Carter v. Dennison

7 Gill 157

• Court: Court of Appeals of Maryland
• Decided: December 15, 1848
• Status: Published

Opinions

Frick X.,

delivered the opinion of this court.

The present appeal is from an order of Baltimore county court, passed in certain proceedings had before that court, in the case of John Spear Smith, an insolvent debtor, in relation to the distribution of the funds arising from the sale of the real estate belonging to the insolvent, among the various lien and mortgage creditors of the said insolvent.

The first mortgage in priority, dated in 1840, is from Margaret Smith, the mother, (who at that time was the owner of the property,) to the appellee, and purports to be for the sum of $16,000, lent and advanced to her for the term of ten years, at an interest of six per cent, per annum, payable quarterly; for which sum the said John S. Smith gave his promissory note to the appellee, together with forty other notes, covering the interest at the respective periods at which it should become due and payable.

John Spear Smith, subsequently acquired the property by devise from his mother, and mortgaged the same to various other creditors; and among these, last in order, to the appellants, Mary Carter, wife of Robert Hill Carter, and Mary M. Smith, his daughters, for $20,000, aa portion of the proceeds of certain property belonging to the appellants, and appropriated to the use of the said John Spear Smith:” — as appears by the mortgage, filed as part of the record in this cause.

On the 20th of October 1846, Smith applied for the benefit of the insolvent laws; and John Glenn, regularly and duly appointed his trustee, having made sale of the real estate, so belonging to said Smith at the time of his application, brought the proceeds into Baltimore county court for distribution.

In the reports of the sales so made, the trustee states to the court, that the whole of the real estate of the insolvent is encumbered with liens and mortgages to more than its value; and prayed a special notice to such lien creditors to file their claims, for the purpose of having their liens settled and paid. The court passed an order, referring the reports to the auditor; and requiring him to give notice by advertisement, to the mortgage and lien creditors, to file their claims before a certain day; directing him, also, to prepare an account, appropriating the fund in the hands of the trustee, to the payment of the mortgage and lien creditors.

The several mortgages and liens being filed with the auditor, in compliance with this order, he proceeded to state the account, applying the fund, in the first place, and in the order of priority, to the payment of the claim of the appellee; and then, in succession, to the other mortgages, in the order of their date, so that on reaching the claim of the appellants, the fund was exhausted, and they were excluded from all participation.

The appellants hereupon filed against the appellee’s claim, the plea of usury, in due form; claiming, on that ground, another audit and account, to have the appellee excluded from the distribution, and themselves allowed to come upon the proportion of the fund, which would result from his exclusion. This account was accordingly stated, shewing, upon the rejection of the appellee’s claim, a balance applicable to appellants’ claim, of |15,676.

Before the statement of the first account, and prior to the sale of the property, on the ground of this alleged usury, an adjustment had taken place between the trustee and the appellee; and by agreement, the sum actually paid and advanced was computed at $11,495, with interest from 1840, and conceded to be fairly due by the trustee.

On the part of the appellants, testimony was taken to establish the usury; and thereupon, the two accounts being submitted, the court below ratified the first account, allowing the appellee his claim, as adjusted by the agreement with the trustee, and rejecting the second account. From this order the appellants appeal, and contend: “ That the claim being founded on an usurious and unlawful contract of loan, between the appellee and the insolvent, was thus rendered null and void; and that, thereby, the appellee was debarred from setting up any claim against the insolvent, or from recovering any part thereof out of the proceeds of the property mortgaged to secure said loan.”

The appellee, on the contrary, maintains, that he is entitled under the circumstances of the case, to be reimbursed and paid out of the fund, the actual amount of his advances to the insolvent; and that the decision of Baltimore county court, acting upon the distribution of the estates of insolvent debtors, is final; and thereupon has moved that the appeal taken by the appellants be dismissed.

The majority of this court are of opinion that this motion must prevail, because the decision of Baltimore county court in the premises, is final and conclusive.

