National Bank of Commerce v. Maryland Casualty Co. ( 1925 )

These cases are cross-appeals in the same case below. They were argued and submitted together. To avoid confusion, we will refer to the parties as "bank" and "casualty company."

The present case is a continuation of long-drawn-out litigation between the bank and Henry Clay Pierce. Facts, other than those necessary to be stated to understand the issues here involved, may be found in the following cases: National Bank of Commerce v. Pierce, 280 Mo. 614; Pierce v. National Bank of Commerce, 268 F. 487; Pierce v. National Bank of Commerce, 282 F. 100. Each of the three cases involved different phases of such litigation. Our writs of mandamus and in prohibition were also sought in connection with the present case. No opinions were filed by Court in Banc when such writs were denied.

The present case is an aftermath of the case of Bank v. Pierce,280 Mo. 614. In that case the bank recovered a judgment against Pierce for $700,000 for the conversion by Pierce of $1,000,000 par value of the stock of Nashville Terminal Company, alleged to have been deposited with the bank by the Tennessee Construction Company, as collateral security upon three notes of said company, aggregating $700,000. Upon appeal said judgment was affirmed by this court (280 Mo. 614). Pierce, as principal, and the casualty company, as surety, executed an appeal bond in that case in the sum of $900,000.

After that judgment was affirmed by this court, Pierce filed suit against the bank in the United States District Court at St. Louis, seeking an accounting and a discovery and marshalling of securities held by the bank and an application thereof to the payment of the $700,000 notes of the Tennessee Construction Company, held by the bank. He prayed for an injunction to prevent the bank from suing out an execution to collect its $700,000 judgment against him and from bringing suit upon the appeal bond and for other relief. The federal district court denied such injunction and dismissed the bill filed by Pierce. He appealed to the United States Circuit Court of Appeals for the Eighth Circuit.

Pierce then applied to said Court of Appeals for an injunction to preserve the status quo. An order was there made restraining the bank for sixty days from taking steps to collect its judgment or bringing suit upon the appeal bond. Said order also provided that, if Pierce should pay off part of the $700,000 judgment, together with interest and costs, and reduce same to $300,000, within such period of sixty days, and should give a bond in the sum of $350,000 to secure the payment of the remainder of said judgment and any damages and costs the bank might sustain, by reason of the granting of said injunction, the bank would then be further restrained in the premises, during the pendency of the appeal in the Federal Court of Appeals.

Thereupon, Pierce paid over $467,000 upon such judgment, interest and costs, and reduced the unpaid portion of such judgment to $300,000. Thereafter, by agreement between Pierce and the bank, the giving of the $35,000 bond, required in the order of the Federal Court of Appeals, was waived, and Pierce was permitted to give to the bank a bond in the same amount, and the bank waived the giving of the bond required in the order of the federal court of appeals. The casualty company signed said bond as surety. Thereupon the $900,000 appeal bond was released by the bank. The $350,000 bond thus given is the one sued on in this case.

In due time the Federal Court of Appeals handed down its opinion affirming the order of the district court in so far as it denied an injunction against the bank, and reversing that part of the order which dismissed Pierce's bill. It remanded the case for further proceedings in the district court. That opinion is reported in 268 F. 487. Thereafter, the bank instituted the suit which resulted in the appeals now before us. The casualty company was made a party defendant, but Pierce was not joined as such.

In substance, the petition alleged the execution of the $350,000 bond, and the aforesaid facts relating to the execution and release of the $900,000 appeal bond, and that the casualty company had breached such $350,000 bond by failure to satisfy and pay the remainder of the $700,000 judgment. The bank prayed judgment for the penalty of the bond. Recovery was asked for the unpaid portion of the judgment in the sum of $300,000, and interest thereon, and for $25,377.03, as attorneys' fees and costs incurred by the bank in dissolving the said injunction, together with a penalty of ten per cent upon the sum of the foregoing items, by way of penalty for vexatious refusal of the casualty company to pay, and for reasonable attorneys' fees in this case, in the sum of $25,000.

The case was tried below without the intervention of a jury. The trial judge found for the bank and entered judgment in its favor for the penalty of the bond, such judgment to be satisfied upon the payment of the sum of $337,923.09, which represented the unpaid balance on the $700,000 judgment, together with interest thereon. The trial judge denied the bank's claim for attorney's fees and costs in dissolving the injunction, as well as the penalty for vexatious refusal to pay and attorneys' fees in this case.

Thereupon the bank appealed from said judgment, in so far as it denied damages incurred in dissolving the injunction, penalty for vexatious refusal to pay and attorneys' fees in this case. The casualty company appealed from the judgment for the penalty of the bond. The bank's appeal is numbered 23,939 in this court, and the appeal of the casualty company is numbered 23,940. We will first consider the appeal of the casualty company.

