TALI,.EY V. CURTAIN.
43
conse.quent injury.I which. is. irrem. it consists in the lossofpl'ofits whicD.'are not of proof. My co:nclusion,therefore, .is that the. bill of,.complaint in this cause states a case. over which a court of equity must take jurisdiction, in that it is a case where the threatened damages are irremediable at law,aswell as one where the equity suit will prevent a. multiplicity of suits. As to proof upon the question of fact. There have been filed in this case in all 49 affidavits. I subjoin to this opinion a summary of each of tht'i'le depositions. The preponderance of proof establishes that the British steamship Violante arrived at this port from Vera Cruz November 29,1892, and on the 30th the crew was paid oft'. At that time the crew made no complaint regarding the food they received, or their treatment, or the safety of the ship, and continued at their duties until about noon of December 15, 1892, Without complaint, except that some of the crew had agked the captain whether they would be paid before leaving port for the days in which the ship had been lying at the wharf, to which he answered he could not do so, as it would be a violation of all agreements between the crew and the ship. On December 15, 1892, after the ship had been cleared from the custolbhouse, and the pilot had come aboard, the crew, with the exception of the steward and the cook, retired from the ship. thus deprived of its crew, the ship could not leave on December 15th, as contemplated. It is also established that thf' steamer Violante, after her crew left, on the 15th of December, did not succeed in getting a crew until December 24, 1892, after the restraining orders had been issued against the defendants in this cause, and that, during the whole period of nine days, the police authorities were called upon, and went to the assistance of the master and agents of the vessel in getting a crew; that, while other steameI'S in the vicinity had no difficulty in getting crews, the steamer Violante was unable to get a crew to stay on the ves.'lel until they got the protection· of the restraining. orders from this court. I think the evidence establishes that the inability of the ship to retain the crew already shipped, and her inability to obtain another crew, except after the interference of this court by Us restraining orders, were due to the acts of the· defendants. The evidence .fails 'to connect the defendant Dunn with the unfriendly acts of the other defendants. I think the case, upon the question of facts, as well as law, is with the complainants, and that the injunction pendente lite should issue against the defendants, except the defend- ant Dunn. As to him it is refused. TALLEY et al. v. CURTAIN et al. (Circuit Court of Appeals, Fourth Circuit. February 7, 1893.) No. 33.
1.
CRlIlDI'1'ORS' BILL CR;EDJTOltS.
tor the benefit of creditors may be maintRined thOugh plalntifl"s claim
WHEN MAmTAmABL1Il ,
ASSIGNMENT FOR BENEVrl' OF
44
FEDERAL REPORTER,
vol. 54.
The debt being thus solemnly admitted by all parties, and the principal question being as to the validity and oonstruction of the trust created by the deed of assignment, equity jurlsdlction cannot be defeated on the ground that, the claim being for a money payment exceeding $20, the defendlUits are entitled to trial by jw:y under the seventh amendment to the oonstitution of the United States. 46 Fed. Rep. 580, affirmed. Scott v. Neely, 11 Sup. Ot. Rep. 712,140 U. S. 106, dlstlnguished. 8. B.unll....PABTIE8. In such case the oourt has power to make a decree affecting the right of cJ.'ed1t?rs preferred in the assIgnment, although they are not parties, for it is Sllfficient that'the trustee who represents them is in court. 4. ASSIGNMENT FOR BENEFIT OF CREDITORS-VALUllTY-PREFERENCES. In VirIDnla, the fact t4at an assignment for the benefit of creditors contalnspreferences Is nqt in itself a.b8.dge of fraud rendering the assign, ment invalid. G. BAalE.....TBUSTEE-AUTHOBITY TO WOIUt UP MATEBIALS. In·Virglnia, the fact that an assignee for the benefit of creditors is au!D'l:ijs ,to the manufacture of material on hand and partly finished, and thus preserve it, is not an indication of fraud which Wlllinvalidate the' assignment. ' 6. SAllE-AssIGNOR' I! MISCONDUCT. , Where an assignor for the benefit' of creditors, after opportunity, fails to explaJnhis purpose in collecting sums of money, some quite large, immediately preceding the assignment, or to show what disposition, if any, he has made thereof, though no act preceding the deed of assignment suggested fraud to the assignee, and ,. there was notl$g therein to excite his suspicIon, such instrument may be held good as to the assignee, though the assignor, by his conduct, has forfeited his right to a provision for release therein contained. '7. OBEDITO:as' BILL-PRIORITIES-STAT.' PRACTICE. The tact that by statute in Virginia a complalnant In a creditors' bill obtalns priority of payment, does not give him such priority when the suit Is brought in the United States cIrcuit court within such state. Scott v. Neely, 11 Sup. Ot. Rep. 712,140 U. 8.106, followed.
