In re Dyott's Estate

The opinion of the Court was delivered by Rogers, J. Whether certain post-notes, issued by T. W. Dyott, are covered by the bond executed the 9th of May 1836, is the first question which it is necessary to determine. It is recited in the bond, among other things, “that whereas T. W. Dyott has already, and is about to issue his certain promissory notes for the — 489 — payment of divers sums of money, on their being presented at his banking-house in the city of Philadelphia, according to the tenor and effect of said notes, Now the condition, áse. is such, that if the above bounden Thomas W. Dyott shall at all times hereafter pay and discharge all and every the promissory notes made payable by him as aforesaid, then, &c. the obligation to be void.” The words are studiously comprehensive, and may, without doing any violence to the language, embrace all notes whatever in the nature of bank-notes, whether payable on demand or at any future period. The intention of the obligor was to establish a regular banking establishment, to be conducted as other institutions of that kind ; among which the issue of post-notes, as a medium of circulation, in latter times at least, was a frequent expedient. In order to give currency to the circulation of this, and other descriptions of paper, he pledges all his real estate, not before encumbered, for their redemption. As no apparent discrimination is made, the holders of post-notes, which differ from other promissory notes only as to the time of payment, had no reason to believe that there was or could be any distinction made between them, they took them on the general understanding that as no distinction was, in terms, made in the form of the instrument, there was no difference in the security. The obligor agrees to pay all the promissory notes issued by him according to their tenor and effect; and for this purpose he pledges, specifically, his real estate. A discrimination such as has been attempted would sound very ill in the mouth of the obligor; nor does he allege that any difference was intended; nor do we think that such a plea is any more available although made by persons who wish to come in on the fund raised by the sale of the real estate, to the exclusion of that class of creditors. There can be little doubt that Dr Dyott intended that all should be placed on the same footing; and his intention should have a controlling influence in the construction of the instrument, in a contest between his different creditors. The claims of Jacob Ridgway and Captain Mann have been excluded by the auditor and by the court; and of this they complain. The 2d of February 1836, T. W. Dyott commenced business as a banker. He established a bank which he called the “ Manual Labour Bank,” received money from various persons for a limited time, and agreed to pay depositors, on certain terms, a fixed rate of interest. He also issued promissory notes, payable at his banking-house, called Manual Labour Bank Notes, which, for a time, circulated freely as bank-notes. As a security against loss by depositors or holders of his notes, Dr Dyott, on .the 11th of May 1836, executed a bond to Stephen Simpson, and others, for #500,000, conditioned for the payment of the promissory notes made payable by him at his banking-house, áse. and also for the payment of every sum of money deposited with him at his bank — 490 — ing-house, upon demand made, according to the tenor and effect of such notes, and the terms and conditions of such deposits. Judgment was entered on the bond on the 11th of May 1836, and on the 19th of May 1837, Stephen Simpson, and the other assignees, with the assent of the obligor, assigned the bond to Jacob Ridgway; and on the 19th of May 1838, the bond was re-assigned to Stephen Simpson, and the other assignees. After the execution of the bond, and before it was re-assigned, Jacob Ridgway advanced a large sum of money to Dr Dyott, who, on the 7th of April 1837, transferred to him an invoice of goods, consisting of glass-ware, &c. as a collateral security for money he had or might advance. These goods, in defiance of the pledge, were afterwards sold by Dr Dyott to J. B. and C. W. Dyott, and were removed by them from the place where they were stored without the knowledge and consent of Mr Ridgway. The fair import of the evidence is, that although the goods were not in the actual custody of Mr Ridgway, yet they were under his control; and if there was nothing else in the case, and this was a contest between him and a surety, it would be difficult to escape from the position in which his negligence has placed him. But this is a contest between creditors, as to the distribution of a fund arising from the real estate of the debtor, and I cannot perceive how the facts stated can postpone, or in any manner affect his rights to a proportion of the money in court. A person may, if he chooses, relinquish a collateral security altogether, without the assent of other creditors of his debtor. It is matter resting entirely between him and his debtor, with which others have nothing to do, and of which they cannot complain. If the holder of a note- chooses to release an endorser, it will not be pretended that it will discharge the maker. His claim remains in force as before; and where is the difference between a security by endorsement and a collateral security ? for collateral securities stand in the place of a surety not entitled to indemnity. Lewis v. Bank of Penn-Township, (3 Whart. 