Case ID: sc-eq_6/html/0466-01.html
Source: Caselaw Access Project
Author: {"author": "Nott, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Administrators of Charles Rutledge v. Hazlehurst, et al. Creditors of Charles Rutledge.
    1826.
    
      Charleston.
    
    Legal assets toaiiiuL'scx-thcTcteathof the debtor, bution among derth”exe" utons’ law.
    Jan. 1826.
    The object of the bill was, to obtain from the Court °f Equity directions as to the order in which the debts hitestate should be paid. The act of 1789,1 Brev. 335, provides that the debts due by a testator or intestate shall be paid in the following order, viz. Funeral anc^ other expenses of the last sickness ; charges of probate of the will, or of the letters of administration; next debts due the public; next judgments, mortgages and executions, the oldest first, &c. The assets of the intestate in this case consisted of negroes, household furniture and outstanding debts. The intestate at the time of his death w.as indebted to the public. He was indebted to Mr Hazlehurst on an old judgment, on which no execution had been issued, and to other persons on junior judgments, on which executions had been issued and lodged in the sheriff’s office (one belonging to Muir) in the life time of the deceased. The question submitted to the Court of Equity was, whether the executions, which had acquired a lien on the personal property in the life time of the intestate, were entitled to a preference to the other creditors to the extent of that lien j or whether the proceeds of the estate should be paid in the order prescribed by the act, without regard to the liens thus acquired. The cause came before Chancellor Thompson, January term, 1826. He made the following decree.
    Thompson, Chancellor.
    This case came up on exceptions to the Master’s report. It appears that the estate of the intestate consisted solely of negroes and outstanding debts. The negroes were sold for the sum of $ 1,376. 56i and the outstanding debts amount to about $800. The execution creditors contend that they are entitled to the whole of both funds. The judgment creditors contend, that as the execution creditors have two funds to resort to, they must resort to that fund which will be the least injurious to secondary creditors. There can be no doubt but that the executions bound all the personal estate of the intestate, from the moment they were entered the sheriff’s office, in preference and in exclusion of the judgments, which had no legal lien except on the real estate. It is equally clear that they had no lien on the choses in action; and that the judgment creditors had an equitable lien on them as equitable assets. The rule of this Court is, in regard to equitable assets, to put all the creditors on a footing. So when the assets are partly equitable and partly legal, although the Court cannot take away the .legal preference on legal assets, yet if one creditor be paid out of legal assets, when satisfaction comes to be made of the equitable assets, the Court will postpone him until there is an equality of satisfaction to all the other creditors out of the equitable assets. It is ordered and decreed, that the amount raised by the sale of the personal property be appropriated to the discharge of the legal liens and that the amount of debts received be applied by the administrator in due course of administration. Interest to be allowed on all demands legally entitled to draw interest. Costs to be paid out of the funds.
    From this decree an appeal was taken on the following grounds:
    
      First. That the debts and expenses of the estate, preferred in payment under the act of 1789, had an equal claim to be paid and preferred both from the legal and equitable assets, and were in fact principally paid from the legal assets. The judgment of Hazlehurst ought to be paid from the equitable assets.
    4 April 1826.
    
      Second. That at all events as the preferred debts and expenses had an equal lien on both funds they ought to he charged rateably and proportionably on the legal and equitable assets.
    
      King, for the appellants.
    The executors’ law obviously intended that the debts should be paid in the order in which they were set down, without regard to the nature of the funds or the source from whence they w'ere derived. Pub. Laws, 494, Executors’ Law. But admitting that the lodging of an execution gives a specific lien on the visible personal estate, and for that! reason would be preferred, yet the preferred debts, such as expenses of the last sickness, administration, and the judgment and execution of Muir, had equally a lien jm them and they ought to have been paid out of that fund ; so that a balance of the equitable assets (dioses in, action) should be left to be applied to the payment of complainants’ debt.
    The principle is, that when a creditor has a specific lien, he shall first resort to that fund; and until that shall be found insufficient, he can not resort to the general fund. Greenwood v. Executors of Boquet, 2 Bay, 86. 1 Harp. Eq. Rep. 164.
    
      Eunhin, contra.
    At the death of Rutledge, there is no doubt that his execution creditors had a lien on his visible personal property, to the exclusion of the complainants; and it is now intended by the executors’ law to take aw'ay those liens. Expenses of administration and the last sickness were, from motives of public policy, preferred and made an exception; but none of the reasons which apply thereto affect creditors of equal rank. The last argument of the counsel for the appellants departs from the executors’ law, and substitutes in its place the rule of equity. . If that is taken in extenso, the effect would be to divide the whole fund among the creditors, without regard to date or lien.
    Nov. 1826.
    outstanding debts arelegal assets ancl must be appli-^ent ofdetits in their legal abie assetsare su?h as can, only be reached through of^yaioneare subject to the rules of eqrntable distribu-is a^e dis-tributabie ac-“^mStoth®
    
      King, in reply.
    It is not intended to forego the provisions of the executors’ law, but merely to call ip the rule of equity to assist in determining the true meaning of the statute.
   CuitiA, per

Nott, J.

