Little Falls National Bank v. King

65 N.Y.S. 1010 | N.Y. App. Div. | 1900

Spring, J.:

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 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 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 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 pending, 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.