Case ID: mass_5/html/0139-01.html
Source: Caselaw Access Project
Author: {"author": "Sedgwick, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Ebenezer Oliver versus William P. Smith and Charles Paine, Trustee.
    The assignee of a bankrupt is not liable to be summoned as the trustee of the bankrupt upon a process of foreign attachment by the surety of the- bankrupt in a bond to the United Slates, who has paid the money due on the bond; but the action must be brought directly against the assignee.
    This was an action of debt, in which the plaintiff declares that he, on the second day of June, 1801, at the special instance of the defendant, and for his debt, as his surety, became bound with him, and one Francis J. Oliver, jointly and severally by bond to the United States, to pay them the sum of 2,680 dollars on or before the second day of June, then next, in consideration whereof, the defendant promised him that he would pay that sum by the time, and save him harmless from all damages and costs : that the defendant was duly requested to pay the money due to the United States, but neglected: that in consequence of the refusal of the defendant to pay as he ought, the plaintiff became liable on his bond, and was obliged to pay, and has actually paid to the United States 1,322 dollars, 98 cents: that thereby, in pursuance of the * act of congress, the plaintiff has become the legal [*184] assignee of the bond, and entitled to have every ad vantage and priority, which the United States thereby possessed.
    In this action Charles Paine, Esq. was summoned as the trustee of the defendant, from whose disclosure, in answer to the interrogatories put to him, it appears (among other things not necessary to be stated in relation to the opinion of the Court in this case) that on the 22d of April, 1802, the defendant, being a merchant, committed an act of bankruptcy : that on the 4th of May in that year a commission of bankruptcy issued against him: that Paine was chosen assignee under the commission: that an assignment was accordingly made: that Smith obtained his final discharge on the 10th of July, in the same year: that the bond mentioned in the plaintiff’s declaration became due on the 2d of June, in that year: that a suit was instituted against Smith, but that no satisfaction was obtained thereby: that on the 4th of September, 1802, Mr. George Blake, attorney of the United States for the district of Massachusetts, gave notice to Mr. Paine, then assignee of Smith, of the bond declared on in this case, and requested payment of it, to which Mr. Paine replied that he had no effects belonging to the estate of Smith then in his hands : that the plaintiff paid the amount due by the bond on l he 11th of March, 1803: — that after giving this bond, viz. on the 20th of February, 1802, Smith gave at the custom-house in Boston three other bonds to the United States for the payment oi duties, in each of which he, the said Paine and one William Hall, were sureties: that the money due on these last-mentioned bonds, was paid as they respectively became due, the last payment being made before the plaintiff paid the money due on his bond; that Hall, the co-surety with Paine, has commenced an action against him, as the assignee of Smith, to recover the money by him paid; and that at the time the summons in the present action was served [ * 185 ] upon * Paine, he had in his hands 1,000 dollars of the property of the bankrupt.
    Several questions were argued at the bar by Dexter and Blake in support of the action, and Jackson in the defence; one of which only was decided by the Court, viz. whether an action in this form could be maintained against the assignee of a bankrupt, or whether the effects in Mr. Paine’s hands were liable to be attached as the property of Smith, the principal debtor.
    On this point, Jackson observed that by our statute giving this form of process, the goods, effects and credits of an absconding debtor intrusted or deposited in the hands of another, were alone made liable to attachment. But the effects in Paine’s hands were in no legal sense the property of Smith, but of Paine himself. They were never transferred or intrusted to him by any act of the bankrupt, but by the commissioners only, whose assignment instantly divested the bankrupt of his whole interest. Indeed, a commission of bankruptcy is a statute execution, by which all the effects of the bankrupt are seized for the benefit of his creditors.
    In the construction of this statute, our Courts have generally looked into the English practice upon foreign attachments. It is there settled that no one is held as garnishee, unless the principa can at the time maintain an action of debt,Metinue, assumpsit, &c. against him, with the exception, perhaps, of goods fraudulently conveyed to the garnishee, which the principal, being a party to the fraud, could not set aside, though a creditor might, But here it cannot be pretended that Smith has any right of action against Paine, in virtue of the assignment of his effects by the commissioners.
    If the plaintiff has any remedy against the effects of the bankrupt in the hands of the assignee, it must be sought by an action brought directly against the assignee himself (). [*186] * In support of the action in its present form, it was observed that though the statute uses the expression “ intrusted or deposited,” yet these words had always received a liberal construction, and this process has been supported, wherever it has appeared that the supposed trustee has effects or credits in his hands, by whatever means they came there, which were bound for the payment of the debts of the principal debtor, and the effects in Paine’s hands were expressly intrusted with him for the payment of Smith’s debts.
    By the 62d section of the bankrupt law, it is enacted that nothing in that law shall be construed to lessen or impair any right to, or security for, money due to the United States or any of them ; and by the 65th section of the collection law, it is provided that a surety paying to the United States the money due upon a bond for duties, shall enjoy all the advantage and preference reserved and secured by that law to the United States. Independent of the bankrupt law, the United States, and of course the present plaintiff, could unquestionably maintain this action against Paine as having effects of Smith in his hands and possession.
    But this is virtually a suit against Paine himself. He is summoned as a party, is entitled to plead to and defend the action, and is subject to an execution. Indeed it is not easy to conceive the form of an action which may be brought against an assignee as a principal debtor, or how a judgment in such action would be rendered or executed ; and it seems absurd to charge one de bonis propriis, because he has the effects of another in his possession.
    The priority given to sureties in the collection law is only against the estate and effects of the principal, and this process seems the only one furnished by our law by which a surety can avail himself of the intention of the legislature in his favor.
    
