Sands v. . Kimbark

The defendants claim that they were entitled to a trial by jury, and that the order of reference and the trial were in conflict with the Constitution, in which it is declared that "the trial by jury, in all cases in which it has been heretofore used, shall remain inviolate forever." (Art. 1, § 2.) The act of 1862 (Sess. Laws, 743), authorized the reference and trial. Is it in conflict with the Constitution? The Constitution of 1777 contained the like provision, thus: "That trial by jury, in all cases in which it has heretofore been used in the Colony of New York, shall be established and remain inviolate forever." (§ 41.) The provision in our present Constitution is copied from the Constitution of 1821 (art. 7, § 2). The corporation represented by the plaintiff as receiver, was insolvent, and the defendants' testator was a member of such corporation. In equity, the stock and other property of a private corporation are deemed a trust-fund for the payment of its debts, and the creditors have a lien upon it, or a right of priority of payment, in preference to its stockholders; and courts of equity, prior to our Constitution, entertained jurisdiction in such cases and enforced the trust. (2 Story Eq., § 1252.) The trust is implied, and arises from what are called equitable liens, being liens which exist in equity, and of which courts of equity alone take cognizance. (2 Story Eq., § 1215.) Upon the dissolution of such corporation, the creditors may pursue the property and enforce their claims, unless it has passed into the hands ofbona fide purchasers; for the property is deemed to be held in trust, first, for the payment of the debts of the corporation; and second, for the benefit of the stockholders, in proportion to their respective interests. (Tiff. Bull., Law of Trusts and Trustees, 110; 8 Pet., 286.) *Page 149 The property owned by an insolvent partnership is deemed, in equity, a trust fund, to be first applied in the payment of partnership debts, and if any remains, then to the partners, in proportion to their interests. Though the creditors of the firm have no lien, as such, upon the partnership property, they have a right in equity to follow it, as a trust, into the possession of all persons, who have not a superior title (2 Story Eq., § 1253;Buchan v. Sumner, 2 Barb. Ch., 197). The enforcement of trusts is a copious source of the jurisdiction of courts of equity, and when the property of any debtor is vested in a trustee or trustees, a court of equity has jurisdiction to compel the execution of the trust. As, under our Revised Statutes, in relation to attachments against absconding, concealed and non-resident debtors, and assignments made under the statutes in relation to insolvents, the property of the debtor and the insolvent became vested in trustees for the benefit of creditors, I have always supposed that the provisions which those statutes contain (2 R.S., p. 45, § 19 et seq.) for settling controversies arising between the trustees and other persons in the settlement of any demands against the debtor, or of debts due to his estate, by a reference to three disinterested persons, to be agreed upon, and in case such other person would not agree or consent, then to be appointed in the manner specified, upon the application of the trustees, with power to hear and determine the controversy, and concluding the rights of the parties, originated in the principles of equity to which I have referred, and that they were not obnoxious to the objection that they were in conflict with the provisions of the Constitution of 1821, touching the right of trial by jury. They were taken substantially from the Revised Laws of 1813, v. 1, p. 166, and will be found also, in substance, in an act passed in April, 1786, entitled "an act for relief, against absconding and absent debtors." (1 Green., Statutes, 221, § 16.) The property of the absconding debtor being seized and transferred to trustees for the benefit of creditors, and the property of insolvents, being transferred, either voluntarily or coercively, for the like purpose, it became a trust property *Page 150 or a trust fund for the payment of debts over which a court of equity had jurisdiction; and the legislature provided a cheap and expeditious mode of realizing the fund and settling controversies in relation to it, without action, either at law or in equity. I confess I should find more difficulty in sustaining the provisions in question, in the Revised Statutes, than those in the act of 1862, now under consideration. The former embraced controversies between the trustees and persons who were mere creditors or debtors of the insolvent, or absconding debtor, whereas the act of 1862, so far as it affects the present case, may be confined to those persons who were members of the insolvent corporation. And the object of the action by the receiver, who is the trustee for the creditors, is to collect a debt due from such stockholder. The case is clearly one in which the creditors have an equitable lien, and from which an implied trust, in their behalf, arises; and the legislature could provide for the manner of enforcing the trust, without a resort to an action at law or in equity, without infringing the provision of the Constitution, relating to trial by jury. I think, upon the question we are considering, the decision in The matter of theEmpire City Bank (18 N.Y., 199-211), is in point. That case arose under the act of 1849, to enforce the responsibilities of stockholders in certain banking corporations, and a referee was appointed to ascertain and report such liabilities. The stockholder was deprived of a trial by jury Another objection is made to the constitutionality of the act of 1862, viz.: that it created a new tribunal or court, not authorized by the sixth article of the Constitution. It is an error, I think, to regard the referee as a court. The proceedings were instituted before the Supreme Court, by a notice, in pursuance of the statute, and the referee was appointed by the court or a justice thereof; and by the statute a judgment of the court was to be, and has been, entered upon his report, which, upon appeal from the judgment to the general term, could be set aside. The proceeding, under the statute, is in *Page 151 the Supreme Court, and the judgment is a judgment of the court. The judgment should be affirmed.