Case ID: mass_47/html/0203-01.html
Source: Caselaw Access Project
Author: {"author": "Hubbard, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Cornelia R. S. Brown & others vs. Thomas Lamb & another.
    Under the insolvent act, (St. 1838, c. 163,) if a surplus remains in the hands of the assignees, after payment of all debts proved as the statute requires, they are to pay interest on such debts, as follows: On all debts where interest is reserved by the contract, interest is to be paid according to the contract: On all debts where interest is not reserved by the contract, if the debts became due before the first publication of the warrant to the messenger, interest is to be paid from the time of s ich publication ; but if the debts became due after such publication, interest is to be paid from the maturity of the debt 5 and if the debts were payable on demand, then interest is to be paid from the time of the earliest demand shown 5 and if no special demand be shown, then interest is to be paid from the time of such first publication. And when an appeal is taken from an order of a master directing interest to be so paid, and that order is confirmed, the interest is to be paid up to the time of the final order of the appellate court.
    This was a bill in equity, in which the plaintiffs sought, among other things, an injunction on the defendants, to restrain them from selling the property of the late firm of John Brown & Co. The facts of the case, as presented to the court by the parties, were these:
    On the 30th of October 1839, John Brown being absent in Europe, his partners, Soule & Scholfield, applied by petition to Edward G. Loring, Esq. a master in chancery, representing said firm to be insolvent, and praying for the benefit of the insolvent act of 1838, c. 163. The petition was also subscribed by Scholfield, as the attorney of Brown, by virtue of a general power of attorney given to him by Brown, when Brown went to Europe. The master, on the same day, issued his warrant, pursuant to the provisions of said statute, to a messenger, to take possession of all the property of the debtors. The defendants were chosen assignees, and the creditors proved their debts, amounting in the aggregate to $209,510. On the 24th of December 1840, a dividend of 50 per cent, on all the debts proved and allowed, was ordered and paid. On the 17th of August 1841, a second dividend oí 25 per cent., and on the 13th of September 1841, a third dividend of 25 per cent, were ordered and paid, leaving a large surplus in the hands pf the defendants.
    On the 13th of October 1841, the said master, upon the representation of the defendants, as assignees, made an order, as follows : “ That on all the debts where interest is reserved by the contract, interest be paid according to the contract: That on all debts where interest is not reserved by the contract, if the debts became due before the first publication of the warrant to the messenger, interest be paid from the time of said publication: That if the debt became due after said first publication, the interest be paid from the maturity of the debt: That if the debt be payable on demand, the interest be paid from the earliest demand shown; if no special demand be shown, the interest to be paid from said first publication.”
    The defendants were about to execute said order, and to sell property for that purpose, when this bill was filed. The plaintiffs are the executrix and representatives of said John Brown, who has deceased. A temporary injunction was granted, on the filing of the bill.
    
      Aylwin &f Paine, for the plaintiffs.
    The question, whether interest shall be allowed according to the master’s order, is to be determined by St. 1838, c. 163, and by that alone. The intent of that statute was, that the debtor’s effects should be applied to the payment of his debts due “ at the time of the first. publication of the notice of issuing the warrant ” to, the messenger. By § 3, provision is made for a rebate of interest on debts due, but not payable, when such publication is made, if no in- , terest is payable by the contract. This virtually confines interest, in all cases, to that which the debtor contracts to pay. By $ 4, the list of debts which are allowed cannot be altered, except on appeal; which shows that interest is not to continue to run, even when it is contracted for, nor to be allowed when it is not contracted for. And these views are greatly strengthened by the report and comments of the commissioners, who were appointed to frame an insolvent law, m 1831, and to which the St. of 1838, c. 163, substantially conforms.
    