a
vided for in the deed of assIgnment, and Is not disputed by the pleadings, since it Is obvious that a judgment8nd execution would atlord no remedy at au, 8.Dd that there Is no remedy at law. 46 Fed. Rep. 580, afIlrmed. BAllE-EQUITY JURISDIOTION-RIGHT OF TRIAL BY JURY.
has not been reduced to 'udgment,when such cla1m Is recognized and pra.
Appeal from the Oircuit Court of the United States for the Eastern District of Virginia. ' In Equity. Creditors' bill, filed by Ourtain & Oorner, suing for themselveS and others, against Williamson TaJIey, trustee, and Ernest' H. Ohalkley. Deoree for complainants. 4:6 Fed. Rep. 580. Defendants appeal. Reversed in part. J. Cabell and Legh R. appellants. A. L. Holladay and Wm. Flegenheimer, for appellee. Before BOND and GOFF, Circuit Judges, and SIMONTON, District Judge. SIMONTON, .District Judge. .Ernest H. Ohalkley; a. citizen of Virginia, resident in Richmond, became insolvent. He thereupon executed his deed, with the expressed desire tooonvey all of his property pf every kind and in. trust to. secure the 'payment of hia Carrying out th,is intent, he conveyed certain.
TALLEY 11. CUB'l'AIN.
45
property described to Williamson Talley, as trustee in fee, and adds these general words: "All other property of every kind and de!lCriptloD,whether real or personal, and all debts. claims, rights, and securitlesto which IllI1d Emest H. Oha1kley may be entitled, as fully and effectually as if the Bame were Ipeclflcally mentioned herein and were hereby specifically conveyed,"
Among the crediton whose names are mentioned as cestuis que trustent of the deed, and· whose claims are specifically admitted, are Curtain & Corner. The notes due to them are set out in deta.il. Being dissatisfied with the terI:ns of the assignment, they filed a oreditol"8' bill, seeking to set it aside as fraudulent and void. The assignor and assignee answer severally. Each denies the fraud. No objection is made to the form. of the bill or to the jurisdiction of the court in the pleadings. At the hearing the jurisdiction of the court was challenged. The court below overruled the objection, and this (which is the ground of the first exception) meets us at the threshold of the case. Can a general c.reditm- institute proceedings in equity to aside as fraudulent the deed of his debtor, there being no judgment at law on his claim., and no unsatisfied execu. tion? Two reasons are suggested in argument whytbis question should be answered in the negative: First. That the practice of the court of equity always has been to refuse its assistance to a creditor seeking to set aside the deed of his debtor for fraud until he has first secured a judgment at law, issued his execution thereon, and has procured a return of nulla bona. Second. That· by the constitution of the United States the right of trial by jury is preserved in suits at common law when the value in controversy exceeds $20. And that, inasmuch as the court of equity has no jury, it cannot give relief in cases in which the basis of relief is a money demand exceeding that sum, the court being called upon, in the first instance, to establish the validity of the debt. We will examine these. Stated as a general proposition, there can be no doubt that courts of equity require a judgment and execution and return as a condition precedent to setting aside the deed of a debtor for fraud. Day v. Washburn, 24 How. 355; Jones v. Green, 1 Wall. 331; Smith v. Railroad Co., 99 U. S.401. The principle of the rule is this: Before one can come into the court of equity, it must appear that he has not a plain, adequate, and complete remedy at law. If he have a legal remedy; he must exhaust it. The requirement of the judgment at law, execution and return thereon, is the best evi· dence of this. Can it be shown in· any other way? Equity