Ashmead's Appeal from Probate

| Conn. | Feb 15, 1858

'Ellsworth, J.

The controversy in this ease is among the creditors of the Grove Car Works, as to the proper distribution of the assets of the corporation in the hands of the general assignee. The court of probate decided that it had itself jurisdiction of the matter, and ought to allow a preference in behalf of those creditors who became such in the progress of the business of the company after its incorporation, to such as were creditors of Fales & Gray before the corporation had an existence, and became creditors of the company by its assumption of these debts afterwards.

We do not see any reason to doubt the correctness of this decision of the probate court and of the decree founded upon it. Certain it is that the decree is most just and equitable, and it should not be reversed if it can be sustained consistently with the rules of law. If it can not, it must of course be reversed.

It will be seen that both classes of creditors had presented their claims to the commissioners and they had been allowed and reported. The whole amount of claims thus allowed was $121,000; those of the first class $23,000, and those of the second class $98,000.

From the commissioners’ report an appeal was taken by the first class of creditors, on the ground that the commissioners themselves ought to have made the distinction and allowed the preference. This court held that the commissioners were not authorized to do it, and in our opinion we intimated that it probably could be done by the court of probate if at all. (Waterman's Appeal from Probate, 26 Conn., 96" court="Conn." date_filed="1857-02-15" href="https://app.midpage.ai/document/waterman-appeal-from-probate-6577190?utm_source=webapp" opinion_id="6577190">26 Conn., 96.) Following this intimation, such a preference has been made by that court, and we are now called upon to decide if that proceeding is correct.

In the former case we held that the commissioners had no jurisdiction to inquire as to any priority of lien on the assets in the hands of the assignee; that their province was to examine all claims presented against the corporation and allow such of them as were proved to be legal and just, and if, as among the creditors themselves whose claims were allowed, there was any ground of priority or preference, it was an equity to be administered by some other legal tribunal. So far as the corporation was concerned we saw no difference between the two classes of creditors. It is true commissioners may in certain special cases inquire into the character or origin of debts, with reference to a preference, such as the expenses of the last sickness, state taxes, &c.; but even this they need not do, but may leave the probate court to make the inquiry and allow the preference as the statute directs. It is not their appropriate business to settle general equities among the creditors, much less, the priority of liens and incumbrances on the property assigned. The allowance of the claims of these two classes of creditors by no means settles the questionpnade in this case; nor does the inquiry at all attack the doings of the commissioners. Those proceedings are undoubtedly final and conclusive if not appealed from and set aside by the legal tribunal provided in such cases. The object of the present decree is different altogether. The appellees here allow the commissioners’ doings to be conclusive, and that the former decision of this court must stand unimpaired, and hence they insist that as there is a clear equity in their favor and as relief can be had no where else, it must be had in the probate court. This then is the question.

A reference to the facts as they stand on the record is sufficient to show that there is a clear and undoubted equity in the appellees’ favor. They became creditors after the company was formed under the statute, by supplying it with goods from time to time as it needed them to carry on its regular business upon a professed capital of $200,000. But the appellants stand in no such position. They had large claims against Fales & Gray which they wished to make more safe and secure, and to that end formed a joint stock company, a sort of partnership with Fales <& Gray, with a clear, unincumbered capital of $200,000, and the company at once assumed the debts. The company went on a short time and then failed and assigned, but not until they had received from the appellees and the class of creditors to which they belong, property to the amount of $23,000. Their capital, as we have said, was to be $200,000, but it turned out to be in fact but a small part of that sum, for there is but about $20,000 in the whole for distribution. We think that of this the appellants are not entitled to receive any part until the appellees are first paid in full. They themselves declared to the appellees and to all others, by their public proceedings, and especially their certificates left with the secretary of state and with the town clerk, that the company had a clear capital of $200,000. After this we think they can not deny it, or come in to carry off any portion of the capital to the prejudice of bona fide creditors. The injustice of such a course will be most apparent if we lay the stock company out of view and regard the appellants as partners assuming a corporate organization for their greater convenience. This we may do and we think ought to do in furtherance of justice and equity.

