Vail's Appeal from Probate

| Conn. | Aug 15, 1870

Butler, C. J.

We have been embarrassed in the consideration of this case by the condition of our law in relation to the chancery powers of a court of probate, and by the peculiar character of the facts and proceedings. But after careful deliberation we are of opinion that the decree of the Superior Court, affirming the order of the court of probate, cannot, upon principle, be sustained.

In the case of Hotchkiss v. Beach, (10 Conn., 232" court="Conn." date_filed="1834-07-15" href="https://app.midpage.ai/document/hotchkiss-v-beach-6574794?utm_source=webapp" opinion_id="6574794">10 Conn., 232,) it was holden that the sole power of determining the nature and character as well as the amount of claims against an insolvent estate, was confided by statute to the commissioners— that the courts of probate had no power to allow or disallow, .directly or indirectly, any claim or demand against such an -estate, and that the report of the commissioners was made peremptorily “ the sole rule by which the judge is to order payment;” and- the court reversed an order of the court of probate marshalling the assets of the estate so as to deprive -partnership creditors of a dividénd from the individual property until individual creditors were paid, because the differ-once in the nature and character of the claims was not reported by the commissioners, but was afterward found by the court of probate. It was admitted or assumed in the case, though since otherwise decided, (Camp v. Grant, 21 Conn., 41" court="Conn." date_filed="1851-06-15" href="https://app.midpage.ai/document/camp-v-grant-6576428?utm_source=webapp" opinion_id="6576428">21 Conn., 41,) that the individual creditors of a deceased partner should first be paid from the individual estate, and the point of controversy, and the one decided, was that whether-a partnership or an individual debt was a.fact to be determined! by the commissioners alone, and that if they made no discrimination between the claims in their report, the court of' probate could make none, but must order all paid as individual creditors. That decision was made in 1834 by Church, Chief Justice, and Daggett and Bissell, justices, Judge Peters, being absent, and Judge Williams dissenting. If that decision is law now, the court of probate had no power to go-behind the report of the commissioners and into an inquiry-after equities between the creditors, but, as all stood on the; same footing in the report, the court should have ordered all! to be paid alike.

The decision was received and acted upon as law until! 1857-8, when two decisions were made in relation to the-assigned estate of the Grove Car Works, an insolvent corporation, which are in conflict with that of Hotchkiss v. Beach, (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, and Ashmead's Appeal from Probate, 27 Conn., 241" court="Conn." date_filed="1858-02-15" href="https://app.midpage.ai/document/ashmeads-appeal-from-probate-6577366?utm_source=webapp" opinion_id="6577366">27 Conn., 241.) In these cases-,, the court seem to have holden unanimously that it was not; the province of commissioners to inquire into the nature and: character of the claims or whether there was any ground of priority or preference in respect to the claims allowed, and that all equities between creditors must be inquired into and administered upon by the court of probate and that court only, — taking substantially the ground assumed by Judge Williams in his dissenting opinion in Hotchkiss v. Beach.

It is true the learned judge who gave the opinion in Ashmeads Appeal did not expressly admit that the court intended to overrule Hotchkiss v. Beach, and did attempt to discriminate between' the two cases, but his attempted discrimination did not relate to the point involved. He inquired whether the court of probate could not regard trusts and liens adhering to the property, in the administration and apportionment of it, without regard to the report of commissioners or the statute relating to dividends, and said they could. He then goes on to say that the case of Hotchkiss v. Beach contains no doctrine to the contrary of that, and in that he was right. No member of the court in Hotchkiss v. Beach, nor any member of any court since the administration of estates was first given to the court of probate by a statute comprehensive in its terms, has ever doubted that proposition. But the point decided in Hotchkiss v. Beach, and the point made by counsel in Ashmead’s Appeal, was, that inasmuch as the commissioners had all necessary, incidental, legal and equitable power to determine, and must ordinarily inquire into and determine, the nature and character of the claims presented, and the statute made it the duty of the court of probate to apportion the assets ratably among those found to be creditors, “ as allowed by the commissioners,” it was necessarily the province and duty of the commissioners to find and report any facts connected with the nature and character of the claims which established an equitable right of priority in favor of one class Of creditors over another. The question then was not whose province it was to ascertain “ trusts and liens adhering to the ■estate,” but whose it was to determine facts connected with the nature and character of the debts, which established an equitable right of priority in the distribution of the assets, when those assets were freed from all trusts and liens, and made ready for distribution.

And it is perfectly apparent that there is an irreconcilable conflict, in substance and effect, between the decisions. In Hotchkiss v. Beach the commissioners reported the debts without any finding of facts establishing any equitable right of priority between the creditors. The court of probate found such right and decreed a preference, and the Supreme Court reversed the decree of the probate court. In Ashmead’s Appeal the commissioners in like manner reported the debts without any facts establishing any equitable right of priority between the creditors, and the court of probate, assuming that tliei’e was an. equity, passed a similar decree, which the Supreme Court sustained. In one case the court go upon the ground that it is, by statute, the province of the commissioners and not of the court to find the equity. In the other, the court say that that construction of the statute is a harsh one and that it is the province of the court and not of the commissioners to find it. There can be no doubt that, in effect, the latter case overrules the former one. We accept the rule as adopted in the latter case because it is the later one, and because it is of vital importance that it should be settled, and not very important which tribunal finds the facts.

But while we thus, for the reasons stated, assent to the principle that the court of probate may go behind the commissioners’ report, in marshaling the assets, we are by no means satisfied with other views and the reasoning adopted in the case, and the condition in which it leaves the law.

