Spratt's Ex'x v. First National Bank

JUDGE LEWIS DELIVERED T.HE OPINION OF THE COURT. Appellant, executrix of Gr. Spratt, deceased, brought this action under chapter 3, title 10, Civil Code, for the settlement of his estate. At the time of his death Gr. Spratt, together with Charles Bridges, W. H. Bridges, and J. P. Thompson composed the firm of Gt. Spratt & Co., tobacco warehousemen, in the city of Louisville. He had also, with Charles Bridges and one R. J. Daniel, entered into certain partnership ventures for the purchase and sale of tobacco, which were distinct from the business of Gr. Spratt & Co. But by-an agreement between the two firms the money with which the tobacco was purchased and paid for was obtained on drafts drawn by G. Spratt & Co. and accepted by Daniel, which, together with charges for — 88 — storage, etc., and commissions for selling, were to be paid off out of the proceeds of the tobacco when sold by Gr. Spratt & Co. — it, as purchased, being consigned for that purpose. Soon after the death of Gr. Spratt, the surviving-members of the firm of Gr. Spratt & Co. made an assignment for the benefit of its creditors, who subsequently received of the entire assets only twenty-three per cent, of the- amount of their debts. The firm of Spratt, Bridges & Daniel had stored in the warehouse of Gr. Spratt & Co. a large quantity of tobacco under the contract referred to; but the proceeds thereof, which were the ■ only available assets, paid only about thirty-eight per cent, of the amount of outstanding drafts used in purchasing it. The private estate of G. Spratt seems to be sufficient to pay all his individual debts, but is insufficient to pay both them and the debts of the two firms of which he was a member. And as it does not appear that any of the other members of' either firm have paid anything, a question has arisen, which is the principal one before us, whether appellees, the Banks, that discounted the drafts-mentioned, and consequently creditors of both firms, shall be required to account for the dividends received by them from those firms, or from either of them, before sharing in the pro rata distribution of the private estate. The Chancellor adjudged, that as between the individual creditors of G. Spratt and the creditors of G. Spratt & Co., the latter should not participate in the distribution of the private estate until the* — 89 — former had been paid therefrom a proportion of their debts equal to the twenty-three per cent, dividends paid out of the assets of Gr. Spratt & Co.; but that those who had received dividends from the assets .of Spratt, Bridges & Daniel should, without regard thereto, receive their pro rata share from the private estate, first accounting only for the twenty-three per cent, received from Gr. Spratt & Co. The executrix, who appeals, contends that the Chancellor erred in not requiring those who received dividends of thirty-eight per cent, from Spratt, Bridges & Daniel to account therefor; while, on the cross-appeal, a reversal is asked upon the ground that the creditors of Gr. Spratt & Co. should be required to account only for such fractional parts of dividends received by them respectively as the share of Gr. Spratt in the partnership estate yielded, and no more. The rule applicable to the distribution between partnership and individual creditors of an estate assigned by the debtor in trust for the benefit of his creditors is stated in the case of the Northern Bank of Kentucky v. Keizer, 2 Duvall, 169, and has since been adhered to by this court. That rule is, that as each partner has an implied lien on the partnership property for the payment of partnership debts, each partnership creditor is, on the equitable principle of subrogation, entitled to the same lien or priority, and no individual creditor of any partner can make his debtor’s interest' in the partnership estate available, until all partnership debts shall have been paid. Bnt, on the other hand, — 90 — the principle of equality and the equitable doctrine of marshaling assets, entitle the individual creditors to say to the partnership creditors, “you have kept us out of the partnership effects, and we have a compensatory right to be indemnified out of the separate property of our individual debtors.” And in the case of Whitehead v. Chadwell's Adm'r, 2 Duvall, 432, where the same question arose, the court said: “The firm creditors having, through the equities of each partner, an exclusive lien on firm assets, they should not be allowed to participate in the individual assets until the individual creditors are put on an equal and exact footing with them.” The same rule was approved in German Security Bank v. Jefferson, 10 Bush, 326, and other later cases. The ground upon which the Chancellor exempted from the operation of that rule those creditors who had received dividends from the proceeds of the tobacco of Spratt, Bridges & Daniel, is, that the firm of G. Spratt & Co. had acquired by contract a lien to indemnify them for the. payment of the drafts used in the purchase of it, which lien enured to the benefit of the creditors of that firm who had discounted the drafts. This ruling of the Chancellor is sustained by the cases of Logan v. Anderson, 18 B. M., 119; German Security Bank v. Jefferson, and other cases decided by this court. If, therefore, this was a case in which was involved an inquiry as to the proper manner of making distribution among individual and firm creditors — 91 — ■of the estate of an insolvent debtor who had made ■an assignment, or if it was even the case of a fraudulent conveyance or transfer that by