Mellen v. Moline Malleable Iron Works/Opinion of the Court

Was the decree in the suit instituted by the National Furnace Company (to be hereafter called the 'Furnace Company') against the Moline Malleable Iron Works (to be hereafter called the 'Iron-Works') and others, declaring that Hill was not entitled to a lien or security by reason of the trust-deed and chattel mortgage of June 23, 1883, void for want of jurisdiction in the court that rendered it? This is the principal question in the present case. It solution depends upon the construction of the eighth section of the act of March 3, 1875, determining the jurisdiction of the circuit courts of the United States. 18 St. 472, c. 137, § 8. That section authorizes an order to be made firecting an absent defendant, in any suit brought in a circuit court of the United States, to enforce any legal or equitable lien upon, or claim to, or to remove any incumbrance or lien or could upon, the title to real or personal property within the district where such suit is brought,-such defendant not being an inhabitant of or found therein, and not voluntarily appearing in the suit,-to appear, plead, answer, or demur by a designated day. The order must be served upon the absent defendant, if practicable, wherever found, and upon the person, if any, in charge or possession of the property. If such personal service be not practicable, the order must be published in such manner as the court may direct, not less than once a week, for six consecutive weeks. If the defendant does not appear, plead, answer, or demur within the time limited, or within such further time as may be allowed, the court-proof being made of service or publication of the order, and of the performance of the directions therein contained-may 'entertain jurisdiction and proceed to the hearing and adjudication of such suit in the same manner as if such absent defendant had been served with process within the said district.' 'But,' the act declares, 'said adjudication shall, as regards said absent defendant or defendants without appearance, affect only the property which shall have been the subject of the suit, and under the jurisdiction of the o urt therein, within such district.' A defendant, not personally notified as provided in the act, may within one year after final judgment enter his appearance in the suit; whereupon the court must make an order setting aside the judgment, and permitting him to plead, on payment of such costs as shall be deemed just, the suit then to proceed to final judgment, according to law. The previous statute gave the above remedy only in suits 'to enforce any legal or equitable lien or claim against real or personal property within the district where the suit is brought,' while the act of 1875 gives it also in suits brought 'to remove any incumbrance or lien or cloud upon the title to' such property. Rev. St. § 738; 18 St. 472, c. 137, § 8.

We are of opinion that the suit instituted by the furnace company against the ironworks and others belonged to the class of suits last described. The trust-deed and chattel mortgage in question embraced specific property within the district in which the suit was brought. The furnace company, in behalf of itself and other creditors of the iron-works, claimed an interest in such property as constituting a trust fund for the payment of the debts of the latter, and the right to have it subjected to the payment of their demands. In Graham v. Railroad Co., 102 U.S. 148, 161, this court said that, 'when a corporation became insolvent, it is so far civilly dead that its property may be administered as a trust fund for the benefit of its stockholders and creditors. A court of equity, at the instance of the proper parties, will then make those funds trust funds, which, in other circumstances, are as much the absolute property of the corporation as any man's property is his.' See, also, Mumma v. Potomac Co., 8 Pet. 281, 286; County of Morgan v. Allen, 103 U.S. 498, 509; Railway Co. v. Ham, 114 U.S. 587, 594, 5 Sup. Ct. Rep. 1081; 2 Story, Eq. Jur. § 1252; 1 Perry, Trusts, § 242. The trust-deed and chattel mortgage executed by the iron-works created a lien upon the property in favor of Wheeler, Carson, Hill, and the Keator Lumber Company superior to all other creditors. The furnace company, in behalf of itself and other unsecured creditors, as well as Wheelock, denied the validity of Hill's lien as against them. That lien was therefore an incumbrance or could upon the title to their prejudice. Until such lien or incumbrance was removed, they could not know the extent of their interest in the property or in the proceeds of its sale. The case made by the original as well as cross-suit seems to be within both the letter and the spirit of the act of 1875.

