Loucheim Brothers' Appeal ( 1871 )

The opinion of the court was delivered,

by Sharswood, J.

These are appeals from a decree of the court below distributing the proceeds of the personal property of M. B. Wilson raised upon executions against him.

It appears that Wilson having become involved, and eight writs of fieri facias against him being in the hands of the sheriff, on the 22d of March 1869 procured his creditors, as well his general creditors as those who held executions, to execute an agreement by which the execution-creditors agreed to stay proceedings for four months, and the general creditors agreed to accept the judgment-bond of said Wilson to S. W. Dana, trustee for their use respectively, for the amount of their claims at six and eight months. It was stipulated as a term or condition of the arrangement that in case of executions issued on any of said claims the execution-creditors should have priority whatever the order of their being issued. It will he best to state now, in passing, that the plain meaning of the parties to the agreement was that in the event of executions issued upon the claims of any of the signers, those creditors who already had executions in the hands of the sheriff should have priority over all the others, but as between themselves without regard to the order in which their executions were issued. In other words, if the property should be insufficient to pay all, it should be distributed amongst them fro raid in proportion to their respective amounts. No other interpretation can be reasonably placed upon the language employed; and it cannot be doubted that all the signers of that agreement were bound in good faith to carry it out.

Loucheim Brothers were general creditors and signed- the agreement. They were returned by Wilson in the list exhibited to his creditors as entitled to $830. In point of fact his debt to them was $1600. To induce them to sign the agreement, he executed to them a judgment-bond for $800, payable in thirty days. It cannot be doubted, both upon principle and the authorities cited by the learned judge below, that this was a legal fraud upon the other signers, and the security as to them was void. But it was not void as to other creditors, not parties to that agreement. If by means of that security Loucheim Brothers obtained any legal advantage over others, they must be regarded in equity as trustees ex maleficio for the signers of the agreement, and according to its terms Loucheim Brothers having entered up this judgment and issued execution and thereby acquired the first lien, hold that lien as trustees for those entitled under the provisions of the agreement to which they were parties. It seems useless to elaborate an argument in support of a position which is so plain a dictate of common justice.

The next execution in order is that of McCord & Co. They were also signers of the agreement. No provision is made in the agreement that the claim of a creditor should be forfeited in consequence of having issued execution before the period of the stay was out. Their execution, like the first of Loucheim Brothers, is therefore in trust for the execution-creditors according to the terms of that agreement.

The next execution-creditors are Robinson & Co. They were not signers of the agreement, and of course are unaffected by any of its provisions. But as their executions are subsequent to those of Loucheim Brothers and McCord & Co., they have no claim, legal or equitable, to any part of the fund except what shall remain after satisfying these two first executions. The fraud of Loucheim Brothers was no fraud upon them,’ and they have no right to any advantage from it. McCord & Co. are not trustees for them. It seems very plain, then, that so much of the fund' as is necessary to satisfy the debt and interest upon those prior executions is in equity to be distributed to and among the eight execution-creditors who signed the agreement of March 22d 1869 fro raid in -proportion to their respective claims. The costs upon those executions are to be paid to ,the plaintiffs in the writs, or those otherwise entitled thereto.

The Manufacturers’ and Mechanics’ Bank v. The Bank of Pennsylvania, 7 W. & S. 335, a ease which arose upon an issue directed to try the right to the proceeds of real estate sold under execution, it was held that, although a mortgage imperfectly recorded is ineffectual as a lien against subsequent judgment-creditors, yet if there be a second mortgage between the first and the judgments in point of time, entitled to the proceeds, and this mortgagee had actual notice of the first mortgage when he took his own, the first mortgage is good as to him, and therefore entitled to have the money appropriated to it or so much thereof as is necessary to satisfy his claim. The creditors subsequent to the second mortgage could not come in till it was satisfied, and it cannot be until the first mortgage is. This was upon the principle previously settled in Wilcocks v. Waln, 10 S. & R. 380. There an insolvent was indebted to A. on a judgment, and to B. on a mortgage subsequent in date to the judgment, and to the United States on. judgments for duties. By the Act of Congress, the United States had a priority over the judgments, but not over the mortgage. ¡ As against the United States, B. was entitled to the money; but A., though having no right as against the United States, had a prior right as against B., and was therefore held entitled to the fund, f The principle settled in these determinations appears to us to rule this case.

Decree reversed, and record remitted to the court below that a decree may be there entered in conformity with this opinion.