Hatch v. Bancroft-Thompson Co.

• Citation: 67 F. 802
• Decision Date: 10 May 1895
• Docket Number: 3,354.
• Parties: HATCH v. BANCROFT-THOMPSON CO. et al.
• Court: U.S. District Court — Eastern District of Michigan

67 F. 802

HATCH v. BANCROFT-THOMPSON CO. et al.

No. 3,354.

United States Circuit Court, E.D. Michigan.

May 10, 1895

The bill of complaint in this cause was filed on the 4th day of September, 1893, and shows that the complainant, who is a citizen of the state of New York, obtained a judgment against the Bancroft-Thompson Company, a corporation organized under the laws of the state of Michigan, in this court, on the law side thereof, June 28, 1893, for $2,575.43, and costs, taxed at $31.45, on which judgment an execution was duly issued and placed in the hands of the marshal of this district for collection. Said writ of execution was duly returned August 25, 1893, by the marshal, wholly unsatisfied. The judgment remains in full force and effect, wholly unpaid, and there is still due the complainant thereon the full amount thereof with interest and costs. The purpose of the bill is to reach in favor of the judgment creditor, equitable assets of the Bancroft-Thompson Company, and compel the discovery of concealed property and assets, and for other and incidental relief. The defendants named in the bill are the corporation and its officers and stockholders, who, it is charged, have bought property of the corporation defendant, and a part of the relief sought is that these persons pay money into the company, which shall be applied to the satisfaction of complainant's claim. The gravamen of the bill is alleged frauds committed by defendants, which may be summarized briefly, as follows: (1) A fraudulent organization of the company to have it substituted as a debtor in place of the copartnership previously existing, whose assets it acquired; (2) fraudulent overvaluation of property turned over of the company as capital stock subscription, and in nonpayment of capital stock of the corporation; (3) the fraudulent giving of a mortgage on the property of the corporation; (4) fraudulent sales of goods to defendant C. R. Hawley; (5) the fraudulent foreclosure of the mortgage; (6) the fraudulent purchase by C. R. Hawley & Co. of the property of the company at the foreclosure sale had under said mortgage; (7) the fraudulent diversion of the profits and property of the corporation to the use and benefit of its directors and stockholders, to the detriment of the bona fide debtors of the company. Twenty-seven specific interrogatories are propounded, which the bill prays may be answered by the defendants.

