Merriam v. Sewall

Shaw, C. J.

These are bills in equity, brought by the plaintiffs, as attaching creditors of the estate of Stephen G. Bass. *320 against the defendants, as assignees of said Bass under proceedings in insolvency, commenced against him by an application in invitwn, on the petition of the president and directors of the Boylston Bank. In Merriam’s case there is a general demurrer to the bill, assigning for cause, 1. Want of jurisdiction. 2. No case set forth for relief in equity.

I. The court are of opinion that they have jurisdiction in equity of the matter set forth in this bill. This jurisdiction in insolvency is given by the original statute, St. 1838, c. 163, § 18, by which the supreme judicial court has jurisdiction as a court of chancery, in all cases under this act; and have power to hear and determine all cases not otherwise provided for, upon the bill, petition or other proper process of any party aggrieved by any proceedings under this act.

The only doubt which could arise in the present case would be, whether the plaintiff in this case is a “ party aggrieved,” within the true meaning and intent of the statute.

If his attachment was before the commencement of the insolvent proceedings, it would be entirely clear that he has this remedy. By the attachment he has a lien on the goods or lands attached ; such, a lien is a specific proprietary interest in the property, and, if not defeated, may ripen into a perfect title. But if these proceedings were regular, they would dissolve the attachment and defeat that interest by operation of law. Smith v. Bradstreet, 16 Pick. 264 , and many other cases. The grounds of this rule are, that a party cannot be said to be aggrieved by a decree or adjudication, because he has some uncertain, possible or contingent interest, which may be affected by it; but otherwise, if he has some vested right or pecuniary interest to be divested.

But we are also of opinion, that if the attachment preceded the assignment of the property of the insolvent by the commissioner, it is sufficient to give the plaintiff an interest in the property. It is the assignment, which transfers the property of the insolvent to the assignee. The seizure on the warrant, before that is a mere sequestration, in the nature of an attachment on mesne process for all the creditors. The general right of prop *321 erty remains in the debtor until the assignment. The- attachment then, when made, creates a lien, subject only to a prior lien of the creditors, if the proceedings are regular and an assignment is subsequently made.

It does not distinctly appear on this bill, that the attachment preceded the assignment; but nothing appears to the contrary, and both parties argue it on the assumption that the attachment was before the assignment. The defendants’ argument states the dates — that of the attachment March 21st 1855, and the assignment March 27th 1855.

The consideration that the assignment is declared by the St. of 1838, c. 163, § 5, to be conclusive of the regularity of the proceedings, in all suits brought by the assignee, gives some effect to the principle that, where the plaintiff relies upon his right as attaching creditor, and intends to support that right by impeaching the proceedings in insolvency and setting them aside, he must show that such attachment was made before the assignment.

Whether the plaintiff, upon his general right as a creditor, having no attachment to sustain, could bring this suit as an aggrieved party, we have no occasion to express an opinion in the present case; nor whether he could maintain such suit, an an attaching creditor, in virtue of an attachment made after the assignment.

We are aware that, in the case of Hanson v. Paige, 3 Gray, 242 , the complaint was made by an attaching creditor, who attached some time after the assignment; it was held, that the court had jurisdiction, though the proceedings were not in fact in that case vacated. But the point was not made, whether the complainant was a party aggrieved; and perhaps all parties wished the opinion of the court upon the regularity of the pro ceedings, and for that reason forbore to object to the complainant’s bill on the ground that he was not an aggrieved party. The court decided only that the complaint in equity was the appropriate remedy for the party aggrieved by the irregularity of the proceedings. We do not in the slightest degree call is. question the authority of that cáse; the point now suggested *322 was not raised or adjudged; the mind of the court was not turned to it; and whether the objection would, if taken, have prevailed to defeat the bill or not, is immaterial to the present case.