law operates as •an assignment for the benefit of creditors, the judgment of the Chancellor would, in our opinion, be proper, because in accordance with the well-settled doctrine of this court applicable in such cases. But this is a case involving a settlement of the •estate of a deceased person which is insufficient to pay all debts against it, and we think the manner of distributing it is fully provided by statute, which must govern. We quote so much of the following sections of ••article 2, chapter 39, General' Statutes, as apply: By section 33, it is provided that if the personal ■estate of a decedent be not sufficient to pay his liabilities, then the burial expenses of such decedent, and costs and charges of the administration ■of his estate, and the amount of certain trust estates ■mentioned that may be remaining in his hands, shall be paid in full before any pro rata distribution shall be made. “All other debts and liabilities shall be ■of equal dignity, and paid ratably in the administration of his estate;' and should more than the ratable share of any debt be paid, his personal representative shall only receive credit for its proper proportion.” .Section 34 is as follows: “When such an estate is covered by liens, giving a creditor a priority on .such property, the proceeds thereof shall be first applied to the discharge of such lien, and the residue shall be subject to a pro rata division among — 92 — the other creditors. But when any creditor has a lien and the property subject to the lien is not sufficient to discharge the debt, he shall not be entitled to any portion of the residue of the estate, until all the creditors not having liens shall have received a sum equal pro rata with such lien creditor.” By section 33 it is in terms provided, that all other debts and liabilities, except those therein specified, shall be of equal dignity and paid ratably in the administration of the estate, while the language of section 34, it seems to us, comprehends every lien, however created or existing, by which one creditor’ of the decedent may have a legal or equitable advantage or preference over others as to any part of the estate that would otherwise be subject to the payment of all debts alike. And as partnership' estate of a 'decedent is not excepted, we must conclude the statute was intended to apply to liens, thereon, as well as to liens on the private estate of the decedent, whether the creditor be entitled to such lien on the equitable principle of subrogation, or has acquired it by contract. In plain terms, the statute provides that when any creditor, whether individual or partnership creditor, has a lien on any portion of- a decedent’s estate, he shall not be entitled to any part of the residue until all the other creditors, not having liens, shall have received a sum equal pro rata with such lien creditor. In harmony with this manifest intent of the Legislature, subsequent sections of the same article require that all demands against .the estate of a decedent — 93 — shall be verified by the written affidavit of the claimant, showing that the demand is just, and if any part of it has been paid, or there be any offset or discount against the same, the affidavit shall state the date and amount of such payment, offset and discount. And section 41 provides, that “no personal representative shall pay, or be adjudged to pay any more of any demand against a decedent’s estate than what remains due- of the same after the usury embraced therein and the payments made thereon, and the offsets and discounts against the same are deducted.” When the provisions requiring the affidavit and proof of demands against a decedent’s estate are considered in connection with the explicit and unambiguous language of section 41 just quoted, it is clear that, under the statute, the amount of a creditor’s demand, whether he be a partnership or individual creditor, which may be paid out of such •estate, is the sum actually due alter deducting all payments, in whatever manner or on whatever account they may have been previously paid, and all •offsets, discount and usury. And this being so, it seems to follow necessarily, that in the settlement of the private estate of a decedent which is insolvent, the ratable portion of no greater sum should be paid to any creditor. None of the cases referred to fixing the rule by which insolvent estates are to be distributed between partnership and individual creditors, relate to estates of decedents except Whitehead v. Chadwell's Adm'r, and even in that case, though tie views announced — 94 — lead to the same conclusion we have arrived • at, no' special reference was made to the statute on the subject. But we are satisfied that the settlement of estates of decedents was intended to be regulated by chapter 39, General Statutes, and that no other construction can be given to the statute than we here give. In our opinion, therefore, the Chancellor erred in failing to require appellees to account for the thirty-eight per cent, of their debts received from the proceeds of the tobacco of Spratt, Bridges & Daniel, as well as the twenty-three per cent, received from G. Spratt & Co., before receiving any part of the private estate of G. Spratt, and also erred in permitting any creditor to participate in the pro rata distribution, except to the extent of the actual amount due him after making the deductions of payments, off•sets, discounts and usury required by statute. Wherefore the judgment is reversed on the appeal, affirmed on the cross-appeal, and cause remanded for further proceedings consistent with this opinion.