    By the English bankrupt acts, previous to that of 6 Geo. IV., no pr /vision was made respecting interest, and where there was a surplus, no interest was allowed after the date of the commission, except on contracts which expressly carried interest., Bromley v. Goodere, 1 Atk. 75. Esc parte Koch, 1 Ves. & Beames, 342. Eden on Bankruptcy, (2d ed.) 391. See also Eyrev. Bank of England, 1 Bligh, 582. Ex parte Greenway, 1 Buck’s Bankr. Cas. 412. In St. 1 Jac. I. c. 1, the provision was, that “ after the full satisfaction of the creditors,” the overplus, if any, should be paid to the bankrupt, or his representatives or assigns. By our St. of 1838, c. 163, <§> 13, it is provided, that “ after payment of all debts proved,” the surplus, if any, shall be paid or reconveyed to the debtor or his representatives.
    By St. 6 Geo. IV. c. 16, interest, in case of a surplus, is made payable on all debts, from the date of the commission. Sig-ginbottom’s case, 2 Glyn & Jameson, 123- This is done on the ground that it is interest on the debt proved. But our statute fixes the amount of the debt proved to be that which is due at the first publication of notice of the issuing of the warrant; and this was done with a full knowledge, on the part of the commissioners abovementioned, of the St. of 6 Geo. IV., as well as the former English bankrupt acts. Whatever was omitted in our statute was purposely omitted.
    By <§> 21 of our insolvent law, the balance of the separate estate of one partner, after paying his separate debts, is not to be applied to pay interest on the separate debts, but is to be added to the joint stock, for the payment of the joint creditors. If interest is to be allowed at all, after publication of notice, how is it to be adjusted between the joint and separate debts ?
    Interest is said to be allowed as damages for breach of contract, and unjustly detaining the debt. Dodge v. Perkins, 9 Pick. 385, 386. But the delay which follows proceedings in insolvency is not caused by the laches of the debtor. It is necessary in order to effect a distribution. There is therefore no good reason for charging him with interest. Besides ; the whole expense of the adjustment is thrown upon the debtor’s fund, and that fund cannot be invested so as to draw interest. Adams v. Cordis, 8 Pick. 268.
    
      C. G. Loring & G. T. Curtis, for the defendants.
    The question raised in this case cannot be decided solely on the St. of 1838, c. 163. The omission, in the statute, of any provision for interest, was intended either to alter the English law or to adopt it. Sect. 18 gives this court jurisdiction in chancery of all questions arising under the statute, and thereby authorizes the court to adopt the chancery doctrine applicable to interest.
    Insolvent estates only are within the general purview of the statute. Provision, in case of a surplus, is made incidentally only, as for a possible case; viz. that the surplus, “ after the payment of all debts proved,” shall be paid, &c. to the debtor. But is interest intended in the word “debts”? On this question, the statute is silent, and it is to be answered by the English law in like cases. The early English bankrupt acts contained the same provision as our statute of 1838, respecting a surplus and the payment of dividends. Under those statutes, it was held, that where there was a surplus, interest on contracts expressly carrying interest did not cease; Bromley v. Goodere, 1 Atk. 75; nor on contracts where interest was implied by the course of dealing; Ex parte Champion, 3 Bro. C. C. 436 ; Ex parte Williams, 1 Rose, 399 ; Ex parte Boyd, 1 Glyn & Jameson, 285; nor on notes payable on demand, after partial payment. Ex parte Hankey, 3 Bro. C. C. 504. .
    Where a bankrupt seeks a supersedeas of the commission, on paying his debts in full, and a master is appointed to report the amount of the debts, a supersedeas will not be granted, unless the debtor pays interest on the debts from the date of the master’s report. Esc parte Rooke, 1 Atk. 244.
    The old English rule, which did not allow interest in the nature of damages, even in case of a surplus, was not satisfactory to the profession, nor to Lord Eldon, and has been altered by St. 6 Geo. IV. c. 16, <§> 132. See 1 Glyn & Jameson, 297. 1 Bligh, 604 — 616. 2 Christian on Bankruptcy, (2ded.) 277. Eden on Bankruptcy, (2d ed.) 391-394. Gregg on the New Bankrupt Act, 118, 119. And this court will not now first establish a rule that was deemed wrong in England, and therefore abolished there by act of parliament.
    On contracts bearing interest, there never has been any doubt. Where there is an actual insolvency, interest stops at the insolvency, when the fund becomes a dead fund. Thus all the creditors stand equal, from the time the fund is so placed as to be divided among them. Interest is stopped for the sake of equality among the creditors, and not for the benefit of the debtor. And the reason ceases, when there is a surplus. If interest is part of the debt, on contracts bearing interest, (as seems very clear,) then on the doctrine contended for by the plaintiffs, as the interest is not to be allowed after the insolvency, the discharge of the debtor will not prevent his being sued for the subsequently accruing interest. Ex parte Reeve, 9 Yes. 588.
    If, then, the creditors whose contracts carry interest are entitled to it, after the insolvency, when there is a surplus, creditors whose debts do not carry interest are entitled to interest from fhe time the debts are proved. Otherwise, the former creditors might delay a distribution, and yet have their interest continue to run, while the. latter would have no interest. This is not the “ equal distribution” provided for by St. 1838, c. 163.
    There is no difference in principle between the case at har and that of a deceased debtor, whose estate is represented to be insolvent, but which proves to be sufficient to pay all his debts, and to leave a surplus. But in that case, interest is allowed on the claims proved and returned, from the date of the return to the date of the decree of distribution. Williams v. American Bank, 4 Met. 317. So interest is allowed on bills of insolvent banks, from the time of demand of payment. Atlas Bank v Nahant Bank, 3 Met. 581. Yet no statute provided for the allowance of interest in these cases. The word “ debts ” was held to include interest.
    