The objection to it, if any, is, that if any creditor, at any stage of the proceedings, cannot maintain a bill to set aside proceedings, after titles to property have been made and various rights acquired under it, upon exceptions which, if available at all, should be taken in limine, it would be attended with great inconvenience, especially as there is no provision by law, as in the analogous case of proving a will or granting administration, that an appeal is limited to a particular time. Perhaps it might be held, upon a bill or petition to annul the proceedings, that the matter, as a case in equity, would be subject to the judicial discretion of the court, under which they would hold that proceedings should not be set aside for irregularities, unless, upon a petition brought early, before the proceedings in insolvency had been much advanced. Penniman v. Freeman, 3 Gray, 245 .

II. Do the plaintiffs show enough to entitle them to relief in equity; in other words, do they set forth sufficient reasons for vacating the proceedings ?

They allege that the proceedings against Bass were founded on a petitioning creditor’s debt, which was that of the Boylston Bank. The demurrer admits the truth of all matters well pleaded, that is, in the application of the rule to the present case, the demurrer admits, for the present hearing, all the facts set forth in the bill in such form that they could be put in issue and tried.

1. The original petition of the Boylston Bank is annexed and made part of the bill. It is signed by the bank by T. Gilbert. It is alleged that no evidence was offered to show that Gilbert was authorized; it is also alleged specifically, that Gilbert was not duly authorized. This is well pleaded and admitted by the demurrer. If there is no sufficient petition by the bank, it is not enough that they were creditors; they were not petitioning creditors. A petition lies at the foundation of proceedings in invi■ *323 turn / as the case stands, there was no petition by the bank, and therefore all the proceedings thereon were irregular. It is not enough that no proof of Gilbert’s authority was called for; that was an affirmative fact, without proof of which the commissioner had no jurisdiction.

2. We are not prepared to say that the allowance of an amendment to the petition was irregular; after the parties were duly summoned and were before the court, it seems conformable to established analogies to allow formal amendments, and incidental to the powers vested in the commissioner. See O'Neil v. Glover, 5 Gray, 158 . We do not perceive that the amendment substitutes another claim; it states the bill of exchange, on which they originally relied, more precisely and fully. And the same remark applies to the conveyances alleged to be fraudulent.

3. It is alleged that the petition was not proved by competent evidence. This perhaps is too vague and uncertain, to be considered well pleaded, so as to be admitted by the demurrer ; but in the next clause it is alleged that the testimony of one Jotham Buck, a material witness for the petitioner, was taken without oath or affirmation.

This possibly may be open to explanation, if the fact were so, and if it would be a good answer that the witness was not sworn, through inadvertence or mistake, as stated in the argument. But as it stands, it seems to be an averment that evidence was taken without oath or affirmation, intentionally and with the knowledge of the commissioner. „ And this is admitted by the demurrer. If this were so, it would seem to be an irregularity. The facts proved before the commissioner must be proved by legal and competent evidence.

4. It is stated, in the defendants’ argument, that a previous petition or bill, in the nature of an appeal from the judgment of the commissioner, had been brought before this court by the insolvent, in which it was decided that the proceedings were valid.

This, of course, not appearing in the bill, cannot be taken notice of on demurrer. The only purpose of alluding to it *324 here is to remark, that if the defendants mean to hold or rely on the analogy, that this is in the nature of a probate proceeding, and an appeal therefrom, and that one adjudication on the regularity of the proceedings ought to be final, he must set forth those proceedings with proper averments in his answer or plea, in the nature of a bar; and that is the only mode in which the decision of the court, on that matter, as res judicata, can be brought before the court in the present case.

The case of White against the same defendants is placed on the same grounds, except that one additional reason for setting aside the proceedings is thus stated : That the Boylston Bank discounted the draft, on which their petition was founded, at a greater rate of interest than six per cent, and so, by the provisions of law, the draft was wholly void. Rev. Sts. c. 36, §§ 58-60.

