281 F. 265 | S.D.N.Y. | 1922
(after stating the facts as above).
The original bill is in a form exceedingly familiar in this district. It seeks the sequestration of the assets of a foreign corporation in the interest of their preservation. The defendant’s chief objections to it are that it is invalid as a bill to wind up the business of the corporation, not being in the state of its incorporation, and that to stand at all ’ it must allege insolvency. A suit by stockholders to wind up a corporation must, it is true, be brought in the state of its organization. Maguire v. Mortgage Co., 203 Fed. 858, 122 C. C. A. 83 (C. C. A. 2d). But the jurisdiction of this court over a bill like that at bar, though in substance it accomplishes the same result, depends upon quite another history and development. It is an evolution out of the judgment creditors’ bill to supplement the writ of execution, and normally it is dependent upon judgment, execution, and return nulla bona. Pa. Steel Co. v. N. Y. City Ry. Co., 198 Fed. 721, 736, 737, 117 C. C. A. 503 (C. C. A. 2d); Amer., etc., Co. v. Amer., etc., Co. (D. C.) 275 Fed. 121. The practice, now so well settled, of proceeding without
The bill must, of course, have equity, and equity would not lie in the mere fact that the debtor could not presently pay. If there be leviable property, the debtor must suffer the fate common to those who have no quick assets. To enjoin collection by judgment and execution in such case would be to grant the debtor an extension because of its temporary embarrassments, and would strike at the very foundation-of credit in a commercial community. Moreover, it would scarcely be enough to allege that the leviable assets were not enough, without also alleging -that those available by ordinary creditor’s bill would not, in addition, pay all claims. It is no reason for enjoining vigilant creditors from their legal remedies that others will be forced to resort to equity, provided all can in the end be paid. It is of no interest to a court of equity, any more than to a court of law, to protect a debtor against his creditors.
vBut if it appears that the assets of every kind are not enough to pay all creditors, if left to a general welter of attachments, executions, and separate creditors’ bills, a different situation is presented. The corporation may well be solvent if its assets be nursed along, and insolvent if they be thrown to the creditors for piecemeal sale. Recognizing in such event that creditors’ bills will in the end be necessary, though unsuccessful, equity will anticipate them by presently stepping in, in the interest of securing the greatest possible payment ratably for all creditors, since the protection of creditors is an interest of equity as well as law.
Therefore, while it is necessary to allege that the assets, if given no protection, will not be enough to pay all creditors, it is not necessary to allege that the corporation is presently insolvent, or even that, when properly managed, it will not have a surplus for distribution among stockholders; and for that reason it is not customary to allege insolvency, though it is customary more clearly than in the bill in suit to allege that the assets will not pay all, if abandoned to general waste by separate legal proceedings. Such bills may, of course, be abused by the collusion of the debtor and friendly creditors. They may be abused by the court’s refusal to allow a present liquidation, disregarding the creditors’ unqualified right to present payment, and preserving the property for the debtor, which is not entitled to more consideration than its creditors collectively think wise to give it. But that has nothing to do with the propriety of the bills as such; they form a necessary and important part of insolvency law, and are of unquestioned validity.
Clearly, then, it is irrelevant that the debtor be a nonresident, or that a strict winding; up of its affairs by statute must take place at its domicile. Central Trust Co. v. McGeorge, 151 U. S. 129, 14 Sup. Ct. 286, 38 L. Ed. 98, is an authority for such a bill against a nonresident, because the facts were quite on all fours with this. It is true that this precise point was not discussed, but the ruling could not have been made, had the suit been non justiciable in the District Court. Scattergood v. Amer., etc., Co., 249 Fed. 23, 161 C. C. A. 83 (C. C. A. 3d),
It is true that the Circuit Court of Appeals for the Fourth Circuit, in Davis v. Hayden, 238 Fed. 734, 151 C. C. A. 584, reversed the appointment of receivers for a solvent individual in a district other than domiciliary. In that case certain creditors had been enjoined from prosecuting actions at law to execution by the order which appointed' the receivers, and this they succeeded in vacating, on the ground that the court had no jurisdiction to appoint a receiver at all. However,, the debtor was not a corporation, a distinction mentioned in the opinion (238 Fed. 738, 151 C. C. A. 588), and was positively alleged to be solvent. The case is not in point here. The origin and nature of the bill stamps it as in rem. It is to reach the assets of the debtor and’ apply them to the creditors. As such it goes directly against tlieassets themselves in substitution for attachment and execution. Just as the power of the court is confined to the assets within is jurisdicion,. so it is of no consequence that the domicile of the debtor be elsewhere.
The allegations of the bill as to the financial condition of the corporation are scanty and inartificial. It was, as I have said, proper enough1 not to allege insolvency, and in its stead the bill alleged that the corporation was largely indebted and could not pay its debts, that its assets could not be quickly converted, that its creditors were threatening to-attach, and had begun to do so, and that, though the assets were enough to pay all, if properly conserved, yet, if no receivers were appointed', they would be dissipated, “to the great injury of the creditors and stockholders.” The creditors could not be injured, unless in the resulting-scramble they would not be paid in full. I could have wished for more-explicit allegations than are present, but when the point is only of jurisdiction, and the facts are not disputed, I believe that these will serve,, even if they only just serve.
