Wyman v. Mathews

• Citation: 53 F. 678
• Parties: WYMAN et al. v. MATHEWS et al.
• Decision Date: 20 January 1893
• Court: U.S. District Court — District of South Dakota

53 F. 678

WYMAN et al. v. MATHEWS et al.

United States Circuit Court, D. South Dakota, Eastern Division.

January 20, 1893

Chase Kean & Sherman, for complainants.

Kennedy & Kennedy and Taylor, Shull & Farnsworth, for defendants.

SANBORN Circuit Judge.

Prior to December 27, 1892, the defendant Ida A. Mathews was a merchant operating a general store at Armour, in South Dakota. She had a general stock of merchandise and some store fixtures of the value of about $5,000, and she was insolvent. She owed over $4,000 that was past due. She had no means to pay her debts as they matured, except from the sales of the stock of merchandise. All of her property, except this stock and the fixtures in the store she occupied, was incumbered to its full value, so that she had no substantially valuable interest in any property except the stock of merchandise and fixtures. She owned the defendant the Douglas County Bank $551 that was past due, and on December 27, 1892, to secure the payment of this debt and other debts that were past due she made a chattel mortgage of all her stock and fixtures to the bank to secure the payment of $4,251, according to the conditions of a promissory note made by her, payable on or before May 1, 1893, with 10 per cent. interest. The mortgage in terms provided 'that the mortgagor shall retain the possession of said merchandise and fixtures, and sell and dispose of the same in the ordinary course of trade for cash and for cash only, and apply the proceeds thereof to the satisfaction of this mortgage by delivering the same to the mortgagee daily at the said bank as security for the payment to the said Douglas Co. Bank of forty-two hundred dollars and fifty dollars, with interest thereon, as expressed' in the note; and 'that in case of default made in the payment of the above-mentioned sums of money, or any part thereof, or if the mortgagee shall at any time deem himself insecure, even before the maturity of said note, then, and in either of the above cases, it shall be lawful for said mortgagee or their assigns, by themselves or agents, to take immediate possession of said goods or chattels wherever found, * * * and to sell the same at public auction,' and apply the proceeds to the payment of the mortgage debt returning the surplus to the mortgagor. The complainants were general creditors of the defendant Mathews at this date, and they have since become the assignees of claims of other creditors which amount in the aggregate to about $2,500. On January 4, 1893, complainants filed their bill in the circuit court, alleging that the defendants were selling the property and applying the proceeds to the payment of the mortgage debt in preference to the other creditors of the defendant Mathews, and this is admitted by the answers.

The complainants applied to the circuit court for an injunction against the defendants restraining them from the disposition of the property, and for the appointment of a receiver, on the ground that the chattel mortgage was in effect an assignment of the property of the defendant Mathews with preferences, and that it created a trust fund for the benefit of all her creditors, under the provisions of section 4660 of the Civil Code of South Dakota, and that the defendants were violating the trust thus created. An injunction was issued, and a receiver appointed. Application is now made to set aside the order appointing a receiver, and to dissolve the injunction.

Section 4660 of the Code of South Dakota provides that--

'An insolvent debtor may in good faith execute an assignment of property to one or more assignees, in trust towards the satisfaction of his creditors, in conformity to the provisions of this title; subject, however, to the provisions of this Code relative to trusts and to fraudulent transfers, and to the restrictions imposed by law upon assignments by special partnerships, by corporations, or by other specified classes of persons: provided, moreover, that such assignment shall not be valid if it be upon or contain any trust or condition by which any creditor is to receive a preference or priority over any other creditor; but in such case the property of the insolvent shall become a trust fund, to be administered in equity in the district court, and shall insure to the benefit of all the creditors in proportion to their respective claims or demands.'

Of this suit in equity to enforce a trust and to distribute a fund created under this statute, the circuit court of the United States has jurisdiction. Rights created by state statutes may be enforced in the federal courts by foreign creditors, where those statutes prescribe methods of procedure which by their terms are to be pursued in the state courts of original jurisdiction, and there is nothing of a substantial character in the methods prescribed which makes it impossible for the United States circuit court to substantially follow those methods. Clapp v. Dittman, 21 F. 15, 17; Railway Co. v. Whitton, 13 Wall. 270, 272, 274, 286; Clark v. Smith, 13 Pet. 195, 203; Fitch v. Creighton, 24 How. 159, 163; Reynolds v. Bank, 112 U.S. 410, 5 S.Ct. 213; Ex parte McNiel, 13 Wall. 236, 243.

It was not necessary for the complainants to...