Humphreys v. Atlantic Milling Co.

Black, J.

— This and four other suits of a like character were tried at the same time. The suit is one in equity, and the defendants are the Atlantic Milling Company, Geo. Bain, who is president and managing officer of that company, the Victoria Milling Company, A. H. Smith, who is managing officer of the last-named company, the White Line Central Transit Company, and F. N. Judson. The two milling companies are corporations doing business in St. Louis.

The evidence discloses these general facts: Plaintiff is a general creditor of the Atlantic Milling Company to the amount of $2,046 for wheat sold in December, 1888. In the spring of 1883, that company failed and suspended business. It resumed business in November of that year, most of the old debts having been extended. Towards the middle of December that company became indebted and was pressed on account of these new debts, called the debts of the ‘‘new running;” plaintiff’s demand is • of this class. The Atlantic Milling Company and the Victoria Milling Company had a demand against the transit company for rebates on shipments, and Mr. Bain, for the Atlantic Milling Company, promised to pay the proceeds of his share of this claim to the creditors of the “ new running.” The result of several trips to New York was, that Bain and Smith drew their individual and joint draft, of date January 12, 1884, on Darling, manager of the transit company, for $12,327.54, payable at Buffalo in sixty days, to the order of the Victoria Milling Company, which draft Darling accepted. The Victoria Milling Company then made its note of the same date for $9,818.24, payable to Bain in sixty days. This note represents the interest of the Atlantic Milling Company in the rebates. There was a verbal agreement that the payment of this note should be conditioned upon the payment of the draft. On January 14, 1884, Bain endorsed the note and delivered it to Mr. Judson for the purpose and with the understanding that he should collect it and pay the proceeds pro rata to the November and December creditors.

The petition alleges that the draft upon Darling was drawn by Bain and Smith in their individual names for the purpose of defrauding the creditors of the Atlantic Milling Company; that in the furtherance of such purpose, Smith executed to Bain his note for the $9,818.24; that for a like purpose Bain endorsed the note to Judson who procured a discount of it, taking a check therefor with the understanding that the check should not be paid until the draft was paid; that these transactions were all thus made to defraud creditors. The prayer is, that defendants be restrained from collecting the draft or disposing of it, that it be delivered into court, the appointment of a receiver, and that plaintiff be paid out of the proceeds of the draft.

The defendant denied all the allegations of fraud and set out a history of the transactions as they are before stated, and as they appear on trial. Various creditors, both old and new, interpleaded for the fund and ask that the petition of the plaintiff be dismissed. The court granted a temporary injunction, ordered the acceptance to be collected by a receiver, and the $9,818.24 is in court. On the final hearing the plaintiff prevailed.

The proof shows that Bain, Smith and the Atlantic Milling Company were insolvent. Judson and the Victoria Milling Company are solvent. The note to Bain was made by the last-named company and not by Smith, as stated in the petition. Mr. Judson made no negotiation of the note, nor did he attempt to do so. Much is said about these variances between the petition and proofs. We do not regard them as fatal to the plaintiff, though the real facts are to be kept in mind.

The proof is clear that Bain and Smith drew the draft on Darling in their individual names because the transit company refused to settle in any other way. There is no proof of any fraudulent purpose in the settlement with the transit company or in taking the draft payable to the Victoria Milling Company. It is clear, too, that Mr. Judson took the note from Bain in good faith and for the purposes before stated, without any knowledge of any fraudulent purpose on the part of Bain, if any there was.

As to the other questions of fraud in fact, it is sufficient to say, in the view we feel bound to take of this case, that there is much evidence tending to show that Bain urged the settlement of rebates for the sole purpose of paying these new creditors ; that he had agreed with them to pay their debts out of this collection, and that he placed the note with Mr. Judson for that purpose alone. The evidence shows that he was guilty of deception to some of these creditors, after he had given the note to Judson in thisj that he did not tell them who had the note, and that he said he had a check for it, when in fact he had no 'check. Bain says he made these statements because he wanted the matter of his getting the rebates kept quiet. Smith, however, did give the plaintiff a copy of the draft, and he endeavored to aid Smith in negotiating it, but the draft seems to have had no commercial standing.

