Dias v. Bouchaud

10 Paige Ch. 445

• Court: New York Court of Chancery
• Decided: November 21, 1843
• Status: Published

Opinion

The Chancellor.

The objection for the want of proper parties in this case cannot be sustained. Lord Redesdale, in his valuable treatise upon equity pleading, (Mitf. Pl. 4th Lond. ed. 180,) says, a demurrer for want of parties must show who are the proper parties. Not indeed by name, for that might be impossible ; but in such manner as to point out to the complainant the objection to his bill, and thus enable him to amend by adding the proper parties. And in this he appears to be sustained by all the standard treatises upon the subject of equity pleading. (See Coop. Eq. Pl. 187 ; Welf. Eq. Pl. 279 ; Story’s Eq. Pl. 416, § 543.) Lord Cotlenham, in the recent case of The Attorney General v. The Corporation of Poole, (4 Myl. § Craig. 32,) expressed a doubt as to the correctness of the rule as laid down by Lord Redesdale, and these other elementary writers. And he refers to what he calls the doubt suggested by Lord Eldon in Pyle v. Price, (6 Ves. 781.) Mr. Daniell has, however, as I think, taken the proper view of what was said by Lord Eldon in the case referred to. He is of opinion that the observation which is reported to have been made by Lord Eldon, in Pyle v. Price, does not at all shake the rule which has been laid down,as to the necessity of.pointing out who the necessary party is, by the demurrer. He says the remark of his lordship merely referred to an observation made by the counsel for the defendants, that there was no rule requiring the demurrer to state the parties, that is by name, as it might be out of the power of the defendant to do so ; and that the observation of Lord Eldon, that perhaps there was not a general rule either way, did not refer to the necessity of calling the complainant’s attention to the description or character of the party required, in order to enable him to amend his bill, and without putting him to the expense of bringing his demurrer to argument for the purpose of ascertaining who the defendant supposed was the necessary party. (1 Dan. Ch. Pr. 386.) I shall therefore adhere to the rule as originally laid down by Lord Redesdale, according to its spirit and intent ; and shall hold that, in a demurrer for want of parties, the defendant must point out the necessary parlies, either by name, in reference to some statement of their names in the bill, or by their characters, as the heirs, devisees, personal representatives, assignees, creditors, &c. of some of thé persons therein named or referred to.

The case under consideration shows the necessity and propriety of such a rule. For upon the argument of the demurrer the counsel suggested four distinct classes of persons who ought to have been made parties to the suit, and yet none of them appear to be necessary parties ; and the only persons who I can suppose to be proper parties, taking all the allegations in the bill to be true, are persons who were not named or referred to by the counsel for either party, upon the argument.

The first objection was that the creditors of Castro & Henriques should have been made parties, by filing the bill in behalf of the complainants and all others of their creditors. The answer to that objection is that the assignment was not made for the benefit of the general creditors of the assignors, but only to pay the particular debts specified therein. It was then urged that Cazeaux, who appears by the schedule to have been a co-surety in some of the custom house bonds provided for in the assignment, should have been made a party. But it is fairly inferrible from the bill that his bonds have been paid. And in the absence of any suggestion in the bill to the contrary, the presumption is that they were paid out of the assigned fund, which it is averred was sufficient to pay all the bond debts. If those particular bonds were in fact paid by Cazeaux, and any part of the money thus paid was still due to him, so as to give him a common right with the complainants to be substituted in the place of the United Statesj and to be paid out of the assigned fund, the fact should have been brought before the court by plea or answer. And then it might have been necessary for the complainants to have brought him before the court, either as a defendant, or by amending their bill and stating thatit was filed in behalf of themselves and all others who were sureties in the bonds given by the assignors, or either of them, for duties, and who had paid such bonds, so as to be entitled to be subrogated to the rights and remidies of the United States, as against the assigned fund, and against the personal representative of Brunei and the estate of the decedent in his hands.

Another objection upon the argument was that Thiolliere, who was a surety in some of the custom house bonds provided for in the assignment, as well as in several which were not so provided for, should have been made a party. As the bonds signed by him, and provided for in the assignment, are not among those which are stated in the bill to be still due, the presumption is that they were paid out of the assigned fund. All the other bonds signed by him are alleged in the bill to be still due to the United States, so that he is not entitled to be subrogated in their place. And the United States being made a party, a decree in their favor, as prayed for in the bill, must necessarily protect him so far as he needs any protection, and is equivalent to an express declaration in the bill that it is filed for his benefit as well as that of the complainants. '

