Harvey v. Gartner

PROVOSTY, J.

This suit is in damages for loss of property and injury to credit and reputation, alleged to have been suffered by plaintiffs as the result of proceedings in involuntary bankruptcy instituted against them by the defendants, in the course of which a receiver was appointed to take possession of the property. The plaintiffs are the firm of Martin W. Harvey & Co., and Martin W. Harvey individually; said firm being alleged to be composed of Martin W. Harvey and Howard Segrave.

An exception of want of proper parties was interposed, based upon the fact that the partner, Segrave, is not individually a party to the suit. This exception was properly overruled. The suit ■ is by the partnership and by Martin W. Harvey; both of them perfectly competent persons to stand in judgment without the assistance of Segrave. Individually, Segrave has no cause of action; he having consented to the proceedings in bankruptcy.

Pleas of res judicata and estoppel also were filed. They are founded upon the following facts: After the termination of the proceedings in bankruptcy by the rejection •of the petition in bankruptcy, the plaintiff firm took a rule on the receiver to show cause why he should not return its property of which he had taken possession; and, when the receiver applied for his discharge -and the cancellation of his bond, the plaintiff firm filed an opposition, alleging that he had not accounted for said property. There was judgment overruling this opposition, and discharging the receiver. It is that judgment which is said to be res judicata of the present suit.

That judgment passed merely upon the liability of the receiver, and in no wise upon the liability of the present defendants. The rule upon the receiver, as well as the opposition to his discharge, was a mere calling upon that officer to give an account of his stewardship. In making his defense to them, the receiver was representing exclusively himself, and in no wise the present ■defendants. The suit in the instant case is a calling upon the defendants themselves, and it is to respond in damages for having instituted the proceedings in bankruptcy and caused a receiver to be appointed. I-Ience neither the cause of action, nor the parties, nor the thing demanded, can be said to be the same in the present suit as in these former proceedings; and, as a consequence, the judgment in these former proceedings is not res judicata of the present suit.

The estoppel is said to result from the fact that plaintiffs demanded of the receiver the return of the property. This plea is so devoid of legal foundation that one hardly knows how to get about arguing it. In the exercise of their right to recover back their property or its value, the primary x’ecourse of the plaintiffs was against the receiver who had taken possession of it, and, in legal contemplation, still had it in possession. So long as the receiver had the property in possession, these plaintiffs certainly could not have a cause of action in damages against the present defendants for the loss of it. 1-Iow, then, can the legal efforts of these plaintiffs to recover this property from the receiver operate as an estoppel to the present suit. Instead of a bar it was rather in the nature of a prerequisite.

In support of this plea of estoppel the defendants cite High on Receivers (4th Ed.) p. 319, § 270, to the effect that the. litigant, at whose instance a receiver has been appointed, is not liable for property lost, thi-ough the fault of the receiver. Grant that this is good law, the plaintiffs are not suing for any losses suffered through the fault of the receiver, but for losses suffered without the fault of the receiver — losses which he could not avoid, but for which the defendants are alleged to be liable by reason of the same having been the direct consequence of their act-in wrongfully instituting bankruptcy proceedings and causing a receiver to be appointed. If, by reason of having to be sold at forced sale for whatever was bid, at a time of great financial depression, when there was no market for that kind of property, the movables of the plaintiff firm, of which the receiver took charge, had to be sold for a mere song, and, if, by reason of its being in the hands of a receiver, the sawmill of the plaintiff firm could not be insured, these wex‘e matter’s for which the receiver was in no way at fault, and for which he was in no wise responsible, but which came about as the direct consequence of the bankruptcy proceedings instituted by these defendants, and of the appointment of a receiver made at their instance, and for which they may well be responsible, notwithstanding the blamelessness of the receiver.

