Henry v. Kaufman

• Decision Date: 14 February 1866
• Parties: EDWARD J. HENRY, Robert Mills, John Murray, of Peter, and Others v. HIRAM KAUFMAN.
• Court: Maryland Court of Appeals

24 Md. 1

EDWARD J. HENRY, Robert Mills, John Murray, of Peter, and Others v. HIRAM KAUFMAN.

Court of Appeals of Maryland

February 14, 1866

Appeal from the Circuit Court of Baltimore City:

This is an appeal from an order of the Circuit Court of Baltimore City, passed on the 4th of September, 1860, in a cause therein pending, requiring the appellant, Barroll, to bring into court certain funds in his hands as receiver in said cause. The receiver, who was also the trustee in insolvency of the appellant, Henry, afterwards appointed by the Court of Common Pleas of Baltimore City, in proceedings pending in said court, claimed to retain the possession of said funds as trustee aforesaid, and appealed from the order of the Circuit Court. The facts of the case are fully stated in the opinion of this court.

The cause was argued before BOWIE, C.J., and BARTOL, GOLDSBOROUGH and WEISEL, JJ.

Thos S. Alexander and Benjamin C. Barroll, for the appellants:

The question arising upon this record is, how did the application of Edward J. Henry for the benefit of the insolvent laws affect the pending suit?

1st. It is contended that the suit abated, and that all orders passed thereafter are illegal and void. Hall v. McPherson, 3 Bland, 538. Cooper's Ch. Pl. 62. Sto. Eq. Pl. 350 notes.

2nd. That the court had no authority to proceed in the cause, or to pass any order affecting the rights of parties until the permanent trustee was made a party by supplemental proceedings. Glenn v. Clapp, 11 G. & J. 1. Zeigler v. King, 9 Md. 330. Powles v Dilley, 9 Gill, 229.

3rd. That the appointment of receiver, and a sale by him, did not in any respect alter the rights or interests of Edward J Henry; that the property in question was expressly sold as his property, and the fund in court was prima facie his fund, (subject to such liens, if any, as might be established against it.) He never consented to the sale on the contrary, he resisted it, and prayed that the order appointing the receiver might be rescinded, the injunction dissolved, and for further relief.

4th. That the view set forth in the court's opinion, that the rights of the trustee of Henry do not extend to the fund in question, is respectfully denied as being manifestly contrary to law. How does that court know that liens exist against it, and, if any, to what extent? How are the creditors of Henry to contest the validity of the mortgages, etc.? It is a well settled principle that the appointment of a receiver, or a sale made by a receiver, decides nothing as between contesting parties; the fund stands in the place of the property sold. But the court below has adjudged, in advance of any hearing whatever, that the man whose property it ordered to be sold has no interest in the proceeds of sale! In the list of creditors furnished by Henry, under oath, he does not name these mortgagees as creditors. Potter v. Carr, 7 Gill, 319. Ellicott v. Warford, 4 Md. 80; same case, 3 Md. Ch. 296.

5th. It is contended that the application for the benefit of the insolvent laws of Maryland works a statutory assignment of all property, rights and credits of the insolvent to his trustee; and that the court authorized to receive the application and grant the insolvent discharge, is the only court having jurisdiction to adjudicate upon lien or other claims against the insolvent or his estate. See Glenn v. Karthous, 4 G. & J. 385. Alexander v. Ghiselin, 5 Gill, 138. Glenn v. Boston, &c., 7 Md. 287. Zeigler v. King, 9 Md. 336. State v. Williams, 3 Md. 163. Glasgow v. Sands, 3 G. & J. 96. Segar v. State, 6 H. & J. 162. Powles v. Dilley, 9 Gill, 240. Waters v. Dashiell, 1 Md. 471. Glenn v. Gill, 2 Md. 1. Purviance v. Glenn, 8 Md. 206. Act of 1854, ch. 193, sec. 2.

6th. If it be said that bringing the fund into court decides nothing, the answer is, that the court had no jurisdiction over the fund, because the fund was in the hands of the permanent trustee, by virtue of the force of the insolvent laws. A receiver having a fund, may pay it over to a party rightfully entitled to receive it, without any order of the court. He might obtain an order for his own protection, but it would be only a matter of prudence, and not a matter of legal obligation. In the case at bar, the receiver and permanent trustee are the same person; and if he is entitled to the fund as trustee under the insolvent application, for the benefit of the creditors, the law considers it as in his hands in the capacity in which he is entitled to hold it. If he is entitled to it as trustee, he is not bound to take it into court with one hand and take it again with the other. Segar v. State, 6 H. & J. 164. State v. Jordan, 3 H. & McH. 179. Conner v. Ogle, 4 Md. Ch. 448. Watkins v. State, 2 G. & J. 220.

