Cates v. Allen

• Decision Date: 10 May 1893
• Docket Number: No. 153,153
• Parties: CATES et al. v. ALLEN et al. 1
• Court: U.S. Supreme Court

149 U.S. 451

13 S.Ct. 883

37 L.Ed. 804

CATES et al.

v ALLEN et al.¹

No. 153.

May 10, 1893.

R. C. Cates, D. Andrews, and L. L. Cates, as individuals and as composing the firms of Luke Cates & Co. and Andrews, Cates & Co., made their deed of assignment for the benefit of creditors December 7, 1886, whereby they conveyed their property to assignees therein mentioned, to be converted into money, and applied to the payment of their debts, certain creditors being preferred. J. H. Allen, T. W. West, and J. C. Bush, citizens, respectively, of Louisiana, Missouri, and Alabama, and doing business in New Orleans as general commission merchauts and cotton factors, under the name of Allen, West & Bush, filed their bill of complaint, December 8, 1886, in the chancery court of Lee county, Miss., against R. C. Cates, L. L. Cates, D. Andrews, and the assignees mentioned in the assignment, alleging an indebtedness to the complainants of more than $16,000 on open account, and charging that the assignment above mentioned was fraudulent in law and in fact, made without any valuable consideration, and with the fraudulent intent to hinder, delay, and defraud the complainants and other creditors, and that the same ought to be set aside, and the property assigned subjected to the payment of complainants' demand. The bill also charged that one of the assignees, who at the time of the filing of the bill was in possession of a large part of the assigned property, was insolvent, and that it would be dangerous to allow him to remain in the possession and control thereof; that he was in possession of the books of account and choses in action of the assignors, and was proceeding to collect the same; that there was danger that they would be lost to complainants and the other creditors; and that irreparable injury might thereby result. The bill prayed for answers under oath, and that on final hearing the assignment might be decreed to be void and set aside; that all the property covered by the assignment might be subjected to the payment of complainants' debts, and then to the payment of such other demands as might be brought before the court; for an injunction; for a writ of sequestration; for a receiver; that the filing of the bill be held to give complainants the first lien on the effects of the said debtors in the hands of the assignees, or either of the parties, or any other person; and for general relief. A writ of sequestration was issued, and the sheriff took possession of the property, and a number of other creditors were subsequently admitted as co-complainants.

On December 15, 1886, Allen, West & Bush and their co-complainants filed their petition to remove the cause into the United States district court for the northern district of Mississippi, exercising the jurisdiction of a circuit court of the United States, and bond was given, and the cause removed accordingly. Receivers were thereafter appointed, and on April 15, 1887, the Tishomingo Savings Institution, a preferred creditor, was made a defendant. A demurrer was filed, alleging as grounds that there was no equity on the face of the bill; that the claims of complainants had not been reduced to judgment; that they had no lien, and were not entitled to file a bill under the law; and for want of proper parties. This demurrer was overruled, and defendants answered. Evidence was taken and hearing had, and on October 28, 1887, the court adjudged the assignment to be fraudulent and void, and set the same aside; found the sum of $17,732.71 to be due Allen, West & Bush; decreed that indebtedness to be a first lien and charge on the assets of Andrews, Cates & Co.; and ordered the receiver to pay said sum out of the proceeds of the sales and collections of and from the assets of that firm. Various

E. H. Bristow and W. B. Walker, for appellants.

John M. Allen, for appellees.

[Argument of Counsel from pages 454-456 intentionally omitted] Mr. Chief Justice FULLER, after stating the facts in the foregoing language, delivered the opinion of the court.

Complainants were simple contract creditors, who had not reduced their claims to judgment, and therefore had no standing in the United States circuit court, sitting as a court of equity, upon a bill to set aside and vacate a fraudulent conveyance. The suit was originally brought in the state court, under sections 1843 and 1845 of the Code of Mississippi of 1880, which provided that the chancery courts of that state should have jurisdiction of bills exhibited by creditors who have not obtained judgments at law, or, having judgments, had not had executions returned unsatisfied, to set aside fraudulent conveyances of property or other devices resorted to for the purpose of hindering, delaying, or defrauding creditors, and might subject the property to the satisfaction of the demands of such creditors as if the complainants had had judgment, and execution thereon returned 'No property found;' and that 'the creditor in such case shall have a lien upon the property described therein from the filing of his bill, except as against bona fide purchasers before the service of process upon the defendant in such bill.'

