ALABAMA
& RAILWAY, CO. ,V. AUSTIN.
i97
ALABAMA IRON & RAILWAY CO. v. AUSTIN et 31. (Circuit Court of Appeals, Fifth Circuit. No. 786. ,.
May 23, 1899.)
Equity has jurisdiction of a bill hy a receiver of a national bank to set aside a transfer of notes made by the bank to prefer a creditol'. SAME-PLEADING AND PROOF-VARIANCE.
BANKS-PREFERENCES.
2.
A bill by the receiver of a bank to set aside a preferential transfer of notes, in violation of Rev. St. § 5242, is not sustained by proof that the notes were put into the transferee'!'i hands for payment by him, and that, instead of paying them,he wrongfully kept them. '
3.
SAME-EvlDENCE-RES JUDICATA.
Where an order dismissing a law case is pleaded in bar in an equity suit, and no proof is offered except the order itself, defendant cannot show the nature of the law case by affidavit after trial.
Appeal from the Circuit Court of the United States for the Northern District of Alabama. In April, 1893, R. W. Austin, as receiver of the First National Bank of Sheffield, Ala., filed his bill of complaint in the United States circuit court for the Northern district of Alabama against the Alabama Iron & Railway Company. He alleged that he was duly appointed by the comptroller of the currency to the office of receiver of said bank; that on the 11th day of Xovember, 1889, the B'irst National Bank of Sheffield was indebted to the Sheffield & Birmingham Coal. Iron & Railway Company in the sum of $10,000; that at that time said National Bank was largely indebted, and that the amount of its liabilities exceeded the value of its assets; that this fact was known to the president, cashier, and directors of the bank, and it was known and apparent to said officers that said First National Bank would presently be unable to meet its obligations, and that it would soon be obliged to suspend Its business; that in contemplation of such insolvency, and with a view of giving preference to Jacob G. Chamberlain, receiver of the Sheffield & Birmingham Coal, Iron & Railway Company, over its other creditors, and also w,ith a view and for the purpose of preventing the application of its assets in the manner prescribed by the laws of the "United States, said First National Bank did on the 11th day of November, 1889, transfer, assign, and deliver to said receiver, as collateral to secure its said previous debts, certain seven notes of H. B. Tompkins, aggregating $8,506.27; that Chamberlain was appointed by said court receiver of said Sheffield & Birmingham Coal, Iron & Hallway Gompany, which was subsequently dissolved and reorganized under the name and style of the Alabama Iron & Railway Company; that said notes were by said receiver, Chamberiain, delivered to the defendant corporation, the Alabama Iron & Railway Company, and that said notes are held by said defendant corporation, and were received by it, with full notice of all the facts above stated; that the defendant corporation also holds and owns the said claim against the said bank; that the defendant corporation now holds the said assets, and claims the right to apply them or the proceeds of their collection to the said debts of said First National Bank to the defendant corporation, and that, if corporation is allowed to do this, it will be an illegal preference over the other creditors of said First Kational Bank; that the assets of said bank are insufficIent to pay its liebts; that the salU transfer to the defendant corporation was fraudulent and void: and that the said assets are the property of the orator, Richard W. Austin, to be administered by him as such receiver. The bill of complaint required the defendant corporation to answer, but without oath, the follOWing interrogatories: V{hether the defendant corporation, on the 11th of Xovemher, 1889. had on account the claim against the First National Bank of Sheffield, and, if so, the amount thereof; whether or not the notes were transferred to the defendant corporation, and, if so, when anli on what consideration; whether or not lit 'the time of said transfer the First Xational Bank of Sheffield was insol94 F.-57
<..
