Chase's Appeal from Probate

18 A. 96, 57 Conn. 236, 1889 Conn. LEXIS 18

• Court: Supreme Court of Connecticut
• Decided: April 5, 1889
• Status: Published

Opinion

Pardee, J.

In February, 1886, Brown & Brothers, a corporation located within the probate district of Waterbury, went into insolvency; the appellants Chase and Lewis were appointed trustees of its assigned estate; and commissioners were appointed to receive and pass upon such claims as might be presented against it.

The Rational Shoe & Leather Bank of New York, the appellee, and Franklin Farrel one of the appellants, claimed to be the chief creditors. The bank presented as claims in its favor three notes aggregating $29,900 ; Farrel presented claims in his favor amounting to about $175,000. The appellants denied that the claim of the bank was against the corporation of Brown & Brothers, and insisted that it was against one William H. Brown.

The commissioners, finding that the claim of the bank was against Wm. H. Brown, rejected it. The bank appealed to the Superior Court from the doings of the commissioners in disallowing its claim. That court, upon hearing, found that its claim was against the corporation of Brown & Brothers, reversed the finding of the commissioners, and allowed the claim against the estate of the corporation. The trustees appealed from the judgment of the Superior Court to this court, and this court affirmed the action of the Superior Court. Thus the claims of the Shoe & Leather Bank, to the extent of said sum of $29,900 against the estate of the corporation, became fixed by judgment of court, conclusive upon all parties as to the amount; all interests being represented; the Shoe & Leather Bank on one side, the trustees, representing all other creditors, upon the other.

The trustees having reduced the assets into money hold it as a fund in trust for the equal benefit of all creditors whose claims have been duly presented and allowed, or established by final judgment of court uuappealed from. But when the probate court reached the final act of division of the fund it was found that it was less than the amount of the debts. Therefore the trustees and Farrel, alleging that it would be grossly unjust and contrary to equity and good conscience to pay anything to the bank until the claims of Farrel for obligations assumed by him in favor of the corporation under his contract, trusting to the representations made by the bank as to the amount of the indebtedness of the corporation to it, should be paid or satisfied, applied to the probate court for an order directing the trustees to pay the claims of Farrel -before paying any dividend to the defendant.

The probate court upon hearing dismissed the application. The trustees and Farrel appealed to the Superior Court, and that court has reserved the question for the advice of this court.

What we have thus far called the Farrel claim is made up of claims presented by sundry banks upon paper indorsed by Farrel for Brown & Brothers, under a contract made by him on the 23d of August, 1884, the facts with regard to which will be more fully stated hereinafter; but since the report of the commissioners allowing these claims to the parties presenting them was made, Farrel has paid or assumed all the indebtedness upon which these claims were based, and is now the owner of the claims so allowed and entitled to the dividend thereon. To save unnecessary verbiage we shall therefore call this entire class of claims, Farrel’s claim. He had in addition a claim of his own, not connected with these transactions, of about $20,000, which was presented by him and allowed.

The principal question in the case is this:—Is it within the power of the probate court to determine whether or not, upon the facts found, there is an equitable estoppel which will prevent the bank from receiving any dividend upon its claim of $29,900, until Farrel has received upon his claim for moneys advanced to and liabilities assumed for Brown & Brothers the full dividend that he would have received if the bank’s claim of $29,900 had not been presented or allowed. And if such an equitable estoppel exists, can the probate court enforce it?

Of course back of all this lies the question whether, upon the facts found, there exists such an estoppel as would be recognized and enforced by a court of equity. This question it is for us to determine.

Upon the institution of proceedings in insolvency and the appointment of trustees as agents of the law to take the assets, convert them into money and divide them pro rata, the right of each creditor to enforce his claim by proceedings in courts of law went into abeyance; practically one suit had been commenced for all in the probate court. Commissioners determine, in the first instance, the amount of each creditor’s claim ; from their determination there is an appeal to the Superior Court upon questions of law and fact; and from the latter upon questions of law to the Supreme Court. As soon as the aggregate amount of all claims is finally determined, it is the duty of the probate court to divide the fund. In making the division it exercises the powers of a court of chancery of general jurisdiction. It can find and enforce an equitable estoppel in favor of one and against another creditor as fully as would the Superior Court upon a bill in equity for the like purpose. The principles and rules of law are the same in each court.

There must be in the probate court such facts as would be required in the Superior Court and the rules and principles of equity must have the same application. An appeal lies from the probate to the Superior Court and to this court; alike, whether the question came originally from the probate or from the Superior Court, this court furnishes the rule of law upon the facts found, and the rule is the same, regardless of the question as to which court made the determination appealed from.

