Case ID: nys_76/html/0258-01.html
Source: Caselaw Access Project
Author: {"author": "McLENNAN, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

HAMLIN v. SMITH et al.
    (Supreme Court, Appellate Division, Fourth Department.
    May 13, 1902.)
    X. Executors—Claims against Estate — Limitations — Partial Payments
    Partial payments hy an executor of a note given by his testator which is not barred at testator’s death prevent such claims against the estate from being barred within six years.
    2. Same—Manner op Giving Credit.
    The running of limitations against a note is suspended by partial payments, without regard to whether such payments are indorsed, on the note, or new notes are executed for the unpaid balances.
    3. Same—Notes Made by Executor—Right op Payee—Subrogation.
    An executor, borrowing money on his personal notes to pay estate debts, being entitled to be reimbursed for the amount paid in discharge thereof, the payee, before such payment, is entitled to be subrogated to the right of the executor to enforce payment against The estate, though the notes are not directly enforceable against the estate.
    
      4. Same.
    Executors have no power to use the assets of the estate for the payment of debts of the testator which were barred hy limitations at his death.
    5. Same — Claim Barred before Testator’s Death — Effect of Partial.
    Payment.
    A partial payment by an executor of a claim against the testator which was haired before his death does not revive the claim against the estate.
    6. Samf.—Liability of Legatees.
    A note executed by an executor for money borrowed to pay a. debt of testator’s which "was barred by limitations is not a charge against the estate, but is binding against .the executor and beneficiaries under thewiil who authorized the executor to make such loan.
    7. Same.
    Where an executor takes -possession of estate property and manages it -as agent of the beneficiaries as well as in his capacity as executor, and the personal estate is distributed to the devisees, payment of estate debts extended or created to enable the estate business to be conducted in such manner may be enforced against the devisees.
    8. Same—Actions.
    Under Code Civ. Proc. §§ 1837-1860, in reference to actions by a creditor against the next of kin, legatees, etc., of his debtor, a claimant having a debt created by a testator or his executor may maintain a suit ' against the executor, legatees, and devisees to establish such claim, and determine the liabilities of the several parties defendant.
    Appeal from special term, Cattaraugus county.
    Suit by Henry Hamlin against John B. Smith and others. From a judgment for certain defendants, the plaintiff and one defendant appeal.
    Reversed.
    The action was commenced on the 23d day of November, 1894, to establish the amount of plaintiff’s claim, and to have him subrogated to tile rights of the creditors of the estate of one Samuel Oosterhoudt, deceased, who were paid with moneys advanced by the plaintiff to the defendant executors for that purpose; to have it adjudged that the real property, if any, still belonging to the estate of the deceased, be sold, and the proceeds applied upon plaintiff’s indebtedness; and that the balance remaining ¡unpaid, if any, be adjudged to be paid in proper proportions by each of the defendant devisees and legatees under the last will and testament of said Oosterhoudt, deceased, who received devises of real property under said will; and to have such indebtedness declared a lien upon such realty. Substantially the same relief was demanded by the defendant the IOrst National Bank of Olean as to its claim. One of the defenses interposed by the defendants is the statute of limitations, which was found by the referee to be available, and to bora recovery by the plaintiff and by the defendant bank, impleaded, etc. The availability of such statute as a defense presents the chief question to be determined upon this appeal.
    Argued before McLENNAN, SPRING, WILLIAMS, HIS'COCK, and DAVY, JJ.
    Charles S. Cary, for appellant Henry'Hamlin.
    J. H. Waring, for appellant First National Bank of Olean.
    M. B. Jewell, for respondents Samuel F. and Mary H. Oosterhoudt.
    Fred L. Eaton, for respondents Eva E., Samuel E., and John B. Smith.
    Carey B. Davie, for respondent Mary A. Allen.
   McLENNAN, J.

