Court Opinion

ID: 8799817
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:26:54.867972+00
Date Added: 2024-06-11T17:03:49.856918
License: Public Domain

SANBORN, Circuit Judge
(dissenting). I am unable to concur in the opinion of the majority in this case for the following reasons;
First. The opinion states that, because the bankrupt answered over after the overruling of his demurrer to the creditors’ petition to open the proceedings in bankruptcy, he waived his demurrer, as though it were the universal rule that pleading over after the overruling of a demurrer waived the objection raised by it, and deprived the defeated party of the right to review in a federal appellate court the ruling upon the demurrer. This statement seems to me to be liable to mislead those who read the opinion, unless the general rule which prevails in the federal courts upon the subject of the review of an order overruling a general demurrer to a pleading is dearly stated. In suits in equity in the courts of the United States one who demurs to a pleading has the right under the rules and practice in equity, after challenging the sufficiency of the pleading, to answer it. Files v. Brown, 124 Fed. 133, 142, 59 C. C. A. 403, 412, and cases there cited. And the rule upon the subject of the right to review the order of j:he court overruling the demurrer is, in the words of the Supreme Court, that:
“When the declaration fails to state a cause of action, and clearly shows that upon the case as stated the plaintiff cannot recover, and the demurrer of the defendant thereto is overruled, he may answer upon leave and go to trial without losing the right to have the judgment upon the verdict reviewed for the error in overruling the demurrer. The error is not waived by answer, nor is it cured by verdict. The question, therefor, whether the complaint in this case states facts sufficient to constitute a cause of action, is open for consideration.” Teal v. Walker, 111 U. S. 242, 246, 4 Sup. Ct. 240, 28 L. Ed. 415; Bauserman v. Blunt, 147 U. S. 647, 652, 13 Sup. Ct. 466, 37 L. Ed. 316; Southern Pacific Co. v. Denton, 146 U. S. 202, 206, 13 Sup. Ct. 44, 86 L. Ed. 942; Hudson Canal Co. v. Penna. Coal Co., 8 Wall. (75 U. S.) 276, 287, 19 L. Ed. 349; In re Atlantic City Railroad, 164 U. S. 633, 635, 17 Sup. Ct. 208, 41 L. Ed. 579.
While the practice relative to this matter in the state courts is not controlling or material upon this question of practice in the federal courts, it is interesting to note a learned and exhaustive opinion by the Supreme Court of Wyoming setting forth persuasive reasons for this *872rule in Grover Irrigation & Land Co. v. Lovella Drainage, etc., Co., 21 Wyo. 204, 131 Pac. 43, 50, 51, 52, Ann. Cas. 1915D, 1207.
In the year 1914 this question was considered and decided by this court, after consultation of the authorities cited in the opinion of the majority in this case, and the rule stated in Teal v. Walker, which had theretofore been followed in this court, was adhered to. Citing Teal v. Walker the court stated the rule in these words:
“If the petition, as challenged by the demurrer, is fatally defective in substance, and clearly shows that upon the case as stated the plaintiff cannot recover, the judgment must be reversed; otherwise, it should be affirmed.” City of Harper, Kansas, v. Daniels, 211 Fed. 57, 60, 129 C. C. A. 242, 245; Rush v. Newman, 58 Fed. 158, 161, 7 C. C. A. 136, 139.
This is the rule which prevails in the Seventh and Ninth circuits. City of Pontiac v. Talbot Pav. Co., 94 Fed. 65, 67, 36 C. C. A. 88, 90, 48 L. R. A. 326; Mitsui v. St. Paul Fire & Marine Ins. Co., 202 Fed. 26, 28, 29, 120 C. C. A. 280, 282, 283.
