BIES V. ROWLAND.
()51
BlES
and another v.
ROWLAND
and another.-
{Oircuit Oourt, E. D. Missouri. April 27, 1882.} 1. TRUSTS-DEB'l'OR AND CREDITOR.
Any use by a creditor of a debtor's property, whereby a secret substantial advantage is secured to the latter, amounts to a seel'et trust.
2. 3.
JUDGMEN'r-MEllGER.
Where suit is brought and judgment recovered upon 8 claim,it is merged , in the judgment, 'and the latter is conclusive as to the amount due. ' DEBTOR ,AND CREDITOR-EsTOPPEL.
, Where an attaChing creditor received judgml'nt against ,an debtor, and the goods attached were sold by the marshal uuder an order of court, and bought by thejlldgment creditor pursuant to an agreement made by him before the sale with the judgment debtor, Whereby it was understood that the creditor should purchase the goods at the lowest 'possible price aild phice them in the debtor'!!, ,hands, to be sold by him .as the creditor's agent,to the best the advantage, and' that after the payment of the credltor;s claiI\l and balance should be turned over to the debtor, aid 'the goods were SUbsequently sold by the debtor as thepurcMser's agent. and the proceeds remitted to the ,' purchaser: .lield, (1) That the agreement on :debtor's part constituted a sufficient c.onsideration for the agreement on the part of his creditor, (2) That sltid creditor wa.!J liable to other creditors of said debtor for 'ant surilrcmaining in'bis hands as proceeds of 'the sale of said goods by the debtor, over and 'above the sum of his own. debt, ,together with his. proper expenditures in connection with the management lind sale of, the said goods, and the to the marshal in satisfaction of his bid. (3) That said'creditor was estopped to claim any sum to be due him, on account of the traMaction embraced within the suit in which he had received said judgment, over and above the amouutof the judg-ment.
Bill in equity, filed by and on behalf of judgment creqitors of defendant W. J. Johnson, for the purpose of subjecting to the payment of their judgments an alleged balance in the hands of defendant land, the proceeds of the sale of a. stock of goods and merchandise formerly belonging to said Johnson. The material facts are as follows: " In the year 1880, Johnson, wilO had prior to that time been engaged in bussinMs as a merchant at Hot Springs, Arkansas, became insolvent. Certain of bis creditors, and among them defendant Rowland; who did business in the name of D. P. Rowlaud & Co" instituted suits by'attachment against him. by .virtue of which a large stock of merchandis'e at Hot Springs was attached. There were several attachments levied prior to that of Rowland. While the goods were in; the bands of the marshal an agreement was entered into between Rowland and Johnson whereby it was un,derstood that Rowland should purchase the goods at the marshal's sale for the lowest possible price, by B. F. Rex, Esq" of tbe St. Lows bar.
v.11,no.7-4:2
tl58
FEbEBAL BEPOBTSB.
and should then place them in the hands of Johnson, as his agent, to be sold and disposed of to the:'bl!st possible advantage; and that after the payment to Rowland of his debt and expenses the balance should be turned over to J ohnson. Accordingly an order of court was obtained for the sale of the goods, and at the sale Rowland, acting through one W. B. Moore, as his agent for that purpose, bid in the entitestock, which was sold in bulk for the sum of $4,250.
Johnson was placed in possession of the goods, and proceeded to make sales thereof from time to timr reporting to Uowland and remitting the proceeds of such sales, until the entire stock was sold and all the proceeds remitted. The contention of the complainants is that the sum realized by Rowland exceeded the amount due from Johnson to him and his expenses, and that the balance is held by Rowland in trust for Johnson, orhia creditors; angthat, Johnson being insolvent, the complainants are entitled to s}lbject the balance in his hands to the payment of their debts by the proceeding in equity!,
Rowl!J,nd. MCCRARY, C. J. The w,eight of the evidence clearly establishes that defendant D. P. Rowland, as D. P. Rowland & Co., entered into an agreement with.defendant Johnson, whereby he (Rowland) 'Woas to bid in the stock of goods at the mait'shal's sale at the lowest price possible, and was to place Johnson in charge of the stock to make$ales, and thqt after receiving from the proceeds of such sales the amount' of his debt and expenses, any balance left should go to Johnsonor his creditors. There is some testimony tending to show that improper and unlawful means were employed for the purpose of preventing competition among the ,bidders at the marshal's sale, and obtaining the goods f9r less than their value; but the view the cOUJ:t takes of the case renders it unnecessary to decide the question tllis is established by sufficient evidence. The complainants do not,' seek to set aside the' marshal's only to hold the defEmdant Rowland as a trustee for Johnson's 'creditors for the amount of any b'al. ance in his hands as the proceeds of the sales of the goods after p,aying the amount expenses, including the sum paid on his bid to pri?r ,execution creditors. To support this claim it i8,:llot :lecessary to establish, the; charge of fraud or conspiracy, and hence .improper means were employed to prenot necessary to show vent competition. We may, for the purpose of this case, assume that'therewas no impropriety in the, agreement jO,buy in the stock for as Iowa price as possible; arid to give to Johnson the benefit of any balance that might be left after paying Rowlarid'sjust claims, for it is clear that
Robert Crawford and M. Hayden Glover, for
Cohn, for complairia:nts.
