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Little Falls National Bank v. King

53 A.D. 541 Court N.Y. App. Div. English

Delivered by Spring, J.:

Contents

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p. 541
The Little Falls National Bank, Respondent, v. Charles King, Individually and as Executor, etc., of Seth M. Richmond, Deceased, and Others, Impleaded with James A. Richmond and Anne Richmond, as Executors, etc., of Alvin Richmond, Deceased, Myron G. Bronner, as Trustee for Peter B. Leigh, and Sylvia A. Miller, Appellants.

Headnote

Devine of specific real property subject to certain debts—it is subject to the rights of the general creditors of the testator — executors having a qualified power of sale cannot be compelled to sell — remedy of a creditor whose claim is made a speaijh cha/rge—remedy of the general creditors.
A devise by a testator to bis son-in-law of certain mill property, on condition that the debts and obligations owing by the mill company should be assumed by the son-in-law, a trust and lien for the payment of which are by the express terms of the will imposed upon such property, creates a valid lien on the premises as between the parties interested therein under the will, which is, however, subject to the general lien of all the testator’s creditors thereon. Executors under a power of sale contained in a will, authorizing them, “ whenever they shall deem it best, to sell and convey ” the testator’s real estate other than that specifically devised, cannot be compelled by action to sell the real estate for the payment of debts; and a creditor whose debt has, by the express terms of the testator’s will, been made a charge upon specific real property, although he can maintain an action in the Supreme Court to establish the validity of his lien, cannot resort to the Surrogate’s Court to obtain authority to sell or mortgage the specific property; the other creditors can, however, institute, in the Surrogate’s Court, proceedings designed for that purpose.
Appeal by the defendants, James A. Richmond and another, as executors, etc., of Alvin Richmond, deceased, and others, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Herkimer on the 13th day of November, 1899, upon the decision of the court rendered after a trial at the Herkimer Special Term, adjudging and deciding that the claims of the plaintiff and others similarly situated are a charge and lien upon the property owned by Seth M. Richmond at the time of his death and known as the Saxony Knitting Mills property, and that such charge and lien are superior to those of the general creditors of said decedent.
Seth M. Richmond at the time ■ .iis death on April 27, 1895,
p. 542
was the president of the plaintiff and the owner of certain property known as the Saxony Knitting Mills in the city of Little Falls in said county. For some time before his death this property had been under the management of Charles King, his son-in-law. Mr. Richmond executed his-last will and testament bearing date March 30, 1894, and the same was duly admitted to probate as a will of real and personal property, May 4, 1895, and on the sixth of May letters testamentary were issued to said King, who was named as the executor therein conjointly with the wife of the testator, but she had died previous to her husband. By said will the testator devised and bequeathed to said King all of said knitting mills property, including the tools, machinery, merchandise, accounts, etc., forming a part of said business, vesting the title and possession thereof in said King immediately upon the death of said testator. The will, however, made the same subject to certain debts by the following provision : “ This devise and bequest, however, is upon the condition that all the debts and obligations of every name and nature owing by the said Saxony Knitting Company and which has been contracted by or on account of that branch of my business is assumed and paid by the said Charles King, and I hereby impress a trust and lien upon my said real and personal property, hereby devised and given to said Charles King, for the payment of such debts and obligations and make such payment of those debts a lien thereon.”
The residue of his property was given to his wife during life with remainder over to his daughter, the wife of said King. The will also gave the executors a qualified power to sell the real estate as follows:
“Fourth. I hereby authorize and empower my executors as such, whenever they shall deem it best, to sell and convey my real estate,, or any part thereof, other than that which is specifically devised,, and execute proper conveyances thereof.”
At the time of his death Richmond owed the plaintiff $35,000, which were evidenced by promissory notes, some of which were in form against King or others as makers to avoid the criticism that the bank had loaned to Richmond in excess of ten per cent of its capital stock. The avails of these notes had been used in the-knitting mills business and under the clause of the will were a lien
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upon that property. There were other outstanding obligations against Hr. Richmond of like character to those held by the plaintiff aggregating about $32,000. The testator owned other property and owed other debts amounting to about $30,000. King assumed possession of the knitting mills property and as the notes held by the plaintiff severally matured he renewed them. Some were signed by his wife and some by himself, hut all were taken in renewal of the obligations made by King, and the practice of renewing continued until King became insolvent in 1898. As the notes were renewed from time to time they were marked “ paid ” and delivered to King although they were subsequently and before the commencement of this action returned to thé plaintiff.
It developed that the testator at the time of his death was insolvent, and, his personal property proving insufficient to meet his debts, certain creditors with unsecured claims, on the 28th day of Hay, 1898, began a proceeding in the Surrogate’s Court of said county, pursuant to title 5 of chapter 18 of the Code of Civil Procedure, to sell or mortgage the real estate of the testator for the payment of his debts. A citation was duly issued in accordance with the prayer of said petition and served upon the plaintiff and the other creditors of said testator prior to the commencement of this action, and that proceeding is still pending and undetermined.
This action was thereupon commenced on behalf of the plaintiff and other creditors who had claims or liens upon said Saxony Knitting Hills property to establish the same as a charge thereupon as provided in said will and for a decree or a judgment directing a sale of the said property primarily to pay said obligations. All the creditors were made parties defendants, but all do not appeal.
Myron G. Browner, for the appellants Richmond.
John D. Beckwith, for the appellant Bronner.
Fred I. Small, for the respondent.

