Kendall v. New-England Carpet Co.

Williams, Ch. J. The principal questions in this case arise upon the facts stated, in the report ot the The company being greatly embarrassed and unable to carry on their business, on the 24th of February 1838, mortgaged to the plaintiff, who was then endorser, and to whom they were largely indebted, the stock and personal property in the manufactory, with power and authority to work up the stock on hand, and purchase materials for that purpose ; and on the same day, the same property was mortgaged to Phelps, Beach & Co., subject to this prior mortgage. This assignment was signed by Roberts, a partner in the company, and their agent. One question is, whether this power to purchase materials and work up the stock, was valid. And this question, although the last presented by the report, seems naturally to be the first in order for consideration; for if the plaintiff had no power to make the purchases and to carry on this business, the whole account must be re-examined. That such a power may be greatly beneficial to all the parties connected with the affairs of a large manufacturing establishment, is very apparent. That such a concern should suddenly be suspended, and the stock in the various stages of manufacture, be sold, in parcels or together, must greatly dimmish the value of the property to the creditors, and impair their security. Accordingly, it has been holden, by the court, that such a power fairly conferred, was a valid power. DeForest v. Bacon & al. 2 Conn. Rep. 633. We see no cause to reverse that decision. It is indeed a power, which may be abused. But the interest of vigilant creditors will generally prevent its being used improperly, or if it is, procure its detection. It was intimated, upon a former occasion, that in this case this power was void, because it was given by only one of the partners, who was also the agent; but as the committee have found, that it was done by Roberts, with the approbation and assent of the other parties, that point has not been pressed in this court. Other questions are submitted as to particular items in the account as stated by the committee. It appears that Roberts, who was a partner in the concern and their agent, and also agent for Kendall, after he took the superintendence under his assignment, had, without the knowl — 392 — edge of the plaintiff appropriated the avails of the goods mortgaged to the plaintiff and to Phelps, Beach & Co., the sum 0f i;056 dollars, 92 cents, to the payment of other debts of the company; for the amount of which Phelps, Beach, & cjajrne(j) that the plaintiff should account with them. As it respects the company, this money, having been, by one of their own number, applied to the payment of their own debt, they can have no claim upon the plaintiff therefor ; and as it respects Phelps, Beach & Co., the plaintiff claims they have no reasonable ground of complaint, as in the mode of stating the account, they have the benefit of a much larger sum. And in support of this, he shews, that since the mortgages, he has received and credited, of the funds of the company, not specifically appropriated to the payment of his debt, the sum of 1,564 dollars, and 35 cents, and the sum of 2,906 dollars, 85 cents, amounting to 4,471 dollars, 20 cents ; and that even after deducting the 1,056 dollars, 92 cents, Phelps, Beach & Co., received the benefit of more than 3,400 dollars, the avails of property not included in their mortgage. In the opinion of the court, this is a complete answer to that claim. The case is merely this. The company have abstracted about 1000 dollars from the funds appropriated specifically for the payment of certain debts, and have returned into that fund more than four times that amount; and yet the creditors say, “ we are wronged by what you have done.” Such a claim needs only to be stated to be answered. Another objection made to the account, is, for the personal services of the plaintiff. That the services of the plaintiff were highly important to the company, and all who were concerned in their affairs ; that the plaintiff has conducted the business with entire good faith, and without unnecessary delay ; that the compensation is a reasonable one ; and that without his agency, considering the state of the business and of the country, the consequences must have been ruinous; are facts found by the committee. But it is said, there is a stubborn rule of equity not to be violated, that an executor, guardian or trustee of any kind is not to receive compensation, unless it be stipulated by the parties, except for time and expenses ; and that this allowance is not of that character. It is not denied, that this is the general rule of equity; although in this, as well as some of — 393 — our sister states, it has not been strictly adhered to, as it regards executors. Wilson v. Wilson, 3 Binney 566. Granberry's executor v. Granberry, 1 Wash. 250. It is a rule of policy, similar to that by which a purchase made by a trustee of'the trust property, has been held invalid. It is designed to prevent frauds, and not to allow even temptations for fraud. As a general rule, it is a good one ; nor do we feel disposed to impugn it; nor do we think it necessary, in the present case, to enquire how far it may have been relaxed in this state. It is admitted by the champions for this rule, that a fair and open bargain with a cestui que trust, is admissible; (Ayliffe v. Murray, 2 Atk. 58. 