Cohen v. American Surety Co.

Houghton, J. (dissenting):

I agree' that, the plaintiff has capacity to sue, and that he has a cause of action as trustee against the defendant as surety for any misappropriation of the assigned estate by the assignee. I do not agree to the proposition that the defendant surety is bound by the decree of the bankruptcy court made upon the voluntary accounting of the assignee in that court.

Very likely the bankruptcy court had sufficient jurisdiction so that an accounting in that court bound the parties who voluntarily appeared and submitted themselves to its jurisdiction. The defendant, however, was not made a legal party to the accounting proceeding. The notice given • was not sufficient to bind it. The complaint herein is not framed as for an' accounting of the funds coming to the hands of the assignee for whom the defendant was surety. Such an action would lie notwithstanding the lack of a decree of any State court. An accounting in a State court and the rendering of a decree therein is not a prerequisite to an action for an accounting against the surety. An accounting could be had in the present action if the complaint were framed upon that theory. It is framed, however, upon the theory that the decree of the bankruptcy court upon the voluntary accounting of the assignee therein, is binding and conclusive upon this defendant as surety. The cause of action set forth is upon the decree alone and the action is in effect a suit upon a judgment.

When the defendant gave its undertaking to answer for the acts of the assignee, I think all it agreed to dó, so far as being conclusively bound by decrees, was to abide, without question, any decree made by any State court having jurisdiction over assignments. These courts were' the Supreme Court and the various County Courts of the State. Assignments for the benefit of creditors were *528. and are regulated by State statutes. I do not think.it can be said that' the defendant by giving its undertaking, into which these statutes must be fairly read, consented that any court,- foreign or Federal, into which the-assigneo chose to go.and account, might make a bind- ■ ing and conclusive .decree against it as surety. It is true the ■ functions of the-assignee ceased when bankruptcy was adjudged; but the assignment was good when made.'. The fact of 'its being superseded by the bankruptcy proceedings-did not throw the assignment into .the bankruptcy court. Nor did the assignment, get into .. that court because the property in the Bands of the assignee passed ■, to the hankruptcy trustee.- For the purposes of a binding ..accounting upon the surety, the assignment was still in the State court.

The real contention in Adams v. Hyams (19 Blatchf. 487) seems to have been that an accounting and decree in a State court was a ■ prerequisite to the maintaining, of an action' against the'-surety. ' To the holding that it was not, I agree,, To the. further discussion and holding that the bankruptcy court could make a decree conclusive and binding upon the''surety, I. do not agree.

Nor' was the judgment obtained', against' the 'assignee in the New Jersey court .binding upon the defendant- The plaintiff - cannot sue the surety upon that judgment as a- binding’ of 'conclusive ' adjudication of the amount due. '

For these reasons, I think- the demurrer to the complaint was properly .sustained and should be .affirmed: -

Judgment reversed', with costs, and- demurrer', overruled, with . costs, with- leave to defendant to withdraw demurrer and to answer . on payment of .costs. ' .