RICE et al. v. ADLER-GOLDMAN COMMISSION CO.1

(Circuit Court of Appeals, Eighth Circuit.

No. 644.

December 2, 1895.)

1. JUDGMENT-Collateral ATTACK-JURISDICTIONAL AVERMENTS.

A judgment rendered in a federal court cannot be collaterally attacked because the jurisdictional averment as to the citizenship of plaintiff was insufficient.

& PREFERENCE BY DEBTOR-VALIDITY.

In the absence of a bankrupt or insolvent law, a debtor may lawfully pay one creditor to the exclusion of the others, by consenting to a judgment in his favor; and the fact that the preference is accomplished quickly or secretly, in order to prevent interference, is immaterial. & INTERVENTION IN ATTACHMENT PROCEEDINGS-RIGHTS OF INTERVENER.

Sand. & H. Dig. § 372, authorizing any persons, before the sale of attached property, or before payment to the plaintiff of the proceeds thereof, to dispute the validity of the attachment, or state a claim to the property, does not allow one so intervening to contest the grounds of the attachment, whether they are confessed or denied by the defendant in the attachment.

▲ FOLLOWING STATE DECISION-ATTACHMENT LAWS.

The decisions of the supreme court of the state construing and applying its attachment laws are rules of decision in the federal courts in like cases coming from that state.

In Error to the Circuit Court of the United States for the Eastern District of Arkansas.

The defendant in error, the Adler-Goldman Commission Company, on the 13th of November, 1894, brought an action in the United States court for the Eastern district of Arkansas against J. Loewen on a promissory note for $4,735.83, and caused an attachment to issue in the action, which was levied on Loewen's property; and on the 11th day of December, 1894, judgment was rendered in the action, by default, for $5,126.28 and costs, and the attachment was sustained. On the 25th of January, 1895, the plaintiffs in error, Rice, Stix & Co., filed in the United States circuit court their petition of intervention; stating, in substance, that they had sued out a writ of attachment in a suit instituted by them in the state court against the same J. Loewen, which had been levied on the same stock of goods levied upon by the marshal at the suit of the defendant in error. The interveners asked to have the attachment in favor of the defendant in error set aside upon three grounds: (1) That the United States circuit court had no jurisdiction to render a judgment in the action brought against Loewen by the defendant in error, because the plaintiff therein was a foreign corporation, and had not complied with the laws of Arkansas to enable it to do business in that state; (2) that the jurisdictional averments in the complaint in the action were not sufficient, either as to the citizenship of the parties or the amount in controversy, to give the court jurisdiction; (3) that the attachment was sued out by agreement between the defendant in error and Loewen, and that the grounds of attachment set out in the affidavit upon which it was issued were not true. A demurrer was sustained to the second and third paragraphs of the intervening petition, and upon a trial the court found the issue of fact on the first paragraph against the plaintiffs in error, and dismissed their petition, and thereupon they sued out this writ of error.

Geo. H. Sanders, for plaintiffs in error.

U. M. Rose, W. E. Hemingway, and G. B. Rose, for defendant in

error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges. i Rehearing denied February 3, 1896.

CALDWELL, Circuit Judge, after stating the case as above, delivered the opinion of the court.

The issue of fact arising upon the first paragraph of the intervening petition was tried by the court, and found against the petitionThis finding is conclusive.

ers.

The demurrer to the second and third paragraphs was properly sustained. The complaint in the action brought by the defendant in error against Loewen shows the amount in controversy was over $5,000. Assuming, but not deciding, that the jurisdictional averment as to the citizenship of the defendant in error is technically insufficient, the validity of the judgment is not affected thereby. "If the record fails to show the facts on which the jurisdiction rests,as, for instance, that the plaintiff and defendant are citizens of different states, or, where the plaintiff sues as assignee, that his assignor might have maintained the suit,-the judgment may be reversed for error upon a direct proceeding for that purpose, but it is not void, and cannot be attacked collaterally." Skirving v. Insurance Co., 8 C. C. A. 241, 59 Fed. 742, and cases cited.