60. Green v. Winter, 1 Johns. Ch. Rep. 39.) although it is said, the court will be very cautious and wary in doing it. In this case, a bargain was made by Roberts, one of the partners and the agent of the partners, with the plaintiff, to allow him the same compensation to which he would have been entitled, if he had not been trustee, for the same services. This seems to be reasonable, in the situation the company was in. • It is said, that Roberts was in the power and under the influence of Kendall. If the fact be so, it certainly ought to lead to a close scrutiny of the contract, made with him ; and if upon such examination, we find that contract to be á fair and reasonable one, as in this case it has been found, we think should be established. Again, it was said, that it does not appear whether this agreement was made before or after the written assignment: that if made before, it was merged in the written contract; and if made after, the plaintiff should have shown it. Another fact, however, also appears, that while the plaintiff was going on with this business, and long before his personal services and responsibilities had ceased, though after the commencement of this suit, viz. in September 1838, and in January 1839, the plaintiff rendered his account to the defendants, containing his charges for services, made upon the same principle ; and that no objection was ever made to the compensation charged therein, except that which is made in the answer, filed long afterwards. This is certainly, as it respects the company, evidence sufficient of an existing contract, authorising such charges, after which, if it is claimed that this contract might — 394 — ^ave been before the written assignment of February 1838, becomes the duty of the defendants to show that fact. When, therefore, we see the nature of the services ; and ^*e ^lazard incurred by the plaintiff thereby; and the agreement entered into, by the company, recognized as subsisting, after the commencement of this suit; we should deem it gross-, ly inequitable and unjust, that this company should not only draw the plaintiff in, by an original contract to that effect, to incur these hazards and render these services, but that, by their subsequent silence, they should permit him to continue them a considerable time, after it was known to them what claim he made for those services, without objection on their part. It is said, that however this may be, as it respects the company, yet as it respects Phelps, Beach & Co., they cannot be affected ; for not being parties to such an agreement, or even to the account, they had no right to object; and so ought not to be prejudiced, by the silence of the company. If it be admitted, that this argument is as decisive as it is supposed to be, it seems to the court, that there are other considerations-,, which show, that Phelps, Beach & Co. have no right to interfere between the plaintiff and the company upon this subject. Their claim must be founded upon this ground alone, that the common fund out of which the plaintiff’s debt and their debt is to be paid, is appropriated, by the plaintiff, in a manner which courts of equity will not sanction. But upon an examination of this account, it appears, that there is credited 7289 dollars, 84 cents, as additional security for his debt, which the plaintiff has received of the company, which was not included in the mortgage to Phelps, Beach & Co.; and upon which, therefore, they can have no legal claim. Besides which, there is credited more than 300 dollars over and above the charge of 1056 dollars, 92 cents, before alluded to, received by the plaintiff, not appropriated specifically, either to the payment of the plaintiff’s debt, or that of Phelps, Beach & Co. Whatever claim Phelps, Beach & Co. have to these funds is purely equitable ; and equity will so marshall them as to do the best justice to all concerned. Thus, where A and B have mortgages upon the same property, and A’s is prior in date, and, at the same time, A has a mortgage of another piece of property, on which B has no lien, a court of — 395 — equity will not permit A to sell the Former estate only, and thus leave nothing for B, if he can get the whole, or a part, of his debt from the last mortgage; for the eifect would be, to destory the benefit of Ns lien, without any advantage to himself. He would, therefore, be compelled to satisfy his •debt, so far as he could, out of the land upon which B had no lien. But if the second mortgage was given to him to secure another debt, as well as the first debt, no court of equity would compel A to sell the last estate, and apply tire avails to the first debt, to relieve that land for the benefit of B. In this case, the plaintiff has a claim for compensation, which the company are bound to