It arises out of a proceeding, originating and progressing entirely on the insolvent debtors’ side of that court, under the special jurisdiction given in such cases by the act of 1805, ch. 110, and its supplements; and, in the course of distribution of the estate of an insolvent, under that act. By its provisions, the application of the party is to be made to the county court, and upon complying with its requirements, the court is to grant him a discharge. He is required to execute to a trustee appointed by the court, a deed of conveyance of all his property; and under their direction, the trustee is to make the sale thereof, and the distribution of the proceeds among his creditors. The whole administration of the property of the insolvent, devolves upon the court, through their trustee. He is authorized to to make sale of it, clear of all incumbrances; and out of the proceeds, is directed by the law, to satisfy all mortgages, judgments and liens, according to their priority. Under the 12th section, the court exercises the control over this distribution, by notice to all parties, to bring in and declare their claims, for that purpose. So that, beginning with the sale and ending in distribution, having the entire jurisdiction over the estate of the insolvent, their judgment in all matters appertaining to it is conclusive; because they are the exclusive subjects of ihe special jurisdiction conferred by that act. The court is therein restricted, to the specially delegated objects to which it refers; — the case of insolvent debtors. All the subsequent changes, (and they are numerous, as regards Baltimore county court,) leave this jurisdiction over sales and distribution, precisely where it rested under the act of 1805. The institution of a court of commissioners of insolvent debtors, by the act of 1816, ch. 221, and the supplements to that act, were only designed to relieve the county court, under the pressure of its increasing business, from the additional labor imposed by this extensive class of cases in that court. It was but an ancillary tribunal, bound to report and return all its proceedings, and still subject, to Baltimore county court. And although the aid of these commissioners was required to carry the insolvent application through its several stages to a discharge, the county court still retained the whole control over the acts of the trustee.

The act of 1836, ch. 133, “ For the despatch of business in Baltimore county court,” is supposed to have produced the change on which this right of appeal is founded, by engrafting upon this special jurisdiction, equity powers; and upon the subject matter here in question, giving to the court concurrent powers with the court of chancery.

That act was only auxiliary to the act of 1835, ch. 235; the object of which was to authorize Baltimore county court, cx officio, to require from trustees of insolvents, “ who shall hereafter apply for the benefit of the insolvent laws,” an annual report of the funds belonging to their trust, with a view “ to cause distribution to be made among the creditors.” Before this act, it was the practice of some trustees, to distribute the fund at their leisure; and occasionally, to omit it altogether. With this explanation, the propriety of the provision is manifest. It defined the extent and power of that court over their trustees, to bring them annually before the court to account. Now, the 1st section of the act of 1836, extended this power tocases !C pending in said court,” in which the trustees of such debtors had not yet distributed the fund; giving to such trustees, “in cases then pending,” and limited to suck, the right to apply “ to said court, or some court of equity,” for an audit and directions to distribute or invest the funds. The provision in the second section, cc that the power of the court to appoint an auditor,” in insolvent cases, “shall be concurrent with that of the courts of equity,” if construed to have reference to insolvent cases in those courts, is not susceptible of any practical application; because the courts of equity, properly speaking have no jurisdiction in insolvent cases. If, however, it is interpreted to mean, that Baltimore county court shall have the power to appoint an auditor, in the investigation of the insolvent causes brought before them, to the same intent that courts of equity appoint an auditor, in the .course of the exercise of their equity jurisdiction, the clause is then intelligible, and susceptible of practical operation. It comports with the title of the act: “ To facilitate the dispatch of business in that court:” and being consistent with the reasonable intention of the legislature, such must be deemed the true construction. But when the same section further confers powers, concurrent with the courts of equity in the distribution of the funds of insolvent debtors, it assumes a power to exist, which is not within the scope of chancery jurisdiction, and confers nothing. All the power and jurisdiction in cases of insolvent debtors, had been before delegated to the county courts and orphans courts of the State; and the courts of equity have no action or control over this branch of jurisdiction. Therefore, no such power existed, to which the grant of the act of 1836 could be made to apply; and the provision is a nullity.

In addition to this, it may be remarked, that in the distribution of insolvents’ estates, the county courts always proceed according to equity principles. It was the duty and practice of those courts, before the passage of the act of 1836; (1 H. & G., 96, McCulloh vs. Dashiell,) and it is not improbable that the framers of this provision, at the time, overlooked this principle, to which all the county courts in the State, exercising jurisdiction in insolvent cases, must conform. The whole being one entire system, resting on the same principles, this enactment, in the design apparent on its face, prescribes nothing which Baltimore county court was not bound to perform, and which was not attained before it was enacted.

