Court Opinion

ID: 7932515
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:05:58.511685+00
Date Added: 2024-06-11T16:33:20.854878
License: Public Domain

Sherwood, J.
dissenting. Kellogg, Sawyer & Co., the assignors of defendants Byles & Phelps, on the ninth day of November, 1883, made a common-law assignment-of their property to the latter, for the benefit of all their creditors. In doing so, however, they proceeded according to the provisions of the act of May 13, 1879 (How. Stat. p. 2137).
*570Their indebtedness at the time the assignment was made was about $326,000, and an additional contingent indebtedness, or rather liability, of about $106,000.
The assets consisted of real estate, standing pine timber, a steam saw-mill, lumber and lath, a tram-road and railroad, lumber camps, wagons, teams, and mill supplies, and all the equipments for doing a successful lumber business, if properly managed, amounting in value to about $500,000; and upon the lauds held under contracts of purchase by the assignors was 53,000,000 feet of pine timber from which to obtain the logs to stock the mill.
At the time of the assignment the mill was in good running condition, and could be worked to the advantage of all the creditors until a reasonable sale of the property could be made. Moneys were coming due upon the contracts for the timbered lands, and, in some instances, installments were then past due. After a careful examination of the situation, made by the assignees on entering upon the discharge of their duties, it was ascertained that a forced sale of the property would result in averygreatsacrifi.ee, and it became a question of much importance to them, as well as to the creditors, what course, under all the circumstances, should be pursued by them in the proper discharge of their trust.
There was no immediate prospect of making a sale of the property, except they should force one, and the only alternative left was to run the mill and work up the timber until something reasonable could be obtained for the property. This course offered the promise of largely increasing the dividends to the creditors, and would rather tend to brighten the prospect for an earlier and more advantageous sale of the property. Something had to be immediately done to save the unpaid land contracts from forfeiture.
It was under these circumstances that the assignees called a meeting of all the creditors for the twenty-fourth day of January, 1884, and a large majority were in favor of stocking and running the mill until the property could be sold at some reasonable rate, and none have objected to taking this *571course except complainants, who are creditors to the amount of about $4,000.
In pursuance of the desire and wish of the creditors, and in accordance with their own judgment, the assignees have kept the mill stocked from the timber on the estate’s land, and have operated the mill, all the time using their best exertions to make a reasonable sale of the entire assigned property. From the record it appears about $131,000 was owing upon the contracts for the purchase of the land upon which the timber stood, and, for the purpose of saving these lands and the valuable pine timber from forfeiture, the assignees were obliged to hire $30,000, which they did, and thus secured to the estate said land and timber; that in doing this they did not imperil the estate, but saved and secured the principal part of its assets. The loan was made and confirmed under the authority of a court of equity having jurisdiction in the matter under the statute hereinbefore referred to.
The record further shows that, in addition to payments made from said loan, the assignees have paid upon said land contracts, as the same has become due, $15,000 more; that they have over 9,000,000 feet of timber on bond at the mill, worth, at a fair market value, $100,000, from which to pay the loan of $30,000, and to pay debts of creditors as soon as the sales can be made; and by far the larger portion of the pine timber stands uncut upon the lands; and if a forced sale should now be made of said lumber, a large and unnecessary sacrifice of the value of the same will have to be made.
The assignees further show, I think, very satisfactorily, that they are and have been disposing of all the property assigned to them as fast as it can be done to advantage to the creditors, and with a view of speedily closing up the estate; and that in no way can so much be realized for the creditors as by continuing to utilize the mill property and plant in converting this pine timber into lumber until a sale of the entire property can be made.
J ust at this point, and at this stage of the proceedings and progress made by the assignees, the complainants in this case file their bill, asking the court to enjoin the assignees from *572cutting any more timber, or using the mill property and plant for that purpose, and requiring them to make immediate sale of all the property of the estate, and convert the same into money, — substantially a forced sale of all the property.
The case was heard before Judge Mills, at the Kalamazoo circuit, who, after a patient and careful examination of the whole case, upon testimony taken showing the precise situation of the property and the conduct of the entire business by the assignees, made a decree dismissing the complainants’ bill. The complainants appeal to this Court, and ask that the decree be reversed, and the relief prayed for in the bill granted.
My brethren, adopting the views presented by complainants’ counsel, have decided to reverse the decree made by the learned circuit judge, and order a decree in accordance with the prayer of the bill.
After a cai*eful examination of the situation, and the facts upon which this action is proposed to be taken, I am unable to concur in the views they have expressed or in the conclusion they have reached.