537). A neglect to prosecute and secure a collateral security will not discharge the principal in a bond. Ormsby v. Fortune (16 Serg. & Rawle 303). If it will not, as this case shows, it is difficult to see why the creditors of the debtor should be suffered to complain of it. If a debtor should place in the hands of his creditor a collateral security which was injured or destroyed by the gross negligence of the creditor, the debtor would be entitled to indemnity, because there is a privity of contract; but here there is no privity between the other creditors and Mr Ridgway. He had an unquestionable right to permit any one of his securities to slip from him, without any regard to the interest of other creditors, of whose existence he may not have been aware. For an injury of this description Dr Dyott could alone complain; but he would come into court with a bad grace to complain of his own act. But Mr — 491 — Ridgway is not only a creditor, but a trustee, and for that reason, as is said, he stands in a peculiar situation. This is a position more plausible than sound. It is true, he is a trustee, but a naked trustee only. He had the legal title vested in him by force of the assignment, and suits must have been brought, during its continuance, in his name. But beyond this he has no further interest than any other creditor. No additional obligation is thrown upon him. The bond is for the benefit of each and every creditor embraced within its provisions, and suits may be brought on the bond by any one who may conceive himself aggrieved by the default by the obligor, in the name of the trustee, but for his own use. It is not the duty of the trustee to give his personal attention to the suit, as such, any more than it is the duty of the officers of the commonwealth, the Governor or the President ■ Judges of the Orphans’ Court, to attend to the collection of money for individuals on official bonds. As in the cases named, he is a mere organ, a conduit-pipe, by which depositors and holders of notes may have the benefit of the security. It is very true that trustees cannot take advantage of their own laches, and if Mr Ridgway had had any duty to perform in relation to this trust, he would not be permitted to manage it in such a way as to benefit himself at the expense of others, and this is the purport of the case of Kentish v. Newman, (1 P. Wms. 235); French v. Hobson, (9 Vez. 102). The forbearance of a trustee, as is said in Lewin on Trusts and Trustees, 655, on the authority of Sir Joseph Jekyll, in not doing what it was their office to have done, shall in no sort prejudice the cestui que trust, since, at that rate, it would be in the power of trustees, either by doing or delaying to do their duty, to affect the rights of other persons; which cannot be maintained. From this position no one will dissent. But this is as to the management of the trust. But what peculiar duty has Mr Ridgway to perform? He is placed on the same footing of other creditors, with the exception that his name must be used as a legal party to the bond. Beyond this I cannot imagine any thing he can do, except what is common to each and every creditor of the obligor who has claims under the bond. He must be regarded as a mere nominal instrument, without any discretion whatever; with the same power to contract with the obligor as before he confidentially consented to accept the assignment, and with the same, and no less power, that any other individual had to make contracts with him. We therefore see nothing to take this case out of the general rule. After sale of the goods pledged, Mr Ridgway, who, with great cause, complained of the transaction, took bonds from J. B., C. W. Dyott, and T. W. Dyott, as a collateral security, for the latter, and afterwards released the two first, but with an agreement that the release should not affect or impair his claim against T. W. Dyott. This transaction comes within the same principles which have been already discussed. T. W. Dyott cannot com — 492 — plain, as it was done with his privity and consent, and his creditors are in no better situation than he is. It would seem, that after the sale of the goods pledged, and after the release of the Dyotts’ bond, Mr Ridgway advanced the money which now constitutes his debt against T. W. Dyott, a fact which, if the case needed it, would be very material, but which would appear to have been wholly overlooked by the creditors. But it is insisted that this claim cannot come upon the fund, because, 1st. Notes which are collateral were issued after the 4th of November 1837, when the bank suspended specie payments; and secondly, because the debt was a private debt of Dr Dyott, not connected with the business of the bank, and not in the usual course of business. It must be premised that we have no evidence when any of the notes were issued, that being unnecessary to examine, as in the opinion of the auditor the date of the issue was immaterial. He placed them all on the same footing. The first point assumes that there are two classes of creditors, original and subsequent creditors, viz., creditors before the 4th of November 1837, the time of the alleged failure, and creditors after that time. It is contended on behalf of the former, that the failure of the Manual Labour Bank in November 1837, was ipso facto a forfeiture of the bond; that the right of the existing creditors to the whole security of the bond immediately attached, and became a vested interest; that consequently, the whole fund must go to their use, inasmuch as the bond was forfeited before even the subsequent creditors were created. We dissent from this position, and agree with the auditor, that both classes, as to the security arising from the bond, are in the same category. It is true, that on the 4th of November 1837, the defendant forfeited his right to any further stay of execution on the judgment entered on the bond. After that period it would have been competent for any one or more of the creditors to issue a scire facias in the name of the trustee who held the legal title, to show cause why execution should not be had. In this manner, the real estate bound by the judgment, may have been sold, or as much thereof as would be required to pay the claim of depositors and note-holders then existing, who had complied with the conditions of the bond, and so toties quoties. If, after having taken this step, any property remained, it would have been liable for future issues. But this was a right which the creditors, if they thought proper, might waive either expressly or by unequivocal acts, and this it appears was in effect done. No steps were taken by them; they slept upon their rights, and, with the general consent of all, the defendant was allowed to continue his operations as a banker. Accordingly, we find him, after this catastrophe, of which mention has been made, issuing what has been termed a “ bulletin,” in which he proposes certain terms to his creditors, which were acquiesced in, at — 493 — least against which there appears to have been no manner of objection. Under the terms and conditions thus held out to the public generally, he made heavy issues of paper, obtained large loans, of which the claims in question form considerable items. It is a fair inference, from the evidence which addresses itself to the equity of the case, that by this means the