A court has a right to set aside its own judgment or decree,
dismissing a bill in chancery, at the same term in which the
judgment or decree was rendered, on discovering its own error in
the law or that the consent of the complainants to such dismissal
was obtained by fraud.
Page 55 U. S. 298
A verdict on an issue to try whether a sale was fraudulent,
finding the same to be fraudulent, will not he set aside on a
certificate or affidavit of some of the jurors, afterwards made as
to what they meant.
A Chancellor does not need a verdict to inform his conscience
when the answer denies fraud in the abstract, whilst it admits all
the facts and circumstances necessary to constitute it in the
concrete.
A statement of the facts is contained in the opinion of the
Court.
Page 55 U. S. 308
MR. JUSTICE GRIER delivered the opinion of the Court.
A short history of the facts of this case, extricated from the
numerous allegations of the pleadings and the mass of testimony
contained in the record, will better exhibit its merits than a more
formal abstract of the pleadings and proofs.
The appellees, who were complainants below, entered into
articles of agreement with Samuel Newell, one of the respondents
below, on the 25th of September, 1847, in which they engaged to
form a co-partnership under the form and style of William Tyack
& Co., in New York, and Stewart, Newell & Co., in
Galveston, Texas. "The nature of the business to be transacted by
said firm to be a commission, general, and auction business." The
parties each to contribute towards the capital stock the sum of
five thousand dollars within ninety days; the capital to be
augmented as the business required, Newell,
"in consideration of his expense and labor in paving the way for
the contemplated business as well as his influence in the State of
Texas, to be entitled to one-fourth of the profits, and the balance
to be equally divided between the three partners. Tyack and Murray
to take charge of the business in New York, and Newell in
Galveston."
At the time these parties entered into this contract of
partnership, their several ability to perform their agreement of
advancing capital and supporting the credit of the firm, as shown
by the pleadings and evidence, would appear to be as follows: Tyack
was worth, in all, probably twenty thousand dollars; Murray had
nothing, and owed about five thousand dollars; Newell, while
resident in Texas, "had become interested in a claim belonging to
Alexander Edgar to a league of land" on which it was supposed that
the City of Galveston was built. He had come to New York at this
time with a power of attorney from Edgar to form a stock company of
persons who were to have an interest in this litigated claim. He
had divided it into one thousand shares, to be sold at one hundred
dollars each, payable in installments. He was to have half of all
the money received for the stock, over twenty thousand dollars. A
few persons had been persuaded to subscribe for some of this stock,
and
Page 55 U. S. 309
among others, Tyack and Murray had each agreed to take a few
shares, and Tyack was appointed treasurer of the company under the
name of "The Galveston Land Company." Newell's property or capital
consisted in the anticipated profits of this speculation and some
stock in another company, called the "Wilson Joint Stock Land
Company."
The partners soon afterwards commenced business on about four or
five thousand dollars, advanced by Tyack. Murray had nothing, and
Newell's stocks would produce nothing in the market; those who had
before subscribed for it, refusing to pay, on the plea or suspicion
that it was good for nothing, as the citizens of Galveston had
probably a better title to the land than the company. Thus the
source from which Newell's capital was anticipated wholly
failed.
In the meantime, a stock of goods was purchased for the house in
Texas, costing about twenty thousand dollars, for the payment of
which Newell had drawn bills on Tyack & Co. for some seventeen
thousand dollars, which Tyack had accepted in expectation of
remittances of cotton or other produce from Texas, by Newell, to
meet the bills at maturity. The business expected to be transacted
by Tyack & Co. in New York, was the disposal of these
consignments from the Texas house of cotton and other merchandise
purchased with the funds of the firm in Texas.
In March, 1848, the acceptances in New York being near maturity
and the consignments received from Newell to meet these large
liabilities, amounting only to about eight hundred dollars, Tyack,
to avoid impending bankruptcy if possible, called together the
creditors of the firm and made a statement of its situation. In
consideration of the creditors' agreeing to give further time on
the acceptances about to mature, Tyack & Murray executed a
power of attorney to William E. Warren, an agent chosen by the
creditors, authorizing him to take possession of the property and
effects of the firm in Texas and secure them for the benefit of the
creditors. Warren was authorized by the creditors to act for them
and to collect, secure, or compromise their claims in any way he
thought best, with instructions to proceed to Texas and examine
into the state of the firm, and if it was found that there was any
probable prospect that the firm could eventually pay their debts,
to make any reasonable arrangement for that purpose and suffer
Newell to continue the business; on the contrary, if Newell could
hold out no such prospect or if he was found to be wasting the
goods of the firm and appropriating them to any other purpose than
the regular mercantile business of the firm, the agent was
instructed to get possession, by all legal means, of the
Page 55 U. S. 310
partnership assets and hold them or dispose of them in the best
manner for the interests of the creditors and all concerned.