I do not think this case entirely free from difficulty. I have, therefore,'bestowed no inconsiderable attention on it; and I have at length come to the conclusion, that the decree of the Chancellor must be affirmed; although I have not arrived at that conclusion by the same course of reasoning to which the Chancellor has resorted. I am induced to think, that much of the difficulty, which has been thrown in the way of a clear understanding of the case, has resulted from considering the outstanding debts as equitable assets. Outstanding debts, when collected, are as much legal assets as tangible property or money in hand. .And I can-o í x v v not find that they have ever otherwise been considered by any of our Courts. Legal assets are such as constitute the funds for the payment of debts, according to their legal priority. 1 Madd. Cha. 586. Equitable assets are such as can be reached only by the Court of Equity. 1 Madd. J J n i i ¶ Cha. 586. Outstanding debts may be collected -by the executor or administrator without the aid of the Court Equity, and constitute the legitimate fund for the pay- , , ,. , , . . , ment of debts, according to legal priority. All the rules of the Court of Equity, therefore, with regard to the distribution of equitable assets, are out of the question in this case. It is intended to be urged that, by bringing the case into the Court of Equity, the assets must be distributed according to the rules of that Court in case of equitable assets, without regard to the provisions of the act. It may be an important question, though it does not appear to me to be one of much difficulty. In the case of Brady v. Sheil, 1 Campb. Rep. 148, Sir James Mansfield said “ he wished it were more generally known (for he believed that the lawyers in the Court of King’s Bench were not aware of it) that through the medium of a Court of Equity the creditors of a deceased insolvent debtor may always be compelled to take an equal distribution of the assets. It was only necessary for a friendly bill to be filed against the executor or administrator to account, after which the Chancellor would enjoin any of the creditors from proceeding at law.” But it will be recollected that an executor in England may pay one creditor, or confess judgment to one for the amount of his debt, in exclusion of all the rest, in equal degree. 2 Black. Com. 512. 1 P. Wms, 255. And I presume that all that was meant by Sir James Mansfield was merely that a Court of Equity would prevent such preference from being given, and would marshal the assets among all the creditors in equal degree. But that is nothing more than what is required by our act. So that the executor may do here precisely what a Court of Equity, under similar circumstances, would do in England.

If a Court of Equity in England would do more, I can only say, that I am not prepared to concede to such Court in this state the power of directing a distribution of the legal assets of an estate, different from that required by the act. Courts of Equity are as much bound by positive statutes as Courts of Law. How it would be in case of equitable assets it is unnecessary now to decide.

The case then comes back to the original question, whether the execution creditors still maintain the lien which they had acquired % I am of opinion the lien is still preserved. Suppose the deceased had in his life time given a mortgage of the personal property. I apprehend that it will not be contended that the judgment creditors, or other preferred creditors, could have divested the mortgagee of his lien; and as it regards ere-ditors I can see no difference whether the lien be by execution or by mortgage. The act is merely directory to the executor as to the manner of disposing of the 1 0 . assets where there are no pre-existing liens, and this appears to me to be consonant with the English decisions as well as our own. 1 Madd. Cha. 595. 3 Atk. 326. 3 Salk. 83. In the case of Sharpe v. The Earl of Scarborough, 4 Ves. 538, it is said assets are not marshalled against judgment creditors. In the case of the Commissioners of Public Accounts v. Greenwood and others, 1 Desaus. Rep. 450, it was decided, that the state had no prerogative to be paid out of the effects of the debtor in preference to any of the citizens who have judgments, mortgages, or other liens. That the act of 1789 is only directory to executors and administrators, and does not alter the case in relation to the rights of the state, and other creditors. (See the case more fully reported in an appendix to the same volume.) It was there held that execution creditors should still maintain their liens against the state, to whom the deceased was largely indebted. And in the case of Brown, Executor of M’Kearney v. Gilliland, 3 Desaus. Rep. 530, it was decided that the purchaser of a negro at the sale of an estate, made by permission of the Ordinary, should not be required to pay the purchase money until the executor should secure him against an execution which had been obtained against the testator in his life time, although the execution had been returned nulla bona before his death, and before he became owner of the property in question. It was considered that the execution still operated as a lien upon it, and that it could not be at the disposal of the executor until that lien was removed by satisfaction of the debt. These decisions appear to be conclusive of the question now un¿er consideration.

T Legal assets must be dis-the'acfrfte^ satisfying all liens existing before the ¿®^r°fthe

It is thought that the decree of the Chancellor is ambiguous, in not directing in what order the debts shall be paid, but when we take it in connection with the report of the Commissioner, and the subsequent confirmation of that report, the ambiguity is removed, and the order in which the debts shall be paid is clearly prescribed. The motion therefore must be refused and the decree affirmed.

Decree affirmed.