As to the objection that the bill should have made the other creditors of the estate of Brunei parties, it would be a sufficient answer that it does not any where appear that there are any other creditors of his who now have any claim upon the fund in the hands of his executor, or that the estate was insolvent. It is only alleged in the bill that the defendant gave out and pretended that the estate was insolvent, and yet paid the other creditors of the estate without providing for the priorities to which the United States and the complainants were entitled. And in a suit against the personal representative to recover a debt due from the estate of the decedent, it is only necessary for the complainant to file the bill in behalf of himself and all other creditors standing in the same situation, where it appears upon the face of the bill that there will be a deficiency in the fund, and also that there are other creditors who are entitled to a rateable proportion with the complainants. (Egberts v. Wood, 3 Paige’s Rep. 520.) Such an allegation in the bill is not necessary, to enable the court to make a general decree for the benefit of all the creditors, where the answer of the defendant shows that the estate is insolvent, and that there are other creditors who have an interest in the fund. (Story’s Eq. Pl. 103, note.) That principle, however, only applies to a bill filed by a single creditor, or by several creditors for a debt due to them all. For several creditors, having distinct debts against the estate, cannot file a bill for their respective debts, without making all other creditors having a common interest with them parties to the suit, or stating in the bill that it is filed in behalf of themselves and of all the other creditors who have a common interest with them.

But in the present case it would have been wholly inconsistent with the claim of the complainants, as made by the bill, to have inserted a clause declaring that the bill was filed in behalf of themselves and of all other creditors of Brunei. For their claim is adverse to the other creditors, if any there be, not only as it respects the fund in the hands of the defendant which is alleged to be a part of the assigned property, but also as to the general assets of the decedent. And the decision of Lord Hardwick, in Peacock v. Monk, (1 Ves. sen. 131,) is an authority to showthat where a special claim is made against the personal estate of the decedent, adverse to the rights and interests of his general creditors, it is only necessary to make the personal representative a party ; and that it is the duty of such representative to defend the estate in his hands against such claim.

The persons not referred to upon the argument as necessary parties, and who yet appear to me to have such a common, or rather connected interest with the complainants, in taking the account of the application of the assigned property by Brunei, and in the specific claim against the executor for that part of it which came into his hands, if it remained in specie or was in a situation to be traced and identified, as to render them proper parties, are Castro & Henriques, or their assigns or representatives. From the charges in the bill it appears that the property which came to Brunei under the assignment was at least $80,000. And the whole amount of the custom house bonds due to the United States, upon which Castro was liable either as principal or as surety, and of the duties for which he or his copartner was liable, including the bonds not provided for in the assignment, was much less than the amount of the assigned property ; after paying out of such assigned property the $6873,83 of other debts provided for in the assignment. This surplus, by the terms of the assignment, was to be re-transferred to the assignors, or to be held in trust for such purposes as they should afterwards direct. And if they have given no such direction they, or their representatives if they are dead, are the proper persons to receive such surplus and apply it to the payment of their general creditors. I think the defendant would, therefore, have had the right to insist, in relation to a part of the relief prayed for by the bill, that such persons should be made parties ; so as to make the account of the trust and of the application of the trust property conclusive upon them, and that he might not be compelled to account a second time to them in relation to the same matter. (Cocker v. Lord Egmont, 6 Sim. Rep. 311.) But a person may be a necessary party, within the meaning of the rule requiring all persons interested to be made parties, although the proper decree may be made, as to the subject matter of the litigation, in his absence if the defendant makes no objection. And in such a case, if the defendant neglects to make the objection, by plea, answer, or demurrer, of the want of parties who are only necessary to protect him from further litigation, the court, in its discretion, may refuse to sustain the objection at the hearing, or to require the cause to stand over to add new parties in that stage of the suit. As the objection that Castro & Henifiques were not made parties was neither made by the demurrer upon the record, nor by the counsel ore tenus at the hearing, it cannot authorize a reversal of the decretal order appealed from ; and that order must be affirmed, unless the demurrer can be sustained upon the equity of the case of the complainants, as made by their bill.