will never require an act to be done which nece!!!Sarily will result in failure, or which would be but an idle effort. "When the tender or per· formance of an act is necessary· to the establishment of a. right against another party, this tender or o:fl'er of performance is wgived or becomes unnecessary when it is reasonably certain that thEh·offer will be refused." U. 8. v. Lee, 106 U. S. 202, 1 Sup. Ct. Rep. 240. In Sage v. Railroad Co., 125 U. S.376, 8 Sup. ct. Rep. 887, a. suit by a creditor to set aside a deed, it was objected that he had not sued out his execution, and that return thereon had not been. made. The conn
FEDERAL,REPCYR'.rER,
robjeetion.;,'!'StdDgL'ont .the. eXooutiOD .would, acoording to the facts and the admission of the parties, been an. idle cere. u. a is discUssed, ,and ;the OQnclUSIQll.· ilI.l'eltched that a Judgment at is.not necessary' if the necessity ·of the resort to a court of' equity can be otherwise made to· appear.illlJJut, after all, thejudgmeht and executjoll are onlY 1$. legal have Or that he is witb,ollt remedy at law. They are not possible P1'09'f.; The necessitYof a to a court may be ,mOOl! otherwise to appear. Accordiilgly the rule, thOug'4:;,generl;lJ, is ,not: without: plany exceptions. .Neither law nor eqnUii Fequires a meaningless fo11I1, 'bona sed. impossibilia non cogit in the,.deed· before debtor not only professes to convey', AAd ,assign, ,but in faot in express ,words does convey and ill his, p,r()perty a,nd property to a trusrtoo in lIe has thus pElJ:'ted irrevocably, as far Wi! he is concerned, with: . assem T1}.ey.are, UllQ.er tbisdeed, converted .into equitable and canPe..reached ,orily in a,. court of equity. A judgment. could,crea.te no lien Oll! them;. an execution consequent on such a judgment could not reach them. The return of nulla bona . is n()t foregone cpnclllSion; .1twould be an iQIe ceremony. The not ha.ve adequate, and complete he at all.· ll:plguage o! the in Oelfioh.S,v. Spain, :L5.Walt 228, IS not InapprOprIate: "WWwe: ,remedy at .14)'1". fa of tb,Is \ chlU'llQter, [plain, adequate, and comseeklil,g :t;edress must pUl'lilue It. In such cases the adverse constitutional right to atria). ot, the issues of fact by a jury. But hall no appllca:tlon to' thedase before us. Upon looking into the reclmtltlls clear to ourmtndef'Dot onlythat:the remedy at law would not be as etJle<ltullJ.. as the equity, ·bl,1t we do not see that there is any eJrecwal, reIl1edy at all at ):J.l,W" .. Is, an of trust in the 'ease WhiCh,; 'wherever it exists,, l!lwl1ys centers jurisdiction ,in equity." ;"1 · , ': . "-: i,; .: ,j','I,
\
plete,] . party
i
',";
which Upon-this brancb. of the caae, Scott v. Neely, 140 U.. S. Sup. Ct.Rep. 712, is relied on. The case of Scott v. ,Neely cireuit gourt of the United States for the district Scott had Peen engaged in planting, having for his faetofS Neely's 1irIJl. lIewasnotsuccessful,and the complainantso tJ;lat he owed tllem as his, taCWI"S $2,000 on a note, and on a open :for advanpes,$6,264.89. Scott, during his plantingOper3tions, realeetate, the title of which he put 4li:the ntwle of his wife. Complainants, without establishing their' chW:nltt law, filed .thQlr bill set1:ib:tgup their demand, claiming judgmentfo;rit,and that tb.econveyanoo to the wife,be set aside, the and the proceeds, of sale first applied to their claim. u.iaJftQ.tutein·Missiasippi w;b.ich.autbonzesthe court of equity in that: lidiqibe to. entertaJn.iluch.,a suit and to Scott y. that the;;!liasissippi ,'statute could not create or ,such a :court of equity of the United Statea" and that. a court ofdNu11;y; .of the United States could not suit, the adverse-
court of:equtty, having no iJU"Y,QaIlllotpass ,upon this money demand
This brings us to the second objection to the ju.risdiction,-that the
TALLEY t1. CURTAIN.
