Ellicott v. Ellicott , 6 G. & J. 35 ( 1833 )

Dorsey, J.,

delivered the opinion of the court.

Three reasons have been assigned on the part of the appellee, why the decretal orders appealed from should not be reversed. First, because none of the parties interested have any cause to complain of them. Secondly, that if such cause of complaint does exist, as regards those distributees of Elias Ellicott, who are not nominatim parties to this appeal, their equities cannot be relied on as grounds of reversal by the appellant trustees. And thirdly, that if the appellants are injured in their rights as distributees, they have in the discharge of their duty as trustees, been guilty of such gross negligence and misconduct, as to have rendered themselves justly chargeable with a still greater-amount of loss, than that to which their individual rights have been subjected.

We will proceed to consider these propositions in the order in which they have been stated. To sustain the orders from which the appeal has been taken, it is asserted to be a rule in courts of equity of this State of universal truth, that where the estate of a deceased person, sold for the payment of his debts, is solvent, his creditors must be paid interest on their debts up to the time of their payment. If up to the day of sale, instead of the day of payment, had been the time specified, this assertion could not have been controverted. But there exists not, and never did exist, in our Chancery court such a rule as that which has been stated. The universal mode of auditing accounts in that court, in such cases, has been to calculate interest on claims against the deceased up to the day of sale, from which time the claimants on the amounts thus ascertained, become as it were creditors of the fund arising from the sales, and entitled respectively to their proportions of the interest it may bear. If the sale be for cash, no interest is received by the creditors after the day of sale; if on a credit (and consequently carrying interest) should the creditors be paid, as using due diligence they would be, on the day of the receipt of the money by the trustee, they would receive not only simple interest on their debts from their maturity, but interest compounded from the day of sale. And this practice of the court of Chancery is founded on the soundest principles of equity and justice. If a creditor goes into that court for relief, and causes his debtor’s property to be sold for cash, to the full amount of principal and interest, ought not the debtor to be absolved from all further liability? So, on the other hand, when the sale is on a credit, the delay being for the debtor’s benefit, the creditor is placed in as eligible a condition in legal contemplation, as if he had been paid his debt and interest on the day of sale; the amount thereof bearing interest from the time of sale, until it is received by the trustee, who hands it over to the creditor the moment it is called for; (the necessary audit with its ratification being first obtained.) The procuring of which, though properly the act of the diligent, faithful trustee, is equally within the power of any of the creditors.

The same principles which regulate the rights of creditors in sales simply for cash, or on credit, are carried out in mixed sales, which are in part for cash, and in part for credit. The cash portion of the proceeds of sale, or money first received, or so much thereof as may be necessary for that purpose, is first applied to the payment of the costs of suit, the commission and expenses attending the sale and the debts; the residue is the property of the debtors. Whether the sale be for cash, or on credit, makes not the slightest variation in the form of the auditor’s statement. The only difference is in the order of ratification; which in a credit sale directs the application, not only of the amount of sales, but of the interest “in due proportions, which has been or may be received.” If the cash portion of the proceeds of sale, applicable to the payment of debts as stated by the auditor, be inadequate for that purpose, the portion of the debts unsatisfied thereby (and no more) will bear the same interest which the credit part of the sales bear.

Let us now see what it is, that the Chancellor has decided by his decretal order of the 17th February, 1832, ratifying the audit, made under his order of the 11th of the same month, that we may ascertain how far injustice has been done to any of the parties interested.

He has decreed, that the appellee be paid not only the principal of his debt, with legal interest thereon from the day it became payable until the day of its payment, but that he be paid out of the trust fund, his principal and interest to the time of sale; with compound interest thence till the last audit; and interest on principal and interest thus compounded, from that date until paid. For this mode of computing interest under circumstances at all analogous to the present, we can find no precedent in any proceeding of courts of law or equity. It is an innovation upon the just, and long established practice of courts of equity before referred to, which this court cannot sanction. It could not be sustained, even if the entire sales had been on a credit bearing interest; because after the last audit, it would be allowing the creditor interest on a larger amount of principal than he had any title to; even on the hypothesis of his becoming from the day of sale, the creditor of the fund; which for him is the most favorable aspect in which his rights can be regarded. Instead of receiving interest on $3,815 50, the amount of debt, principal and interest, on the day of sale, he is allowed from the last audit interest on $4,690 52.

