaid, which are not in conformity with the terms of said several agreements, and said bonds and the mortgage or deed of trust securing the same ; and in addition thereto 16,000 acres of like timber land, in all respects similarly situated, and free from incumbrance, as security tó authorize the issue of $200,000 of bonds in said agreements specified and set apart for the construction of the twenty-four miles of railroad of said railroad company additional to' the forty-six miles above mentioned.”
The complaint, therefore, is one in equity, demanding that the defendants comply with their several agreements and charging that the defendants in their attempted compliance therewith falsely and. fraudulently foisted upon the trustee a conveyance which only' apparently transferred the title to the large quantity of land *514described in it, and that this fictitious transfer' was in pursuance -of the fraudulent, scheme on the part- of the said defendants, and tliecomplaint asked for money compensation in the event of the-inability of the defendants to fulfill their undertakings.
• A trial was had at a-Special Term in Hew York county, and at the close of the evidence it appeared that Bullis and Barse were: unable to perform specifically, and the court dismissed the complaint,, declining '.to entertain jurisdiction for- the purpose of awarding, damages in lieu of strict performance. The judgment entered on. this decision was reversed by the- General Term (O'Beirne v. Bullis, 80 Hun, 570), and upon an appeal taken- by the defendant-railroad company this judgment of reversal was affirmed by the Court-of Appeals. (O'Beirne v. Allegheny & Kinzua R. R. Co., 151 N. Y. 372.) A new trial was had in the meantime-upon the answers-interposed by Bullis and ■ Barse before Mr. Justice Barrett, and " elaborate and- explicit findings of fact were made by him fully sustaining the charges contained in the complaint and upon which tlieallegations of fraud wefe based. The Special Term-, among other-facts found that, before the execution of the several agreements, referred to, said “ Bullis and Barse pretended and represented' to the said firm of I. B. Hewcombe & Co. that the said 30,000 acres, of land were timbered, free and clear of all incumbrances, and. contiguous and adjacent to the line of the defendant railroad, company, as the same was then constructed and projected, and that: said land was covered by a large quantity of merchantable timber,, which would- be sufficient to and would actually provide said railroad with at least 70 tons of freight to the acre, for conveyance-over said railroad at rates from 25 to 50 cents per ton, in addition, to the percentage accruing to said defendant railroad company-from-divisions with other lines.” Further, that before said agreements, were entered into at the request of Bullis and Barse, engineers were, sent from Hew. York to inspect-the timber on the land to be conveyed to said trustee; that they “ were escorted through certain, timber lands” by said Bullis,, and the lands through which:they “ were escorted-by said Bullis were heavily timbered,” and that said Bullis “ stated that said lands were to be placed under said mortgage” to said trustee, and a report in accordance -with this statement. Was made by said engineers, and upon this report said Hewcombe^ *515& Co. “ embarked in the enterprise and entered into said scheme of consolidation and extension;” that said lands so “defined and pointed out were worth from eighteen to twenty dollars an acre.”' Again, that said Bullís and Barse “had stated and represented to Uewcombe & Company” that the mortgage was to be a first, lien, the lands to be well timbered and “ contiguous and tributary to said lines of railroad; ” that said trust mortgage was-approved and accepted in the belief that said representations were true in fact, and that Bullís and Barse were “ in good faith performing their said covenants.” The court further found:
“ XCIII. That the statements and representations of said defendants Bullís and Barse with respect to said timber lands, mentioned and referred to in said Exhibits ‘ A,’ ‘ B ’ and ‘ C,’ and Schedule ‘ A ’ annexed to the complaint, were fraudulent and made with intent to deceive.
“ XCIY. That the plaintiff was, in fact, deceived by said statements and representations.
“ XCY. That said statements and representations were false and untrue.
“ XCYI. That said agreement was, in fact, fraudulently made with respect of the lands agreed to be conveyed by said Bullís and Barse.”
That a great part of the lands included in the deed were not the property of Bullís, and the value of that owned by him and not timbered was $13,350, while that apparently covered by the deed,, but not owned by him, was worth $175,502.77, and a considerable part of that included in the conveyance was incumbered.
In the conclusions of law the court decides it has “ jurisdiction to< proceed in this cause by reason of fraud practiced by the defendants Bullís and Barse in the premises,” and by the “ fact that, the plaintiff has been deceived by the fraudulent statements and misrepresentations of the defendants.” It directed “immediate specific performance ” by them by their conveying to the trust company “ 30,000 acres of land, free and clear of all incumbrances and contiguous or tributary to the line of railroad of the defendant, * * * timbered and profitable to said defendant railroad company, and of the market value of at least $18 per acre.”' Finally, the court directs and decides ; “ That the defendants Spencer S. Bullís and Mills W. Barse at once pay to the Central *516Trust Company of Rew York the sum of $292,125.00, with interest thereon at the rate of five per cent per annum from the first day of February, 1892, for the fro rata benefit of the plaintiff, Janies R. O’Beirne, and all other holders, of the first mortgage bonds of the defendant, The Allegheny and Kinzua Railroad Company.” The judgment entered upon this decision was affirmed. (O'Beirne v. Bullis, 2 App. Div. 545; 158 N. Y. 466.)