It is, however, contended that the furnace company could not rightfully invoke the aid of a court of equity to remove this lien or incumbrance until it had, by obtaining judgment for its debt and suing out execution, exhausted its legal remedies. Jones v. Green, 1 Wall. 330; Van Weel v. Winston, 115 U.S. 228, 245, 6 Sup. Ct. Rep. 22. But that was one of the questions necessary to be determined in the suit brought by that company, and any error in deciding it would not authorize even the same court, in an original, independent suit, to treat the decree as void. Besides, the removal of alleged liens or incumbrances upon property, the closing up of the affairs of insolvent corporations, and the administration and distribution of trust funds are subjects over which courts of equity have general jurisdiction.

It is also suggested that the court proceeded in the suit instituted by the furnace company upon the theory that it was maintainable under the provisions of the Illinois statute giving courts of equity 'full power, on good cause shown, to dissolve or close up the business of any corporation, to appoint a receiver therefor who shall have authority, by the name of the receiver of such corporation, to sue in all courts and do all things necessary to closing up its affairs, as commanded by the decree of such court.' 1 Starr & C. Ann. St. Ill. 618, tit. 'Corporations,' c. 32, § 25. h e appellants earnestly insist that no case was made that would bring that suit within these provisions of the Illinois statute, or that would give the furance company any right to have the iron-works dissolved as a corporation, and its business closed up; and on behalf of the appellees it is contended that the suit brought by the furnace company was not an ordinary creditor's suit, but one for the administration and distribution of a trust fund. In the view we take of the case it is not necessary to determine the soundness of any of these propositions; for, if the court erroneously ruled upon any of them, its decree could not for that reason be assailed in a collateral proceeding as void for want of jurisdiction. An adjudication that a particular case is of equitable cognizance cannot be disturbed by an original suit. Such adjudication is not void, even if erroneous.

This brings us to the question whether the steps taken in the suit brought by the National Furnace Company were such as authorized a decree that would affect Hill's interest in the property covered by the trust-deed and chattel mortgage. We lay out of view the fact that Hill was a citizen of Ohio, and neither appeared, nor was served, with process within the district in which the suit was brought. He was personally served with copies of the orders requiring him to plead, ansser, or demur, and the decree only affects his interest in property within the territorial limits of that district. It appears from the plea upon which the cause was heard that on the 1st of August, 1883, after the present appellees had answered the original bill in most part, and after the iron-works had demurred, the court, upon the application of the furnace company, appointed a receiver to take possession of the property of the first-named company, including that covered by the trust-deed and chattel mortgage, for the benefit of all parties interested in it; and that, on the 28th of November, 1883, Wheelock, by leave, filed his cross-bill against the iron-works, the furnace company, George H. Hill, Hemenway, and Carson, asking a decree declaring said trust-deed and mortgage valid as to himself, Carson, and the Keator Lumber Company, and void as to Hill. He alleged that the property embraced in the trust-deed and chattel mortgage was rapidly depreciating in value, and ought to be sold, and the proceeds applied, primarily, to relieve himself, Carson, and the Keator Lumber Company from the liabilities assumed by them as indorsers for the iron-works. On the same day an order was entered requiring the defendants to the cross-bill to plead, answer, or demur to the same on or before December 20, 1883, and providing that if Hill (being served with a copy of the order on or before December 5, 1883) did not appear, plead, answer, or demur to the cross-bill, by the time fixed, the same would be taken as confessed by him. Hill was served presumably in Ohio, where hr resided-on the 1st of December, 1883, with such copy; but neither he nor the iron-works appeared, pleaded, answered, or demurred to the cross-bill. It appearing from the petition of the receiver, filed December 22, 1883, that the property covered by the trust-deed and mortgage was rapidly depreciating in value, he was authorized by an order of court to advertise and sell it. He did sell it, and February 20, 1884, reported a sale by him to Wheelock, pursuant to and in the manner directed by the court. That sale was approved, time being given to show cause why it should not be confirmed. The property was conveyed by the receiver to Wheelock. On the 3d of March, 1884, Hill was required by order of court to appear on or before April 15, 1884, and plead, answer, or demur to the original and supplemental bill, and it was ordered that if he did not, on or before the latter day, being previously served with a copy of such order, appear and plead, answer or demur, the bill would be taken as confessed by him. Long prior to the sale to Mellen of Hill's interest in the trust and mortgage the late r was served with a copy of the order of March 3, 1884, and on the 22d of April, 1884, the original and supplemental bills, Hill not having appeared and answered, pleaded or demurred, were taken as confessed by him. On the succeeding day a like order was entered against him as to the cross-bill, he not having appeared, pleaded, answered, or demurred thereto. The cause came on to be heard on the 26th of June, 1884, upon the original and supplemental bill, upon the cross-bill, upon the answer and replications thereto, and upon the testimony taken in the cause, when the final decree was rendered as set forth in the plea embraced in the statement of facts preceding this opinion.

