United States v. Clark

25 F. Cas. 447, 1 Paine 629

• Court: U.S. Circuit Court for New York
• Decided: October 15, 1826
• Status: Published

Opinion

THOMPSON. Circuit Justice

(charging jury). Some observations have been made to you, in relation to the act of congress under which the United States claim a preference over other creditors of Gilbert Stuart, which are calculated to divert your attention from the matters proper to be submitted to you. It has been treated as a harsh and severe law, and one that is not entitled to the favourable consideration of the court. and jury. "With the policy or fitness of this law, we have no concern; it is a valid and constitutional law. and has been sc adjudged by the highest tribunal of the country. It is, therefore, binding and obligatory upon us; and must govern the rights of the parties in this case, so far as the question of preference is concerned. Most of the questions which have been agitated in the course of the trial are questions of law, upon which I have already intimated an opinion; but to which exceptions have been taken, and to enable the parties to avail themselves of such exceptions, it mayNbe proper for me again to notice the various questions that have arisen.

The first inquiry is. whether Gilbert Stuart was a debtor to the United States, within the meaning of the act of 1797 (2 Bior. & D. Laws, 595 [1 Stat. 515]), and at what time he became so indebted. The language of the act is very broad, and applies to all persons thereafter becoming indebted to the United States by bond or otherwise. It appears that on the 10th day of July, 1813. Gilbert Stuart and Moses Willard became bound' with Joseph B. Stuart to the United States by a bond in the penalty of $7,000; conditioned, that Joseph B. Stuart should perform the duty of paymaster in the-regiment of the-, and well and-truly account for, and pay over all such momes as should be received by him as such paymaster.

It is contended on the part of the defendant. that Gilbert Stuart did not become a debtor to the UMted States, until judgment was recovered against Mm on this bond; or at all events not until suit brought. This I think is not a correct view of the law. Gilbert Stuart became a debtor to the United States whenever the condition of the bond was broken. The condition of the bond is not to account when called on. but well and faithfully to account; that is, to account according to law, and to pay over the balance. Joseph B. Stuart was bound according to law to account every three months: and it appears by the abstracts from the treasury books, that all the charges and credits to Joseph B. Stuart are prior to 15th of .Tune. 1815. At that time, a balance of more than the amount of the -bond appeared due by Joseph B. Stuart, as paymaster, to the United States. It is urged, however, that no balance was struck against him until 29th December. 1819. and that the debt of Joseph B. Stuart did not accrue till then. But this cannot be so considered. The striking the balance on the treasury books, does not in any sense create the debt, it only ascertains the amount due. The debt is created by the advances made, and Joseph B. Stuart was as much a debtor before the balance was struck as afterwards. The last credit given him was on the 15th of June, 1815, and whatever amount the treasury books then showed due from him, was the debt due, and which he was bound to pay; and not having been paid or accounted for in any manner,- the bond became forfeited, both as to the principal and his sureties; and Gilbert Stuart from that time became a debt- or to the United States.

But it has been contended, that admitting the priority exists, still no right of action at law accrues to the United States; and on this subject a distinction has been attempted to be drawn between the act of 1797. and the duty act of 1799. The act of 1799 is confined to bonds given to secure duties and has no concern with the act of 1797, and is not to affect the construction of it. It is said that by the act of 1797, the United States acquire merely a preference, and that this preference is to be exercised through a judgment and execution, and not by any action at law. This construction would render the act nugatory. It has been settled that the priority does not give a lien to the United States; that it does not overreach bona fide purchasers: and therefore the property would seldom be reached by an execution. This therefore cannot be the manner of enforcing the priority. The a.ct not having prescribed the mode, it is left to the ordinary rules of law to carry the priority into effect, according to the eircum-stances under which it is sought. If the United States needed the aid of a court of equity, they could Me their bill, as in compelling the execution of a trust; but if ciremn-stances are not such as to require the interposition of a court of equity, then the United States are not obliged to go there.

Suppose the defendant is proved to have received the whole amount of the bond in cash from Gilbert Stuart at the time of the assignment, would the United States be driven into a court of equity to recover it? Would not an action for money had and received lie in such, a cause? The case is the same, if such a state of facts exists here as shows that the defendant has received money of Gilbert Stuart’s estate, under the assignment. If a trustee has received money out of his trust estate which he is bound to pay over to a creditor, that creditor may maintain this form of action and may sue at law. If questions arise as to-the rate of distribution among a number of creditors entitled to a portion of the insolvent's estate, then the aid of a court of chancery may be necessary. But here the United States have an exclusive right, and are entitled to full satisfaction. Of course, a resort to a court of equity to settle the distribution of the funds cannot be necessary; and if the jury are satisfied that the defendant has received the money in contemplation of law, then there is no need of resort to a court of equity, and this form of action at law is maintainable.