But the fund has been attached in his hands under the Act of 1854, ch. 193, and legal responsibility had been laid upon the trustee, which the court below wholly ignored. What the extent of that responsibility may be is yet to be determined. Is a party (receiver or not) bound to part with a fund during a pending attachment? Had the receiver in this case undertaken to deal with the attachment, and been unsuccessful, he would have laid himself open to the suspicion at least of collusion, as he makes no secret of the fact that he is contesting this case with the view of benefiting his client, Kaufman.

7th. Kaufman, and not the contesting mortgagees, is equitably entitled to this fund. Kaufman was the owner of the property sold under these proceedings, and sold it to Henry to be secured by mortgage, which was duly prepared, and as Kaufman supposed, executed and recorded. When the first mortgage note became due, Kaufman discovered that Henry had not executed the mortgage, and he thereupon demanded its execution in accordance with the agreement of purchase. Henry refused, and proceeded to give the various mortgages in this case, for the purpose of defrauding Kaufman. And Kaufman alleges (under oath) that all these mortgagees had knowledge of his prior lien, and took their mortgages in fraud of his rights, at a time when Henry was utterly insolvent. If these allegations are sustained by evidence, the equities are clearly with Kaufman, and he is entitled to the benefit of them.

8th. Edward J. Henry has appealed from the court's order. How does he stand on the record? A bill was filed, a receiver appointed, and his property sold against his consent. While the fund is in the hands of the receiver, he applied for the benefit of the insolvent laws. Which court shall adjudicate and distribute the fund? The Court of Common Pleas alone (in Baltimore City) has jurisdiction over the estates of insolvent debtors, and is alone entitled to make distribution thereof. Purviance v. Glenn, 8 Md. 206. Is not the permanent trustee entitled to the fund, just as he would be to the property if it remained in specie? If the Chancery Court can take it out of his possession, the statutory assignment is pro tanto defeated. If it is the intention of the Chancery Court to order it, when in court, to be paid back to the permanent trustee, then the order is vain and useless. If such is not the intention, (and it is not in this case,) then the object is to deprive the permanent trustee of his legal rights, and to defeat the policy of the insolvent laws. If the court had jurisdiction over the fund or property belonging to an insolvent debtor, it could order its officer (the receiver) in relation to it; but the proposition contended for, is, that the fund being beyond the court's jurisdiction, it cannot rightfully order the receiver to bring it into court, or do any thing else with it. Technically, it is not in the custody of the receiver, and he is discharged from responsibility as such, by showing that he has paid it over to the permanent trustee, who is legally entitled to the custody of it, subject to the orders and control of the court which appointed him permanent trustee.

It is clear that a party cannot be deprived of the right of appeal by the mere form of the order. The Act of 1830, ch. 185, prohibiting appeals from orders for the payment of money, was repealed by the Act of 1841, ch. 11, expressly granting an appeal from such orders. The order in this case, however, is in effect a final decree. This is exactly the case of McKim v. Thompson, 6 H. & J. 302. See also Hatton v. Weems, 10 G. & J. 377. Lee v. Pindle, 11 G. & J. 362. Glenn v. Gill, 2 Md. 1. White v. Malcolm, 15 Md. 540.

If the fund is once (improperly) paid over and leaves the custody of the appellant, no final decree, which could be passed in the cause, could redress the grievance; and even a reversal of the illegal order after final decree, would be vain and useless to the appellant, because, as soon as he pays over, he becomes as receiver, " functus officio," and not being a party to the cause, he could not appeal from the final decree. As against him, therefore, this decretal order operates, and is a final decree.

Furthermore, as against the authority of the court to pass this order, the appellant takes the ground that the suit had "abated," or at all events, stood in such a condition for want of proper parties, that no order or decree, interlocutory or final, could be passed in it. And the court had no power to compel the proper party to become a party to the cause. See Ringgold's Case, 1 Bland, 12, 13. Sto. Eq. Pl. Glenn v. Clapp, 11 G. & J. 1.

This order decides that the receiver still held the fund, a fact which he expressly denied, and that the fund did not pass to the trustee in insolvency. If the order stands, and had been obeyed, and the view of the appellant be sustained, that it did pass under the statutory assignment, then the order required and compelled him to pay out his own money--and it is not...