Numerous assignments of error are made, but they all depend upon one main proposition, to-wit, whether the matters and things involved in the suit of Pierce against the bank, pending in the Federal district court, constitute any defense in the present suit of the bank against the casualty company and, as incidental to such main proposition, whether the casualty company is entitled to make such defenses or is entitled to have Pierce brought in as a party defendant, in order that he may make such defenses, or whether Pierce is entitled to be made a party defendant upon his own application. This requires the statement of further facts. Before going into such facts, however, a further history of the litigation in the federal court should be outlined briefly, in order to make the instant case entirely clear.

As above stated, the present suit was instituted after the Federal Court of Appeals entered its order affirming the action of the district court in denying an injunction and reversing the order of the district court in dismissing the bill of Pierce. Thereupon, Pierce filed an amended bill in the Federal district court, setting up the payment on the state court judgment, interest and costs of $467,141.67, the pendency of the case at bar and other matters not necessary to notice here, and renewed his prayer for an injunction to prevent the bank from prosecuting its suit upon the $350,000 bond. His prayer was again denied, and again he appealed to the Federal Court of Appeals and there again prayed for a temporary injunction during the pendency of such appeal. His prayer was again denied.

It appears that the casualty company, by appropriate notice to the bank, under Sections 12687, 12688 and 12689, Revised Statutes 1919, required the bank to institute suit against Pierce upon the bond here sued on. Pierce removed that suit to the United States District Court, and there filed a cross-complaint alleging the same matters involved in his prior suit in the Federal district court against the bank. From an order denying his application for an interlocutory injunction and striking out certain parts of his cross-complaint, Pierce appealed to the Federal circuit court of appeals. There it was held that the order, striking out portions of the cross-complaint, was not a final judgment and that no appeal was allowable therefrom. It was again held that Pierce was not entitled to an injunction upon the facts alleged in this cross-complaint, and the order of the federal district court denying such injunction was affirmed. This opinion is reported in 282 F. 100.

The matters here complained of as error were raised in various ways. Portions of the answer and the amended answer of the casualty company were stricken out. Its motion to require Pierce to be made a party defendant was overruled. The application of Pierce to that end was likewise denied. One part of the answer so stricken out set up the matters involved in the case of Pierce v. Bank, pending in the Federal district court and pleaded by Pierce in that case. In substance, the defenses sought to be made there were that the 10,000 shares of the capital stock of the Nashville Terminal Company, found to have been converted by Pierce, had been held by the bank as collateral security for the payment of the $700,000 in notes of the Tennessee Construction Company and that the $700,000 state court judgment was thereafter merely collateral security upon the same notes; that the bank held, as additional collateral security upon said notes, $750,000 par value of the bonds of the Tennessee Central Railroad Company and $250,000 par value of the bonds of the Nashville Terminal Company; that all of said collateral, subject to the pledge of the bank, had been pledged and sold to Pierce by Tennessee Construction Company. It appears, not from the part of the answer stricken out, but elsewhere, that the Tennessee Construction Company had pledged all of the collateral to Pierce to secure the payment to him of its note or notes for $600,000, subject to the pledge of such securities to the bank, and that, upon default in payment of said note, Pierce sold the collateral and became the purchaser thereof.

It was then alleged that Pierce contended in the Federal district court that the payment of said three notes, aggregating $700,000, was guaranteed by one J.C. Van Blarcom, deceased, and that the bank had collected about $70,000 (stated elsewhere to have been $86,000) from the estate of said Van Blarcom and had sold the $250,000 of Nashville Terminal Company bonds for $225,000, and that the bank should and could have sold the $750,000 of Tennessee Central Railroad Company bonds for the sum of not less than $450,000; that the sums so realized and which should and could have been realized by the bank from said securities and from said guaranty of Van Blarcom were more than sufficient to pay off and discharge the amount due on the three notes of the Tennessee Construction Company to the bank and that there was due to said Pierce on account of his right to succession to said collaterals a large balance without the payment of the $700,000 state court judgment, which stands in lieu of the 10,000 shares of Terminal Railroad stock; that Pierce prayed for an accounting and discovery and marshalling of securities. On account of such facts the casualty company alleged Pierce has a good and meritorious defense to the suit of the bank upon the $350,000 bond, and the casualty company pleaded in defense all of such facts, alleged by Pierce in the Federal district court, in behalf of Pierce; that the casualty company believed them to be true.

