Court Opinion

ID: 6408974
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:51:10.418606+00
Date Added: 2024-06-11T15:51:18.556723
License: Public Domain

Shaw, C. J.
In this case, a decretal order was entered at a previous term, by the consent of parties, by which the cause was referred to George S. Hillard, Esquire, one of the masters in chancery for this county. The report of the master having been made and filed, exceptions have been, taken to it by various parties, as hereinafter stated, and arguments of counsel heard thereon.
Among other things, the effect and operation of the decretal order was, to adjudge and decree that the indenture of the 12th of April, 1837, had become inoperative and no longer in force; that the trust deed of the 22d of March, 1839, from Crocker and Richmond to Baylies, Sproat and Crandell, was valid and sufficient to transfer the real and personal property therein described; and that the surviving trustees, Baylies and Sproat, were bound to account, in this suit, for the property and the proceeds thereof, to those creditors of Crocker and Richmond, who were so by reason or on account of debts and claims, which were in existence on the 12th of April, 1837, the time of the making of the first described indenture.
The master was also directed to ascertain and report, among other things, what amount was due the plaintiffs in this suit from Crocker and Richmond, on account of any claim or claims, which existed on the 12th of April, 1837, and to order notice to be given to all other persons, creditors as aforesaid, having similar debts and claims, to come in and prove the same, or be forever excluded from the benefit of the decree.
The master was thereby further directed to report the names of all such creditors, and the amounts due to each of them, on account of claims existing on the 12th of April, 1837, although the evidence thereof might have been changed since that day.
*357We will first proceed to consider the exceptions, taken by ihe general creditors to the master’s report, allowing sundry claims of the assignees of the Taunton Iron Company, as debts legally and equitably existing against Crocker and Richmond on the 12th of April, 1837, the evidence of which has been changed; by reason of which, as the claimants allege, these claims are within the intent and meaning of the decretal order. That they were not debts due to the Taunton Iron Company, at the time named, is very clear, because that corporation did not come into existence until long afterwards.
The relation of this corporation to Crocker and Richmond was very peculiar. It appears, that prior to April, 1837, there were two commercial houses established in Taunton, one under the firm of Crocker and Richmond, consisting of Samuel Crocker and Charles Richmond; and the other under the firm of Horatio Leonard and company, consisting of Crocker and Richmond, Horatio Leonard, George Leonard, Charles Robinson, J. Robinson, and E. Robinson.
By an act of incorporation passed March 7th, 1837, the same individuals, composing the firm of Horatio Leonard and company, were incorporated by the name of the Taunton Iron Company; but this corporation was not organized until the ensuing December, which was long after the failure of both houses, and after the trust deed executed by Crocker and Richmond on the 12th of April, 1837.
The firm of Horatio Leonard and company failed at the same time with Crocker and Richmond, and assigned their property to the same trustees, Baylies, Sproat and George A. Crocker, for the benefit of their creditors.
The Taunton Iron Company was organized on the 27th of December, 1837, and, on the 2d of January, 1838, purchased of the assignees of Horatio Leonard and company all the assets of that firm, and received a conveyance thereof from the assignees; the corporation undertaking, at the same time, to pay and discharge all the debts and obligations of Horatio Leonard and company.
*358The grounds upon which the Taunton Iron Company, coming into existence long after the 12th of April, 1837, claims as a creditor holding debts due on that day, are, that, having purchased all the assets, and undertaken to pay all the debts, of Horatio Leonard and company, the corporation became, in equity, their successor, and stood in their place, and took their rights; that the debts in question were debts due from Crocker and Richmond to Horatio Leonard and company; that the assignment of the assets of Horatio Leonard and company transferred to the Taunton Iron Company, in equity, the debts due from Crocker and Richmond; that these debts existed on the 12th of April, 1837, and carried with them the benefit of the trust fund, created for the security of all the debts of Crocker and Richmond, which were due at that time; also, that, at that time, Horatio Leonard and company stood in the relation of indorsers and sureties, on a large amount of the debts due from Crocker and Richmond; that, by force of the obligation of the corporation to pay all the debts of Horatio Leonard and company, it was bound to pay and take up the notes on which Horatio Leonard and company stood as indorsers and sureties for Crocker and Richmond; and, that, having so paid them, the corporation is entitled to stand in the place of the creditors whose debts were thus paid, and to have the benefit of the trust fund created for the security and payment of those debts by Crocker and Richmond, who stood in the character of principal debtors; also, that Crocker and Richmond, after the 12th of December, 1837, and after the organization of the Taunton Iron Company, made use of the funds of the latter to pay debts due prior to the 12th of April, 1837; and that in equity the corporation has a right to look, not only to Crocker and Richmond, but to the fund provided for the payment of the debts thus discharged.
The master, by his report, has divided these claims of the Taunton Iron Company into five classes; and has reported the facts respecting each class, together with his decision thereupon.
*359I. The report states, that the first class comprises payments made by the Taunton Iron Company of negotiable paper originally signed by Crocker and Richmond, and indorsed by Horatio Leonard and company, or vice versa. The report is not so full, precise and intelligible, with respect to this class, as could have been desired; and we are not certain, after the closest examination, that we understand the facts, as they were understood by the master. In the description given by the .master of these claims, notes indorsed by Horatio Leonard and company, and notes signed by Horatio Leonard and company, and indorsed by Crocker and Richmond, are put on the same footing. In regard to the latter, that is, notes signed by Horatio Leonard and company, the legal presumption is, that Horatio Leonard and company were the principal debtors, and Crocker and Richmond the sureties ; if so, the amount due on such notes was the proper debt of Horatio Leonard and company, and the Taunton Iron Company, by its obligation, was bound to pay the same out of the assets assigned, and would have no remedy even against Crocker and Richmond, and, of course, no claim on the trust fund. But the report afterwards goes on to say, “that these indorsements or signatures were made by Horatio Leonard and company on account of Crocker and Richmond, and for their benefit; ” from which we conclude, that the master had satisfactory proof before him, that, although the names of Horatio Leonard and company appeared as promisors or makers on these notes, yet, in point of fact, this was matter of form only, and the notes were really issued for the proper debts of Crocker and Richmond, and for their accommodation ; and that if Horatio Leonard and company took them up, they did so, in effect, as sureties, and that Crocker and Richmond thereby became liable for the amount.