In City of Harper v. Daniels it was suggested by the learned yvriter of the majority opinion in this case that the laws of Kansas in which that suit arose warranted the ruling in that case by virtue of tire act of conformity. It is suggested, however, under favor, that the question whether answering over upon the overruling of a demurrer deprives a party of his right to review that ruling in the federal appellate courts is a question of the practice of those courts, and that tire power and practice of the national appellate courts and their means of reviewing the judgments and rulings of the District Courts are neither conditioned, affected, nor controlled by the statutes of the states, the practice of their courts, or the act of conformity. The act of conformity (section 914 of the Revised Statutes [Comp. St. 1913, § 1537]) is limited by its express terms to the practice and proceedings in the Circuit and District Courts. It has no application to the practice or proceedings of the national appellate courts, or to matters relating to bills of exceptions, motions for new trials, or any other means adopted to review the judgments of the United States District Courts. The power and practice of the United States appellate courts are derived exclusively from the Constitution, the acts of Congress, the common law, the ancient English statutes, and the rules and practice of the federal courts. The statutes and the practice of the courts of Kansas, it seems to me, could neither give to nor take away from the national appellate courts the power or duty to review a ruling of a United States District Court upon a demurrer after an answer over. Chateaugay Iron Co., Petitioner, 128 U. S. 544, 554, 555, 9 Sup. Ct. 150, 32 L. Ed. 508; Hudson v. Parker, 156 U. S. 277, 281, 15 Sup. Ct. 450, 39 L. Ed. 424; St. Clair v. United States, 154 U. S. 134, 153, 14 Sup. Ct. 1002, 38 L. Ed. 936; Nalle v. Oyster, 230 U. S. 165, 167, 33 Sup. Ct. 1043, 57 L. Ed. 1439; Ghost v. United States, 168 Fed. 841, 843, 94 C. C. A. 253, 255; Francisco v. Chicago & A. Ry. Co., 149 Fed. 354, 359, 79 C. C. A. 292, 297, 9 Ann. Cas. 628, and cases there cited.
Turning again to the rule, of course, if a defendant, after a demurrer to a defective complaint, answers over, and in his answer himself pleads, and thereby admits, facts which, read together with the al*873legations of the complaint, constitute a good cause of action, as in Eau Claire National Bank v. Jackman, 204 U. S. 522, 535, 27 Sup. Ct. 391, 51 L. Ed. 596, where the defect was the lack of an averment of a demand, and the defendant set forth in -his answer facts which rendered a demand unnecessary, or if the case is one in which the defect in the complaint is not substantial, if, notwithstanding the defect, 'the complaint fairly and substantially states a good cause of action, the rule in Teal v. Walker is inapplicable. But the rule stated in that case and quoted above, as it seems to me, prevails in this court, in the Supreme Court, in the Courts of Appeals of the Seventh and Ninth Circuits, and, so far as I am aware, in the other appellate courts of the United States.
When, however, we turn from this rule of practice and examine the petition for the opening of the bankruptcy proceedings, that pleading clearly states a good cause for the opening. It pleads that the bankrupt had a complete vested title in remainder worth $2,000 in trust funds and securities which he did not mention in his bankruptcy proceeding, but which he fraudulently concealed, with intent to hinder, delay, and defraud his creditors, and that the petitioners were ignorant of these facts until a few days before they filed their petition to open the proceedings. Because the petition alleged facts sufficient, if true, to_ entitle the creditors to open the proceedings and to have an administration of the bankrupt’s-interest in the vested remainder which the petition stated he had in the securities, there was no error in overruling the demurrer.
Second. When, however, the facts were disclosed upon the hearing before the referee and the court, it clearly appeared, in my opinion, that the bankrupt never had any vested title, right, or remainder in the trust funds or securities mentioned at any-time while the administration of his estate in bankruptcy was pending, or at any time before the death of Mary Pollack on July 6, 1913. The petition for the adjudication in bankruptcy was filed and the adjudication was made on July 1, 1907. The administration of the estate in bankruptcy was closed on June 2, 1908. The bankrupt was discharged on September 14, 1908. During all the time between 1899 and the death of Mary Pollack in 1913, the securities that occasioned this litigation, which were in 1899 worth about $18,000, were held by the St. Louis Trust Company under the decree of a state court, in trust to pay to Mary Pollack the entire net income thereof and as much of the principal as should be required to pay for her comfortable maintenance and support during her life, and upon her death to pay the expenses of her last sickness and a sum not exceeding $200 for a monument at her grave, and then to sell the securities and distribute the balance, if any, to Phillip Pollack, Henry Pollack, Joseph Pollack, the bankrupt, Charles Pollack, Martin Pollack, Hannah Goodman, Lotta Hart, Harrietts Freefield, and Lilly Drukker, their heirs or legal representatives, in equal shares. The interest of Joseph Pollack, therefore, during the bankruptcy, and at all times before the death of Mary Pollack, as it seems to me, was not vested, but was contingent, not only as to- its amount, but as to the existence and enjoyment of any interest what*874ever, upon the failure of the trustees to expend the entire trust prop-' erty before the death of Mary Pollack, as they were empowered to do, for her comfortable maintenance and support.
