Church v. Swetland , 233 F. 891 ( 1916 )

ROGERS, Circuit Judge

(after stating the facts as above). The complaint in this case, the main averments of which have been summarized above, covers 34 printed pages. The facts are somewhat complicated, and the complaint is unusual, and, as it appears to us, somewhat extraordinary. The court is asked to fix and determine the rights of the complainant against any of the defendants and to determine the complainant’s interest in any of the property mentioned in the bill. The defendant Swetland is called upon to disclose in his answer what consideration was paid to Griswold, Dickinson and Ellis when the leases and buildings of the bankrupt were purchased from them subject to the mortgage of $200,000. He is also called upon to state in whose .name the title was taken and in whose name it now stands; and if the title stands in the ¿parné of the Swetland Operating Company, the complainant wishes to be informed what securities of that company were issued to defendant Swetland, and what securities of that company are now held by him. Swetland is also called upon to say who now holds the notes of the bankrupt, aggregating $150,000, given to him when he loaned $105,000 to the bankrupt. Complainant also wants Swetland to say who now holds the $150,000 of bonds of the bankrupt, which were procured from the complainant at the time Swetland made the loan to the bankrupt; and the court is also asked to issue an injunction to restrain Swetland from disposing of any of the bonds.

The court below dismissed the bill as against defendants Swetland, Bruckman, and Moore as members of the creditors’ and stockholders’ committee, as against Swetland individually, the Swetland Operating Company, and the Commercial Trust Company. As to those defendants it was dismissed on a memorandum opinion, stating that, if a cause of action is stated against any of them, it is one at law, and not in equity. The bill was allowed to stand as against defendant Ellis, as he had not moved to dismiss.

[1] Where, in a bill for discovery and relief, the discovery sought is incident to the relief sought, a demurrer well taken to the relief is held to hold good as to the discovery also. In McClanahan v. Davis, 8 How. 170, 183, 12 L. Ed. 1033 (1850), Mr. Justice Nelson, speaking for the court, said:

“The complainant having, in our judgment, failed to set forth any foundation for relief, the right to the discovery, which is claimed as incidental, of course fails with it.”

[2] As the complainant asks for equitable relief, while not indicating tíre specific relief he thinks he is entitled to, and asks the court to determine and fix his rights as against the defendants in any of the property mentioned in his complaint, we have endeavored to find what justification hé has for coming into a court of equity at all as against the appellants. If he has a complete and adequate remedy at law as respects them, the action of the court below in dismissing the bill as to them must be affirmed.

'It appears that early in 1912 the bankrupt was financially embarrassed. The complainant and defendant Swetland were stockholders in it, and'the latter offered to loan it $105,473.68, provided the corporation would deliver to him its notes for $150,000, together with collateral security, consisting of $150,000 of its bonds secured by a mortgage upon its real estate. The loan was made on the terms above stated. The bonds given to Swetland as security, according to complainant’s averments, were bonds issued by the bankrupt, and which had been deposited with the Title Guarantee & Trust Company as collateral for the performance of a contract of purchase by which defendant Wyckoff was bound to complainant. The latter avers that he was induced by Swetland to allow Wyckoff to withdraw $150,000 of the bonds deposited as collateral with the Title Guarantee & Trust Company, and that complainant consented to the arrangement upon the assurance that the bankruptcy tvould be thereby prevented, and also upon an agreement that the bonds, belonged to complainant as collateral security subject to the right of Swetland to hold them also as collateral security. This did not, however, prevent the bankruptcy and the receiver was appointed shortly thereafter, on March 12, 1912. Then in April the protective committee of creditors and stockholders was formed, with Swetland and Bruckman as members of it.