The next point to be considered is, whether such a state of facts existed in this case that the priority .of the United States attaches. It has been contended on the part of the plaintiffs, that the concealment of Gilbert Stuart to avoid arrest by creditors, was an act of legal bankruptcy, and that this act alone gives the right of priority to the United States. There is in this part of the law some little obscurity. The general object of the act is to give a preference to the United States. This presupposes a distribution of the debtor’s property. The idea of preference is inapplicable while the property remains in the hands of the debtor and subject to his control. How could such a preference be enforced? Only by the ordinary course of a suit against the debtor and execution thereon, all of which exists by the ordinary course of law. and supposes no preference. A preference necessarily implies that the property is put out of the control of the debtor and to -be distributed by others or by operation of law. A mere insolvency so long as the debtor retains the management and control of his property, does not allow of the application of the law. The act looks to a legal insolvency, where the property is taken up by the law for distribution among the creditors of the debtor. There is no difficulty in the construction of the act until we arrive at the last phrase “legal bankruptcy." What is “legal bankruptcy"? In 1797, when the act of congress was passed, we had no bankrupt law; and therefore these words can have no reference to bankruptcy under a bankrupt law. The words seem in their connexion to have reference to the previous cases put in the section, and to point out some legal insolvency or some mode of proceeding by which the property of the debtor is taken out of his hands and to be distributed by others.

I know of no mode of enforcing a preference while the debtor is going on in the management of his own affairs; the only mode of proceeding in such a case is, to commence a suit against the debtor and go on to judgment and execution in the ordinary way. The concealment, therefore, of-itself. would not be such a circumstance as to make the act apply and give rise to, the attaching of the priority of the United States, if Gilbert Stuart had remained in the possession and management of his property. But in this case there has been a voluntary assignment by the debtor of his property, on the 28th August, 1819, within the meaning of the law. The supreme cour of the United States have decided, that the assignment must be of'ail the debtor’s property: by which I understand, that it must be an assignment of all, as contradistin-guished from a partial assignment, or professedly an assignment of part only of the debtor’s property. The case put of a fraudulent omission of a part is not the only exception, but is mentioned by way of ¡Ilustration. Where an assignment purports to be general, and is understood and intended so to be, the omission of a trifling article through mistake or accident, would not surely take the case out of the act. This would be inadmissible on every sound principle of construction. The true distinction is that which has already been suggested: that where the omission does not show that the intention was that the assignment should be a partial one as opposed to a general one, the act applies, and the priority of the United States attaches. Here the assignment purports on the face of it to be a general one. The schedules are headed “Of the Real Property”—“Of the Personal Property.” The vouchers for his debts aud all the various descriptions of property of Gilbert Stuart are set out with every possible particularity. If the assignment does not on its face appear to be general, the onus pro-bandi lies eertainly on the United States. But here they have proved the generality of the assignment in the most satisfactory manner. When the assignment' was executed, it was given -out by the parties to be general. It was understood by John Stuart, Jr., the other assignee, and so declared by Gilbert Stuart, that all his property was to be included. John Stuart, Jr., tells him that all his property must be included. Gilbert Stuart says that he has done so. The defendant, immediately previous to the assignment, tells John Stuart. Jr., that he does not owe Gilbert Stuart a dollar.

The defendant is concluded by all this from now disputing the generality of the assignment, and setting up the omission of the S7.400, which he has since acknowledged he owed Gilbert Stuart at the time of the assignment, for the purpose of defeating the priority of the United States. If this debt was reserved by fraud, then the priority is not defeated; if, because it was not deemed a legal debt, but only an honorary one, or was omitted by mistake, then also the priority attached: and in either case the omission of this debt is no objection to the right of priority on this ground. The right of priority, therefore, is put on the ground that this is a general assignment. As to the insolvency of Gilbert Stuart at the date of the assignment, it is abundantly proved, and is not in fact disputed.

When then did this priority take effect, as regards the present defendant? It has been contended on his part, that it takes effect only on obtaining judgment against himself, br at most, from the time of suit brought against him. As to this point, the act is entirely silent. It is to be put, therefore; on the general principles of law relative to the liability of trustees. They are not liable until notice. And if there had been no notice until after the bringing of this suit, the defendant would not. in this action, have been liable at all. Had then the defendant that notice of the debt of Gilbert Stuart to the United States which would charge him. and when had he such notice? In all cases of this ■ kind, to protect a trustee, he must act bona fide in disposing of the property; and when such circumstances come to his knowledge, as should reasonably put a prudent man on inquiry, this is all the notice which is required. It has been said here that no notice would be available unless it came from the United States, they being the creditors. This is not correct. It is enough if the trustee be in possession of such facts as that a faithful and fair discharge of his duty would put him on inquiry.

