Page images
PDF
EPUB

mortgage debt in preference to the other creditors of the defendant Mathews, and this is admitted by the answers.

The complainants applied to the circuit court for an injunction against the defendants restraining them from the disposition of the property, and for the appointment of a receiver, on the ground that the chattel mortgage was in effect an assignment of the property of the defendant Mathews with preferences, and that it created a trust fund for the benefit of all her creditors, under the provisions of section 4660 of the Civil Code of South Dakota, and that the defendants were violating the trust thus created. An injunction was issued, and a receiver appointed. Application is now made to set aside the order appointing a receiver, and to dissolve the injunc tion.

Section 4660 of the Code of South Dakota provides that—

"An insolvent debtor may in good faith execute an assignment of property to one or more assignees, in trust towards the satisfaction of his creditors, in conformity to the provisions of this title; subject, however, to the provisions of this Code relative to trusts and to fraudulent transfers, and to the restrictions imposed by law upon assignments by special partnerships, by corporations, or by other specified classes of persons: provided, moreover, that such assignment shall not be valid if it be upon or contain any trust or condition by which any creditor is to receive a preference or priority over any other creditor; but in such case the property of the insolvent shall become a trust fund, to be administered in equity in the district court, and shall inure to the benefit of all the creditors in proportion to their respective claims or demands."

Of this suit in equity to enforce a trust and to distribute a fund created under this statute, the circuit court of the United States has jurisdiction. Rights created by state statutes may be enforced in the federal courts by foreign creditors, where those statutes prescribe methods of procedure which by their terms are to be pursued in the state courts of original jurisdiction, and there is nothing of a substantial character in the methods prescribed which makes it impossible for the United States circuit court to substantially follow those methods. Clapp v. Dittman, 21 Fed. Rep. 15, 17; Railway Co. v. Whitton, 13 Wall. 270, 272, 274, 286; Clark v. Smith, 13 Pet. 195, 203; Fitch v. Creighton, 24 How. 159, 163; Reynolds v. Bank, 112 U. S. 410, 5 Sup. Ct. Rep. 213; Ex parte McNiel, 13 Wall. 236, 243. It was not necessary for the complainants to reduce their claims to judgments in order to maintain this bill. The theory of the bill is that, by the execution of the chattel mortgage, a trust was created under this statute for the benefit of these and all the other creditors of the defendant Mathews. The beneficiary of a trust may allege and prove himself to be such, and may maintain his bill in equity to enforce the trust, although he is a simple contract creditor, without first exhausting his remedy at law, or reducing his claim to judgment, because it is not the judgment creditors, but all the creditors, who are the beneficiaries of the trust. Day v. Washburn, 24 How. 352, 356; Clapp v. Dittman, 21 Fed. Rep. 15, 18; Case v. Beauregard, 101 U. S. 688, 691; Brisay v. Hogan, 53 Me. 554; Goncelier v. Foret, 4 Minn. 13, (Gil. 1.)

When an insolvent debtor recognizes the fact that he can no longer go on in business, and determines to yield the dominion of

his entire estate, and in execution of that purpose, or with an intent to evade the statute prohibiting preferences to creditors, transfers all, or substantially all, of his property to a part of his creditors, to be applied to the payment of their claims in preference to those of his other creditors, the instrument or instruments, whether in form assignments, chattel mortgages, deeds of trust, or confessions of judg ment, by which such transfer is made, constitute an assignment under this Dakota statute, the benefits of which may be claimed by any creditor not so preferred, who will take the necessary steps in a court of equity to enforce the equality contemplated by the statute. Straw v. Jenks, (Dak.) 43 N. W. Rep. 941; White v. Cotzhausen, 129 U. S. 329, 343, 9 Sup. Ct. Rep. 309; Perry v. Corby, 21 Fed. Rep. 15, 737; Clapp v. Nordmeyer, 25 Fed. Rep. 71; Preston v. Spaulding, 120 Ill. 208, 10 N. E. Rep. 903; Kerbs v. Ewing, 22 Fed. Rep. 693; Burrows v. Lehndorff, 8 Iowa, 96, 103; Winner v. Hoyt, 66 Wis. 227, 28 N. W. Rep. 380, 385.