The complainant became a party to the committee agreement, depositing thereunder his shares of stock, and signing the agreement as an unsecured creditor, and assigning to the committee his claim for $9,250. The committee agreement which the complainant signed stated that the purpose was to devise and carry into effect an equitable and fair plan of reorganization. The agreement contained a provision declaring that neither the committee nor any member thereof should be liable “for any mistake of law or fact, or for any act, default, or omission of any other member, * * * and the committee or any member thereof cannot be held personally liable in any case for any act or acts of any agent or employé, or for its own acts or acts of any of its members, except in case of willful negligence or malfeasance.” There are no allegations in the complaint which entitle the complainant to relief as against Swetland and Bruckman as members of the committee. The committee seem to have been made parties to the bill because Ellis is alleged to have undertaken to transfer to it the dividends on the $9,250 claim against the bankrupt belonging to the complainant in order to pay the expenses of the committee. But this surely constitutes no ground for equitable relief and is wholly insufficient to make the committee trustees of any dividends Ellis undertook to transfer.

As respects the $150,000 of bonds which complainant consented should be turned over to Swetland to secure the latter on his loan to. the bankrupt, the bill discloses no ground of equitable relief. The allegations of the complaint show that whatever interest Mr. Church originally had in the $150,000 of bonds was subject to the right of Mr. Swetland to hold them as collateral security for the note of the bankrupt. It does not appear that the note has ever been paid, and it is nowhere alleged that complainant’s consent to the transfer of these bonds to Swetland was due to any mistake made by him or to any fraud practiced upon him. We are at a loss, therefore, to see at this stage of the transaction that he is entitled to any equitable relief as against Swetland, who appears to be a bona fide holder of them for value.

The subsequent agreement which the complainant made with Ellis, by which complainant assigned to Ellis his interest and equity in $200,-000 of the bonds (which included the bonds held by Swetland as collateral and $50,000 additional hereinafter referred to), certainly could not in any way operate to deprive Swetland of his right to hold these bonds as collateral for the notes, which were still unpaid, as Swetland was not a party to any such contract subsequently made, and there are no allegations that complainant was induced by mistake or fraud to enter into that contract.

Then Ellis, having obtained from complainant absolute assignment of his interest in the bonds and having a right as owner to transfer the same, actually transferred them to Swetland for a valuable consideration. Under the options reserved to Ellis under that contract, complainant has not yet received what Ellis agreed to pay him; hut that does not invalidate the contract, and Ellis is not in default under it, for in its fourth paragraph it was provided that Ellis might pay out of the proceeds of liquidation of assets which might he transferred to him by the receiver after the payment of the receiver, etc., and that has not yet occurred. That agreement may, as against Ellis, entitle the complainant to equitable relief by impressing a trust on any money payable by the trustee in bankruptcy on the claims against the bankrupt’s estate filed by Ellis. But whether it. does or does not is not now before us, as Ellis is.not a party to this appeal, and the question therefore is not decided. The fact that KIKs has not paid complainant certainly discloses no equitable claim against the moving defendants, and does not invalidate the title of Swetland.

The defendant Swetland, in addition to the $150,000 of bonds which he held as collateral, is alleged to have obtained $50,000 of other bonds, wdiich were turned over to him by the Commercial Trust Company "pursuant to some arrangement unknown to complainant.” As to these bonds complainant avers that he is—

“informed and believes tbat be is entitled to receive from Horace M. Shetland said $50,000 of bonds, or, if not entitled to said bonds, is entitled to a claim for $50,000, which is the value of said bonds, against the assets of Wyckoff, Church & Partridge, Incorporated, in the hands of its trustee in bankruptcy, and to have his claim proved and allowed to that extent.”

What has been said above as to the $150,000 of bonds applies equally to the $50,000 of bonds held by the Commercial Trust Company. The latter company is not in this court complaining that S wetland has unlawfully as against it acquired the bonds; and the complainant having parted with its interest in them to Ellis has no right for reasons above stated to assail the transfer Ellis made of them to Swetland, and the claim which he alleges he has upon the assets in the hands of the trustee is a claim upon the assets to which Ellis is entitled and does not involve the moving defendants.