In pursuance of this authority, Warren proceeded to Galveston.
He there found the assets in Newell's possession insufficient to
pay the debts, and that the firm was hopelessly insolvent, and
moreover that Newell had appropriated a portion of the assets of
the firm to the payment of his personal debts incurred in his land
stock speculations, and was unwilling to comply with any reasonable
terms of compromise to secure the creditors or save his partner,
Tyack, from insolvency and ruin.
Warren then instituted proceedings in the state court on behalf
of Tyack and the creditors and obtained an injunction and a writ of
seizure against Newell, on which the sheriff took possession of the
property of the firm. On 10 July, 1848, on motion of Newell's
counsel, the court for some reason set aside the injunction and
writ of seizure. The counsel for Tyack and the creditors
immediately discontinued their proceedings in the state court and
commenced proceedings in the district court of the United States.
While the bill for that purpose was being prepared and application
being made for an injunction and the appointment of a receiver
Newell and one Peter McGreal proceeded in hot haste from the
courthouse, got possession of the goods from the sheriff, and had
the following instrument of writing executed:
"Received, Galveston, July 10, from S. W. Doss, of Brazoria, the
following amounts: two thousand dollars in good notes, mortgages,
liens, and judgments, and seven thousand seven hundred and
fifty-three dollars in lands, full payment of the stock of goods,
wares, and merchandise now in our store in Galveston."
"STEWART NEWELL"
"Recap. -- Cash, $2,000; Notes, $2,000; Lands, $7,753 -- Total,
$11,753."
"In presence of John Warrin, Isaac D. Knight."
No notes, judgments, or liens were in fact assigned by McGreal
to Newell, nor any conveyances of land made, but McGreal gave his
written promise to assign and convey securities and lands to that
amount within thirty days. The production of the two thousand
dollars cash was also dispensed with, as the parties appear to have
been in too great haste to be particular. The answer of Newell
attempts to account for the cash as follows:
"This defendant states that the said first payment in cash of
$2,000, mentioned in said receipt, was secured and made to this
defendant by Peter McGreal, Esq., the agent of said Doss; that a
portion of said sum of $2,000, to-wit, about $1,200, was paid by
the said McGreal, agent as aforesaid, to Benjamin C.
Page 55 U. S. 311
Franklin, Joseph A. Swett, and John B. Jones, in pursuance of
and in accordance with an order given by this defendant to said
McGreal for that purpose; that forty-two dollars and fifty cents
were paid upon the order of this defendant to J. A. Sauters for
rent of said store due by said firm; and the balance, to-wit, about
seven hundred and fifty dollars, was directed by this defendant to
be paid over or secured to Isaac D. Knight, to be by him held to
the use of the firm of S. N. & Co., to be paid over for the
said use upon the order of this defendant in like manner as the
said book debts and other choses in action assigned to said
Franklin, as above mentioned."
What right Franklin, Swett, and Jones had to receive this money,
or how or why it was paid to them, if it was paid, or how Knight,
the brother-in-law of Newell, became a trustee for the creditors of
the firm the answer does not disclose.
McGreal appears also to have treated Newell with the same
unbounded confidence which Newell had reposed in him. He took the
goods on trust as to quantity and quality, required no invoice or
schedule, being content with one which the sheriff had made, and
immediately commenced to pack them up and seek for assistance and
means for carrying them off. The transaction commenced after twelve
o'clock in the day, and by twelve o'clock at night, a large portion
of the goods were put on board the sloop
Alamo, which set
sail before morning. In the meantime, the bill in this case had
been filed and a receiver appointed, who, on the following day,
11th July, was enabled by means of a writ of assistance to arrest
the sloop and get possession of the goods.
