Appeal from the District Court of the United States for the Southern District of New York.
Before MANTON, SWAN, and CHASE, Circuit Judges.
Hale & Kilburn, in 1918, issued $750,000 unsecured notes under an agreement naming plaintiff trustee of the issue. The notes were in ten series of $75,000 each maturing annually from July 1, 1922, until July 1, 1931. In 1920, Hale & Kilburn, in consideration of the issue to it of stock of the transferee, conveyed all its assets to the American Motor Body Company, which assumed the obligation of the notes remaining unpaid. In 1923, the Body Company effected a reorganization by the organization of the American Motor Body Corporation and the sale to it of all its assets for cash, stock, bonds, and notes of the Body Corporation and the assumption of the balance of Hale & Kilburn's notes. The Body Company then reduced its capital to $2,000 and distributed all the cash and securities that it received from the Body Corporation except $2,000, face value of demand notes of the Body Corporation to its stockholders. Hale & Kilburn and the impleaded defendants, American Can Company, Chase Securities Corporation, and the Shermar Corporation, as well as Blair & Co. to whose liabilities Bancamerica-Blair is alleged to have succeeded, all were stockholders of the American Body Company, who thus divided the consideration paid for the assets of Body Company and each received cash and securities of a value greater than the Body Company's entire outstanding obligation on the notes. The greater part of these securities were paid off in cash before receivers were appointed for Body Corporation May 6, 1931.
When this distribution amongst the stockholders was made, they agreed with each other to share all liability, loss, cost, and damage that might arise by reason of it, and that "if any action be brought or any judgment recovered," against one or more of them as a result of the "reorganization," they would "contribute for * * * payment or satisfaction of any such judgment" amounts proportionate to the shares of Class A stock held by each of them.
Defaults in the notes occurred, tock held by each of them.
Defaults in the notes occured, and on January 30, 1931, plaintiff declared due all the notes outstanding -- $189,000 in principal amount. May 15, 1931, plaintiff recovered a default judgment against Body Company in Delaware for $212,561.37, being the amount of the notes, interest, and costs. An execution issued and was returned unsatisfied. Plaintiff is the only judgment creditor of Body Company.
This action at law is against Hale & Kilburn, as a stockholder of the Body Company, for money had and received upon the distribution of substantially all that company's assets, while it remained liable for the obligation it had assumed to pay the notes.
It is well settled that stockholders receiving substantially all of the corporate property of a corporation take it impressed with a trust in favor of unpaid creditors, any of whom may, to the extent of his claim, recover from any single stockholder the property so received or its value. Pierce v. United States, 255 U.S. 398, 41 S. Ct. 365, 65 L. Ed. 697; Curran v. Arkansas, 15 How. (56 U.S.) 304, 14 L. Ed. 705; Hatch v. Morosco Holding Co., 50 F.2d 138 (C.C.A. 2), cert. denied, Irving Trust Co. v. U.S., 284 U.S. 668, 52 S. Ct. 42, 76 L. Ed. 565; McWilliams v. Excelsior Coal Co., 298 F. 884 (C.C.A. 8).
It is argued that this action cannot be maintained at law because the plaintiff's case is founded on a purely equitable title which the law will not recognize. Lawrence v. Greenup, 97 F. 906 (C.C.A. 6); Garetson Lumber Co. v. Hinson, 69 Or. 605, 140 P. 633; McLean v. Eastman, 21 Hun (N.Y.) 312. See Williams v. Boice, 38 N.J. Eq. 364, 367. However, it is not an insuperable objection to the jurisdiction of a court of law that the basis of an action is a trust theory, or that a relationship of a trust character is involved. In Miller v. Steele, 153 F. 714, 720 (C.C.A. 6), an action at law was brought by a testator's promisee against the legatee, who got the entire estate. The court, answering the defendant's objection that the case lay in equity alone, said: "Where there is simply an obligation to pay a sum of money, there can be no objection to a suit at law for its recovery, notwithstanding it may have become due in consequence of trust relations." Since the court pointed out the law's increasing encroachment into fields formerly exclusively occupied by equity and analyzed the reasons why trusts, for administrative reasons, were often brought into equity, it cannot be said that the court relied on the New York statute as the appellant here contends. Roberts v. Ely, 113 N.Y. 128, 20 N.E. 606, and Empire State Surety Co. v. Nelson, 141 App. Div. 850, 126 N.Y.S. 453 (2d Dept. 1910), were successful suits at law to recover money had and received by the defendant which was impressed with a trust in plaintiff's favor. In supporting the action at law, a realistic approach was taken and the action for money had and received was allowed as an exception to the rule that trusts are cognizable and enforceable in equity only.