We also understand, by the report, that these specific notes, on which, on the 12th of April, 1837, Crocker and Richmond were principal debtors, and Horatio Leonard and company were sureties, remained unpaid, until after the Tauntoii Iron Company came into operation, and were then paid and taken *360up by that company, under its obligation to pay the debts oí Horatio Leonard and company.
If these notes and acceptances were in fact renewals of debts existing on the 12th of April, 1837, that is, if, after the Taunton Iron Company came into operation, notes outstanding in April, 1837, were taken up by Crocker and Richmond, by giving their own notes, with the signature or indorsement of the Taunton Iron Company, instead of the preexisting indorsement or suretyship of Horatio Leonard and company, although these notes were afterwards paid by the Taunton Iron Company, such payment would be a new credit given by the Taunton Iron Company to Crocker and Richmond, originating after the 12th of April, 1837, and could not be considered as made in virtue of their undertaking to pay the debts of Horatio Leonard and company, but as a payment of a 'debt newly created in virtue of a new loan of their credit to Crocker and Richmond, and thus would not be a debt coming under this class of claims.
Supposing the class of claims thus allowed by the master to consist of notes constituting the proper debt of Crocker and Richmond, on which Horatio Leonard and company were indorsers or sureties; and supposing these notes to be subsisting on the 12th of April, 1837, and continuing specifically until paid and taken up by the Taunton Iron Company and then paid and taken up by the latter; the court are of opinion, that the- decision of the master allowing them as claims existing April 12th, 1837, of which the evidence or form had changed, was right, and that the exceptions to that part of the master’s report allowing them must be overruled.
This conclusion rests on the assumption, that the Taunton ■Iron Company, as the assignee of the assets of Horatio Leonard and company, and as having undertaken to pay their debts, may now come in and prove on the footing of creditors, to whom debts were actually due on the 12th of April, 1837. On recurring to the assignment of that date from Crocker and Richmond to trustees, we find, that, in the class of their creditors amongst whom an equal distribution *361of the trust property was to be made, were included those who might afterwards become their creditors, by reason of any then existing note, acceptance, indorsement, or liability; that is to say, those who were then standing in the relation of indorsers or sureties, on contracts previously made, and who might be obliged to pay the debts, for which they so stood as sureties, (although, strictly speaking, in such cases, the debt arises on the payment as surety, and not on the making of the contract, yet,) should be taken and deemed, for the purposes of that trust, to be actual creditors; and this is conformable to the provisions of the act of 1836, c. 238, which was then the law regulating assignments for the benefit of creditors. Under this provision of the assignment of April 12th, 1837, if Horatio Leonard and company stood in the relation of sureties or indorsers for Crocker and Richmond, they were parties to the assignment, and cestuis que trust, who might become creditors by payment of the debts for which they were sureties. On making such payment, they would stand upon the same footing, in reference to the trust, as if they were creditors to whom debts were actually due.
This brings us to the consideration of a very important question, in the present case, namely, whether the Taunton Iron Company, acting under the forms of a corporation, but being the successor and assignee of Horatio Leonard and company, a firm in which Crocker and Richmond were themselves partners, and, in which, when made a corporation, they held the larger part of the stock, can prove its claims under a trust, which was created for the benefit of the creditors of Crocker and Richmond, in competition with those creditors. This proof was resisted by the creditors, but allowed by the master; and, being now excepted to, presents the question for consideration.
We think it is a well settled rule of law, that, as between original parties, by the assignment of a chose in- action, the assignee takes an equitable title to the demand assigned, in the same plight, in which it was held by the assignor, entitled *362to the same immunities, privileges and benefits, and subject to the same charges, equities, rights of bet-off, and counter claims, as in the hands of the assignor. This is the principle, upon the ground of which the Taunton Iron Company alleges, that, having by various legal and equitable conveyances become entitled to debts due from Crocker and Richmond to Horatio Leonard and company, it thereby became entitled in equity to the benefit of a trust fund, then previously created by Crocker and Richmond, for the ultimate security of those debts.
There would certainly be strong ground to sustain this claim, if these were separate and independent parties. But we are met by the objection, that the Taunton Iron Company can stand on no better ground than Horatio Leonard and company, who could not be permitted to prove as creditors. On recurring to the facts, it appears, that Horatio Leonard and company were a firm composed of Leonard and the Robinsons, together with Crocker and Richmond, who were themselves the owners of the major part of the whole interest. The argument is, that Horatio Leonard and company could not come in and prove, in competition with the creditors of Crocker and Richmond, before those creditors had been paid in full. This could not be done, it is said, by the firm of Horatio Leonard and company, because it would in effect enable Crocker and Richmond, composing a part of that firm, and being the major part in interest, to take back, in another form, a part of the funds assigned for the benefit of their creditors; nor could any claim be made by the other members of the firm, because the debt was a joint one, and could only be claimed by all jointly.
The trusts, on which the assignment of the 12th of April, 1837, was made, do not countenance the idea that any firm, in which Crocker and Richmond were partners, could share in the fund. The assignment was in trust, after other things, to distribute the residue of the assigned property to and among all the creditors of the firm of Crocker and Richmond, and of Samuel Crocker and Charles Richmond, and all who *363should become their creditors, by reason of any then existing note, acceptance, indorsement, or liability for them. If Crocker and Richmond could take a part of the fund themselves, it would not be wholly in trust for their creditors. Indeed, by the statute of 1836, c. 238, under which this assignment was made, it would have been void, if it had not been so made as to include all the debtors’ property, not exempted from attachment, for the benefit of all their creditors, and to give to all the creditors an equal distributive share of the whole property assigned. It seems, therefore, to be a just inference, that if the assignment had expressly recited, that the property was to be held in trust, amongst other' purposes, to pay a debt due to the firm of Horatio Leonard and company, a firm of which the assignors were themselves members, and so in part in trust for themselves, it would have been contrary to the spirit of the statute, and to that extent at least questionable.