vent; whether or not at the time of said transfer it was in contemplation ot insolvency; whether or not-any oLSIlldflbtes So .transferred to the defendant corporation have been collected, and, If so, what sums were collected. The bill of complaint :prayedtbat the court decree tbe transfer of said notes to the defendant corporation to be null and void? l.l-nd that the same are still the property of said Pirst National Bank; that the defendant corporation be required ,to.pay him the PJ;oceeds of the colto deliver the notes .tothe complainant, lecti(mthereot; that the a,decree against .t1;le defendant poration for the said ,asstjtsj, tl,nd recover ,tJ,le same, to be administered and applied to ·the paymen,t pi the claims of the credltocs of said Plrst .. ()P. October 19" lS94,tpe defendant cOrPOration .filed. tts answerj rt gn the lltqday of November,1889, the saId Plrst .was the 903;1,. 'INn & RaH.··.:1tadmitted that saId bank was at way Company III a large RJ[Uount that time largely indebtedj but eiceeaedthe Yulne of its, wl).ether this tact was known o,ther officers of the I,\;lld' whether 1t, '.was to the of the bank that it would soon be obliged to,suspenij. itst:JW;lp:ess, the respondel:it averredthat it did, not know, and asked that stricf 'pr6tiji ''of said aIlegatibns be required. admitted that the .,were deliyered to as recelver,but denied that they were tranliferred) in 'contemplation of Insolvency, or with a view of giving a preference to Chamberlain, as receiver. The re,that it 1V;as tl).at, the notes. were transllsual and denied that they tra'Ils;ferred with t)J.jl; vIew R¥d fot: preve,nting the catIon o(,the.assets ;:the laws of the UnIted States. ,The responqentfU,J;tb,er ,an,swered J:p.at,a daY,pl1 J,-woprior to the 11th day of November, :j.889,;Chamberlaip,l;l,s, re,c;elvei", with bll,nk of. a large ()t ,which to be collected for h:im bytl/-e bank, and;iW,al'lto bedeli:vefl#l, collected; that thl) casbier.. O.f .. ·. bank, .Witho.;ut,iU. ll-F."eff()c.t., qed.ite.,a the accoun.t. of Chaml;lfrll\in witb, tlleaJ;llq!Jllt p(,Sllc):I,!.!!'lPOi!:itiAbatq!f; sllJq day of NovemCham drawl}; bank on . its ber, N. e,w· X .. corres.pond,eu,t hR.,(l'Qeen t ito.,,:tht:jc.,as.h.!e.r of said Plrst . . Bank, and tl:1legraphed, to who New York, both of ,the,m,' tha,! be wouldlltqP.. pl:11ynlent! Qt. said drafts if the an.d .were still 1}npaid, au,d, his sai(1r ,d"MYJ , pajd, ,111:1. would demand the pro<;eeds, Of ,saiq colle\,-,tiolllj! IlIld tile ot, h:is acCOUJltj .that the cashier he 111:1(1).1 to 'Withdl,'a ,y the amount to his. of sllill bank, Illformed hill!. , credit. that there had beep protests maq.e. of ,one of. its paners,. but that the samehlltlpeeJlmade and tl).at bank.wlls in good Oondition, and, saId ChllIU1?erlaln insisting on. ,dJ:awing out;:tb,e" a.mol,lnt to his cfCdit, the cashier .that he hads!1:mcient flln.d!'!.fq IWyhis the paymem or IHWP a large had expected, and Its;witMrawal would be a ,inllOJ;lyenieIlRe, ,'ll,Jl!l;',would temporarily eripple,tpe inst,itution;that the balance and stlilPplng tbe payment of. hls drafts, l).Jl1eIlS the "Im,nk- would secure him againllt loss;. whereupon thecasbier qell'Vered to' .hili). .said. uQtes as collateral security .for tbe. amount of .his account.", The, i that the Sheffield & Birmingham Coal, Iron & Companx.,was, jlissolved, and reorganl2<edqnder the namll theA,laPaJ;tla. but that the faCt Is ithat the property of the ,corPQration was, by .order of said court, by onel::'apoleonHill,tjl")lstee, and,wbile it is true that a large Part of ,the property formerly owned by said Sheffielp & Birmingham Coal, Iron & Railway Company was· subscribed to and became tpe prj;)perty of the responpent, yet the rel$pondentdenies that !laid .notes were delivered to it by Chamberlain. ;l.ls receiver, but the same were, soll1and delivered by the officer of said to the purchaller thereof, and the court,! w1loIIUlde .sale thereof unl1er notes came in tbe possession of the responl1ent by being suqscrlbed to Its capital stock fOIr valuable consideration, .and without any notice to It of the facts alleged in. the bill. The re$poJldent admits that it holds said notes, and claims the right to apply the proceeds of their collection to the debt of said Pirst National Bank, but It denies that such action would give it an illegal preference Q, ..