The doctrine of the Miller Case was reaffirmed in Warmath v. O'Daniel, 159 F. 87, 16 L.R.A.(N.S.) 414 (C.C.A. 6), and Adams v. Jones, 11 F.2d 759, 760 (C.C.A. 5), cert. denied, 271 U.S. 685, 46 S. Ct. 637, 70 L. Ed. 1151. In the Adams Case it was said: "Where there is simply an obligation to pay a sum of money held in trust, which has been definitely ascertained, and the plaintiff is either entitled to all or none of it, a bill in equity will not lie."
In the instant case, only a money judgment is sought and the case lies at law where the remedy is plain, adequate, and complete. Cf. Schoenthal v. Irving Trust Co., 287 U.S. 92, 53 S. Ct. 50, 77 L. Ed. 185; Whitehead v. Shattuck, 138 U.S. 146, 11 S. Ct. 276, 34 L. Ed. 873; Litchfield v. Ballow, 114 U.S. 190, 5 S. Ct. 820, 29 L. Ed. 132. The fact that the other stockholders have been impleaded, demonstrates that here there is no necessity to go to equity to enforce contribution. No valuation of assets need be made, since it is stipulated that the amounts received by each of the defendant stockholders exceeds the outstanding notes. The action at law may be allowed here without encountering any of the procedural difficulties which other courts have stressed. Cf. Richmond v. Irons, 121 U.S. 27, 7 S. Ct. 788, 30 L. Ed. 864; Spear v. Grant, 16 Mass. 9; Paschall v. Whitsett, 11 Ala. 472. The one difficulty seems to be the view that the law will not recognize a trust obligation. That view has been overruled by Miller v. Steel, supra. In Bartlett v. Smith, 162 Md. 478, 160 A. 440, 442, 161 A. 509, recovery from a stockholder was allowed in an action at law under similar circumstances, the court saying: "A sufficient and satisfactory ground is that money so paid after insolvency was taken from a fund held in trust for creditors and did not belong to the corporation; and it could give no title in the money it paid to one who did not receive it bona fide and for value." See, also, McDonald v. Williams, 174 U.S. 397, 403, 404, 19 S. Ct. 743, 43 L. Ed. 1022. It was noted that an action for money had and received is of wide application, almost equivalent to a bill in equity and generally "lies whenever a defendant has obtained possession of money which, in equity and good conscience, he ought not to be allowed to retain." Powers v. Heggie, 268 Mass. 233, 167 N.E. 314; Kretschmar v. Stone, 90 Miss. 375, 43 So. 177, are in accord. See, also, 12 Fletcher, Cyclopedia of Corporations (1932 Ed.) § 5429.
In Phillips v. Com'r, 283 U.S. 589, 51 S. Ct. 608, 610, 75 L. Ed. 1289, involving the validity of the summary method for the collection of corporate income taxes from stockholders receiving assets, Justice Brandeis said: "Before the enactment of section 280 (a) (1), such payment by the stockholders could be enforced only by bill in equity or action at law." The court cited, with approval, United States v. McHatton, 266 F. 602 (D.C. Mont.), where at law, and without mention of a statute, the United States recovered a tax assessed against a corporation from shareholders to whom all its property had been distributed on dissolution.
Resort to equity, therefore, seems to be necessary only where its flexible procedural powers are essential. We think that the liability of a stockholder, receiving dividends from an insolvent corporation, to repay them is sufficiently defined to ...