The opinion filed by the Federal Court of Appeals (268 F. 487) was then set out. It was alleged that the same matters and things in controversy in this suit are in controversy in the prior suit in the Federal district court, and that the Federal district court has the prior and exclusive jurisdiction to hear and determine said matters.

The prayer of said amended answer so stricken out was as follows:

"This defendant prays judgment whether the plaintiff, by reason of the facts herein set forth, is entitled to any judgment; whether this suit should not abate or be dismissed, because the said United States District Court has the prior and exclusive jurisdiction of the matters and things involved herein; and for such other orders and judgments as may seem meet to this court."

The foregoing is the substance of the matters stricken out of paragraph thirteen of the amended answer. Thereafter, as indicated, the casualty company unsuccessfully moved to have Pierce made a party defendant and Pierce himself unsuccessfully applied to be made a party defendant. Exceptions to adverse rulings were properly saved by term bills of exceptions, which were incorporated in the general bill of exceptions.

The first question which naturally suggests itself for our consideration is whether the allegations stricken out of the amended answer and pleaded as a defense in behalf of Pierce constituted a good defense on the part of Pierce. We will then necessarily have to consider whether the casualty company could make such defenses. The allegations of said answer were stricken out on the ground that such allegations, if true, "do not constitute separately or collectively any defense to plaintiff's suit, and do not constitute, separately or collectively, any counterclaim or set-off to plaintiff's suit." The amended answer set out the allegations of Pierce's bill in the Federal district court and pleaded same on behalf of Pierce as defenses in this case. For the purposes of this appeal such allegations must be taken as true.

The defenses, counterclaims and set-offs which may be made by Pierce in the suit upon the $350,000 bond, are limited to those which he could have made in a suit upon the $900,000 appeal bond. It is expressly so stipulated in agreements 1, 2, 3 and 4 of said $350,000 bond.

The casualty company contends, and we think it must be conceded, that the state court judgment for $700,000 against Pierce was merely collateral security for the payment of the $700,000 notes of the Nashville Terminal Company. The Federal Court of Appeals so found. In 268 Federal Reporter at page 491, that court said: "The facts which have now been stated are alleged in plaintiff's complaint. If they are true, and in determining the sufficiency of the complaint they must be so considered, the bank holds as collateral security for the $700,000 debt of the construction company to it, the $700,000 judgment against the complainant," etc.

It cannot be doubted that, had the construction company paid its $700,000 in notes to the bank, Pierce would have been entitled, at least upon the payment of costs, to have had the $700,000 judgment against him satisfied, because of such payment, unless the bank had been thereafter entitled to hold the 10,000 shares of the stock of the Nashville Terminal Company (and in lieu thereof the $700,000 judgment) as collateral security for some other debt due to it. The pleadings in this case never got to the point where the bank needed to make any such claim, but it appears from the opinion in Pierce v. Bank, 268 F. 487, that the bank was making the claim that the 10,000 shares of stock converted by Pierce (and hence the $700,000 judgment), together with other securities, were held by it as collateral security for other notes, in addition to the notes for $700,000 of the construction company. That contention is not involved here and need not be further noticed.

It was not held by this court in Bank v. Pierce, 280 Mo. 614, that Pierce could not have made in that case, if he had there sought to make them, the defenses here sought to be made by the casualty company in portions of its amended answer which were stricken out. What we there held was, that "the present record does not disclose any facts which would go to show that the trial court exercised other than a very sound discretion in refusing permission to file the amended answer under the conditions presented in the case at bar."

Had Pierce pleaded and shown in the suit for conversion of the 10,000 shares of the terminal company's stock that the bank, prior to the trial, had received payment of the $700,000 in notes of the construction company, either by application thereto of other collateral or otherwise, and that the bank then held no other indebtedness, to which such stock and securities were properly held by it as collateral, the bank would not have been entitled to a judgment for more than nominal damages for the conversion of said 10,000 shares of stock by Pierce. In other words, the matters and things set up by the casualty company in its amended answer in the case at bar would have constituted a good defense against the bank's claim for substantial damages in the conversion suit, had such matters been timely and properly pleaded and proven by Pierce in that suit.

Measured by Section 1233, Revised Statutes 1919, the matters pleaded by Pierce in the Federal district court and sought to be interposed as a defense by the casualty company in this case, are appropriate subjects of counterclaim by Pierce against the cause of action stated in the petition in this case. The petition states a cause of action upon contract and the causes of action so pleaded in the amended answer also arose upon contract and such claims were in existence at the time this action was commenced. Again, they are connected with the subject of the cause of action stated by the bank.