There is no suggestion in the intervening petition that Loewen, the defendant in the attachment suit, did not owe the defendant in error the sum claimed in its complaint. Fraud and collusion cannot be predicated upon the fact that a debtor consented to a judgment for a debt which he honestly owed. Nor is it a fraud for a debtor to consent to a judgment in favor of one of his creditors, and deny that favor to all others. In the absence of a bankrupt or insolvent law, a debtor may lawfully pay or secure one creditor to the exclusion of all others. The preference may be given in many ways, but most commonly it is accomplished by paying the debt in money, or by the debtor's selling or mortgaging his property to his creditor, or by confessing a judgment in favor of his creditor, followed by execution and a levy upon the debtor's property. The validity of the preference is not affected by the fact that it was accomplished quickly or secretly in order to prevent the interference of other creditors. In Arkansas it is not open to the interveners to contest the grounds of the attachment, whether they are confessed or denied by the defendant in the attachment. A statute of that state provides that:

"Any person may, before the sale of attached property, or before the payment to the plaintiff of the proceeds thereof, or of any attached debt, present his complaint, verified by oath, to the court, disputing the validity of the attachment or stating a claim to the property, or an interest or lien on it under any other attachment or otherwise, and setting forth the facts upon which such claim is founded, and his claim shall be investigated." Sand. & H. Dig. § 372.

Construing this statute, the supreme court of the state, speaking by Chief Justice Cockrill, say:

"The object of letting the second attacher into the suit of the first is declared in section 358, supra, to be to enable him to procure 'such order as may be necessary to protect his rights.' No new right is conferred upon him by the statute. but only a privilege granted of availing himself of the new and expeditious remedy provided for the protection of whatever right he may have acquired by suing out his attachment. It cannot with pro

priety be contended that the intervener is let in for the purpose of defending the suit and disputing the grounds of attachment in lieu of the defendant, although that might be an efficacious method of invalidating the attachment. That would involve the practice in manifold difficulties, and even in legal absurdities, without any nearer approach to substantial justice. Such a practice prevailed at an early day in Massachusetts, under a statute expressly conferring upon the intervener the right to defend for the defendant, whether the latter desired it or not; but it was abolished a long time ago, after condemnation by the courts in severe terms. Baird v. Williams, 19 Pick. 381. The intention to entail like evils upon our practice cannot be found in any of the provisions of the statute, and it would require a clearlyexpressed intention to induce us to conclude that such was the legislative design." Sannoner v. Jacobson, 47 Ark. 41, 14 S. W. 458.

The construction placed upon this statute by the supreme court of the state is binding on this court. "The decisions of the supreme court of the state construing and applying its attachment laws are rules of decision in this court in like cases coming from that state." People's Sav. Bank & Trust Co. v. Batchelder Egg-Case Co., 2 C. C. A. 126, 4 U. S. App. 603, 51 Fed. 130. It is needless, therefore, to inquire what the law upon the subject in other states may be. For an extended discussion and citation of authorities upon the subject, see Sannoner v. Jacobson, supra. The judgment of the circuit court is

affirmed.

HORTON v. MERCER, Receiver.

(Circuit Court of Appeals, Eighth Circuit.

No. 658.

December 2, 1895.)

1. NATIONAL BANKS-LIABILITY OF STOCKHOLDER-ESTOPPEL TO DENY OWN

ERSHIP.

Defendant purchased bank stock with his own means, held it for a year, and collected and appropriated all dividends thereon, and, when notified by the bank that the stock stood in his name on the books, gave no notice that he held it in trust for another person, but permitted the bank to deal with him as the beneficial owner, and did not tender the stock to or demand reimbursement from any other person. Held, that he was estopped to claim, after the insolvency of the bank, that he held the stock merely as trustee for another.

2. SAME-PURCHASE AS TRUSTEE.

One who purchases stock in a national bank with his own money on the suggestion of another person that the latter would buy such stock as the former "could get hold of," without being under any obligation to convey the stock to the other, is not a trustee within the meaning of Rev. St. § 5152, exempting a person holding stock as a trustee from personal liability as a stockholder.

In Error to the Circuit Court of the United States for the Dis trict of Minnesota.

H. C. Eller, for plaintiff in error.

Edmund S. Durment, for defendant in error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

THAYER, Circuit Judge. This was a suit which was brought by John T. Mercer, as receiver of the Livingston National Bank, against Hiler H. Horton, the plaintiff in error, to recover the sum of

$500, the same being the amount of an assessment upon five shares of the capital stock of the Livingston National Bank that had been duly levied and assessed by an order of the comptroller of the currency. The only question in the case is whether the circuit court erred in directing the jury, at the conclusion of the evidence, to return a verdict against the defendant, Hiler H. Horton, for the full amount of the aforesaid assessment.

