In July, 1895, Harold F. Hadden and James E. S. Hadden brought
an action in the New York Supreme Court for the City and County of
New York against the Natchaug Silk Company, Michael F. Dooley,
personally and as receiver of the First National Bank of
Willimantic, John A. Pangburn, and others, including William I.
Buttling, Sheriff of Kings County. The complaint alleged certain
fraudulent and collusive proceedings between the Natchaug Silk
Company, Dooley, receiver of the First National Bank of
Willimantic, and John A. Pangburn, and, under a prayer of the bill,
an injunction
pendente lite was granted restraining the
Sheriff of Kings County from selling property of the silk company
in his possession as sheriff upon executions against said company
in favor of John A. Pangburn or Dooley, as receiver, and
restraining Pangburn and Dooley from further proceedings at law
against the property of the silk company in the New York. The
action was removed to the Circuit Court of the United States for
the Southern District of New York, and repeated motions to dissolve
the temporary injunction were there made and denied, and the order
of the circuit court denying the motions was, on appeal, affirmed
by the circuit court of appeals. Subsequently, the taking of
testimony in the case having been closed, the defendants Dooley and
Pangburn made another motion, upon the plenary proofs, to dissolve
the injunction, and this motion was granted, after hearing, by
Circuit Judge Lacombe, on November 27, 1896. The case came to final
hearing in the circuit court, and resulted in the decree dismissing
the bill on January 27, 1898. Upon appeal by the complainants, the
circuit court of appeals reversed the decree in part and affirmed
it in part. From this decree of the circuit court of appeals the
complainants appealed to this Court on the ground that the decree
should have adjudged to the complainants priority of lien on all
the goods in dispute, and the defendants appealed on the ground
that the circuit court of appeals erred in reversing tile decree of
the circuit court. The facts, as stated in the opinion of Circuit
Judge Shipman, were substantially these: on April 23, 1895, the
Natchaug Silk Company, a Connecticut corporation, owed the First
National Bank of Willimantic, a national banking association
located in Connecticut, over $300,000, and was entirely insolvent.
In consequence of this indebtedness, the bank suspended, and
Michael F. Dooley
Page 179 U. S. 647
was appointed its receiver on April 28, 1895, by the Comptroller
of the Currency. On April 23, 1895, J. D. Chaffee, as president and
general manager of the silk company, in consideration of and to
reduce this indebtedness, sold to the bank 107 cases of
manufactured silk, the value of which cannot be accurately
ascertained, but which is said to be about $20,000. They were then,
or had been, shipped to New York, where they were subsequently
taken by Dooley into his possession and removed to Brooklyn. On May
8, 1895, he, as receiver, attached the goods by attachment, which
was subsequently dissolved. On May 30, 1895, he sold and assigned
to Pangburn, who is a resident of the State of New York, notes of
the silk company, not paid by this transfer, amounting to about
$67,000 for the nominal consideration of $200, which sale Dooley
made by virtue of an order of the Circuit Court of the Southern
District of New York, with the approval of the Comptroller of the
Currency, for the purpose of enabling a suit to be brought in the
New York, by a resident of that state, in his own name, against the
silk company, a foreign corporation. Pangburn did bring suit on
said notes against the silk company on June 1, 1895, in the proper
state court, and obtained an order of attachment, a judgment for
the full amount thereof, and an execution which was levied by the
Sheriff of King's County upon these cases of silk. The sale was
stopped by this injunction order. On June 6, 1895, the
complainants, who are creditors of the silk company to the amount
of about $22,000, brought suit against it in a court of the New
York and obtained an order of attachment under which the Sheriff of
Kings County levied an attachment upon the same silk. On July 2,
1895, the complainants brought a bill in equity, upon which the
injunction order in question in this suit was issued.
Held
that the decree of the circuit court of appeals, insofar as it
reversed the decree of the Circuit Court, should be reversed, and
the decree of the circuit court dismissing the bill of complaint
should be affirmed.
In July, 1895, Harold F. Hadden and James E. S. Hadden brought
an action in the New York Supreme Court for the City and County of
New York, against the Natchaug Silk Company, Michael F. Dooley,
personally and as receiver of the First National Bank of
Willimantic, John A. Pangburn, and others, including William I.
Buttling, Sheriff of Kings County. The complaint alleged certain
fraudulent and collusive proceedings between the Natchaug Silk
Company, Dooley, receiver of the First National Bank of
Willimantic, and John A. Pangburn, and, under a prayer of the bill,
an injunction
pendente lite was granted restraining the
Sheriff of Kings County from selling property of the silk company
in his possession as sheriff upon executions against said company
in favor of John A. Pangburn
Page 179 U. S. 648
or Dooley, as receiver, and restraining Pangburn and Dooley from
further proceedings at law against the property of the silk company
in the State of New York.