But when we look at this order in reference to the facts before us, its hardship and injustice appear strikingly manifest. A considerable part of the proceeds of sale were in cash, all of whie'n, with the exception of the expenses of sale and suit, belongs to the creditors; not a farthing of it had these distributees any power to receive. These creditors, after sleeping upon their rights for years and suffering their money to lie dead in the hands of the trustees, turn round upon the representatives of the debtor who have been in no default, and claim of them interest upon the creditor’s money not reeeiyed, and left unproductive by reason of their own negligence. A single illustration (if illustration be necessary) will demonstrate the injustice of such a procedure. The mortgaged estate of a debtor owing $20,000, is sold under a decree of the Chancery eourt for $25,000; $20,000 of which is by the terms of sale, paid in cash, and on the remaining $5,000 a credit of five years is given. The creditor suffers the $20,000 to remain in the trustees’ hands until the expiration of the five years’ credit. According to the principles established by this order, he must be entitled to the whole $25,000; and had he delayed to demand payment of his money for ten years, the debtor would have owed him, in addition to the $25,000, a further sum more than $5,000 — Nay, had there been a few intermediate audits, and the interest compounded, as in this case, the balance against the debtor would have exceeded $10,000. This order is still further liable to objection, because departing from the common form used in similar eases, as to the application of interest received, it directs the trustees to pay interest to the creditors, not out of, or in proportion to the interest by them received, but without reference to such receipt. Affirm then this order, and such payment of interest must be made by the trustees, notwithstanding the whole credit portion of the proceeds of sale may have been paid to them, on the 14th of January, 1833; and may ever since have been remaining idle in their hands, awaiting the final adjudication of this controversy. And this payment of interest, never received, is to fall upon whom? Upon the trustees ? No. But upon the innocent distributees of Elias Ellicott.

If the unsatisfied debts are to bear interest, and interest compounded too, until paid, justice would dictate that when the cash pari of the proceeds of sale were applied to the payment of any debt, that such payment should stop any further accrual of interest on the debt so paid. But in this caso, after the debt has been fully paid off, with the cash proceeds of sale in the hands of the trustees, such debt is still decreed to continue to bear compound interest, to be paid by the distributees of Elias Ellicott. And for whose benefit? For the exclusive benefit of the trustees who paid the debt, with the funds of the distributees in their hands; the cash fund being ex consequenti theirs, from the mode in which the Chancellor has decreed payment to the creditors. If this be not considered by the appellees’ solicitor cause of complaint to the distributees, it is difficult to conceive what would be so regarded.

The Chancellor erred too, in his order of the 11th February, 1833, in ruling good the exceptions of the appellee to the auditor’s second statement; it being a departure from that uniform course of proceeding, which in similar cases, as we have before slated, has always prevailed in the Chancery court of Maryland.

The second ground upon which the reversal of these decretal orders has been resisted, we also deem untenable. A trustee, in his character as such, may, for the benefit of those interested in the fund, and who are aggrieved by an erroneous order for its payment or distribution, appeal to this court for redress.

This right we consider as having been recognized by this court, in the case of Kent vs. Alexander, trustee of Mullikin, decided at June term, 1831.

We entertain the same opinion, as to the insufficiency of the appellees’ third position. Even if the facts were true as alleged, that the trustees have so conducted themselves in the execution of their trust, as to become personally liable for interest, in the mode in which the Chancellor has charged it upon the trust fund; that question is not presented by the record, nor was it considered or decided by the Chancery court.