Inasmuch as the statute has committed the settlement of the estates of insolvent corporations and persons to the probate court, the advice of this court passes through the Superior to the probate court, and is by the latter embodied in a final decree. There is the symmetrical completion oi a matter in the court in. which it commenced. Waterman's Appeal from Probate, 26 Conn., 96; Ashmead's Appeal from Probate, 27 id., 241; Vail’s Appeal from Probate, 37 id., 185.

In August, 1884, the corporation o± Brown & Brothers was financially embarrassed. The Shoe & Leather Bank was one of its stockholders. A committee of stockholders asked Farrel to pledge his credit, use his money, and exercise his financial ability, industry and energy in rescuing the corporation from ruin, for a consideration to be paid to him. Before acceding to their request he endeavored to make certain to himself the amount of its indebtedness,, In this effort he applied to the Shoe & Leather Bank, a creditor, to state to him the amount of the corporate indebtedness to it. The bank had full knowledge of his purpose in asking and intended that he should rely upon its answer. Presumably it would derive benefit from Farrel’s indorsement of the Brown & Brothers’ notes for $17,500 held by it, overdue and protested. With this knowledge and intention the bank stated that the amount was $17,500. Trusting to this answer as revealing the utmost extent of the liability of the corporation to the bank, Farrel acceded to the request of the stockholders, assumed debts of the corporation, undertook its management, pledged his credit, gave it of his time and ability; and as a consequence suffered large pecuniary loss.

The indebtedess of Brown & Brothers to the bank for the $29,900 in question existed prior to the time of Barrel's inquiry and was then evidenced by three notes under protest. Since that time there has been no change: the liability of maker and indorser remains as at the protest. Upon that liability the bank has since taken and now seeks to enforce a -judgment against Brown & Brothers. What the bank now knows and asserts through a judgment of court obtained by it it knew when Farrel inquired. Whether or not its agent answered Farrel with knowledge or in good faith, is quite immaterial. For the purposes of this case the bank, once in possession of that knowledge, of legal necessity always has it. Its officers or agents may forget, but the corporation always remembers. They may fall into errors either as to law or fact; nevertheless, knowledge remains with the corporation. Having knowledge that Brown & Brothers'was its debtor upon these three notes, it could not either truthfully or safely say otherwise to Farrel.

Moreover, it is found that if the answer had included the notes for $29,900 Farrel would not have entered into the contract. He was shut up to an inquiry of the bank for the facts relative to the indebtedness of Brown & Brothers to it; it alone could give him the information. Knowing the reason for his inquiry and that his action would depend upon its answer, there were two courses open to the bank to answer, or to decline to answer. It answered, giving a limit, making no suggestion of a possibility as to more. It assumed to know exactly; verifying its statement by its discount clerk; giving Farrel no reason to doubt that it spoke upon certain knowledge. The answer under such circumstances involved a declaration of all knowledge upon the subject, a willingness to communicate it, and a consent that he might make it the basis of action. It is as if an intending purchaser, stating the purpose of his inquiry and his intention to be governed by the answer, had inquired of the bank the extent of an unrecorded Wen in its favor upon property, and the bank had made an answer upon which it desired and intended the inquirer to act.

Upon principles of equity and good conscience well established in this and other jurisdictions, the bank, having declared that it had knowledge, and thereby intentionally led Farrel to a course of action resulting in his pecuniary loss, is not now to be permitted to say, as against him, that it had not knowledge.

In Roe v. Jerome, 18 Conn., 138, the marginal note is:— “Where one person by his words or conduct causes another to believe in the existence of a certain state of things, and thus induces him to act on that belief, so as to injuriously affect his previous position, he is concluded from averring a different state of things as existing at the time.” In Middletown Bank v. Jerome, 18 Conn., 443, the marginal note is:—“If a person by his words or conduct intentionally induces another to believe a fact, and upon its truth to commit his interests, he shall not be permitted afterwards to deny that fact in order to throw off Responsibility.” In Preston v. Mann, 25 Conn., 118, an intending purchaser asked one of the defendants if a specified note was the genuine note of his firm, and was told that it was. The inquirer thereupon purchased it. The defendant was estopped from saying that he answered ignorantly. In the marginal note of this case 'the decision of the court upon this point is stated as follows:—

“In this state, and in the courts of this country and of England generally, the proposition of Lord Denman (Pickard v. Sears, 6 A. & E., 469,) seems to have met with approbation—that, where one by his words or conduct willfully causes another to believe in the existence of a certain state of things, and induces him to act on that belief so as to alter his own 'previous position, the former is concluded from averring against the latter a different state of things, as existing at the time.

