Attorney General v. Supreme Council American Legion of Honor

92 N.E. 134, 206 Mass. 131, 1910 Mass. LEXIS 770

• Court: Massachusetts Supreme Judicial Court
• Decided: May 19, 1910
• Status: Published

Opinion

Loring, J.

1. The first question presented by. this report is whether the decree of October 7, 1907, was wrong in restricting the petitioners to $3,100 and interest thereon. The claimants’ contention is that the judgment in their favor for $4,272.10, having been rendered before the date of the receivership, is binding on the corporation and on the receiver, and for that reason they are entitled to have the whole judgment (including $500 for an attorney’s fee and $360 statutory penalty, with interest on those items) paid out of the emergency fund. This judgment and the whole of it is entitled to full faith and credit. But the judgment is a judgment that a certain sum is due from the corporation. Whether that sum is payable out of a particular trust fund of the corporation, is a separate and further question. It was pointed out in Palmer v. Northern Mutual Relief Association, 175 Mass. 3 96, that if a creditor who has recovered a judgment against such a corporation as the defendant while it is a going concern wishes to have that judgment paid out of the emergency fund, he has to file a bill in equity to get that relief. In such a bill in equity the further and separate question spoken of above would be adjudicated. In the case at bar there has been no judgment on this separate and further question. The emergency fund is a trust fund limited to the payment of death benefits. R. L. c. 119, §§ 7, 8. So much of this judgment beyond the amount directed to be paid by the decree of October 7, 1907, is not for a death benefit and cannot be paid out of this fund.

If by-law 53

* were construed to authorize payment of the whole judgment out of the emergency fund, it would be void as a by-law in conflict with R. L. c. 119, §§ 7, 8.

Again, if the petitioners were right in their contention that the death benefit here claimed is irretrievably merged in the judgment, the result would be that none of it could be paid out of the emergency fund. For that fund can be applied in payment of death benefits only, and the judgment includes other matters. But as we have already held in Attorney General v. American Legion of Honor, 196 Mass. 151, so much of the judgment as represents the death benefit can be paid out of the emergency fund.

2. The second question presented by this report is whether interest, after the date of the receivership, is to be allowed on death benefit claims.

It is stated in the report that the emergency fund now in the hands of the receiver amounts to about $125,000, and that there are no other funds in his hands. It is also stated that the possible claims against this fund will not exceed $65,000. Apparently there will be a balance of some $60,000 or more in the emergency fund after paying all death benefit claims that matured before the date of the receivership. These petitioners contend that interest should be allowed on the death benefits due to the several dates on which the death benefits are respectively paid by the receiver.

The general rule is that no interest shall be allowed for delay after the date of insolvency. That was established by this court in Williams v. American Bank, 4 Met. 317. That case dealt with the insolvent estate of a deceased person, and the rule was laid down there (at p. 323) in these words: “ But all the

delay, which occurs after that time, is in fact a delay necessarily incident to the liquidation and settlement of the estate; and there is no reason in principle, why the loss occasioned thereby should be borne by a creditor whose claim did not happen to bear interest before the death of the debtor, and not by one whose debt was in terms bearing interest. They are entitled to share in a common fund, in proportion to the amounts due to them respectively, at the decease of the debtor; and they are delayed, in receiving their dues, by means for which one is no more responsible than the other, and which neither could remove by any diligence.” The rule has been followed in Thomas v. Western Car Co. 149 U. S. 95; Bowman v. Wilson, 12 Fed. Rep. 864. See also Solomons v. American Building f Loan Association, 116 Fed. Rep. 676, where the intermediate cases are collected:

Where there is a surplus which otherwise would go to the next of kin, interest is allowed on debts due from a deceased person whose estate although declared insolvent has turned out to be < solvent. This is because the next of kin are volunteers, and the statute then in force (Rev. Sts. c. 64, §1) declared that.it is the “ residue ” after payment of the debts of the deceased' which is to be paid to the next of kin. Williams v. American Bank, 4 Met. 317.

A creditor’s right to collect interest out of collateral held for the payment of principal and interest is not affected by the insolvency of the debtor. Jourolmon v. Ewing, 85 Fed. Rep. 103. First National Bank v. Ewing, 103 Fed. Rep. 168, 190. But if a secured creditor waives his right to collect interest out of his collateral and seeks to share in the general funds of the insolvent, the general rule applies and no interest after the date of the insolvency is allowed. Solomons v. American Building & Loan Association, 116 Fed. Rep. 676.

. In the case at bar the contention is not between volunteers and creditors, nor is it between holders of liens and creditors. The contention here is between two classes of creditors entitled to a common fund where one class has priority over the other.

It is like the case of partnership and separate creditors in bankruptcy. It is settled there that a surplus in the separate estate left after separate creditors have received full payment of the amount proved by them (that is to say, of the debts due with interest to the date of the bankruptcy proceedings) is to be applied to payment of the amounts proved by partnership creditors. Thomas v. Minot, 10 Gray, 263. It is also settled that in case there is a surplus in the separate estate after the amounts proved by partnership as well as separate creditors have been paid in full, interest to the date of payment is to be made on debts due separate creditors. Whittingstall v. Grover, 35 W. R. 4.

In the case at bar the beneficiaries named in certificates which matured before August 12, 1904, (the date of the insolvency proceedings against the defendant corporation,) have priority in the distribution of the emergency fund. 3STo order for the distribution of the surplus has yet been made. But if the rule laid down in Fogg v. United Order of Golden Lion, 159 Mass. 9, is followed, those who contributed to that fund will be entitled to the surplus of that fund after the death benefits which matured before August 12, 1904, have been paid, them share in it being based on their contributions to it. The delay which has ensued in winding up the affairs of the order is no more to be attributed to these persons than it is to be attributed to the beneficiaries of the death benefits which have matured. It is a necessary incident of winding up the affairs of the order. It is true that the income earned by the emergency fund in the interim will enure to the benefit of the second class. But no one of the second class has yet received a cent, while payment of the amount due to them has been made to all of the first class (including the intervening claimants in this suit) whose claims could be adjusted.

No interest is to be allowed after August 12,1904.

Decree accordingly.

The by-law of the defendant referred to above was as follows:

“ 53. Death benefits shall be paid from a fund created and sustained by periodical assessments from all members, to be known as the benefit fund. These assessments and fund shall not be used for any other purpose than the payment of death benefits or the establishment of the emergency fund in the manner provided by these laws; but it shall be lawful to pay out of said fund the amount of any judgment obtained against the Supreme Council upon a benefit certificate, and the expenses of any litigation under the direction of the general counsel. If at any time or in any case it becomes necessary to pay the money due on a benefit certificate into court, or the same is ordered paid into court by reason of any contest, there shall be deducted from the amount called for by such benefit certificate such reasonable sum for attorney fees and expenses as may be agreed upon or be fixed by the court into which such money is paid.”