National Park Bank v. Lanahan

Eobinsoit, J., delivered.the opinion of the Court. In this case the general and special partners of the firm of E. W. L. Easin & Company, by a voluntary assignment, conveyed all the partnership property, and all their individual estate, in trust for the payment of creditors. The deed of E. W. L. Easin as general and acting partner, was executed on the 16th of December, 1881, and on the 20th of December, Lanahan, trustee, therein named, filed a petition in the Circuit Court of Baltimore City, praying permission to administer his trust under the direction of the Court, and on the same day an order was passed granting the prayer of the petitioner. Afterwards an order of like import was passed upon the petition of Easin and Euth, assignors. Lanahan, trustee, accordingly proceeded under the direction of the Court, in the administration of his trust, made large sales of the trust property, completed contracts entered into by the firm for the manufacture of commercial fertilizers, and compromised and settled certain litigated claims against the trust estate. Under the notice directed by the Court, some of the creditors of E. W. L. Easin, and of E. W. L. Easin & Co., filed their claims for distribution; other creditors, however, insisting that the several assignments already referred to, were fraudulent and void, brought suits against Easin individually, and also against the firm, in the several common law Courts of Baltimore City, and in the Circuit Court of the United States, which were regularly prosecuted to judgment. Upon these judgments, attachments were issued and laid in the hands of Lanahan, trustee. Pending these proceedings, a petition was filed by the trustee, out of which this controversy has arisen. After — 509 — reciting at much greater length and detail the matters already stated, the petitioner alleges that the Circuit Court had assumed jurisdiction over the trust estate — had directed creditors to file their claims — that the trustee had actively proceeded in the administration of his trusts under the direction of the Court, and that by such dealings on the part of the Court and of the trustee under its orders, the entire trust property was in the custody of said Court. Ho further alleges, that certain creditors of Rasin and of Rasin & Co., had brought suits in the common law Courts of Baltimore City, and in the Circuit Court of the United States, and had prosecuted the same to judgments, —that upon the judgments thus obtained, attachments had been issued and laid in the hands of the petitioner— that if the attaching creditors are permitted to go on with their attachments, the trust estate must be greatly wasted by multiplication of costs, and the trustee put to great labor and expense in defending a multiplicity of suits, without the protection of the Court, in the matters in which lie has acted under its authority — that owing to the complication of accounts between the general and special partners, no ascertainment can be had of the rights of the respective trustees as between themselves, or in their relation to the individual and partnership creditors, except in a Court of equity. The petitioner therefore prays that the attaching creditors may be compelled to come into Court in the trust proceeding and interplead therein, and that they may he enjoined, hy injunction from proceeding further in their suits at law against the petitioner, or the property now under the administration of the Court. The question really presented by the petition and answers of the attaching creditors, is whether the jurisdiction assumed by a Court of equity upon the ex parte application of the trustee and his assignors in the administration of the trusts, created by a voluntary assignment for — 510 — the benefit of creditors, is an exclusive jurisdiction, and thereby deprives creditors, who insist that it is fraudulent and void, from proceeding at law by attachment or otherwise. against the property if unsold, or against the fund in the hands of the trustee ? Were this a question of first impression, to be decided purely on principle, we do not see on what just grounds such a jurisdiction can be maintained. A debtor in failing or embarrassed circumstances may, it is true, convey all his property in trust for the payment of creditors. The objections which at first blush suggest themselves, on the ground that such conveyances must necessarily to some extent hinder and delay creditors, are upon further consideration answered by the fact, that the debtor has in good faith dedicated all his property of every kind to the payment of his debts; and in cases especially where no preference is given, this is all the creditors have any right to expect, and all the law ought to exact. To such assignments, however, the creditors are not parties, and they may therefore refuse to come in and participate in the distribution of the fund, and still rely upon the individual responsibility of the debtor. The assignment must however be bona fide and made in good faith. If fraudulent it confers no rights against creditors. Fraud vitiates everything, and the question of fraud is one which may be tried in a Court of law as well as in equity. For obvious reasons, the creditor may prefer the question shall be tried and determined at law, because if the deed be fraudulent, he thereby acquires a lien on the property or a priority in the distribution of the fund, whereas a proceeding in equity would enure to the common benefit of all the creditors. But irrespective altogether of this, it is a right which belongs to the creditor, and of which he cannot be deprived by the mere ex parte application of the trustee and his assignors to a Court of equity. They have no right to select the forum in which the question of fraud vel non, shall be determined. — 511 — The argument against the right of the attaching creditors to proceed at law rests mainly on the ground, that a Court of equity has in fact assumed jurisdiction over the property and trusts created by the assignments. But how did the Court acquire such jurisdiction? By the mere ex parte application of the trustee and his assignors, and to which the attaching creditors are in no sense parties. Now if the argument be sound, all that is necessary to deprive Courts of law of jurisdiction in cases of fraudulent assignments, and creditors of the right to have the question of fraud tried in such Courts, is for the trustee immediately upon the execution of the assignment, to file a petition in equity praying permission to administer a trust created by the voluntary act of an insolvent debtor. No case has been cited in support of this position, and the decisions in this State are all against it. In the American Exchange Bank vs. Inloes, Garnishee of Turnbull & Co., 7 Md., 380, the question presented in this appeal was fully considered and decided by the Court. In that case, Turnbull & Co. made an assignment of all their property in trust for payment of creditors. The deed was executed on the 22d of September, 1851, and on the 17th of March, 1852, a Court of equity upon the petition of the trustee assumed jurisdiction over the trusts created by the assignment, and gave notice to creditors