The complaint also alleges that complainant assigned' to Ellis a claim against the bankrupt for $9,250 as well as one for $20,000. The latter claim was for moneys advanced to the bankrupt. The former was for notes made by the bankrupt and held by complainant. It is then averred that these claims were assigned by Ellis to the creditors’ and stockholders’ committee without authority. The reason assigned for this lack of authority is that Ellis had failed to comply with the terms of the agreement embodied in his letter of October 25, 1912. If Ellis failed to pay for these claims in accordance with his promise, he nevertheless held the legal title and could transfer it to one without notice, and after such a transfer notice given would be without effect upon the rights of the transferees. As to complainant’s rights against Ellis growing out of any failure to perform the agreement of October 25, 1912, or as to the trustee holding for Ellis, we are not now concerned. It is enough to know now that, whatever rights he may have, he has no right to proceed in equity against the moving defendants.

We do not see upon-the allegations of the complaint any possible relief which this court can grant complainant against the moving defendants herein. There is no contract which the complainant can have specifically performed. There is no contract which he can have reformed on account of mutual mistake. He alleges no mistake. There is no contract which he can have rescinded on the ground of fraud. He alleges no fraud. There is no vendor’s lien against the moving defendants in favor of the complainant. A vendor’s lien does not, in general, extend to personal property, although it extends to a leasehold. But the legal title to the leasehold was not in the complainant at any time, and at no time did he occupy the position of a vendor of the leaseholds or of any real estate. Neither., is complainant entitled to an injunction. Where negotiable instruments have been fraudulently or illegally obtained, injunctions issue to prevent their alienation pending litigation. But there are no allegations that the bonds have been fraudulently or illegally acquired.

As against the moving defendants we are unable to spell out any trust in complainant’s favor. He relies on American Sugar Refining Company v. Fancher, 145 N. Y. 552, 40 N. E. 206, 27 L. R. A. 757. But that was a case in which defrauded vendors were allowed to claim in equity the proceeds of the sugars which the vendees had thereafter sold to hona fide purchasers. The ground upon which the case went was that the fraud which the vendees had practiced on the vendors made the former constructive trustees for the latter, so that they could follow the trust funds (the sugars) into the notes which the constructive trustees had received when they sold the sugars. That case is inapplicable to the facts of this case, for there are no allegations in the complaint that the complainant was induced by fraud to part with his property or surrender any of his rights.

He also relies on Newton v. Porter, 69 N. Y. 138, 25 Am. Rep. 152. That is a remarkable case, in which a party who had been deprived of his property, not by fraud, but by theft, was allowed to impress a trust upon the proceeds which the thief had received on selling the stolen negotiable bonds, which proceeds the owner was allowed to recover from persons who took them with notice. The principle finds some support in the authorities, although the cases are not agreed respecting it. The difficulty concerning it is the technical one that a trustee is one who holds a legal title, and the thief, of course, got no title at all. But, whatever may be thought of that decision, and we are not expressing either approval or disapproval of it, we are unable to perceive its relevancy to the facts before us.

Courts of equity in proper cases undoubtedly assume jurisdiction to avoid a multiplicity of suits. Where there is one common right to be established against several distinct persons, the court will allow the suit to be brought in order to relieve the complainant from the necessity of bringing a number of separate suits, each of which only decides the particular right in question between the complainant and the defendant thereto. Whether the existence of a mere community of interest, as distinguished from a common right, will suffice to give equity jui'isdiction, is a question upon which the courts are not wholly in accord. See the case of Watson v. Huntington, 215 Fed. 472, 131 C. C. A. 520, decided by this court in 1914.

The complainant is wrong in supposing that he is entitled to bring one suit in equity and join all the defendants upon the theory that his separate claims arise from the same transaction, the' failure of the bankrupt corporation. His claims do not arise from one transaction, as he asserts, but from a number of separate transactions, and they are not so connected with the failure of the bankrupt as to create “a common right,” or a community of interest, within the meaning of the rule.

We think it unnecessary to pursue the .subject farther. We have carefully considered the complainant’s points, and have reached the conclusion that no error was committed by the court below. To consider the matter more in detail would only unnecessarily extend an opinion already too long.

Decree affirmed.

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