That the plaintiff’s demand is just and due is conceded; but it stands in the shape of an open account, and the first question is, whether he can maintain this suit in equity. The general rule is that a creditor, before he can maintain a creditor’s bill, must show that he has exhausted all remedy at law; and this because a court of equity will not entertain such a suit where the plaintiff has a complete and adequate remedy at law. In general, it must be shown that judgment has been recovered and that execution has been issued and returned nulla bona, but there are exceptions to this rule. Thus where judgment has been recovered and the debtor is insolvent the issuance and return of an execution will be dispensed with. Turner v. Adams, 46 Mo. 95. It is sufficient that the demand be allowed by the probate court where the debtor’s estate is insolvent. Merry v. Fremon, 44 Mo. 518; Lyons v. Murray, 95 Mo. 23. In Pendleton v. Perkins, 49 Mo. 565, the debtor had absconded and left money in the city treasury, but the city treasury could not be reached by statutory garnishment, and it was held that the creditor could maintain a suit in equity to subject the money to the payment of his debt, which had not been reduced to a judgment.- The general doctrine is there stated that where the debtor has absconded, so that no personal judgment can be obtained against him, and there is no statutory proceeding by which his property can be reached, a creditor’s bill will lie in the first instance. These cases all proceed upon the principle that the creditor has exhausted, or has no adequate remedy at law.

In the present case, the creditor, the Atlantic Milling Company is within and subject to the jurisdiction of the court, and if the allegations of fraud are true, then that company could be sued in attachment, and its property in the hands of others could be garnished. It is urged, however, that the process of garnishment would be of no avail in this case, because the transit company owed the debt to the two milling companies jointly, and that it could not be garnished as the debtor of one of them. The answer to this is, that the debt had been adjusted and the draft was made payable to the Yictoria Milling Company, which is perfectly solvent. The transit company was bound to pay only to that company or its order. There can be no pretense of any fraud in that transaction. Indeed it is this draft which the plaintiff; seeks to impound. There was no occasion for a garnishment on the transit company. The Yictoria Milling Company, by becoming the payee of the draft, became bound to account to the Atlantic Milling Company for the amount going to it. The Yictoria Milling Company was therefore subject to the process of garnishment. It was also solvent. The fact that the amount going to the Atlantic Milling Company was not yet due is of no moment; for a debt not due may be garnished. R. S. 1879, sec. 2540.

Nor does the fact that the Victoria Milling Company had made its note to Bain affect the case. If that transaction was made in fraud of creditors, its invalidity could be adjudged on issues between the plaintiff and the garnishee. R. S. 1879, sec. 2541. This statute also gives the court ample power to compel the production of the note, whether in the hands of Bain or Judson. Again, the note was the property of the Atlantic Milling Company, though payable to Bain, and if the plaintiff desired to question the validity only of the assignment of the note by Bain to Judson, then Judson could have been summoned as garnishee, and the issue as to the validity of that transfer could have been tried. We see no reason why the plaintiff could not have compelled both Judson and the Victoria Milling Company to have appeared and answered interrogations at the same time. The machinery of the attachment law affords a speedy and ample remedy in all such cases. Lee v. Tabor, 8 Mo. 322; Eyerman v. Krieckhaus, 7 Mo. App. 455; Lackland v. Garesche, 56 Mo. 267; Hazell v. Bank of Tipton, 95 Mo. 60.

It is suggested that Judson could not be held as a garnishee because he holds the asset in trust for a designated class of persons. Plaintiff does not seek to enforce that trust, but he says there is no such a trust, that the transfer of the note to Judson was a void act, because in. fraud of the creditors, and that issue can be tried on issues between plaintiff and the garnishee.

Doubtless there are cases where courts of equity have jurisdiction, though a statute may furnish a remedy by an action at law; and there are cases where there is a concurrent jurisdiction ; but we do not understand this case to belong to either class. Mr. Pomeroy says: “It is a necessary result from the whole theory of a creditor’s suit, that jurisdiction in equity will not be entertained when there is a remedy at law.” Pom. Eq. Jur., sec. 1415. This succinct statement of the law is in accord with the prior rulings of this court. Whilst it is not necessary in all cases that the creditor’s demand shall be first put in judgment it is essential for him to make out a case which shows that he has no adequate remedy at law. That has not been done in the present case.

