Woolley v. Johnson's Executors

JUDGE HAZELRIGG delivered the opinion op the court. Aaron K. Woolley was the owner in fee of one-balf of 166 acres of land by devise from Ms mother — the other half was devised to him from the same source for life, with remainder over to others, coupled, however, with a power to dispose of it himself by will or deed to such uses as he might select. He undertook to encumber his entire estate by a mortgage to Johnson and Mrs. Hearne, but his effort as to the estate held for life was held inoperative by this court (Payne, etc. v. Johnson’s Exor., 95 Ky., 275), because not a valid exercise of the power of appointment under the will. The donee of the power, however, was held to have exercised the power by'his will in which he devised what property he had, after the payment of his debts, to his sister, Mrs. Payne-, and his brothers, Frank and Vertner Woolley. And this was said by this court in the former appeal to be “in fact a devise to creditors, who are, in so far as this record shows, to receive the pro*needs of sale in proportion to their respective claims.” After a return of the case from this court the other ered157 itors were made parties, and -the action took the form of a) creditor’s bill for settlement of the estate instead of a suit, as it had formerly been, to satisfy the mortgage liens- The sole question before the chancellor below was, how shall the assets of testator A. K. Woolley be distributed? The learned special chancellor adjudged Johnson’s executors entitled to one-half of the proceeds .of the sale of the entire land, and of this there is no complaint. But in distributing the balance he held the executors entitled to a pro rata on the entire debt, without reducing their demand by the amount of the previous payment. This is in accordance with the rule of marshalling securities laid down in Logan v. Anderson, 18 B. M., 114, and followed in a number ot cases since, to the effect “that a creditor having more than one contract security will be allowed to pro rate with the general creditors for the full amount of his claim, taking no account of his independent securities.” (Hibler v. Davis, 13 Bush, 21.) The statute in force at the time of Woolley’s death, and which appellant insists is applicable, prescribes an entirely different rule for the distribution of the assets of insolvents. That statute, in the particular mentioned, is as follows'': “But when any creditor has a lien, and the property subject to the lien is not sufficient to discharge the debt, he shall not be entitled to any portion of the residue of the estate until ail the creditors not having liens shall have received a sum equal pro rata with such lien creditor.” It would seem that the court below in departing from this statute did! so for the reason that, under the will of Woolley, the lien creditor had a claim in the nature of a contract right not only [158] on the one-balf covered expressly by bis mortgage, but on the other half as well, and this fact demanded the application of the rule in the Logan v. Anderson case. It is manifest, however, that while such an application here might not be positively illogical, it is certainly an extension of the rule, and the exact state of case in which the rule has been heretofore applied is not before us. We are, therefore, not bound to apply it, nor does the statute then in force' necessarily control the distribution. The property is devised to Mrs. Payne, Frank and Vertner Woolley. The testator certainly did not contemplate a distribution of his estate under the statute regulating insolvent estates. By his appointment on behalf of his creditors — all of them, including Johnson — -he brought within their reach, and not because of any diligence of theirs, certain property which otherwise would have gone to his heirs under the will of his mother, and provided that certain of his kin should have the residue of his estate ‘'after the payment of his debts.” The testator had already provided for the Johnson debt in part at least, and we think, after applying the property under mortgage toward the satisfaction of that debt as Woolley must have supposed would be done, the balance of it is to be considered as included among the debts of the testator in contemplation of his will, and to stand on an equality with all other debts in the distribution of the estate i ■ lit is not to be supposed that the testator intended either that the Johnson lien debt, after being paid in part, was to be given undue advantage over other debts under some complicated rule for marshalling equitable securities, or, on the1 other hand, to be made to take a subordinate position in [159] the distribution, and be denied a pro rata- share on what was left, after crediting therein the proceeds of the mortgage. His intention must have been to pay the Johnson debt with the proceeds of the mortgaged property as far as might be, and then out of the balance of the estate pay the unsatisfied lien debt and all other debts against the estate, treating all debts alike and placing them on an exact equality. Such a distribution would be in accord with the present statute, which provides that “when any creditor has a lien, and the property subject to the lien is not sufficient to discharge the debt, he shall receive on the remainder of the debt unsatisfied by the lien property the same pro rata as other creditors who have no lien.” (Section 3869, Kentucky Statutes.) And such a distribution is in accord with the language of this court on the former appeal, where it was held that, so far as the record then showed and nothing is shown to the contrary now, the creditors of Woolley were to receive the proceeds of the sale “in proportion to their respective claims.” And this, it seems to us, is the equity of the case and conforms to the intention of the testator. There seems to have been no error in the method of paying the Habiz claim, but for the reason given the judgment is reversed for proceedings consistent with this opinion.