..U ABAMAIRQN &: RAILWAY CO.,V. AUSTIN.
,899
over the other creditors, of llaid bank. The respondent admits that the assets of the bank are insufficient to pay its debts in full, but denies that the transfers to the respondent are fraudulent ,or void, or that the notes are the property of the complainant as rec,eiver. In answer to, the interrogatories, the said that it did', ,not at any time have an account or claim against the J<'irst, National Ban!>, except as transferree of, the account of the Sheffield &'!3irmingham Coal, Iron & Hallway which, on the, 11th day of Novelllber, 1889"amounte\! to --,- do1Jars; that the notes were transferred to the respondent on the - - day of .-,-',-,-, and the consideration was - - ; that, at the time of the trlj.nsfer of the notes to the respondent, the bank was Insolvent"and had been in the hands of complainant, as receiver, for a considerable time; that none of the notes have been collected. On November 1, 1895, it was agreed in open court "that the defendant have leave to amend, his answer herein, and to file demurrers, and that 60 days' notice be granted for submission of proof, and that decision may be had in vacation upon argum.ents or briefs to be submitted within 90 dars." On November 12, 1895, the defendant demurred, averring that there is no equity in the bill; that it appears by the allegations of the bill that the complainant has a complete and adequate remedy at law; that it appears by 'the bill that the notes were Jlever in the posseswas appointed receiver thereof; and sion of said bank after Richard W. that the defendant derived title to and possession of said notes from said Chamberlain, receiver of the Sheffield & Birmingham Coal, Iron & Railway Company. On November 12, 1895, the defendant also filed a plea in bar, averring that before the filing of said' bill said complainant had filed in said court, on the common-law side thereof,anaction of detinue to recover from the defendant upon precisely the same' cause of actlonas is set forth in said bill of complaint; that said common-law cause was by complainant voluntarily dismissed out of the said cQurt on' the 14th day of December, 1894; and that the dismissal of said common-law cause operated as a common-law retraxit of the cause of action upon which it was founded. The replication was filed on November 15, 1895. On April 14, 1898, the parties agreed that the cause might be submitted for decree in vacation, and it was stipUlated that the defendant might on the trial of the cause "insist upon the matter of defense set forth in the demmrer, plea in bar, and answeI;,without waiving any of the rights of defense in either of said pleadings." The canse came on to be heard before the' judge, in vacation, by consent of parties. The only proofs for the complainant were the depositions of one T. L. Benham and of Richard W. Austin, the complainant. Benham testified that he was the cashier of the bank; that on November H, 1889, the bank held among its assets the seven notes of H. B. Tompkins; ,1;hat on or about that day he received a telegram from the president of the bank, who was then in New York City, instructing him to compute the Interest on the 'notes, and to take them to Chamberlain,' and get a check for them; that 'he complied "ith the instructions by presenting the notes to Chamberlain for payment; that Chamberlain requested him to hold the notes a few days, and that he would let the witness kllOW then whether he would pay them; that, after waiting a few days, he called on Chamberlain a second time; that Chamberlain requested him to leave the notes with him, sa:ring that he would hold them and consult certain directors of his company, whom he was expecting to arrive soon; that he called onOhamberlain a third time, expecting to receive payment of the notes; that Chamberlain then informed him that said directors had instructed him to retain possession of the notes, and to hold them as collateral security against the amount which the bank owed him as receiver; that 18 days afterwards, namely, on Noveillber 29, 188(), the bank failed, Chamberlain retaining possession of the notes. Richard VV. Austin, the complainant, testified that, aside from the notes in controversy, the assets of the bank will pay ab.out 25 per cent., and that, if the notes should be recovered and the amounts· claimed upon them, the assets will pay about 30 per cent. This was all the evidence offered for the complainant. The defendant's proof consisted only of an order of dismissal of a cause by Richard W. Austin, as receiver of said bank, against the Alabama Coal, Iron & By an affidavit of H. B. Tompkins, which is found in the record. Illade on the 18th, of NoYember..1898. evidently after the trial of this cause below, It would appear that all the original pallers in the present cause,