That a solvent testator can make certain of his debts a charge or lien upon a particular part of his property is clear. The indebtedness will not be limited to that precise property if that is inadequate

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to pay the debts in full, but in the marshalling of the assets to meet his obligations the property specifically charged can be primarily devoted to the payment of the debts thus made a lien upon it if the unsecured creditors insist upon that order of payment. (Rice v. Harbeson, 63 N. Y. 493 , 498; Redf. Suit, [5th ed.) 554 et seq.)

The devise and bequest of the Saxony Knitting Mills property charged with debts contracted in that business was valid as between the parties interested. The beneficiary, by accepting the gift, accepted with it the burden, and, if he removed that, he held the title of his donor, unless the rights of other creditors interfered to prevent the consummation of the scheme. But he could not require the creditors, whose obligations were made a charge upon this property, to be restricted to it if insufficient to pay them in full providing he possessed other property. To carry out the intention of a testator to devote specific property to specific purposes, that course will always be adopted where it does not infringe upon the rights of creditors. While, therefore, the direction of the testator will, if possible, be complied with, even to the extent of paying one debt out of one class of property and one from another class, that plan will not be adhered to if it results in paying one debt of a class in full and another of the same class partially.

The law is distinct in providing that in the transmission of the property of a deceased debtor to his heirs at law or devisees it is charged with the payment of his debts. (Hogan v. Kavanaugh,, 138 N. Y. 417 , 422; Jessup Surr. Pr. 956.)

The rights of creditors of a decedent attach to his real estate as a statutory lien immediately upon his death. (Rosseau v. Bleau, 131 N. Y. 177 , 182; Platt v. Platt,*105 id. 488.)

The order of payment is prescribed by statute, and the provision is express that “ preference shall not be given in the payment of a debt over other debts of the same class,” except judgments docketed against the decedent. (Code Civ. Proc. § 2719.)

If the decedent dies intestate the title of the heir at law is subordinated to the lien of the creditors, which remains a bürden for the period of three years after the issuing of the letters of administration. (Code Civ. Proc. § 2750.)

If the decedent leave a will, the burden remains unaffected by it, and is also superior to the legacies or devises; only, if the testator

p. 545
prescribes the order of payment, his wish will be observed if it does not operate to the detriment of his creditors.