Whether that right was vested or contingent will be considered more at length later. If it was contingent, and not vested at the filing of the petition in bankruptcy and during the pendency of the proceedings therein, then Joseph Pollack could not, prior to the filing of the petition in bankruptcy, by any means have transferred it, nor could it have been levied upon or sold under judicial process against him. Section 70 of the Bankruptcy Law. The trustee in bankruptcy had no claim to or upon it, and neither he nor the creditors can now recover anything on account of it, because it did not vest in Pollack, the bankrupt, or become his property so as to be subject to administration in bankruptcy until Mary Pollack died, more than five years after the petition in bankruptcy was filed and more than four years after the bankruptcy proceedings were closed. A contingent right or remainder is not transferable by the remainderman or leviable upon execution against him. Lucas v. McNeill, 231 Fed. 672,- C. C. A.- (C. C. A. 8th Circuit, opinion filed February 24, 1916); Ætna Life Ins. Co. v. Hoppin, 214 Fed. 928, 931, 131 C. C. A. 224, 227, and cases there cited.
Now the question whether or not there was an error of law in the action of the referee and of the lower court in ordering an opening of the bankruptcy proceeding and an administration of this interest depends entirely upon the true answer to the question whether Joseph Pollack had a vested or a contingent interest in the trust property when the petition in .bankruptcy was filed against him. If he had the former, the orders were right; if only the latter, they were wrong, and the petition of the creditors should have been dismissed. If that interest was only a contingent interest when the petition for the. adjudication in bankruptcy was filed, the petitioning creditors can never recover or administer it, or any interest in the trust property that subsequently vested in Joseph Pollack, and they can derive no benefit from this proceeding. If that interest was contingent when the petition for the adjudication was filed, the opening of the bankruptcy proceeding would be futile, its only effect would be to prolong litigation, to increase the expense of the litigants and to delay an adjudication which the record clearly presents to the court now.
For this reason it is immaterial whether or not Joseph Pollack was required by the Bankruptcy Law to disclose in his petition in bankruptcy, or in his schedules, the interest he had in the trust fund in question. If he was, and if that interest was contingent, the petitioning creditors can never have any relief by this proceeding; and if he was not, and that interest was contingent, the result is the same. If creditors should apply to open bankruptcy proceedings and to administer the homestead of a bankrupt, which was clearly exempt, because he did not describe it in his petition or schedules as required by the Bankruptcy Law, no court would fail to dismiss the petition because it could grant no substantial relief by opening the proceedings. *875So here, even if Joseph Pollack was required to describe or schedule his interest in the trust property, yet if the only interest he had was contingent, and hence not subject to administration or application in bankruptcy to the payment of his debts, the petition of his creditors to open the bankruptcy proceedings and attempt to administer that interest should have been denied, because no court could grant the petitioning creditors any beneficial relief by such an opening and attempted administration. A court of equity will not foster or conduct futile proceedings, when the record clearly shows that there is no possibility that they can result in any benefit to any one.
The result is that the crucial question in this case is whether the interest of Joseph Pollack was vested or contingent when he filed his petition for an adjudication in bankruptcy in 1907. Ret us turn to that question. Measure his right by the definition cited in the majority opinion from Pearsall v. Great Northern Railway, 161 U. S. 646, 673, 16 Sup. Ct. 705, 713 [40 L. Ed. 838]. A vested right is “an immediate fixed right of present or future enjoyment”; or, as Chancellor Kent puts it, “An immediate right of present enjoyment, or a present fixed right of future enjoyment.” The right of Joseph Pollack was none of these. In 1907 or 1908 it was not an immediate right of present enjoyment, for it could not be enjoyed until after the death of Mary Pollack, and she was living. It was not a present fixed right of future enjoyment, for it was not fixed, certain; it was subject to change, to destruction. The trustee might diminish the principal, it might expend all the principal and all the income of the trust property in the maintenance and support of Mary Pollack before she should die, so that Joseph’s right to enjoy anything under the trust would never arise. Take Justice Cooley’s definition:
“Rights are vested, in contradistinction to being expectant or contingent. They are vested when the right to enjoyment, present or prospective, .has become the property of some particular person or persons as a present interest. They are expectant when they depend upon the continued existence of the present condition of things until the happening of some future event. They are contingent when they are only to come into existence on an event or condition which may not happen or be performed until some other event may prevent their vesting.”