The action for specific performance in the strictest sense thereof wás founded upon the actual positive fraud of the defendants Bullís and Barse. They had, in fact, in pretended compliance with their agreements, conveyed to the designated trustee 30,000 acres of land.. The plaintiff alleged that the defendants fraudulently included in this conveyance lands not owned by the grantors, and that the bulk of the tract was not timber land, was incumbered and was not adjacent to the railroad lines described. Lands so located and with heavy growing timber had been shown tó the engineers selected to inspect it, and a conveyance to a trustee of the' lands represented was sought by the-action. ' The gist, the intrinsic ingredient of the action, was consequently the fraudulent scheme, the false representations of these defendants'. As was said by the Court of Appeals in its first review of the case (151 N. Y. 384): “ The theory of the complaint and the tendency of the proof upon the trial were that a fraudulent scheme was devised by Bullís and Barse.”
Jurisdiction Avas held to exist in the. court of equity to award damages in lieu of decreeing specific performance in case the proof disclosed the inability to enforce a precise compliance AAÚth the agreement. When it dermloped upon the second trial that specific performance Avas unavailing, the trial court retained jurisdiction to proceed “by reason of. fraud practiced by the defendants Bullis and Barse.” The backbone of the action, whether fdeAved strictly as one in equity or for damages in lieu of equitable relief to compensate the bondholders for the misconduct of the defendants, Avas the fraud’ of the latter.
As we interpret subdivision 2 of section 17 of the Bankrupt Law, it. does not limit the exception to common-law actions of fraud or deceit. The gist and gravamen of the action . must have been the positive and intentional fraud of the bankrupt. The record presented must clearly show that such misconduct Avas the *517pith of the action, and it may not be dependent upon oral proof or other evidence outside of the record. There are many authorities construing the kindred section of the Bankrupt Law of 1867 (14 U. S. Stat. at Large, 533, § 33) which provided “ that no debt created by the fraud or embezzlement of the bankrupt * * * shall be discharged under this act.”
In Strang v. Bradner (114 U. S. 555) the discharge in bankruptcy was interposed to an action charging false and fraudulent representations made by one member of a copartnership which included the defendants, who were not cognizant of the representations made. The court held that the fraud of the copartner was imputable to the other members of the firm, and, in defining the fraud which was within the purview of the section quoted, decided that it “ should be construed to mean positive fraud or fraud in fact, involving moral turpitude or intentional wrong, and not implied fraud or fraud in law, which may exist without the imputation of bad faith or immorality.”
The same principle was reiterated and the authorities analyzed in Forsyth v. Vehmeyer (177 U. S. 177), and the court (at p. 182), thus defines the representation which constitutes a fraud: “A representation as to a fact made knowingly, falsely and fraudulently for the purpose of obtaining money from another, and by means of which such money is obtained, creates a debt by means of a fraud involving moral turpitude and intentional wrong. It is not necessary to enlarge upon the subject. It is so plainly a fraud of that description that its mere statement obtains our ready assent.” In the authorities which I have examined no stress is laid upon the form of the action. While an action of fraud to the mind of a lawyer signifies the common-law action of fraud or deceit, the wording of the subdivision under discussion evidently was not framed with that precise remedy in view. The expression “ judgments in actions for frauds ” conveys no such signification as that mentioned, and may include any positive intentional fraud which was the basis of a judgment and was of the substance of the recovery. 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 *518reason 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 has become liable for the payment of a debt which had its origin in his own positive dishonesty, the way is not open foi* his discharge from that liability. In one instance proof that the debt was created by fraud was sufficient to raise the barrier. In another the debt must have ripened into judgment, but in each case the fraudulent misconduct is the basis of-the prohibition, not the technical form which the indebtedness has assumed.
As was said in Collier on Bankruptcy (3d ed. at p. 191): “ The fact that the judgment was in an action for fraud or wilful or malicious injury may, perhaps, not appear by the judgment itself. That is not necessary; it is sufficient if it appear from the record of the case. If the record show that the action was for any of the causes specified, then the judgment is not barred by a discharge. ' * * * The action must have been based on the fraud or the wilful or malicious injury. It is not enough that there may have been incidental or immaterial false and fraudulent representations in connection with the transaction, if the action is not based on them.” And also (at [3. 202): “ The debt as we have seen under subdivision 2, is not released by. a discharge, although in the form of a judgment. But the record must show that the debt is so created. If a judgment is rendered in an action, the record of which shows material, traversable allegations of fraud which were necessarily determined, then the judgment is conclusive.” In Matter of Lewensohn (99 Fed. Rep. 13) Justice Brown says: “ In cases of this kind no purely technical considerations as to the precise form of action should be regarded.”