That from a special limited jurisdiction, no appeal lies to any other tribunal, (see 8 G. & J., 448, Wilmington Rail Road vs. Condon; and Savage Manf. Company vs. Owings, 3 Gill, 497.) And in its particular application to the insolvent courts, as courts of limited jurisdiction, (see 5 Gill, 89, Williams vs. Williams,) where the appeal of the trustee from an order of the county court, in the case of an insolvent debtor, was rejected by this court; while in the case of Ellicott vs. Ellicott, in 6 G. & J., 35, it had previously been decided, that a trustee, appointed by a court of chancery, in his character as trustee, may, for the benefit of the creditors, appeal to this court against an order in chancery.

The order on which the present appeal is taken, being one from the county court, in the exercise of its special jurisdiction over the estates of insolvent debtors, from which an appeal will not lie, this appeal is therefore dismissed.

The case, however, having been fully and ably discussed, as well upon the merits as upon this preliminary motion, (and the court, not entirely unanimous in their decision upon the motion,) wre proceed to state the opinion formed upon the merits, in which they all concur, and from which it will result, that the appellants have sustained no prejudice, by this summary disposition of their case, upon the motion to dismiss it.

There is no doubt in the mind of the court, that the note and the mortgage filed by the appellee as the evidence of his claim, was founded upon an usurious and unlawful loan, made by him to the insolvent; and that under our statute against usury, he would be debarred from a recovery on his contract, in any proceeding instituted by him for that purpose, either in law or in equity. “Where all usurious contracts are declared by law to be null and void, there can be no recovery, either at law or in equity, in a suit infected with usury, if the defence of usury be pleaded.” Trumbo vs. Blizzard, 6 G. & J., 23.

Thus, then, if Dennison is seeking to enforce his lien upon the mortgage premises in a court of chancery, the plea of usury is a full defence to his application. He is met at the threshold, with the objection that his contract is void, and he is dismissed, even without redress, to the extent of the amount actually and bona fide due to him. He has made his contract with reference to the law, and is presumed to know, as one of its consequences, that no court of law or equity will lend its aid to sustain an infected contract. The door of justice is barred against his application for relief, upon an agreement made in violation of the letter and the policy of the law. Whatever moral obligation may subsist between him and his debtor, the law creates and defines the legal operation of his contract, and denies any interposition, at his own instance, to enforce it. He is thus doomed to a passive position, and the certain loss of his debt, unless the way to relief is opened by the debtor himself, or in some other form. This the debtor may do by his own act, and give vitality to the obligation otherwise inert and void. If he seeks relief from his creditor on the ground of usury, claiming the legal dispensation from his contract; if the circumstances compel him to address a court of equity, to relieve his property from the incumbrance of the creditor’s lien; if he brings this usurious creditor, with his contract, into a court of conscience; he is at once warned, that he must do equity himself before he can ask it of others. He is required to pay or tender the actual amount of money advanced, as a preliminary to any action on the part of the court. For ££ there is a recognized distinction between that and the case of a mortgagor, who goes into chancery seeking relief against the mortgage on the ground of usury; which will only be extended to him on his paying, or offering to pay, the principal and legal interest of the sum due, and this upon the principle, that he who seeks equity, to obtain relief, must do equity.” 6 G. & J., 24, Trumbo vs. Blizzard.

In such a case the debtor becomes the complainant, and is properly subject to this just and universal principle of equity; while, if he waits for the action of his creditor, it is otherwise. When he becomes the actor and the originator of the proceeding, he must fail as a plaintiff, either in a court of law or equity, and he must lose his debt; because there is no forum,, wherein he may enforce an agreement, declared by the law to be tainted and forbidden.