Were this the case of a firm consisting of a number of persons, some of whom composed a separate minor firm, and the separate minor firm were in a process of insolvency, under a trust deed, or under legal proceedings, it would be difficult to say, that the larger firm could prove; therefore, if Horatio Leonard and company were solvent, and were claiming in their own right, it would seem, that they could not, as creditors, prove debts due from Crocker and Richmond, composing a part of the same larger firm, for the reasons stated. But there are several circumstances, which distinguish this from the common case, and take it out of the operation of the general rule.
It is a fact, worthy of some consideration, perhaps, though of itself not very decisive, that these were distinct concerns established for distinct purposes, the larger being a manufacturing establishment, carrying on the iron business, and the smaller a firm engaged in general commerce.
But further, we understand that both the Taunton Iron Company, and Crocker and Richmond, are deeply insolvent; and that in truth this is a question only between the two *364classes of creditors. It was stated in argument, indeed, that it did not appear, that the Taunton Iron Company was insolvent, and perhaps it does not so appear directly; but it does appear from the evidence in another part of the case, that the shares in the stock of the Taunton Iron Company are worth nothing; from which it may be inferred, that, on payment of their debts, nothing would be left for the holders of shares. Then, as between the respective classes of creditors, we think it is not inequitable to admit this proof, so far as to distribute the assets, as if the concerns had in truth been separate.
But supposing it should turn out, that the Taunton Iron Company is not insolvent, and that upon the allowance of its claims, the distributive shares payable to Horatio Leonard and company, together with other effects, will be sufficient to pay its debts, and leave a surplus; in that event, we can perceive no objection to framing the decree in such a manner, ns to direct an account to be taken between the partners, and that any distributive share of the surplus, which should be coming to Crocker and Richmond, as stockholders, should be retained and paid to their assignees, to be added to the fund distributable amongst their other creditors. If, therefore, considerations of equity would require, in the case supposed, that these parties, for the purpose of regulating the distribution of assets between the two classes of creditors, should be regarded as separate parties, this consideration would not be necessarily controlled by the objection, that, in such a distribution, Crocker and Richmond, as a .part of the larger firm, might take a part of the fund, against their own creditors, and against the terms of the trust assignment.
But what distinguishes this case still more from the ordinary case supposed, and seems quite decisive, is, that the Taunton Iron Company, now claiming, is a corporation, vested by its act of incorporation with the functions of a body politic, and, as a distinct person, capable of acting and dealing and contracting with its members, as with third persons. And though this corporation originally consisted of the same persons who composed the firm of Horatio Leonard *365and company, and though Crocker and Richmond were holders of two hundred out of the three hundred shan 3, into which the capital stock of the company was divide 1, yet, by the incorporation, the relation of Crocker and Richmond to the company, and their interest in its stock, became entirely distinct from the relation which subsisted between them and the firm of Horatio Leonard and company, and their interest therein, whilst they were members of that firm. They could contract with the corporation, and could maintain suits against it, both in law and in equity, and could be sued by the corporation. They might transfer their shares in whole or in part, and thus cease partially or wholly to have any interest in its funds.
But further, as we understand the case, Crocker and Richmond, by their assignment of March 22d, 1839, transferred to the trustees all their shares in the Taunton Iron Company, as then organized and in operation, so that should that company be solvent, and leave any thing for the stockholders, such surplus would be received and held by the trustees, as a part of the trust fund distributable among the creditors of Crocker and Richmond, by which justice would be done.
The fact, that the members of the larger firm became incorporated pursuant to the provisions of law, and thereby acquired a capacity to contract with their members, and to sue and be sued, distinguishes the case from the ordinary one of the larger partnership proving against the funds of the smaller, or of the smaller proving against the funds of the larger, of which they are respectively constituent parts. The incorporation avoids the difficulty, which arises in those cases, where some of the same persons, in their natural capacities, act in the conflicting relation of debtor and creditor, in the same process.
The court are therefore of opinion, that, so far as the Taunton Iron Company can establish a legal or equitable claim against the trust fund, in the hands of the trustees, according to the terms and true construction of the trust deeds of April 12th, 1837, and of March 22d, 1839, and of *366the decretal order heretofore made in this cause, it is no valid objection thereto, that the Taunton Iron Company is the successor and assignee of the former firm of Horatio Leonard and company, although Crocker and Richmond, the assignors, were members of that firm and of the corporation which succeeded it.
II. The second class of claims made by the Taunton Iron Company against Crocker and Richmond, as debts due prior to April 12th, 1837, comprises payments made from the funds of the Taunton Iron Company, by Crocker and Richmond, to discharge debts due from Crocker and Richmond, of a date prior to April 12th, 1837. The Taunton Iron Company claims the right of substitution.
The material facts, in regard to this class, are, that Mr. Crocker was president of the Taunton Iron Company, authorized to sign and indorse the paper of the company, at his discretion, and had the general management and control of its affairs. Indeed, it is to be recollected, that Crocker and Richmond, at the time, were owners of two thirds of the shares, into which the stock of this company was divided.
The Taunton Iron Company, by its president and treasure:, had full notice of the credit of the company being given to Crocker and Richmond; and if, in consequence of a loan of this credit, the company was called upon to pay its indorsements, such payment simply created a new debt in favor of the company against Crocker and Richmond, and gave the company no claim, legal or equitable, upon the fund set apart for the security of Crocker and Richmond’s previous debts. It amounted to a payment by Crocker, and Richmond of their own proper debt; was so considered by the parties, at the time; and was entered on their respective books, as a charge by the company against Crocker and Richmond. The court are therefore of opinion, that the decision of the master, ir allowing this class of claims, as a charge under the decretal order upon the trust fund, or as a demand existing on the 12th of April, 1837, was incorrect, and that the same must be reversed, and this class of claims disallowed.
