Opinion
Argued May 17th, 1871
Decided September term, 1871
D. McMahon for appellants. John H. Reynolds for respondents.
The suit instituted by Dexter Reynolds, as well in his own behalf as in behalf of all other creditors similarly situated, was commenced and conducted to its termination according to the practice of courts of equity. In such cases it is many times impracticable to make all the persons who are interested in the fund parties to the suit. They may be unknown, or they may be so numerous that they cannot, with reasonable expense and diligence, be reached. Hence, suits of this kind have been sanctioned as indispensable to the distribution of trust funds and the settlement of trust estates in courts of equity. ( Thompson v. Brown, 4 Johns. Ch., 619; Wilder v. Keeler, 3 Paige, 164; Egberts v. Wood, 3 id., 518; Brooks v. Gibbons, 4 id., 374; 1 Story's Eq. Jur., § 549.) And the practice is continued under the Code. (Code, § 119; McKenzie v. L'Amoreux, 11 Barb., 516; Van Santvoord's Eq. Pr., 77, 78.)
In such a suit, when an order or decree for an accounting is once made, under which all creditors are authorized to come in and present their demands, it operates as an interlocutory judgment, in favor of each and every creditor of the fund, whether he actually comes in or not, as effectually as if he had been named and had appeared as a party; and after such an order is made, no other creditor will be allowed to bring or to proceed with a separate suit for relief, but he must prove his claim and seek his relief in that suit.
If he fails to come in and prove his claim, before the final decree for distribution, he will be too late, and his claim will be barred, as it certainly would after the fund was distributed under the decree. After the decree, and before distribution, a creditor who has not proved his claim may, upon a satisfactory excuse for his default, apply to the court, in that action, to be let in, and the court may open his default, as in other cases, upon such terms as may be proper.
It is not disputed that the proceedings in the Reynolds suit were conducted, in all its stages, according to the practice sanctioned by courts of equity, and, hence, the judgment in that suit is binding upon the plaintiffs, just as if they had been parties to it, and their claim had been denied and defeated, unless they can assail or attack it for fraud, and claim its absolute nullity as to them on that account. If the defendants instituted and carried through that action for a fraudulent purpose, the judgment therein should not protect them. They should then occupy the same position as if they had paid the fund, excluding the plaintiffs, without the direction of the court. But the difficulty which the plaintiffs have to encounter is that the court has found that the defendants were not guilty of any fraud in that action, and, so far as I can perceive, no fraud is to be imputed to them from the facts found.
It is true that they procured a claim to be assigned to Dexter Reynolds, and procured him to institute the suit, and that one of them aided him in drawing some of the papers and conducting some of the proceedings in the cause. But all this works no harm to these plaintiffs. The question is, were the proceedings fairly conducted? Were the defendants guilty of any fraud in that suit, and did they do anything therein or in reference thereto to mislead or defraud these plaintiffs? So long as they did not, it made no difference that they procured a friendly creditor to commence the suit. Whether the creditor was friendly or hostile to them, the plaintiffs had the same rights, and could have the same advantages and privileges in the suit. ( Gilpin v. Lady Southampton, 18 Vesey, 469.)
But the important question, and the one upon which the plaintiffs' counsel seems most to rely, is whether the defendants ought to have represented and proved the plaintiffs' claims before the referee in that action. They had knowledge of these claims, and omitted to produce or prove them before the referee. And the plaintiffs claim that they were guilty of a breach of trust for this omission of duty. We are cited to no decision imposing this duty upon the trustees. Here there was no haste in the proceedings; nothing was done to conceal them from the plaintiffs. The trustees gave all the notice the law required. The fund was under the control of the court, and the court was administering it and ordered that notice should be given to the creditors. The trustees had the right to suppose that the notice given had reached the plaintiffs, and that for some reason, perhaps because they desired to attack the assignment and not recognize its validity, they did not desire to prove their claims. A creditor's suit in such a case is instituted, not only for the benefit of the creditors, but also for the protection of the trustees, and so long as they follow the directions of the court in the suit, and do nothing to mislead or defraud any one, they must be fully protected. They have no active duty to present and establish claims of creditors. Suppose they should present a claim, and the plaintiffs or some other creditor should dispute it, would they be obliged to incur the expenses of establishing the claim? Clearly not. I conclude, therefore, that no fraud or breach of trust can be imputed to the defendants for not presenting and proving plaintiffs' claims before the referee.
It may be that the claims assigned to the father and sister of the assignor, which cost less than the dividend, were purchased and assigned under such circumstances that they were not entitled to draw from the fund more than they cost. But that question should have been presented to the referee, and is of no importance to the plaintiffs who, by their default, were shut off from any dividend.
I have looked carefully at the exceptions taken by the plaintiffs during the trial, and find none of them well founded. And I reach the conclusion that the judgment should be affirmed with costs.
The question of fraud is the only material one in the case. That inquiry was one of fact, and the judge has found, against the plaintiffs, that there was no fraud or collusion by the defendants in respect to the judgment which they have sought to review. The judgment in the action of Reynolds against Blodgett and Meads is conclusive against these plaintiffs, unless they were able to show some fraud or misconduct on the part of these defendants in suffering the judgment. It cannot be collaterally assailed or inquired into.
There appears to have been good cause for such an inquiry as was set on foot in that action. The special partnership being carried on in the name of John Meads, Jr., the general partner, it was not possible to know, with certainty, whether those who claimed against the fund were his private creditors, or those of the special partnership. For the purpose of obtaining a judicial inquiry as to the true and proper claimants, the action brought by Dexter Reynolds was proper, although set on foot by the defendants. The remote suggestion of benefit to be derived by the defendant Meads, by excluding the two small demands of these plaintiffs, together amounting to about $800, is too trifling to be considered. As against the defendant Blodgett, the objection is more insignificant. These plaintiffs suggest no valid defence which Blodgett and Meads ought to have interposed to the action of Reynolds against them. The fact, that there was no fraud or evil intention on the part of these defendants as against these plaintiffs, includes every demand to find facts or conclusions of law made by the plaintiffs' counsel, and not specifically passed upon by the judge. The authorities in support of the action of Reynolds, and the practice adopted, are well established, and in frequent use, and it is unnecessary to repeat them here.
The questions as to the exclusion of evidence, offered by the plaintiffs, appear to me untenable.
The judgment should be affirmed, with costs.
All concur, except HUNT, C., not voting.
Judgment affirmed.