“The word ‘willfully’ as used in this connection is not to be taken in the limited sense of the term ‘maliciously,’ or of the term ‘fraudulently,’ nor does it of necessity imply an active desire to produce a particular impression or to induce a particular line of conduct.

“Whatever the motive may be, one who so acts or speaks that the natural consequence of his words or conduct will be to influence another to change his conduct, is legally chargeable with an intent or willful design to induce the other to believe, him and to act upon that belief, if such prove to be the actual result.

“Inasmuch as the doctrine of estoppel especially concerns conscience and equity, ignorance, unaccompanied with culpability of any kind, ought to excuse conduct and language which would otherwise render the author justly responsible for the injury resulting to another who had placed confidence in them.

“There are cases, however, where the excuse of ignorance cannot be permitted to avail without defeating the very principle of justice upon which the doctrine of estoppel is founded.

“ It would seem that where the alleged ignorance involves gross culpability, there should be a limit to the facility with which a party, whose words or conduct have misled another to the latter’s injury, should be permitted to qualify his responsibility by pleading his own fault.”

In Winton v. Hart, 39 Conn., 16, the defendant, who, with knowledge that an irresponsible person without authority from him was purchasing goods upon his credit, remained silent, was estopped from denying his liability to pay for them.

In no case has this court failed to apply an estoppel to a declaration made with assumed knowledge as to facts, with knowledge that it would and intention that it should be acted upon, when it was acted upon and loss resulted. In Whittaker v. Williams, 20 Conn., 98, it was not applied, for the reason that the person to whom the declaration was made had equal knowledge with the person making it, and was not thereby induced to act differently from what he otherwise would have done; not in Taylor v. Ely, 25 Conn., 250, for the reason that the person sought to be estopped refused to answer a question and left the inquirer to act at his own risk; not in Danforth v. Adams, 29 Conn., 107, where a clerk spoke of the business of his principals as “ our business,” for the reason that there was neither culpable negligence in so speaking, nor any intention that the words spoken should be acted upon by the hearer; not in Walker v. Vaughn, 33 Conn., 577, for the reason that “ no representations were made which were intended or calculated to influence or mislead the petitioner, and it does not appear that his course was affected by the answer; ” nor in Kinney v. Whiton, 44 Conn., 262, for the reason that the person who set up the estoppel was a bystander who overheard a declaration made to another for the purpose of influencing the conduct of the latter, and not intended for others.

In Horn v. Cole, 51 N. Hamp., 287, it is said of the doctrine of equitable estoppels, that “ having been borrowed from equity, courts of law that have adopted it should obviously look to the practice in equity for their guide in the application of it; and in equity the doctrine has been liberally applied to suppress fraud and enforce honesty and fair dealing, without any attempt to confine the doctrine within the limits of a strict definition. For instance, the doctrine has not in equity been limited to cases where there was an actual intention to deceive. The cases are numerous where the party who was estopped by his declarations or his conduct to set up his legal title, was ignorant of it at the time, and of course could have had no actual intention to deceive by concealing his title. Yet if the circumstances were such that he ought to have informed himself, it has been held to be contrary to equity and good conscience to set up his title, though he was in fact ignorant of it when he made the representations.” See also Wells v. Pierce, 27 N. Hamp., 503: Davis v. Handy, 37 id., 65; Drew v. Kimball, 43 id., 282.

In Continental Bank v. Bank of the Commonwealth, 50 N. York, 575, the court said:—" We hold that there need not be, upon the part of the person making the declaration or doing an act, an intention to mislead the one who is induced to rely upon it. There are cases in which parties have been estopped where their acts or declarations have been done or made in ignorance of their own rights, not knowing that the law of the land gave them such rights. Here certainly there could be no purpose to mislead others, for there was not the knowledge to inform the purpose, and both parties were equally and innocently misled. Storrs v. Barker, 6 Johns. Ch., 166. Indeed it would limit the rule much within the reason of it, if it were restricted to cases where there was an element of fraudulent purpose. In very many of the cases in which the rule has been applied there was no more than negligence upon the part of him who was estopped. And it has long been held that where it is a breach of good faith to allow the truth to be shown, there an admission will estop.” See also Gaylord v. VanLoan, 15 Wend., 308; Dezell v. Odell, 3 Hill, 221; Wendell v. VanRensalaer, 1 Johns. Ch., 353; Strong v. Elkworth, 26 Verm., 366; Eldred v. Hazlett’s Admr., 33 Penn. St., 307; Newman v. Hook, 37 Mo., 207.

