Vetterlein v. Barnes

124 U.S. 169 (1888)

VETTERLEIN
v.
BARNES.

Supreme Court of United States.

Argued December 8, 1887. Decided January 9, 1888. APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK.

Mr. Calderon Carlisle and Mr. T. Mitchell Tyng for appellants. Mr. John D. McPherson was with them on their brief.

Mr. Harrington Putnam for appellee. Mr. James K. Hill and Mr. Henry T. Wing were with him on his brief.

MR. JUSTICE HARLAN, after stating the case, delivered the opinion of the court.

1. The District Court correctly held, upon the evidence, that at the time of the transfer by Theodore H. Vetterlein of the policies in question for the benefit of his wife and children, neither Meurer nor Theodore J. Vetterlein had any valuable pecuniary interest in the assets of the former firms, and that the firm of Vetterlein & Co., composed of Theodore H. Vetterlein and Bernhard T. Vetterlein, held the entire beneficial interest in the policies taken out to secure Taylor's debts. That interest passed to their assignee in bankruptcy.

2. Such transfer — which was within six months before the filing of the petition in bankruptcy — was made in contemplation of the insolvency of Theodore H. Vetterlein and Bernhard J. Vetterlein; and according to the weight of evidence the transferees, at that time, not only had reasonable cause to believe that Theodore H. Vetterlein was acting in contemplation of insolvency, but that such transfer was made with a view to prevent the moneys due on the policies from coming into the hands of an assignee in bankruptcy.

3. It is contended that the wife, and children of Theodore H. Vetterlein were indispensable parties, and that it was error to proceed to a final decree without having them made defendants. The general rule undoubtedly is that all persons materially interested in the result of a suit ought to be made parties, so that the court may "finally determine the entire controversy, and do complete justice by adjudging all the rights involved in it." Story v. Livingston, 13 Pet. 359, 375; Shields v. Barrow, 17 How. 130, 139. But in a suit brought against a trustee by a stranger, for the purpose of defeating the trust altogether, the beneficiaries are not necessary parties, if the trustee has such powers or is under such obligations, with respect to the execution of the trust, that "those for whom he holds will be bound by what is done against him, as well as by what is done by him." In such cases of representation by trustees, the beneficiaries will be bound by the judgment, "unless it is impeached for fraud or collusion between him and the adverse party." Kerrison v. Stewart, 93 U.S. 155, 160.

In Sears v. Hardy, 120 Mass. 524, 529, the court, after observing that who shall be made parties to a suit in equity cannot always be determined by definite rules, but rests to some degree in the discretion of the court, said: "Generally speaking, however, to a suit against trustees to enforce the execution of a trust, cestuis que trust, claiming present interests directly opposed to those of the plaintiff, should be made parties, in order that they may have the opportunity themselves to defend their rights, and not be obliged to rely upon the defence made by the trustees, or to resort to a subsequent suit against the trustees or the plaintiff, or to take the risk of being bound by a decree rendered in their absence." But the rule is different where the claim of the plaintiff antedates the creation of the trust, and the suit is brought, not in recognition or furtherance of the trust, but in hostility to it, as fraudulent and void. In Rogers v. Rogers, 3 Page, 379 — which was a suit by a judgment creditor to set aside as fraudulent an assignment by the debtor of his personal estate in trust for the payment of a debt to a particular bank, and to pay the residue of the proceeds thereof to other creditors of the assignor — it was objected, at the hearing, that the bank was not made a party defendant. The objection was held to be untenable, the chancellor observing: "As a general rule, the cestuis que trust, as well as the trustee, must be parties, especially where the object is to enforce a claim consistent with the validity of the trust. But where the complainant claims in opposition to the assignment or deed of trust, and seeks to set aside the same on the ground that it is fraudulent and void, he is at liberty to proceed against the fraudulent assignee or trustee, who is the holder of the legal estate in the property, without joining the cestui que trust." Wakeman v. Grover, 4 Paige, 23; Irwin v. Keen, 3 Wharton, 347, 354, 355; Therasson v. Hickok, 37 Vt. 454; Hunt v. Weiner, 39 Ark. 70, 76; Winslow v. Minnesota & Pacific Railroad Co., 4 Minn. 313, 316; Tucker v. Zimmerman, 61 Geo. 601.

The assignment of the policies in question in trust for the wife and children of the assignor — the trust having been accepted — carried with it, by necessary implication, authority in the trustees, by suit or otherwise, to collect the insurance moneys for the beneficiaries. Indeed, they could not otherwise have fully discharged the obligations they assumed as trustees. They were entitled to represent the beneficiaries in their claim for the insurance money, and were under a duty to defend any suit, the object of which was to prevent the discharge of that duty, and set aside the transfer of the policies as fraudulent and void. It results that the wife and children of Theodore H. Vetterlein were not necessary parties defendant.

We perceive no error in the record, and the decree is

Affirmed.