In re Barrett

• Citation: 132 F. 362
• Parties: In re BARRETT. v. BRIDGES et al. JORDAN
• Decision Date: 16 April 1904
• Court: U.S. District Court — Western District of Tennessee

132 F. 362

In re BARRETT.

JORDAN v. BRIDGES et al.

United States District Court, W.D. Tennessee.

April 16, 1904

H. D Minor, for the motion.

T. M Scruggs, opposed.

HAMMOND J.

The plaintiff is the receiver in bankruptcy to whom the voluntary bankrupt surrendered his property and effects, as required by standing rule No. 1 of this court (109 Fed.iii, iv). He filed this independent bill on the equity side of the docket against the defendants alleging that they were scheduled by the bankrupt as creditors for large sums due them out of transactions which are attacked as invalid and fraudulent, because the indebtedness arose out of dealings in futures, called by the bill 'gambling debts.' For this alleged indebtedness the several defendants are charged with holding certain property, including rent notes, life insurance policies diamonds, and other property of very large value, as collateral security, and it is charged that they will dispose of the same by sale or otherwise before the trustee is appointed, unless restrained by the process of this court. The court granted a restraining order, according to the prayer of the bill, and afterwards, upon notice, a preliminary injunction forbidding the disposition of the collateral property until the trustee should be appointed and until the further orders of the court. The defendants made no resistance to the injunction at the time of the application, but entered a special appearance only to move that the plaintiff be required to give the usual cost bonds and an injunction bond in a sufficient amount to protect the defendants against any damages for the wrongful suing out of the injunction, which motion is resisted by the plaintiff upon the ground that he should not be required to give such bonds for the conduct of this litigation.

It is conceded by counsel on both sides that the giving of the injunction bond is a matter within the discretion of the court, and not governed by any statutory or other prescribed rules; but it is insisted by the defendants that the ordinary practice of this court, and of all equity courts, is to require a bond to protect defendants against damages for the wrongful suing out of an injunction, and that it is the common practice in Tennessee to fix the amount of the bond and require it at the time the injunction is granted, it being done usually in the fiat for the injunction. The plaintiff contends, however, that while this may be true in ordinary practice, the better practice is that the court will not determine the question of whether there should be an injunction bond, nor its amount or character, except as one of the conditions upon which the injunction will be granted when the defendant appears to answer the application for restraining process, and that it is not until the defendant answers, or in some other way makes a showing of his relation to the parties and his relation to the property involved, that the court can determine in the exercise of its lawful discretion whether there should be an injunction bond, or what its terms should be. He also contends that in a practice like the federal practice, where the injunction is not granted ex parte, but upon notice, it is one of the purposes of this notice to give the defendant an opportunity to indicate what terms should be imposed upon the plaintiff in the granting of the injunction; and the further contention is that, if the defendant submits to an injunction without a denial of the allegations of the bill or a showing otherwise against its equities, the court in the exercise of its discretion is justified in assuming that the allegations of the bill are true, and that the defendant will receive no injury by the process, for the reason that there is no indication that it will be wrongful, and therefore the court will not require a bond under such circumstances.

I do not take the time in this case to look into the adjudicated cases which indicate the considerations that govern the discretion of the court in requiring or pretermitting the giving of an injunction bond, for the reason that from the allegations of this bill it does not appear that any injury can come to the creditors, except such as may come to them by reason of delay in realizing on their securities and the satisfaction of their debts, which ordinarily would be covered by interest allowances for the mere delay. But in all insolvency and bankruptcy proceedings the general rule is that the creditors have no rightful interest for the delay arising out of proceedings for insolvency or bankruptcy. That delay is one that is incident to the contingencies arising between debtor and creditor, and it is supposed that they contract with each other in view of the fact that such delays may occur if the debtor becomes bankrupt.

The bill also indicates upon its face that this property is composed of life insurance policies not matured, and about which there is no indication of conditions that would make it necessary to have a speedy settlement with the insurance company. If such conditions exist, it is incumbent on the defendants to show it. The rent notes involved are not due until next December, and there will be ample opportunity for the trustee, when appointed, to deal with the question between him and these creditors as to what the best interests of the bankrupt's estate require before there can be any necessity for speedy action in relation to these notes. If there be any conditions of threatened insolvency or the makers of the notes, it would be incumbent, also, upon the defendant to make such a showing on this application as would control the discretion of the court. As to the large quantity of diamonds mentioned in the bill, the only change for injury would be deterioration in value, which is not likely, so that it appears, from the record as it now stands, that there is no indication of impending danger to the defendants by the granting of this injunction. Therefore it occurs to me that the contention of the plaintiff's counsel is well taken that, in the absence of some showing by the defendants upon this motion, they are not in an attitude to insist upon a mere technical requirement that a preliminary bond shall be given to protect them.

But there is another important consideration, which is also involved in the application for a cost bond, that presumably would influence the discretion of a court in requiring or pretermitting an injunction bond, and that is the fact that this plaintiff is in certain sense an official receiver, who has no personal interest or advantage to be gained, and who is acting solely in behalf of the creditors of the estate and for the protection of its assets. It is an important inquiry whether such a plaintiff should be required to give either injunction or cost bonds, except under extraordinary circumstances. Again, attention may be called to the fact that all men, in their dealings with each other out of which the relation of debtor and creditor arises, must be presumed to contract with reference to the exigencies and contingencies that may subsequently arise by the insolvency of the debtor or the creditor, and particularly of the debtor, and still more particularly that relation to such conditions as will arise if insolvency proceedings are commenced in the courts for the winding up of the insolvent estate, as in case of the death of the debtor in the process of the administration in insolvency of his estate, or when, in the case of corporations or partnerships, there is a winding up of such concerns in courts appointed for the purpose. When there is existing a congressional provision for a bankruptcy system under the Constitution of the United States, the fact that the debtor or creditor may become a bankrupt and be subjected to all the exigencies and conditions of that status, presumably must have been in the contemplation of the parties at the time they made their contract; and therefore whatever inconveniences or possible losses may arise out of such unfortunate results are not to be alleged as giving any particular equities in the determination of such a matter as we have not before us. It may well be assumed that debtors and creditors will understand that if bankruptcy occurs, and they become involved in litigation about the bankruptcy affairs, the official receivers and trustees will be allowed to conduct such litigation without personal responsibility for costs or damages, and without the burden of being required to give security for the same, whereby in many cases it may be imagined the litigation could not proceed at all because of the inability or unwillingness of such quasi officials of the court to pay costs and damages, or give security for such liability. There is certainly no equity possessed by defendants in such litigation to escape judgments against them by reason of such inability of the quasi officials' conduct of administration in bankruptcy of insolvency. If there be any principle at the bottom of such a contention as that with which we are now dealing, it seems to me this should exercise the controlling influence, and the court would require security for costs and damages, except in plain cases of a just demand by the defendants for such protection. On authority the question seems to be somewhat obscure, at least to the somewhat hasty examination which as been given to it by counsel, owing to the pressure for quick decision in this matter.

There is no act of Congress requiring either cost or injunction bonds in any ordinary litigation, and certainly none in the litigation arising out of bankruptcy proceedings. It seems a little remarkable that the bankruptcy statute has neglected this subject, more particularly because exercising the plenary power given by the Constitution of...