The principle is invoked by the respondent that a debtor, though insolvent, can secure one creditor to the exclusion of all others, providing the transaction is an honest one, relying upon Tompkins v. Hunter ( 149 N. Y. 117 ), Dodge v. MoKechnie (156 id. 514) and kindred cases. The- transaction is then among the living; the lien or conveyance is recorded and is subject to inspection and scrutiny, and. as the law now stands, the transaction within the period of four months can be reviewed pursuant to the provisions of the National Bankrupt Law. Again, the statute providing that debts are a superior lien and prescribing the order of their payihent governs in the adjustment of the decedent’s property among his creditors. The will does not make an immediate transfer of his property for the benefit of any one creditor, but postpones the intended preference until after his death. The secret is with himself and is not divulged until his death, so that there is no opportunity to attack him in the transaction. If the position contended for by the respondent is correct, the conscienceless debtor can by will make a claim of his wife or any .other favored creditor superior to his funeral expenses. As 1 view it, such is not the purpose of the law, but the right of a testator to prefer or secure one claim to the exclusion of another ends with his life, and the statute determines the order in which his debts must be paid after his death. Had Richmond devised the Saxony Knitting Mills property to King, charged witli the payment of a legacy to the wife of the devisee, the bequest would not be superior to the debts of the decedent. King might, by his own acts, have become primarily liable to the legatee, but, when rounding up the estate to meet the demands of the creditors, the legacy must be deferred until the debts are liquidated. That is the charge, the creation of the lien between the parties is valid, but it is subsidiary to the general lien of the creditors.

The testator did not intend by his will to provide for the payment of certain of his unliquidated debts in full while leaving others of the same class to be paid in part. The value of his property was a matter.of judgment, and, like every other large property holder, he overrated its worth. Had his outside property been ample to pay his

p. 546
debts his gift to his son-in-law, with the charge upon it, would have been effectual. He'believed that he was solvent, and the will was made upon that assumption. He intended no preference, but expected every debt to be paid in full. We can give effect to his intention by treating his debts alike. Taking the notes of King and his wife, in renewal of the obligations which were actual liabilities against the testator, did not extinguish the original indebtedness. That was not the intention of the parties, but in order to keep live paper in the bank it was necessary to have the notes renewed until the final adjustment of the affairs of the testator.

The question of practice is a troublesome one. The power of salé given to the executor is a discretionary, restrictive authority. (Matter of Johnson, 18 App. Div. 371 ; Matter of Gantert, 136 N. Y. 106 .) So that he could not by action be compelled to sell the real estate for the payment of the debts. The plaintiff, and those similarly situated, could not resort to the Surrogate’s Court to sell or mortgage the Saxony Knitting Mills property, as it was expressly charged with payment of their debts. (Code Civ. Proc. § 2749.) The other creditors could institute proceedings designed for that purpose, and the Surrogate’s Court acquired jurisdiction by the filing of their petition, and properly exercised it. The plaintiff can maintain this action to establish the validity and extént of its lien. (Hogan v. Kavanaugh, 138 N. Y. 417 , 421; Dunning v. Dunning, 82 Hun, 467 .)

We have, therefore, the proceeding in tiie Surrogate’s Court as the proper tribunal, and a suit in equity likewise properly commenced, but it would be. unwise to carry on the two to a sale. As all the parties are before each court, we can see no harm in adjudging and deciding in this case: (1) That the claims of the plaintiff and of the other creditors similarly situated are an express charge upon the Saxony Knitting Mills, but with no preference over the unsecured debts of the testator; (2) that this action be held m abeyance until the claims of all the creditors have been proven in the Surrogate’s Court, including the claims of the plaintiff and others in the same category ; that upon the entry of the decree establishing said claims and decreeing a sale, this action be discontinued, without costs to either party, and that the lands of the decedent be sold pursuant to the decree of the Surrogate’s Court in the proceeding there pend

p. 547
ing, and that the order of sale be determined and decreed by said court.

Judgment reversed and new trial ordered.

The order is to be settled before Justice Spring on two days’ notice in case of disagreement.

All concurred.

So ordered.

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