In Burnham v. Pidcock (58 App. Div. 273) the action in which the-judgment was recovered was for conversion. Neither the judgment nor anything in the record showed that fraud or fraudulent representations were an essential element of the'cause of action, although the court in its opinion stated the act which constituted the conversion was fraudulent. The court held that -the nature of the action must be gathered from the record- instead of from any *519•extrinsic source. The court uses this language at page 275 : “ The judgments which are excepted from the effect of a discharge in bankruptcy are, as it is expressed in the statute, judgments for fraud. That phrase means that the fraud is the gravamen of the •action in which the judgment is recovered, and that proof of the fraud is essential to the right of recovery. It does not include a judgment in which the right of recovery is based upon an act which is not essentially fraudulent, although in that action fraud may be incidentally shown.” That case is. not an authority which is helpful to the appellant. In -the present case the record shows that fraud was the marrow of the cause of action, and the sole ground for-retaining jurisdiction and awarding damages was the fraudulent conduct of Bullis and Barse.
Ho resort need be had to extraneous proof to show that fraud 'was not an incident, but the vital factor in the action. The findings of fact passed upon by the trial judge are minute and circumstantial, and abound in facts from which the turpitude and deceit of the -defendants are established. These findings- are supplemented by ■conclusions of law, and the whole followed by the formal judgment which bears the signature of the justice presiding, so that the record consists of the decision and judgment made by the justice himself, and forming one complete document. We think the respondent is not concluded because he elected to proceed by suit in equity. He did not base his cause simply upon breach of contract, but on the fraud of Bullis and Barse, and emphasis is given to that element in the various appeals. The court in its opinion in 80 Hun, say (at qi. 573): That “ the facts found * '* * conclusively show that Spencer S. Bullis and Mills W. Barse perpetrated an atrocious fraud.” The Court of Appeals (158 N. Y. 466), in discussing its previous decision, observe (at p. 468): “ The theory upon which the decision proceeded was that they devised a fraudulent scheme for the consolidation of certain railroads owned and controlled by them,, issued bonds upon false representations as to the timber lands to be furnished as added security under the mortgage to make the bonds secure and salable, that upon those facts the court would have been justified in granting relief to the plaintiff ..against them.” With the fraud of the petitioner so marked a constituent in the record of which the judgment is a part we are *520constrained to hold that he is not entitled to the cancellation of the judgment as it is within the prohibition of subdivision. 2 of .section 17 referred to.
The counsel for the respondent devotes much space in his brief to an argument that subdivision 4 of section 17 applies to this appeal. The position is that the terms “ fraud, embezzlement,;misappropriation in that subdivision relate to an individual, while the word “ defalcation ” alone applies to one “ acting as an officer or in any fiduciary capacity.’.’ We cannot assent to that construction. In the corresponding section (33) of the act of 1867, the interpretation contended for may have been tenable. In,the present section, however, the exceptions have been remodeled a,nd' reclassified and the intention apparently was to.make subdivision 2 applicable to frauds, etc., perpetrated by an. individual failing debtor, but protected .him by limiting the prohibition against his discharge to frauds., false representations, etc., embodied in a judgment and provable by the record. Subdivision 4 was then designed to relate to an officer or one acting in a trust capacity and was enlarged in its scope by erecting a barrier to the discharge of such a culpable debtdr who had been guilty of “fraud, embezzlement, misappropriation” as well as “defalcation.” A person faithless in a public or trust capacity is the more flagrant malefactor, and lienee it may have been deemed advisable to extend the barrier to his receiving the benefit of a discharge permitted by the statute to include the other delinquencies named. The natural rendition - of subdivision 4 as well as its grammatical construction seems to favor this interpretation. If any debt created by fraud, embezzlement or misappropriation is to be excepted from the application of the statute then there is no necessity of subdivision 2 making a judgment' essential to-prevent the granting of the discharge under the statute. The bare proving that the debt was created by fraud would' be- sufficient to-raise a bar to the release of the insolvent therefrom, which would be tantamount to emasculating subdivision 2. We conclude, however, that the. 'petitioner is barred by subdivision 2 from obtaining the cancellation of the judgments, and that the order of the Special Term should, therefore, be affirmed, with ten dollars costs.
Adams, P. J., McLennan, Williams and Hiscook, JJ., concurred.
Order affirmed, with ten dollars costs and disbursements.