Schofield v. Ute Coal & Coke Co.

• Decision Date: 13 February 1899
• Docket Number: 1,073.
• Citation: 92 F. 269
• Parties: SCHOFIELD v. UTE COAL & COKE CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

92 F. 269

SCHOFIELD v. UTE COAL & COKE CO. et al.

No. 1,073.

United States Court of Appeals, Eighth Circuit.

February 13, 1899

This is an appeal from a decree which sustained demurrers to and dismissed the amended bill of John W. Schofield, as receiver of the Union National Bank of Denver, because the court below held that his bill did not show that the complainant was without an adequate remedy at law. These are the material facts alleged in this bill: On and prior to March 31, 1896 the appellee the Ute Coal & Coke Company, a corporation, was indebted to the receiver of the Union National Bank of Denver on its promissory notes in the sum of $4,700, and the receiver was pressing it for payment. The only property the coal company had was certain real estate in La Plata county in the state of Colorado, which was worth less than $20,000. Thereupon, on March 31, 1896, the coal company and the appellee O. M. F. Boyle entered into a conspiracy to defraud the receiver out of his credit; and pursuant thereto the coal company made its several promissory notes to the aggregate amount of $20,000, payable to the order of Boyle, and made and recorded a trust deed of all its property to the appellee J. L. Parsons for the pretended purpose of securing these notes. The company was not indebted to Boyle, and the notes and the trust deed were made without consideration, for the purpose of defrauding the receiver of the bank. After these notes to Boyle, and the notes and the trust deed were made without consideration, for the purpose of defrauding the receiver of the bank. After these notes to Boyle were made he assigned one of them to each of the appellees the first National Bank of Alamosa, the First National Bank of Durango Frank W. Stubbs and Louis C. Jackway, co-partners as Stubbs & Jackway, and Adair Wilson and Reese McCloskey, co-partners as Wilson & McCloskey; but there was no consideration for these assignments, and each of the appellees took them with knowledge of the purpose for which the notes and deed had been made, and with intent to aid in its accomplishment. On September 4, 1896, the receiver of the Union National Bank recovered a judgment in the court below for $8,112.73 against the coal and coke company upon its promissory notes which he held prior to March 31, 1896, issued an execution thereon, and on July 6, 1897, caused a transcript of his judgment to be properly filed with the register of deeds of La Plata county. The circuit court dismissed the bill because it failed to show that the execution issued upon this judgment had been levied or returned unsatisfied.

William A. Moore (Earl M. Cranston and Robert J. Pitkin, on the brief), for appellant.

Benjamin W. Ritter (Reese McCloskey, on the brief), for appellees.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge, after stating the case as above, .

Is the levy of an execution, or its return unsatisfied indispensable to the maintenance of a suit in equity to remove a fraudulent obstruction to the enforcement of the lien of the judgment? Where the remedy at law is adequate, equity takes no jurisdiction. But there are two classes of cases in which a judgment creditor may successfully invoke the aid of a chancellor because his remedy is insufficient. One class includes the cases in which his remedy at law is utterly ineffectual to reach the property of his debtor, or to fasten any lien or claim upon it, as where a creditors' bill is exhibited to reach choses in action, equitable interests, or property of the judgment debtor that has been fraudulently conveyed beyond the reach of the judgment and execution. The other class embraces those cases in which the creditor has secured a lien or right at law, the enforcement of which is obstructed by some fraudulent conveyance or incumbrance. In the former class the utter failure of the remedy at law is the sole ground of the jurisdiction in equity, and hence it is that it has sometimes been held that the return of an execution unsatisfied, as proof of this futility, was essential to the maintenance of the suit (Scott v. Neely, 140 U.S. 106, 114, 11 Sup.Ct. 712; Cates v. Allen, 149 U.S. 451, 458, 13 Sup.Ct. 883, 977; Hollins v. Iron Co., 150 U.S. 371, 386, 14 Sup.Ct. 127), although the better rule would seem to be that this is not the only method of establishing this fact even in this class of cases (Case v. Beauregard, 101 U.S. 688, 690; Darragh v. H. Wetter Mfg. Co., 49 U.S.App. 1, 23 C.C.A. 609, 617, and 78 F. 7; Turner v. Adams, 46 Mo. 95; Postlewait v. Howes, 3 Iowa, 365; Bank v. Harvey, 16 Iowa, 141; Botsford v. Beers, 11 Conn. 369). In the second class of cases to which we have adverted, however, the lien or vested right in the property, and the fraudulent obstruction to the adequate enforcement of this lien or right, are the only essentials to the jurisdiction of a court of equity. Equity relieves, not, as in the former class, because the remedy at law has created no lien and has no effect, but because the enforcement of the lien secured by the legal remedy is rendered so much less efficient by the fraudulent obstruction that it is inadequate. It is the inadequacy, and not the utter futility, of the remedy at law, which conditions the jurisdiction in this class of cases; and the return of an execution unsatisfied is neither the sole nor the best evidence of this inadequacy. In many cases, this inadequacy cannot be shown at all by the return of the execution, because it is possible to levy the same upon the property upon which the lien is fastened, and to sell this property thereunder, notwithstanding the fraudulent incumbrance or conveyance. The difficulty is that the fraudulent mortgage, trust deed, or other obstruction compels the purchaser under the execution to buy a lawsuit, and so depreciates the value of the property at the sale that the creditor's remedy is rendered insufficient, and sometimes without any practical value. In such a case he is not required to proceed with this sale, and thus sacrifice both his own interest and that of his debtor, but he may successfully appeal to equity to remove the fraudulent obstruction before he proceeds to the sale. Bank v. Newton, 13 Colo. 249, 250, 22 P. 444, and cases there cited. Moreover, the inadequacy of the remedy is generally measured by the value of the property upon which the...