Court Opinion

ID: 6900470
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:54:26.780755+00
Date Added: 2024-06-11T16:06:09.244287
License: Public Domain

*506Decided 20 August, 1907.
On Motion for Behraring.
Opinion by
Mr. Justice Eakin.
7. By the motion for a rehearing defendant insists that, as plaintiffs are not seeking to be subrogated to the right of defendant bank, but are proceeding upon a liability in their own favor, they need not reduce their claims to judgments against the defendant bank, but may bring suit against the defendant company directly, and therefore the statute of limitations commenced to run from the time of the taking over the property of the defendant bank. In the opinion we have treated this transfer as a valid one between the defendant bank and defendant company, and only constructively fraudulent as to plaintiffs, because it deprived defendant bank of the means with which to pay its debts, and the remedy of the plaintiffs is not in the right of defendant bank, but in their own right, by reason of the equitable lien existing in favor of the creditors of the corporation bank. This is fully discussed in the opinion.
Counsel cite authorities in the motion to the effect that, whe/re plaintiff’s remedy is primary and direct, the creditor need not procure judgment and return of execution before suing the transferee, but may bring suit in the first instance against it. But these are cases in which the primary liability is created by statute, and are therefore not in point. We believe that Case v. Beauregard, 101 U. S. 688, 691 (85 L. Ed. 1004), states the rule correctly, viz.: “Whenever a creditor has a trust in his favor, or a lien upon property for the debt due him, he may go into equity without exhausting legal processes or remedies. * * Indeed, in those eases in which it has been held that obtaining a judgment and issuing an execution is necessary before a court of equity can be asked to set aside fraudulent dispositions of a debtor’s property, the reason given is that a general creditor has no lien; and, when such bills have been sustained without a judgment at law, it has been to enable the creditor to obtain a lien, either by judgment or execution. But when the bill asserts *507a lien, or a trust, and shows that it can be made available only by the aid of a chancellor, it obviously makes a case for his interference.” But in the case at bar, although the creditor has an equitable lien, it is not specific, and he has no remedy upon it if the debtor has property subject to execution, and, as said in Case v. Beauregard, 101 U. S. 688, 691 (25 L. Ed. 1004) : “In some cases, also, such an averment (of judgment and execution returned) is necessary to show that the creditor has a lien upon the property he seeks to subject to the payment of his demand.” And that is the case here. This equitable lien is not available to the creditor until he has disclosed that the debtor is insolvent; and, further, one of the first requisites in maintaining a creditors’ bill is that the creditor has established his claim or debt by judgment at law: 12 Cyc. 9. This court has frequently held that the debt cannot be litigated in equity, but before the creditor can maintain such suit he must reduce his claim to judgment at law: Fleischner v. Bank of McMiniville, 36 Or. 553 (54 Pac. 884, 60 Pac. 603, 61 Pac. 345). This was not a debt for which the defendant company was primarily liable, nor may the plaintiffs look primarily to this lien. This right is upon a liability dependent upon whether the defendant bank is without property available to plaintiffs.
Upon the statement of facts in this complaint, plaintiffs had no standing without the allegation of judgment and execution returned nulla bona against defendant bank: D‘. A. Tompkins Co. v. Catawba Mills (C. C.), 82 Fed. 780. We understand that the case of Taylor v. Bowker, 111 U. S. 110 (4 Sup. Ct. 397: 28 L. Ed. 368), is directly in point upon this question. In that case, prior to 1867, the insurance company had wrongful^, as to creditors, made a division of a portion of its property among stockholders, and afterward surrendered its charter. Bowker obtained judgment on April 4, 1868, against the insurance company upon a suit commenced prior to the surrender of the charter. Execution was returned nulla bona July 8, 1868, and on April 11, 1874, being more than six years after the judgment, but less than six years from the return of execution, Bowker commenced this *508suit to reach, property in the hands of the defendants, received by them prior to the surrender of the insurance eompanj'-’s charter; and it was held that judgment and execution were essential to Bowker’s remedy against defendants to reach equitable assets, regardless of the statute, which dispensed with a return of the execution. Although the question was not raised in Bartlett v. Drew, 57 N. Y. 587, cited in the opinion, it is held that, before there is a remedy to follow the equitable lien of a creditor upon the assets of a corporation, the legal remedy must be exhausted. In Christensen v. Quintaral, 36 Hun (N. Y.), 334, the bridge company distributed to its stockholders, including Quintard, a large amount of mortgage bonds without consideration. Plaintiff recovered judgment for his debt against the defendant company, and had execution returned nulla bona, and he brought this suit against defendant to recover the value of said bonds received by him. Defendant insisted on the statute of limitations, claiming that, if the debtor was barred, defendant also was barred. The court holds that plaintiff’s right does not depend upon the right of the bridge company to recover from the defendant, but upon his own right to enforce the creditor’s-equitable lien upon the assets of the corporation, and that his remedy does not arise, or the statute begin to run, until judgment and return of execution, citing Bartlett v. Drew, 57 N. Y. 587; Scovill v. Thayer, 105 U. S. 143 (26 L. Ed. 968); and Taylor v. Bowker, 111 U. S. 110 (4 Sup. Ct. 397: 28 L. Ed. 368).
The foundation of the proceeding by a creditor to follow the property of an insolvent corporation in the hands of a third party is not identical with such a proceeding to reach property of an insolvent individual fraudulently conveyed. The authorities clearly maintain a distinction. The quotation in the opinion from 10 Cyc. 1265, which was prepared by Seymour D. Thompson, author of Thompson on Corporations, we think states the law correctly as gathered from the eases. In Clapp v. Peterson, 104 Ill. 26, 31, the corporation had bought in its own stock, giving in exchange therefor certain city lots, and the creditor, after the judgment obtained and execution returned nulla bona, *509brought suit against the former stockholder to follow the property so conveyed by the corporation. The court say: “We see nothing to show that the transaction in the present case was not in good faith, that there was any element of fraud about it, or that there was anything in the apparent condition of the company to interfere with the making of the exchange that was had. It is only as injuriously affecting the interests of creditors, we think, that the transaction can be questioned, and it is in that view that it must be considered and passed upon. In Sanger v. Upton, 91 U. S. 60 (23 L. Ed. 220), it is laid down: ‘The capital stock of an incorporated company is a fund set apart for the pajunent of its debts. It is a substitute for the personal liability which subsists in private copartnerships. When debts are incurred, a contract arises with the creditors that it shall not be withdrawn or applied, otherwise than upon their demands, until such demands are satisfied. The creditors have a lien upon it in equity. If diverted, they may follow it as far as it can be traced, and subject it to the payment of their claims.-’ ” Therefore we conclude that although the plaintiffs are not suing in the right of the defendant bank, but in their own right to follow the property of a corporation under this equitable lien, yet they cannot pursue that remedy until the claims have been reduced to judgment and the insolvency of the defendant bank is disclosed; and the statute of limitations will run not from the time of the discovery by the plaintiffs of the transfer of the property, but from the time that they are in a position to institute the suit, viz., from the date of the return of the execution nulla bona.
Motion for rehearing is.denied.
Affirmed: Behearing Denied.