Hosack & Blunt, executors, &c. vs. Rogers and others, 6 Paige Ch. 415

The Chancellor. The order of the vice chancellor was clearly wrong in directing the executor of A. Gracie to pay into court the small sums in his hands received under the Neapolitan treaty, or any other funds which were in nowise connected with the French claims. If the complainants, and other creditors of A.

Gracie and Sons who accepted the assignment and released the two junior partners, are to be considered as having released the senior partner also* except so far as related to his interest in the French claims, the complainants had no right to call upon the executor to account for any other portion of the property of the decedent which had come to his hands or which belonged to him in his general character of executor. On the other hand, if the complainants and N.

Rogers & Sons still retained their claims against Gracie, so that he and his other estate were still liable for the payment of the deficiency in case the proceeds of the claims both upon the English and French governments were not enough to pay the whole, the executor is undoubtedly entitled to retain for his own debt in preference ; as the law was at the time the testator died, in 1829. Previous to the revised statutes the right of the executor to retain was unquestionable.

Even the payment of the money into court, or into the hands of another executor or a receiver under the direction of the court, would not deprive him of that right. (Langton v. Higgs, 5 Sim. Rep. 228. Chissum v. Dewes, 5 Russ. Rep. 29. Decker v.

Miller, 2 Paige’s Rep. 149.) The right to retain extended also to debts due to him jointly with others, or in the character of trustee, as well as those due solely to himself in his own right, as he could not in either case bring a suit against himself as executor to recover such a debt. (2 Will, on Ex’rs. 685.) And the right to retain for his debt, out of any future assets which might come to his hands as executor, having become vested by the assumption of the trust previous to 1830, the provision of the revised statutes taking away future preferences among creditors and depriving the executor or administrator of his right to retain could not divest the right.

The distribution of the estates of persons who died before the first of January, 1830, must be made to the persons who would be entitled to receive them, so far as their rights were then vested, in the same manner as if the law on this subject had not been changed. The judgment in favor of Hosack against the three copartners could not be released as to two of the defendants therein, so as to leave it still subsisting at law as a judgment debt against the senior partner, and thereby to entitle it to a preference in payment out of his estate.

And without a release it could only have survived, at law, as against the other two. But if it was the intention of the parties that A. Gracie should remain personally liable for the whole debt, notwithstanding the release, it would still be a subsisting debt against him in equity. At present I am inclined to think that it was not the intention of Gracie, or of the creditors who executed the assignment, that he should be personally liable for their debts beyond the amount which might be received from the French claims.

And if such was the legal effect of the assignment as to those who became parties thereto, then the English creditors have neither complied with its letter or its spirit in such a manner as to entitle them to share with the other creditors in the proceeds of the French claims. They did not in fact become parties to the assignment within the six months from its date, or even within the six months from the time when they must have heard of it; and all except King and Gracie, who do not appear to have released the two junior partners, have expressly reserved a right to collect the residue of their debts from A.

Gracie. And as this'release is stated upon its face to have been given with his consent and at -his request, they have still an existing claim against his general estate, if any, in the hands of his executor or which may hereafter come to his hands, unless such claims are barred by the statute of limitations, It would be improper, in this stage of the suit, to express any definitive opinion upon the question whether the execution of the assignment was a valid release, in equity, of all further indebtedness of Archibald Gracie, or his estate, beyond the proceeds of his claims upon the French govern» ment.

The answers of most of the creditors who executed the assignment, and who are directly interested in the question as the right of the English creditors to participate in the special fund depends upon it, are not before me on these appeals. The facts also may possibly be varied by the proofs. If it was the intention of the assignment to reserve a general right to claim payment of the debts from A.

Gracie personally, then the release of the English creditors, although in a separate instrument, may be considered as a substantial compliance with the terms of the assignment, and they are entitled in equity to participate in the special fund upon which a specific equitable lien is given by the covenant of A. Gracie.

On the contrary, if they have reserved to themselves a personal claim against the senior partner which they would not have been entitled to under the assignment, although they gannot now be deprived of the 35 per cent which they received as the consideration of their release, they will not be entitled to participate in the fund arising from the French claims. And in that case they must proceed in their own names against the surviving executor, or the estate of the deceased executrix, or both, to obtain the residuary estate now in his hands or which the executrix received before her death.

