Lyle v. Slegman

OPINION OF THE COURT BY KEMP, J. Petitioner filed his bill entitled “Bill for Discovery, Injunction and Relief in Equity,” but essentially a creditor’s bill, to subject a certain promissory note and mortgage, executed by the respondents Cecil L. Bell and Nellie B. Heffernan, alleged to belong to the respondent Barton D. Slegman, but standing in the name of his wife Lucile R. Slegman, in the actual possession of the Henry Waterhouse Trust Company, Limited, to the payment of his alleged debt against said Barton D. Slegman. It is [352] alleged in substance that said note was transferred to Lucile R. Slegman in fraud of tbe creditors of said Barton D. Slegman, including tbe petitioner, and that tbe debtor is otherwise insolvent. It does not appear from tbe allegations of tbe bill that tbe petitioner bas reduced bis claim against- tbe debtor to judgment. In fact tbe bill discloses that be bas not done so and it is not alleged that it is impossible- for bim to obtain a judgment. In view of tbe conclusions wbicb we bave reached as to tbe disposition of tbe questions presented by tbe appeal before us we do not deem it necessary to set out even tbe substance of tbe other allegations of tbe bill. Tbe respondents demurred to tbe bill and as ground for demurrer among others set up tbe fact that tbe bill affirmatively shows that no judgment bas been bad or execution levied. Tbe circuit judge sustained tbe demurrer on this ground and one other and tbe petitioner bas appealed. Where tbe rule has not been modified by statute it is tbe general rule, to wbicb there are a few exceptions, that a creditor cannot resort to equity for aid in tbe collection of bis debt until be bas established bis claim by procuring judgment thereon. . (Middleditch v. Kalanianaole, 18 Haw. 272; D’Herblay v. Macomber, 20 Haw. 274; H. B. & M. Co. v. Bartlett, 23 Haw. 192.) It bas been held that our statute does not modify tbe general rule. (Middleditch v. Kalanianaole, supra.) It remains then for tbe petitioner to bring bis case within an exception to tbe general rule or else fail. Creditors’ bills originated in tbe ineffectiveness of legal executions and were designed to aid creditors, who, having exhausted their legal remedies, still remain with their debts unsatisfied, to reach property of their debtors not reachable by ordinary legal process. Tbe theory upon wbicb equity jurisdiction bas developed is that it should afford a remedy for every wrong, reparation for wbicb is [353] not to be gained in courts of law and tbe necessary result of this is that equity will not interfere in a case wherein the parties have an adequate legal remedy which has not been exhausted. It is an elementary rule that to enable one to file a creditor’s bill he must have exhausted all legal remedies which might afford him the redress which he seeks. (National Tube Works Co. v. Ballou, 146 U. S. 517; Cates v. Allen, 149 U. S. 451.) In the application of the rule just stated it must often be determined under peculiar facts whether or not the complainant is sufficiently without legal remedies to become entitled to the aid of equity’s extraordinary ones. Courts do not agree as to when this is so. For instance, it has been held that if it is impossible to obtain a personal judgment against a debtor by reason of his nonresidence or of the fact that he has absconded, there being no adequate remedy provided by statute whereby his property can be reached, a creditor’s bill will lie in the first instance from the necessity of the case if the debtor have property reachable thereby. (Pope v. Solomons, 36 Ga. 541; Taylor v. Branscombe, 74 Ia. 534, 38 N. W. 400; Corn Exchange Bank v. Applegate, 91 Ia. 411; Earle v. Circuit Judge, 92 Mich. 285; Overmire v. Haworth, 48 Minn. 372, 31 Am. St. Rep. 660; Pendleton v. Perkins, 49 Mo. 565; Merchants’ National Bank v. Paine, 13 R. I. 592.) Other state courts hold to the contrary. (Ladd v. Judson, 174 Ill. 344; Smith v. Moore, 35 Ala. 76.) It has also been held that the insolvency of a judgment debtor renders the issuance of an execution and a return thereof nulla bona unnecessary as a condition precedent to the filing of a creditor’s bill although this holding is not universally followed. (Thurmond v. Reese, 3 Ga. 449, 46 Am. Dec. 440; Miller v. Dayton, 47 Ia. 312; Turner v. Adams, 46 Mo. 95; Bomberger v. Turner, 13 Oh. St. 263, 82 Am. Dec. 438; Enright v. Grant, 5 Utah 334; Whitehouse v. Point Defiance etc. R. R. [354] Co., 9 Wash. 558; Case v. Beauregard, 101 U. S. 688.) Contra. (Adsit v. Butler, 87 N. Y. 585.) As to whether or not the insolvency of the debtor will enable the creditor to file a creditor’s bill before having-reduced his claim to judgment the cases are also in almost hopeless conflict. In one line of cases it is held that a creditor should .not be required to procure a judgment upon which execution must prove fruitless—that it may be otherwise satisfactorily proved to the court that the debtor has not sufficient property of which levy can be made by legal process and that the creditor should not be prejudiced in the enforcement of his rights by useless delay. (Austin, Nichols & Co. v. Morris, 23 S. C. 393; Alabama Iron etc. Co. v. McKeever, 112 Ala. 134; Kempton v. Hallowell, 24 Ga. 52, 71 Am. Dec. 112; Earle v. Circuit Judge, supra.) It is believed, however, that these cases do not meet the argument set forth in the cases holding that a judgment is a prerequisite to the creditor’s right to file his bill against an insolvent debtor. The recovery of a judgment against an insolvent can scarcely be considered useless since it establishes the creditor’s claim, which cannot properly be done in- equity. (Austin v. Bruner, 169 Ill. 178; Clark v. Raymond, 84 Ia. 251; Kankakee Woolen Mill Co. v. Kampe, 38 Mo. App. 229; Estes v. Wilcox, 67 N. Y. 264; Ginn v. Brown, 14 R. I. 524; McKeldin v. Gouldy, 91 Tenn. 677.) The petitioner has urged the insolvency of the debtor as a reason why he should be permitted to pursue his equitable remedy without first having obtained a judgment at law. In accordance with the great weight of authority and what we regard as the better reasoning we hold that the insolvency of the debtor does not excuse the creditor from first procuring a judgment before filing his bill. It is also suggested that the debtor’s estate in the note and mortgage is a mere equitable one which cannot be [355] readied by any proceeding at law and tliat this constitutes another exception to the general rule. The authorities do not seem to recognize any such exception. When a creditor comes into equity to reach interests or assets of his debtor not subject to execution, as trust interests, distributive shares in the estates of decedents, choses in action and the like, it is plain that he has sufficiently exhausted his legal remedies when he has obtained judgment. By so .doing he has established the validity and amount of his claim, which he could not properly do in a court of equity. It is generally held, however, that a creditor’s bill in such a case must be based upon a previous law judgment. (Smith v. R. R. Co., 99 U. S. 398; Smith v. Moore, supra; Robinson v. Springfield Co., 21 Fla. 203; Ginn v. Brown, supra; Clark v. Strong, 16 Oh. 318; Thurber v. Blanck, 50 N. Y. 80.) We think it will be found that cases holding to the contrary are governed by statutes. The circuit judge committed no error in sustaining the demurrer on the ground that the petitioner had not reduced his claim against the debtor to judgment. Brown, Gristy & Davis for petitioner. W. B. Lymer and Marguerite K. Ashford for respondent B. D. Slegman. Robertson & Gastle for the other respondents. The decree sustaining the demurrer is therefore affirmed.