On the merits, the facts are as follows: The fix’m of Martin W. Harvey & Co. was originally composed of Martin W. Harvey, L. C. Heintz, and James L. Reid. It was formed in February, 1907. It was a sawmill concern, and owned a sawmill plant, timber . lands, oxen, and wagons. After it had been in existence some six months, and had accumulated a considerable amount of lumber on its yard, and contracted debts, Harvey, in' August, 1907, bought out the interest of Heintz and Reid, and took Se-grave as a partner. The purchase price was $2,500 — $625 cash, and $1,875 credit, for which Harvey gave his note. On October 10, 1907, the partnership, by way of security for the payment of this note, made a redeemable sale to Heintz and Reid of all its timber lands, oxen, and wagons, reserving, however, the possession and use of this property, and agreeing that payment should be made on the $1,875 note at the rate of $2.50 for every thousand feet of lumber sold. At that time the financial crisis of that year was on, and owing to the business depression resulting therefrom, the firm found itself unable to dispose readily of the lumber it was accumulating on its yard or to collect its accounts, and in consequence found itself financially embarrassed. Its largest creditor was the defendant, Oscar Gartner, who had been furnishing it money to run with. It then entered into a written agreement with Gartner, by which the latter undertook to act as trustee and take possession of all the property of the firm, and operate the mill and dispose of the lumber, in the interest of the creditors; and, under this agreement, he actually took possession. Certain of the creditors, however, would not join in this arrangement, and brought suit; and this led to an application for a respite. This application was filed on February 28, 1908. The defendant Gartner furnished $50 towards the expenses of it. On March 8, 1908, he filed the petition in involuntary bankruptcy, having induced the other defendants to join him in it, and given them, in order to induce them to do so, a written guaranty to hold them harmless against all claims for damages; they having no knowledge of the facts of the matter, and relying entirely upon his representations. The respite proceedings were still pending. They culminated in the respite being granted on April 8, 1908. On March 9th, the day after the filing of the petition in bankruptcy, the defendants filed a petition alleging that the appointment of a receiver was necessary, and asking that one be appointed. This prayer was granted, and a receiver was appointed ; and he took charge of all the property which the plaintiff firm had turned over to the defendant Gartner, as trustee, except the part included in the redemption sale. The fire insurance companies canceled their policies on the sawmill, for the reason that it had passed into the hands of a receiver, and the receiver was unable to obtain insurance. On March 24, 1909, judgment was rendered dismissing the bankruptcy proceedings. In the meantime, the sawmill had burnt down without insurance, and the receiver had had to sell all the movables at auction sale for whatever they would bring for cash. Plaintiffs first exhausted their remedy against the receiver, and then brought this suit.

The receiver, by authority of the court, took possession of the property of the plaintiff firm against its will in precisely the same way that a sheriff does under a writ of attachment or sequestration. From that moment, the plaintiff firm was as powerless to protect or preserve the property or interfere with it as if an injunction had issued against its doing so. “The appointment of a receiver,” says 34 Oye. 17, “is an equitable remedy which bears a similar relation to courts of equity that proceedings in attachment bear to courts of law. Hence the appointment of a receiver has been stated to be an equitable injunction or attachment, although it is also said to be in the nature, not of an attachment, but a sequestration.” Inasmuch as the defendants caused the receiver to be appointed, the plaintiff firm contends that they should stand in responsibility for the loss of said property precisely as does a plaintiff in writ when an attachment or sequestration is dissolved.

Defendants, on the other hand, contend that this would be the case only if the appointment of the receiver had. been made under section 3e of the bankruptcy act (Act July 1, 1898, e. 541, 30 Stat. 546 [U. S. Comp. St. 1913, § 9587]); that is to say, upon bond being furnished, and not under the general equitable powers of the court, without bond being furnished.

We do not see what the nonfurnishing of the bond has to do with it. Damages for the wrongful issuance of an attachment or sequestration would be due none the less if an attachment or sequestration bond had not been furnished. The nonfurnishing of bond for obtaining the writ would appear to us to be in' the nature of an aggravation of the situation. What would have been the legal situation if the court had made the appointment of its own motion, we will not undertake to say, but it made it upon the allegations, affidavit, and express prayer of these defendants.

The trial court allowed the plaintiff firm $8,000 for the sawmill burnt down without insurance, and nothing for the lumber which was taken charge of by the receiver and sold at a sacrifice price. This lumber was ap- , praised at $1,000, and we think the plaintiff firm is entitled to at least that much for it. Defendants contend that the allowance of $8,000 for the mill is excessive. We do not so find from the evidence. The plaintiff firm, then, should have judgment for $9,000, less $770.14 accounted for by the receiver.

The plaintiff firm would seek to hold defendants liable, not only for the property taken possession of by the receiver, but also for the property turned over to Gartner as trustee. But this cannot be, as the present suit is not one for an accounting, but for damages resulting from the bankruptcy proceedings.