The undisputed facts in evidence were substantially as follows: The Livingston National Bank was located at Livingston, Mont. A certificate for the five shares of stock in controversy was originally issued by the bank to Edward Fitzgerald, who resided at St. Paul, Minn. On June 4, 1892, Fitzgerald sold said stock to the defendant, Horton, and delivered the original certificate to the purchaser, after indorsing his name on the back thereof underneath a blank form of assignment which was printed on the back of the certificate. The by-laws of the Livingston National Bank contained a provision that "the stock of this bank shall be assignable and transferable only on the books of this bank, subject to the restrictions and provisions of the banking laws, and a transfer book shall be provided in which all assignments and transfers of the stock shall be made"; but in point of fact no transfer book was kept by the bank, except a stock-certificate book and a stock ledger. Shortly after the stock in question was sold by Fitzgerald to Horton, the following memorandum was made by the assistant cashier of the bank on the stub of the stock-certificate book from which the certificate now in question had been detached: "Transferred to Hiler H. Horton, 6-23-92.” But no entry showing the transfer of the stock was made on the stock ledger, nor was the old stock certificate exchanged for a new certificate, according to the usual custom of the bank. On July 1, 1892, and again on January 5, 1893, a dividend check was transmitted by the bank to the defendant, Horton, in a letter of the following import:

"Livingston National Bank.

"Livingston, Montana, July 1, 1892. "Inclosed please find check No. 7 for $20.00 in payment of semiannual dividend No. 1 on 5 shares of the capital stock of this bank now standing in your name on our books. Very truly, yours,

"Alan Maconochie, Asst. Cashier. "To Hiler H. Horton, Esq., St. Paul, Minn."

The checks inclosed were made payable to the order of Hiler H. Horton. They were subsequently indorsed by him, and the proceeds thereof were appropriated by him to his own use. The defendant continued to hold the stock that had been transferred to him in the manner aforesaid from June, 1892, until some time during the month of July, 1893, when the bank became insolvent. The plaintiff, John T. Mercer, was thereupon appointed receiver of the bank for the purpose of winding up its affairs and liquidating its indebtedness. Subsequently the comptroller of the currency ordered an assessment to be made upon the stockholders of the bank to the amount of $100 per share on each and every share of the capital stock of the association.

To avoid the effect of these undisputed facts, and to show that he was not liable to assessment as a shareholder, the defendant testified, in substance, as follows: That he had purchased the five shares of stock in controversy at the instance of Mr. Carey, who was at the time cashier of the Livingston National Bank. That in February or March, 1892, said Carey had authorized him to buy in any stock of the bank "he could get hold of" in St. Paul, and to draw on him for the purchase money. That thereafter, in June, 1892, he purchased the stock in question of Edward Fitzgerald, and paid him therefor the sum of $475 or $500. That he informed Carey of the purchase some time afterwards, when Carey was casually passing through St. Paul on his way east. That Carey then said to him: "It is all right. Let it run a little. Whenever you want the money, attach a draft to the stock, and send it up, and I will send the money." That he never in fact delivered the stock to Carey, or drew on him, or made a demand for the purchase money, but retained the stock in his possession, and accepted the dividends that were thereafter paid.

It admits of no doubt that the defendant became vested with the full legal title to the five shares of stock in question by the delivery to him of the stock certificate, duly indorsed by the former owner, and by the notation showing and acknowledging the transfer which was subsequently made on the books of the bank. Nothing further was necessary to be done to invest the defendant with all the rights of a stockholder, and to subject him to all the liabilities of a shareholder. It is wholly immaterial that no transfer book was kept by the bank, as its by-laws seem to have required, and that a more formal assignment of the stock was not made on the books of the corporation. The bank had due notice of the transfer, which it recognized as sufficient, both by the memorandum made on the stockcertificate book and by subsequently paying the dividends, as they were declared, to the transferee. In the case of Bank of Commerce v. Bank of Newport, 11 C. C. A. 484, 486, 63 Fed. 898, this court said: “It is very generally held, and it may be accepted as the established view, that a provision that shares of stock shall be transferable only on the books of the corporation, in person or by attorney, on the surrender of the old certificate properly indorsed, is a provision intended primarily for the benefit of the corporation to enable it to preserve an authentic record of its shareholders, and *** to deal safely and intelligently with its members in the matter of paying dividends, giving notice of corporate meetings, and in all other matters relating to the internal affairs and government of the corporation. Incidentally, no doubt, a provision of that kind is also intended to preserve a record of the ownership of stock, to which third parties may resort, when they have occasion to purchase or otherwise deal in the stock of the corporation. It has never been supposed, however, that a stipulation of that nature, whether it is contained in the charter or the by-laws, operates as a prohibition against other modes of transfer. Such provisions are merely cumulative. They provide a particular mode of transfer on which the corporation or its assignee may insist before the shareholder is released from any of his obligations as a member of the company; but, as between the shareholder and his vendee, a good title to stock may doubtless be conveyed by a simple indorsement and delivery of the certificate, or by a bill of sale, or by any other conveyance which is adequate to transfer the title to any other species of personal property."