To sustain a bill filed by several complainants, upon a general demurrer to such bill for want of equity, it must appear that all of such complainants have an interest in the subject matter of the litigation. (King of Spain v. Machado, 4 Russ. Rep. 225. Cuff v. Platell, Idem, 242.) And if the claims of all these complainants cannot be sustained, either wholly or in part, the decretal order appealed from must be reversed, and the demurrer allowed. Independent of the question whether the United States "was entitled to a preference in payment, out of the assigned fund, as to bonds for duties not provided for in the assignment, the complainant Dias, upon the facts stated in the bill, has a claim upon the trust fund which came to the hands of the executor, for the money he has paid to the United States. For the bonds signed by him and Brunei as co-sureties, being part of the debts provided for in the second class of debts under the assignment, Brunei had no right to apply the whole fund, even if there was a deficiency, to pay the amount due upon those bonds only on which he was liable as the sole surety therein. But his co-sureties were, in equity, entitled to have a rateable portion of the fund, after paying all the debts of the first class, applied to the payment of each of the bonds and of the other debts provided for in the second class. And if the assigned fund was also liable for the payment of all the other debts to the United States not provided for in the assignment, Dias still had the right to have the whole fund applied to the payment of all the bonds rateably, as between him and the assignee. Dias was not compelled to pay the balance due upon the two bonds on which he was liable as surety, until 1834 ; and the ten years limitation, as to suits in equity where there is no concurrent remedy by action at law, did not therefore commence running, as against Dias, until such payment was made by him.

The assignment in the present casé does not, upon its face purport to convey all the property, either joint or several, of the assignors. But the averment in the bill shows that it was all assigned. And it hasbeen decided thatif there w'as in fact an assignment of all the property of the debtor of the United States, that is sufficient to bring it within the act.

The objection that the copartnership fund could not be applied to pay the bonds signed by Furman, as surety for Castro only, is not well taken. For it appears from the bill that those bonds were given for the duties upon goods imported for the copartnership. The custom house bonds signed by Castro, as principal, were therefore partnership-debts. Besides, the assignment itself shows that some of the individual property of Castro was in fact assigned.

Upon an examination of the opinion of Judge Story, in the recent case of The United States v. McLellan, (3 Sum. Rep. 345,) I was inclined to doubt whether the assignment in the present case was within the acts of congress giving preferences. For upon referring to the assignment it will be seen that it provides for the payment of no debts except those which are due to the assignee, or for wffiich he was personally liable as a surety. And instead of applying the residue of the assigned fund to the payment of the other debts of these insolvent assignors, the assignment declares that it is to be re-assigned to them, or to be holden for such uses and trusts as they shall thereafter direct. Such an assignment, if the assigned property was in fact worth nearly double the amount of the debts provided for therein, as appears by this bill, would undoubtedly be fraudulent as against the other creditors. But as such creditors did not attempt to assert their rights to set aside the assignment on the ground of fraud, neither the assignee nor his personal representative, can object to the priority of the United States on that ground alone ¡ as fraud only makes the assignment voidable, but not void. I think it is pretty evident, in this case, that the object of Castro, in making this assignment, was solely to protect the assignee, and not to provide for the general application of the property for the benefit of any other creditors ; except so far as they must necessarily be benefitted by indemnifying Brunei. The words 65 voluntary assignment” in the 65 th section of the act of 1799, to regulate the collection of duties upon imports and tonnage, (1 Story's ed. of Laws of U. S. 630,) as well as in the corresponding section of the act of March, 1797, (Idem, 465, § 5,) unquestionably mean an assignment of all the debtor’s property, in trust, to pay debts j as contradistinguished from a mere sale thereof to a creditor in payment of his debt, or the pledge or hypothecation of the property to a particular creditor, as a mere security, in the nature of a mortgage. The case of the United States v. McLellan, arose upon a transfer of the latter description, and was rightly decided. But in the case under consideration there was a technical assignment, in trust, of all the property of the debtors, and it was in fact for the benefit of all the creditors named therein ; whatever might have been the secret objects of the assignors and of the assignee. And although, if the amount of the assigned property was' as large as is stated in the bill of the complainants, it was not all directed to be applied to the payment of the debts of the insolvent debtors, it was such a divesting themselves of the property as to bring it within the spirit and intent of the statutes creating priorities in favor of the United States. Furman, therefore, upon payment of the bonds signed by him as surety, was entitled to be substituted in the place of the United States, in relation to their claim upon the fund by virtue of those bonds.

No question can arise upon the statute of limitations as to Furman ; as the time when he paid the bonds to the United States is not stated in the copy of the bill with which I have been furnished, the time being left in blank. It may perhaps be inferred, however, from the amount of interest paid upon the bonds, as stated in schedule F., that they were in fact paid in the fall of 1824. That inference, however, is not sufficient to sustain the demurrer; but the defendant, if the right of suit of this complainant was in fact barred at the time of filing the bill, should have raised the objection by a plea, or by insisting upon it in an answer.