Samuel Oosterhoudt died at the city of Olean, N. Y., on the 12th day of November, .1884, leaving, him surviving, his widow, Mary H. Oosterhoudt, a son, Samuel F. Oosterhoudt, and two daughters, Eva E. Smith and Mary Alice Allen. He also left, him surviving, a grandson, Samuel Arthur Oosterhoudt, and a granddaughter, Mary Alice Oosterhoudt, children of-his son Samuel F. Oosterhoudt, and a grandson, Samuel E. Smith, child - of his daughter Eva E. Smith. He left a,last will and testament, bearing date November 3, 1884, which was duly .admitted to probate on the 26th day of the same month. His widow, his son, and John B. Smith, the husband of his daughter Eva E. -Smith, -were named executors. They duly qualified and entered upon the discharge of their duties as such. At the time of his death the testator owned a large amount of valuable real estate, and, a .considerable amount of personal property, including 60 shares of the- capital stock of the First National Bank of Olean, N. Y. The total amount of the personalty, including the bank stock, was not, however, sufficient to pay the indebtedness of the deceased. By his will the testator devised certain real estate to his widow absolutely, and bequeathed to her the income of his bank stock during her life. He devised to each of his children and to his granddaughter, Mary Alice Oosterhoudt, other of his real estate in fee, and bequeathed to his son and to each of his two minor grandsons 20 shares of his bank stock after the death of his widow. The balance of his property, which consisted of a considerable amount of real estate and some personalty, he devised and bequeathed to his ¡.three children, share and share alike. The widow of the testator, Mary H. Oosterhoudt, died on the 10th day of June, 1890, leaving a last will.and testament bearing date April 29, 1889, which was duly admitted to probate on the 7th day of August, 1-891, and in which her -son -Samuel F. Oosterhoudt was named as sole executor, who duly quálified' and entered upon the discharge of "his duties as such. By her will.she devised her real estate, all of which came to her under the will of her husband, to her three children above named, either absolutely or during their lives; and, in case the devise to any child was for life, the fee was given to the'next-of kin of-such child upon the termination of the life estate. The three children of the testator, Samuel Oosterhoudt, and his grandchildren, who were the only devisees and legatees under his will, the two surviving executors, the executor of the will of his widow, and the creditors of the estate at the time of the commencement of this litigation, were all made parties, so that, so far as appears, all persons in any manner interested in the estate are parties to this action, and all, except some of the creditors, have duly appeared and answered; guardians having been duly appointed for the infant grandchildren. Immediately upon the probate of Samuel Oosterhoudt’s will, the executors, who were the widow, son, and son-in-law of the testator, and who were the only persons, interested in the estate, except Mary A. Allen, daughter of the deceased, Samuel A. and Mary A. Oosterhoudt, children of the son, and Eva E. and Samuel E. Smith, wife and child of the son-in-law, took possession of all the property, both real and personal, left by the testator, and managed and controlled it, not only as executors, but as agents for and on behalf of the devisees and legatees. They surrendered and delivered over to the devisees the real estate devised to them, respectively, collected the rents and income therefrom, and paid the same over to them, notwithstanding the fact that, to the knowledge of all, the personal property was not sufficient to pay the indebtedness against the estate. Some of the real estate which was specifically devised, and a part of that which constituted the residuum of the estate, was sold, and the proceeds applied to the payment of the debts of the estate by the executors, with the consent of all the parties interested, and without reference to the fact that the personal property (the bank stock) had not been exhausted for that purpose. It seems to have been perfectly understood by all the parties that the property left by the testator, including that specifically devised, was liable for the payment of his debts; and, by accepting and taking possession of the real estate specifically devised to them, the devisees, apparently, did not consider that it was thereby relieved from the lien of such indebtedness, any more than if it had remained in the possession of the executors until the indebtedness had been fully discharged. The executor Smith, who was sworn as a witness (and his evidence is not contradicted), testified:

“The residuary legatees or devisees sold a farm in Olean for $7,750. In that sale we took a house and lot and this property down on Fifth street for $2,000. They paid us $5,750 in money. With that money we took up a note of Samuel Oosterhoudt, held by the First National Bank, for $3,265. and paid a note of Tumser’s that was indorsed by father for $1,000, I think. * * * We also paid a note at the same time made by George Phelps, indorsed by Samuel Oosterhoudt, for $1,352.90, out of that money. * * * The proceeds of the farm was all used to pay the debts. * * * There was an interest in a farm in Allegany county. That was sold by the children or the residuary devisees to Mr. Sawyer for $1,700. I think there was some personal property. That money was deposited in the bank to the credit of Samuel Oosterhoudt estate, and used for the purposes of the estate, to pay-debts.”