1 think the decree made by the circuit judge was right, and ought to be affirmed.
The statute of our State (How. Stat. § 8744) relating to assignments, under which it is claimed the court may take the action proposed in this case, provides, among other things:
“ In case there shall be any fraud in the matter of said assignment, or in the execution of said trust, or if the assignee shall fail to comply with any of said provisions of this act, or fail or neglect to promptly and faithfully execute said trust, any person interested therein may file his bill in the circuit court in chancery of the proper county, for the enforcement of said trust; and the court, in its discretion, may appoint a receiver therein.”
Section 8749 of the same statute provides that,
" The circuit court in chancery of the proper county shall • have supervisory power of all matters, questions, and disputes arising tinder such assignments, except as otherwise provided in this act, and may, on the application of the *573assignees or any person interested, make all necessary and proper orders for the management and disposition of the assigned property, the distribution of the assets and avails, the recovery of all property claimed by third persons, and may from time to time require new bonds or sureties, who shall justify as herein provided.”
tinder this statute it is quite clear that it is competent for any creditor to file a bill against the assignees to enforce the prompt execution of the trust, and I agree with my Brother Champlin, “ To this end other creditors have no opposing interests.” But such a bill is only proper in case of neglect or refusal of the assignees to promptly and faithfully perform such trust, and whether they, are so doing or not is, as in this case, not unfrequently a very important question,— one of great interest to all the creditors; and when the assignees, as in this case, have entered fully into the discharge of such duty, whether their action affects beneficially or prejudicially creditors, and whether or not such action shall be modified or changed, or discontinued altogether, are questions not unfrequently of the gravest concern to creditors; and I do not think the Legislature ever contemplated that they were, in passing the act' referred to, authorizing a single creditor or firm or corporation to bring suit in such a case, and, without notice to any other persons than the assignors and assignees, secure such action by the court as may preclude or destroy all action taken or proposed to be taken by the assignees, however reasonable or beneficial it may be for the estate, and however much desired by every other' creditor of the insolvents. I am not yet willing to give my assent to such a construction of the statute; certainly no such course was ever tolerable at common law.
When this assignment was made, and the property delivered thereunder to the assignees, each creditor, to the extent of his claim, owned a ratable proportion of the assets, and all were interested in their disposition in such manner as to obtain the largest amount that could be realized for the same,' at the earliest moment possible consistent with a reasonable sale thereof; and the whole matter, in the first instance, is left to the discretion of the assignees, by the assignors and *574creditors, both; and when it is sought by a legal proceeding to ignore the action of the assignees, and take that discretion away from them by the action of a court at the instance of a single creditor or firm, every other creditor becomes equally interested in such a legal proceeding, and is equally entitled to his day in court before action resulting in such a change can be had.
In such a controversy the assignees cannot be regarded as representing the interests of the various creditors. Neither the assignors nor the law casts upon them any such agency. Their participation in such a suit only extends to their own liability, and that of their bondsmen, in the premises, and #upon those they must be heard. The interest of each creditor, in such case, becomes one of substantial right, — a right that cannot be changed, jeopardized, or affected by the action of the court until each has been heard, or had the opportunity to be heard.
The only parties made defendants in this case, aside from the assignees, are the assignors, whose interests are entirely contingent and subsidiary to those of the other creditors. Still it is proposed by the decree ordered by my brethren to bind every creditor of this insolvent estate (and there are many of them, — some to the amount of over $50,000) by the action of the court at the instance of a single creditor, and which may be the means of depriving them of many thousands of dollars, without even having been notified that such a proceeding was pending; and it is quite possible the complainant, in many cases, might have no other motive or object in view than to secure to himself an opportunity to bid off the property at a forced sale, and obtain thereby the advantage of the sacrifice usually attending such a disposition of the insolvent’s property. It seems to me such a course is subversive of all law for the protection of property, and I am very sure the Legislature never intended any such construction of its enactments.