*367III. The third class of claims, made by the Taunton Iron Company, as a debt due from Crocker and Richmond, on the 12th of April, 1837, consists of a single item amounting to $70,879T4. This is a balance of account, which was due from Crocker and Richmond to Horatio Leonard and company, at the time when both firms made their respective assignments, April 12th, 1837, and which was subsequently assigned by Horatio Leonard and company to the Taunton Iron Company. The master reports, that, although the entry on the books, in which this balance is first stated, bears date the 15th of April, 1837, yet that it was actually due, and all the transactions out of which it arose took place, before the 12th of April, 1837; and, therefore, if it can be regarded as a debt provable under this trust, it was due before and on that day.
For the reasons heretofore given, the court are of opinion, that if this debt has not been paid, liquidated, or reduced, by the subsequent transactions between the parties, it is a debt which may be proved against the fund by these claimants, in competition with the separate creditors of Crocker and Richmond.
In addition to the reasons heretofore stated, in reference to the first class of claims, we think it is to be considered, that, although the fund now sought to be distributed is a fund created by the voluntary assignment of Crocker and Richmond to the defendant trustees, on the 22d of March, 1839, and does not arise under any legal process of insolvency, yet, that the trust deed of March 22d, 1839, was a supplement to the anterior proceedings of April 12th, 1837. The deed of the former date was part of an arrangement, by which the property assigned under the indenture of April 12th, 1837, was reconveyed to the debtors, and a portion of it conveyed to the defendant trustees, to be held by them as security for the payment of the same debts, which were to have been satisfied under the former assignment, provided those debts should not, in the mean time, as was contemplated by that arrangement, be paid by Crocker and Richmond. This prin*368ciple is recognized by the decretal order, which was entered by consent of all parties, and which directed that the property last assigned in 1839 should be applied to pay debts due at the date of the first assignment. That previous assignment was made in pursuance of the statute of 1836, c. 238, regulating assignments by debtors to trustees, in trust for the payment of their debts. The statute required that such assignment should embrace all the debtor’s property, with a slight exception; and that it should provide for an equal distribution of the same among all his creditors; and it regulated the duties of assignees and provided remedies for parties interested. Whatever the statute was in terms, in effect, it was a qualified legal proceeding in insolvency, or a modified state bankrupt law. Both firms simultaneously made similar assignments, and to the same trustees. Under these circumstances, if a settlement of the affairs of both firms had been made under their assignments, we think the assignees of either firm would have had a right to prove a balance against the assets of the other. The two firms having carried on distinct branches of business, and kept distinct accounts, debiting and crediting each other, and having severally obtained credit according to their supposed capacities, means and success, the treating of them as distinct concerns, for the purpose of a distribution of their assets among their respective creditors, would appear to afford as equitable a rule as the state of such a complicated relation would admit. Under this rule, the assignees o? Horatio Leonard and company would have a right to prove the balance in question against the assets of Crocker and Richmond; subject to this limitation only, that if there should be more than enough to pay the creditors of Horatio Leonard and company, in full, so as to leave a surplus to the firm, an account should be taken, and any balance coming to Crocker and Richmond should be replaced in the hands of their assignees, to be applied, until their separate creditors should be paid in full. Under the peculiar circumstances of the present case, resulting from the several assignments and the decretal order, the proofs are to be regulated, *369and the distribution under the last assignment to be made, upon the principle stated, namely, as if both firms were in bankruptcy, under distinct commissions; and, therefore, if the debt due by Crocker and Richmond, the minor firm, to Horatio Leonard and company, the larger firm, and assigned to the Taunton Iron Company, still subsists, it is provable against the fund to be distributed.
But it is contended by the other creditors, that this balance has been liquidated by the subsequent dealings and transactions between Crocker and Richmond and the Taunton Iron Company.
The ground taken is, that subsequent to April 12th, 1837, the Taunton Iron Company charged this balance in account with Crocker and Richmond, and took them as its debtors ; and that, although the corporation remained the creditor of Crocker and Richmond, as before, for this balance, the balance thus became a debt which occurred after April 12th, 1837, and consequently cannot be proved under the decretal order. It appears, that four several accounts current were rendered by the Taunton Iron Company to Crocker and Richmond, the first item in the first of which is a balance of $>70,919-60, which is the same or nearly the same as that due from Crocker and Richmond to Horatio Leonard and company, at the date of their respective assignments. This account was made out by the Taunton Iron Company, under date of April 15th, 1837, many months before that company was organized as a corporation. But it was brought- down to May 1st, 1838, which was after the corporation was organized. These circumstances are alluded to, that they may be made the subject of more particular inquiry and consideration, if they should be found to be of any importance. The court are of opinion, that neither the charging of this balance in a new account, opened by the Taunton Iron Company with Crocker and Richmond, of a date subsequent to April 12th, 1837, nor the rendering of such an account, would necessarily deprive the company of the benefit of the assignmsnt, if otherwise entitled to it. Such entries in books and *370accounts are not held to be conclusive, and, under some circumstances, they are not of much weight, as evidence. Barker v. Blake, 11 Mass. 16; Baring v. Crafts, 9 Met. 380. But this claim does not stand upon the footing of mere entries in hooks or accounts; it was the commencement of an account, under which large and extensive dealings took place, for several years, between the parties; and it becomes necessary, therefore, to inquire into the character of those dealings.
It is manifest, from the proposals made by Crocker and Richmond to their creditors, in January, 1838, and the arrangement agreed upon under the same, but not completed until March 22d, 1839, that the object of Crocker and Richmond, in that arrangement, was to disengage the more active and available part of their funds, embraced in the first assignment, and to have those funds restored into their own hands, in order to enable them to engage in active commercial business, under an expectation, out of that business, to pay their, debts by instalments; and also to reassign the residue of the property to the present trustees, as a security for the ultimate payment of the same debts. It is manifest, that the Taunton Iron Company, after its organization, engaged actively and extensively in the manufacturing business, and in transactions incident thereto, though it is difficult to perceive how and when that corporation acquired any capital to enable it to do so. Crocker and Richmond were stated to be the owners of two thirds of the capital stock, and their interest therein was actually estimated, in their second assignment, at $ 200,000; although the whole of their property was under sequestration, and in the hands of assignees, from the time of the organization of that company, to the time of such second assignment. But, by whatever means it was done, it appears that both parties went into active business, and that there were large transactions between them, which are embraced in these accounts.
