In re Callaghan's Estate

PRATT, J. 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 expenses are not payable out of surplus moneys arising from the sale of his real estate made within four years under ‘foreclosure, 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, (section 2750,) except in the case provided for in section 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 defendant’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 N. Y. 269. The laws 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. Id. 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, (chapter 211.) He is not, in that case, a purchaser in good faith. This clearly shows that the particular limitation (sections 2750, 2751) 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 the 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. 380 The provisions of the Code, (sections 2797-2799) 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 letters. Section 2798. Why, otherwise, the limit of “four years ?” The limit for the commencement of the creditor’s proceeding under sections 2750, 2751 is three years. Suppose no such proceeding, and a sale on foreclosure during the fourth year, resulting in a surplus. It must, nevertheless, be paid into the surrogate’s court, under section 2798. To what end is this requirement, except that the decedent’s general creditors maybe protected? Nor is this limited to cases where proceedings have been or shall be duly commenced in the surrogate’s court under sections 2750, 2751. 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 letters. 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 section 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 in such a fund, except among classes of creditors under section 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. All concur.