The judge of the court of probate is not a chancellor. He possesses chancery powers, but they are only such as are incidental, connected with the settlement of a particular estate, and necessary for the adjustment of equitable rights; and not to find and enforce equities, in the ordinary and loose sense in which that term has come to be used in the law. If there are trusts connected with the property, or liens upon it, or priorities enforceable in equity, — if through fraud, accident or mistake, a class of creditors or beneficiaries are entitled of right to relief as against other creditors or beneficiaries, he may marshal or distribute the assets so as to enforce or satisfy the right. But it must be a right — one which a court of equity would take cognizance of and enforce, if application could be made to such a court. In Hotchkiss v. Beach there was a then supposed equitable right of priority. A like right existed in 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) in favor of other creditors, one being satisfied by a lion.

It is not easy to discover what right existed on which a priority in favor of one class of creditors against the Grove Car Works could be founded. The court of probate did not find any precise right and seems to have been governed by a general sense of equity. The facts of the case so far as they appear in Waterman’s Appeal and Ashmeadds Appeal, do not show such right; nor is it easy to discover what precise right the Supreme Court found in Ashmead’s Appeal. The judge who gave the opinion in that case, says: “A reference to the facts as they stand on the record is sufficient to show that vthere is a clear and undoubted equity in the appellees’ favor. They became creditors after the company was formed under the statute, by supplying it from time to time with goods, 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, 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 $28,000. Their capital, as we have said, was to be $200,000, but it turned out in fact to be 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 the state and with the town clerk, that the company had a clear capital.of $200,000. After this we think they cannot deny it or come in to carry off any portion of the capital to the prejudice of bond fide creditors. The injustice of such a course will be most apparent if we lay the stock company out of view and regard the ajDpellants 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.” * * * “But here is a fund of some $20,000 subject to distribution by the order of the court, and how shall 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 ?” * * “ This court held in the late case of Peck v. Harrison, (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 cannot the judge discriminate between classes of creditors as to specific funds ? We think he may.”

It is not clear from these extracts from the opinion of the court, (and they are all that bear upon the point,) what kind of equity they found in favor of the creditors preferred, nor on what precise ground they intended to place the decision,— whether on the ground of estoppel, or fraud, or upon the ground that looking through the corporate shell they could see that the creditors whose debts were assumed were partners and therefore debtors in effect in their relation to the other creditors, or upon “ trusts or liens adhering to the estate,” or upon a mere general impression of justice and equity — for all are alluded to and apparently relied upon in the opinion. And by reference to Waterman’s Appeal it appears that the facts were not fully comprehended, for the corporation received 1340,000 in property as capital and fifty per cent, of the amount of their debts in cash for stock of the creditors, and did not assume the debts without any equivalent beyond the capital.

We have thought it our duty to be thus critical in relation to that case because it is apparent that counsel and the court of probate were misled by it in this case, and that it is calculated to mislead other judges of those courts and the profession.

Judges of probate should understand that they are not to decree priorities between classes of creditors whose claims are allowed by commissioners, nor in any case, on any loose impressions of “justice and equity,” nor unless such priority is founded on a clear, definable and specific equitable right, recognized as such in equity jurisprudence, and one which a court of equity could and would protect and enforce, if application could be lawfully made to such court therefor.

In this case the supposed equitable right on which the decree of the court of probate was founded, was a trust in Charles B. Coe, in favor of the creditors of S. W. Coe & Son. The property assigned by Charles B. Coe, the avails of which are now in the possession of Dickinson, was mainly derived from S. W. Coe & Son, and the court of probate found that the conveyance was not an absolute sale but a trust, and that the property purchased afterward by Charles B. Coe was also trust property purchased with trust money in furtherance of the trust. If that was so, what claim had S. "W. Coe & Son upon it as creditors, or how can they be creditors of the estate ? They are not the cestui que trusts. The creditors of S. W. Coe & Son sustain that relation to the fund. They have not paid the cestui que trusts — the creditors of S. W. Coe & Son, and become subrogated to their rights. Nor was it competent. for them to present a claim as crt itors in behalf of the creditors of S. W. Coe & Son. If the kfore, in point of fact, the conveyance from S. W. Coe & S< to Charles B. Coe was not a sale, but was a trust — in reía >n to which we express no opinion — S. W. Coe & Son did not become creditors of Charles B. Coe unless for a balance after the cestui que trusts were paid, nor was the property assigned by Charles B. Coe estate which could be assigned, except as subject to the trust in favor of the creditors of S. W. Coe & Son.

We do not doubt the admissibility of parol evidence to prove an express trust in relation to personal estate, although the rule is otherwise in relation to real estate, and we have looked carefully at the finding of the Superior Court to see if the decree could be sustained on the ground that justice had been done. But the Superior Court has not fouud a trust in terms, nor such incontrovertible facts as would justify us in assuming that the claimed trust existed and must necessarily be found whenever and however the question should be tried. We are not at liberty therefore to sustain the decree on that ground.

Without therefore determining the question whether the conveyance from S. W. Coe & Son to Charles B. Coe was, or was not, a trust, we arrive at the conclusion that if it was such, the decree of the courtof probate, giving a priority to S. W. Coe & Son as creditors, founded on the supposed trust, is not sustainable, and that the decree of the Superior Court must be reversed.

' In this opinion the other judges concurred; except Seymour, J., who having been counsel in the case when at the bar, did not sit.