It was proper for the Taunton Iron Company to carry this balance into its new account against Crocker and Richmond, *371because the latter were to pay it. And if the parties went immediately or at any time afterwards into active business, in the course of which new credits were given, and new debts made, and an account stated and rendered, and the balance carried to new account, and so on, we are of opinion, that, if the aggregate of the money paid on such general account, without any specific application or appropriation thereof, exceeded the original item of debit, consisting of the balance with which the account commenced, that original balance must be considered as liquidated and absorbed in the general account, and is no longer to be regarded as a debt due April 12th, 1837.
We say payments on general account, in reference to which there was no appropriation or specific application. If it should appear, from the entries themselves, to the credit of Crocker and Richmond, that the moneys so credited were paid specifically on account of a debt which was contracted after the 12th of April, 1837, or otherwise upon any specific appropriation, these payments must be regarded as payments on account of such specific debt or appropriation; but payments generally to them, or for their use, and charged in account, must be deemed payments on such general account. The report does not state the facts with sufficient fulness, to enable us to judge whether this first balance has been liquidated and absorbed by payments on general account ; and we think it must be again referred to the master, to make a more specific statement, with reference to this point, conformably to the principles above stated. There appears also to be a credit in this account, in March, 1840, of $ 40,000, as a dividend of profits. We do not see why this is not a credit to Crocker and Richmond, in general account, and thus applicable to the balance first above charged. But this is not fully stated. The whole of this account, therefore, with the item in question, must be referred to the master for the purposes suggested.
IV. The fourth class comprises a single item of $8500, which the Taunton Ivon Company claimed to have paid in full, as a preferred debt, out of the trust fund.
*372This claim was disallowed by the master, both as a general and as a preferred debt. The only possible ground, on which it could be made, was, that the common trustee had taken money from the trust fund of one trust, and added it to the trust fund of the other trust, the latter receiving it with notice of the former trust. We are of opinion, that the facts do not bring the case within this principle. The object of Sproat, in taking funds from the trust of Leonard and company, and applying them to the trust of Crocker and Richmond, was to redeem a large amount of shares in the Taunton Manufacturing Company, belonging to the latter trust. But, in truth, these shares never were redeemed. In the first instance, they were pledged for new acceptances, which went to the then present use of Crocker and Richmond, and not to the trustees, and the shares were afterwards sold, to satisfy these drafts, and were insufficient for the purpose.
The court are of opinion, that the decision of the master, disallowing the claim of the Taunton Iron Company, to have this sum paid out of the.trust fund in full, was correct, and the report in that respect is confirmed. The claim to have it allowed, as a general debt, entitling the claimants to a dividend, was waived at the hearing.
On this part of the case, it was said in argument, that the facts reported would not sustain the position, that the money raised by discounting the new acceptances of Otis and Mason went to the use of Crocker and Richmond, and not into the hands of the trustees for the benefit of their creditors. But we are inclined to that opinion from the whole evidence. Sproat testified, indeed, that the proceeds were applied to the benefit of the estate of Crocker and Richmond, in the hands of their assignees; but he could not tell how they were applied, or whether they were applied at all, to any of the purposes of that trust. On the contrary, it does not appear, that the assignees have applied those proceeds, or that they now hold them, or that at that time, namely, November 3d, 1837, the trustees had paid any of the debts of Crocker and Richmond. But the question does not depend on that fact. The *373object which Sproat had in view was to get further time for the sale of the shares in the Taunton Manufacturing Company, which, in the agreement of July 1st, 1838, between Crocker and Richmond and their creditors, were estimated at § 58,906-25. Had the object been attained, and had this sum been saved to the trust fund, there would have been more equity in the claim. But the object failed. If the money, which was derived from the discount of the new notes, was not brought into the fund for distribution amongst the creditors, then this fund has derived no benefit from the operation.
But further, this transaction took place in November, 1837 before the Taunton Iron Company was organized, and, of course, before any transfer of the assets of Horatio Leonard and company to the Taunton Iron Company by the assignees of the former. The assets in the hands of Willett and company had been then disposed of, and, of course, the claim therefor (of Horatio Leonard and company against Willett and company,) as a chose in action, did not pass by that assignment. Can it be presumed, without some special provision to that effect, that it was the intention of the then assignees of Horatio Leonard and company, to transfer to the Taunton Iron-Company a claim against themselves, in another capacity, for a breach of trust, in having thus disposed of some of the assets ? It appears to us, that no such intention can be presumed. Horatio Leonard and company and the Taunton Iron Company, at that time, consisted of the same persons, and notice to them in one capacity was notice to them in the other. When, therefore, this company was afterwards organized, and the assignment made by the assignees to the corporation, we think it must be considered, that the latter took the assets as they then existed, unless there was some special provision in the assignment, expressing more particularly what claims, as choses in action, were intended to pass. This view is confirmed by the fact, that the claim in question was, as we understand, charged in the accounts as a demand against Crocker and Richmond.
*374But further, under the decretal order, we think this was not a debt due from Crocker and Richmond, April 12th, 1837, which the master was directed to inquire into and state. If this claim be well founded, it is not for a debt; it is a claim, that a certain sum of money, belonging to the Taunton Iron Company, has, by mere accident or management, been placed in the fund created for the benefit of the creditors of Crocker and Richmond, and that the assignees of the Taunton Iron Company have a good equitable right to withdraw the same, before the fund can be distributed.