But they cannot come in under a bill filed by parties who have no legal or equitable claim upon such residuary fund. Neither in that case can such residuary fund be taken out of the executor’s hands in this suit, even if his debt is discharged as to such residuary fund so that he has no right to retain as against the general creditors of Gracie or his residuary legatee.

For reasons similar to those before stated, it may be improper to express a definitive opinion upon the question whether Gracie’s judgment against the underwriters, so far as it remained unpaid at the date of the assignment, was a part of his claims upon the French government within the intent and meaning of the covenant in that assignment. But upon the facts as they now appear I am inclined to think it was not then a claim of his upon the French government to which Gracie and his creditors were primarily entitled to the exclusion of the general creditors of the insolvent insurance company.

By the abandonment, even without the prosecution of his claim to a judgment, the underwriters became entitled to the spes recuperandi of the property insured, so far as it was covered by the policy. And I am not aware of any principle that would prevent the underwriters from selling their interest in the subject abandoned and appropriating the proceeds thereof to the payment of any of their debts, although the insurance money due upon the policy had not become due, or had not been paid. In the case of Mellon v. Bucks, (17 Mart.

Rep. 371,) the supreme court of Louisiana decided that after an abandonment and before acceptance thereof, the title of the property abandoned was so far out of the assured that he could not maintain an action in his own name to recover for an injury to the same.

There does indeed appear to be a natural equity that the assured should be entitled to a preference in payment, in case of insolvency, out of the proceeds of the subject abandoned; but it may be doubtful whether an equitable lien of that kind can be retained consistently with commercial usage, and the absolute control which it is necessary the underwriters should have over this species of property to save themselves from an absolute loss.

Again; if such an equitable lien can be enforced in favor of the assured so long as the proceeds of the spes recuperandi can be traced and identified, it does not follow that the balance due on Grade’s judgment against the insurance company was a claim held by him against the French government at the time of this assignment, within the intent and meaning of his covenant.

I have no doubt upon the question that the covenant of Gracie to pay the creditors out of the monies which should be received by him or his representatives on account of his French claims, was an equitable mortgage or specific appropriation of that fund for the payment of the creditors who came in under the assignment, so as to entitle them to a preference over other creditors in relation to that fund so far as the proceeds thereof can be traced and identified. In the present case there is no difficulty on that subject.

Had the fund come into the hands of Gracie in his lifetime, this court might have restrained him from paying it out to general creditors in violation of his covenant to apply it to this particular purpose; and as Gracie himself could not have preferred one of this class of special creditors to another, if the fund had come to his hands in his lifetime, it is now a special fund in the hands of his executor, who is only entitled to retain to the extent of his share after payment of his commissions and expenses as to this particular fund.

A written agreement or order to pay a debt out of a particular fund, is an equitable mortgage or assignment of the fund pro tanto, and entitles the creditor to claim a preference in payment out of that fund over the general creditors of the mortgagor, so far as the fund remains in such a situation that it can be traced and identified. (Fruhling v. Schroder, 2 Scott’s Rep. 135. Clark v. Mauran, 3 Paige’s Rep. 373. Bradley v. Root, 5 Idem, 632.) Although the defendant N.

Rogers was not entitled to retain for his whole debt out of this special fund, in his character of executor, he was clearly entitled to his proportionate share of that fund after deducting his commissions and expenses. The vice chancellor’s order was, therefore, wrong in compelling him to bring the whole of that fund into court to abide the litigation between him and the other claimants of the residue thereof. Even if the English creditors are entitled to come in and share with the other creditors under the assignment, a very large sum will still belong to N.

Rogers, in any event, which is primarily chargeable upon the proceeds of these certificates. And as it appeared from the complainant’s own showing that N. Rogers’ property was embarrassed with debts, it was unreasonable thus to deprive him of the power of paying off those debts with that part of the fund in his hands which clearly belonged to him. Whatever small sums N.