the' common-law actlon referred to In the plea In bar, were lost prior below; that an order was made on ADr'iF22, 1897, to re-establish papers in tliis equity cause were re-established, but 'that the papers in the .common-law cause were not. The final'decree in this cause was signed on August 15, 1898. 'It recites that the cause 'was heard llud determined ','PRon the bill, demurter,answer, plea, depositions, and other d<Y.:uments on file;" The decree adjudged'the assignment said notes to be fraudulent and VOid., and the. salDe was set aside. The decree further proceeded to adjUdge "that have and recover'pfthe defendant the sum of $8,tl06.27 for the principal of the seven notes,with $4,593.37 as interest at 6 per cent. per annum, * * * making ip. the aggregate the sum of $13.099.64; and,)f the sum Is not paid within 3C1 days; execution should issue on complainant',8' demand, provided, however, that the delivery of all said notes to the clerk within 30 days shall be accepted' ill' full satisfaction of this decree." The'ttefendant corporation appealed, ,assigning for error, among other matters, with much particularity and detail, that' the demurrer and plea in bar should been snstaiIied, and that thereisrlo evidence to sustain the decree; also Wit '\hedecree is not in accordance "with the prayer of the bill, In the brief on behalf of appellant it is said: "The, scope and object of the prayer was for the ,recovery of the seven notes, or for the proceeds of the same if they had been · *. * >Ii A decree for a sum of money, without proof of the .;Vlllueoqhe past-due notes" and wheD, 'tJ.o part of the prayer was for the money "value ',of -thii' ;notes, unless they had ,been collected, was obviously erroneous:' .,'",::'} ( . , : " , " ';' t6! :the , ' '
"
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R:a. Tompkins and R. C. Alston, for appellant. ':M;F.Caldwell, for appellee. " Before PARDEE and McCORMICK,Circuit Judges, and PARLANGE,District Judge. PA;atANGE, District JUdge,.4fter stating the facts, delivered the opinion of the court. appellee conteflds that, as the demurrer and the plea were nled after the answer, they canl toolate, and should not be noticed. :But it is clear that the' consented that the demurrer and the plea might be filed and be passed upon, and he cann6t now be heard to object that they were improperly or unseasonably-filed. The trial judge evidently .was of opinion, and properly so,that the demurrer and th El , plea were b.efore the court by consent of parties, and in the decree he passed on the demurrer .and the plea, as well as on the merits. But there was no force in the demurrer. The bill made out a sufficient case to authorize a court of equity to take As tG the plea, whatever merit it may have had, the defendant failed to offer any proof in its support, and it was therefore proper to overrule it. The order disIllissing the law case, standitlgalone, did not substantiate the plea. 'The attempts to show by an affidavit made .after the trial of fhis cause the nature of the law action which was dismissed cannot, of course, avail the appellant. On the merits,we are of opinion that the decree of the lower c{)urt should be reversed, for the reason that the complainant t,oprove his case. Three different theories as to the facts. and.. Circumstances of this case are presented: The bill charges substantially that the notes were transferred by the bankin contetnpl'ation of bankruptcy and other'wise, in viollJ,tionof Rev. St. U, S. §5242, for a pre-existing debt of theb:mk. The answer avers, in thaJ the transfer was not to secure a pre-existing debt, but to secure the collection of drafts