Y. The fifth and last class of claims consists of notes of Crocker and Richmond, indorsed by the Taunton Iron Company, given in payment of debts due prior to April 12th, 1837, which the assignees of the Taunton Iron Company have paid and now hold and produce. These were allowed by the master.
For the reasons already given, if the Taunton Iron Company was in a condition, as the holder, to claim debts due before the 12th of April, 1837, these demands could not be claimed. The indorsements of the Taunton Iron Company for Crocker and Richmond were a new loan of credit, originating with such indorsements, after the 12th of April, 1837; and, although the money thus raised went to pay and discharge debts due from Crocker and Richmond, which originated prior to April 12th, 1837, yet such payment was still a payment or discharge and extinguishment of the former debts by Crocker and Richmond, by the use of their own means, and did not continue the former debts in force. The court are therefore of opinion, that these are not debts included under the decretal order, as debts subsisting on the 12th of April, 1837, of which the form and evidence has been changed; that they ought not to have been allowed; and that the master’s decision, allowing them, must be reversed.
YI. Several important questions; arising upon the decretal order, and the report, depend on the construction of the deed of trust of the 12th of April, 1837.
It seems to have been assumed and taken for granted by *375all parties, that the debts of Crocker and Richmond, as they existed on the 22d of March, 1839, and were agreed to be paid by instalments, and secured by the deed of trust of that date, were debts actually existing on the 12th of April, 1837, and that all payments, made by any person on those instalments, were in effect payments towards debts which existed on that day.
By the decretal order, the master was directed to inquire and report, whether any creditor had received, from the property held in trust under the deed of the 22d of March, 1839, or the proceeds thereof, more than one third of the amount of his demand, as the same existed on the 12th of April, 1837, (that being the proportion supposed to have been paid the creditors generally since the 12th of April, 1837;) and if so, the excess so paid, over and above one third of the claim of such creditor, was to be considered as a payment pro tanto of any dividend to which he might otherwise be entitled.
This direction would seem to imply, that the trust deed of the 22d of March, 1839, had been under the consideration of the court, and that it had been judicially determined, that the deed created a trust fund, specifically applicable to the payment of the instalment notes then to be given; and that all payments made on those instalment notes were made directly or indirectly out of the fund, and diminished it pro tanto. Hence it has been inferred, and the inference would seem to be a just one, upon the premises, that as the fund was created and appropriated to the equal benefit of all the creditors, in proportion to their debts, if any one creditor had not received the full amount of his first instalment, or one third part of his debt, he should be entitled to receive a sum out of the fund, sufficient to make his payment one third, before other creditors should receive any thing more; and so, if a creditor had received more than his one third, the excess over one third should be considered as an advance to him towards his next dividend, and deducted accordingly from that dividend.
*376But these inferences, and others material to the cause, depend upon the nature, purposes and operation of the deed of trust, which, as yet, has not been the subject of judicial construction. The decretal order was agreed upon by the parties, and was probably framed with a view to bring such facts before the court, as might enable them to come to a decision, according to the legal construction which might be subsequently given to the deeds, and to enable the court to ascertain and decide upon the rights of the parties.
Looking at the deed of the 22d of March, 1839, azid the preliminary agreement of the creditors of July 1st, 1838, the proposals recited in the latter, the objects and purposes therein expressed, and the provisions, stipulations and conditions contained in it, the question is, whether the arrangement eifected by these instruments constitzzted and set apart a fund, the proceeds of which should be specifically applied, by the trustees,to the payment of the notes payable in one, two and three years, then proposed to be given by Crocker and Richmond, as they should become due; or whether the trust deed, by which the arrangement was completed, was a mortgage or conditional conveyance of the real estate and property specified therein, defeasible upon the payment of the notes by Crocker and Richmond, according to the tenor thereof.
It seems to us quite clear, that the arrangement was of the latter character. The preliminary agreement recites a communication made by Crocker and Richznozid to their creditors, on the 10th of January, 1838, referring to the assignment of the 12th of April, 1837, and representing the difficulty and impracticability of making sales of the property; and proposing a mode, by which they might be relieved from the incumbrance of the previous assignment, and be left in possession of an available property of about $300,000, to enable them to go on with their business; azid by which property consisting of real estate and stocks estimated at $600,000 and upwards might be appropriated, as security for the ultimate payment of their debts estimated at $380,000. It then recites an agreement of many of the creditors, accord*377ing to these proposals; discharging the former assignees from all claims under the assignment of April 12th, 1837; stating the property to be conveyed to Sproat, Baylies and Crandell, in trust, to hold the same ; and providing that in case Crocker and Richmond should fail to pay their several debts, in the manner proposed, the property should be sold, and the proceeds applied to that purpose, by the trustees. The trust deed, dated March 22d, 1839, completes the arrangement, and conveys to Baylies, Sproat and Crandell, and the survivors and survivor of them, the estate referred to, consisting of real estates, stocks, shares and patent rights, to be held in trust for the purposes particularly set forth in the agreement above described (which it substantially recites) between Crocker and Richmond and their creditors, made on the 1st of July, 1838. It then contains covenants against incumbrances, and the following condition : “ Now, therefore, if the said Samuel Crocker and Charles Richmond shall well and truly pay to their several creditors the full and just amount of their debts, in the manner and on the days above mentioned, and otherwise faithfully comply with the terms of their said agreements above mentioned, and pay the trustees a compensation, &c.. then this deed to be void.”
It seems very clear, that this was a conditional conveyance, defeasible on a condition subsequent; and that if Crocker and Richmond had paid their notes, agreeably to the terms thereof, the condition would have been saved at law, and the property would have revested in the grantors. It was therefore a mortgage, and gave the trustees no power to sell the property, until a breach of the condition, by the non-payment of the notes. It is equally clear, that the notes given by Crocker and Richmond were to be paid by them out of their own funds and means, and not by the trustees, out of the property thus mortgaged for security.
How it was expected that Crocker and Richmond, by the use and employment of about $ 300,000, were to pay «$ 380,000, in three years, or how, with about one thud of the fund, they were to pay debts, for the payment of which the whole fund *378in the hands of the former trustees had proved unavailing, it is difficult to conceive.