The right of Joseph Pollack was not vested in 1907 and 1908, because no right to enjoy in the then present or future any part of the trust was then his property. If it had been, he could by legal proceedings have prevented the loss or destruction of that property by the trustee by means of the expenditure of the trust fund to maintain or support Mary Pollack. It was not an expectant interest, because it did not depend upon the continuance of the then present condition of things until the happening of some future event, in this case the death of Mary Pollack, for, although the then present condition of things had continued until her death, still the trustee might, under that condition of things, have expended all or any part of the principal and income of the fund for her maintenance and support before that death, and thus have destroyed any possible interest of Joseph. It was a contingent right, because it was only to come into *876existence on an event, the death of Mary Pollack, which might not happen until some other event, the expenditure of all the principal and income of the trust fund for the support and maintenance of Mary Pollack, had prevented its vesting.
On March 6, 1899, when by decree of the circuit court of Missouri the title to the trust property was vested in St. Louis Trust Company, as trustee, it consisted of 10 bonds of $1,000 each, and a cashier’s check for $8,000. By the decree the trust company was made the trustee of this property to “invest, reinvest, collect, account for, and pay over” the income thereof and such portions of the principal thereof as should be necessary for the maintenance and support of Mary Pollack until her death, and to pay for her last sickness and monument, and when all these payments had been made to sell any securities on hand, if necessary to make the distribution, and to pay over the remainder, if any, to the nine remaindermen, of .which the bankrupt was one. As it' was the duty of the trustee to keep the property in income-bearing securities, the legal presumption, and, as there is no evidence on the subject, the unavoidable conclusion, is that at the time of and during the pendency of the bankruptcy proceedings, as well as at the conclusion of the payments for the funeral expenses and the monument, the trust property was in such securities, and it was clear from the adjudication of the trust that under it, it would be and it was necessary for the trustee to convert the securities into money to raise the necessary fund to make a distribution among the remaindermen.
It is contended that the will and the decree which is based upon it vested remainders in the nine remaindermen, vested an absolute property right in Joseph Pollack,, although it was uncertain whether or not there would be any remainder whatever of the trust property after the trustee paid the prior charges; and in support of this conclusion In re Arden (D. C.) 188 Fed. 475, Doe v. Considine, 6 Wall. 458, 473, 18 L. Ed. 869, Johnson v. Washington Loan & Trust Co., 224 U. S. 224, 237, 32 Sup. Ct. 421, 56 L. Ed. 741, Collier’s Will, 40 Mo. 287, 300, Buxton v. Kroeger, 219 Mo. 224, 117 S. W. 1147, and other cases are cited. A careful reading and examination of these cases will show, however, that they all relate to devises of and trusts in real estate, while the trust here relates to personal property. They are distinguishable from this case by the decisive fact that it was certain in each of them that under the devise or trust the enjoyment of some valuable interest must eventually come to the remainderman, or his heirs or assigns, while in the case at bar it was uncertain during the pendency of the bankruptcy proceedings and until the death of Mary Pollack whether or not the enjoyment of any interest whatever would ever come to Joseph Pollack, his heirs or assigns. , That enjoyment was always contingent upon the issue whether or not the trustee should expend the entire trust fund, as it had the right to do, for the comfortable support and maintenance of Mary Pollack. For that reason Joseph Pollack’s remainder or right was, in my opinion, not vested. It was contingent. He Had no property or property right in the trust fund which he could enforce before the *877death of Mary Pollack. Pie could not prevent the expenditure of the entire trust fund for the purposes stated in the trust before her death, so that the enjoyment of nothing would come to him. Hence he could not have conveyed or transferred any interest in the fund, and if he had attempted to do so, and had subsequently died before the death of Mary Pollack, his grantee would have taken nothing, and his interest, on her death, if there were any, would have gone to his heirs. Shipman v. Rollins, 98 N. Y. 311, 322, 325; Vincent v. Newhouse, 83 N. Y. 505; Warner v. Durant, 76 N. Y. 133, 136; Smith v. Edwards, 88 N. Y. 92, 104; Hobson v. Hale, 95 N. Y. 588, 596, 615; Bristol v. Atwater, 50 Conn. 402, 407, 409, 410; In re Hoadley & Munroe (D. C.) 101 Fed. 233, 3 Am. Bankr. R. 780, 783, 784, 786, 787, and cases there cited; Ernst v. Foster, 58 Kan. 438, 443, 49 Pac. 527; McNutt v. McComb, 61 Kan. 25, 58 Pac. 965; Greenwalt v. Keller, 75 Kan. 578, 90 Pac. 233; Bullock v. Wiltberger, 92 Kan. 904, 142 Pac. 950; Ætna Life Ins. Co. v. Hoppin, 214 Fed. 928, 933, 131 C. C. A. 224, 229; Lucas v. McNeill, 231 Fed. 672, - C. C. A. - (C. C. A. 8th Circuit, opinion filed February 24, 1916).