The right of the complainants Dias and Furman to substitution, in the place of the United States, is expressly given to them by the 65th section of the revenue act of 1799, before referred to, as to the bonds in which Castro was the principal debtor. For his insolvency and assignment gave to the United States a priority as to the assigned fund, which priority attached upon that fund at the time of the assignment to Brunei. Dias and Furman, as the sureties in those bonds respectively, afterwards paid the debts to the United States, and thereby became subrogated to the rights of the United States as against the assigned fund. And if the assignee and his executor had notice of the several bonds to the United States, and of the parties to the same, they had legal notice of the rights of the sureties in such bonds to substitution, in case such bonds should not be paid to the United States out of the fund as to which the preference was given. Brunei had actual notice of the bonds signed by Dias as one of the sureties, not only by the schedule annexed to the assignment, but also by signing those bonds with him as a co-surety. But I have not been able to find ^ny allegation in the bill that he had notice of the existence of the bonds signed by Furman, as surety for Castro, or of the facts upon which the claim of Smith & Nicoll is founded. Nor is the averment in the bill, that before the letters testamentary were granted to the defendant, Bouchaud, he well knew the whole amount of indebtedness of the estate of Brunei to the United' States, and that Brunei had a large amount of assigned property, and that a large amount of custom house bonds of Castro remained unpaid, sufficient to charge the executor with notice of the claim of Smith sfeNicoll, wh'ich claim clearly was not a debt due to the United States at the death of Brunei, nor of the claim of Furman, if, as I suppose, the bonds of the latter had been paid to the United States long before that time. The bill therefore is wholly insufficient, in this respect, to charge either Brunei or his executor with a misapplication of the funds upon which these complainants claim to have had a preference.

Again; I think Smith & Nicoll have wholly failed, in this bill to show that they were entitled to a preference under the statute, or to be subrogated to any rights of the United States at the common law ; even if their claim, which arose in March, 1824, was not barred by the lapse of time. It appears by the complainants’ bill that the duties upon both parcels of brandies were in fact secured, by the bonds of Castro as principal and of Thiolliere as surety as to one parcel, and the bond of Castró as principal and of Brunei as surety as to the other parcel. From this it would appear that the lien of the United States upon the brandies no longer existed. For as soon as the duties are paid, or are secured by the importer, by a bond with sureties, as required by law, the lien which previously existed upon the goods is at an end. And the goverment cannot hold the sureties liable upon the bonds, and at the same time retain the goods as an additional security. The act of April, 1818, providing for the deposit of wines and distilled spirits in public warehouses, and for other purposes, to which I was referred by the complainants’ counsel on the argument, (3 Story’s Laws of U. S. 1714,) does not give a lien upon the goods, in addition to the bonds with security. The provisions of the act referred to, merely authorized the importer, at his option, at the time of entering these brandies, to secure the duties thereon, upon the same terms, and stipulations as on other goods; that is, by three bonds with sureties, payable in eight, ten and twelve months, as directed by the 62d section of the act of March, 1799, (1 Story’s Laws U. S. 627,) or to give his own bond, without security, payable in twelve months, accompanied by a deposit of the brandies in the public warehouse; with the privilege of taking them out upon giving the bonds with sureties, on the same terms of credit as he might have had originally. And the collector was only authorized to sell the brandies in case the duties had neither been paid nor secured to be paid in the manner directed by that act. When these duties had been secured, therefore, by the six bonds with sureties, and the special permit given for the delivery of the brandies, the lien upon them was at an end. It is true, if the bonds had not been given to the collector, as it is stated in the bill that they were, and if the pretence was true that the permit had been surreptitiously obtained, the lien .of the United States would not have been lost. But the failure of the principal in the bonds, or even of Brunei and Thiolliere the sureties, after the duties had been secured as directed by the statute, would not restore the lien and authorize the collector to sell the brandies for the duties. And in this case, there is nothing in the bill to show that the complainants even believed that the duties had not in fact been secured, or that the allegation of the collector that the permit had been surreptitiously obtained was true. Nicoll, therefore, acquired no lien, either at Jaw or in equity, upon the assigned fund, by this unauthorized act of the collector. Another objection to this claim of Smith & Nicoll is, that it does not appear from whom E. H. Nicoll purchased the brandies, or that the notes given by him weré ever paid to Castro & Henriques or to their assignee.

Two of the complainants, therefore, have wholly failed to show any right to join with the other complainants in filing this bill. And this being a fatal objection, upon demurrer to the whole bill, the decretal order overruling the demurrer must be reversed with costs, and the demurrer must be allowed. The complainants are to be permitted to amend their bill, by striking out the names of Smith & Nicoll as complainants, and in such other manner and upon such terms as the vice chancellor, upon application to him, and on due notice to the defendant, may think proper to direct. The proceedings are to be remitted to the vice chancellor, with directions to dismiss the bill with costs unless the complainants shall amend the same, in such manner as may be permitted by him, and pay the costs, within sixty days from the time when their solicitor shall receive notice of the decretal order to be entered on this appeal.