Abel v. Stimpson , 37 Mass. 312 ( 1838 )

Shaw C. J.

delivered the opinion of the Court. The question, in the present case, arises upon the construction of the act to regulate the assignment and distribution of the property of insolvent debtors, St. 1836, c. 238. The question is, whether the plaintiff, a creditor of the insolvent house, of which the defendants were assignees, not having come in and become a party before a first dividend w'as paid, but who did become a party before a second dividend was made, can claim the full amount of the first dividend, it appearing, that there was a sufficient amount of unappropriated funds in the hands of the assignees, to enable them to make such payment, without disturbing the first dividend made to other creditors.

The provision of the statute, § 4, is, that all the creditors shall have a right to become parties to the assignment, provided they apply therefor before the final dividend is declared ; but no creditor who comes in after any dividend is declared, shall be allowed to disturb the same, but he shall receive an equal proportion with the other creditors, so far as the funds then remaining unappropriated in the hands of the assignees, shall be sufficient therefor.

The 6th section provides that the assignees shall make dividends from time to time, as soon as may be, and it directs that when it shall appear, that there are creditors, who from distance or otherwise, cannot become parties before the making of the first dividend, or when there are those mentioned in the 2d section, whose debts are contingent, and have not become absolute, they may retain from the funds a sum sufficient to pay to such supposed creditors an equal proportion with the other creditors.

The Court are all of opinion, that the plaintiff, under the circumstances, is entitled to payment of the first dividend, as claimed by him. The whole tenor and spirit of the act shows the intention of the legislature, that the creditors should share the estate of their debtor equally and proportionably, without any preferences other than those fixed by law. It provides that a party coming in after the first dividend, shall have an equal share with the other creditors, under one condition only, that this shall not disturb a prior dividend declared ; that is, those who have actually received, or by the declaration of a dividend, become entitled to receive a certain share, shall not, upon the principle of equality, as the debts proved then stood, be obliged to refund.

It may be perhaps urged, that this construction might en courage creditors to lie by and wait for the chance of receiving payment in other modes, and thus delay and embarrass the settlement of the estate. But we are of opinion that it can have no such tendency, because the assignees may go on without regard to such creditors, and divide the funds as fast as collected, which dividends cannot afterwards be disturbed. Thus creditors will have sufficient inducement to come in, because if they lie by, until after a dividend made, they take the risk of not being able afterwards to obtain an equal dividend, «hould the remaining funds be insufficient for that purpose.

In order to avoid any misapprehension, I would add, that when funds are reserved conformably to the 6th section, to meet the claims of remote creditors, or those whose debts are contingent, such debts ought to be particularly designated so far as known, and the funds specially reserved to meet them, so that when such creditors do become parties, or then-contingent debts become absolute, they may receive from such reserved funds their full amount of such dividend, in the same manner as if they had been parties when it was made. The funds so reserved, therefore, are not to be considered as unappropriated, within the meaning of the 4th section, so as to be applied to the claims of creditors in the situation of the plaintiff, who voluntarily forbear to become parties to the assignment until after such dividend. On the contrary the creditors for whom such funds were specially reserved, will be entitled to their dividends in full, out of such reserved funds, in preference to creditors coming in afterwards.

It was also asked what would be the effect, if two or more creditors should thus voluntaiily forbear to become parties, until after a dividend made. We think the course would be very plain. In the first place, they could not disturb the dividend already made, nor claim as unappropriated funds, those specifically reserved for remote and contingent creditors, against those for whom such reservation was made. These, if they subse quently come in, would be entitled to the first dividend in full. If they do not afterwards come in, the funds thus reserved would fall into the general unappropriated fund, together with all collections and proceeds of the assigned property received after the last dividend. If-this unappropriated fund is sufficient to pay them an equal dividend with those, in whose favor the dividends have been declared, they will be entitled to such prior dividends in full, and then the balance will be equally distributed among all the creditors. If this unappropriated fund is not sufficient to pay an equal amount to those who thus come in after a dividend made, it is the ordinary case of two or more persons entitled to payment out of a common fund, insufficient to pay them all; they must abate and receive in proportion.

The Court are of opinion that the plaintiff having been re fused a dividend to which he was entitled, is the prevailing party, and entitled to his costs ; but as this defence was made for the benefit of the other creditors, and to whom these dividends would otherwise have come, the costs must be paid out of the funds in the hands of the assignees.

Decree accordingly.

Note. The plaintiff’s claim for interest on his share of the first dividend was disallowed.