Again the witness said:

“Out of these moneys which were deposited there In the name of Samuel Oosterhoudt we paid the taxes and other charges which were against the real estate. We gave checks for taxes or repairs or anything of that kind that was necessary, and for improvements which were made to the real estate. This one account which we had there in the bank represented not only the payments which were made by us as executors, but, as well, payments which were made by the heirs at law or devisees on account of taxes, repairs, or improvements to the real estate; and the manner of paying the money was usually by drawing a check upon this general account which we had.”

Again the witness said:

“There was but one bank account kept, and that was in the name of Samuel Oosterhoudt estate. No part of that account was drawn out at any time by any one except the executors. The course of business was to have the executors draw it out upon their checks. Don’t think there was any drawn out for any purpose, except for purposes connected with the estate.”

The witness further said:

“They (the family), under the circumstances, all thought it best to each one take what was left them; and, as there was quite a lot of undivided property, they thought they would assume their property, and take it into their own hands, and pay whatever indebtedness there was against the estate out of the property that was undivided; and it was turned over to each one of them, and they received the benefit. I don’t think there was anything said about who should look after this undivided property that is spoken of. I suppose that they understood the executors would look after it. The executors began looking after it. This undivided property consisted of two farms and some wild land,—those spoken of yesterday. The executors began looking after these farms and the undivided real estate. They made contracts to sell the farms. The heirs and the children executed the deeds. We have sold a number of pieces off of this wild land, as we called it. We made, perhaps, three or four contracts for the purpose. I think there has been three or four pieces sold outright, and a number of contracts made. There was a piece of land sold to Mr. Bristol. The executors sold that out and out. The three children deeded it. They sold to a man named Brown. There was a deed given. The three children gave deeds of everything that was sold. There was a piece sold to Adolph Schubert We gave him a deed. I don’t remember who negotiated that,—whether it was the executors, or whether it was the heirs. I don’t remember whether the deed was made right away. There was a piece sold to Henry Richardson. I think the contract was made by the executors, and afterwards he got a deed. A man named Cole got some. I think the executors made that contract, and the same parties deeded it. The money that was received went to the executors, and they used it in paying on debts. It went into the general fund. Whenever we had any money in the bank, and there was use for it, it was checked out. I can’t tell what specific money went for any specific purpose. The money that came from the sale of lands spoken of went to the executors, and, as a general thing, were deposited in the bank to the credit of the Samuel Oosterhoudt estate; and no separate account was kept between moneys received from land and moneys received from personal property, and, when anything was to be paid, it was paid out of any balance we had there at the time. Whenever we had any money in the First National Bank, and there was a discount due, we paid it out of the general fund, on these notes that were held by the First National Bank. The note was renewed, and the discount charged up.”

It also appeared that, during the time when there were debts-against the estate pressing for payment, the executors gave notes, as such, for the same, and borrowed money upon their notes with which to pay some of such indebtedness; and this they did with the knowledge and consent of the widow and of the testator’s children, although all knew the 60 shares of bank stock and some other personal property had not been disposed of. It conclusively appears that the widow and the children of the testator knew and fully understood how the business of the estate was being managed and carried on by the executors* knew that they were giving their notes, as-executors; for debts-against' the' estate, and were borrowing money upon notes, so. made-by them for the purpose of, paying debts; that the real.",estate-whidLw&s''nDt specifically devised was being sold, and the proceeds applied to the payment of debts, against the estate, although the bank stock had not been sold, all" apparently for the purpose of avoiding' the necessity of selling certain of the more desirable real! estate,, or. tile bank stock which had been specifically devised" or bequeathed*. This course of dealing on the part of the executors continued until the'- death of' the. widow. Then the two surviving executors continued, with full knowledge of all the other parties, to manage the estate substantially the same as before.