The action was removed to the Circuit Court of the United States
for the Southern District of New York, and repeated motions made to
dissolve the temporary injunction made to dissolve the temporary
injunction were made and denied, and the order of the circuit court
denying the motions was, on appeal, affirmed by the circuit court
of appeals. 74 F. 429.
Subsequently, the taking of testimony in the case having been
closed, the defendants Dooley and Pangburn made another motion,
upon the plenary proofs, to dissolve the injunction, and this
motion was granted, after hearing, by Circuit Judge Lacombe on
November 27, 1896.
The case came to final hearing in the circuit court, and
resulted in a decree dismissing the bill on January 27, 1898.
Upon appeal by the complainants, the circuit court of appeals
reversed the decree in part and affirmed it in part. From this
decree of the circuit court of appeals, the complainants have
appealed to this Court on the ground that the decree should have
been adjudged to the complainants' priority of lien on all the
goods in dispute, and the defendants have appealed on the ground
that the circuit court of appeals erred in reversing the decree of
the circuit court.
The facts, as stated in the opinion of Circuit Judge Shipman,
were substantially these:
On April 23, 1895, the Natchaug Silk Company, a Connecticut
corporation, owed the First National Bank of Willimantic, a
national banking association located in Connecticut, over $300,000,
and was entirely insolvent. In consequence of this indebtedness,
the bank suspended, and Michael F. Dooley was appointed its
receiver on April 26, 1895, by the Comptroller of the Currency. On
April 23, 1895, J. D. Chaffee, as president and general manager of
the silk company, in consideration of and to reduce this
indebtedness, sold to the bank 107 cases of manufactured silk, the
value of which cannot be accurately ascertained, but which is said
to be about $20,000. They were then, or had been, shipped to New
York City, where they were
Page 179 U. S. 649
subsequently taken by Dooley into his possession and removed to
Brooklyn. On May 8, 1895, he as receiver attached the goods by an
attachment, which was subsequently dissolved. On May 30, 1895, he
sold and assigned to Pangburn, who is a resident of the State of
New York, notes of the silk company, not paid by this transfer,
amounting to about $67,000 for the nominal consideration of $200,
which sale Dooley made by virtue of an order of the Circuit Court
of the Southern District of New York, with the approval of the
Comptroller of the Currency, for the purpose of enabling a suit to
be brought in the State of New York by a resident of that state, in
his own name, against the silk company, a foreign corporation.
Pangburn did bring suit on said notes against the silk company on
June 1, 1895, in the proper state court, obtained an order of
attachment, a judgment for the full amount thereof, and an
execution, which was levied by the Sheriff of Kings County upon
these cases of silk. The sale was stopped by this injunction
order.
On June 6, 1895, the complainants, who are creditors of the silk
company to the amount of about $22,000, brought suit against it in
a court of the State of New York and obtained an order of
attachment under which the Sheriff of Kings County levied an
attachment upon the same silk.
On July 2, 1895, the complainants brought a bill in equity upon
which the injunction order now in question was issued against
Dooley, Pangburn, the silk company, and others, alleging that all
their acts in connection with the silk were fraudulent, and praying
for relief by injunction and otherwise.
It thus appears that the bank and the complainants are creditors
of the silk company, and that Dooley, as receiver of the bank, and
the complainants are each striving to obtain a hold upon the silk
as a means of payment for their respective debts.
Page 179 U. S. 650
MR. JUSTICE SHIRAS delivered the opinion of the Court.
Whether Chaffee, as president and general manager of the silk
company, had authority to sell a large portion of the personal
property of the company to one of its creditors in part payment of
its debt, and whether his action, if regarded as unauthorized, was
ratified by the directors of the company were questions much
discussed in the courts below, and which occupy a large part of the
briefs of counsel filed in this Court, but which, in the view that
we take of the case, need not be considered by us.
In both the circuit court and the circuit court of appeals, it
was held, upon all the facts, that the notes of the silk company
held by Dooley, as receiver of the First National Bank of
Willimantic, were valid obligations of the silk company; that the
sale of these notes by Dooley, as receiver, to Pangburn, under the
order of the circuit court with the approval of the Comptroller of
the Currency, vested a good title in Pangburn, and that the
judgment therein obtained, on June 27, 1895, in the Supreme Court
of the State of New York, in favor of Pangburn was a valid
judgment.