The answer does not in terms plead remedy at law, and hence it is argued that defendant has waived the right to say plaintiff has a complete and adequate remedy at law ; and in support of this position we are cited to Blair v. Railroad, 89 Mo. 388. It is to be observed that in that case and in the cases cited from 2 and 4 John. Ch., and from 2 Dev. & Bat. Eq., the court found grounds upon which to give equitable relief, so that the question of failure to plead adequate remedy at law was not material. Story says: “ It is often said-in the courts and by elementary writers, that unless the objection that the plaintiff has a perfect remedy at law is taken by demurrer, or as a preliminary question, it will be regarded as waived, and cannot be raised at the hearing, but we apprehend this is not generally true.” Story’s Eq. Plead. [Redf. Ed.] sec. 481a. Foley v. Hill, 1 Phil. C. R. 399, was a bill for account. On the hearing it appeared that the account consisted of three items only, two on one side and one on the other. The Lord Chancellor dismissed the bill on the ground that such an account was not the proper subject for a bill. His decree was affirmed in 2 H. L. Cas. 28. As we understand the case no plea of remedy at law was made. It is the uniform practice in the federal courts, where the remedy at law is plain, adequate and complete, to dismiss the bill though the question is not raised by the defendant in his pleadings. Hipp v. Babin, 19 How. 271; Lewis v. Cocks, 23 Wall. 466. In Hine v. City of New Haven, 40 Conn. 484, it is said: “We do not sanction the claim that the objection that there is adequate remedy at law should in all cases be taken by a plea to the jurisdiction.” And in Iowa it is held that- where the bill is bad, for substantial defects on its face, the defendant may take advantage of it upon the hearing, and the bill will be dismissed. Kriechbaum v. Bridges, 1 Iowa, 14. We think the authorities cited are sufficient to show that, if, upon hearing, the plaintiff should fail to make out a case entitling him to equitable relief his petition should, be dismissed, though remedy at law is not pleaded.

But aside from the foregoing considerations, a proper application of the rules of our practice act must lead to the same result. Under it, the petition, whether the action be legal or equitable, must contain a plain and concise statement of the facts constituting the cause of action. The same rule applies to new matter pleaded in the answer. The objection that the petition does not state facts sufficient to constitute a cause of action is not 'waived by a failure to demur. The whole theory of the practice act is that facts and not conclusions should be pleaded. If the defendant can show to the court that the case is not one of equitable cognizance, by making denials in his answer and setting up other and different facts and making proof thereof on the hearing, then this he may do. That was done in this case. If the petition be one in equity and at the hearing, the plaintiff fails to show a case in which he is entitled to any equitable relief, the petition should be dismissed. State ex rel. v. St. Louis Circuit Court, 41 Mo. 574; Rutherford v. Williams, 42 Mo. 18. In the case last cited, it is in substance said that where there is no equity as the ground of relief, a court of equity will dismiss the bill and remit the plaintiff to his action at law and a jury trial. The distinction between suits in equity and. actions at law so far as the trial is concerned, must be maintained, so long as parties have a constitutional right to a trial by a jury in actions at law. Our conclusion is that under our practice act, the plea of remedy at law in a suit in equity is unknown. It has no place under our system of pleading. What we said upon this subject in the case of Blair v. Railroad, supra, and in Shickle v. Watts, 94 Mo. 419, is overruled. Nothing here said will interfere with the rule that where a court of equity can maintain the case for any purpose, it will proceed to do full justice between the parties. Real Estate Sav. Ass’n v. Collonious, 63 Mo. 292; Holloway v. Holloway, 97 Mo. 628. So, too, cases will arise where the court may disregard surplus allegations, and treat the petition and try the cause as one at law.

[*Note by Esportee. — This opinion was rendered while Norton, O. J., was a member of the court but the motion for rehearing was determined at the April term, 1889, Barclay, J., not sitting.]

The judgment is reversed and the cause remanded with directions to the circuit court to dismiss the petition and to make an order directing the fund in court to be turned over, to Mr. Judson. This being done, the plaintiff can pursue such course at law as may to him seem fit.

Rat, J., absent; the other judges concur.*