      
       By a resolve of the legislature, passed on the 18th of March 1831, the governor, with the advice of the council, was authorized to appoint three commissioners, “ to consider the expediency of providing by law for a more equal and equitable distribution of the estates of insolvent debtors, &c. and to report, by bill or otherwise, to the next general court.” The Hon. Charles Jackson, Hon. Samuel Hubbard, and John B. Davis, Esq., were appointed to this service, and made their report, on the 31st of May following, to the governor, who communicated it to the legislature on the next day. This report contained a bill, of twenty three sections, and very full explanatory remarks thereon. But though this bill was repeatedly discussed in the legislature, it was not until April 1838, that its provisions were (substantially) enacted. St. 1838, c. 163.
    
   Hubbard, J.

This case is important to the parties, from the amount at issue, and from the interesting character of the facts connected with it. On the settlement of the estate of a partnership, under the insolvent law of this Commonwealth, there remains, after paying the principal of the debts proved under the commission, a large surplus fund. This surplus results from the property of the leading partner, John Brown, one of the persons who was lost on board the steamer Lexington, which was burnt in Long Island Sound on the evening of January 13th 1840 ; and his widow and children are now seeking, in equity, to obtain such fund for their own benefit. And the question is, to whom does this surplus belong? Shall it revert to the estate of Brown, or shall it be applied, so far as may be required, to the payment of interest on the debts proved, from the date of the schedule to the time of the last order of the master, in which he has allowed the interest as claimed by the creditors ?

This is the first case which has ever come before the court, of a surplus under the insolvent law ;, and the question is presented by petitioners who necessarily awaken our sympathy But first cases are often governed by known and existing rules, and cases of sympathy, though they have been styled by Mr. Justice Buller “ the shipwrecks of the law,” are to be decided by the same just principles which are applicable to those of no peculiar interest, and in which no personal feelings are excited.

The case has been argued, as well upon the authorities which have arisen under the English statutes of bankruptcy, as upon the construction of our own statute. And it is evident that if this application were before the English court of chancery, the nrayer of the petitioners, with some modification, would be al-.owed. The case of Koch, ex parte, 1 Ves. & Beames, 342 was one in which, there being a surplus, the creditors petitioned for an allowance of interest on their debts, subsequently to the date of the commission. Lord Eldon decided, that upon debts carrying interest it should be allowed, and on no others; on the ground that such was the rule in bankruptcy, which had not been departed from ; that where debts carried interest, it was a part of the contract, but in those cases where it was allowed in the nature of liquidated damages, it was no part of the contract; and he decreed accordingly, in conformity with prior cases.

But the decisions upon the English statutes, while they furnish helps to enable us to arrive at just conclusions, do not constitute legal precedents binding us in the construction of our own statute. Nor have we, on the subject of interest, conformed to their decisions in other cases ; we having adjudged it where they have refused it. With us, interest is allowed not only where the contract provides for it, but where the time is expired in which the contract was to be performed; on contracts for money or goods payable or deliverable on demand; after a specific demand made in cases where money has been unlawfully detained; and in various other instances. It is in lieu of damages, or rather is the liquidated damages for the injury the party has sustained by the breach of contract or the neglect of duty.