BlEB
v.
BOWLAND.
65lt
such an agreement, if made and carried out, constituted Rowland a., trustee as to any Buch balance when it came into his hands. Such a transaction constitutes a secret trust. "If any secret, substantial" advantage is secured to the debtor from· the use of the property, or from its proceeds, this constitutes a secret trust." BUD;lP, Fraud. Conv. (2d Ed.) 213; Rice v. Cunnin.qham, 116 Mass. 466; Coburn v. Pickering, 3 N. Y. 415. An agreement between the purchasers at the sale and the judgment debtor that the former will allow the latter to sell the property as his agent, and to have all he can make beyond a sum agreed upon between them, undoubtedly secures an advantage to the debtor, to which a creditor may (the debtor being insolvent) inequity be sub. rogated. If it were a private sale it would be void as in fraud of the rights of creditors, (Grant V. Lewis, 14 Wis. 487,) and where the sale is public or judicial it is at least so far voidable that the creditors of the insolvent debtor may subject his beneficial interest in the property, or the proceeds thereof, before they pass into the hands of an innocent party, to the satisfaction of their just demands. A public jqdicial ground that there sale may be wholly set aside as fraudulent on has belma combination between .the purchaser and the debtor to have the property sold for less than its value in order that the debtor may derive some advantage. therefrom, "when the property or any part of it moreover is held in secret trust for the debt, or the sale is calculated to baffie creditors, for the title is ostensibly put out of the debtor and vested in the purchaser apparently for the sole use of the latter, so as to exempt it from execution, but really for the use of" the debtor.'.' Bump, Fraud. Cony. (2d Ed.) 2589; Stovall v. Farmers' Bank, 16 Miss. 305; Hawkins v. Allston, 4 Ired. Eq.137. And it seems clear th8lt if, under such.c,ircumstances, the sale may be wholly set aside as void, the other creditors may elect to let the sale stand and hold the purchaser to be a trustee for them in equity for any sum secured by him from proceeds of the sale of the property over and above the amount of his just demands. Especially is this so in a case like the present, where the agreement to give the debtor an interest in the proceeds is shown, not by circumstances alone, but by direct and positive proof. It is, however, insisted in argument that tqe arrangement by which the judgment debtor in this case to share in the proceeds of the, sale of the property was: purely VOluntary on tqe p!i>rt of R()wland, and therefore one by which he is not bound. , This conteJl-tiQn canno$ be supported. The agreement· tQat. Johnson should posl:!ession
660
FEDERAL REPORTER.
as the agent of Rowland and should sell the goods to the best possible advantage of both parties, especially in the absence of any agreement as to his compensation, was a sufficient consideration for Rowland's promise to give Johnson the interest in question, to say nothing abbut the latter's promise to aid in the effort to secure the sale of the goods at the lowest possible price. It is also contended that the plaintiffs have no right of action because the sale and conveyance were by the marshal, and there was no deed direct from the debtor to Rowland. But it is the duty of a court of equity to look beyond the form of the transaction and into the substance. It does not help the matter to show that the sale was in form a judicial sale and not a sale by the debtor, if it appears with sufficient clea.rness that notwithstanding this -mode of conveyance a substantial interest in the property was, by collusion or con· nivance, or by agreement, retained in the judgment debtor. Bump, Fraud. Ed.) 2578, and cases cited. The conclusion drawn from the,se considerations must be that tbe complainalits are entitled to any sum remaining in the hands of defendant Rowland, as proceeds of the sale of the stock of goods in question, over and above the sum of his own debt against Johnson,. together with his properexpenditllres in connection with the DlIanagement and sale of the stock and the sum paid: to the marshal in satisfaction of his bid. ' , It only remains to determine the principles upon wbichtbe account is to be stated, for the purpose of determining whether any, and if any, what, balance remains in the hands of defendant Rowland for which he may be charged as trustee. And ,here: arises the most important ques'tion in the eaSe : Is defendant Rowland estopped to claim, as against Johnson or the complainants"any snm over and above the amount of his judgment against J.ohrison on account of the transactions embraced' within suit in which' said judgment wttisrendered?' In ren'dering his Mconnt to ,JQbuson the defendant Rowland disregards the judgment, or at least. does not recognize it as a settlemimt of 8111 demands down to its date. " Two accounts a:rerendered"':-oheto Mr. Johnson; running down:to the date of the sale by the marshal, and the other with ning from' the date of the sale down to the sale of the last of the goods and thetemittal or the proceeds. : 'It appears Rom the evidence. ;th8lt Rowland's claim against JonnsonWa'Bfor: and on account, of lll{)ftey advanced from time 'to ·time upon cotton shipped by J.obneoo',to Rowland, an'dreceived by the latter as a commission. merchant at. St.