It is obvious, however, that Crocker and Richmond had one year, before any of the instalment notes became due, and before there could be a breach of the condition. And, further, although the deed of the 22d of March, 1839, contained no express stipulation, that, on breach of the condition, the trustees should have power to sell the property and pay the debts from the proceeds, yet, as that deed expressly referred to the agreement of the creditors of July 1st, 1838, by which they acceded to the proposals of Crocker and Richmond, the latter conveying the property in question to the trustees, in trust to hold and dispose of the same, and with the proceeds to pay the debts, in case Crocker and Richmond should fail to pay them, we suppose that the two deeds are to be construed together, and that although the trust to sell and pay the debts is not expressed in the mortgage, yet as it is expressed in the deed therein referred to, and in pursuance of which the mortgage purports to be given, the trustees have the power. Indeed, it is that power, which the trustees and mortgagees are called upon, by this suit, to execute, by distributing the proceeds of the mortgaged property in their hands among the creditors of Crocker and Richmond, after the failure of Crocker and Richmond to pay their notes, and the consequent breach of the condition of the mortgage. Although Crocker and Richmond, therefore, might hope to pay the' first instalment notes, and perhaps the succeeding ones, yet the. arrangement contemplated a direct and easy mode, by which the mortgaged property should be made available for that purpose through the trustees, in case Crocker and Richmond should be unable to pay the first, or after instalments of their debts.
From this view of the provisions and terms of the trust deed, it follows, that all that part of the debt of Crocker and Richmond, which was paid by the payment of their instalment notes, must be considered as paid by Crocker and Richmond out of their own funds and means, (those reserved or *379otherwise, it makes no difference,) and not, either actually or constructively, out of the trust fund. Therefore, although the debts of Crocker and Richmond are thereby released pro tanto, and creditors can only claim for the balance, from whatever source, or by whatever means, the debts may have been diminished, yet such a payment is not one, which, in any other way, diminishes the claim of creditors on the fund for the balance of their debts.
And, so, if a creditor has received more than one third of his debt, yet if not received from the trustees, or out of the fund, the excess over one third merely diminishes the debt pro tanto, and cannot be considered as a payment, in advance, out of the fund, to be deducted from the dividend of such creditor.
The amount actually due to any creditor at the present time, on a debt which existed April 12th, 1837, reduced in any mode, by the application of securities, or by payments by Crocker and Richmond, or otherwise, not being received of the trustees, is the measure of his claim on the fund.
Indeed, we are not aware that a claim is made on the part of the trustees, for having paid any of the debts of Crocker and Richmond, after condition broken, and pursuant to the trust, other than this; that they released certain of the trust property to Crocker and Richmond, to enable them to meet their first instalment notes; but, for the reasons "already alluded to, and for others to be stated hereafter, we do not consider this as a payment pursuant to the trust.
The view of the subject last taken disposes of the question of Mr. Rotch’s claim. We think he is entitled to prove for the balance of his debt; but that he has no claim to be allowed one third thereof, out of the fund, in full, before any payment to those creditors, who have received of Crocker and Richmond one third of their debts. The master’s report in this respect is affirmed in both particulars.
VII. Our attention is next called to the exceptions taken by the plaintiffs and other creditors to the accounts of the trustees; in which the creditors insist that the trustees should *380be charged to a greater amount than they are charged by the master in his report.
1. The creditors claim that the trustees should be held responsible for eighty-four shares in the stock of the Taunton Manufacturing Company, embraced in the assignment and valued at $58,906 ’25. It appears by the facts reported, that, at the time of the assignment, these eighty-four shares were pledged to Willard and West for $8500. The trustees had no money or means with which to redeem them; and, in point of fact, the shares never were redeemed, but were subsequently sold, for a price considerably less than the sum for which they were pledged; so that the right of redeeming them, which was all that the trustees took under the assignment, was utterly worthless. The master reported, that the trustees were no further accountable in respect to these shares; and we are of opinion, that the decision was correct, and must be affirmed.
2. The creditors demand, that the trustees should account further for two hundred shares in the Cohannet Bank. It appears, by the assignment, that two hundred shares of this stock were conveyed to the trustees, subject to a lien thereon by the bank for $10,000. The master discharged the trustees from their liability to account therefor, on the ground, that the shares did not stand in the names of Crocker and Richmond. But the court are of opinion, that the trustees are chargeable with the par value of these shares, subject to the charge of $10,000, in favor of the bank. It is true, the stock did not stand in the names of Crocker and Richmond, but had been transferred to Milton Barney, to be held by him in trust for the bank, to secure the $10,000, and as to the residue for Crocker and Richmond, as the general owners thereof, subject to the lien of the bank. Crocker and Richmond were recognized as the general owners, and received the dividends. One hundred of these shares were afterwards applied to pay the debt of $10,000, for which they were pledged, and the residue went to the use of Crocker and Richmond. All the facts, respecting the ownership of these *381shares, were well known to the trustees. We are therefore of opinion, that the exception to the master’s report, discharging them from their liability for these shares, must be sustained, and that the trustees must be charged therewith. There is nothing in the case to show that they could not, at any time, have applied a part of the shares, as they were afterwards applied, to discharge the lien, and thus have enabled themselves to hold the residue of the stock for the purposes of the trust; and we think it was their duty to have done so.
3. The creditors require the trustees to account for twenty-four shares in the Weymouth Iron Company. It appears, that, at the time of the assignment, Crocker and Richmond had subscribed for twenty-four shares in the stock of this company, and had advanced $ 3600 thereon, but that the certificates thereof had not been issued; and that their interest in the shares was included in the assignment, which provided that the certificates, when issued, should be delivered to the trustees. This company was successful, and the right to these shares was afterwards sold by Crocker and Richmond at an advance. It is not shown, that the trustees ever asked for these certificates, or gave notice to the company of the transfer to them, or took any means to avail themselves of this interest of $3600. The court are of opinion, that the trustees are liable to be charged for this item, as a part of the trust fund, and that the decision of the master, exempting them from all liability therefor, must be reversed, and the exception to that part of his report sustained.