These sections were considered in Scott v. Neely, 140 U. S. 106, 11 Sup. Ct. Rep. 712, and it was therein determined that the circuit courts of the United States in Mississippi could not, under their operation, take jurisdiction of a bill in equity to subject the property of the defendants to the payment of a simple contract debt in advance of any proceeding at law, either to establish the validity or amount of the debt or to enforce its collection. It was there shown that the constitution of the United States, in creating and defining the judicial power of the general government, had established the distinction between law and equity, and that equitable relief in aid of demands cognizable in the courts of the United States only on their law side could not be sought in the same action, although allowable in the state courts by virtue of state legislation, (Bennett v. Butterworth, 11 How. 669; Thompson v. Railroad Co., 6 Wall. 134; Scott v. Armstrong, 146 U. S. 499, 512, 13 Sup. Ct. Rep. 148;) and that the Code of Mississippi, in giving to a simple contract creditor a right to seek in equity, in advance of any judgment or legal proceedings upon his contract, the removal of obstacles to the recovery of his claim caused by fraudulent conveyances of property, whereby the whole suit involving the determination of the validity of the contract and the amount due thereon is treated as one in equity, to be heard and disposed of without a trial by jury, could not be enforced in the courts of the United States, because in conflict with the constitutional provision by which the right to a trial by jury is secured.

The principle that a general creditor cannot assail, as fraudulent against creditors, an assignment or transfer of property made by his debtor until the creditor has first established his debt by the judgment of a court of competent jurisdiction, and has either acquired a lien upon the property, or is in a situation to perfect a lien thereon, and subject it to the payment of his judgment, upon the removal of the obstacle presented by the fraudulent assignment or transfer, is elementary. Wait, Fraud. Conv. § 73, and cases cited. The existence of judgment, or of judgment and execution, is necessary—First, as adjudicating and definitely establishing the legal demand; and, second, as exhausting the legal remedy.

This was well settled in Mississippi prior to the enactment in question. In Partee v. Mathews, 53 Miss. 140, it was ruled by the supreme court that no creditor but one who has a lien by judgment or otherwise, in full force at the time the bill is filed, can attack in equity a transfer of property as fraudulent; and that, as between equitable and legal assets, the creditor must exhaust legal means, by the issue of execution, and its return nulla bona, in order to reach the first; while, as to the latter, a judgment which acts as a lien on the property sought to be charged would be sufficient as the basis of a bill.

In Fleming v. Grafton, 54 Miss. 79, the subject was very much considered, and the English and American author- ities cited to a large extent, and the opinion concludes: 'Courts of equity are not ordinarily tribunals for the collection of debts. Some special reason must be offered by the creditor before they will extend aid to him. If he is a judgment creditor, he must show that he has a lien, either by judgment, if the statute gives such lien; if it arises from the execution, he must show that one has been issued; or, if it arises from a levy of the writ, that must have been made.'

In Scott v. Neely it was said by Mr. Justice Field, speaking for the court: 'In all cases where a court of equity interferes to aid the enforcement of a remedy at law, there must be an acknowledged debt, or one established by a judgment rendered, accompanied by a right to the appropriation of the property of the debtor for its payment; or, to speak with greater accuracy, there must be, in addition to such acknowledged or established debt, an interest in the property, or a lien thereon, created by contract or by some distinct legal proceeding. Smith v. Railroad Co., 99 U. S. 398, 401; Angell v. Draper, 1 Vern. 398, 399; Shirley v. Watts, 3 Atk. 200; Wiggins v. Armstrong, 2 Johns. Ch. 144; McElwain v. Willis, 9 Wend. 548, 556; Crippen v. Hudson, 13 N. Y. 161; Jones v. Green, 1 Wall. 330. * * * It is the existence, before the suit in equity is instituted, of a lien upon or interest in the property, created by contract or by contribution to its value by labor or material, or by judicial proceedings had, which distinguishes such cases for the enforcement of such lien or interest from the case at bar.'

The mere fact that a party is a creditor is not enough. He must be a creditor with a specific right or equity in the property, and this is...