A large part of the argument on behalf of the appellants is in support of the proposition that, as the order requiring Hill to appear and plead, answer or demur, to the original and supplemental bills was not made until after the receiver had, by order of the court, sold the property, the sale was a nullity. We do not assent to this view. Whether the condition of the property was such as to require, for the protection of the parties, that it be sold, was a matter for the court, in its discretion, to determine. There is nothing to show that the order of sale was even improvidently made, much less that it was procured by fraud, or that the property was sacrificed. If the circumstances justified immediate action, the court had power to order a sale in advance of a final decree. The sale was not ordered or made until after Hill had been duly served with a copy of the order of November 28, 1883, to appear and plead, answer or demur, to the cross-bill by the day fixed in that order. If the sale was irregular, by reason of its being ordered and made before Hill was directed to appear and plead, answer or demur, to the original and supplemental bills, that is not a matter affecting the jurisdiction of the court to render a final decree in respect to his interest in the property; for the proceeds took the place of the property, and whatever rights Hill had in the latter were transferred to the former. So that the real question, upon this part of the case, is whether the proceedings in question conformed to the act of March 3, 1875. We are of opinion that they did. Before the final decree was rendered, Hill had been served with a copy of the several orders requiring him to appear and plead, answer and demur, as well to the original and supplemental bills as to the cross-bill, and was in default in respect to each order. It may not have been in accordance with the usual or proper practice to take the cross-bill for confessed before he had been duly served with the order to appear and plead, answer or demur, to the original and supplemental bills. But if that was an irregularity it was one that did not affect the power of the court to make a final decree, and constitutes no ground for disregarding that decree in this collateral proceeding.

We have considered the case just as if the present suit had been brought by Hill. The appellants have no greater rights than he would have, if the present suit had been instituted by him; for Mellen, the trustee for Sophia H. Boyd, acquired his rights pendente lite. Hill sold and conveyed to him, after he had been personally served with copies of the order to appear and plead, answer or demur, to the original and supplemental bills, and only three days before the time fixed for his appearance to the original suit. His sale was more than three months after he was required to appear and plead, answer or demur, to the cross-bill. That sale and conveyance could not affect the power of the court to proceed to a final decree, so far as his interest in the property was concerned. Nor by such sale and conveyance did Mellen and his cestui que trust acquire any absolute right to become a party to the suit instituted by the furnace company. Purchasers of property involved in a pending suit may be admitted as parties in the discretion of the court; but thy cannot demand, as of absolute right, to be made parties, nor can they complaint if they are compelled to abide by whatever decree the court may render, within the limits of its power, in respect to the interest their vendor had in the property purchased by them pendente lite. Eyster v. Gaff, 91 U.S. 521, 524; Trust Co. v. Improvement Co., 130 U.S.-, ante, 606; 1 Story, Eq. Jur. § 406; Murray v. Ballou, 1 Johns. Ch. 566. As said by Sir WILLIAM GRANT in Bishop of Winchester v. Paine, 11 Ves. 194, 197: 'The litigating parties are exempted from the necessity of taking any notice of a title so acquired. As to them, it is as if no such title existed. Otherwise, such suits would be indeterminable; or, which would be the same in effect, it would be in the pleasure of one party at what period the suit should be determined.' The present proceeding is an attempt, upon the part of a purchaser pendente lite, to relitigate, in an original, independent suit, the matters determined in the suit to which his vendor was a party. That cannot be permitted, consistently with the settled rules of equity practice. There is no error in the decree, and it is affirmed.