The defendants have filed a plea to the bill, setting forth, in substance, that, under and pursuant to the statutes and practice of the state of Michigan, a similar bill on judgments of claim in the circuit court for the county of Bay, in chancery, was filed in that court by James McCreary and others against the defendants on the 16th day of February, 1892, and a second and like bill was filed in said state court against the defendants in this suit by Marshal Field and others, who are also judgment creditors of the defendant corporation; and that the purpose and object and the charges in said bills and the relief sought thereby were identical in substance and effect with those contained in the bill in this cause, except that the complainant here was not a party to said bills in said state courts, and the amounts of the judgments are different. The proceedings on said bills in said state courts were founded upon sections 6614-6615, and also chapter 281, How. Ann. St. Mich., which confer jurisdiction upon a court of chancery in behalf of a creditor 'who has obtained judgment at law, and who has been unable to collect the same upon execution, in whole or in part, to compel a discovery of any property or things in action, belonging to the defendant, and of any property, money or things in action due to him or held in trust for him, and to prevent the transfer of any such property, money or things in action or the payment or delivery thereof to the defendant, except where such trust has proceeded from some other person than the defendant. ' Chapter 281, Sec. 8150, of Howell's Statutes enacts that the circuit court within the proper county shall have jurisdiction over directors, managers, trustees, and other officers of corporations, provided that proceedings are commenced within one year after they have become managers, trustee, and other officers: '(1) To compel them to account for their official conduct in the management and disposition of the funds and property committed to their charge. (2) To decree and compel payment by them to the corporation whom they represent, and to its creditors, of all sums of money of the value of all property which they may have acquired to themselves or transferred to others, or may have lost by any violation of their duties as such directors, managers, trustees, or other officers. * * * (7) To set aside all alienations of property made by the trustees or other officers of any corporation, contrary to the provisions of law or for purposes foreign to the lawful business and objects of such corporation in cases where the persons receiving such alienations know the purpose for which the same was made. (8) To restrain and prevent any such alienation in cases where it may be threatened or there may be reason to apprehend that it is intended to be made. ' Section 5 of this statute enacts that the jurisdiction conferred in the third section of the chapter shall be exercised as in ordinary cases, on bill or on petition, as the case may require, or as the court may direct, at the instance, among others mentioned, of any creditor of such corporation. And section 6 provides: 'Whenever a judgment at law or a decree in chancery shall be obtained against any corporation incorporated under the laws of this state and the execution issued thereon shall have been returned unsatisfied in part or in whole, upon the petition of the person, obtaining such judgment or decree, or his representatives, the circuit court within the proper county may sequestrate the stock, property, things in action and effects of such corporation and may appoint a receiver of the same. ' The plea sets forth that in and by virtue of the said suits of McCreary and others and Field and others, so pending and undisposed of in the circuit court for the county of Bay, in chancery, the said court has acquired and 'has full jurisdiction, control, and custody of all the estate and property of the Bancroft-Thompson Company, and of all the debts and property owing by any person on any account to said Bancroft-Thompson Company, with the power and right to order a disposition thereof, and that this court ought not, by reason of said matters and things, to take jurisdiction of this suit'; and prays judgment whether the defendants ought to be compelled to make any other or further answer to complainant's bill. This plea is properly verified, and is supported by an answer under general equity rule 32, fortifying the plea, and explicitly denying the fraud and combination charged in the bill and the facts on which the charge is founded. The answer does not set forth all the information called for by the interrogatories annexed to the bill. The complainant has filed exceptions to the answer for insufficiency, because the specific interrogatories attached to the bill are not answered. In addition to his exceptions and simultaneously therewith, complainant moved to quash defendants' plea, on the ground of insufficiency, and for a decree in conformity to the prayer of the bill.

Jones, Samuels & Culver, for complainant.

C. L. Collins, for defendants.

SWAN District Judge (after stating the facts).

The plea in this cause, in accordance with the requirements of general equity rule 31, has attached the certificate of counsel that, in his opinion, it is well founded in point of law, and it is supported by the affidavit of the defendants Bancroft, Hawley, Thompson, and Bassingthwait that it is not interposed for delay, and is true in point of fact. By general equity rule 33, it is provided that the plaintiff may set down the plea to be argued, or he may take issue upon it, and if, upon an issue, 'the facts stated in the plea be determined for the defendant, they shall avail him as far as, in law and equity, they ought to avail him. ' This rule provides the only two methods by which the plaintiff may test the sufficiency of the plea, or, if that be conceded, the truth of its averments. The course pursued by the complainant is an innovation upon chancery practice, which is excluded by the very terms of the rule, and which has no sanction in the equity practice of the federal courts. It was plainly the duty of the complainant, if he questioned the sufficiency of this plea, to set down the same for argument; and, unless he intended to admit its validity, he could not, before it had been argued, test the sufficiency of the answer by exceptions, without admitting the validity of the plea.

The rule laid down in Daniell's Chancery Practice is as follows:

'If a plaintiff conceives an answer to interrogatories to be insufficient, he should take exceptions to it, stating such parts of the interrogatories as are not answered, and praying that the defendant may, in such respect, put in a full answer. If, however, the answer is one which accompanies a plea or a demurrer to part of a bill, he must, unless he intends to admit the validity of the plea or demurrer, wait until it has been argued, for his exceptions would operate as an admission of its validity.' 1 Daniell,Ch.Pl.& Prac.pp. 691, 760; Darnell v. Reyny, 1 Vern. 344; Brownell v. Curtis, 10 Paige, 210; Buchanan v. Hodgson, 11 Beav. 368.

Upon this ground, therefore, the plea must be sustained.

By general equity rule 38:

'If the plaintiff shall not reply to any plea or set down any plea or demurrer for argument on the rule day

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