If Pierce is correct in his contention that dividends received by the Van Blarcom estate, and proceeds from the sale of the $250,000 par value of bonds, were actually received by the bank and further that proceeds from the $750,000 par value of bonds should and could have been realized by the bank and that Pierce is the owner of all such collateral, subject only to the pledge thereof to secure the payment of the $700,000 of construction company notes, then the bank must account to Pierce therefor, and such facts furnish the basis of the counterclaim by Pierce.

If the bank became indebted to Pierce because of any money so received or which it should have realized out of such collateral, then clearly, under Section 1292, Revised Statutes 1919, Pierce was and is entitled to have such indebtedness of the bank to him set off against the indebtedness due the bank from Pierce, regardless of how such items of indebtedness arose.

The next question is whether it is now too late for Pierce to make these defenses, if and when sued upon the $900,000 appeal bond given in the state conversion suit, in lieu of which the $350,000 bond now stands. This question was thoroughly and ably considered by Judge SANBORN in Pierce v. Bank, 268 F. 487, and the Federal Court of Appeals there held that, upon the facts alleged in Pierce's bill in the district court, which, as we have said, are substantially the defenses sought to be made in his behalf by the casualty company in this case, Pierce was entitled to have an accounting and a discovery and marshalling of securities and a determination of whether or not he then owed the bank anything because of the rendition against him of the judgment in the conversion suit. At page 491, Judge SANBORN said:

"The averments of this complaint on their face bring it far within the jurisdiction of a court of equity to marshal mortgaged or pledged securities and to decree an accounting for and application thereof to the payment of the debt they secure, to adjudge a redemption of pledged or mortgaged securities, to fix the terms upon which such redemption may be made, and to decree and enforce a trust at the suit of one having title or interest in property that is in the possession or control of another. [Hubbard v. Tod, 171 U.S. 474,478, 495, 504, 43 L. Ed. 246; Manhattan Trust Co. v. Sioux City N.R. Co., 65 Fed. (C.C.) 559, 568; Benedict v. Moore, 76 Fed. (C.C.) 472; Dibert v. Edw. D'Arcy, 248 Mo. 617, 647, 154 S.W. 1116.] All the controversies between the parties suggested by this complaint may be heard and determined in equity in a single suit, all their rights on account of all the alleged collaterals may be adjudged by a single decree, and during the progress of the litigation, as well as at its close, the acts of the parties may be controlled and directed by appropriate orders of the chancellor."

It is contended by the bank that the Federal Court of Appeals held that Pierce must pay the state court judgment before he could have the accounting and marshalling of securities he prayed for in his bill in the Federal district court. We think such contention results from a misconception of Judge SANBORN'S opinion. That learned judge said:

"It is true that in the absence of the injunction the plaintiff must pay the judgment against him before his claims to the accounting for the $1,000,000 of bonds and the Van Blarcom dividends can be adjudicated. But that fact does not entail an irreparable loss or injury upon him, because the bank is solvent and at the end of the litigation will pay, with interest and costs, the amount which the court shall adjudge it to owe. It is no ground for an injunction against the enforcement of a judgment that the defendant has unadjudicated claims for more than the face of the judgment against a solvent plaintiff, who is a resident and is within the jurisdiction of the court; and that is the case that this record presents."

That court held that there were no allegations in the bill and no showing made that the bank was insolvent and unable to satisfy any judgment which might be rendered against it. It is apparent that the court then had in mind the fact that Pierce might be compelled to pay the state court judgment before he could hope to get a final judgment in his own case in the district court. The court plainly indicated that such injunction would have been granted in case the bank had been insolvent and Pierce had not had full and adequate recourse against said bank in the event the district court found for him. In ordinary course, the bank would have collected its judgment before Pierce could have secured a judgment in the district court. Had the Federal Court of Appeals regarded the payment of the state court judgment by Pierce as a prerequisite to the prosecution of his accounting suit in the district court, it is scarcely conceivable that the order of the district court dismissing the bill would have been reversed.

But the bank contends that Pierce could not make the defenses now sought to be made for him by the casualty company, because all such defenses were foreclosed by the judgment in the conversion suit, in which they should have been pleaded as a defense, and, as he did not make such defenses in that case, he is now estopped in any case and in any court to seek the relief to which he contends such defenses entitle him.

This contention was disposed of adversely to the bank's contention in Pierce v. Bank, 268 F. 487, beginning at page 495. Judge SANBORN there so fully and ably discussed the point that we feel justified in quoting that portion of his opinion in full. Because the reader will have access to the reported opinion, we omit many of the cases cited by him. He said:

"Counsel challenge the complaint on another ground: They contend that the complainant is estopped from maintaining its suit in equity for a discovery and accounting regarding the $1,000,000 of bonds pledged to the bank and to Pierce, or regarding the dividends it received from the Van Blarcom estate, because he did not plead or prove his claims therefor in the action in the state court by the bank against him for his conversion of the 10,000 shares of stock of the terminal company, which resulted in the $700,000 judgment against him. But the rules of law by which this position must be tried are:

"First. Where the second suit is upon the same cause of action and between the same parties as the first, the judgment in the former is conclusive in the latter as to every question and issue which was or might have been presented and determined in the first suit." [Citing cases.]

