STREIGHT v. JUNK et al., 59 F. 321

RICKS, District Judge, after stating the facts, delivered the opinion of the court. The first contention necessary to consider and determine is the first ground of demurrer relied upon by the assignee of the insolvent corporation and the defendant Junk, — that the complainant cannot maintain his suit because he is not a judgment creditor. It is well settled that, when a complainant institutes a suit to subject the assets of an insolvent corporation to the payment of debts due to him and other creditors in whose behalf he sues, he must be a judgment creditor.

He must have reduced his claim to a judgment, and have exhausted his remedy at law as a creditor, before he can resort to the equitable remedies of a creditors’ bill to reach equitable assets in the debtor’s hands. In the case of Tube-Works Co. v. Ballou, 146 U. S. 523, 13 Sup.

Ct. 165, Justice Blatchford said: “Where it is sought by equitable process to reach equitable interests of a debtor, the bill, unless otherwise provided by statute, must set forth a judgment in the jurisdiction where the suit in equity is brought, the issuing of an execution thereon, and its return unsatisfied, or must make allegations showing that it is impossible to obtain such a judgment in any court within such jurisdiction.” The objection to the incapacity of the complainant to maintain this suit because he is not a judgment creditor is therefore well founded. .

But, according to the averments in the bill, the complainant was a shareholder in the Junk Bros. Lumber & Manufacturing Company at the time of the wrongful acts complained of, and at the time the suit was instituted. As such shareholder, and before the bill was filed, the complainant avers he requested the defendant Stainback, as the assignee of said corporation, to institute a suit in his name against the defendant Junk to make him account for his unlawful acts set forth in the bill. This the assignee refused to do. He was the proper person upon whom such a demand should have been made.

By the general assignment the right to bring such a suit passed to the assignee. After the assignment he represented the corporation as well as its creditors, and was authorized to sue upon corporate lights of action. Wallace v. Bank, 89 Tenn. 637. 15 S. W. 448; Williams v. Halliard, 38 N. J. Eq. 376; Brinckerhoff v. Bostwick, 88 N. Y. 52. Tuder the ninety-fourth equity rule; the complainant having, in due course of procedure, made a demand on the assignee to institute this suit, and the assignee having refused, the former was entitled to bring (his proceeding as he did.

For these reasons we think the complainant was authorized to institute this suit as a shareholder in ihe insolvent corporation seeking relief for the wrongful acts complained of.

The next contention to he considered is the claim of the defendants that complainant is not entitled to any relief in this case because he was guilty of gross laches, as a director and stockholder in the insolvent corporation, in not preventing the wrongful acts set forth in his complaint, lie admits in his bill that in August, 1890, he knew that defendant Junk was making and issuing negotiable bills and notes, and “swapping” them for similar paper issued by Bliss & Go. While he avers that he protested in writing against such unauthorized acts on Junk’s

part in 1890, he does not aver in his bill that after such protest he did not know that such illegal paper was continuously issued and used. The corporation continued in business until May, 1892, as complainant avers, hut he does not aver or claim that he was ignorant of the fact that such unauthorized acts continued afi.er his protest.

He fails to disclose by proper averments in bis bill such vigilance and diligence in protecting his interests as the law rightfully exacts from one in his position in said corporation, after full knowledge in 1890 of the continued unlawful acts of his associate officers and stockholders. In 148 U. S. 370, 13 Sup. Ct. 585, (Johnston v.

Mining Co.,) the supreme court said: "The law is well settled that, where the question of laches is in issue, 1 he plaintiff is chargeable with such knowledge as he might have obtained upon inquiring, provided the facts already known by him were such as to put upon a man of ordinary intelligence ihe duty of inquiry.” By his averments of what knowledge he had oí these unlawful ad s, and by his failure to aver that he was ignorant of a continuation of said acts, we think the complainant has shown such laches as justifies a court of equity in denying him the relief for which he prays.

He sues in this case for himself and other creditors or shareholders; but no other creditor or shareholder appears to claim any relief under his bill. He cannot recover in his own behalf, for the reasons already stated. To what extent he cc-uld participate in. a recovery obtained by others authorized to maintain a suit for the same wrongs need not now he considered. All that we hold is that the appellant is not entitled to maintain this suit upon the averments in the bill disclosing laches on his part. This makes it unnecessary to consider the other assignments of error set forth.

The decree of the court below will be affirmed, for the reasons stated.