Plaintiff’s claim, is'made- up- of three items:

1. A promissory note for $1*291.52, dated-March 9, 1878, made by Samuel- Oosterhoudt1, deceased*. payable to’ the order of Charles S. Carey 18’ months- after date, upon which" payments were made by the testator and indorsed thereon as follows-: July 29, 1880, $65; January 4,,r8Sl,; $350;. October 6, 1883-, $150. After the testator’s death (November: 12,-.1884) the executors made payments which were indorsed as-follows':- April 23, 1887, $356.80; July 27, 1887, $454.36; August 2T,. 1891; $-140; leaving a balance due and unpaid of $338.63, with interest, thereon, from the date of the last payment. The note was- duly assigned» to the plaintiff before the commencement of this action. This-note was-not1 barred by the statute of limitations at the time of the testator’s death, and was a valid claim against his estate at that time.. The executors having made partial payments upon it from time to time until less than three years before the commencement- of this action, it at no time became barred by the statute. Where an administrator has regularly paid interest on a note given by an intestate, neither he. nor the. next of kin. can set up the statute of limitations against.it.. Willcoxv. Smith, 26 Barb. 316. In Heath v. Grenell, 61 Barb. 190, the headnote is as follows:

“A partial.payment upon- a promissory note past due, by the administratrix of one of the.makers,.a.portion of which payment is from the assets of the estate,, if. made., before.- the statute of, limitations has run against the note, saves the obligation.from .the operation, of* the statute up to that time; and this although the payment was the act of one of two administrators alone, without the consent of the other.”

See; also, McLaren v. McMartin, 36 N. Y. 88.

2. On January, 4* . 1888? one-James H; Grimes’recovered two judgments in.the;s-upneme»court,-against tile-estate of Samuel Oosterhoudt, deceased, amounting in the' aggregate to about $2,600, on account of. a. liability which ex-isted against said Oosterhoudt in his lifetime, which, judgments* were valid claims against his estate. Thereafter, and on the 15th .day. of May, 1889,-.the three executors borrowed from the plaintiffithe sum.of $3*000, .with which to pay said judgments and accrued-interest, and gave-him-their promissory note for that amount. Partial payments?were made, andirenewal notes given for the amount remaining, unpaid,,by-the three-executors or the two survivors, front time to: time, until?June-17, 1893, when a note for $1,700 was given; that being-the amount of' the sum originally borrowed remaining unpaid. The money received by the executors from1 the plaintiff upon the giving of the original note was applied in payment of the Grimes judgments, and the balance in payment of other debts against the estate. If plaintiff's original claim of $3,000 was valid, the partial payments made thereon by the executors, under the authorities cited, prevented the statute of limitations from running against it. It is of no consequence that new notes were given from time to time for the amount remaining unpaid, instead of indorsing the payments upon the original note. Plaintiff’s claim was for the money loaned, and giving a note therefor, or still another note in renewal thereof, did not pay or discharge the original obligation. Hill v. Beebe, 13 N. Y. 556; Iron Co. v. Walker, 76 N. Y. 521. A partial payment upon such an obligation, in whatever form made, prevents the statute of limitations from running against it for six years from the time of such payment. But it is urged that in no event is this item of plaintiff’s claim enforceable against the decedent’s estate. In borrowing the $3,000 from the plaintiff, and giving their note therefor, the executors became personally liable; incurred a personal obligation,— one that undoubtedly could not be enforced against the estate directly. Sieckman v. Allen, 3 E. D. Smith, 561; Schmittler v. Simon, 101 N. Y. 554, 5 N. E. 452, 54 Am. Rep. 737. The consideration for the obligation incurred by the executors, to wit, the $3,000 received from the plaintiff, belonged to them,—was their money; and, having applied it to the payment of valid indebtedness against the estate, they are entitled to be reimbursed out of the estate. In the case of Boyer v. Marshall, 5 N. Y. St. Rep. 431, decided at general term, Eifth department, it was held that a .note signed by an administrator, as such, is his individual obligation, but, if given to a creditor of the estate for a debt of the estate, the administrator is entitled to have it allowed him on his accounting. See, also, In re Rolph (Sur.) 9 N. Y. Supp. 293. The fact that the executors became obligated to the plaintiff for the money with which to pay the Grimes judgments, instead of paying them with their individual funds, which they may have had in the bank or elsewhere, cannot be important, as bearing upon their right to be reimbursed for the amount paid by them to discharge such obligation. The executors being entitled to be reimbursed out of the estate to the extent1 to which they obligated themselves to the plaintiff for moneys received from him, and which they applied to the payment of valid debts against the estate, the plaintiff is entitled to be subrogated to the rights of the executors, and to compel payment to him out of the estate of such sum as remains unpaid upon his claim. In Sheld. Subr. § 206, the rule is stated as follows:

“Though creditors who have made advances or rendered services to a trust estate must ordinarily look to the trustee personally tor their payment, yet if the trustee would he entitled to reimbursement from the estate for his payment, and is insolvent or a nonresident, equity will substitute the creditors to the rights of the trustee, and allow them to be paid directly out of the estate.”

A large number of authorities are cited by the author in support of the proposition. The same principle is enunciated in Willis v. Sharp, 113 N. Y. 586, 21 N. E. 705, 4 L. R. A. 493.

We conclude that the second item of plaintiff’s claim was not barred by the statute of limitations at the time of the commencement of this action; that the executors having borrowed the money constituting such claim for the purpose of paying valid debts against the estate of Samuel Oosterhoudt, and having paid such debts with the money so borrowed, and having become personally liable to tile plaintiff therefor, they are entitled to be reimbursed out of the funds of the estate; and that the plaintiff, under the circumstances of this case, is entitled to be subrogated to their rights in that regard.

3. On the 11 th of June, 1888, the three executors, two of whom (the widow and son) were devisees and legatees under the will of Samuel Oosterhoudt, deceased, after consultation with the other adult beneficiaries (the two daughters) under such will, and with the knowledge and consent of all, borrowed from the plaintiff the sum of $2,200 for the purpose of paying a claim of one Lawton, gave their promissory note dated that day to the plaintiff for the amount, and with the money paid the Lawton demand in full. Partial payments were made upon it by the executors, and renewal notes given from time to time for any balance remaining unpaid, until March 18, 1893, when they made their promissory note, dated that day, for $1,400,— the sum remaining unpaid. At the time the executors borrowed the money the Lawton claim was barred by the statute of limitations, and was not enforceable against the estate of the decedent. It is clear, therefore, that the executors had no power, as executors, to pay said claim, and had no right to devote any of the assets of the estate to that purpose. The obligation which they incurred to the plaintiff was purely personal, and in no manner bound them as executors. A partial payment by an administrator on account of a claim barred by the statute in the lifetime of his intestate is not sufficient to revive the demand against the estate. McLaren v. McMartin, supra. An executor or administrator is bound to set up the bar of the statute of limitations, and has no authority to allow a claim so barred. Butler v. Johnson, 111 N. Y. 204, 18 N. E. 643. This item of plaintiff’s claim, however, was not barred by the statute of limitations as against the executors personally,- or those for whom they were acting in making the loan. Partial payments having been made from time to time by authority of all, such obligation continued until six years from the date of the last payment. As we have seen, the money was borrowed by the three executors, with the knowledge and consent of the two other adult beneficiaries, for the purpose of discharging the Lawton claim, notwithstanding that, to the knowledge of all, it was barred by the statute of limitations. The widow and children of the testator consulted together, and determined that, in good conscience, the claim ought to be paid,—in effect, that its payment was essential in order to preserve the good name of the decedent,—and thereupon, through the instrumentality of the executors, acting for themselves individually and for the other adult beneficiaries, the money was obtained, and the claim paid. Under those circumstances, the claim should be satisfied out of the portion of the decedent’s estate which went to the widow, the son, and the two daughters, in proportion to the amount of the estate received by them, respectively. They ought not to be permitted to obtain from an innocent party funds with which to pay a claim of this character, in order to preserve the good name of their testator, and then be relieved from all obligation in respect to it.

