6 F. 468 | U.S. Circuit Court for the District of Western Wisconsin | 1881
This is a demurrer to a bill in equity brought by the complainant as assignee of Wilson & Kiene, bankrupts. The bill sets out the following state of facts: On and prior to the twenty-ninth day of August, 1878, Wilson & Kiene, as copartners under that firm name, were and had been doing business in La Crosse as retail dealers in pork, hams, lard, etc. On that day they were adjudicated bankrupts, and the complainant was subsequently appointed as-signee. On the twenty-eighth day of August, 1878, the bankrupts were indebted to the La Crosse National Bank in the sum of $5,000, as the makers of a promissory note, dated May 30, 1878, payable to the order of the hank, and due August 31, 1878, and on which the defendant, Solberg, was indorser. The bankrupts were also at that time largely indebted to various other persons, and had not sufficient prop-' erty to pay their indebtedness, nor did they have bankable assets with which to pay- their note held by the bank, of which fact the defendant had knowledge. This being their condition on the day last mentioned, August 28th, Wilson, acting for the firm, but without the knowledge or consent of his partner, sold and delivered to the defendant their entire stock in trade, alleged to be then worth $3,000, and in payment therefor took the defendant’s note for $2,464.14. The defendant was at the same time indebted to the bankrupts in the sum of $1,333.16 on open account, and for this amount he then gave to the firm his note. On that day the bankrupts had in hand $494.30 in cash, and also held notes against various persons, amounting in all to $792.81, all of which he indorsed except one note, which, without .indorsement, was bankable paper. The bankrupts, or one of them, at the request of the defendant, then took the two notes so made by him, also the notes against third parties which he had indorsed, and the cash which they had in hand, to the bank, and took up their $5,000 note, upon which the defendant was contingently liable as indorser.
It is alleged that this payment was made for the purpose
The bill is demurred to on two grounds: (1) That complainant's remedy is at law; (2) that upon the allegations of the bill the complainant is not entitled to the relief he seeks.
1. It is contended by counsel for the defendant that this bill is in substance a declaration, in case that no discovery is sought, that no such account is needed as involves the exercise of equity jurisdiction, and that, in short, the bill contains no allegations disclosing a necessity for resorting to a court of equity.. It is provided by statute of the United States (section 723, Rev. St.) that “suits in equity shall not be sustained in either of the courts of the United States in any case where a plain, adequate, and complete remedy may be had at law.” This is merely declaratory of the pre-existing rule. Parker v. Cotton & Wool Co. 2 Black, 545. Many authorities were cited by counsel on the argument in support of and
The case most nearly parallel to this, cited in support of the demurrer, is Garrison v. Markley, 7 N. B. R. 246, which was a bill to recover the value of a stock of goods alleged to have been transferred by the bankrupts to the defendant, a creditor, with a view to give him a .preference, in fraud of the bankrupt law, and in which it was held that the remedy at law was plain and adequate, and jurisdiction in equity was therefore declined. That case, it is to be observed, involved only the recovery of the value of property which the creditor had directly received from the bankrupt. That was all there was of it, and therefore trover was a suitable and complete remedy. The present bill, as we shall see, discloses some features not present in Garrison v. Markley.
In many of the cases referred to by counsel for the complainant the question of equitable jurisdiction was not directly raised, and was therefore only impliedly decided. In some of these cases, and in others where the question arose for distinct adjudication, it was sought to set aside conveyances of land, or mortgages on personal property, or transfers of securities, and none of them arc directly in point as parallel cases to the present; though it would seem that Flanders v. Abbey, 6 Biss. 16, is a ease which, if it is to bo regarded as authoritative in its full extent, would support jurisdiction in equity, even upon such a state of facts as existed in Garrison v. Markley, supra.
Cady v. Whaling, 7 Biss. 430, was a bill to reach property transferred by the bankrupt to his wife, and involved the
None of the cases cited on either side disclose such similarity to the case made by the present bill as to make them applicable, except as they enunciate general principles. This demurrer must, therefore, be decided by applying the general rules or principles relating to equity jurisdiction to the facts alleged in the bill. If equity declines to take cognizance of this case, it is because the remedy at law is plain, adequate, and complete. Such remedy must be plain, for if it be doubtful and obscure at law, equity will assert a jurisdiction. It must be adequate, for if at law it falls short of what the party is entitled to, that fqunds a jurisdiction in equity. And it must be complete; that is, it must attain the full end and justice of the case. 1 Story, Eq. Juris. § 33. If the transaction in question was attended by or has given rise to circumstances on account of which a judgment at law will fall short of doing full and complete justice between the parties, or on account of which there is difficulty in reaching the full merits of the case under the rules of law, or where there is even a reasonable doubt as to the remedy at law being plain, adequate, and complete, equity will- always take and retain jurisdiction. Garrison v. Marldey, supra. To these general rules may be added another, which is that if there are grounds for equitable relief as to part of the substantial matters set out in the bill, equity will take cognizance of the whole.