"Second. When the second suit is upon a different cause of action, but between the same parties as the first, the judgment in the former action operates as an estoppel in the latter as to every point and question which was actually litigated and determined in the first action; but it is not conclusive relative to other matters which might have been, but were not, litigated or decided." [Citing cases.]

"Third. Where the record is such that there is or may be a material issue, question, or matter in the second suit upon a different cause of action which may not have been raised, litigated, or decided in the former action, the judgment therein does not constitute an estoppel from litigating that issue, question, or matter, unless by pleading or proof the party asserting the estoppel establishes the facts that the issue, question, or matter in dispute was actually and necessarily litigated and determined in the former action." [Citing cases.]

"Fourth. The test of the identity of the causes of action is the identity of the facts essential to maintain them." [Citing cases.]

"Fifth. While the failure of a defendant to allege and prove facts purely defensive to an issue on trial between him and the plaintiff renders such matters res adjudicata after judgment, and estops him from again presenting them (1 Van Fleet on Former Adjudication, sec. 198), when defensive facts also constitute an affirmative cause of action against the plaintiff, the defendant has the option to interpose them as a defense, or to reserve them for an independent or cross-action. If he refrains from presenting them as a defense, the judgment in the action against him does not bar nor adjudicate his affirmative cause of action upon them, and he is free subsequently to maintain it." [Citing cases.]

"Let us measure the alleged estoppel of the plaintiff to maintain this suit by these rules. Counsel cite, to sustain that estoppel, Miller v. Belvey Oil Co., 248 F. 83, 160 C.C.A. 223, and Allen v. City of Davenport, 132 F. 209, 220, 65 C.C.A. 641, 659. But the decisions and opinions in those cases are inapplicable to this case, because in those cases the first and second suits were between the same parties and upon the same causes of action, respectively, and were governed by the first of the above rules, while the suits in this case are upon different causes of action, and the first rule is inapplicable to them. There is no identity in the facts necessary to the maintenance or defense of the causes of action against Pierce for conversion of the 10,000 shares of Terminal stock, and the facts determinative of Pierce's cause of action against the bank for an accounting and recovery of the proceeds of the $250,000 of the mortgaged bonds of the terminal company, or for a redemption of the $750,000 of the bonds of the railroad company, or for an equitable application of the dividends from the Van Blarcom estate. The facts necessary to the maintenance of the former suit were the pledge of 10,000 shares of Terminal stock to the bank before they were pledged to Pierce on November 17, 1908, the appropriation of them or their proceeds to his own use by Pierce, and the value of the stock. None of those facts is indispensable to the maintenance of the suit in hand for a discovery of and accounting by the bank for the bonds and dividends here in question. The subjects and objects of the two suits, the facts indispensable to their maintenance or defense, but the relief sought therein are not only not identical, but are so radically different that neither could be maintained upon the facts which might sustain the other. This case, therefore, falls under the second rule, and the complainant is estopped from maintaining no position which was not actually litigated and determined in the action in the state court.

"Counsel cite, however, Beloit v. Morgan, 7 Wall. 619, 621, 622, 19 L. Ed. 205, in which Morgan had sued the town of Beloit and obtained a judgment on some of the coupons upon some of a certain issue of bonds, after a trial of the issue as to the validity of the bonds made by the answer of the town. Thereafter the town brought a suit in equity against Morgan, and claimed therein that all the bonds of that issue were invalid, for the same reasons alleged in its answer in the first suit, and prayed that Morgan might be enjoined from maintaining any action upon any of them, and that those he held might be surrendered and adjudged void. The court held that the town was estopped from maintaining the suit by the former judgment. Counsel also cite Gardner v. Buckbee, 3 Cow. (N.Y.) 120, 15 Am. Dec. 256, wherein Gardner bought a vessel of Buckbee and gave him two notes for the purchase price. Buckbee sued on one of them. Gardner defended on the ground that the sale was fraudulent and there was no consideration for the note. The issue was tried, and Buckbee recovered a judgment. He then sued Gardner on the second note, and Buckbee defended on the same ground of fraud in the sale and want of consideration he presented in the first action, and the court held he was estopped by the judgment in the first action.

