GRANT v. LOWE, 89 F. 881

THAYER, Circuit Judge, after stating the case as above, delivered the opinion of the court. The questions to be considered on this appeal relate to the action which was taken by the trial court under the supplemental bill.

It is not denied that the lower court properly entertained the original bill, and properly granted the relief therein prayed for, which consisted of a decree enjoining the defendants from making a threatened unlawful disposition of the property of the Pioneer Threshing-Company, and which also adjudged that the business of the corporation should be-wound up and liquidated on the score of its insolvency; but it is said that the court erred in decreeing the cancellation of the note and mortgage in favor of Grant which were executed on May 6, 1896, and that it also erred in failing to provide that said mortgage should stand as a security for the money that had been paid for the property at the sale made by the Pioneer Threshing Company on January 4, 1896, even though said sale was fraudulent and wrongful.

In behalf of the appellant it is said that these are the only errors of which complaint is made, and it is apparent, we think, that they are the only errors discussed in the brief which are distinctly specified in the assignment of errors. It will be necessary, therefore, to consider, in the first place, whether the trial court was justified in decreeing the cancellation of the mortgage in favor of Grant, and with respect to that question there seems to be little room for controversy.

The trial court concluded that the mortgage was made in pursuance of a studied attempt to defeat its orders in a case lawfully pending before it, and over which it had acquired full jurisdiction.

It was of the opinion, in view of the evidence, that the particular object which the defendants below had in view in executing the mortgage in favor of Grani. was to nullify the effect of its order made on January 31, 1.896, requiring Grant to restore the property covered by the mortgage to the Pioneer Threshing Company, and that during the progress of the litigation the aim of the defendants had at all times been to make an unlawful distribution of the property of the threshing company among certain of its shareholders, notwithstanding the pendency of the proceeding which had been brought to compel a liquidation of its affairs in a lawful manner.

We are of the opinion, after a careful perusal of the record, that these conclusions of the trial court were correct. The sale that was made by the Pioneer Threshing Company to George W. Frey on January 4, 1896, of all its property and effects, had a tendency to place the property beyond the reach of judicial process, and to embarrass the court in granting such relief, in the pending suit, as it might ultimately deem necessary or proper.

It is a fair inference, from what was done, that the purpose of the defendants in making the sale was to nullify the action of the court in the pending controversy, and to make, in effect, such a disposition of the property as the defendants had resolved to make before that suit was instituted. Moreover, the sale was made by the directors of the company, to one of their own number, for a sum which was known to be not more than one-half of the actual value of the property; and, as was well observed by the trial judge, the sale was for that reason unlawful and fraudulent.

In view of these facts, we have no doubt that it was the right and duty of the court to set aside the sale of January 4, 1896, and that it had full power, by an order made in the action which was then pending, to adjudge and decree that the property sold should be forthwith restored to the corporation. The persons upon whom such order operated, to wit, Frey and Grant, were defendants to the original bill of complaint; and for that reason they were subject to the jurisdiction of the court, and to all orders (hat might be made in that case.

We think, therefore, that when the court became satisfied that the sale was fraudulent, and liad been made with a view of embarrassing its future action, it was its duty to adjudge and decree that the sale be set aside, and that so much of the property as was at the time in the possession of any of the defendants to the suit should be forthwith restored to the corporation.

Ro appeal was taken from the order directing a restitution of the property, although it was a final order which definitely settled a controversy with respect to a collateral mat ter, from which an appeal might have been taken, if the defendants had so desired. Standley v. Roberts, 19 U. S. App. 407, 8 C. C. A. 305, and 59 Fed. 836. Instead of appealing from the order, the defendants assented thereto, and made a pretense of complying therewith.

It is apparent, however, that the order contemplated a restoration of the property to the corporation in such a manner that it might be held by the corporation, and dealt with by the court, through the agency of a receiver or otherwise, as it might have been dealt with if the unlawful sale had not been made; but it was not restored to the corporation in that manner. In place of reconveying the property to the corporation, so that it 'could be dealt with as formerly, it was reconveyed, and at the same time incumbered with a mortgage lien in the sum of $4,500.

This method of obeying the order was not in accordance with its terms, but was in plain violation of its spirit and purpose. Besides, the conduct of the defendants in executing a mortgage upon the realty contemporaneously with the conveyance of the same to the corporation, and without obtaining leave of court to place such an incumbrance upon the property, affords further evidence of an intent on the part of the defendants to evade the orders of the court and obstruct its future action.

We are of opinion, therefore,.that the trial court was justified in setting aside the mortgage of May 6, 1896, and that it had the same power to annul that conveyance which it had to vacate and annul the previous sale of the property of the corporation to one of its directors.

In view of what has already been said, it follows, we think, that the appellant’s second contention is without merit, and that he has no legal ground for complaint because the trial court refused to decree that the mortgage in question should stand as a security for the purchase price which the appellant had paid to the threshing company at the sale of its property on January 4, 1896. The amount of money so paid by the appellant to Frey, or to the threshing company, ■ appears to have been in the neighborhood of $2,350.

The trial court held that inasmuch as all of the defendants, including the appellant, had joined in a fraudulent scheme to acquire the property of the threshing company, and thereby prevent it from being dealt with according to law in a suit which had been instituted for that purpose, no obligation rested upon it to see that the money advanced in aid of such a scheme was refunded, or at least that no obligation rested upon the court to decree a specific lien on any of the corporate property to secure the repayment of money that had been so advanced.

We do not understand that the decree of the lower court prevents the appellant from having an allowance against the Pioneer Threshing Company for the amount of his claim, the same to be paid, as any other debt of the company, when its assets have been reduced to cash, and the time for the payment of its debts shall have arrived. If the decree went to the extent last indicated (that is to say, if it denied him the right to any relief as against the assets of'the insolvent company in the further progress of the case) it would probably be erroneous.

But, as it simply denies the appellant’s right to a specific lien on the mortgaged property for the amount of his demand against the threshing company, we think it is unobjectionable. The property of the company was, in effect, in custodia legis on January 4, 1896, when the sale took place. The attempt on that day made to sell it without leave of court, and by that means to withdraw it from judicial custody, was wrongful and fraudulent.

When, therefore, the attempt to defeat the jurisdiction of the court over the subject-matter of the controversy was discovered, it was the right and duty of the court whose jurisdiction over the property had thus been ignored to require that it should be restored to the corporation in such manner that it could be dealt with in the further progress of the case as it might have been if no sale of the property had been attempted.

We think that the trial court properly ignored the appellant's claim to a lien on the mortgaged property, as one which rested upon no equitable foundation, and that its decree should be in all things affirmed. It is so ordered.