Court Opinion

ID: 9299547
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:06:06.181437+00
Date Added: 2024-06-11T17:13:37.896104
License: Public Domain

STORY, Circuit Justice.
I do not wish to trouble Mr. Fletcher to reply, because I entertain no doubt whatsoever in this ease. It is clear to my mind, that the contracts in this case were good and valid, and founded in a valuable consideration, and that the object of them was to give a perfect security to the plaintiffs, for their debts, so far as the property attached could go, and these attachments could by law be made available. These contracts created a clear equitable lien upon the property attached, which a court of equity would be bound to enforce, and even a court of law ought to enforce, as far as it could properly do so, in the administration of justice between the parties in the suit. It is by no means necessary in the view of a court of equity, that the contracts should contain an express stipulation, that the attachments shall stand as a security for the plaintiffs. It is sufficient, if it clearly appear, that such were the obvious intent and objects; and unless that construction should be given, the plaintiffs would have parted with valuable rights without any correspondent benefits. Possession is by no means necessary to create, or to support an equitable lien. On the contrary, in equity and admiralty, liens exist altogether independent of possession; as, for example, the lien of a vendor for the unpaid purchase money, where he has conveyed the land, the lien of a bot-tomry holder, and the lien of a seaman on the ship for his wages. But here the possession of the personal property under attachment, although in the sheriff, was clearly for the benefit of the plaintiffs; and the attachment of the real estate created a lien thereon by mere operation, of law, wholly independent of any possession by the officer.
The bankrupt act of 1811, c. 9, § 2 [5 Stat. 440], contains an express saving of all liens, mortgages, or other securities on the property, real or personal, of the bankrupt; and equitable liens, mortgages and securities, are as much within the act as legal liens, unless there be some prohibition in the state laws, which renders them invalid; and there is no pretence to say, that any such law exists in New Hampshire. Indeed, If there had been no such saving in the act, the liens, mortgages, and other securities, within the purview of the saving, would have been saved, by mere operation of law, from the natural intendment of the statute, which did not mean to disturb existing vested rights and interests in property. The ease Ex parte Foster [supra], differs in all its main elements from the present. There, the attachment was merely in invitum, without the consent of the debtor. Here, the attachments, however originally made, were subsequently continued and intended to be perfected as securities by the contract of the debtors. In Foster’s Case, there was no admitted debt due by the debtor, nor any agreement as to not contesting it In the present case, the defendants have, under their own agreement and contract, been defrauded, the amount of the debts ascertained, and the attachments agreed to be held as security therefor. In Foster’s Case, the bankrupt, if he obtained his discharge, had a right to plead it in bar to the suit. In the present case, the defendants have no day to plead any such defence; they have been, by their own consent, defaulted, and the amount established; and they are therefore estopped to say, that they have any defence or bar to the judgment. In truth, therefore, Foster’3 Case has no similarity with the present. It stands entirely upon the general and naked right of a creditor to make an attachment, and proceed in his suit against Ills debtor, without any equity acquired by any act of the defendant to give him new rights in the suit; or to take away any rights of the defendant.
1 can have no doubt, that the contracts in the case at bar created a trust, in the sense of a court of equity, in the property attached in favor of the plaintiffs, which the defendants might be compelled to perfect and perform, according to its just interpretation. It is no objection, that the trust or security thus obtained is under legal process, or by operation of law. Securities of that sort are very frequent both in England and America, and are deemed the most certain and fixed of any. Thus, a judgment in England, and in many of the states of America, gives a permanent lien upon all the lands of the judgment debtor, and is, on that; account, resorted to as a favorite security. It is true, that an ■ attachment by our laws has not the same permanence, bat it is limited to a short period after the judgment, within which the plaintiff must take the attached property in execution, or he will lose his lien. But then, in such a case, if he loses his attachment, it is his own *1152fault and laches. Now, in the case at bar, the plaintiffs do not ask the court to enforce their attachment or equitable lien; but they only ask the court to leave them, free from the injunction, to pursue their legal and equitable rights under their judgment and execution. It appears to me plain, that they are entitled to it. They have an equitable lien and a superior title to the property over the assignee and the general creditors; and the assignee must take the property of the bankrupts for the general creditors, subject to this lien and superior title. The case of Dale v. Smithwick, 2 Vern. 151, is strongly in point, as to the nature and obligation of a contract of this sort to create an equitable lien or trust in property. In Legard v. Hodges, 1 Ves. Jr. 477, Lord Thurlow said, that it was an universal maxim, that, wherever persons agree concerning a particular subject, in a court of equity, as against the party himself, and any claiming under him, voluntarily or with notice, it raises a trust. See 2 Story, Eq. Jur. §§ 1230, 1231; Collyer v. Fallon, 1 Turn. & R. 469, 475, 476. The cases of Ex parte Copeland, 3 Deac. & C. 199, and Ex parte Prescott, 1 Mont. & A. 316, and Ex parte Flower, 2 Mont & A. 224, establish, that the same rule prevails in bankruptcy; and