What remained to consider was the validity of the warrant of
attachment issued and served in favor of Pangburn on June 3, 1895,
and of the execution levied on the attached property on June 27,
1895, as against the attachment issued on June 6, 1895, upon the
property obtained by the complainants Hadden under their suit
brought in the Supreme Court of the State of New York.
The circuit court was of opinion that the validity of the notes,
of their sale to Pangburn, and of the judgment thereon having been
established, there was nothing in the evidence on behalf of the
Haddens, as subsequent attaching creditors, which would justify the
court in postponing the prior attachments and judgment of Pangburn,
in whole or in part, and accordingly, on January 28, 1898, that
court rendered a decree on the merits of the case, dismissing the
bill of complaint.
As already stated, the court of appeals concurred with the
Page 179 U. S. 651
circuit court in holding that the notes and their sale to
Pangburn were valid, and that his judgment and attachment of the
goods were valid as against the silk company, but, for reasons
which we shall presently state and consider, that court was of
opinion that, while as to some of the goods the attachment and
execution of Pangburn could not be disturbed, yet as to certain
other parcels of the goods, the attachment of the complainants was
equitably entitled to preference over that of Pangburn, and
accordingly rendered the decree from which both parties have
appealed.
The facts upon which the court of appeals proceeded were not in
dispute, and were substantially as follows:
The goods in question consisted of 107 cases of silk. They had
been shipped at different times in April, 1895, to D. E. Adams
& Company, 77 Greene Street, New York. Adams was a silk
merchant who occupied a store at that number, and from him the silk
company leased a part of the store, where it transacted its New
York business through John H. Thompson, who also was an employee of
Adams, its manager. On April 15, 16, 17, and 19, Fenton, the
secretary of the silk company, by direction of Chaffee, sent by
railroad forty-three cases of silk goods directed to D. E. Adams
& Company. On April 22, Chaffee went to Boston and sent all the
silk company's goods in the Boston office, being eighteen cases and
a package, to Adams & Company. There were forty-five cases of
the silk company's goods in the Adams store before these April
shipments from Willimantic and Boston. On May 2, 1895, the
sixty-two boxes of goods shipped from Willimantic and Boston to
Greene Street were removed by Mr. Paige, counsel for Dooley,
receiver, and were stored in Paige's name in the storehouse of F.
C. Linde & Company, in New York City, and on May 18, 1895, were
removed by Mr. Paige to the Brooklyn Storage Warehouse Company in
Brooklyn, and were there stored in his name. On May 18, Paige, as
attorney for Dooley, as receiver, commenced suit against the silk
company in the Supreme Court of New York, and attached the
sixty-two cases in the Brooklyn warehouse as the goods of the silk
company. On May 25, forty-five boxes of silk goods were removed
from the Greene Street store
Page 179 U. S. 652
by Paige's orders, and placed in his name in the Brooklyn
warehouse, and soon after were attached by his direction in the
Dooley suit. On May 21, Hadden & Company, the complainants,
brought suit in the Supreme Court of New York against the silk
company, to recover a debt of some $23,000. A warrant of attachment
was served on Thompson, but the sheriff refused to take the goods
in the Greene Street store until a bond of indemnity was given to
protect him. This was subsequently furnished, but in the meantime,
on May 25, the goods went to Brooklyn. On June 6, 1895, the goods
in the Brooklyn warehouse were attached by Hadden & Company,
who obtained judgment against the silk company on June 26, for
$22,948, and execution therefor was issued and levied on the goods
in the Brooklyn warehouse. The Dooley attachment was vacated on
June 27, 1895, on the application of Hadden & Company, because
the suit of a nonresident against a foreign corporation was
forbidden by ยง 1780 of the Code of Civil Procedure. In the
meantime, as previously stated, Pangburn, in his suit against the
silk company, had issued an attachment on June 1, 1895, which was
levied on June 3 on the goods in Brooklyn, and had obtained on June
24, 1895, a judgment for $67,116, and an execution was levied upon
the attached property.