respond. But Phelps, Beach & Co. say, as it respects them, it ought not to be taken from the fund mortgaged to them. The plaintiff says, however, it is not taken from that fund. We have in our hánds, and have credited in this account, more than 10,000 dollars, to which you can have no claim, it not being included in the property mortgaged to you. The only answer that Phelps, Beach & Co. can make to this, is, that they have an equitable claim to this fund. They certainly have this equity, that if the plaintiff, having two funds, can get his debt, by means of the one upon which they have no lien, he shall do it. Phelps, Beach & Co. now claim, that the plaintiff shall neither have his debt, nor the security: that because this debt is not a charge upon the common fund, in which they have a legal interest, therefore, it is not to be charged upon another fund, in which they have no interest but such as a court of chancery apportions to meet the justice of the case. In other words, the plaintiff has a legal claim against the company, for services rendered, and responsibilities incurred; he has, in his hands, of the property of that company, much more than enough to satisfy this claim, upon which, Phelps, Beach & Co. have no lien, by virtue of their contract; but they insist upon it, that a court of equity shall take this fund from the plaintiff, who has it in his possession, and appropriate it to the payment of a debt, to which it was never pledged, and leave the plaintiff to the personal security of those by whom it was pledged to him in part. This would be to invert the rule, that where there are equal equities, the legal title shall prevail; if Phelps, Beach & Co. had established the fact that the equities were equal. So far from that, however, it would be manifestly — 396 — uniust to deprive the plaintiff of the security m his hands, which he must hold against the company, tor the purpose ot payjng these creditors, who, as they have no legal rights, can only found their claim upon a superior equity. After the to Phelps, Beach & Co., the company held this property entirely independent of Phelps, Beach & Co. and-might appropriate it as they pleased. If they chose to appropriate it to the plaintiff, to satisfy other claims not embraced in his mortgage, or those very claims, Phelps, Beach & Co. have no ground to object; and if, by means of it, the property mortgaged to them, is released from 6000 dollars of the lien thereon, they certainly have no reason to complain, if they do not gain the other 4000 dollars. And although a court of equity will interpose its shield in favour of these subsequent mortgagees, so as to prevent injustice being done to them, by a prior mortgage ; yet on the other hand, it will not suffer the defendants to make use of this as a weapon of offence, against one whose legal rights are superior, and whose equity is at least equal. As the plaintiff, then, has a right, as against the company, to be allowed his compensation in this account, we see no valid objection to his claim, on the part of the subsequent mortgagees, taking the whole account together. We think, therefore, the account is to be settled upon the principles adopted by the committee. Another question also arose, as to the admission of a deposition, showing sales made after the report of the committee, and before the final hearing in the superior court, by which the state of the account would be varied. It not being shewn, there was any surprise upon the party, the only question is, whether, as the committee have reported the state of the account to a given time, the court can enquire into subsequent alterations in that account. It is very apparent, that there may be cases, in which this might be highly important. It is the desire of a court of chancery to prevent further litigation, where it is practicable. Now, after the report of a committee, one party may have collected a large debt, or may have sustained a great loss, which would essentially vary the state of the account, which might make him a creditor instead of a debtor. Is there then any rule of equity, — 397 — which requires the court to render a judgment, which shall only lay the foundation for another suit ? This committee are only the organ of the court, or officers of the court, like a master in chancery, who finds facts, and whose terminate upon the return of their report. The court, therefore, hear objections to that report, and modify it as circumstances require. No objection to this course has been shewn; and as it is carrying into more full effect the object of a suit to end the controversy between the parties, and as no authority to the contrary has been shewn, we think the deposition was properly admitted, la the case of Hall v. Cone, 5 Day 548. it would seem as if this practice must have beerrrecog-nized ; and we have no doubt as to its propriety. The superior court is advised, that the deposition was admissible in evidence ; and that the report of the committee should be accepted, and the account settled upon the principles by them adopted. In this opinion the other Judges concurred. Decree for plaintiff.