The question is, whether, if the facts are so, the bank could prove this debt. If they could not, if it was not a debt provable against the estate of the insolvent, then there was no good foundation for these proceedings. The answer, which the defendants make to this part of the case, seems to imply, that they consider it as founded on the general provisions of the Rev. Sts. c. 35, § 2, which do not make the contract affected with usury void; and treat that as a sufficient answer to the objection. But it appears that the objection is founded upon the above provisions applicable to banks alone, and prohibiting them from discounting any note at a larger rate than six per cent., under a penalty; and this would present a serious question. If the defendants intended, by their demurrer, to admit that the bill of exchange was discounted by the bank at a greater rate than six per cent., contrary to the prohibition of the statute, it would be solely a question of law. But as the demurrer must be overruled on other grounds, and, should the defendants move for leave to put in an answer, the facts on which the objection rests would be more distinctly presented, we have thought it not necessary or expedient to express an opinion on this question, in the present stage of the cause.

Demurrers overruled.

*325 The defendants then filed answers, alleging that the regularity and legality of the proceedings in insolvency in the case of Bass had been fully settled by the judgment of this court on a petition of Bass. At a hearing before Thomas, J., at November term 1857, the following facts appeared :

Bass, at February term 1855, filed a petition, in the nature of an appeal from the decree of the commissioner, declaring him insolvent, and alleged the same grounds for setting aside the proceedings in insolvency, as those now set forth in the bills of Merriam and White, except the permission of the use of testimony for purposes other than that for which it was introduced, and the illegality of the draft.

Upon that petition of Bass, notice was ordered to be given by Bass to the commissioner, and to the creditor petitioning against him before the commissioner. No other notice was ordered or given upon the petition of Bass ; and neither these plaintiffs nor any other creditors of Bass were made parties to that petition, or appeared therein. The commissioner and said petitioning creditor made answers in said proceeding; and on a hearing, before a single judge of this court, the petition of Bass was ordered to be dismissed, and a bill of exceptions was presented to said judge, and allowed, but afterwards, and after the filing of these two bills in equity, those exceptions were waived by Bass.

At the hearing upon these two bills, it was stated by one of the counsel for the plaintiffs, who was also of counsel in the case of Bass, that at the time these exceptions were waived, the counsel in that case, upon consultation, were of opinion that, upon these exceptions, only a part of the points raised by these bills could be determined, and that it would therefore be a waste of the time of the court to proceed further in that case ; and that this was the reason which induced the counsel to advise that those exceptions should be waived, and that this was stated to the court when they were waived.

The presiding judge was of opinion that the proceedings by Bass were conclusive upon the subject matter of the bills of these plaintiffs, and ordered their bills to be dismissed, sub *326 ject to the opinion of the whole court, before whom the case was argued upon this report at March term 1858.

B. R. Curtis & King, for the plaintiffs.

It is a principle of universal jurisprudence, that a judgment or decree binds only parties and privies. There was no legal privity, in blood or estate, between Bass and these plaintiffs, touching this subject matter; but their proceedings were adverse to him from the beginning, and throughout:

Neither were the plaintiffs parties to the petition of Bass; for the bill did not purport to be on behalf of any one except Bass, nor against any one but the petitioning creditor and the commissioner of insolvency. Nor was any notice, either actual or constructive, ordered or given to the plaintiffs.

That the petition of Bass was in the nature of a proceeding m rem, and might have been so framed and conducted as to bind all the world, does not render it binding on the plaintiffs, if it was not so framed and conducted as to make them parties, with the right to appear and act as such, and with legal notice, making it incumbent on them to appear, or suffer a decree by default. Shrewsbury v. Boylston, 1 Pick. 105 . Crease v. Babcock, 10 Met. 534 . Finley v. Bank of United States, 11 Wheat. 304 . Wiswall v. Sampson, 14 How. 67 . The Mary, 9 Cranch, 126 . Hallett v. Hallett, 2 Paige, 19 . Egberts v. Wood, 3 Paige, 517 . Baldwin v. Lawrence, 2 Sim. & Stu. 26.