47
party had the right,nrtder the" oonstitntion, to his trial by. jury. There was no trust. '.rb,e clainl'ot complainants was strictly OIl a money demand, the larger! portion not liquidated, con.si$ting of 1m account of adVlmces, interest, credits, and charges. No pa.rt of the debt was admitted. It had to be established and proved after opposition and litigation. The contract itself must have been proved. There was nothing to show why the remedy at law was not· plain, adequate, and complete. The complainants had first to prove their case, then to set aside the deed; and they claimed that they could enter judgment and secure the first lien. The complainants had no lien on or interest in the property. The main issue in the case· was whether the cou.rt:s of the United States could and would enforce the state .tatute. It seemed to be admitted on all sides that without such a statute the court had no juris'diction. The inevitable conclusion was reached that, as state legislatures cannot take away, so they cannot confer, jurisdiction on the. courts of the,· United St.a.tes. In the present case we have an acknowledged debt, admitted ,in the most formal way, binding grantol' and grantee. The pleadings dispute! it in no way. The deed conveys all the property of, the debtor in trust for· many W;editors, amoIlg them these complaiinants, by name and amount. The assignox::. cannot recall this act of his. The cannot divest himseU ,of the trusts, or diminish the interest oJ' the complainants in them. Indeed, the interest i,pheres in the ants themselves; and, although they deny the validity of thedood, and declare it void, if they fail in their contention, it would seem that they can receive their under it. The question made in this court-the only question-is the validity of certain trusts i:q,. $is deed. They are to be upon and adjudicated. If their validity be sustained, they will be administered under the supervision oftha court. If any of them be held invalid, they will be disregarded. If all the special trusts are invalid, one remain.s, and that is for all creditors, and that the court can administer with that equality, which is equity. It is true that the comylainantsdeny the validity of the deed. But this denial cannot defeat the trusts, if any exist, nor affect creditors who have come in under this creditors' bill, nor defeat the jurisdicthm, which does not depend on the attitude of the complainants. The aid, of the court has been sought to construe a trust. Having jurisdiction to do t.h.is,-its peculiar province,-it can go on, and give such relief as it may think proper" upon the whole case. Story, Eq. Jur. §64k. In the case of Oelrichs v. Spain, above quoted, 15 Wall. 228, we have seen the court, discussing this same proviBion of the constitution, use the words: "Besides, there is an element of trust in the case which, where it exists, always confers jurisdiction in equity." In Case v. Beauregard, 101 U. S. 691, also quoted above, the point decided. is that whenever a creditor has a trust in his favor, ora lien upon property for a debt due to him.,. he may go into equity without exhausting his legal processes or remedies.. In Scott v. Neely, 140 U. S. 112, 11 Sup. Ct. Rep. 712, the learnedjus1ice who delivered the opinion of the court
''!B an cases in whlchtlie court of eqUIty intertereil' to a1d the eutoroement of remedies at law there must be anaek:l1owledged debt. or one established b7
48
J'EDERAL REPORTER,
" judgmentrenttel'ed, by & rlght to the. appropriation of the property of the clebror for Ita or, with greater aOOllrll.C1, there must be, in a4dition to such acknowledged or eStablished debt, an Interest In the propel'lty, or a lien thereon, created by contract or some distinct legal proceeding."
He puts it again: "Itlsthe existence, before the suit In equity Is Instituted, of a nen upon or Interest Inthe property, created by contract, or by contribution to Its value by labor or' materials, or by judicial proceedings had, which distinguishes cases tor the enforcement of such or interest from the case at bar."