It is unnecessary to enumerate all the charges of the bill, and
the answers thereto, as it is amply sufficient for the purposes of
the decision in this case that the facts we have already stated
were either admitted by the answers or undeniably proved.
The plaintiff in error, Stephen W. Doss, who claims to be the
owner of the goods thus alleged to have been purchased by Peter
McGreal was made a party to the suit. Both he and Newell deny in
their answer all fraud in the transaction, and Doss avers
"that the said transaction was made in the regular mode of
conducting such business and at a time when there was no lawful
restraint existing to prevent the sale and delivery of the
goods."
On this case, the court below, at the March term, 1850, rendered
a decree for the complainants dissolving the partnership, setting
aside the sale to McGreal or Doss as fraudulent, and ordering the
receiver to pay over the proceeds of the goods which had been
previously sold by order of the court to the creditors of the
firm.
Page 55 U. S. 312
But in order rightly to apprehend the points relied on by the
counsel for appellants in claiming a reversal of the decree, it
will be necessary to state some of the intermediate proceedings in
the case as exhibited by the record. During the pendency of the
suit, Newell and McGreal had gone to New York and persuaded Tyack
& Murray to revoke the power of attorney given to Warren and to
execute one to the respondents' counsel authorizing them to dismiss
the bill, and a motion was made by them for this purpose in August,
1848. This motion was resisted on the ground that the firm was
wholly insolvent; that the power to Warren was given on a contract
with the creditors and for a valuable consideration, and was
therefore irrevocable, as it would be a fraud in Tyack to dismiss
the proceedings for the benefit of the creditors after the great
trouble and expense incurred by them for the purpose of protecting
Tyack from ruin. Notwithstanding these objections, the court
ordered the suit to be dismissed, but, some days after at the same
term, vacated and set aside this order or decree on proof that the
revocation of the power to Warren and the order given to
discontinue or dismiss the proceedings were obtained from the
complainants by gross misrepresentation and fraud. Afterwards an
issue was ordered on prayer of respondents' counsel to try the
question of fraud. This issue was tried before a jury, which
rendered a verdict that "the sale was fraudulent." Whereupon, the
respondents moved for a new trial on the ground that the verdict
was given "under a misconstruction and misunderstanding of the
charge of the court." This motion was founded on an affidavit of
some of the jurors that
"on their retirement they did not inquire into the right and
power of Doss to purchase, nor of the question of fraud on Doss'
part, but only into the right and power of Newell to make the
sale."
We are now prepared to examine the points relied upon for the
reversal of this decree.
They are 1st, that the court had no power to set aside the order
or decree dismissing the bill unless, on a new and original bill
filed for the purpose; 2d, that on this certificate of the jury the
court should have granted a new trial on the question of fraud.
1. As regards the first point, we perceive no error in the
action of the court except in their first order dismissing the
suit. It did not require an original bill to authorize the court to
vacate an order or decree at the same term in which it was made on
discovering that they have committed an error or that the consent
of the complainants to such dismissal was obtained by the fraud of
the respondents, or their agents. In fact, under
Page 55 U. S. 313
such circumstances, it cannot be said that the act was done by
the consent or will of the complainants at all. The court, in
vacating the decree, was correcting an error both of fact and of
law, and during the term at which it was rendered, it had full
power to amend, correct, or vacate it for either of these
reasons.
2. The second point is equally without foundation. It is true
that the answers of the respondents denied fraud in the abstract,
but they admitted all the facts and circumstances necessary to
constitute it in the concrete. The general denial of the answer
only showed that the definition of fraud was much narrower in the
estimation of the respondents than in that of courts of law and
equity. In this case, a verdict was wholly unnecessary to inform
the conscience of the chancellor, and the verdict being perfectly
correct, the court very properly refused to set it aside on any
representation from jurors thus obtained.
Any argument to vindicate the correctness of the verdict and the
decree of the court below after the exhibition of the merits of
this case which we have given would be entirely superfluous.
The decree of the district court of Texas is therefore
"
Affirmed."
Order
This cause came on to be heard on the transcript of the record
from the District Court of the United States for the District of
Texas and was argued by counsel. On consideration whereof it is now
here ordered adjudged and decreed by this Court that the decree of
the said district court in this cause be and the same is hereby
affirmed, with costs.