The Bill of Rights, art. 12, provides that no subject shall be deprived of his property, immunities or privileges, but by the judgment of his peers or the law of the land ; that is, by “ due process of law; ” which implies and includes regular allegations, opportunity to answer, and a trial according to some settled course of judicial proceedings. Chase v. Hathaway, 14 Mass. 222 . Murray’s Lessee v. Hoboken Land Co. 18 How. 280 , and authorities there cited.

It appears by the report that the questions sought to be raised were not fully heard and determined on the petition of Bass. The additional grounds stated in these bills are material and important to these plaintiffs, who are parties aggrieved by the proceedings of the commissioner in those particulars. Yet the *327 ruling in this case precludes the plaintiffs from trying the validity of the defendants’ appointment in the only way in which they can be heard thereon.

Brigham,, for the defendants, cited Livermore v. Swasey, 7 Mass. 213 ; Litchfield v. Cudworth, 15 Pick. 23 ; Loring v. Steineman, 1 Met. 204 ; Baxter v. New England Marine Ins. Co. 6 Mass. 277 ; Woodruff v. Taylor, 20 Verm. 65 ; Wright v. Watkins, 2 Green, 547; Williams v. Sharp, 2 Ind. 101 ; Vanderpoe v. Van Valkenburgh, 2 Selden, 190 ; Bogardus v. Clark, 4 Paige, 623 ; Swett v. Sherman, 2 W. Bl. 977; Hart v. M'Namara, 4 Price, 154 note; Garber v. Commonwealth, 7 Barr, 265.

Thomas, J.

No direct appeal is given by the statutes from the decree of the commissioner, by which a warrant has been issued against the estate of the debtor. The validity of the proceedings can only be tested by a petition to this court sitting in equity, under the provision of the St. of 1838, c. 163, § 18. Such petition is in the nature of an appeal, with its legal incidents.

If the statute had given to the debtor or his creditors the right of direct appeal from the decree of the commissioner, it is quite plain that the affirmation or reversal of the decree in this court must bind and conclude all parties in interest. There could be but one appeal, and one judgment upon that appeal; and that judgment must be conclusive as to the subject matter of the decree from which the appeal was taken. It is in the nature of a judgment in rem, the thing being the estate of the debtor and its sequestration for the benefit of his creditors.

To allow separate appeals by the debtor and the several creditors would be to keep the estate forever open and in controversy. The question might be differently decided upon the evidence of different states of facts.

The same evils indeed would follow as from permitting the question of the validity of the proceeding to be tried collater ally in suits at common law, brought by the assignee. St 1838, c. 163, § 5.'

In suits prosecuted by the assignee, the assignment is made conclusive evidence of his authority to sue, precisely because

*328 it was intended that the'question of the validity of the assignment should be tried and conclusively settled in a proceeding instituted for the purpose. Partridge v. Hannum, 2 Met. 569 Wheelock v. Hastings, 4 Met. 504 . Hanson v. Paige, 3 Gray, 239 . Whithead v. Mallory, 4 Gray, 180 .

The reasons apply with equal force to a petition in the nature of an appeal, for the purpose of testing the validity of the proceedings by which a warrant has issued against the estate of the insolvent. Whatever may be the grounds of objection, and by whomsoever presented, the question is but one — Is the decree valid ? If so, the legal consequences follow to the debtor and creditors, for the decree cannot be void as to the one, and valid as to the other.

As matter of practice, it would have been well that, after filing the petition by Bass, public notice should have been given to all persons interested. But this was not necessary. Notice had been given of the issuing of the warrant and of the first meeting of the creditors. Any creditors who, by reason of attachments upon the estate or otherwise, had an interest adverse to the proceedings, were fairly put upon their inquiry. If they objected to the proceedings, the objection- should have been taken at an early stage of the case. If they found the debtor had brought a bill to vacate the proceedings, they could have made themselves parties to the bill, and have insisted upon all possible objections. But they cannot try again the question settled once, and finally, under the petition of the debtor.

Petition dismissed.