Court Opinion

ID: 9307995
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:18:42.990573+00
Date Added: 2024-06-11T17:14:00.306644
License: Public Domain

HAMMOND, J.
(after stating the facts). Because of its vagueness and too general averments it is difficult to determine the technical character and purpose of this bill. Seemingly, it is a bill to administer the assets of the corporation in insolvency, and yet it makes only one of the stockholders a party, and does not make the company itself a party, but selects one of the stockholders who had, through legal proceedings for that purpose, been paid out of the assets of the company a part of the. debt due him as a creditor, and who, by the same legal proceedings, has paid all that was due from him as a stockholder, and asks to charge him as a trustee of the assets for the payment of its debts. It does not seek to bring in other creditors to share in those assets, but confines its operation to the simple purpose of having that stockholder and creditor pay the judgments of the plaintiffs. In effect, it is a bill to charge McComb with the payment of those debts as if he were himself the judgment debtor, upon the theory that he has come into the possession of assets of the company which would have been liable to execution in satisfaction of these judgments if the assets had remained in the hands of the company, treating the legal proceedings by which Mc-Comb was paid his own debt against the company as having had no effect whatever jn establishing any right to the possession of thal *431which he has received. This is a very broad, if not loose, view of the doctrine that the assets of a corporation are a trust fund for the payment of its debts, wherever the assets may be found. There can be no doubt about the doctrine in its general statement nor in its particular application, as suggested here, that a creditor cannot selfishly appropriate the assets to the payment of his own debt, ignoring all other creditors; but, thus broadly stated, the principle is confined to an appropriation by the creditor, which the courts will not sustain as a lawful application of the assets, to the payment of his debt. It does not follow from the general doctrine that when a creditor has by a judgment and an execution levied upon the assets, or by any other legal proceeding adequate for the-purpose, procured a judicial judgment and decree that the assets are liable to the payment of his claim, and by like judicial judgment and decree appropriates particular assets to that purpose, that he can be in that condition always, and under all circumstances, charged as a trustee for other creditors who have not been paid. It depends, of course, upon the validity of the proceedings and their legal effect. Even if a creditor, by his vigilance and diligence, has succeeded in collecting out of the insolvent corporation- more than other creditors have received, it is not, as a matter of course, to charge him as a trustee for the benefit of other creditors. The outstanding creditors must have some equity as against him arising out of the wrongfulness of his advantage in the premises.
Treating the bill as one to charge a stockholder or a creditor with liability for the debts of the corporation because of his possession of the assets, it may be very doubtful whether such a bill can be maintained, at least in the federal courts, unless there has been an exhaustion of remedies against the corporation itself, at least to the extent of an execution and nulla bona return, and this, even though the corporation be insolvent. Taylor v. Bowker, 111 U. S. 110, 4 Sup. Ct. 397; Jones v. Green, 1 Wall. 330. But, assuming that this equitable remedy has been enlarged by the Tennessee statute (Mill. V. Code, § 4188), which allows any creditor or any stockholder, whether hé has recovered a judgment or not, to file a bill to subject the assets to the payment of his debt, this bill cannot be treated as a suit of that kind, for the reason that the corporation is not made a party, and therefore the bill does not come within the provisions of that statute. It is a bill against McOomb only, and the case must be determined with sole reference to the rights of these; creditors against him seeking to charge him as trustee, and it would seem to fall directly within the above-cited eases requiring a judgment and nulla bona return. For want of an averment in the bill that there has been an execution issued, and nulla bona return, and for want of proof of that fact, it might be sufficient to dismiss this bill upon the apparent theory of its draftsman as a hill to enforce a trust against the assets of a corporation. But under the general allegations of the bill, and its prayer for general relief, there is another view of the rights of the plaintiffs to maintain it which was suggested and argued. Reasonably, it may be treated as a bill for contribution against a distributee of an insolvent corporation to *432compel Rim to refund, for the benefit of any creditor who has not received his share of the insolvent assets, whatsoever part may belong to