      
      (1) Champnis vs. Lisle & al. 1 Binney's Rep. 327.
    
   *The opinion of the Court, except the Chief Jus- [ * 187 ] tice, who did not sit in the cause, was afterwards delivered by

Sedgwick, J.

[After a brief recital of the facts.] On these facts there are three questions presented to the consideration of the Court.

1. Did not the notice, which was given by Mr. Blake, the attorney of the district, on the 4th of September, 1802 (being previous to any of the custom-house bonds being paid, or having become due), did not this notice to Mr. Paine, as assignee of the defendant, and requesting payment of the bond, on which this action is brought, so attach the right of the United States to the money in Mr. Paine’s hands, that it could not be divested afterwards by any payment of other bonds due to the United States 1

2. As the plaintiff did not pay the money punctually upon the bond, in which he was surety for- Smith; nor until other bonds made and payable afterwards, had been paid by the other sureties, Paine and Hall; has he by that delay, under the circumstances of this case, lost the benefit, otherwise intended him by the statute, of having vested in him, upon his payment of the bond, the right of the United States to priority and preference ?

3. Supposing the plaintiff by law entitled to recover, is this the proper form of action ?

By the answer which we find ourselves bound to give to the last of these questions, it is unnecessary to resolve the two former. Being of opinion that this is not the proper form of action, whatever the right of the plaintiff may be, we seem to be precluded from considering the merits of the case, which, by a mistake in bringing the action, are really not before us.

We have suggested the first question, which was not noticed at the bar, because it seems to us worthy of consideration; and because we are informed by Mr. Paine’s answers, that his [*188] co-surety, Hall, has brought an action, *for his part of the money paid on Smith’s bonds, against Paine as assignee. *■

To determine whether Mr. Paine would, under any circumstances, be responsible to - the plaintiff, upon the process used in this action, as the trustee, because he is the assignee of the bankrupt, it will be necessary to consider the statute of this commonwealth, and that of the United States, so far as they respect the subject before us.

The act commonly called the trustee act,' on which this process is brought, was made for the express purpose of enabling “ creditors to receive their just demands out of the goods, effects and credits of their debtors, when the same cannot be attached by the ordinary process of law.” The preamble recites that “ whereas the goods, effects and credits of persons are oftentimes so intrusted and deposited in the hands of others, that the same cannot be attached by the ordinary process of law, to satisfy such judgments as may be recovered against such persons.” The act authorizes “ all his goods, effects and credits so intrusted or deposited to be attached.” The process prescribed, to give the remedy intended, directs the person, with whom the goods, effects and credits of the debtor have been so intrusted or deposited, to show cause why execution should not issue against the goods, effects and credits of the debtor in his hands. And the substance of the answer of the person summoned is, whether he has in his possession the goods, effects or credits of the debtor.