’ As actual damages, in addition to the property losses, the plaintiff firm claims $2,000 attorney’s fees. Attorney’s fees could not be allowed for defending the bankruptcy suit, nor for prosecuting the present suit, since attorney’s fees are not allowed for prosecuting or defending ordinary suits. They are allowed for obtaining the release of property from seizure, but only where the services in that connection are rendered separately from those rendered in the main suit. In other words, only where the release of the property is obtained by means of a separate proceeding, and not as the result of the termination of the main suit, to which the seizure was ancillary. All this is so ábundantly settled in our jurisprudence that citation of the decisions to that effect cannot be necessary.

The trial court properly rejected also the claim of damages for injury to reputation and credit. The bankruptcy proceedings were instituted on the advice of counsel, which is in itself a good defense if Gartner in good faith laid the facts before the counsel; and we have no sufficient reason to think that he did not do so. It is said that the plaintiff firm was in fact solvent, and that defendant Gartner knew this, since he was familiar with its affairs. But the solvency of the firm was not so very clear; there were large debts; and, while there were assets, there was no market for them; and they were not so large but that opinions might differ on the point of whether their actual, present value exceeded the debts. It is said that Gartner’s knowledge of this solvency is conclusively shown by the fact that the respite proceedings were predicated on the assumed solvency of the plaintiff firm, and that he co-operated with the plaintiff firm in said proceedings. We see nothing conclusive in this. A business man may be hopeful of a certain business situation one day and not be so confident a week or ten days later. Especially if he makés new discoveries, as, we suspect strongly, Gartner did in this case. Except the statement of Harvey, that Segrave represented Gartner, and kept the books of the firm, we find absolutely nothing in the record to show that Gartner, at the time the application for a respite was made, had any knowledge, or even suspicion, of this redemption sale having been made. The schedule of assets filed with the petition for a respite, and duly sworn to by both Harvey and Segrave, makes no mention of this redemption sale, but carries the property thus sold as still belonging to. the firm. There is no reason to suppose that Segrave was more communicative to Gartner, with regard to this redemption sale, than he was to the court. In the absence of all suggestion of ill will or express malice, the fact that Gartner was so confident of his case in the bankruptcy proceedings that he was willing to undertake to hold his cocreditors harmless against afterclaps affords a strong inference of his good faith.

In their several answers to plaintiffs’ petition, the defendants prayed for judgment against the plaintiff firm for the amounts due them respectively by it; and the trial judge, in the same judgment in which he condemned the defendants, in solido to pay the plaintiff firm $10,000, condemned the plaintiff firm to pay to them the amounts due them respectively;’ and he went on and decreed that the sum, or aggregate amount, of those several judgments in favor of defendants should extinguish in an equal amount by compensation the judgment pf the plaintiff firm.

The plaintiff firm complains of this lumping of the judgments; but we do not see that it has any ground for doing so. What difference can it make whether the extinguishment of its judgment by compensation, which results by operation of law, is effected by these judgments separately or together. The extinguishment is just as effective and complete and final in the one case as in the other.

Counsel say that “as a practical proposition this result does injustice to thé general creditors of Harvey & Co. by making it impossible to collect the solidary judgment in their favor from the responsible defendants.”

But surely counsel would not want to collect an extinguished judgment, or the extinguished part of a judgment. When, in the , same judgment, I-Iarvey & Co. is condemned to pay to Oscar Gartner $6,696.23, and Oscar Gartner is condemned to pay to Harvey & Co. $10,000, compensation takes place by operation of law and the $10,000 judgment is extinguished completely and finally up to $6,-696.23, and continues to exist only for the balance of $3,303.77, and execution can issue only for this balance. And, as with the judgment in favor of Gartner, so with the judgments in favor of the other defendants; each extinguished by compensation, to an amount equal to itself, the judgment of the plaintiff firm. “Compensation,” says article 2208, C. C., “takes place of course by the mere operation of law, even unknown to the debtors; the two debts are reciprocally extinguished, as soon as they exist simultaneously, to the amount of their respective sums.”

Counsel quote article 2211, C. C., to the effect that one debtor in solido cannot oppose in compensation what the creditor owes to his codebtor. But nothing of the kind is being done in the present case. In the present case each debtor is opposing in compensation the debt due to himself. This article 2211 can have application only where a debtor in solido is being sued separately. It can have none where all the debtors in solido are being sued together, and the debts to be compensated are all embraced in the same judgment. See- extract from defendants’ brief given in margin.

The judgment appealed from is affirmed, except that, in so far as it is in fayor of plaintiffs, it is reduced from $10,000 to $8,230. The costs of appeal to be paid by plaintiffs.

O’NIELL, J., takes no part.