Jahn v. Champagne Lumber Co.

147 F. 631 | U.S. Circuit Court for the District of Western Wisconsin | 1906

QUARLES, District Judge

(after stating the facts). The first proposition upon which the demurrer is predicated, namely, that the bill is multifarious, is wholly without merit. Bates Fed. Eq. Pro. § 195. It is the peculiar function of equity to protect creditors by treating the assets.of a defunct corporation as a trust fund; to discover and assemble all the assets of -the debtor corporation into a common fund, to be marshaled in the interest of all the creditors. Several cases are cited by counsel where conflicting remedies have been confounded in bills of this nature so that demurrers thereto have been sustained by the courts; but no such objection can be successfully urged in this case. The bill in behalf of complainant, and all other creditors similarly situated, seeks a discovery as to the alleged misapplication of the assets of the Champagne Lumber Company, which were fraudulently distributed among the individual stockholders for the alleged purpose of defeating any recovery upon the judgments at law. The bill seeks to hold the defendants Stewart and Alexander as trustees for the creditors as to the property of such corporation remaining in their hands. This is a remedy so frequently administered by courts of equity that no discussion as to its propriety is necessary, admitting, as the demurrer does, the allegations of the bill. The bill then proceeds for further relief in case the amount realized from such property and assets of the corporation should prove inadequate ; that then, and in that case, an accounting should be taken as to the amount due from the individual defendants to the corporation upon their stock subscription, and that such amount so found due, or so much thereof as may be necessary, should be paid into court, to constitute a portion of the fund to be administered for the benefit of the creditors. It is contended that these two propositions render the bill multifarious.

It will be observed that both of the individual defendants arc equally concerned in both branches of the remedy sought, and both arc jointly liable. There is, in the contemplation of equity, no essential difference between the two classes of assets sought to be reached. There is nothing inconsistent or incongruous in the joinder. The contractual obligation of the individual defendants to the corporation upon the stock subscription is a part of the assets of the corporation, and for the purpose of such a proceeding as this, stands upon the same footing as the tangible assets alleged to have been fraudulently appropriated. Sanger v. Upton, 91 U. S. 56, 23 L. Ed. 220. According to the rules of equity there is no fundamental difference between moneys that have been paid into the corporation and transformed into lumber and various other articles of personal property, and an obligation of individual stockholders to pay in other moneys for the purposes of the corporation whenever called in.

It is contended that, in view of the averments of the bill wherein it is stated that the value of the corporate assets specifically distributed among the stockholders is largely in excess of the amount of the judgments and other debts of the corporation, there is no warrant or excuse for compelling the defendants to make answer and defense as to their liability upon the stock subscription. The court pays little heed to a suggestion from the defendant that it is not necessary to call in the stock subscription. Furnald v. Glenn (C. C.) 56 Fed. 375. But very properly the plaintiff sues in behalf of all other creditors of the corporation similarly situated, and he must share the fund with them on even terms. He is not presumed to know, how many such creditors there may lie, and therefore is justified in so framing liis bill as to resort to the contractual liability of the individual defendants upon the subscription agreement. This course has been frequently resorted to under similar circumstances. Williams v. Brewster, 117 Wis. 370, 93 N. W. 479; Harrigan v. Gilchrist, 121 Wis. 238, 99 N. W. 909, and cases cited; Hatch v. Dana, 101 U. S. 208, 25 L. Ed. 885. For these reasons the first contention of the defendants is overruled.

Second. The second ground of demurrer is seriously urged that inasmuch as the assignment of the cause of action to the complainant expresses a consideration of $15 and “other sufficient and valuable consideration heretofore received,” etc., that the court is justified in assuming that the consideration was so trifling and inadequate that the court should decline to proceed with the action, on the ground that complainant is not entitled to the aid of the court, but should be shown out of court as one who speculates upon the infirmity of an>other, and therefore not entitled to the consideration of a court of equity. It must be remembered that the assignment was evidenced by a writing under seal “for sufficient and valuable consideration.” It is true as argued, that $1 may be considered a sufficient and valuable consideration; but it is equally true that there may have been, in fact, a consideration which the court would consider ample and adequate. Until the facts have been elicited, we cannot know what the complainant, in fact, paid for the cause of action. We can only guess. The destiny of this case cannot hinge on a mere guess.

I have examined all the cases cited and find none properly applicable 'to the precise case at bar. Admitting that such cases have correctly stated the law, it becomes us to know what the facts are before we undertake to apply the principles. Furthermore, general demurrers are not looked upon with favor when interposed to a bill charging fraud and conspiracy. Johnston v. Merch Co. (D. C.) 127 Fed. 845.

' For these reasons the demurrer will be overruled, and defendants will be allowed to plead to the bill on or before the October rule day.