It appears then, that the goods, effects and credits, which by this process are to be attached to satisfy the demands of the creditor, eve the goods, effects and credits .of the debtor. Indeed, from the nature of the subject it would seem that they could be the goods, effects and credits of no one else. Now, it is very evident that Mr. Paine had in his hands no goods, effects or credits * of the debtor, the principal defendant in this action. [ * 189 ] For, by the bankruptcy of the defendant, he ceased to have any property in what were before his goods, effects and credits ; and by the assignment of the commissioners to Mr. Paine, those goods, effects and credits, by retrospection, from the moment they, by the act of bankruptcy, ceased to belong to the defendant, became his ; and this by a title no way connected with, bút adverse to the defendant. As they were manifestly in truth not the goods, effects or credits of Smith, they ought not to be so considered, unless a fiction to that purpose is indispensable to attain the end of substantial justice. This will depend on the true construction of the act of congress, to regulate the collection of duties on imports and tonnage.

The 65th section of that act directs that bonds given to secure the collection of duties shall, immediately after having become due, be put in suit. It then provides for priority of satisfaction in cases of insolvency; and then that any executor, administrator or assignees, or other persons, who shall pay any debt for the person or estate, for whom or which they are acting, previous to the debt due to the United States, from such person or estate, being first paid, shall become answerable in their own person or estate for the debts due to the United States; and that actions may be commenced against them for the recovery thereof. There is then a proviso, that in all cases where actions are commenced for the recovery of duties or pecuniary penalties by the laws of the United States, the person against whom process may be issued, may be held to special bail, subject to the rules which prevail in other suits.

It does seem to me that when the act provides for the priority and preference to the United States, in cases of insolvency, it imposes a duty on those, in whose hands the funds may be, which are required to satisfy the preference which is secured, to apply them accordingly; *and reasoning from analogy, it would [*190] seem that suits ought to be instituted whenever any executor, administrator or assignee shall fail to fulfil his obligation. It seems difficult to conceive, upon any principle of reason, why, when any person has money in his hands in any capacity, which belongs to another, and he refuses to pay it over, and a suit becomes necessary to compel him to perform his duty, that the suit should not be commenced against him in the character in which he holds the money. If the United States should claim the money in the hands of Mr. Paine, and were entitled to recover it, it would be because he nod received it as the assignee of Smith, and had improperly neglected to pay it where it was due. And if this be an instance, it is a singular one, in which an action may not be supported against an assignee of a bankrupt, where he shall refuse the performance of a civil duty, to the injury of another.

It is important to ascertain what would be the remedy, if the United States were parties. Because the next proviso of the same section of the act gives to the surety of an insolvent principal, on his payment of a bond given for duties, the like advantage, priority or preference for the recovery and receipt of the said moneys out of the estate and effects of such insolvent, as are reserved and secured to the United States, and authorizes him to bring and maintain a suit or suits upon the bond or bonds, in law or equity,” in his own name, for the recovery of all moneys paid thereon. And it declares that the cases of insolvency included in that section, shall include the case of a debtor voluntarily assigning his property, that of a concealed or absconding debtor, and that of a legal bankruptcy.

That it was not the intention of congress to give only the remedy that has been attempted in this case, is very certain from this consideration, that it is a process which is confined to a [ * 191 ] very small part of the United States; and * therefore, if relied upon alone, the intentions of the act could not be carried into effect.

But it may be said that it is a remedy concurrent with one directly against the assignee. It seems to me impossible to suppose that congress should consider the same person, in relation to the same property, indifferently, as the assignee holding the property adversely to the bankrupt, and as a trustee holding it under and for him.

It was asked, how is to be the judgment, and how is it to be executed ? I answer, not definitively, but I hope satisfactorily, that the judgment, in form and substance, must be the same as other judgments against assignees as such, and executed in the same manner.

That case of Champnis vs. Lisle & al., Assignees, cited at the bar, does not show that this sort of action may not be supported, any further than as it is evidence that an action may be supported directly against the assignee; nor does this appear from the case any further than that there was no objection made on that account. But it can hardly be supposed that none would have been made, if the counsel had supposed the objection to have been plausible. And I think it impossible that the same person should be both assignee ana trustee of a bankrupt, in relation to the same property.

Trustee discharged.