Manhattan Trust Co. v. Chicago Elec. Traction Co.

• Decision Date: 20 July 1910
• Docket Number: 25,595.
• Citation: 188 F. 1006
• Parties: MANHATTAN TRUST CO. et al. v. CHICAGO ELECTRIC TRACTION CO. In re WILCKE.
• Court: U.S. District Court — Northern District of Illinois

188 F. 1006

MANHATTAN TRUST CO. et al. v. CHICAGO ELECTRIC TRACTION CO.

In re WILCKE.

No. 25,595.

United States Circuit Court, N.D. Illinois, Eastern Division.

July 20, 1910

Wing &amp Wing and Fred W. Bentley, for petitioner William Wilcke.

Mayer Meyer, Austrian & Platt and Isaac H. Mayer, for purchasers trustees, and bondholders.

KOHLSAAT Circuit Judge.

Petitioner sets up judgment recovered against the receiver herein for $10,000 and costs taxed at $74.85 on July 16, 1907, for which no execution was awarded; that the judgment order directed that the same be paid in due course of administration out of the funds of said receivership; that said judgment was affirmed by the Appellate and Supreme Courts, and now stands in full force and effect and unsatisfied. The petition further states that said judgment was filed with the master on August 16, 1907, and asks that the receiver show cause why said judgment should not be allowed and paid out of the proceeds of foreclosure sale herein. To this petition the receiver, the reorganization committee of the bondholders the owners of the receiver's certificates, and the Chicago & Southern Traction Company, purchaser under said mortgage sale, make answer, alleging that by the decrees of June 11, 1907, and May 27, 1908, in said cause, it was ordered that all claims not presented to the master for allowance by September 8, 1908, should be barred, of which order petitioner had notice; that petitioner's claim was not so presented and is barred. The answer further charges that said judgment is not binding against the respondents; that respondents, other than the receiver, were not parties to said proceeding; that judgment was procured by fraud, and by false and perjured testimony.

The answer further alleges that the injury complained of in said suit of Wilcke, upon which said judgment is based, was caused by his own negligence alone; that he produced false testimony as to the extent of his injury; that he is not entitled to any damages; that the judgment is excessive and inequitable; and that before the petition be granted the facts should be fully inquired into. The answer further charges that the sale made in said cause under the foreclosure proceedings has been confirmed and deed delivered, and that the property is in the possession of the purchaser.

To this answer petitioner files exceptions, which exceptions are now before the court.

No reason is perceived why exceptions 1, 2, 3, 4, 5, and 6 should lie to the answer, and they are overruled.

The seventh and last exception is to the fourth paragraph of the original answer of respondent, which alleges that Wilcke secured said judgment by means of fraud and by false and perjured testimony.

This is excepted to as scandalous and impertinent. It is very clear that the only question before the court on this exception is: Is the paragraph properly a part of the answer? Should it be expunged? Whether the affirmative defense of fraud here set up is sufficiently alleged, or whether if properly alleged it is a sufficient defense, are not matters in issue upon this exception. These questions could only be raised by demurrer (2 Bates on Federal Practice, p. 667), or, perhaps, by analogy to the method of testing the sufficiency as a matter of law of an answer or plea to an original bill, by setting down for argument.

Of course, fraud may be set up at any stage of the proceedings. It vitiates all transactions, and is always pertinent if it relates to the matter in controversy. To be sure, one may sometimes be precluded from establishing such a defense, as where, for instance, the principle of res adjudicata is applicable, but even in such a case it would not be impertinent.

'No matter is to be deemed impertinent which is material in establishing the rights of the parties or ascertaining the relief to be granted. ' Mechanics' Bank v. Levy, 3 Paige, Ch. (N.Y.) 606; 12 Beav. 44; 10 Sim. 345.

'Scandal is impertinent matter which is also criminatory, or which otherwise reflects on the character of an individual. * * * No matter which is not also impertinence will constitute scandal however strong its aspersions or reflections may be. * * * ' 19 Ency Pl. & Pr. 195 et seq. Tested by these rules, it is clear that the exception must be overruled.

The court finds itself somewhat embarrassed in administering appropriate relief by reason of the fact that counsel have ignored the issues raised by the exceptions; i.e., questions of whether the allegations of the answer are impertinent, scandalous, and an insufficient response to the petition. The main question submitted in the briefs is as to the weight to be accorded the judgment as proof of petitioner's claim, petitioner contending that the judgment is conclusive as to the right as well as the amount of his recovery, and respondents insisting that they are entitled to a hearing de novo on the original cause of action; i.e., that the judgment is not even prima facie evidence in favor of Wilcke.

Adhering strictly to the record, an order overruling the exceptions would dispose of all questions properly in issue; but perhaps the court is warranted by this departure from the issues raised by the exception to treat the submission as a demurrer or as the setting of the matter down for argument on petition and answer, and to thus consider the sufficiency as a matter of law of the proposed defense of fraud, which would involve the question submitted as to the conclusiveness of Wilcke's judgment.

Respondents deny the conclusiveness of the judgment against bondholders, certificate holders, and purchasers: (1) Because the decree provides that the court shall determine and fix claims, costs, charges of administration, etc.; (2) because bondholders, certificate holders, and purchasers were not parties to Wilcke's suit, and therefore had no chance to be heard in defense thereof.

The first point may be briefly disposed of by saying that the court may determine, fix, and allow the claim solely upon proof of the judgment, without ignoring these provisions of the decree. The decree does not provide what kind and how much evidence shall be required to convince the court that the claim should be allowed.

As to the second point: Respondents do not contend that the judgment is not entitled to some weight against the receiver. Their contention is that it is of no weight against purchasers, bondholders, and certificate holders.

Now, a receiver is simply a representative of the estate being administered by the court of his appointment. He is an arm of the court-- an officer appointed to conserve the property and manage it under the direction of the court for the benefit of all those who may be adjudged ultimately entitled thereto. The receiver's official acts are those of the court, and any liability incurred while in the performance of his judicial duties is a part of the cost of administration, and necessarily given priority over all other classes of creditors. 24 Am. & Eng.Ency.of Law, 31. A suit against a receiver in his official capacity in respect to any act or transaction of his in carrying on the business connected with such property is nothing less than an attempt to establish a liability against assets in his hands. It is idle to say that a judgment in such a suit is conclusive against a receiver in his official capacity, but yet of no weight against those ultimately entitled to those assets. That bondholders and trustees in a foreclosure proceeding are bound by the judgment rendered against the receiver therein in a court of competent jurisdiction, see Turner v. Indianapolis, etc. R. Co., Fed. Cas. No. 14,260. 'It is also generally held that the assignee...