In re the Estate of Callaghan — 52 N.Y. St. Rep. 537

Majority

p. 537

In the Matter of the Estate of Honora Callaghan, Deceased.

(Supreme Court, General Term, Second Department,

Filed, May 8, 1893.)

Headnote

1. Decedent’s estates—Liability oe real property por debts.

Surplus moneys arising fro » a sale on foreclosure of the real estate of a decedent, made within four years, and paid in to the surrogate,'are properly applicable to the payment of his debts and funeral expenses in case of a deficiency of personal estate.

2. Same.

While a creditor’s right to apply for a sale of real estate is limited to-three years, the real estate is not discharged from liability for debts so long as it remains in the hands of legatees or heirs at law.

Appeal by creditors of the deceased from a decree of the surrogate of Kings county, directing the distribution of certain surplus moneys deposited with him to the heirs of the decedent.

Honora Callaghan died intestate at the city of Brooklyn, November 18, 1888. Letters of administration were granted by the-surrogate of Kings county to her son, John B. Callaghan, December 3, 1888. She died seized of certain real estate in the city of Brooklyn. Mortgages thereon were foreclosed by two actions in the city court of Brooklyn, and after the sale thereof the surplus arising in said actions, viz., $1,525.98 in one action and $2,119.98, in the other was, by the order of said city court-, paid to and deposited with the surrogate of Kings county, November 24,1890.

On or about March T7, 1891, Katie C. Callaghan, a daughter of decedent,' filed her petition with said surrogate setting forth these-facts, stating the names of the heirs of decedent, and that there were certain debts of decedent unpaid, including those of these appellants, and praying that such surplus moneys be distributed to those entitled thereto, and that a citation be issued to the parties designated in the petition.

A citation was thereupon issued to and served upon the heirs and the creditors of the decedent, including these appellants, and was served on all the parties, and these appellants appeared by Theodore Burgmyer, their attorney. No answers or objections were filed to said petition, but on the return of said citation the surrogate required John B. Callaghan, the administrator, to file his accounts as such administrator, and on or about May 6, 1891,, he filed his account.

To this account objections were filed by Moffett & Kramer for Stephen McCabe, and by John B. Lord for the infants, Joseph A., Dennis and Agnes Callaghan,

An order of reference was then, on May 6, 1891, made by the surrogate to Charles Bradshaw, “ to examine the account rendered

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by John B. Callaghan, as administrator, * * * and to hear and determine all questions arising upon the settlement of such account which the surrogate has power to determine, to take proof of the facts stated in the petition, and of the claims against or debts of the estate of Honora Callaghan, deceased, and to make report thereon, which report shall be subject to confirmation or modification by the surrogate.”

On December 31, 1891, the referee filed his report, in which he finds, among other things, that the total amount of assets of the estate of Honora Callaghan, deceased, which have come to the hands of John B. Callaghan, as administrator, is $662.04. That he expended properly $602.14, and that he has now in his hands, available for the payment of debts, $59.90. He also found that there came into the hands and control of said administrator “ a saloon business, with the stock and fixtures thereof, at the corner of Nostrand and Flushing avenues, which he took possession of and conducted and managed for at least six months after the death of decedent, appropriating to his own use profits thereby made, for which profits the said John B. Callaghan has never accounted,” which, as matter of law, he has in his hands available for the payment of debts in addition to the $59.90.

He also finds the following to be just and valid claims against the estate :

D. M. Koehler................................. $304 95

T. C. Lyman & Co.............................. 116 00

Amsdell Bros.................................. 1,103 00

On January 18, 1892, and before the report of the referee was considered, George M. Amsdell and Theodore M. Amsdell, composing the firm of Amsdell Brothers, filed in the surrogate’s office of Kings county a petition setting forth this debt from the estate of Honora Callaghan, and the other debts or claims reported by the referee, and all other necessary facts, and prayed the disposition of this surplus to pay the debts of decedent, as prescribed by chapter 18, title 5 of Code of Civil Procedure, and that a citation may issue.

The surrogate, in his findings and decree, sustains the referee, and directs the distribution of the surplus to the next of kin, ignoring the creditors, and decides that the administrator is liable to account for the profits of the saloon business.

To the findings of the surrogate these appellants excepted, and from his decree appealed.

Theo. Burgmyer, for app’lts; Moffett & Kramer, for Stephen McCabe, resp’t; John H. Steenwerth, for John B. Callaghan, resp’t; John Bradley Lord, special guardian; Frank L. Barnard (John T. Barnard, of counsel), for Meyer, assignee, etc.; Dana & Clarkson, for Katie C. Callaghan.