The proofs presented on this hearing satisfy me that the defendant Mathews was insolvent when she made this chattel mortgage; that the mortgage covers substantially all her property in which she has any valuable interest; that its effect is to surrender the dominion and control of the property to the defendant the Douglas County Bank; and that the bank had ample notice at the time it took the mortgage to put it upon an inquiry that must, if pursued, have given it knowledge of all these facts. The defendant Mathews must be presumed to have intended the known and necessary result of her act, and I cannot pursuade myself that she could have executed this instrument without having intended thereby to close out her business, and surrender the dominion and control of her property. It is patent that she intended no longer to conduct her business, because she could not, under the mortgage, use a dollar of the proceeds of the sales of her stock to replenish it until she had fully paid the $4,251 and interest, in cash, out of the sales of a stock that was worth but a small margin above the amount. She had no other means of replenishing it, and she could not have conducted her business as a merchant without replenishing it. It is patent that she intended by this mortgage to surrender the dominion and control of her property to the bank, because by its terms she did in fact do so. The value of the property was so little above the amount of the mortgage debt that it could not be expected, in view of the fact that the stock must be sold out without replenishing it, that she could realize from it more than the amount of the debt; and hence, while she nominally retained the possession, she really held it in trust as the agent and for the sole benefit of the bank. The terms of the mortgage prohibited her from using one dollar of the proceeds of the sales for her own services or living expenses; they required all the proceeds to be paid over daily to the bank; they prohibited her from removing any article from the store, or disposing of any article otherwise than for cash, until the entire debt was paid; and they gave the bank the absolute right, in case she failed to comply with these terms, or in case it deemed itself insecure, to deprive her of the poor privilege of this nominal possession, and to sell the whole property

at public auction before the debt fell due, and apply the proceeds to the payment of its debt, to the exclusion of every other creditor of the mortgagor. This mortgage has the same practical operation and effect that an assignment to the bank giving it a preference for the $4,251, and containing a provision that the assignor should act as the bank's clerk in making the sale of the goods without compensation until the bank discharged her, would have had. The defendant Mathews, under this instrument, is in effect the clerk of the bank, subject to discharge at any moment, under a contract to serve without compensation. That the form of the instrument is a chattel mortgage cannot take it from under the ban of the statute. The statute cannot be evaded by such a subterfuge. Its evident purpose was to prevent an insolvent debtor who had made up his mind that he could no longer proceed with his business, and that it was necessary for him to surrender the dominion of his property, from then preferring one or more of his creditors to others. It is a remedial statute, and must be liberally construed, so as to advance the remedy it provides, and prevent the preferences it prohibits.

Under the proofs, as they now stand, the execution of this chattel mortgage created a trust for the benefit of all the creditors of the defendant Mathews under the proviso of section 4660. If, at the final hearing, a state of facts different from that presented upon the pleadings and affidavits before me is developed, the proceeds of the property will be decreed to the parties entitled to them, but, as the case now stands, the application to set aside the order appointing the receiver, and to vacate the injunction, must be denied.

TINSLEY v. HOOT et al.

(Circuit Court of Appeals, Fifth Circuit. January 9, 1893.)

No. 80.

1. FEDERAL COURTS-JURISDICTION-DIVERSE CITIZENSHIP-RESIDENCE. Averments showing diverse residence are not equivalent to averments of diverse citizenship, and are insufficient to sustain the jurisdiction of a federal court.

2. APPEAL-JURISDICTION

DEFECTS NOTICED BY COURT OF ITS OWN MOTION. The jurisdiction of a federal circuit court must appear affirmatively on the record, and a default therein will be noticed by the appellate court of its own motion, and the case reversed and remanded, with directions to dismiss, unless proper amendments are made.

In Error to the Circuit Court of the United States for the Eastern District of Texas.

At Law. Action of trespass to try title, brought by Thomas Tinsley against A. B. Hoot and others. Verdict and judgment for defendants, and plaintiff brings error. Reversed.

S. W. Jones, (W. B. Denson, on the brief,) for plaintiff in error. Percy Roberts, (F. Charles Hume, of counsel,) for defendants in

error.

Before PARDEE and McCORMICK, Circuit Judges, and LOCKE, District Judge.

PARDEE, Circuit Judge. The record does not show the jurisdiction of the circuit court. The suit is one of trespass to try title to one third of a league of land in San Jacinto county, Tex., and within the eastern district of Texas. On the trial in the circuit court, plaintiff asserted title to the land through a deed from the sole surviving heir of the patentee. Defendants deraigned title through a judgment obtained in the district court of the state for Walker county, Tex., in a proceeding in personam, with citation by publication. The jurisdiction of the circuit court, if existing at all, therefore depended upon the opposite parties being aliens and citizens of the United States, or citizens of different states. The plaintiff's original petition makes no averment as to the citizenship of any of the parties, but in the description of parties alleges as follows:

"The petition of Thomas Tinsley, who resides in the state of New York, complaining of Joshua B. Hoot, A. B. Hoot, and J. M. Phillips, who reside in San Jacinto county; of Imogene Banton, who resides in McLennan county; of Juliet B. and her husband R. H. Bush, Cornelia Hamilton, Sallie E. Gibbs, W. S. Gibbs, and the minor children of Sanford Gibbs, deceased, to wit, M. A. Gibbs, Thomas C. Gibbs, Sallie S. Gibbs, J. P. Gibbs, and Luteola Gibbs, who reside in Walker county, and all in the state of Texas, whose given names, except those stated, are unknown to complainant, with respect represents,'

etc.