him as a surplus over and above that which he, the said dis-tributee, ought to have received upon an equitable distribution of the assets. The principle is stated in the case of Williams v. Gibbes, 17 How. 239, 255, as “* * * well settled, in respect of proceedings in chancery for the distribution of a common fund among the several parties interested, that an absent party who had no notice of the proceedings, and was not guilty of willful laches or unreasonable neglect, will not be precluded by the decree of distribution from the assertion of his right by bill or petition against the trustee, executor, or administrator; or, in case they have distributed the fund in pursuance of an order of court, against the distributees.” Quoting from the case of David v. Frowd, 1 Mylne & K. 200, the court, first relating the practice of giving notice by advertisement for creditors and others interested in the distribution of the fund to appear and file their claims, remarks upon the fact that such advertisements may and must in many cases not reach the parties really entitled, because they are abroad, or from a multitude of circumstances, and then observes as follows:
“If a creditor does not happen to discover the proceedings in court until after distribution has been actually made, by order of the court, amongst the parties having, by the master’s report, an apparent title, although the court will protect the administrator who has acted under the orders of the court, yet, upon a bill filed by that creditor against the parties to whom the property has been distributed, the court will, upon proof of no willful default on the part of such creditor, and no want of diligence on his part, compel the parties defendant to restore to the creditor that which of right belongs to him.”
Again, referring to the case of Gillespie v. Alexander, 3 Russ. 130, with approval, the court further says that:
“If the creditor does not come in until after the executor has paid away the residue, he is not without remedy, though he is barred the benefit of that decree, — that is, the decree of distribution. If he has a mind to sue the legatees, and bring back the fund, he may do 'so; but he cannot affect the legatees except by suit, and he cannot affect the executor at all,”
I cannot find that any of the cases on this subject require that the creditor shall have a judgment and nulla bona return. He stands in the suit against the overpaid distributee precisely as if he were appearing in the original suit where the assets were distributed to prove his claim. It seems to me that the bill, in this aspect of it, is not subject to objection for want of parties, or for the want of judgment and nulla bona return; and the only question in the case is whether or not the absent party who has failed to receive his part of the assets has been “guilty of willful laches or unreasonable neglect,” or has made “proof of no willful default, and no want of reasonable diligence on his part.”
It is agreed between the parties that the plaintiffs in this case were neither parties plaintiffs nor defendants in the suit of the state ex rel. Kortrecht against the Southern Oil Works; that neither .of them was ever served or appeared therein, or asked to be made a {tarty thereto; and it is further agreed that they both resided in Shelby county from the beginning of that suit until the end of it. *433It otherwise appears from the records in evidence that the suit was actually pending at the time their lease commenced, and had been for more than a year. After the collapse of the warehouse, which took place more than a year and a half from the beginning of the lease, they brought a suit for damages, whiph was dismissed without a trial on the merits. For what reason, does not appear. A second suit was brought on the 12th of January, 1881, more than four years after the disaster, and nearly five years after the Kort-recht suit was commenced, and while it was still pending, and about five years before the final decree in that suit, being about six years before the filing of the bill in this case. It is stated in briefs of counsel for the plaintiffs that McComb was the only creditor appearing in the suit, that there was never any advertisement for other creditors to appear and file their claims, but this fact is not covered by the agreement of counsel, and the court here does not know how the fact may be. Occupying the relation of landlords to the Southern Oil Works it would seem almost incredible that these plaintiffs should allow 11 years to elapse without any knowledge of the circumstance of that suit, or without any information as to the existing conditions that would have put them upon inquiry as to the affairs of the corporation. They lived in the same city, and were for nine years of that period engaged in litigation with the company to establish their claims for damages. Indeed, they waited nearly two years after they obtained the judgments before they filed this bill, and all this time, both before and after judgment, they allege that they were in ignorance of the existence of the Kortrecht suit.