I think the learned surrogate has proceeded on an erroneous theory in this case. He has held that, notwithstanding a deficiency of personal estate, the decedent’s debts and funeral

p. 539

expenses are not payable out of surplus moneys arising from the sale of his real estate made within four years, under foreelosuie, apparently on the theory that the real estate is discharged from the lien or trust for the payment of debts after the expiration of three years from the original grant of letters of administration. That is not the law as I understand it. A creditor’s right to apply to the surrogate’s court for the sale of real estate to pay debts, etc., is now limited to three years after issuance of original letters, § 2750, except in the case provided for in § 2751. But it by no means follows that the real estate is thereby discharged from those claims so long as it remains in the hands of legatees or heirs-at-law. That limitation, and the other provisions bearing on the point, were intended for the protection of bona fide purchasers of real estate made after the lapse of three years. Slocum v. English, 2 Hun, 78 , affirmed 62 N. Y., 494 .

The heir-at-law or legatee derives only an incidental benefit from this provision that, after that lapse of time, his purchaser may no longer fear unknown liens arising from decedent’s debts and hesitate to buy from that cause.

Various considerations seem to me sufficient to sustain this view. An owner of property holds it primarily in trust for his creditors. Candee v. Lord, 2 Comst., 269. The law respects this trust especially for the benefit of creditors. During the lifetime of the owner he is bound to respect it; and all his honest dealings therewith bind his creditors on the theory of privity. But even that rule is designed mainly for the protection of bona fide purchasers. Candee v. Lord. At the death of the owner the estate passes by mere succession to his legatees or heirs-at-law. They pay nothing therefor, and stand in the same relation to it which voluntary grantees occupy during his lifetime. A resulting trust or equitable lien arises in favor of creditors and for funeral and administration expenses.

The able opinion of Mr. Justice Cullen in Mead v. Jenkins, 29 Hun, 253 , shows that the remedy by sale under the authority of the surrogate was formerly limited only by reasonable lapse of time. That opinion and that of the court of appeals, 95 N. Y., 34 , 35, show that even a purchaser who bought with notice of a creditor’s claim would not be protected notwithstanding the statute of 1873, chap. 211. He is not, in that case, a purchaser in good faith. This clearly shows that the particular limitation, § 2750-1, does not discharge the lien or trust, as against the legatee or heir at law. Indeed nothing can accomplish a discharge of that lien or trust in his favor except payment or the statute- of limitations. He remains liable personally for debts to the extent of the property which he receives. Code, §§ 1837-1843. If he sells it to a bona fide purchaser after three years, the consideration .received is merely substituted in place of the land; and, upon familiar principles of equity jurisprudence,‘may be followed and, in such a case as this, may be taken to pay his obligation.

The provisions of the Code, §§ 2797-9, were designed to follow this general view in cases where a surplus arises from the sale of real estate “ within four years ” after the issuance of original

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letters. § 2798. Why, otherwise, the limit of “four years?” The limit for the commencement of the creditor’s proceeding under §§ 2750-1 is three years. Suppose no such proceeding and a sale on foreclosure daring the fourth year resulting in a surplus. It must, nevertheless, be paid into the surrogate’s court under § 2798. To what end is this requirement except that the decedent’s general creditors may be protected. Nor is this limited to cases whére proceedings have been or shall be duly commenced in the surrogate’s court under §§ 2750-1. It applies, just as in this instance, to cases where such an application has been rendered impossible because the real estate was swept away by a sale within the three years. And for aught that I can see it also applies to any case of a surplus arising from a sale within four years after the ietters.

Surely the court in which the foreclosure occurred would be competent to settle all rights of the parties to that action in the surplus; if it was the design of the statute to limit the distribution to them, why then pay it to the surrogate’s court except for the reason that the administrator was there to protect himself for expenses of administration, the funeral expenses and to represent general creditors, none of whom would be necessary parties to the foreclosure suit? And, again, it is certain that this money must be distributed under § 2799, and the surrogate’s court is bound to investigate and settle the “rights and priorities” of interested persons. What priorities are there to settle ip such a fund except among classes of creditors under §2793? We should scarcely think of using that phrase of the right of a creditor over a legatee or heir-at-law.

I think the decedent’s general creditors and funeral expenses ought to have been paid out of this fund, so far as necessary, and that the decree should have provided for such payment. There is no suggestion that any of these claims were barred by the statute of limitations, nor do I see how such'a suggestion could have been reasonably made.

We, therefore, reverse the decree so far as it relates to appellants, and direct that they shall have their share of the fund, and that their costs of this appeal shall be paid therefrom as a part of the expenses of distribution. The judgment will be without prejudice to any remedy which the other creditors may have, if any.

Barnard, P. J., and Dykman, J., concur.