There can be no question that complainants have an interest in the property under this dee<L· .At all events,. neither of the defendants, grantor nor grantee, can 'aiver the contrary. If, then, the case comes within the normaJ jurisdiction of a court of equity of the United States, either because it deals with trusts and equitable assets, or becauseoomplainantB· Mveno plain" a.dequate, and complete remedy at law, :weesoape the of. the constitution relied on. "This proviSiol;1,cdrrectly intetyt'eted, cannot be made to embrace the established 'exclusive juri8diotion of courts of equity, nor that which they liaveexercised Mconeurrent with courts of law;. but· it should be underswoo as limited to' rights and remedies peculiarly legal in theil'nature,and such M,ltjvas :proper to assert in courts of law, and by t!la aPl'lropriatemode&lU1d 'proceedingsof courts of law." Shieldll v. Thomas, 18 How.262.. j '· . . We OV'ei'ru1e the exception; and'sUstain the jurisdiction. In this connection'it must be stated that in Peters v. Bain, U. S. 670, 10 Sup. Ot. Rep. 354, a case just like this WM entertained, with no suspi6ionOb. the part of' the late who heard the case on cfrcuit,or of the supreme court, who affirmed him, that the cClllrt' had no jurisdiction. . The'seMnd exception deniM the right of the court below to make a:ily..' order or affeeting' the rights of the prefelTed creditors' futhe deed of Chalkley without first requiring them to be made' parties. The trustee of this express trust represents all the cestuis que trustent. They need not be made parties. Kenison v. Stewart, 93 U.S. 156. This exception WM properly abandoned a.t the hearing. The thil'd and fourth exceptions bring up the 'question of the validity of the· deed. The 'court below set it aside as fraudulent. In construing this assignment, we follow the decisions of the court of last resort in Virginia·. Lumber Co.v. Ott, 142 U. S. 628, 12 Sup.Ot. Rep.S18. In Virginia, the grantee or assignee of a deed like this standsMa bona fide purchaser. To invalidate the deed, notice of the.ftaud must be brought home to him. Peters v. Bain, 133U. S. 686, 10 Sup. Ct. Rep. 354. It would appear that it is not the motive or conduct of the maker of 'the deed which alone can invalidate it. The gratitee or MSignee must have cognizance of, or at· least be put'iD.the way of ,notice of, the fraud, before the deed can be invalidated. . This notieecan be had either'. from the provisions of the deedi1JJelf' or from . facts dehors' the deed, known or within the meaDE/..otJ,mQwledge by the grantee..FrQJll the testimony taken in the cause there is no reason to suspect that the trustee was cogi
TALLEY II. CURTAIN.
49
nimnt of any fact 01' circumstance dehors the deed from which he could conclude or be led to the conclusion that the assignor contemplated a fraud. On the notice of fraud on the face of the deed the supreme court in Peters v. Bain uses this language: "The doctrine in Virginia, settled by a long and uninterrupted Dne of decisions. Is that, while there may be provisions In a deed of trust of such B character as of themselves to furni<;h evidence sufficient to justify the inference of fraudulent intent, yet this cannot be so except when' the Inference Is so abSolutely Irresistible as to preclude Indulgence in any other."
We have carefully examined the deed, and in the light of thls utterance of the supreme court we cannot see an inference of fraudulent intent so irresistible as to preclude indulgence in any other. The deed, after stating the property assigned, and adding the general clause embracing all his property and rights of property of every description, declares the trusts. It puts the trustee in immediate possession of everything connected with his business, his bOoks and papers, and all of his personal property. It gives him discretion to complete the manufacture of leather in the course of manu· facture, and to work up the material on hand, with authority to purchaae such material as may be necessary for this purpose. If he do not' deem this expedient, or if a majority of the creditors secured in this deed object, he is to sell everything aa it stands. He haa power and instructions to collect in all assets, with authority to pay all necessary expenses, to this end. The proceeds of all sales and the result. of all collections are to be distributed among the creditors with preferences: First, the costs and expenses of the assignment, the commissions·.of the' trustee, and fee to the counsel preparing the deed; second, certain debts of Chalkley, accommodation paper and notes due banks, an overdraft in one bank, and one week's wages to his employes; third, certain other debts of Ohalkley, among them notes due to complainants, with a general clause, including all debts inadvertently omitted, in which he is principal debtor; fourth, his security debts; fifth, all other creditors. After the fourth class come these words: "But this deed Is made upon the distinct understanding that no creditor hereby Intended to be secured In the above classes shall receive any benefit whatever under It unless he shall, within ninety days from the date of Its recordation, signify In writing his acceptance of the provisions of this deed, and release the said Ernest H. Chalkley from all further l1abll1ty for his debt."