Thus the law stood in relation to interest, when the St. of 1838, c. 163, was enacted. That statute, § 6, directs the debtor, at the first meeting of the creditors, to deliver to his assignees a schedule of his creditors, and the amounts due to them, and the consideration of each debt; and subsequent directions are given for the proof of other claims, and for the amendment of the schedule. It is admitted that the statute contains no express provisions in regard to allowing interest' upon debts. The subject of interest is introduced incidentally, and for the purpose of producing equality among creditors. That it was designedly omitted, as was pressed in the argument, for the purpose of giving an advantage to the debtor in the amount of surplus after payment of the principal of the debts proved and allowed, cannot be successfully maintained. On the other hand, the omission to mention interest in any other manner is a proof that no alteration in the law, in regard to it, was intended. The legislation was not directed to the subject of a surplus, and the statute contains only a simple provision, § 13, that if after the payment of all the debts proved, any surplus shall remain in the hands of the assignees, the same shall be paid or reconveyed to, or revest in, the debtor or his legal representatives.”

The word “ debts,” in the statute, is used in its broadest latitude, and it not only includes all accruing interest on contracts carrying interest on the face of them, but the interest which, by law, is allowed on all other claims and demands which are due and unpaid. As the act deals with insolvent estates, the language of it relates rather to the securing to the creditor a part of the principal of his debt, than to the making of provision for the payment of his interest. The object of the statute, so far as creditors are concerned, is an equal distribution of the effects of the insolvent; and for this purpose, as before remarked, the provision was introduced for the discount or rebate of interest, when no interest was due by the contract, till the time when it should become payable. This was not done to favor the debtor, because he, if honest, would obtain his discharge, whether the dividends on his estate might be large or small, and without regard to the manner in which the matter of interest should be adjusted among his creditors. And while the omission of the subject of allowing interest on debts affords an ingenious argument, when coupled with the English decisions, in favor of the insolvent, that the debts, as made up at the time of preparing the schedule, are the true sums to be paid by the assignees, and are not to be increased by the addition of interest ; "still we think the argument is wholly unsatisfactory : And we are of opinion that the more carefully the statute is examined, the more obvious it will appear that the exonerating of the debtor from the charge of interest on his debts was never in the contemplation of the framers of the statute ; and that the fixing of a time for rendering a schedule of his debts, was for the purpose of doing justice to all the creditors, by giving them the same proportional rights, and not for the purpose of defining a period when the debtor should be relieved from the payment of interest, in case the funds should ultimately prove adequate for that purpose.

It is the policy of our law, to allow to a creditor interest on his demand after it becomes payable, although, by the tenor of the contract, there is no provision for the payment of interest The law is both equitable and just, and is the result of a long course of precedents ; and no good reason occurs to us, why the effects of an insolvent debtor, having increased in value in the hands of an assignee, and becoming sufficient to pay the debts with interest, shall be exempted from the operation of this law. He becomes in fact a solvent debtor, and his duties and obligations are the same with those of other solvent debtors.

In the case at bar, the creditors have been delayed in the payment of their dues; and why should the delay diminish the amount of them ? And yet they will be diminished, if they do not receive the interest as well as the principal; for when the interest once accrues, it becomes parcel of the debt. The case is hard for the petitioners, but the hardship arises from the misfortune of the debtors, and not from the conduct of the creditors.

But we consider the question, arising in this case, not only settled in principle, but virtually decided, in the case of Williams v. American Bank, 4 Met. 317. In that case, the same question arose between the administrator of a deceased debtor and his creditors. There was a surplus in the administrator’s hands, after making provision for the debts, as allowed by the commissioners of insolvency at the date of the commission; but if interest should be cast on the debts up to the date of the decree of distribution, the fund would be insufficient to pay them, with their accumulation. This additional interest was allowed by the judge of probate. The cause came before this court, on appeal from his decree, and, after deliberation, it was held that the allowance was right, and the decree of the court below was affirmed. We see no difference in principle between the two cases. The reasoning, which supports the one, equally sustains the other. The injunction must therefore be dissolved, and the interest be paid by the assignees, on the several claims, agreeably 11 the terms of the master’s order, up to the time of the rendition of judgment in this court.