Each and every one of these creditors should, who were not plaintiffs in the case, have been made defendants, and brought into court by such service, actual or constructive, as *575the law provides in other cases, before the decree ordered should be made. I think the rule contended for by the learned counsel for defendants in their brief is well stated when they say that, “in equity, all persons materially interested in the subject-matter of the litigation should be before the court; that this rule is elementary ” : Story Eq. Pl. §§ 72, 102, 149, 157, 207, 216; Adams Eq. 312, note; 1 Daniell Ch. Pr. 229, 230, note 1; Patton v. Bencini, 6 Ired. Eq. 204; Hallett v. Hallett, 2 Paige, 15; Egberts v. Wood, 3 Paige, 517; Wakeman v. Grover, 4 Paige, 23 ; Kimber v. Ensworth, 1 Hare, 294; Westcott v. Minnesota Min. Co., 23 Mich. 145 ; Mitf. Pl. 256; Titus v. Minnesota Mining Co., 8 Mich. 183; Gilham v. Cairns, Breese, 124; Greenup v. Porter, 3 Scam. 64; Prentice v. Kimball, 19 Ill. 320; Crocker v. Higgins, 7 Conn. 342; Williams v. Bankhead, 19 Wall. 563; Armstrong v. Pratt, 2 Wis. 218.
I am aware it is said that an objection for want of parties is not favored if not taken until the hearing: Holcomb v. Mosher, 50 Mich. 252; but when complainants present a case arising from facts which necessarily show that there are other parties than those examined interested in the litigation, whose rights may be materially affected by the decree asked to be made, it then becomes the duty of the complainants to see that all such persons are properly made parties, and their omission to do so will furnish no occasion for the application of the rule suggested. Whether complainants aver, or do not aver, that they file the bill in behalf of themselves and other creditors, in a case where it appears that the other creditors are opposed to the litigation and the relief sought, will make no difference. The facts should always control the averments in pleadings in equity, and, if not stated correctly, the party pleading them must abide the consequences.
As this case stands upon this record, the firm creditor who files this bill cannot, under any circumstances, make the other creditors his co-complainants. In the action this firm has taken they place their interest, which was as one to eighty, in antagonism to the interest of all the rest of the creditors, and .ask, substantially, that the interest of all the rest shall be *576sacrificed or made subservient to theirs, for some reason which is entirely unapparent to me, upon the facts as they are given in the testimony. It is certain, however, that the other creditors could only be made parties to the suit by making them defendants. This should have been done: Adams Eq. 312, and note.
It will not do in this case to say that if other creditors are not joined as parties defendant it is no concern of these defendants; that such persons cannot be affected by the proceedings. This cannot be so.
This is a bill filed to perpetually enjoin the assignees from further proceedings in the performance of the duties of their trust in such manner as, in their best judgment, and in which all the other creditors except this complainant firm creditor concur, will be for the best interest of all interested in the insolvent estate. If the decree asked for is detrimental to that interest, no matter in what manner the complainants may be benefited by it, it is clear, if the other creditors and assignees are correct, they will be injured by it, because the management from which the estate is now deriving benefit is to cease.
Under the case, as it now stands, it is the duty of the assignee defendants to state the facts to the court, and ask that the other creditors may be brought in to speak for themselves before their rights shall be further jeopardized. This they have done, and is • all- they could do, in my judgment; and the complainants’ bill should be dismissed, or the case removed to the circuit, with instructions to make the other defendants parties, to the end that the issue between the actual parties, viz., the complainants and all the other creditors, may be fully tried and disposed of according to the real equities of the case : Richardson v. Larpent, 2 Younge & C. 507, 512; Gray v. Chaplin, 2 Sim. & S. 267.
I now come to the second point in the case, which fairly raises the question whether or not the assignees in this case are justified, under all the circumstances as they appear in this record, in continuing the business of the assignors. I *577think they are fully justified in doing all that they have done, and such was the opinion of the circuit judge.
They are men of ability, of good business capacity, and whose integrity is beyond reproach. The good faith of these men is not questioned, and no fraud is imputed. They have been active and vigilant in their efforts to properly discharge the trust, and the only question is, having been diligent in the business committed to their charge, and acted upon their best judgment in the premises, and in accordance with the judgment of all the creditors, save the complaining firm, -will the law sustain their doings ? My brethren think not,, and I cannot agree with them.
As to the general rule, I concur with them, and I agree with my Brother Champlin that “it is obviously the duty of the assignees to proceed without unnecessary delay to convert the property assigned into money, and apply the proceeds to the payment of the debts. In the management and care of the property they are bound to use the same care, and exercise the same degree of prudence and caution, that a prudent man would with his own propertyand the same statute which allows the plaintiffs in this case, authorizes the circuit judge “to make all necessary and proper orders for the management and disposition of the assigned property and my learned brother admits that, with the consent of all the creditors, the assignees might lawfully do all they have done.