It is to be observed that the cases establishing the right of the outlying creditor to sue the distributees for contribution not only require that he shall be without willful default, but that he shall establish by proof that there was no want of reasonable diligence on his part in ascertaining the true condition of affairs. In the case of Board of Public Works v. Columbia College, 17 Wall. 521, 530, it is held that the rule requiring the existence of special circumstances bringing the case under some recognized head of equity jurisdiction should not only foe insisted upon with rigor whenever the property sought to be reached constitutes, as here, assets of a deceased debtor which have already been subjected to administration and distribution, but some satisfactory excuse should be given for the failure of the creditor to present his claim in the mode prescribed by law before the distribution. It is true that these creditors were suing at law to establish their claim for damages; that the Southern Oil Works was resisting the claim step by step; that the company carried the case by appeal to the supreme court, and submitted to judgment only in the court of last resort; and it is true that that litigation was for some reason protracted during a period of more than nine years counting from the beginning of the second suit to the final judgment in the supreme court. But all these facts do not answer the rule of diligence, because they have no relation to the duty of the plaintiffs, whether they procured judgment or not upon their claims, to take the necessary steps to present them in the court of insolvency, where the assets were being administered. They conic *434not act as if the pendency of their suits were a lien on the assets, as if by judgment or attachment on the bill. All they had to do in order to share in the assets of the Southern Oil Works in the Kortrecht suit was to appeal, and file their petition stating the pen-dency of their suits at law, their expectation of judgment, and asking the court of insolvency to retain a sufficient amount of the assets to answer that judgment, or to then and there itself adjudicate the amount due, and pay the plaintiffs their pro rata according to the allegations of the petitions and the order of the court. Ignorance in fact of the pendency of the proceedings is not an answer to the rule of diligence, because, if it were, there would be no limitation upon the rule that an absent creditor, who is as ignorant, might come in under any circumstances, and ask for a contribution and restoration of a sufficient amount to pay his claims. But we have seen that this is not the rule. The question is, has there been any willful neglect on the part of these plaintiffs to appear in the Kortrecht suit, and take the necessary steps to protect their interests and receive their share, or has there been diligence on their part to inform themselves of the facts in that behalf? It seems to me too plain for any argument that on the facts stated there has been both a willful neglect and a want of diligence. Common prudential considerations on the part of one bearing the relation that these plaintiffs bore' to the Southern Oil Works in respect of their claims, both as landlords and claimants, for damages, would require that inquiry should be made as to the condition of the company and its affairs. Common repute about the courts and about the town would have been sufficient- to have put the plaintiffs, who were renting to. the Southern Oil Works, and claiming damages against them, upon inquiry as to whether or not it was a solvent or insolvent corporation, and whether it was being administered in insolvency or not; and the mere lapse of time during the pendency of those proceedings is almost conclusive of a want of diligence and willful neglect where the parties did not reside abroad, and there are no special circumstances to account for the alleged ignorance of the facts. Nothing is shown in the proof in this case to excuse this ignorance. Nothing is set up in the proof to explain it. It is relied upon as a bare fact, without explanation or excuse, as a ground of equity to support this bill. It would break down all the safeguards of legal proceedings to allow them to be disturbed under such circumstances.
This view of the case makes it unnecessary to consider many of the other questions that have been argued in the case, especially those in relation to the right of a creditor to pursue the assets of an insolvent corporation for the payment of its debt by proper proceedings for that purpose. I do not think this is that kind of a bill, but, if it can be held to be so, it must fail for want of proper parties. I doubt very much if that principle would authorize a creditor to file what is substantially a second bill to administer the affairs of an insolvent corporation for the payment of its debts and the distribution of its assets; and, if the bill can be supported at all, it can only be upon the ground mentioned in the case of Williams v. Gibbes, supra, of the right of a creditor to sue the distributees inde-*435peridently, and upon distinctive and wholly different grounds of equity than those involved in a bill to administer the assets of an insolvent corporation.
The bill will be dismissed at the plaintiffs’ costs. Ordered accordingly.