If the entire subject-matter of the suit consisted of the sale and transfer to the defendant of the bankrupt’s stock of merchandise, the remedy at law would undoubtedly be adequate and complete; for the goods were delivered directly to the defendant. They came to his hands, and were converted by him, and trover would lie for their value. In such case it would not do to say that, because fraud was involved, the jurisdiction of a court of equity might be invoked concurrently with that of a court of law. That rule is subject to excep
2. It is insisted, however, that the bill makes no case for relief in law or equity, and the grounds urged in support of this point are that the use made of the assets of the bankrupts was not a payment to the defendant, nor to his use, as he had not been charged with a fixed liability on the note held by the bank, and owed no one on account of the note; that the action should have been brought, if at all, against the bank, as the party receiving the payment and realizing the sole legal benefit thereof, and if the bank received the money innocently, then there was no unlawful preference. I think this view of the case made by the bill is unsound. The st.at-
This language manifests an intent to prevent any evasion by indirect payments or dispositions of property. It is true that the defendant’s liability on the note to the bank had not been fixed; but within the meaning of the law ho was under a liability for the bankrupts. He had assumed the liability of an indorser, which was contingent at the time, and which might or might not become absolute. It was such a liability as would have supported a security passing from the makers of the note to the indorser to indemnify him against loss. The transaction, as it is set out in the bill, amounted to a scheme between the bankrupts and the defendant, whereby, in anticipation of the maturity of the note, and for the purpose of protecting the indorser against absolute liability and ultimate payment, it was arranged that through the intervention and co-operation of all the parties the assets of the bankrupts should be appropriated to the payment of the note and consequent benefit of the indorser. True, the payment was not directly to the indorser, but in equity it was equivalent to that, if the facts are as stated in the bill, and equity will look through the transaction and see if it is within the spirit and meaning of the law, if not its letter. If the defendant had taken directly the securities and assets of the bankrupts for the purpose of applying them in payment of the note held by the bank, and had so applied them, and if the other required conditions had existed as alleged in the bill, there could be no question that it would have been within the inhibition of the statute. As the case is stated in the bill, has the defend
In Bartholow v. Bean, 18 Wall. 635, the question was whether a payment by an insolvent, which would otherwise be void as a preference, was not excepted out of the provisions of the law, because it was made to a holder of his note, -overdue, on which there was a solvent indorser whose liability was fixed; and it was held that it was not. Justice Millqr, in the opinion, says that “the statute in express terms forbids such preference, not only to an ordinary creditor of the bankrupt, but to any person who is under any liability for him. * * * It is therefore very evident that the statute did not intend to place an indorser or other surety in any better position in this regard than the principal creditor; and that if the payment in the case before us had been made to the in-dorser, it would have been recoverable by the assignee. If the indorser had paid the note, as he was legally bound to do when it fell due, or at any time afterwards, and then received the amount of the bankrupt, it could certainly have been recovered of him; or if the money had been paid to him directly, instead of the holder of the note, it could have been recovered; or if the money or other property had been placed in his hand to meet the note, or to secure him instead of paying it to the bankers, he would have been liable.” This language is plainly expressive of the view that if, in advance of his liability being fixed, an indorser takes the bankrupt’s property to meet the note which he has indorsed, when it shall mature, or to secure himself against loss, he will be liable as accepting a preference. And it would seem that if
In Bean v. Laflin, 5 N. B. R. 333, it was held that an indorser of a note who receives none of the proceeds of the same, and whose contingent liability never becomes absolute, cannot be compelled to pay to the bankrupt’s assignee the amount of the note paid by the bankrupt to the holder. But in this case the maker of the note paid it at maturity without calling on the indorser or surety, and was then carrying on his business, and so continued for a considerable time thereafter ; and, moreover, the surety was not a participant in any scheme for the appropriation of the bankrupt’s property to save himself from ultimate obligation to pay the note. It may be added, further, that some of the doctrine of the opinion in this case is quite irreconcilable with principles laid down in Bartholow v. Bean, supra. As bearing upon the question under consideration, and as tending to sustain the views which have been expressed, the eases of Ahl v. Thorner, 3 N. B. R. 118, and Cookinham v. Morgan, 5 N. B. R. 16, are not without force.
I think the bill should be answered. Demurrer overruled.