It is conceded, then, and I think it must be by all, that there are exceptions to the general rule. This being the case, a large discretion must necessarily be left with the assignee. This was so at the common law, and that the statute contemplates the use of such discretion is clearly apparent in the fact that a supervisory power over its use is given to the circuit court, in chancery, in the proper county; also in the fact that the assignees are required to give bonds for “ the prompt and faithful administration of the trust,” in a sum double the value of the assigned property: How. Stat. § 8740. That the assignee may, under certain circumstances, conduct the business for a time which was being *578carried on at the time the assignment was made by the assignors for the benefit of the estate and creditors, is, I apprehend, well settled, both upon reason and authority: Burrill Assignm. 490, 491; Woodward v. Marshall, 22 Pick. 468; Mussey v. Noyes, 26 Vt. 462; Patten's Estate, 2 Pars. Sel. Cas. 108.
I know of no degree of caution, care, or prudence which permits a person, as my trustee, to sell and dispose of my property at a sacrifice of one-third or half of its value, Unless compelled so to do; and there is no such necessity resting upon assignees neither ought such action to be tolerated by courts. A.nd I do not think it lies in the power of a creditor who holds a claim to the amount of only one-eightieth part of the indebtedness against the estate to defeat the action of the assignees, when their management of the insolvent’s assets is for the best interest of the insolvent estate; and I know of no law or decision which will allow the judgment, wishes, or desire of such a creditor, through the action of any court, to usurp the functions of the assignees to the extent claimed, unless it shall be made in this case, and which I think ought not to be done.
It is true, as is said by my brethren, that the law does not allow the assignors to provide in the assignment for a continuance of the business; but that is not because a continuance may not be needful for the time being, and for the best interest of the estate, but because the action and direction of the assignors in the business is one of the things to be gotten rid of in making the assignment. It has no connection with what may or ought to be done in the future by the assignees.
No statute is necessary to authorize the continuance of the business for such time as may be necessary to close up the estate for the best interest of the creditors. The fact that the law requires the exercise of good judgment and business management in controlling the assets is sufficient authority upon that point. Each case must depend upon its own circumstances as to the course proper to be pursued, and the rules which should govern in closing up an estate con*579sisting of a thousand dollars’ worth of dry goods or groceries, which may be disposed of in a week, and which are continually depreciating, are not to be applied to an estaté valued at a half million dollars, consisting of large tracts of valuable pine timber and farming lands, constantly increasing in value, with a saw-mill worth $40,000, and tram-ways and railroads connecting the two, and large quantities of lumber on bond to be sold, the entire estate requiring at least three or four years in which to dispose of,it to any advantage to the estate, as in the present case ; and no prudent business man would think of giving the two cases the same treatment.
It is true pine timber and pine lumber have a market value in the regular course of trade in that business; but can any one say the saw-mill and its equipments, the tramways and railroads, have, or that any or either, or all of them together, with the pine timber and lumber included, have, when disposed of at forced sale for costs? I know of no such market value; neither am I furnished with such information by the record. But very few persons are prepared to purchase that kind and amount of property for cash, at any price, even such as might be obtained at syndicate biddings. I do not think it would be the exercise of good judgment or good management to dispose of such property in such manner, and these assignees have not done it.
It was good management, in my judgment, for the assignees to hire money and redeem the pine lands (ip which consisted the bulk of the assets of the insolvent estate) from forfeiture, and I think this is clearly shown by the testimony ; and I am unable to find from the record that any of the assets have been applied to the payment of any indebtedness except that which, under the assignment and the law as it now stands, would be required to be paid in full; and it does appear, I think, very clearly, that the estate applicable to the payment of all the pro rata creditors has been largely increased by the course pursued by these assignees.
TJpon the merits of the complainants’ case, as presented, I *580fail to discover any good reason why the action of these assignees should be interfered with. On the contrary, I think they have used their judgment and discretion wisely, and in a legal and proper manner. But little over two years had elapsed when this suit was commenced. The doings of the assignees have been open to all parties interested in this estate. A large number of creditors have undoubtedly watched closely all that has been done, and it seems a strange thing, indeed, that the complainant firm is found to be differing with all the rest of the persons in anywise interested in the property and its management. Only one thing is more astonishing to me, and that is upon the face of this record my brethren feel impelled to accede to the views of the complainant. In my judgment, a reasonable time has not yet elapsed within which this estate should be closed, against the advice and judgment of both assignees and assignors, and all the other creditors, except this one, whose interest is secured by an unquestioned bond, and the extent of which is only one-eightieth part of the amount to be eventually distributed.
Where neither fraud nor bad faith is imputed, and no mismanagement of the assets is shown, I do not think, under the circumstances of this case, courts have any right to interfere or attempt to control the action of the assignees, and the decree of the circuit judge should be affirmed.