"The decisions in these cases rest upon the facts that the two suits in each case were between the same parties upon different causes of action, and the issues in the second suits had been actually litigated and determined in the first suits. They fall under the declaration of the second rule, that in such cases the judgment in the first suit is conclusive as to every point and question actually litigated. But the complaint in this case does not disclose, nor has the bank pleaded or proved, that any of the points, questions, or issues determinative of the equitable right of the complainant to the accounting by the bank for the bonds or dividends, or to the return of the $750,000 of the bonds of the railroad company, was actually litigated or adjudged in the action in the state court, and it is governed by that part of the second rule which declares that the judgment in the first action is not conclusive as to other matters than those actually litigated and decided, which might have been, but were not, litigated or decided in the first suit. For these reasons, and for others, such as the fact that the complainant did not learn of the sale of the $250,000 of the Terminal bonds by the bank until after the judgment in the state action had been entered in the trial court, and that the fact relative to the pledges and liens in question in this suit may not have constituted a defense to the action against Pierce for the conversion of the Terminal stock at the time that issue was pending in the trial court, the conclusion is unavoidable that the complainant is not estopped by the judgment in that action from maintaining this suit and securing in this court such relief as, after pleadings and proofs, the merits of the case may demand."

Judge SANBORN was clearly correct in holding that the same cause of action was not involved in the conversion suit as was involved in the matters and things alleged in Pierce's suit in the district court. If they are different causes of action (and they are), Pierce would not be precluded from setting up those matters as a defense or as a basis of counterclaim or set-off in this case, because they were not pleaded or adjudicated in the conversion suit.

But the bank contends that, to permit Pierce (or now the casualty company) to make such defenses in this case, is to permit him to say that the state court judgment for $700,000 should not have been rendered or should now be reduced and that this would constitute a challenge of the validity of such judgment. Not at all. In paragraphs three, four and five of its amended answer, the casualty company admits the rendition of such judgment and an appeal therefrom and that such judgment was affirmed by this court. Such admission is tantamount to an admission of the finality and unassailability of such judgment. Judge SANBORN evidently had this in mind when he said that the bank held an unassailable judgment against Pierce.

But that judgment was not a judgment for the payment of money to the bank by Pierce, absolutely and in any event. Counsel seem to lose sight of the fact that such judgment was merely collateral security for the payment of the $70,000 construction company notes. The defenses sought to be made by the casualty company are consistent with that judgment, as thus characterized and understood, and are not inconsistent with the existence of such judgment and its validity and enforceability for the purpose for which it was rendered.

No sufficient reason appears to us why Pierce himself is not entitled to have his liability upon the $900,000 appeal bond (and therefore upon the $350,000 bond in suit) and his right to an accounting and discovery and marshalling of securities determined in one and the same action and to have any sums applied to the payment of the $700,000 notes of the construction company which the court might determine should have been applied thereto by the bank.

It must now be determined whether Pierce's surety, the casualty company, can make for Pierce the defenses in this case which we hold Pierce himself as party defendant could have made. We think the casualty company is entitled to make them.

The casualty company relied upon the case of Green v. Conrad,114 Mo. 651. Unless that case can be distinguished from this case, it is controlling. The bank contends that it can be so distinguished. In that case Green was assignee of the Packet Company. In October, 1880, Ward and others had obtained three judgments in St. Louis on behalf of the Packet Company against Davidson and others, aggregating over $25,000, for misappropriation of corporate property. Upon appeal those judgments were affirmed. Three appeal bonds had been given, and Green, as assignee of the Packet Company, brought suit upon such bonds against the sureties, Conrad and the administrator of Lehman. Davidson had died. His executor was not made a party defendant. The three suits were consolidated for trial.

On motion of Johnson, executor of Davidson's estate, he was made a party defendant in the consolidated case and filed answer. The sureties set up the fact that Davidson, in October, 1884, in the State of Minnesota, had procured a judgment against the Packet Company for over $45,000 upon certain notes, and that Davidson thereafter sued the Packet Company upon such judgment in St. Louis and, in May, 1887, procured a judgment for over $51,000, which was unsatisfied. The sureties asked that such judgment be allowed as a set-off or counterclaim in the consolidated suits upon the three appeal bonds. Green moved to strike out such defense, and the trial court overruled his motion. Davidson's executor set up a similar defense, and the court likewise overruled Green's motion to strike it out.

One of the questions considered by this court upon appeal was the right of the sureties to avail themselves of the judgment of Davidson against the Packet Company, when sued as sureties upon the appeal bonds. This court held that such defense could be pleaded both by Davidson's executor and the sureties upon the appeal bond and, following and approving Himrod v. Baugh, 85 Ill. 435, held that, where the joint debt of the principal and the sureties is a mere security for the separate debt of the principal, the right of set-off will be allowed the sureties.