We come next to consider the question whether the court of probate is the proper tribunal to afford relief. If relief is to be had at all we ought to be able to find some court which can afford it, for, if the law recognizes the claim as proper, it must be sustained somewhere, unless we admit that the provision made by the law for the administration of justice is inadequate and imperfect. We have already decided that the commissioners can not grant relief. A court of equity can not, for how can such a court interfere and direct what proceedings shall be had in the probate court? It has no power to that end. And besides it can not afford relief in any case where relief can be had elsewhere according to the established forms of law. A court of probate possesses higher power than a court of equity in the settlement of estates, for it is clothed with both legal and equitable authority for that purpose, and the current of our decisions has for many years tended strongly against allowing courts of equity to interfere in the settlement of estates. It is the often expressed determination of our wisest and most experienced judges, that the settlement of estates, whether in the hands of guardians, executors and administrators, trustees, assignees or others who receive their appointment from that court, should be confined to that court. Such business can there be done more expeditiously, conveniently and with less expense than in any other court,'and at the same time with equal safety to the interests of all parties, since an appeal lies from that court to the superior court.

In Bailey v. Strong, 8 Conn., 280, the language of the court is very explicit and decided. The court there say: « The settlement and the entire settlement of estates appertains to the several courts of probate.” The case of Pitkin v. Pitkin, 7 Conn,, 307, is to the same effect. The court there say: “ These courts are vested with chancery powers on all subjects within their jurisdiction, and can so mould and form their decrees as to do entire justice between all parties in interest.”

The court of probate does not hereby in the least impeach the doings of the commissioner's, as was claimed in the argument of counsel. Their doings we have already said are final and conclusive; their report must stand unimpaired, and is the only evidence the law knows of the indebtedness of the estate. But here is a fund of some $20,000 subject to distribution by the order of the court, and how shall this distribution be made? Shall it be according to justice and equity, and with reference to the liens and trusts which adhere to it, or shall no regard be had to such equities ? We have shown that the creditors of Fales & Gray have no equity in the first instance, and why may not the court act upon such a conclusion? We have heard but one argument to the contrary, and that has some plausibility, we admit, but will not bear examination when carefully examined. It is that our statute, (Rev. Stat., tit. 14, § 61,) directs that, after the payment of certain preferred claims, “all other debts shall be paid as allowed, in proportion to their respective amounts.” But this does not, in our view, prescribe any new and arbitrary rule of action to the judge of probate. Without it the assets would have to go to the creditors in equal proportion, except such as had preference by statute, as in the case of expenses of the last sickness, &c. This equal distribution would be a matter of course, and now simply because it is made peremptory by statute we are not willing too carry the statute further and give it such a harsh construction as to cut off and defeat plain and admitted equities, and this, merely because the commissioners’ report is final and can not be disputed. This court held in the late case of Peck v. Harrison, 23 Conn., 118" court="Conn." date_filed="1854-06-15" href="https://app.midpage.ai/document/peck-v-harrison-6576740?utm_source=webapp" opinion_id="6576740">23 Conn., 118, that although a debt is reported by commissioners to be due, yet if it is afterwards paid it may be expunged from the report by the judge of probate, so that in this instance the report was not the only and absolute rule of apportionment. Why then ought it to be in the administration of a fund subject to equitable liens and trusts. If the law permits it, and equity and justice demand it, why can not the judge discriminate between classes of creditors as to specific funds? We think he may.

The case of Findley v. Hosmer, 2 Conn., 351, cited by the appellant’s counsel, contains ■ no doctrine to the contrary. Nor does that of Hotchkiss v. Beach, 10 Conn., 232. In the latter, a majority of the court put the decision on the ground that the attempt made called in question the commissioners’ report; the minority thought it did not, and that the court was only called upon to administer equity between the parties. It does not appear to us that the majority denied or meant to deny the chancery power of the court, but only the propriety of exercising it in that particular case. Besides, it is well known to the profession that since that decision was made, our courts have been inclining towards the doctrine so ably asserted by Judge Williams in giving the dissenting opinion.

We will not pursue the subject further. All of us are satisfied that there is a clear and undoubted equity in favor of the appellees, and that the court of probate is competent, and the appropriate court to administer that equity, and that it has properly administered it here; and we advise accordingly.

In this opinion the other judges concurred.

Advice that decree of probate be affirmed.