Dunphy v. Kleinsmith & Duer - 78 U.S. 610 (1870)
U.S. Supreme Court
Dunphy v. Kleinsmith & Duer, 78 U.S. 11 Wall. 610 610 (1870)
Dunphy v. Kleinsmith & Duer
78 U.S. (11 Wall.) 610
1. A complaint which is in form and substance such a complaint as is made in "a creditor's bill" is a case of equitable jurisdiction, and one requiring equitable relief as distinguished from legal.
2. In a territory of the United States where the systems of common law and chancery are found as separate systems, chancery can alone give relief on such a bill.
3. If a case presented by a creditor's bill is tried like a common law case -- that is to say by a jury -- and a decree is entered on the verdict as a mere conclusion of law upon the facts found, and not as the result of the chancellor's own judgment, though of his judgment aided by the finding, it is error.
4. A decree on a creditor's bill, which makes the defendant who has cooperated with the debtor responsible for damages which the creditor has suffered in consequence of the conveyance sought to be avoided, is erroneous. On such a proceeding he is liable but to account. If damages are sought against him, they should be sought by a proceeding at law.
The case was that of a creditor's bill filed by Kleinsmith, one appellee, against E. M. Dunphy, the appellant, and one Benajah Morse, surviving partner of Elkanah Morse, on behalf of himself and all other judgment creditors, to obtain satisfaction of a judgment recovered by Kleinsmith on the 12th of March, 1868, for $16,957. The bill alleged that an execution issued on the judgment was returned wholly unsatisfied, and that no part of the judgment had been paid. It then charged that on the 31st of October, 1867, Morse and his brother Elkanah (then living) executed to Dunphy a mortgage to secure the payment of $30,000 in one year from date, covering property to the amount of $70,000, including a ranch in the County of Gallatin, containing 640 acres of land, with two-thirds of the crops and all the stock thereon, embracing 225 head of cattle, and all the goods in their store at Gallatin, together with the lot and storehouse and all the book accounts and evidences of debt of E. & B. Morse. The bill stated that at the time of executing this mortgage, the Morses were largely indebted to different persons, and
charged that it was made to hinder, delay, and defraud the creditors of the firm, and was not accompanied by change of possession; but that the Morses continued in possession for several months, selling and disposing of the goods for their own benefit. It further charged that the Morses did not owe Dunphy any such amount as $30,000; did not, in fact, owe him more than $6,000 or $7,000, the balance being fictitious; and that both Dunphy and the Morses had acknowledged as much to different persons. The bill further charged that, by means of this fraudulent mortgage and fictitious debt, Dunphy had prevented the plaintiff and other judgment creditors of E. & B. Morse from collecting their just demands; that Dunphy had claimed title to the property under the mortgage, and had forbidden the sheriff to levy upon it, and that consequently the sheriff had refused to do so, and that Morse and Dunphy were engaged in disposing of the property, and that Dunphy had already got more than $30,000 therefrom. The bill prayed that the mortgage might be declared fraudulent and void; that a receiver should be appointed to hold the property, and that if what was left should not be sufficient to satisfy the complainant and other judgment creditors, Dunphy might be made personally liable for the deficiency. By an amended bill the complainant alleged that on the 3d of January, 1868, Morse executed to Dunphy an assignment of all the property embraced in the mortgage and authorized him to sell and dispose of it with due regard to his own interests and the interests of the creditors of E. & B. Morse, but that, notwithstanding the assignment, Morse still continued in possession and control of the property for several months, and to sell the same and collect the proceeds thereof, and that the assignment was fraudulent and void.
To this bill Dunphy filed an answer, insisting on the bona fides of his debt and setting forth that it consisted of $12,500 for a stock of goods sold to the Morses and $10,000 for money lent to them at the date of the mortgage, the balance being for interest to accrue during the year the mortgage had to run -- namely, one percent a month on the former
sum, and five percent a month on the latter, which was allowed by the laws of the territory. The appellee Duer recovered a judgment against Morse on the same day that Kleinsmith's was entered, failed to obtain satisfaction, and filed a petition to intervene as a co-complainant in the suit, and was admitted to intervene accordingly. The cause was put at issue and came on for trial in March, 1869.
It appeared that by an act of the Territorial Legislature of Montana, passed in December, 1867, it was declared:
"SEC. 1. That there shall be in this territory but one form of civil action for the enforcement or protection of private rights and the redress or prevention of private wrongs."
"SEC. 155. That an issue of fact shall be tried by a jury unless a jury trial is waived or a reference be ordered as provided in this act."
By another act, passed in January, 1869, it was provided:
"That in all civil cases, if three-fourths of the jurors agree upon a verdict, it shall stand and have the same force and effect as if agreed upon by the whole of the jurors."
The cause was tried in pursuance of these provisions of the territorial law. In order to present distinct issues for trial, the court framed a series of questions (twenty-two in number), and submitted them to the jury, as
"1st. Did E. & B. Morse retain possession and control and continue to dispose of the property mortgaged after the execution of their mortgage to E. M. Dunphy on the 31st day of October, 1867?"
"2d. State whether B. Morse, after the 3d day of January, 1868, continued to remain in possession of the property assigned to Dunphy, and also to exercise control over it, and to sell and dispose of it?"
"4th. Did E. & B. Morse owe E. M. Dunphy $30,000 at the time of the execution of their mortgage to him on the 31st day of October 1867? "
"9th. Did the mortgage to Dunphy prevent the collection of the judgments of Kleinsmith and Duer?"
"17th. Was the mortgage to Dunphy executed and accepted for the purpose of covering up the property of E. & B. Morse, and delaying or preventing the collection of demands found against them or either of them?"
To all these questions nine of the jury returned answers adverse to Dunphy and favorable to the complainants, and three dissented.
This verdict was rendered on the 25th of March, and accepted by the court, and on the 3d of April a decree was made which, after reciting the principal findings of the jury, proceeded as follows:
"It is therefore ordered, adjudged, and decreed that the said mortgage from E. & B. Morse to E. M. Dunphy for $30,000 be set aside as fraudulent and void and of no effect, and that the said plaintiffs recover of the said E. M. Dunphy the sum of $35,737, the amount of plaintiffs' judgments, interest, and costs, together with the costs of this action, taxed at $7,149; that the said judgments be credited by the money in the possession of the receiver in the above cause, and that plaintiffs have execution against the said Dunphy for the residue of said judgment after such credit has been entered."
This judgment was rendered in the district court for the third judicial district of the territory. It was taken to the supreme court and affirmed. An appeal was then taken to this Court.
The principal question presented by this case was whether these proceedings, conducted in the manner stated, could be sustained.
By the organic act constituting the Territory of Montana, passed by Congress May 26, 1864, section 6, the legislative power of the territory was declared to extend to all rightful subjects of legislation consistent with the Constitution of the United States and the provisions of that act. By the 9th section, provision was made for establishing various courts of the territory, namely, a supreme court, district
courts, probate courts, and justices of the peace, and it was enacted that the supreme and district courts, respectively, should possess chancery as well as common law jurisdiction. By the 13th section it was declared that the Constitution and all laws of the United States which are not locally inapplicable shall have the same force and effect within the territory as elsewhere in the United States.
These were the only provisions of the organic law which were referred to in the argument.