Rogers has received from other sources than the French claims, he has a right to retain towards the residue of his debt; or he must account for the same to other persons than the complainants in this suit, if those who executed the assignment have released the residue of their debts. His proportionate share of this particular fund cannot, therefore, be diminished by the small sums which he has thus received.

This part of the order first appealed from must, therefore, be so modified as to permit the clerk; upon the receipt of the money on the certificate, to pay him his commission upon the whole amount receivable oil such certificates, and also to pay him such portion of the residue as his debt of $42,464 bears to $255,905, the whole amount due to the creditors under the assignment including the claims of the English creditors.

And as it will be more beneficial for all parties that the money now due upon the certificates should be drawing seven per cent in his hands, than a much less sum under an investment by the court, his whole share of these certificates is .to be paid to him immediately out of the fund now payable; he giving his receipt therefor to the clerk, to be accounted for in the final settlement and. distribution of the fund among the creditors, with seven per cent’ interest, according to their rights as the same may be hereafter established.

As to the residue of the fund, which belongs to the other creditors under the assignment or is in dispute with the English creditors, it is proper that it should - be brought into court to abide the event of the suit. It is in the hands of the executor in the character of a trustee; and as he has no right to use it for his own private purposes, it is almost a matter of course to order a fund thus situated to be brought into court and invested pending a suit for the distribution thereof.

The part of the order which directs him to bring any other funds into court except those arising out of the certificates, or as compels him to submit to an examination before a master in relation to any other matters than as to this particular fund received by him in certificates must be reversed and annulled. There is no sufficient cause shewn for taking out of his hands the general trust committed to him, as surviving executor of A.

Grade, on account of his alleged embarrassments" in connection with his son’s misfortunes in trade, as the affidavits clearly establish the fact that he has a very large estate over and above all debts and responsibilities. And the court will not, without evidence, presume that a gentleman who has sustained an unblemished character till he has arrived at the age of eighty, will, without any conceivable motive, destroy that reputation by defrauding those with whose property he has been entrusted as executor.

Whatever may be his character for honesty and integrity, however, upon a bill for the settlement of his accounts as executor properly filed, by a person having a right to a portion of the fund, if there is a clear balance in his hands beyond what he has a right to retain he may be directed to pay such balance into court, and this without reference to the value of his own property.

But the mere fact that the executor is an octogenarian, if he is in the full possession of his faculties, is not a sufficient reason for depriving him of the possession of that part of the estate of his testator upon which he has probable grounds of claim. The injunction in this case should therefore be dissolved, except so far as relates to the receipt of the money on the certificates, otherwise than through the clerk.

The order of the vice .chancellor last appealed from must be reversed to that extent; and the costs on that appeal, as well as his costs in the court below on the motion to dissolve, he must be permitted to retain out of the general funds in his hands not arising out of the French claims. There can be no objection to permitting him to receive and retain the balance due on the judgment against the insurance company. Upon the case as it now appears, either the complainants have no interest in that fund, or he has also an interest in it and has a preference by reason of his right of retainer.

Or if, upon a new state of facts, the court should come to the conclusion that it was a part of the fund specifically pledged by the assignment, his property is still ample to secure to the other creditors their shares thereof. In case it should be adjudged to belong to the English creditors exclusively, his increased share of the special fund which is to be brought into court will be an ample security to indemnify them against eventual loss.

This decision is to be without prejudice to the rights of the parties as tq any of their equitable claims as against each other, either as to principal or interest, in the final settlement of the account; so that the executor may be charged with interest, as may be just, upon any monies in his hands from any source and which he has appropriated to his own purposes, if it shall in the end be found he was not entitled to such monies.

Neither party is to have any costs on the first appeal, unless the appellant finally succeeds in his claim to retain for the whole amount of his debt out of the fund arising from the French claims. In that case he is to have the costs of the appeal and of resisting the application in the court below; to be paid out of that fund. Upon appeal to the court for the correction of errors, in December 1837, the decree in this cause was so far modified as to declare that the creditors who accepted of the assignment and the covenant of A.

Crracie had no equitable lien upon the fund arising from the French claims ; and that tí. Rogers therefore had aright to retain for his whole debt as against other debts of the same rank.