This is a plenary action brought by the trustee of a bankrupt corporation to set aside a chattel mortgage of the corporation, to vacate a sale thereunder and to recover, free from lien, the chattels covered by the mortgage. The same matter had been before the Court of Chancery of the State of New Jersey in an action instituted by another plaintiff against the same defendants. The District Court, holding that the cause of action was res judicata, dismissed the bill.
The plaintiff, by this appeal, brings here for review the one ground on which the decree was based. This calls for a careful consideration of the action in the Court of Chancery of the State of New Jersey.
From the record in that case, now before us, it appears that Thomas, a creditor and stockholder of American Box Company, filed a bill on behalf of himself and all other creditors and stockholders who should come in and contribute to the expense of the suit. The defendants named in the bill were American Box Company, a corporation, and seven persons who were described as mortgagees of a chattel mortgage made by the corporation. While the eight defendants, corporate and personal, were joined generally, separate relief was sought against the corporate defendant and against the group of personal defendants. All relief, however, was directed to the one object of conserving corporate assets for the benefit of stockholders and creditors. The bill charged, inter alia, that the personal defendants had acquired a chattel mortgage from the corporation which was not executed and recorded in accordance with a statute of the State of New Jersey; that the consideration was invalid because in part for a pre-existing debt; that a foreclosure sale under the mortgage, as well as the mortgage itself, was void because, in a word, the whole transaction was a fraudulent scheme or conspiracy on the part of the mortgagees to acquire the property of the corporation, then insolvent, in fraud of, stockholders and creditors. Passing from the personal defendants, the bill reiterated the charge that the corporation was insolvent, and concluded with several prayers. One was for the appointment of a receiver for the corporation. This prayer was directed against the defendant corporation. The others, directed against the defendant mortgagees, were, that they make discovery of the- goods and chattels which they had acquired by foreclosure of the chattel mortgage and that they be forever enjoined from selling or otherwise disposing of any of the property and effects of the corporation so acquired.
The Vice Chancellor made an order temporarily restraining the defendant mortgagees and commanding them to show cause why an injunction should not issue according to the prayer of the bill and
What did the Court of Chancery do under the bill with its separate prayers against defendants of different characters? It received and considered many supporting and answering affidavits, first, with reference to the solvency of the corporation, and next with reference to the alleged transaction of fraud and conspiracy. In due course the Vice Chancellor entered a decree by which he appointed a receiver for the corporation on the ground of its insolvency and, vacating the restraining order, dismissed the bill against the defendant mortgagees.
On its face, the decree of the Court of Chancery on the allegations of the bill charging statutory irregularity in the execution of the mortgage and fraud in its delivery has all the appearance of being final, placing upon everyone interested the compulsion of observing its mandate or appealing. Certain of the creditors of the corporation were not disposed to follow either course but filed in the District Court of the United States for the District of New Jersey an involuntary petition in bankruptcy against the corporation, where, through the trustee later appointed, they caused this action to be brought against the same seven mortgagees on a bill making the same allegations of fraud and invalidity of the chattel mortgage and sale and praying for the same relief as in the bill in the Court of Chancery. The few differences in the stating part and praying part of the bills in the two actions are negligible. The decree of the District Court dismissing the bill followed.
The appellant meets the issue of res judicata by denying that the essential identities of the doctrine are present and by asserting that the decree of the Court of Chancery was not an adjudication at all.
The appellant’s attack upon the decree of the Court of Chancery on the latter ground is threefold: First, that the decree was in a
case declaring on two actions not triable together; second, that the court did not have jurisdiction to decide the case; and, third, that the decision was not upon the merits.
The line which distinguishes between the want of jurisdiction and the irregular or erroneous exercise of it, the Supreme Court said in Voorhees v. Bank, supra, “is very definite; and is precisely that which denotes the cases where a judgment or decree is reversible only by an appellate court, or may be declared a nullity collaterally, when it is offered in evidence in an action concerning the matter adjudicated, or purporting to have been so. In the one case, it is a record importing absolute verity; in the other, mere waste paper.”
Continuing the Supreme Court said :
“The general and well-settled rule of law in such cases is that, when the proceedings are collaterally drawn in question, and it appears on the face of them that the subject-matter was within the jurisdiction of the court, they are voidable only. The errors and irregularities, if any exist, are to be corrected by some direct proceeding, either before the same court, to set them aside, or in an appellate court. If there is a total want of jurisdiction, the proceedings are void, and a mere nullity, and confer no right, and afford no justification, and may be rejected, when collaterally drawn in question.”
With this distinction stated, we come to the question of jurisdiction of the Court of Chancery of the State of New Jersey to render the judgment now pleaded as res judicata of the pending action.
*201 “The Court of Chancery in the order referred to directed that ‘the bill as filed herein and as affecting (the chattel mortgagees) he and the same is hereby dismissed,’ whereas the order should have read that that portion of the bill affecting the chattel mortgagees be stricken out, or be not emsidered."
But the Vice Chancellor did not strike out the portion of the bill affecting the chattel mortgagees or refuse to consider it. . He accepted the supporting and answering affidavits on the chattel mortgage feature of the bill and ultimately rendered judgment thereon by dismissing Ihe bill as to the defendant mortgagees. Clearly, if the learned Vice Chancellor was moved to his decree dismissing the bill out of regard for practice or procedure which forbade his deciding the question of the chattel mortgage on the merits, he would have said so and, doubtless, he would have said so in limine; but after receiving the evidence and deliberating upon it, we must construe his decree of dismissal as based on it. If under New Jersey procedure he should-have taken another course in passing on the averments of the bill with reference to the invalidity of the chattel mortgage and sale, we are constrained to believe that his action was one involving the irregular exercise of bis jurisdiction and not one of usurpation without jurisdiction.
“It is not always necessary that the parties to the two suits should be nominally the same in order that one recovery may bar another. It is in general sufficient if they are really and substantially in interest the same.” Black on Judgments, § 5S7.
“In most, if not in all, cases of this sort, the decree obtained upon such a bill will ordinarily be held binding upon all other persons standing in the same predicament, the court taking care that sufficient persons are before it, honestly, fairly and fully to ascertain and try the general right in contest.” Story, Ed. PI. § 120.
The decree below is affirmed.