Finally, even if the allegations be insufficient, it does not necessarily follow that these defendants can raise the point. The only valid objection in their mouths is that a payment to the receivers will not be a valid discharge. The corporation has itself consented to the decree,, and it is at best a very doubtful question whether the absence of any allegation that the creditors cannot be protected without a receiver would make the bill nonjusticiable. It is to be noted that in Davis v. Hayden, supra, the only case where the point was taken, the objection:
Here the receivers speak for creditors; they are pursuing their debtor’s debtor. It is well settled that in such case the proper place for garnishment is where you can catch the debtor. Pennington v. Fourth Nat’l Bank, 243 U. S. 269, 37 Sup. Ct. 282, 61 L. Ed. 713. L. R. A. 1917F, 1159; Harris v. Balk, 198 U. S. 215, 25 Sup. Ct. 625, 49 L. Ed. 1023, 3 Ann. Cas. 1084. It is true that the right of garnishment is generally exercised only to protect local creditors, but a federal court is not limited by such considerations. It is the especial province of such a court to treat creditors equally, wherever their residence. A creditors’ bill, which would lie in a state court to garnish such a claim as this at the suit of a local creditor, will lie in a federal court to reach the same “asset” on behalf of all. Indeed, while the law is not altogether clear, it is probable that New York receivers are the only ones who could sue, since Wisconsin receivers would leave any powers which the court might give them at the state line. I conclude, therefore, that the motions to dismiss the bill for lack of jurisdiction, or because of the plaintiffs’ incapacity to sue, should be overruled.
Next comes the defect in substance of the equity of the bill. The argument here is that the agreement constituted a partnership between the corporation and the firm, and that a corporation may not. en
“This action need not be regarded as one on the written contract of guaranty, but’as based "on an implied contract.”
Yet the complaint had been directly upon the guaranty. In the, case at bar, as there is no conceivable change in legal position which a disaffirmance could make, the absence of any such cannot invalidate the bill. Whether the cause is of equitable or legal cognizance, I defer for the,moment. It is enough, certainly as against motion to dismiss, that as respects the profits received and retained by the firm the bill states a good cause of action or cause of equity.
A more serious question arises under the second paragraph of the thirteenth article of the bill, which lays a breach of the original contract of April, 1920, by the firm’s refusal to accept certain consignments of coal in October, 1920, which they had previously directed the corporation to buy. It is apparent that there can be no recovery upon this if the contract be in fact ultra vires, so that as to this_ feature of the case the question cannot be avoided, as it was in considering the suit to recover profits. The argument, as I have said, is based upon the presupposition that the contract created a partnership, and that a partnership was idtra vires. We do not know whether the charter of the corporation gave it power to enter into a partnership, but I may assume that it did not. But the contention must rest upon the fact that the agreement contemplated the creation of a partnership, and that as this intention could not be fulfilled the contract was invalid. The defendants certainly cannot stand on any other theory, because, if the parties intended merely to share profits without becoming partners, it cannot be that the law will refuse to enforce it, on the ground that, if they had intended to form a partnership, the corporation had no power to do so. The law does not insist that parties must become partners because they share profits, and as a condition of sharing them; it merely infers that they mean to do so, because they share.
It is perhaps true that the agreement at bar would have created a partnership, if made by individuals; yet it is strange that, so far as I have found, no such contract to which a corporation was a party has been held invalid on the ground that a partnership was intended. The question, certainly as between the parties, being entirely one of intent, the proper rule seems to me to be that parties should not be presumed to intend to create a partnership by a joint venture, when one is a corporation. If that intent positively appears, the contract is of course invalid; but why should one assume that the intent includes what the law forbids? A corporation cannot become a partner, and certainly has no such purpose in making a contract like that at bar. Granting that such an intention could be presumed, but for the incapacity o.f one of the parties, it would be purely gratuitous to impute that purpose, in the face of the incapacity. This conclusion, at least in the case at bar, is reinforced by the fact that this was merely a “tentative agreement,” intended to be later taken over by one or more corporations. It was most unlikely that meanwhile the parties could have intended to be partners. I conclude, therefore, that the contract was valid, and that a cause of action arose upon the firm’s refusal to accept the coal.
But it is not necessary in the case at bar to consider any of these questions, for it is enough that this is a complicated joint venture, in which there must be an accounting involving credits and debits on both sides. In the very similar case of Fechteler v.- Palm Bros. & Co., supra, the point was raised and decided against the defendants. This case is, moreover, stronger than that, because the accounting is asked of defendants who received coal belonging to both parties, and, having
In Pullman Car Co. v. Transp. Co., supra, the relief given in quasi contract was upon cross-bill filed to a bill in equity of the Pullman Company, which had had the use of the cars. There had been a demurrer to the cross-bill as improperly filed, the decree overruling which the Supreme Court affirmed. It is true that the court (171 U. S. at page 148, 18 Sup. Ct. 812, 43 L. Ed. 108) did not pass upon the character of the claim as such, and perhaps the cross-bill was germane enough to be proper, though it set up a purely legal demand. Street, Fed. Eq. Prac. §§ 1040, 1041. But certainly the decision does not hold that the claim was legal. Moreover, that was the case of an invalid lease, not, as here, the delivery of property to another to be sold and accounted for. The implied obligation is of the same character as the invalid consensual obligation. If one is the subject of a suit, so must be the other. Hence I conclude that, in either aspect, the claim for an accounting was properly cognizable in equity, regardless of the avoidance of the release for fraud.
The motions to dismiss are overruled.