In this state of facts, Circuit Judge Shipman reasoned as
follows:
"The 107 cases which were originally in the care of Thompson in
Greene Street, as the bank's goods, went to Brooklyn, although the
exact number which went there on May 25 is not clearly stated in
the record. While creditors were inquiring with a sheriff at Greene
Street in regard to these goods for the purpose of attachment, they
were removed from place to place by the order of Dooley's counsel,
were stored in his name, and were attached in the suit of the bank
against the silk company by his direction. The attempted attachment
by the complainants of the forty-five cases in Greene Street was
prevented by their removal to Brooklyn. The counsel for Dooley
distrusted the validity of the bills of sale [made by the silk
company's president and manager to the bank], and desired to secure
the
Page 179 U. S. 653
bank by aid of legal proceedings. The receiver of the bank had
an equal right with other creditors to take legal steps to secure
its debt, but had no right to take unfair steps. The removal of the
forty-five cases to Brooklyn and the storage of the property in the
name of Mr. Paige, so that it could be in a measure secreted for
the purpose of preventing the complainants from completing their
attachment of these cases, was an unfair step. Hadden & Company
first appeared as attaching creditors on May 21. At this time,
sixty-two boxes had been attached in the Dooley suit, and
forty-five were in Greene Street. The removal of these boxes after
May 21 to prevent the completion of the Hadden & Company
attachment was an unfair advantage in this race between creditors,
and compels a court of equity to declare that the complainants
should have a prior lien upon the cases which were in Greene Street
when the sheriff's bond was being prepared. There is no apparent
equity in giving priority to their attachment upon 107 cases, but
they are entitled only to a prior lien upon the goods which they
attempted to attach -- an attempt the success of which was foiled
by a removal of the goods."
Circuit Judge Wallace filed a concurring opinion in which occur
the following observations:
"The case resolves itself into a question of priority of liens
between judgment creditors of the Natchaug Silk Company having
executions levied upon 107 boxes of silk in the storehouse of the
Brooklyn Storage & Warehouse Company, and its decision depends
upon the priority of the liens acquired by the attachments in the
actions in which the judgments were recovered. . . . Of these
goods, forty-five boxes were removed by Dooley, the receiver of the
Willimantic bank and stored in Brooklyn clandestinely for the
purpose of defeating a levy upon them under the attachment in the
complainants' action until Dooley could procure an attachment and
levy upon them through the instrumentality of Pangburn. A creditor
having property of a debtor in his possession or under his control
cannot thus defeat the rights of another creditor who has been in
the meantime using proper diligence to attach it. A race of
diligence between creditors is legitimate, but it cannot be won
Page 179 U. S. 654
by the abuse of legal remedies. I cannot doubt that the
complainants could recover of Dooley in an action on the case for
his acts in frustrating their attempted levy. A court of equity
under such circumstances should postpone his lien to theirs.
Because the attachment in the Pangburn suit was valid, its lien
cannot be displaced in favor of the complainants as respects the
goods removed before their attachment was obtained. The theory that
the lien of Dooley, as receiver of the bank, should be postponed to
that of the complainants, because of a conspiracy between the bank
and the silk company to defraud the complainants and other
creditors, is too nebulous upon the proofs for practical
consideration."
As the efforts of the complainants to defeat the claims of
Dooley, receiver, and of Pangburn, on the grounds that the notes of
the silk company held by the Willimantic bank were invalid, and
that their liens, by attachment or execution or otherwise, were
fraudulent and void because of a conspiracy between the bank and
the silk company to defraud the complainants and other creditors,
wholly failed in both the courts below, we do not consider it
necessary to review the voluminous evidence upon which those courts
acted, but think it sufficient to say that we perceive no error in
their conclusions on those subjects.
It remains for us to consider whether the circuit court of
appeals was right in holding that the attachment and levy of
Pangburn on the forty-five boxes of silk should be postponed in
favor of the subsequent levy of the complainants.
It may well be questioned whether, upon the pleadings, that was
an open question.
The only allegation touching the custody of the goods and their
removal from one place to another contained in the original bill
was as follows:
"That on the 23d day of April, Chaffee (the president and
manager of the silk company) illegally and fraudulently, and
without any authority of the board of directors of said Natchaug
Silk Company, and with full knowledge of the insolvency of the
company as aforesaid, executed a paper purporting to be a bill of
sale of all the goods belonging to the Natchaug Silk Company in New
York City to said Michael F. Dooley, receiver
Page 179 U. S. 655
of the First National Bank of Willimantic; that said assignment
or transfer was wholly without consideration; it was made to
hinder, delay, and defraud creditors, and particularly these
plaintiffs, and was and is wholly illegal and void."
"That said Dooley, without lawful right or title, took
possession of said goods and secretly removed part thereof first,
to a storehouse in New York City and later to the storehouse of the
Brooklyn Storage & Warehouse Company in Brooklyn, in the County
of Kings; that, on the 25th day of May, said Dooley secretly
removed the remaining boxes of silks to the said storehouse of the
Brooklyn Storage & Warehouse Company, where all of said silks,
to the number of 107 boxes, were placed in the name of the attorney
of said Dooley."