The discretion given to the trustee to work up material was not in itself fraudulent; still less does it furnish an irresistible inference of fraud. The business assigned to him was a tannery, and the completion of the manufacture of material in the course of manufacture probably prevented. its destruction. Indeed, this same trustee, under the -sanction of the court below, did exercise this same discretion. Nor are the preferences a badge of fraud, under the decisions in Virginia. Peters v. Bain, 133 U. S. 680, 10 Sup. Ot. Rep. 354. The decisions of Virginia allow the requirement of a release in an assignment. Skipwith v. Ounninghl,tm, 8 Leigh, 271; Paul v. BaugJJ" 85 Va. 955, 9 S. E. Rep. 329.&, treating this deed from. the standpoint of the trustee or assignee, and bearing in v.54F.no.1-4
50
REi'oBTElRitvol. 54. j
mind: that"uo',Yact preeediIrgthe.ignment suggestihg fraud in its execution iwas 'Jmown to him,' th.eJ.oe was nothinginthe deed to excite his suspiciom;,;It' had in it provis!ons knownm V'irg:inia.,and tioned by a long line of decisions highest court. .But when as by the eviwe examine.:tl;I.efacts dence, and discover the 'conduct of the grantor, we cannot resis1i the .conclusion that his actions were of the most.sus.picious charac.ter, and the. iiiferences of fraud Qn,14s part aJniost It is proved that he was in the frequent' receipt of sums of money, some of,largeam.ount, justpreceding-indeed, aJmost,: up to-the day on which he made his deed. For t.h1a he has had full opportunity of malting complete explanation. He has attemp.ted none whatever. 'he .hadin collecting these sums of money, what use he made of it, whether he maile any disposition of it at aJI,-the atlSWerlSto these questions he could easily have· maile. He had not only the opportunity, but the right, to make them. He has said. notbtng. While the courts in some states, and, among them, the stateiofVirginia., permit a deed of this kind to require a release as a condition precedent, it is granted reluctantly. '. It is. never per, mitted ,UDless there is' on the part of the assigning debtor a full, and free, surrender afaR of his property, clearly and .distinctly, and afra.Dk, unambiguous, statement of 'his affairs. If he demands this benefit, he must do so with clean hands. In this case the position of the' asSignor, before, this court is not of this character. So far as we are: able to of his'ootioD8,' b:ewithholds' in1portimt knowledge from hil!Icreditors.and he is entitled to no consideration. While the deed is good as to the trustee, this provision for a'release, inserted wholly for the benefit-of the grantor, cannot be' sustained. ' The conveyance to the trustee can be sustained, although we hold that debtor has forfeited this provision. Compare Doon.y v.. Bennett, 128 U. S.. 489,98up. Ot Rep.134;Ounningham v.Norton, 125 U. S. 77, 8 Sup.Let. Rep. 804; Peters v. Bain; 133 U. S. 688, 10 Sup. Ot. Rep. 354.Wifu this exception; we uphold the deed,· and to this extent sustain the exceptiollil. i' . .'fhUJ' isa creditors' bilL In this court the CQlllplainant in a creditm'S' bill of this character obtaillil no priority of payment. Day v. Washburn, .24 How. 355.' Such priority may' be. allowed under the statute. but this cannot guide thiscqut:+ Scott v.Neely, lSo far aa the decision of the circuit court ifsin conflict with this opinion,. it is reversed. Let the case be remanded to that court for such \other.proceedings as may be necessary. BALTl;MORE & O. TEL. CO. OF BALTIMORE COUNTY et al. v.lN· TERSTA!.l'm TEL. CO. (Ch'eu1tCourt of Appeals, Fourth cirCuit. Febl'dary 7, 1893.) No. 28.
CORP.OBATIO··..;..COllTlW"1'8-lNSOLVENCY-LUBIL.
A railroad company, owning an extensive 'tele'graph'system, cauSed the 1DcorpOrat1ono:f a telegraph company by Ita lJdIlOOWf,i:futnJshedi Ita ei:lUft'
FUND.