Chittenden v. Brewster

THIS was an appeal from a decree of the Circuit Court for the Northern District of Illinois.

The suit was a creditor's bill filed against a judgment debtor and his assignees, the defendants in the case, to set aside an assignment made by the debtor to hinder and delay creditors. The assignment was made on the 4th of November, 1857, to Brewster and Clark, two of the defendants, and purported to convey to them all the property, real and personal, of the debtor, in trust, to convert the same into money, either at public or private sale, and pay certain preferred creditors named. The judgment debtor made no defence. The assignees put in a joint answer, and after requiring the complainants to make proof of their judgments and executions as charged in their bill, set forth, among other grounds of defence, that, after the filing of the bill below, a bill in chancery had been filed against them in one of the State courts, in behalf of other creditors of the judgment debtor. praying for the appointment of a receiver to take possession and charge of the property conveyed by the assignment, and that the trusts therein created be carried into effect; and that, upon the filing of the bill in the State court, and after hearing the motion for a receiver, the motion was granted; and that they had afterwards, in pursuance of the order of the State court, transferred and set over to the said receiver, one Mitchell, all the property, real and personal, that had come to their hands.

To this answer a replication was filed, and the parties went to their proofs. There was no evidence that, on the application in the State court for a receiver, which was made on the alleged ground of faithless execution of the trust, the assignees had made opposition. They had done nothing but acknowledge service on themselves of the notice of the intended motion for a receiver; employ a solicitor to enter an appearance for them, and to give their assent to the hearing of the motion at the February Term of the court, then at hand. The State court accordingly granted the prayer of the bill before it, and appointed a receiver, one Mitchell, in the case. But no fraud was proved nor specifically alleged on the part of the assignees in any part of the proceeding.

The bill below was taken, as confessed, by Brewster, the debtor, and dismissed as to two other defendants; and the court, after hearing the case on the pleadings and proofs, declared the assignment fraudulent, and set it aside, and appointed a receiver, one Moulton, and directed the judgment debtor to assign and transfer in writing to him all his property, real and personal; and further, that Brewster and Clark, the assignees, should assign and transfer in writing to him all the property and effects of every description that came into their hands by the assignment of the 4th of November, 1857, except such property and effects so assigned to them, which have, since the service of process in this suit, been transferred to Mitchell, the receiver, under the proceedings had in the State court, and which was set forth in the answer filed by them. From this decree the complainants appealed to this court, the ground being essentially that the proceeding in the State court should have been treated as an interference with the Federal jurisdiction previously acquired.

In order to understand this question of priority, it is necessary here to say that the bill in the Circuit Court was filed on the 4th of January, 1858; the subpoena served on the defendants on the next day; and their appearance entered on the 1st of February following. The bill in the State court was filed on the 1st of February, 1858, and the subpoena served on the 20th of the same month. The receiver was appointed afterwards on notice. The evidence did not show that the defendants conveyed the effects of the judgment debtor in their hands to the receiver, but the fact was apparently assumed both by the counsel and the court below, and no point upon it was made by the court here.

Mr. E. S. Smith for Chittenden et al., appellants: The law is settled, that courts of different but of co-ordinate jurisdiction, cannot interfere with each other, either in process, person, or property, to prevent the first jurisdiction, which attaches or takes cognizance of the subject-matter in dispute, from determining the case conclusively. Now the law of lis pendens we assume to be equally settled. We assume that filing a bill in a court of equity and service of process is notice to the world of all the rights claimed by the complainant as set up in his bill. It was thus decided so long ago as in decisions reported by Vernon, and it has been confirmed by many since.

Consider the action of the parties to the proceeding in the State court. Soon after the service of process in this case, the parties appear in the State court, on the first day of February, 1858, and a bill is filed by somebody, charging the assignees with neglect of duty. The assignees receive service, submit to the charge, and in fact, though not in form, confess a decree. They deliver without resistance to Mitchell the property and effects, to be taken to himself, under the assignment. When the assignees did this, they knew the fact of the proceedings by the appellants in the Federal court, to set aside the assignment, and subject the property to the payment of other judgments. If property, situated as the estate in this case was, can, by a proceeding in another jurisdiction, after right and lien had attached, be taken absolutely from the court, then proceedings by judgment creditors in the Federal court, after exhausting their remedy at law, are valueless. It will be impossible for a man to suggest a case, where the debtor, with the aid of a friendly creditor, could not concoct a proceeding to defeat every action by judgment creditors in courts of equity. Before a receiver could be appointed and take possession of the effects, such a proceeding, as the record in this case shows, could defeat the justice of the court. Notice for an injunction can be postponed; time will elapse before a receiver can be appointed. Assignees refuse or neglect to deliver over, and before that is done, an order comes from another jurisdiction, requiring the assignees to deliver the effects to another, who is appointed ostensibly to carry out the trusts. This order the assignees comply with, and thereby arrest the proceedings, because the property could not be reached; leaving the creditor powerless and his debt lost. Such proceedings cannot be tolerated by courts of justice. The rights of parties should not be subjected to schemes which might defeat the ends of justice, nor should parties, who use a court of justice in such a manner as these defendants stand under suspicion of having used one of those of the State of Illinois, go unpunished.

Mr. Washburne, contra, for the assignees: There is no evidence in the record showing that appellants acquired a prior lien. It does not appear they ever sued out executions upon their judgments or placed such executions in the hands of the marshal, or had any return made thereon. The obtaining of a judgment, suing out of execution, and a return of nulla bona are indispensable prerequisites to the establishment of a prior equitable lien.

If the appellants acquired a prior equitable lien by the filing of their bill of complaint, they lost the same by the superior diligence of the complainants in the State court. The lien obtained by the filing of a creditor's bill is an inchoate one, which may be perfected by the appointment of a receiver, and may be displaced by the superior diligence of other creditors in perfecting similar liens. It is urged that the court below should have treated the proceedings of the State court as fraudulent and void; but it will be noticed that there was neither allegation nor proof of fraud in the case.

If the appellants had a superior lien upon the property in the hands of the receiver appointed by the State court, the proper mode of enforcing that lien was for the receiver of the court below to intervene in the State court by petition, pro interesse suo, where the lien, when established, would have been recognized and duly enforced. Upon establishing the right of the receiver of the court below to the property in the hands of the receiver of the State court, in the mode indicated, the State court would have ordered its officer to deliver the property over to the officer of the United States court. The court below declared the assignment void, appointed a receiver, and compelled the defendant, Brewster, to assign all his interest in the property. This was all the court could do; it could not order the assignees to deliver over property not in their hands, and which they had already delivered to the officer of the State court under its order.

Mr. Justice NELSON delivered the opinion of the court.