Bearing in mind the fact that until the death of Mary Pollack the remainder of Joseph Pollack was uncertain, not only as to amount, but as to enjoyment and existence, that it might be more or less, and it might be nothing, contingent entirely upon the income the trustee derived from the trust and the amount it expended for the comfortable support of Mary Pollack, the case of Shipman v. Rollins exactly rules the question here at issue. In that case the testator devised the use of one piece of his real estate to his widow for life, empowered his executors to sell at once so much of his other real estate as should be sufficient to produce, by investing it in bonds and mortgages, an annuity of $1,500, which was to be paid to the widow during her life, the testator authorized them to sell any portion of his real estate necessary to pay taxes, assessments, and other exigencies during the life of the widow, and directed them to sell, after her death, what remained of the real estate, to add the proceeds to the amount invested to produce the annuity, to pay from the amount thus produced his funeral expenses, mortgages, and debts, and to distribute the balance equally among eight named legatees’. The question was whether or not these legacies were vested or contingent before the death of the widow, and the Court of Appeals of New York held that they were contingent. It said (98 N. Y. 325):
“It should he borne in mind, that the fund out of which the legacies in question wore, to ho paid had no legal existence until the decease of the testator’s widow. It was upon the happening of that event that it was to be created, and it was only then that it could be ascertained what the fund would bo. It might be.more or less, according to the exigencies provided for by the will, and it might be nothing, and it was only in case a balance remained that the same was to be divided as directed. It was then to be disposed of or given away, and not before that time. * * * In Vincent v. Newhouse, 83 N. Y. 505, the testator, by Ms will, gave certain lands to Ms wife for life and directed that at her death the lands should be sold by the executor, and the proceeds eomally divided among three of his children named, and the children of three others, share and share alike, and if cither of the *878heirs mentioned should die after the date of his will, and before their shares were paid them, the share of the one so dying without issue to be equally divided among the other heirs before named, and it was held that the will intended a conversion of the land into money, the actual conversion, however, not to take place until the termination of the life estate, and that the land was converted into money* from the time the sale was directed to be made, and that no portion of the remainder vested at the death of the testator, but only upon the death of the widow.”
In Warner v. Durant, 76 N. Y. at page 136, that court declares that the rule is that:
“Where'there is no gift, but by a direction to executors or trustees to pay or divide, and to pay at a future time, the vesting in the beneficiary will not take place until that time arrives.”
In N. Ætna Life Ins. Co. v. Hoppin, 214 Fed. 928, 933, 131 C. C. A. 224, 229, the Circuit Court of Appeals of the Seventh Circuit declared, and this court approvingly followed that declaration in Lucas v. McNeill, supra:
“That a remainder is vested when throughout its existence it stands ready to take effect in possession, whenever and however the preceding estate determines. A remainder is contingent when it is limited on an event which may happen before or after, or at the time of or after, the determination of the particular estate.”
The remainder here at issue was limited on the death of Mary Pollack, an event which might have happened after the termination of her particular estate, for her estate might have been terminated before her death by the lawful expenditure by the trustee of the entire trust property for her support and maintenance, and in that event Joseph Pollack could have taken nothing. His right was therefore not vested, but contingent on the failure of the trustee so to expend the trust property before the death of Mary Pollack. He had no leviable or transferable interest or property in the trust property at the time he filed his petition in bankruptcy, or during the pendency of the bankruptcy proceedings, or at any time prior to the death of Mary Pollack.
Neither the petitioning creditors nor the trustee in bankruptcy can therefore now recover any right or interest therein, and the or'der of the court below should be reversed, and the case should be remanded, with directions to dismiss the petition of the creditors upon its merits.