YIII. The master proceeds to consider the trustees’ account and answer, in which they pray to be exempted from further accounting for certain items of property, on the ground, that the property was of no value. Two items only are now in question:
]. One hundred and twenty shares in the stock of the Bristol Print Works;
2. One hundred and forty shares in the stock of the Taun ton Iron Company.
*382In regard to these shares, it appears, that the corporation Known as the Bristol Print Works was embarrassed; and that the shares therein could not be sold, and were utterly worthless.
The creditors contend, that, according to the terms of the trust deed, there was a breach of the condition in July, 1839, in consequence of the non-payment of some of the first instalment notes; and that thereupon it became the duty of the trustees immediately to sell all the trust property, and that failing to do so, they must be held responsible for its market value at that time.
But the court cannot sanction this conclusion. It does not appear, that there was any breach of the condition in July, 1839, or, if there were, that notice of it was given to the trustees; and, if a breach of the condition had then occurred, it was not the duty of the trustees to sell all the trust property, at the then market price, on pain of being held personally liable. Even after condition broken, some discretion was to be exercised by the trustees, as to the time and mode of sale, and they could only be held responsible for good faith and sound judgment.
Upon the facts, as reported by the master, the court are of opinion, that the shares in the Bristol Print Works, and also the shares in the Taunton Iron Company, became utterly worthless; and that the decision of the master, holding the trustees no further accountable therefor, was correct.
IX. The creditors also object to the claim of the trustees to be allowed the sum of $67,614, for that amount of the notes of Crocker and Richmond, taken up by the application of funds advanced by the trustees to Crocker and Richmond, to enable them to pay the first instalment notes.
The first item, in the trustees’ account of payments and expenses, is a charge of $67,642-20, for that amount of Crocker and Richmond’s first instalment notes, “ taken up by sale of Taunton Railroad and Taunton Iron Company’s stock,” which, being diminished by $28-20, paid by Crocker and Richmond, leaves an item of $67,614.
*383This sum exactly corresponds with the first two items in the account of sales of trust property, namely, eighty-one shares Taunton Railroad, $7614, and sixty shares Taunton Iron Company, $ 60,000, making together $67,614.
It appears, by the master’s report, that the real transaction was as follows. When the time of payment of the first instalment notes drew near, Crocker and Richmond applied to the trustees to release a part of the property in their hands, in order to enable them to meet this first instalment. After some hesitation, the trustees acceded to the request and did release to Crocker and Richmond eighty-one shares of the Taunton Railroad stock, valued at $7614, and sixty shares in the Taunton Iron Company, valued at $ 60,000; upon the understanding, that Crocker and Richmond should place in their hands an equal amount of notes given by Crocker and Richmond for their first instalment. After payment of the instalment, by Crocker and Richmond, these notes were selected by the book-keeper, not as the notes specifically paid by these funds, but as a part of the aggregate of notes, to secure which the deed was given. ~
Now, with the view which the court take of this deed, this was a misapplication of the funds by the trustees, for which they must be held answerable. It was not an application under the trust or authorized by it; it was made before the payments became due, and of course before any breach of condition ; and it was not paid to the creditors, but to Crocket and Richmond, who paid the notes to the creditors, as, by the terms of the deed, they were bound to do. In every point of view, in which we can consider the subject, these transfers of shares to Crocker and Richmond were not under and in pursuance of the trusts of the deed, but in violation thereof ; and the court are therefore of opinion, that the trustees are liable to account for these shares, and that the decision of the master in that respect must be reversed.
At the same time, however, it is proper to consider, that the real ground on which the trustees are chargeable is, that without just authority they parted with a portion of the *384trust property. It appears, that a part of this property consisted of sixty shares in the Taunton Iron Company, valued at $60,000. But, from other parts of the case, it appears, that the trustees were not bound, if indeed they were authorized, to sell these shares at that time; and that the shares soon declined in value, and ultimately became utterly worthless ; so that if the trustees had retained them, they would have been of no more value than the one hundred and forty shares which they did retain. If this be a true view of the facts, as we think it is, then, as to these sixty shares, the trustees are responsible ; but if the stock were of no real value, their parting with the shares in the manner stated did not diminish the fund, and their liability for the same is consequently merely nominal.
There is nothing in the case to show, that the Taunton Railroad shares were not of the full value, at which they were estimated, and for this amount the trustees are answerable.
X. Another question, arising on the report, respects the compensation claimed by the trustees. In the first place, they claim an allowance for services under the first assignment. The master reported against their claim for an allowance on that ground; and, upon a review of the case, the court are of opinion, that this decision was right.
The trustees also preferred a claim for services under the last assignment, a part of which has already been paid out of the fund. The master allowed their claim. Upon a review of the whole case, the court are of opinion, that the sums allowed are too high, and that, instead thereof, the sum of $ 5000 be allowed to the trustees for their services, and credited to them in their account.
It should be added, in reference to the claim of the trustees to be allowed for notes paid and taken up by them out of the trust fund, that we have proceeded on the ground that they advanced money, before a breach of the condition, to Crocker and Richmond, to enable them to take up their notes. But if, in point of fact, after a breach of the condition, the trustees themselves paid and took up notes, secured by the mortgage *385and trust fund, they would then stand on a very different footing. Perhaps it would be injurious to other creditors, to allow them in full, because it was their duty to distribute the fund equally, if it were not sufficient to pay all in full, and a payment to one creditor, of more than his distributive share, would be in their own wrong.
But we think that such notes should be proved, and that if the amount was received of the trustees, it must be con sidered as a payment by them in their own money, and they must account for the excess. But as the facts are not stated, this suggestion is made by way of caution, and with a view to a future inquiry, whether any such payments have been made.
A decretal order, in conformity with the foregoing opinion, was drawn up accordingly, and entered in the cause, by ordei of the court.