Court Opinion

ID: 8817935
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:24:04.755798+00
Date Added: 2024-06-11T17:04:32.528176
License: Public Domain

ARSCIIUEER, Circuit Judge
(dissenting). I find myself unable to concur in the conclusion of the majority of the court that the equitable rule that “he who seeks equity must do equity” does not here have controlling application.
It has been definitely determined that transactions such as these, while purporting on their face to be sales of accounts, are in fact loans upon the security of the accounts so purporting to be sold. Apart, therefore, from the question of the power of a corporation *324organized under the general corporation act of.Illinois to make loans, the transactions here, while .purporting to be sales of accounts, are in law loans upon the security of the assigned accounts. But in Illinois any loan of money by such a corporation is ultra vires the corporation, and á void transaction, and cannot as a loan be enforced. Mercantile Turst Co. v. Kastor, 273 Ill. 332, 112 N. E. 988; Calumet Dock Co. v. Conkling, 273 Ill. 318, 112 N. E. 982, L. R. A. 1917B, 814; North Ave. Bldg. Ass’n v. Huber, 270 Ill. 75, 110 N. E. 312, Ann. Cas. 1917B, 587; Nat’l Home Bldg. & Loan Ass’n v. Home Savings Bank, 181 Ill. 35, 54 N. E. 619, 64 L. R. A. 399, 72 Am. St. Rep. 245. While money advanced on such an attempted loan may be, with legal interest, recovered back as money had and received (Leigh v. American Brake Beam Co., 205 Ill. 147, 68 N. E. 713; Brennan v. Gallagher, 199 Ill. 207, 65 N. E. 227), it has been decided in Illinois that its courts will not assist such a loaner in his attempt, to realize upon security he may have taken in such a transaction (Calumet Dock Co. v. Conkling, supra; North Ave. Bldg. Ass’n v. Huber, supra). But the Illinois courts have not in respect to such transactions decided against the very generally accepted principle that, where one invokes the aid of a court of equity respecting a given transaction, relief will be granted him only upon condition of his doing ■ equity towards the other party.
The trustee here filed his petition setting forth that the transaction in question was in law a loan of moneys on the security of assigned accounts, but alleging that the transaction was void for lack o'f power in the loaner to engage therein. The transaction itself, treated as a loan, if carried out according to its terms, would have' given the loaner compensation for the use of its money far greater than permitted by the Illinois usury laws. The trustee invoked the aid of the equity (bankruptcy) court to have this contract, purporting to be a sale, declared a loan, and as a loan void under the laws of Illinois, and asked the court to prevent the loaner from claiming or interfering with the assigned accounts, and to restrain the loaner from collecting same and from preventing the trustee’s collection thereof, and for an accounting for whatever accounts the loaner had collected since the bankruptcy.
To my mind this presents a typical case of a party going into equity for relief, and thereby placing himself in position where, in order to obtain it, he must do what is equitable, which, in my judgment, is here nothing less than to repay whatever was actually advanced on the faith of the _ assignment of these accounts, with 5 per cent, interest, or, what ’is the same thing, and as decreed by the District Court, to retain the accounts assigned on the faith of the money advanced until the loaner realized thereon the actual advances made, plus lawful interest only, reassigning any accounts then remaining. ,
It is not important that the Illinois courts would not assist such a corporate loaner at its own first instance to realize on the security taken. ' In the administration of this equity it frequently and properly happens'that the conditions imposed upon the complaining par*325ty, as equitable terms on which only the relief will be granted, are such as neither in law nor in equity would in the first instance be accorded to the opposite party upon his own original complaint. Story on Equity Jurisprudence (13th Ed.) pp. 65-66; Pomeroy on Equitable Jurisprudence, § 386; Broatch v. Boysen, 236 Eed. 516, 149 C. C. A. 568 (8 C. C. A.); Shafer v. Spruks, 225 Fed. 480, 140 C. C. A. 504 (3 C. C. A.); Jenson v. Toltec Ranch Co., 174 Fed. 86, 98 C. C. A. 60 (8 C. C. A.); De Walsh v. Braman, 160 Ill. 415, 43 N. E. 597; Galbraith v. Tracy, 153 Ill. 54, 38 N. E. 937, 28 L. R. A. 129, 46 Am. St. Rep. 867; Chambers v. Jones, 72 Ill. 275. A court of bankruptcy is a court of equity in the broadest sense of the term, and, once within its jurisdiction, parties may .be compelled to do equitable things, which even chancery courts with their usual powers might not have the right to require. Hurley v. Atchison, T. & S. F. Ry., 213 U. S. 126, 29 Sup. Ct. 466, 53 L. Ed. 729; Atchison, T. & S. F. Ry. v. Hurley, 153 Fed. 503, 82 C. C. A. 453 (8 C. C. A.); In re Chase, 124 Fed. 753, 59 C. C. A. 629 (1 C. C. A.); Conklin v. U. S. Shipbuilding Co. (C. C.) 123 Fed. 913.
Under the laws of Illinois choscs in action are assignable either absolutely or as security, just as much as are goods and chattels. Chicago Title & Trust Co. v. Smith, 158 Ill. 417, 41 N. E. 1076; Hurd’s Rev. Stat. Ill. c. 110, § 18; Hiberian Banking Ass’n v. Chicago, 178 Ill. App. 138; Salt Fork Coal Co. v. Eldridge Coal Co., 170 Ill. App. 268. To my mind the denial here of the application of the rule of doing equity as a condition of granting relief would work as palpable an inequity as for some irresponsible person to go to some mercantile establishment and borrow money on the security of his watch or other chattel, and then, because the establishment happens to be an Illinois corporation, lawfully incapable of making a loan to another, recover back the security without being required as a precedent condition to repay the amount obtained on the faith of the security. The mere statement of such a case to my mind manifests the injustice it would entail.
But, beyond'the to me clear applicability here of this equitable doctrine, the trustee takes the estate subject to all equities between the bankrupt and others, against which an execution creditor could not have prevailed. Section 47a, Bankruptcy Act; Collier on Bankruptcy (11th Ed.) p. 728; 2 Remington (2d Ed.) §§ 1138, 1270; In re Richheimer, 221 Fed. 16, 136 C. C. A. 542 (7 C. C. A.); In re Pittsburg Big-Muddy Coal Co., 215 Fed. 703, 132 C. C. A. 81 (7 C. C. A.).
Where accounts have been assigned as security for loans an execution creditor of the assignor cannot in Illinois reach the. accounts. Hitt v. Ormsbee, 14 Ill. 233; Lay v. Myers, 181 Ill. App. 614. AVhere the estate comes into bankruptcy, the broad equitable powers of the bankrupt court should in my judgment recognize and protect the equity of one who, on the faith and strength of the supposed security, has enhanced the estate by the amount of the loan to the bankrupt, quite regardless of whether the proceedings in the bankruptcy court respecting the transaction were first instituted by *326the one party or the other. Hurley v. Atchison, T. & S. F. Ry., supra; Atchison, T. & S. F. Ry. v. Hurley, supra; In re Chase, supra; Conklin v. U. S. Shipbuilding Co., supra.
I am of the belief that substantial equity was effected by the District Court’s decree, and that it should stand.