that the property will be followed and affected with the trust in the hands of the assignees, in the same manner and to the same extent, as it would be in the hands of the bankrupt. But if no such case ever existed, I should have no doubt, upon principle, that such ought to be the result. But there are many cases, which stand upon analogous grounds. See 2 Story, Eq. Jur. §§ 1230, 1231, 1232. We all know, that in bankruptcy, the assignee takes only such rights, as the bankrupt himself had, and is subject to the like equities. See 1 Cooke, Bankr. Law (4th Ed. 1799) pp. 267-270, c. 7, § 2; 2 Story, Eq. Jur. § 1411; 1 Deac. Bankr. (Ed. 1827) pp. 320, 321, c. 10, § 3. There is a close analogy, although perhaps the same principles may not apply throughout, between cases like that before the court, arising in bankruptcy, and cases of the administration of the assets of a deceased testator or intestate, by courts of equity, in the ordinary exercise of their jurisdiction, upon a creditor’s bill for the benefit of all the creditors. Courts of equity in such cases always exercise a sound discretion as to restraining any particular creditor from pursuing and enforcing his legal rights under his proceedings and judgment at law, and will not interfere in such a manner as to displace any of his just rights and equities. That is sufficiently apparent from the ,case of Drewry v. Thacker, 3 Swanst. 529, 546, and especially from the elaborate judgment of Lord Langdale in Lee v. Park, 1 Keen, 714. It appears to me. that the district courts, sitting in bankruptcy, should uphold the like doctrine, and should exercise a like discretion in not restraining the rights of judgment creditors, who are proceeding to enforce their judgment and executions, not merely upon their ordinary rights as judgment creditors, but upon the footing of equitable rights and liens acquired under contract; for, in such cases, they have a superior equity to that of the general creditors. My opinion, therefore, is that in the present case, the plaintiffs have, in virtue of their contract, a superior equity, which ought to be protected by the courts-sitting in "bankruptcy; and that the injunction, granted in this case, ought to be dissolved; and this will constitute an affirmative answer to the first question propounded in this case.
The second question may be disposed of in a few words. The general rule in bankruptcy is, that in cases of partnership, where one partner becomes bankrupt, his assignee can take only that portion of the partnership assets, which would belong to the bankrupt, after payment of all the partnership debts; and that the solvent partners have a lien upon the partnership assets for all the partnership debts, and also for their own shares thereof, before the separate creditors Of the bankrupt partner can come in and take any thing. See Story, Partn. §§ 375, 376. It is true, that in such cases, it may often, from the necessity of the case, and for the purpose of ascertaining the partnership asspts and debts, and adjusting and settling the same, and making a final settlement and distribution of the surplus, be indispensable, that the district court, as a court' of equity, should take into its own hands the exclusive management and administration of all the partnership assets, and inhibit the other partners from intermeddling therewith. But this it will do with caution, and solely for the purposes before stated. And so far from thereby displacing any of the rights, liens, and equities of the other partners, it studiously seeks to maintain and protect them. Now, in the present case, under its peculiar circumstances, there is no reason whatever for the interference of the district court by way of injunction, or otherwise, to administer the property in controversy. On the contrary, by refusing or dissolving the injunction, it accomplishes the very ends designed by the contracts between all the parties, and allows the partnership property to be applied to the discharge of the partnership debts according to its just and original destination. To the second question, therefore; an affirmative answer ought also to be given.
I shall direct a certificate to be sent to the district court accordingly.
The certificate was as follows:
“Circuit Court of the United States, New Hampshire District. In Bankruptcy. September 12, 1842. Isaac Parker et al., Plaintiffs in Equity, v. Benning Muggridge et al.
“In answer to the questions adjourned into this court by the district court of New Hamp-
*1153shire, in bankruptcy, it is ordered that the following answers be sent to that court as the opinion of this court. First. That the contracts stated in the plaintiffs’ bill, in connection with their attachments, as entered into by them with the Ayery Factory Company, the said Muggridge, and others, constituted an equitable lien, which remains in force, notwithstanding the decrees of bankruptcy against the said Muggridge and others. Second. Independently of the said plaintiffs’- claim as an equitable lien, which, of itself, constitutes a sufficient ground for the dissolution of tne injuncuon granted in this case, the plaintiffs would be entitled to have the same injunction dissolved, so far as respects the property owned by the said bankrupts, and by their copartners, the Avery Factory Company and Charles Parker, who have not petitioned to be declared bankrupts, and indeed do not appear to be bankrupts. The general rule in all cases of this sort is, that the property of the partnership is first to be applied to fine discharge of the partnership debts, and the surplus only ought to be and can be applied to the individual debts of any one partner. It may however occur, that in tue bankruptcy of one partner, it may be necessary for the court in bankruptcy to take upon itself the administration as well of the partnership estate as of the estate of the bankrupt partner, in order to have a final settlement of all the claims. But no such question is here presented, and it is here alluded to only for the purpose of excluding any different inference from being drawn from the answer to the second question. Joseph Story,
“Associate Justice of the Supreme Court of the United States.”