In a suit by a stranger against a trustee to defeat the trust
altogether, the
cestui que trust is not a necessary party
if the powers or duties of the trustee with respect to the
execution of the trust are such 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 a suit in equity by an assignee in bankruptcy to set aside a
fraudulent transfer of the bankrupt's assets, this Court agrees
with the court below
Page 124 U. S. 170
that the evidence shows that the transferee had no valuable
pecuniary interest in the transferred property, and that the
transfer was made to prevent it from coming into the hands of the
assignee in bankruptcy.
Bill in equity. The case as stated by the court was as
follows:
In and prior to the year 1867, the firm of Vetterlein & Co.
-- composed of Theodore H. Vetterlein, Bernhard T. Vetterlein,
Theodore J. Vetterlein, and Charles A. Meurer, and doing business
in Philadelphia -- assisted one J. Kinsey Taylor by lending him
money and acceptances. In the summer of that year, for the security
of the firm, Taylor caused his life to be insured, the policies
taken out by him being assigned to Theodore H. Vetterlein as
security for Taylor's liability to the firm. In July, 1869, Meurer
retired from the firm, Taylor's indebtedness to it being at that
time nearly $50,000. In December, 1869, Theodore J. Vetterlein also
left the firm. The remaining partners went on with the business at
the same place, under the same name, and with the same stock of
merchandise, taken at valuation.
On or about the 18th of July, 1870, the policies -- which, under
some arrangement had been reduced in amount -- were assigned by
Theodore H. Vetterlein to Bernhard T. Vetterlein and Theodore J.
Vetterlein, as trustees for the wife and children of the
assignor.
In the District Court of the United States for the Southern
District of New York, sitting in bankruptcy, Theodore H. Vetterlein
and Bernhard T. Vetterlein were adjudged bankrupts. The
adjudication was made February 7, 1871, upon a petition of certain
creditors of the bankrupts, filed December 28, 1870.
Taylor died July 1, 1871. Due proof of his death was made by B.
T. Vetterlein and T. J. Vetterlein, and they were proceeding to
collect the insurance moneys when the present suit was brought in
the district court, August 10, 1871, by Barnes, assignee in
bankruptcy of Theodore H. Vetterlein and Bernhard T. Vetterlein,
against the bankrupts, Theodore J. Vetterlein, and the insurance
companies. The principal object of the suit was to enjoin B. T. and
T. J. Vetterlein from collecting
Page 124 U. S. 171
the amounts due on the policies. Barnes contended that as
assignee in bankruptcy, he was entitled to receive these insurance
moneys, which are less in amount than Taylor's indebtedness to the
bankrupts. His claim was sustained by the district court, and, upon
appeal to the circuit court the decree of the former court was
affirmed.
MR. JUSTICE HARLAN, after stating the facts in the foregoing
language, 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,
Page 124 U. S. 172
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,
38 U. S. 375;
Shields v.
Barrow, 17 How. 130,
58 U. S. 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,
93 U. S.
160.
In
Sears v. Hardy, 120 Mass. 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 defense 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 Paige 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
cestui que trust as well as the
trustee must be parties, especially where the object is to enforce
a claim consistent
Page 124 U. S. 173
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 33;
Irwin v. Keen,
3 Whar. 354, 355;
Therasson v. Hickok, 37 Vt. 464;
Hunt v. Weiner, 39 Ark. 76;
Winslow v. Minnesota &
Pacific Railroad Co., 4 Minn. 313, 316;
Tucker v.
Zimmerman, 61 Ga. 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.