It appears in evidence, that at the time of the assignment the defendant was informed by Gilbert Stuart that he was surety for Joseph B. Stuart in a bond to the United States, and that he believed the bond was broken. This was sufficient notice, and he is from that time chargeable with the duty which the law imposed on him, to give a preference to the United States in the distribution of Gilbert Stuart’s property. It was his duty to make inquiry at the proper office, to see what the debt was. and to pay it. It has been said that this would be imposing on the defendant great risk and hardship; that if he had been called into a court of chancery by' the creditors, provided for in the assignment, he would not have been excused by reason of this bond, from accounting for all the funds he had in his hands. But this I apprehend is a mistake. The defendant would by presenting the circumstances before the court of chancery, have been protected by it until the actual amount of the debt could have been ascertained and paid. He was in this respect in no jeopardy. As to the objection urged on behalf of the defendant, that until judgment against Gilbert Stuart the surety, the defendant could not know the amount for which Gilbert Stuart would be liable, as the amount might be reduced by Gilbert Stuart on the trial; the defendant in this action may now have the same benefit. He might, if he could, show the debt of the United States reduced to any extent, in the same manner as Gilbert Stuart could have done in the action against him.

The amount of the recovery is a question resting with you. under the rules of law heretofore stated, and such as may be hereafter laid down. The liability of the defendant to the priority of the United States arose, as I have already decided, at the time he had notice of Gilbert Stuart’s debt; and such notice was given at the time the assignment was made. He was therefore from that time bound to apply to the debt of the United-States the whole of what he should receive under the assignment, until the debt was paid. He was bound.to pay the proceeds of the assigned property as the law directs. He comes under this obligation by assuming the trust, and is legally bound to pay over the money he receives to those by law entitled to it. In the present case the United States were so entitled. Whenever the money was received by the defendant, he received it to the use of the United States. This being an action for money had and received, it is necessary for the plaintiffs to show that the defendant has in fact received money to which they are- entitled, or such facts must be proved as to afford a fair and reasonable presumption that money has been received. Prom the evidence in this case it appears, that certain- furniture which had been assigned by Gilbert Stuart to the defendant, was sold under his direction, at public auction, for $2,Só6; and it is not unreasonable to presume, that he has received the money. It is at least enough, prima facie, and throws on the defendant the burthen of rebutting this presumption, by proof on his part. And unless he has done so to your satisfaction', that amount deducting the commissions and auction duties, is recoverable in this action.

With respect to a part of this money, the proof is very satisfactory, that it has in fact been received by the defendant; and he has also had credit upon his bond to Gilbert Stuart for another part. Whatever you think the evidence will warrant you in concluding that he has received, or had the benefit of in paying his own debt, he is responsible for. The defendant claims that he is entitled to a deduction of $621, for expenses incurred by him in the preservation of the property assigned to him, and in the discharge of his trust, and this seems to have been conceded on the part of the plaintiff. Had it not been, I should entertain some doubt whether he was entitled to such deduction. If the recovery in this case could reach all the proceeds of the assigned property, it would seem reasonable that the expenses necessarily incurred in and about the preservation of the property should be first paid, and perhaps the priority of the United States would not overreach such expenses. But as it appears that the defendant has funds that cannot be reached in this action, I should have inclined to the opinion, that the expenses incurred in the execution of the trust, should fall on such funds. If, however, this is yielded on the part of the plaintiff, you can make the deduction.

It is claimed, on the part of the United States, that they have a right to receive the full amount of their debt out of the bond given by the defendant to Gilbert Stuart in September, 1819, for $7,400. Whether the defendant in this action, for money had and received, can be made responsible for any part of this bond, is a question by no means free from difficulty. The circumstances in relation to this bond are involved in considerable obscurity. Whether it was given for a real debt due from the defendant to Gilbert Stuart, may be doubtful from the evidence. If given for such debt, it is a part of the trust fund, and for which the defendant might be made accountable in equity: Whether in this action, or not. will depend on the question, whether it was given for money which the defendant had in his hands at the time of'the assignment, belonging to the estate of Gilbert Stuart, or whether it grew out of some unsettled partnership concerns. If the latter, I should think it could not be reached in the present action. Of this you will judge from the evidence, and render your verdict accordingly.

The jury found a verdict for plaintiffs for $1,760.81.