As those portions of the allegations that assert that there was
no consideration for the sale and transfer of the goods to Dooley,
receiver, and that it was made to hinder and defraud creditors have
been eliminated from consideration, there remains only the
allegation that Dooley took possession of the goods and secretly
removed them to the Brooklyn storehouse, and there placed them in
the name of his attorney.
As the purpose and theory of the bill was to defeat the Pangburn
judgment and execution because without consideration and fraudulent
as against creditors, it is evident that the allegations respecting
Dooley's possession and removal of the goods had reference to the
alleged fraudulent scheme, and cannot be regarded as presenting or
raising any issue of misconduct on the part of Dooley or Pangburn
in pursuing lawful remedies against goods of the silk company in
the possession of Dooley and his attorney.
The original bill was filed on July 2, 1895. Subsequently, on
January 14, 1897, after all the proofs were in, the complainants,
with leave of court, filed an amended bill of complaint containing
more particular statements as to the alleged fraud and conspiracy
between the silk company and the bank, but omitting altogether any
allegation as to the removal by Dooley of the goods from New York
City to the storehouse in Brooklyn, and containing no allegation of
fraud or unfairness on the
Page 179 U. S. 656
part of Dooley or his attorney in the management of the Pangburn
attachment and execution. Nor does it appear in the several
opinions of the circuit court, filed from time to time during the
contest in that court, that any specific charge was made or relied
on that there had been any unfair or iniquitous practice resorted
to on the part of Dooley or Pangburn in the removal of the goods
from New York City to Brooklyn with a view to obtain an unjust
advantage.
But, passing by the fact that neither the original nor the
amended bill contained apt allegations to make an issue as to
unfair or improper conduct by Dooley or Pangburn in the prosecution
of the attachment and execution under the Pangburn judgment, and
assuming that the complainants had made such allegations, we are
unable to concur with the judges of the circuit court of appeals in
thinking that the facts shown by this record disclose a case of
practice of a character to warrant the courts to displace the
priority of the Pangburn attachment and execution in favor of those
of the complainants.
The essential facts were that the goods were in the possession
of Dooley in the City of New York. They had come into his
possession by virtue of a formal sale made by Chaffee, the
president and manager of the silk company, to Dooley, as receiver
of the Willimantic National Bank. Such sale was, indeed,
subsequently, in the proceedings in this suit, held to have been
ineffectual to pass title to the goods not because the bank was not
a
bona fide creditor of the silk company, but because the
circuit court of appeals was of opinion that Chaffee was without
authority, as president and manager, to make such sale. Hence,
although Dooley's possession could not avail to protect the goods
in his possession from attachment and seizure by creditors of the
silk company, yet such possession cannot be regarded as fraudulent
or collusive in such a sense as to deprive Dooley, as receiver of
the bank, of a right to take legal proceedings, like any other
creditor, against the goods. Suppose it be conceded that Dooley was
aware, or had reason to apprehend, that there were other creditors
of the silk company, who would pursue remedies against the goods in
his hands. Such knowledge or apprehension would not devolve upon
him, or
Page 179 U. S. 657
upon his attorney, any fiduciary relation towards such
creditors. It did not become his duty to inform them of the
whereabouts of the goods in order that they might precede him in
the race of diligence. His primary duty was to the Willimantic
National Bank and its creditors, and while the law will not permit
him to resort to fraudulent devices or to false representations in
order to delay or deceive other creditors, we are unable to agree
with the learned judges of the circuit court of appeals in thinking
that the removing of these goods from New York City to the Brooklyn
warehouse, and there storing them in the name of a third person
while awaiting the maturity of legal proceedings invalidated
Pangburn's attachment and execution. The learned judges, indeed,
speak of Dooley's conduct as being "inequitable" and "unfair" as
against the complainants. But such epithets are of very uncertain
legal significance. Where courts are dealing with parties between
whom exists a fiduciary relation, or where, if the parties are on
an equal footing, false representations are made by one party in
circumstances which give the other a right to rely upon them, the
courts may rightfully use their power to promote fair dealing, and
to defeat an abuse of legal remedies. It is not pretended in the
present case that Dooley, Pangburn, or their attorney had any
transactions with the complainants or made any false
representations or statements to them. The utmost that can be said
is that Dooley, being in actual possession of the goods under a
claim of title to them, which claim was legally unfounded, placed
them in the nominal possession of his attorney in a place known
only to himself, and was thus enabled to secure a levy on them
prior in law to that of the complainants. We do not think that a
court of equity in such circumstances should postpone his lien to
theirs.
The decree of the circuit court of appeals, insofar us it
reversed the decree of the Circuit Court, is reversed, and the
decree of the Circuit Court, dismissing the bill of complaint, is
affirmed.
