In re the Insolvent Estate of Leiman , 32 Md. 225 ( 1870 )

Robinson, J.,

delivered the opinion of the Court.

The main question in these appeals is, whether the Statute of Limitations continues to run against the creditors of an insolvent debtor, after his application, and before an audit and order of the Court distributing the insolvent estate. Important as this question is, it comes now before this Court for the first time for decision. In the absence, however, of direct authority to guide us, we think there can be but little difficulty in its determination upon principle.

It is unnecessary to cite authorities in support of the long-established doctrine that, as between the cestui que trust and the trustee, in the case of an express subsisting trust, length of time constitutes no bar to relief. Such is the pyrivity existing between them the possession of the one is the possession of the other, and if the trustee fails to perform the trust, his possession is not adverse, but according to his title. Lewin on Trusts and Trustees, 612; Hovenden vs. Lord Annesley, 2 Sch. & Lef., 633.

In regard, however, to implied or constructive trusts, arising by operation of law, the rule is different, because it rarely happens that such trusts are. admitted or recognized by the parties; and, moreover, the facts out of- which they spring, necessarily, from their very nature, pre-suppose an adverse claim of right on the part of the trustee. Hill on Trustees, 264. The remedy, therefore, of the cestui que trust in such cases, is put upon the same footing of other equitable rights, and although the Statute of Limitations in terms only embraces legal actions, yet, in all cases of concurrent jurisdiction, where a party has a legal and equitable remedy in regard to the same subject-matter, Courts of Equity obey the law, and give to the Statute the same effect and operation in the one Court as in the other. Dugan vs. Gittings, 3 Gill, 138; Hertle vs. Schwantze, 3 Md., 383; Kane vs. Bloodgood, 7 Johnson Ch. Rep., 90. The question, therefore, as to whether the Statute operates as a bar in these appeals, must depend upon the nature and character of the trust created by the operation of the insolvent laws of this State, for it is clear, by all the authorities, that if it be an express trust, the plea of the Statute cannot avail as against the cestos que trust.

Now, by the insolvent laws of this State, the debtor, in consideration of his discharge from the payment of his debts, is required to convey and deliver to a trustee, appointed by the Court, all of his property, of every kind and description, in trust for the benefit of creditors, being such at the time of application in insolvency, and, for the faithful performance of this trust, the trustee is obliged to give his bond, with approved security. The property thus being vested in the trustee, is no longer within the reach of process by the creditors, and the insolvent, being discharged from the payment of his debts, is no longer liable to suit, and the trustee, being answerable only for a breach of trust, no proceedings can be instituted against him until the ratification of the audit, because, until then, and notice thereof, he is not guilty of a breach of trust. Williams vs. Williams, 3 Md., 163; Buckey vs. Culler, 18 Md., 418. It is clear, therefore, that the rights of creditors must be worked out through the medium of a trust, the property affected by which, the Code provides, shall be distributed according to the principles of equity, and the trustee thereof subject to the same control of the Court as trustees appointed by a decree in equity. Sections 10 and 12, Article 48 of the Code of Public General Laws.

Here, then, is an express subsisting trust, created by statutory enactment, the uses, terms and conditions of which are declared, the property affected by the "trust ascertained and defined, and the eestuis que trust, namely, the creditors of the insolvent at the time of his application, designated with as much certainty and precision as if they were severally named in the deed of trust. The acts of the trustee in converting the property into a fund for distribution, and in preparing the subject-matter of the trust for the action of the Court, are to be considered as the active assertion of the rights of the creditors, the eestuis que trust as against the property, and it cannot be that the delay incident to the execution of the trust, shall work to their prejudice or injury. And hence, in ex parte Ross & Hooper, in the matter of Coles, a bankrupt, 2 Glyn. & Jam., 46, the Vice-Chancellor said, “that after a commission issued, the Statute of Limitations did not run against a creditor; that the commission was a trust for the benefit of all the creditors, and it was a known principle that the Statute did not run against a trust.” This decree was upon appeal, affirmed by the Lord Chancellor, who held that, “ whatever may be the technical objection, the effect of the commission is clearly to vest the property in the assignees for the benefit of the creditors; they are, therefore, in fact, trustees: and it is an admitted rule, that unless debts are already barred by the Statute of Limitations when the trust is created, they are not afterwards affected by lapse of time.”

Also, in Minot vs. Thatcher, 7 Metcalf, 348, it was held under the insolvent laws of Massachusetts, that the Statute did not run against the creditors of the insolvent after the publication of the messenger. Justice Dewey, in delivering the opinion of the Court, said: “ By force and effect of the appointment of a messenger, and the publication thereof conformably to the statute, the property of the insolvent debtor is sequestered for the benefit of all the then existing creditors. After such a publication, a suit by a creditor would be of no avail, as the property is all transferred to the assignee, and the body of the debtor is to be discharged from arrest on execution. The debts presented for allowance against the insolvent, are to be considered with reference to their validity at the date of the publication by the messenger, and unless barred at that time, they must be allowed.” Any other rule would be obviously unjust. Take the case of a creditor, whose debt will not be barred for at least a year; he knows that, under the Statute, he has until the last day of the year within which to bring suit; but, before that time, the debtor becomes insolvent, and his right of action is gone. Now, if the principle contended for by the appellee be correct, and more than a year should elapse before the insolvent estate is ready for an audit, the insolvent, or his assignee, could interpose the plea of the Statute, and thus defeat the claims of creditors. In this view we do not concur, but are of opinion that after the application in insolvency, and during the execution of the trust, the Statute does not operate against the then existing creditors.