In Bigelow on Estoppel (2d ed.,) p. 476, it is said:—“It seems to be settled that a party’s ignorance of the truth of the representation made will not remove the estoppel, if he was bound to know the fact, or if his ignorance is the result of gross negligence ; ” citing among other cases Preston v. Mann, 25 Conn., 118, and Calhoun v. Richardson, 30 Conn., 210. In 2 Story’s Equity Jurisprudence, 12th ed., sec. 1538, it is said:—“ When a party by misrepresentation draws another into a contract, he may be compelled to make good the representation if this be possible, but, if not, the other party may avoid the contract. And the same principle applies, although the party making the representation believed it to be true, if in due discharge of his duty he ought to have known the fact.”

In Jordan v. Money, 5 House of Lords Cases, 185, Lord Chancellor Crans WORTH said:—“Nay, more, I think the principle has been carried, and may be carried much further; because, I think, it is not necessary that the party making the representation should know that it was false; no fraud need have been intended at the time. But if the party has unwittingly misled another, you must add that he has misled another under such circumstances that he had reasonable ground for supposing that the person whom he was misleading was to act upon what he was saying. It will not do if he merely said something, supposing it to be quite right, that some stranger having heard and acted upon it should afterwards come to him to make it good.” In Ainslie v. Medlycott, 9 Ves., 13, Sir William Grant, M. R., said :—. “No doubt by a representation a party may bind himself just as much as by an express covenant. If knowingly he represents what is not true, no doubt he is bound. If without knowing it is not true he takes upon himself to make a representation to another, upon the faith of which that other acts, no doubt he is bound though his mistake was perfectly innocent.”

It is also the objection of the defendant that Farrel has failed to carry out his contract with the stockholders of Brown & Brothers, and therefore has no standing in a court of equity. The allegations in the last part of the third and in the fourth paragraph of the bank’s answers, are as follows :—

“And this creditor alleges that the said Farrel failed to fulfill the obligations assumed by said contract and in consequence of such failure the stock of said corporation became worthless, whereby the stockholders of said company, including this creditor, suffered and sustained losses and damages to a large amount. And this creditor, further answering, alleges that the said Farrel has no equity or standing in a court of equity, on the ground that he has himself failed to do equity as between him and the said stockholders, of which this creditor was one, but by gross negligence, mismanagement and failure to perform his part of said contract he has destroyed the value of stock held by said stockholders, and prevented this creditor from availing itself of the security which said stock gave to the claims against said corporation of Brown & Brothers possessed by said bank.”

It is found that these allegations are untrue. It is also found that he has assumed indebtedness of Brown & Brothers to such an extent that the aggregate of what he has paid and remains bound to pay individually, is about $200,000. He did not agree to rescue the corporation from .insolvency. He agreed to use his time, means, credit and financial skill in an honest effort to accomplish that result. Upon the finding, he performed his contract.

The Superior Court is advised to reverse the decree of the probate court and to direct that court to pass a decree giving that part of the claims allowed by the commissioners which is for money paid or liabilities assumed by Farrel for Brown & Brothers under his contract of August 23, 1884, a precedence over that part of the claim of the Shoe & Leather Bank, as allowed by the Superior Court, which is represented by the three notes before mentioned, the principal of which amounts to $29,900, to the extent to which the dividends on the claims first mentioned are reduced by the inclusion of that part of the claim of the bank in the total indebtedness upon which the dividend is reckoned; but giving no preference to the former claims over any other claim allowed.

The process by which a correct result is to be reached in the application of this rule is a simple one, but we state it, in part to remove all uncertainty as to our meaning, and in part to prevent any errors in the attempt to apply the rule. The report of the commissioners is not before us and there is nothing in the finding of the court to enable us to state the amounts allowed upon the claims that are in conflict; but the finding states the amount of the moneys paid and liabilities assumed by Farrel for Brown & Brothers to be about $200,000; while that of the bank is $29,900, except as increased by the addition of interest. For the purposes of the illustration we will assume these two sums to be the correct ones. Let then a dividend be reckoned on a total indebtedness from which the $29,900 is excluded. The dividend on the $200,000 will then be the entire amount to which this claim is entitled. Let a dividend then be reckoned on a total indebtedness which includes this $29,900. This will give the dividend to be paid on all the claims, except that the difference between the dividend on the $200,000 under the first computation and that under the second computation is to be added to the dividend on that sum under the second computation and to be taken from the dividend on the $29,900; the dividend on the $29,900 contributing, and that on the $200,000 receiving this sum ; thus satisfying the equity pertaining to the latter dividend as against the former without disturbing in the least the dividends on any other of the claims. This sum, when added to the dividend on the $200,000 (now owned by Farrel) and to his dividend on the separate claim for about $20,000 allowed by the commissioners, will give the total which Parrel is entitled to receive from the estate of Brown & Brothers.

In this opinion the other judges concurred.