We do not think the fact that the claim, pleaded as a set-off in that case, was a judgment, can make any difference or distinguish Green v. Conrad, from this case. In that case the principal's executor was allowed to come in as a party defendant and such executor consented that the sureties might make the defense they did make. While the principal on the bond was not made a party defendant in this case, he attempted to come in and the casualty company sought to bring him in. Both were unsuccessful. If the assent of the principal for the surety to make his defense be deemed essential in this case, such consent is shown by the record.

It is true that the Packet Company was insolvent. The bank urges that fact as one distinguishing the two cases. This court mentioned that fact, but apparently it was not controlling in Green v. Conrad. The same result would doubtless have been reached had the Packet Company been solvent.

The bank argues that the sureties in Green v. Conrad, would not have been permitted to plead as a set-off the causes of action which resulted in Davidson's judgment against the Packet Company. This contention is based upon the argument of res adjudicata, which we have above considered and disallowed.

In one particular this is a stronger case than Green v. Conrad. There the appeal bonds were given to secure the payment of a judgment for money, payable without any contingency. Here the judgment in the conversion suit was merely collateral security to the construction company notes. The liability of Pierce to pay such judgment was contingent and depended upon the failure of the construction company to pay said notes.

Other cases are cited and discussed in the briefs, but we will not lengthen this opinion unnecessarily by discussing them. We are satisfied with the controlling authority of Green v. Conrad, and under that authority hold that the casualty company is entitled to make the defenses it sought to make and that the trial court erred in striking out paragraph thirteen of the amended answer of the casualty company. Upon re-trial the right of the bank to continue the prosecution of the suit in view of the prior suit in the federal court and the liability of the casualty company upon the bond should be determined upon the truth of the allegations stricken out of the amended answer.

The rulings of the trial court in denying the motion of the casualty company to have Pierce made a party defendant and in denying Pierce's own application to come in as party defendant, are also assigned as error. In Green v. Conrad, supra, this court sustained the trial court's action in permitting the principal on the bond to come in as a defendant and gave strong reasons why such action was proper. We think such reasons are controlling here, and we hold that the court erred, both in refusing to have Pierce brought in and in denying him the right to come in as party defendant.

In view of what we have held and also in view of conclusions reached upon other phases of the case, we deem it unnecessary to consider the propriety of the court's action in striking out paragraph nine of the amended answer. Some matters of fact therein alleged are alleged elsewhere in the amended answer. Some of the allegations are mere conclusions of the pleader. We believe we have so expressed our views of the case in this opinion that the trial court will have no difficulty in shaping the pleadings upon re-trial, if a re-trial occurs.

The foregoing disposes of all points necessary to be considered in connection with the appeal of the casualty company in case No. 23940.

The bank's appeal in case No. 23,939 involves the correctness of the trial court's ruling with respect to the claim of the bank for $25,377.03 for attorneys' fees and expenses incurred in dissolving the temporary injunction granted by the Federal Court of Appeals in the case of Pierce against the bank. The right of the bank to such allowance was embodied in Instruction No. 2, asked by the bank. The court refused this instruction and the bank excepted.

There is no merit in the casualty company's contention that the Court of Appeals did not dissolve such injunction. It did not order such injunction dissolved in express terms, but such was the necessary effect of its finding that Pierce was not entitled to an injunction and of its order affirming the action of the district court in refusing to grant such injunction. If such injunction was not dissolved, it must have been in full force when the bank instituted the present action upon the appeal bond to enforce collection of the unpaid balance due upon the $700,000 judgment. If it was in force, the institution and prosecution of this suit would have been in clear violation of the express terms of the injunction and the bank would have been in contempt of the Federal court. It is unlikely that able counsel for the casualty company would have overlooked such an easy and ready way to halt proceedings in the present case.

Attorney's fees and expenses are not allowed as part of the damages incurred in the dissolution of temporary injunctions granted in suits pending in the Federal courts and assessable in such courts. In support of this proposition the casualty company relies upon Oelrichs v. Spain, 15 Wall. 211; Tullock v. Mulvane,184 U.S. 497; M.K. T. Ry. Co. v. Elliott, 184 U.S. 530.

The bank concedes that such is the Federal rule. It seeks to avoid the force of such rule by contending that, by the bond in suit, Pierce and the casualty company contracted to pay damages and costs, which included attorneys' fees and expenses, independently of any allowance thereof by the Federal court, and that because the suit was brought upon the bond in the state court the rights of the parties must be determined by the state rule and not by the Federal rule.