to file their claims. Afterwards, one of the creditors of Turnbull & Co., refusing to assent to the assignment, and insisting that it was fraudulent and void, brought suit against the firm, and prosecuted it to judgment. Upon this judgment, attachment was issued, and laid in the hands of the trustee, as garnishee. In that case, as in this, it was argued, that the Act of 1845, chapter 166, requiring the trustee, in all deeds of assignment for the benefit of creditors, to file a bond in the clerk’s office, in itself conferred jurisdiction on a Court of equity, to administer the trust; and secondly, independent of the provisions of this Act, the Court had — 512 — upon the petition of the trustee assumed jurisdiction over the trusts created by the assignment, and that the fund thus being under the control of a Court of equity, could not be attached. In delivering the opinion of the Court, Judge Mason said : “ The objection raised by the appellees to the present proceeding, namely that the Court having assumed jurisdiction over the subject, has thereby ousted the Court of law of the jurisdiction it now seeks to exercise, cannot be sustained. The equity proceeding which has been set up as a bar to the present action, does not propose to assail the deed of trust, but on the contrary rests upon the assumption that the deed of trust is valid, and was intended merely to invoke the aid of a Court of equity to carry out and enforce the trusts contemplated by said deed. The present proceeding is based upon the assumption namely that the deed is null and void. The objects therefore of the two proceedings being entirely opposite in their character and purposes cannot be said to conflict with each other. And further to this chancery proceeding, the plaintiffs in this action were no parties, and therefore they should not be bound by it, even if it had contemplated in its range the exigencies of their case.” This case was followed by Keighler, et al. vs. Ward, 8 Md., 254, where the appellants having obtained a decree in the Court of Chancery against Royston Betts, filed their petition in said Court praying for a writ of sequestration to enforce the payment of the decree. To this petition "Ward appeared and filed his answer setting up a deed of trust from Betts to him for the benefit of creditors, and filed" also his report as trustee thereunder in the Superior Court of Baltimore City, exhibiting a full account of his trust, and the residue in his hands for distribution. The Chancellor passed an order quashing the writ so far as it affected the trust estate in the hands of Ward, trustee. — 513 — The argument in this Court against the right to issue the writ of sequestration, because the Superior Court had exclusive jurisdiction over the trust property, was answered, said Judge Mason, by the decision in the American Exchange Bank vs. Inloes, 7 Md., 380. “It is true,” say the Court, “that a jurisdiction once rightfully asserted by a Court of equity, and which would lead to a settlement of all the questions which might arise out of the subject-matter in controversy, will exclude all jurisdiction over it by other Courts for similar purposes, and the reason of this, which is to prevent a number of conflicting proceedings, is wise and just. But that a proceeding like this one pending in the Superior Court, which contemplated giving force and efficacy to a deed, can be said to draw within its ample folds the consideration of questions which assail the very existence of the deed itself, is a proposition not for one moment to be entertained.” The principle which lies at the bottom of these cases is simply this, a voluntary assignment for the benefit of creditors may he fraudulent, or it may be bona fide. If fraudulent, it confers no rights as against creditors assailing it. Courts of law have jurisdiction in questions of fraud, and it is not in the power of the debtor nor of his trustee by their own act to deprive a creditor of the right to have the question of fraud vel non, tried and determined in a Court of law. That the jurisdiction assumed by a Court of equity, upon the application of a trustee, in the administration of the trusts in pursuance of the terms of the assigment, is a jurisdiction assumed upon an ex parte proceeding to which the creditors are in no manner parties and based upon the validity of the assignment. The proceedings by the non-assenting creditors on the other hand are based upon the assumption that the assignment is fraudulent and void, and the property attempted to be conveyed is still liable to seizure and sale for the payment of their claims. — 514 — But whatever may he the reasons on which the cases we have cited are founded, they decide heyond question, that the jurisdiction assumed by a Court of equity upon the application of a trustee under a voluntary assignment for the benefit of creditors, is not an exclusive jurisdiction, and does not interfere with the right of a creditor to proceed by attachment or otherwise, against the property or funds in the hands of the trustee, for the purpose of testing in a Court of law the bona fides of the assignment. There is nothing in this case, to take it out of the operation of this well settled rule. The principle on which Courts of equity exercise jurisdiction in cases of inter-pleader, and multiplicity of suits, and complication of accounts has no application to a case like this, where creditors are prosecuting their legal rights, in a Court of law, against'a fraudulent assignment; and a trustee claiming under such an assignment has no right to the interposition of a Court of equity upon such grounds. And besides this, the trustee Lanahan is in no position to call upon the attaching creditors to interplead in a chancery jn'oceeding instituted by himself. Jurisdiction in interpleader is founded upon a conflict between two or more persons severally claiming the same debt, through separate and different interests, and. the person liable to discharge the debt, is unable to ascertain which of the claimants is entitled, and he is therefore threatened with two or more suits in respect of a subject-matter in which he claims no interest, and in regard to which, he is an indifferent stakeholder. In this case, the trustee who is entitled to commissions on three or four hundred thousand dollars, if the assignment he sustained, cannot be said to he an indifferent stakeholder, without any interest in the subject-matter in controversry. In any aspect, therefore, in which this case may be viewed, we are of opinion the Court below had no power to grant the injunction prayed, and the order grant — 515 — Ing the same must be reversed, aud the injunction dissolved. (Decided 21st June, 1883.) Order reversed, injunction dissolved, and petition dismissed. The appeal of Mr. Bruñe was disposed of as follows, Judge Robinson delivering the opinion of the Court: An attorney has no right in his own name and on his own motion to appeal from an order or judgment of the Court below affecting the interests of his client. The appeal, therefore, in this case by the appellant, who was merely the attorney for Anderson in the attachment proceedings, must he dismissed. Appeal dismissed. (Decided 21st June, 1883.)