obligor was enabled to raise large sums of money from Mr Ridgway and Capt. Mann, of which we have express proof; that part, at least, if not the whole, went to the payment of the debts of the original creditors, in whose behalf the objection is now made. There is nothing on the face of the notes, or in the terms of the bond, which would cause any person to apprehend any difficulty. No steps were taken which were in the least degree calculated to give notice of any vested right in any person, nor any thing said or done which would lead the unwary or unsuspecting to apprehend that any preference would be given to the holder of notes, according to the time of issue, which by the bye it would be impossible for the holder, in a majority of cases, to know, these notes being in a course of circulation as money, and the date of them being but little, if any, evidence when they were issued. The bond is given for the security of all persons, whether depositors or note-holders, without any discrimination as to the time of issue. It may be, that in this particular instance, Mr Ridgway and Capt. Mann knew the embarrassment of the bank, nay, it is very certain that they did, to their cost, but it was not known to them whether the existing creditors would or would not proceed to execution on the judgment. It has been said, that Mr Ridgway gave himself out as the holder of a bond for $500,000 as the capital, knowing that it was not sufficient. But there is nothing in the evidence which impugns, in the least, the entire good faith of either him or Capt. Mann. There seems to have been a degree of infatuation in both these sagacious men, for which it is somewhat difficult to account, but every thing appears fair, honest, and even liberal, as respects the defendant. Their object appears to have been, and particularly the former, to sustain the credit of the institution by the advance of means which went immediately to the use of the bank. It is said that these were private debts, having no connexion with the business of the bank. The latter part of the proposition there is reason to doubt; but that they are private debts, not within the bond, is true, and, as such, they have no claim to the fund. But how does the case stand? Doct. Dyott, the defendant in the execution, is indebted to Mr Ridgway in a large sum of money, viz., $65,474.52, and being so indebted, as a collateral security for this fair and honest debt, he takes the bond of J. B. and C. W. Dyott and of T. W. Dyott, and three notes of hand from the same parties; and, for a further collateral, Doct. Dyott puts into the hands of his creditor notes of the Manual Labour Bank, at two several times, amounting in the whole to $75,000. — 494 — It must be remarked, that the claim to a proportion of the specific fund is not directly on the debt due by Doct. Dyott, although that claim is undoubtedly the foundation of the demand, but he claims his proportion by virtue of the collateral security, consisting of the notes of the bank, which were deposited with him for this very purpose. Why did Mr Ridgway consent to receive the notes as collateral 1 for the reason precisely that they were considered a better security than an ordinary note or bond of the same individual, because, in addition to the personal security of the debtor, he had already pledged his real estate for their redemption. Without this pledge, his situation would not be at all bettered or changed by the possession of the notes. It is said, however, not to have been in the usual course of business. If by this it is meant that it is not an every-day transaction, it may be admitted; but if this suggestion is to take, as a reason for destroying the claim, I cannot see the force of it. It is a legitimate business, having nothing unfair in it, and such as an honest, conscientious, and prudent man may well engage in. The bond and judgment give a lien to the holders of such notes, without regard to the manner they came into the possession of them, provided they came honestly by them. It is very certain that such a defence would not be listened to, if it came from the defendant, and I am at a loss to perceive in what respect the creditors are in any better situation. It is a question of intention on a fair construction of the instrument, and I cannot bring myself to doubt that this transaction comes fairly within its spirit, as it undoubtedly does within its letter. There is nothing in the evidence which evinces any intention of Mr Ridgway to waive any right on this collateral secu- , rity. In enumerating his securities for his debts, at a time of some excitement, and no little persecution, he forgets to mention this as one of them. But this is evidently a mistake. The deposit of the notes was intended as a collateral and was received as such, as is apparent from the receipt of Mr Ridgway, which is in language which it is impossible to misunderstand. The amount of notes deposited as collateral was $75,000. Of this sum $40,000 was handed to him the 11th of September 1838, after the defendant gave bond to take the benefit of the Act, but before he filed his petition. This, we think, makes no difference, as we are of the opinion that the same reasons apply both to the $40,000 and the $35,000 advanced at an earlier date. Giving a bond to take the benefit of the Act does not deprive a debtor of an honest control of his property. He may contract debts afterwards, if fairly and honestly done, which will be entitled to be paid out of his property, nor will he be deprived of the liberty, if he chooses it, to prefer one creditor to another for the debt for which he was arrested. The bond is given by the person arrested to the plaintiff in the suit, conditioned, that he will appear at the next term, and then and there present his petition for the benefit of the Insolvent Laws, &c. The debtor — 495 — may appear or not, but the only consequence which results from his failure to comply is, that he and his sureties become liable on the bond to the plaintiff. Having established the right to come in on the fund, the next inquiry is, to what extent 1 And it is very clear that he has a right to his proportion on the whole amount pledged, viz., $75,000, provided the amount of the dividend does not exceed his debt, viz., $65,474.52. The case of Capt. Mann stands on same footing of Ridgway. Decree reversed, and fund distributed to the parties in certain proportions accordingly.