Nowhere in the record do we find any averment as to the citiz ship of any of the parties, except in an amendment to the original petition, as follows:

"Now comes the plaintiff, and amends his original petition by leave, and says that Joshua M. Hoot, who is a citizen of the state of Texas, and resides in San Jacinto county, within the eastern district of Texas, is a proper party defendant in this cause, and is claiming," etc.

The jurisdiction of the circuit court must appear affirmatively in the record. Where the jurisdiction of the circuit court does not appear in the record, the appellate court will, on its own motion, notice the defect, and make disposition accordingly. It is well settled that an averment of residence is not the equivalent of an averment of citizenship in the courts of the United States. Telephone Co. v. Robinson, 2 U. S. App. 148, 1 C. C. A. 91, and 48 Fed. Rep. 769, and cases there cited. The judgment of the circuit court must be reversed, and the cause remanded, with instructions to dismiss plaintiff's petition for want of jurisdiction, unless, by proper amendment showing the citizenship of the parties the jurisdiction of the circuit court shall affirmatively appear, in which case the circuit court will thereafter proceed according to law; the plaintiff in error to pay all costs of this and the circuit court. And it is so ordered.

CLEVELAND ROLLING-MILL CO. v. JOLIET ENTERPRISE CO. et al. (Circuit Court, N. D. Illinois. December 24, 1892.)

1. EQUITY JURISDICTION-CREDITOR'S SUIT-RETURN OF EXECUTION.

A court of equity will not take jurisdiction of a suit brought in aid of a judgment at law, where the bill avers that execution has been issued, and levied upon the judgment debtor's property, and does not allege that such execution has been returned.

2. SAME-STATE AND FEDERAL COURTS.

An insolvent corporation confessed judgment in a state court in favor of several creditors, and also made a voluntary assignment for the benefit of creditors. Held, that a federal court had no jurisdiction, at the suit of a creditor, brought after the sheriff and assignee had taken possession, to interfere with their disposition of the corporation's property.

In Equity. Creditor's bill brought by the Cleveland RollingMill Company against the Joliet Enterprise Company, Henry M. Fish, George M. Fish, Charles M. Fish, and Henry M. Fish, of the firm of Henry Fish & Sons, and others. Dismissed.

Cratty Bros., for complainant.

Moran, Kraus & Mayer and Mr. Hutchins, for Illinois Steel Co. George S. House, for First Nat. Bank of Joliet, the Will County Nat. Bank, and the assignee.

P. C. Healey, also representing the assignee and the sheriff of Will county.

E. A. Otis, for Merchants' Nat. Bank and Chauncey I. Blair, trustee.

W. A. Montgomery, for Washburn & Moen Manuf'g Co.

C. E. Hill, for the Lambert & Bishop Wire Fence Co. and others. Chas. S. Holt, for receiver.

GRESHAM, Circuit Judge. This bill, which is filed in behalf of the complainant and all other creditors of the Joliet Enterprise Company who may be admitted as parties and contribute to the expenses of the suit, avers that on December 1, 1892, the complainant obtained a judgment in the Will circuit court of Illinois against the Joliet Enterprise Company, for wire and other material sold and delivered, amounting to $17,464.87; that an execution was immediately issued to the sheriff, which he levied upon the property of the defendant; that at that time, and for some time previous thereto, the members of the firm of Fish & Sons had been the chief officers, directors, and stockholders of the Enterprise Company, and as such had directed and controlled its action and business; that on November 29, 1892, the liabilities of the Enterprise Company were represented by its officers to be more than $600,000, and its assets worth less than $400,000; that for two months previous to the last-named date the company's officers knew it was insolvent, and on different days during that period they caused it to execute and deliver to Fish & Sons five judgment notes, each for $29,000, and payable in 90 days; that the Fishes went through the form of executing the notes, payable to themselves, for an alleged indebtedness due from the company to them as bankers, and the giving of the notes was not ratified by the board of directors of the company until some days later; that on November 30th, the board of directors authorized the officers of the Enterprise Company to execute trust deeds and mortgages to secure Fish & Sons and certain other creditors, and on the same day the company confessed judgment in the Will circuit court, on the five notes, for $176,420.93, and an execution immediately issued thereon, which the sheriff levied upon the real and personal property of the defendant, and will sell the same, unless restrained by

« EelmineJätka »