Now, what is the attitude of Dennison here? Is he the actor as is contended by the appellants? Let it be remembered, that the term for which his loan was made has not yet expired; and, by the condition of his mortgage, the debt from the insolvent is not due to him until 1850. He has no claim in law or equity founded upon his contract, nor can he place himself, of his own will and motion, in the position of plaintiff against his debtor. He is called then into his present predicament by the order of the court; in other words by the act of the law. In the administration of its policy in regard to insolvent debtors, the law has superseded the action of the creditors, and invested its trustee with the control and disposal of the insolvent’s property. By the action of the trustee, the property is converted into a fund, which is brought into court for distribution, according to the respective equities of the creditors. If he stands aloof and declines to come in, his debt is forever gone. He has then no alternative. His security is withdrawn from his grasp by the act of the law, and he is warned to come in upon the fund, dr be forever precluded from any claim, either upon the property or upon the fund. But for this interposition of the court, he might have stood off from any participation in the proceeding. He must have remained' passive from necessity, for his mortgage debt was not yet due, and he was in no condition to act. And, even if due, anticipating the consequence of any movement on his part, he would, for his own interest, have awaited the attack, which would place him on equitable grounds, and secure him his debt.

What then is his relation to the appellants, who are seeking to make him the actor in these proceedings? They are the alienees of the mortgagor, and stand in his place. They cannot claim to stand in a better position-. Dennison has instituted no proceeding against them or the property. We have seen that he could not. He comes therefore into court upon the same terms and under the same authority with the appellants, and when he presents his claim, as required by the order of the 'court, which leaves him no option, the appellants interpose the plea and exceptions by which they attack and impeach it. Surely, by every sound analogy and reason in law, they are the actors. They demand to be relieved as against him, and thus bring their case fully within the spirit, if not up to the strict letter and meaning of the rule, that requires equity first from them'. “Where the plaintiff has the assistance of a court of equity,- to-set aside an usurious contract, it must be on the terms of paying what was really advanced, with legal interest. ” 2 Brown’s Ch. R., 640, Scott vs. Nesbit. See, also, West vs. Beanes, 3 H. & J., 568.

We must bear'in mind, that Dennison’s security is the property mortgaged to him. Upon Smith’s application for the benefit of the insolvent laws, the property is, by law, placed under' the control Of the trustee, and without the consent of the lien holders, converted into money. This fund brought into court is substituted for, and there represents the property.- The legislature, by conferring on the trustee the whole estate and authority to sell it, never designed to divest the lien holders of their pre-existing rights, or to place them in a worse position than they sustained before his appointment. And when the trustee sells, and the money is brought into court, it is as if the property itself was there under the former existing priorities. Whatever preference the creditor had upon the property, he has upon the fund; and when a subsequent mortgagee comes in upon the fund, impeaching a preceding lien, when he proposes to make his own security available, by attacking the prior lien of another creditor, equity, in every view' of such a case, must regard him as the complainant and actor, and before he receives equity, he is bound to concede it to others.

To consider Dennison the especial actor in this proceeding, by selecting him among all the creditors, would be straining the law to a point, which the circumstances will not justify. He asserts no right to the rigorous exaction of his contract. The law has undertaken to abridge its terms, by making it solvendum in proesenti, when its limitation was extended, by express covenant, to the year 1850. And to call him into court before the expiration of his time, and before |ie himself claims, or can claim, of his own motion, the strict letter of his bond, entitles him, by every fair consideration, to the equitable abatement of the severity of the law.

This purports to he an appeal from equity. The assets of insolvents are always administered upon equitable principles. 1 H. & G., 96, McCulloh vs. Dashiel, (ante.) And yet it is claimed by the appellants here, to enforce the utmost rigor of the law. To do so, would be to violate' every principle of equity; first, to coerce his appearance in court, and then strip him of every dollar of his immatured claim: Summum jus, summa injuria.

To allow him the full amount of his actual advances, as the court below has done, is no novel application of chancery principles. It is a result reached upon the known pathways of equity. It is the duty and the proper province of a court of equity in a case like this, to look at all the circumstances, and if the status of the party before them is involuntary, and not of his own seeking, to assign him an equitable position in court, in relation to all the other parties; not to make him the actor in the proceeding, to his own prejudice, where he has not selected it himself, and his standing in court, will bear any other, and a more favorable construction. Upon these grounds, but for the previous disposition of the case on the preliminary motion, we should have sustained the judgment-of Baltimore county court in the premises.

APPEAL DISMISSED WITH COSTS.