BIES V. BOWLA.ND·
661
...louis. At the time of Johnson's failure Rowland made ont his ,tccount against him for the purpose of bringing suit against him by attachment. In that account he charged him with all the advances up to the date of the commencement of the suit, and gave him credit for all sales of cotton made prior to that date, and then, to close the account, gave him credit for 211 bales of cotton on hand, at market value,-$9,073,-leaving as net balance due Rowland from Johnson $3,060.90, for which suit was brought. The complaint in the attachment suit, which was sworn to, exhibits this account as a true and itemized statement of the debt due from Johnson to Rowland. By tllis proceeding the defendant Rowland elected to charge self and to credit to Johnson the cotton on hand at the time of the commencement of his suit, at the price and value stated in his count, and he is clearly estopped now to insist or claim that the cotton was· of less value than that then stated. No principle is better settled than that a judgment or decree establishes in the most conclusive manner the sum due upon the claim sued upon. The' cause of:action is 'merged into the judgment, and can never again become the· basis of any claim against the defendant in the judgment. The', originalclaitrl hilts) by being sued upon and merged into the judgment,' lost its vitality and expended its force and :effect. ."All its power to: sustain rights and enforce liabilities has terminated iIi the judgment or decree." Freem. J udgm. c. 2, p. 180 etseq., and authorities there cited. Theeourt is clearly of the opinion that as between complainants and defendant' .an' account must be based upon' the' conclusiveness of the judgment in'the attii'chment suit, and upon the to claim anysuJll on account of the theory that transactions embraced within the account sued upon in that case over ltnd. ab9ve the amount of the judgment, inte.rea'ti, and costs. ':,., " ,:,_1 ····.:1 .. ' ;" " . The balance of cotton relllaining in. t)1ehands of Rowland when he commenced his .attachment Buit became his property and must be' so treated. Ariother a.s follows: . The, rec;rd shows that'the stock of goods was Bold to Rowland. for. $4;250;; being ,bid 'off for him by his agent, W. B. Moore, and that out of said sum the propercos,ts of the were paid. It eyidence that 'Moore por'ted'toRowland that had'bough£.the'!itiJekroi' $4:250 and $525, and he therefore drew upon Rowland two seperate dl'a,fti:l, 'one {of' $4,261.65 and the .other for $507.50. Thes6 ·drafts were paid i
ne
661 Rowland and chllorged to lohnson.It is now insisted that the smaller draft was improperly paid, or, at all events, improperly charged to Johnson. It is apparent that Moore drew the smaller draft for a sum in addition to the amount bid for the stock of goods. For what object the money was drawn does not appear, and it is somewhat remarkable that neither party saw fit to Moore while upon the witness stand with reference to this item. As Rowland, through his agent, Moore, expended the sum of $507.50 and assumed the right to charge it to Johnson, and as it clearly appears that it was noi paid in satisfaction ·of the bid, it was the duty of Rowland to show by the proof that it was a proper charge against Johnson, and since he has failed to do so it cannot be allowed. The other disputed items in the accounts of Rowland against Johnson seem to have been legit. imate expenditures in connection with the management, care, preservation, and sale of the stock of goods, and they will therefore be allowed. ,The case will be referred to a master to state the account from th6 evidence, and to report what, if any, balance remains in the hands of the defendant Rowland with which, in accordance with the prin-' ciples of this opinion. he should be charged as trustee for Ule oomplainants as creditol's of defendant lohnson.
Ou.lCB1'1'.l
&
MIssISSIPPI
Rmm PAOltBT Co. ". EST.lTII others, Wharf Lessees.April, 1882.)
o.
AIED and
(lNrcuie Gout", /l. D. LouUiaM, PRJlLnmU.:RY IN.roNCTI05.
To decide whether the rate of wharfage tlxed by ordinance of the city of New .Orleans is or is not greater than a fair and reasonable compensation for the use of the city's. whar:ves, the evidence 8ubmItted with a rule for a preliminary injunction must enable the court to say, as a matter of fact, that such greater charge is made against the particular veBBels of thecomplainani. U the evidence does Dot do this the preliminary injunction will W refused. lAathttrl v. AiUA, 9 FBD. RBl". 679, followed.
In Equity. On a motion for a preliminary injunction restraining the eollectiOD. of 'wharfage dues. -Reported by Joseph P. Hornor, Esq'l...0f the New Orlean8 bar. Bee 16 Fed. Rep. 890, and 7 Sup. Ct. .tI.ep. llO7.