The conclusion is reached that the first two items of plaintiff’s claim constitute valid demands against the estate of Samuel Oosterhoudt, deceased, and that the third item (the Lawton claim, so called) is a valid demand against the children of the decedent and the estate of the deceased widow, to be paid by them in proportion to the amount received by them, respectively.

The claim of the defendant bank is made up of the amount remaining unpaid upon certain promissory notes made by the testator in his lifetime, which were valid claims against his estate at the time of his death, aggregating several thousand dollars. After his death the executors made partial payments upon said claim, giving from time to time renewal notes for the amount remaining unpaid, until about the 1st of July, 1893,—a little more than a year before the commencement of this action,—when the last payments were made, and the last renewal notes given. Under the authorities referred to, this claim was not barred by the statute of limitations at the time of the commencement of this action, and was in all respects a valid claim against the estate of Samuel Oosterhoudt, deceased.

All of the foregoing claims were duly presented to the executors. They were not rejected, or their genuineness in any manner controverted or denied, until the commencement of this action. When the nature and origin of the claims of the plaintiff and the defendant bank are understood, and their exact status at the time of the commencement of this action ascertained, it becomes apparent that, upon every principle of justice and equity, they should be paid out of the property left by Samuel Oosterhoudt, deceased, now in possession of the legatees and devisees under his will, which property at the testator’s death was sufficient to discharge every obligation existing against him, and, in addition, to liberally provide for those dependent upon him,— the defendant legatees and devisees. The entire property, both real and personal, was taken possession of by the executors, and was, in effect, managed by them, not only as executors, but also as agents for all the parties interested, except the creditors. With the knowledge and consent of all, a large amount of the personal property, and a considerable portion of the realty, was turned over to the legatees, instead of being devoted to the payment of debts, and money was borrowed from the plaintiff and others to' pay those debts which were most pressing, and the claims of the defendant bank and of other creditors were procured to be carried along, all for the purpose of avoiding the necessity of then disposing of such of the property of the estate as it was thought to be most advantageous for the legatees and devisees to retain. Clearly, they should not be permitted to reap the advantage of such a course of dealing, all of which was with their full knowledge and consent, at the expense of those from whom they borrowed money, and those who extended the time of payment of their demands, in order that the plan of the executors and those whom they represented might be carried out.

From an examination of the several sections (1837 to i860, inclusive) of the Code of Civil Procedure to which attention has been called by the learned counsel for the respondent Mary- A. Allen, we are of the opinion that they-furnish* ample-authority for the maintenance of this action¡ and that' a- court of equity may-- determine the rights of all the parties, and grant to each the relief to which he is equitably entitled. Whether such relief may be granted'by a court of equity independent of the statutory provisions, as was held in Colgan v. Dunne, 50 Hun, 443, 3 N. Y. Supp. 309, it is unnecessary to determine.

The learned referee found, as a conclusion of law; that the claims of the plaintiff and of" the' defendant bank were all barred by the statute of limitations, and for that reason alone dismissed the complaint upon the merits, and determined that the claim of- the defendant bank was of no force or effect, and. judgment was entered- accordingly. No other question- of law was passed upon or decided by the referee. Having concluded that* at1 least* some of the items of plaintiff’s claim and the claim of the defendant bank were not, as against the estate, barred by the statute of limitations at the time of the commencement of this action, the judgment must be reversed, and a new trial ordered. We do not deem it necessary at this time to attempt to define the exact rights of the respective parties, which will depend upon the evidence which may be adduced upon such new trial; and we therefore have refrained from expressing any. opinion-- as to the correctness of the findings of fact made by the learned referee, or whether such findings, or any of them, are against t-lie weight of the evidence. We simply hold that, upon the conceded facts, certain of the items constituting plaintiff’s claim and the claim of the defendant bank were not barred by the statute of limitations at. the-time of the commencement of this action, and that in this action the rights of all the parties- may be determined ; the rights of each depending upon the evidence which may be adduced. It follows that the judgment- should be reversed, and a new trial granted before another referee, with a-separate bill of costs to each of the appellants to abide event.

Judgment reversed, and a- new trial granted before another referee, with a separate bill of costs of this appeal to each appellant to abide event. All concur.