This construction certainly accords with the plainest principles of justice in these appeals. Here was attempt on the part of the insolvent debtor to cheat and defraud his creditors. Having fraudulently conveyed his property for that purpose, he applies for the benefit of the insolvent laws, and declares, in the schedule annexed to his petition, he has no property liable for his debts. After his final discharge, Schaferman, the fraudulent grantee, re-conveys the property to Leiman, the insolvent debtor, and he in his turn, in consideration of one dime, conveys it to his son. The trustee in insolvency refuses, upon the application of the creditors, to file a bill in equity assailing the fraudulent conveyance, and the creditors are obliged themselves to institute proceedings. After a long and protracted litigation, extending from the Court below to the Court of last resort, the conveyance is condemned as being fraudulent, and the property directed to be sold; and, when the proceeds of sale are brought into Court for the purpose of being distributed among the creditors, the plea of limitations is interposed by the assignee of the insolvent debtor on the one hand, and by the assignee of the fraudulent grantee, Seha/erman, on the other. If the plea of the Statute could avail under such circumstances — if the delay incident to the execution of the insolvent trust, and occasioned by the fraudulent acts of the very parties under which these assignees now claim, could operate to defeat the payment of honest creditors, it would indeed be a just reproach to the administration of the law. Whilst it is true that a Court of Equity extends a reluctant hand of relief in case of stale demands, where a party has slept upon his rights, and where time and long acquiescence have obscured the true nature and character of the trust, it will never visit upon a party the consequences of a delay for which he is in no wise responsible, nor hold him guilty of laches in not prosecuting his demands when there was no process by which they could be enforced.

The case is widely different from a creditor’s bill, because there the creditor has no one to represent him until his claim is filed. Moreover the death of the debtor does not suspend the right of action on the part of the creditor, he may still sue the administrator or executor, and if there should be an insufficiency of the personal estate, he may file his bill for the sale of the real estate.

In Strike’s Case, 1 Bland, 57, the proceeding was to set aside certain fraudulent conveyances, and for a sale of the property for the benefit of creditors, and although in the disposition of some of the questions which arose, the Chancellor likened it to a case of insolvency, the distinct question in regard to the Statute of Limitations raised by these appeals, did not arise, and cannot be said to have been directly passed upon. No such question was decided by this Court in Strike vs. McDonald & Son, 2 H. & G., 191.

We are of opinion, therefore, that the Court erred in rejecting the claims of Herman Classen', Plenry Chinn, John H. Lange, Washington A. Page, Samuel Harman and Frederick Eversman, and the order in each one of these appeals will be reversed. We have not considered the objections to the authentication of these claims, because from the opinion of the Court they do not appear to have been made at the hearing, and must be considered as having been waived. The claim of O’Brien, assignee, being allowed the order in that case will be affirmed.

We are also of opinion that the claim of Patrick M’Laughlin for professional services was properly allowed. If the trustee in insolvency had employed counsel to institute proceedings assailing the fraudulent deed of the insolvent, the costs, and all expenses incident thereto, would have been a proper charge against the trust fund, and because he refused to discharge his duty, thereby compelling the creditors to take proceedings, is no reason why they should be held personally responsible. The order in that case will be affirmed.

The only remaining question is the title to the surplus, should there’ be any after the payment of creditors; and this must depend upon whether Weaver, assignee of Schaferman, had knowledge in fact of the prior unrecorded conveyance of Schaferman to Leiman, for if he had, then such knowledge is equivalent to registration. Price and Bevans vs. McDonald, et al., 1 Md., 403; Winchester, et al. vs. Balt, and Sasq., R. R. Co., 4 Md., 231; Johns vs. Scott, 5 Md., 81. It is unnecessary to examine here in detail the evidence upon this point, and. it will be sufficient to say that we are of opinion that Weaver, at the time of the assignment from Schaferman to him, had full knowledge of the prior assignment to Leiman. He is not, therefore, a bona fide purchaser without notice. We are of opinion, therefore, that George W. Leiman, assignee of Conrad Leiman, is entitled to the surplus, if any, after the payment of the claims of creditors.

(Decided 4th March, 1870.)

The case will he remanded with directions to the auditor to state an account, in conformity with the views herein expressed.

Order m each of the appeals of Classen, Chinn, Lange, Page, Sam’l Harman and Eversman, reversed, and the orders, in so far as they allow the claims of O’Brien and M’Laughlin, affirmed, and the order overruling the exception of Weaver to the claim of O. W. Leiman, affirmed.