Section 5 of the bond provided that said bond should "secure to the bank the payment of any and all damages and costs sustained by the bank as a result of the granting of the injunction by the United States Court of Appeals for the Eighth Circuit, in the case of Henry Clay Pierce v. National Bank of Commerce in St. Louis, No. 5587."

A provision of this sort was required by the Federal Court of Appeals to be written into the injunction bond provided for by its order. It was there required that such injunction bond should be so conditioned as to secure the payment of "all damages and costs in this case." In the nature of things, that court could not require the bank to release its $900,000 bond, even though the judgment it was given to secure was ordered to be reduced by part payment to $300,000 before the injunction should become effective. It was this feature and the provisions to preserve the rights of the bank in respect to the appeal bond which were taken care of when the bond in suit was executed instead of the bond required in the order of the federal court of appeals. In other respects, the bond in suit met all of the requirements of the order of that court.

The concluding paragraph of the bond in suit provided that if Pierce "shall well and truly pay to said bank . . . all damages and costs which may accrue or become due to said bank on account of the injunction and restraining order granted . . . then this obligation shall be null and void," etc.

Reading the two provisions together, it seems clear that Pierce and the casualty company only bound themselves to pay such damages and costs as were incidental to an injunction granted by the Federal Court of Appeals, that is, such damages as that court, under its rulings, would assess in an appropriate proceeding for the allowance thereof.

The parties were contracting in reference to the situation resulting from the granting of an injunction by a Federal court. Unless they appropriately specified otherwise, the contract should be construed with reference to the practice in the Federal courts. That practice did not permit the assessment of attorneys' fees and their expenses upon the dissolution of a temporary injunction. The construction of the bond contended for by the bank is strained and unnatural.

The assessment of damages upon the dissolution of an injunction of the Federal court involves a federal question and the decisions of the federal courts are controlling. Such assessment is not controlled by the Missouri statute, nor by decisions of this State in cases where temporary injunctions have been granted and dissolved by the courts of this State.

The bank cites Elliott v. M.K. T. Ry. Co., 77 Mo. App. 652, and M.K. T. Ry. Co. v. Smith, 154 Mo. 300. Those cases apparently hold as the bank now contends; but the trouble is that the first case cited was reversed, and the latter case is in effect overruled by the Supreme Court of the United States in M.K. T. Ry. Co. v. Elliott, 184 U.S. 530.

The rule there laid down is controlling here, and it follows that the trial court did not err in refusing the bank's instruction numbered 2, and in denying its claim for damages and attorneys' fees incurred in dissolving the injunction.

In view of the conclusions already reached, it is scarcely necessary to notice the bank's contention that the trial court erred in denying its claim for penalty and attorneys' fees in this case for vexatious refusal of the casualty company to pay the bond. If, in addition to the judgment in favor of the bank for the penalty of the bond, the trial court had included such items in its judgment, they would necessarily have fallen with that judgment.

Aside from that and in view of all we have said concerning the right of the casualty company to make for Pierce the defenses referred to, it is manifest that the bank, on the record nowbefore us, was not entitled to recover for such items. [Non-Royalty Shoe Co. v. Assurance Co., 277 Mo. 399; State ex rel. v. Allen, 243 S.W. (Mo.) 839; Patterson v. Insurance Co.,

174 Mo. App. 37; State ex rel. Continental Life Insurance Co. v. Allen, 262 S.W. (Mo.) 43.] In the last case cited we said:

"An insurance company's right to resist payment upon one of its policies cannot be determined by the facts as found by the jury, but must be determined by the facts as they reasonably appeared to it before the trial. It has the right to refuse payment and to defend a suit with all the weapons at its command, so long as it has reasonable ground to believe its defense is meritorious. It is only when it persists in its refusal to pay the policy after it is aware that it has no meritorious defense that it becomes subject to penalties for vexatious delay."

As a re-trial upon the facts might develop a situation where the assessment of damages and attorneys' fees for vexatious refusal to pay the bond might become proper, the trial court should be left free to consider the claim upon its merits.

We regret the length of this opinion. The earnestness and industry of counsel have made it necessary. It would seem that all of the issues involved here could well have been settled in the case pending in the Federal district court. In fact, we have information outside of the record that a final judgment has already been entered in that court upon the issues there involved, which are very likely the identical issues involved here. An appeal was taken in that court, which, we understand, is set for argument in the Federal Court of Appeals at an early day. We hope that our labors in preparing this opinion may be of some value to the bench and bar of the State, if not of material aid in solving the difficulties in which the parties here find themselves.

In so far as case No. 23,939 is concerned, the judgment below is affirmed. Upon the appeal of the casualty company, in case No. 23,940, the judgment is reversed. The case as a whole is remanded for further proceedings. in accordance with the views herein announced. All concur.