Before the trustees could be visited by such a penalty as that now attempted to be inflicted upon them, they must be notified of that of which they are accused, that an opportunity may be afforded them of showing their innocence. To sustain the decision of the Chancery court, would be to condemn them unaccused, and unheard. Not even an intimation was given to the trustees that they were held answerable for interest; or that on account of their, misconduct the rights of the appellee to interest, had been in the slightest degree varied. No bill or petition to that effect, has been filed against them. Not the most remote insinuation of the kind is to be found in the exceptions. The claim of interest is preferred solely upon the grounds that the estate of the deceased is solvent; that the distributees are are entitled to no interest until creditors are fully paid.

Seeing that the decretal orders appealed from must be reversed, it is incumbent upon this court to decree such a distribution of the deceased’s estate, as ought to have been made in the Chancery court. For this purpose there must be a new audit as regards the questions of interest since the sale. Neither that made by the auditor without the Chancellor’s instructions, nor that made with them, being consistent with the rights and equities of the parties. To enable the auditor to make such a statement as will meet our approbation, we will suggest the outlines of the account which ought to be stated. The items of the first audit should be assumed as correct, save one, the nature and operation of which we shall hereafter notice. The commissions allowed to the trustees should he deducted from the cash part of the proceeds of sale; the residue whereof shall be in due proportions, applied in payment of all those entitled to claim under that audit, except the distributees and trustees. The balances then due all such claimants shall bear interest until the time when the trustees first paid off a creditor. From that period the balance of the creditor so paid off, which bore interest, shall continue to bear interest for the benefit of the other claimants, in proportion to their respective claims; or in other words, shall be proportionably distributed amongst other claimants; their cash in the hands of the trustees having been applied to its payment, they shall, tothat amount be subrogated to the rights of the satisfied creditor; and at every subsequent payment of a creditor by the trustees, the same process shall be adopted in adjusting the rights of the remaining creditors, until the whole cash fund shall be exhausted; after which the unpaid creditors will be entitled to interest upon the amount of their debts, as ascertained by the auditor in his first report, up to the time when the credit portion of the sales is received by the trustees.

Should it appear that the trustees, in their payments, have exceeded the cash by them received, to the amount of that excess, they will be substituted to the rights of the creditors paid off; and thenceforward should be allowed interest on that amount of the creditor’s principal debt so prematurely paid oil'. And they should also be allowed the interest on such principal debt thus advanced, by their payment in anticipation; which they will be reimbursed, but without any interest thereon, when the interest is collected on the credit portion of the sales. The principal debt of each creditor, it must not be forgotten, with the exception mentioned, is the amount of principal and interest, ascertained to be due him by the auditor’s first statement.

In making the audit we require the auditor will conform to the principles we have before stated for his government, except as regards the mortgaged debt due to the executors of Andrew Ellicott. The amount paid in satisfaction thereof by the trustees, must be credited to them, and deducted from the purchase money, for which the mortgaged premises were sold to John Ellicott; so that from $8,350, the cash part of the proceeds of sales, there should be subtracted the sum of $4,740, the principal and interest of the mortgaged debt paid by the trustees; thus leaving a balance of the cash fund of $3,610, to be distributed in the manner hereinbefore pointed out. The reason why this claim of Andrew EllicoWs executors is to be distinguished from other debts due by Elias Ellicott, is, that they were not bound to come in and seek payment under the proceedings of the Chancery court, for the sale of the deceased’s real estate, but might cling to the property specifically pledged for the payment of their debt, and hold on until they were fully paid both principal and interest. If the interest paid were greater than would have been allowed, had they come in as creditors under the proceedings in Chancery, the burden should be cast on the estate of Elias Ellicott, and no part of the loss be visited on his creditors. By the settlement proposed, the creditors receive every thing that in justice they can demand; and the distributees are left without diminution, in the enjoyment of every thing to which in equity thay are entitled.

The principle adopted by the auditor of the court of Chancery, in his second account, in the distribution of the interest received by the trustees, we cannot sanction. The debts were paid by them out of the trust fund in their hands. They are entitled to none of the advantages of equitable substitution. Their acts cannot enure to their individual benefit, but to the benefit of those to whom the fund by them appropriated belongs. If they have paid to any creditor more interest than he was authorised to receive, the fault is their own, and they must bear the loss.

decree reversed with costs in this court.