Opinion
January, 1921.
Wm. F. White (Samuel H. Fancher, of counsel), for Jane M. Sullard, administratrix.
Albert F. Barnes, for Clinton F. McHenry, substituted trustee under the last will and testament of Anna D. Lockwood.
Seybolt Seybolt, for Alton O. Potter.
Edwin A. Mackey, for George D. Chamberlain and others.
The amount of the defalcation or indebtedness of George F. Sullard, the absentee, as trustee under the will of Anna D. Lockwood was agreed upon by a stipulation between the administratrix and the substituted trustee and approved by the then surrogate of the county of Delaware. The amount was fixed at the sum of $2,370.80. It does not appear that there has been a judicial settlement or an order entered in any court fixing this amount, but it appears to have been agreed upon and approved by the surrogate.
Two questions are presented for determination: First, the jurisdiction of the Surrogate's Court to determine the rights of the various creditors and claimants to payment of their claims out of the proceeds of the sale of the real estate of the absentee, including parcel No. 1 devised to him by the will of his father, Albert E. Sullard. Second, whether the claim of the substituted trustee is entitled to priority or preference of payment over the claims of other creditors to the proceeds of parcel No. 1, the so-called store property owned by Albert E. Sullard in his lifetime.
All of the necessary parties are in court. Every person who could in any manner be interested in the determination of the questions involved is a party to this proceeding There is no dispute as to title of the property sold, the source from which title was derived, or the amount of the proceeds. The claims against the absentee have been fixed and determined. The amount due the substituted trustee has been settled, agreed upon and approved by the surrogate. The sole question is whether the proceeds shall be applied pro rata to all the debts of the absentee or whether the substituted trustee is entitled to have all of the proceeds of the sale of the store property applied in payment of his claim.
The Surrogate's Court has jurisdiction upon a judicial settlement to try and determine all questions legal and equitable arising between all of the parties to the proceeding. Code Civ. Pro. § 2510. In proceedings to sell real estate for the payment of debts, the Surrogate's Court has jurisdiction to try and determine all claims, demands or charges relative to the proceeds of such sale. Code Civ. Pro. § 2706.
The surrogate has jurisdiction and power to determine the validity of all claims against or upon an estate. People ex rel. Adams v. Westbrook, 61 How. Pr. 138; Kammerrer v. Ziegler, 1 Dem. 177; Matter of Haxtun, 102 N.Y. 157; Matter of Pirie, 133 A.D. 431; Matter of Roberts, 214 N.Y. 369.
The claim of the substituted trustee to preference and priority of payment over all other creditors, of the proceeds of the sale of the store property, is based upon the theory that Albert E. Sullard, from whom the absentee derived title, and who was the owner of the property during his lifetime, being also a surety upon the bond of the absentee as trustee, had impressed such property with an equitable lien by becoming surety for the faithful performance of his official duties by the trustee. It is, therefore, contended that when the absentee received the property by devise from his father, he received it impressed with such lien and also subject to his liability as an heir of the surety.
Clearly the assumption of liability as a surety by Albert E. Sullard did not create any lien upon his real estate. The bond was a guaranty the principal would perform his duty. Until such time as a default occurred it was a contingent liability. It is not claimed that a default had occurred, nor that there was any existing debt due from Albert E. Sullard nor any claim against him aside from his contingent liability upon the bond at the time of his death.
The liability of Albert E. Sullard as surety was such that his liability upon the bond after his death became and remained the liability of his estate and his heirs. The death of one who is a surety upon an official bond does not relieve his estate of liability for the principal's after management of his trust. Mundorff v. Wangler, 57 How. Pr. 372; Stevens v. Stevens, 2 Dem. 469; Holthausen v. Kells, 18 A.D. 80.
The obligation of the surety bound himself, his heirs, and legal representatives. The estate of the surety, and, therefore, his heir, George F. Sullard, was liable upon the bond for the subsequent default of the trustee, but there was no liability fixed and determined at the time of the death of Albert E. Sullard, the surety. The property, therefore, could not be sold, and it is not contended that it has been sold, as property of the surety to satisfy an obligation upon his part which was in the nature of a debt.
The exhaustive briefs presented by able counsel fail to call the attention of the court to a single authority in this or any other jurisdiction which is directly in point. Careful research has failed to disclose a case where the same claim has been made under a similar state of facts.
The situation presented resolves itself into this condition. The principal by devise becomes the owner of the real property of his deceased surety. He, therefore, is principal and as heir of the surety vested with the estate still liable upon the bond. A default occurs (when does not appear) and it is determined there is due from the estate of the principal a certain sum (in this case, $2,370.80). The successor of the principal now claims to be entitled to the full proceeds of the parcel of real estate which has so descended by devise to the original trustee because he received it impressed with a lien. This contention it is impossible to sustain as the bond itself created no lien.
The only other theory upon which the claim of the substituted trustee could be sustained is under the provisions of section 101 of the Decedent Estate Law, formerly section 1843 of the Code, which provides: "The heirs of an intestate, and the heirs and devisees of a testator, are respectively liable for the debts of the decedent, arising by simple contract, or by specialty, to the extent of the estate, interest, and right in the real property, which descended to them from, or was effectually devised to them by, the decedent."
The liability upon the death of the surety became not the liability of the testator Albert E. Sullard, but of the estate held by the devisee George F. Sullard to perform created by reason of the execution of the bond by the surety. When the property descended by devise to George F. Sullard, the estate was liable for the debts of Albert E. Sullard and also responsible to answer for his liability as surety upon the bond; but at that time the liability was only contingent, it was not fixed and determined, and no debt actually existed on the part of Albert E. Sullard. If no lien upon the land was created by the mere execution of the bond, and if no debt existed at the death of Albert E. Sullard, then all the liability of George F. Sullard was his obligation as heir holding the estate to perform as surety upon the bond if called upon to do so.
Section 101 of the Decedent Estate Law does not create an absolute liability against the heirs, but merely provides a method for enforcing an existing liability of the decedent against his assets which have come into the hands of his heirs. Hill v. Moore, 131 A.D. 365.
The liability under this provision extends only to the real property acquired by descent or devise at the time of the decease, and does not reach that which may be made out of it by the skill, management or labor of the heir or devisee. Clift v. Moses, 116 N.Y. 144, 158.
An action under section 101 of the Decedent Estate Law is not an action to enforce, but an action to acquire a lien upon real property, and to authorize its sale for the purpose of satisfying a debt. Rogers v. Patterson, 79 Hun, 483; Covell v. Weston, 20 Johns. 414; Hauselt v. Patterson, 124 N.Y. 349; Mortimer v. Chambers, 63 Hun, 335.
It is an action in equity having the nature of a proceeding in rem in such sense that when the land has not been aliened by the heir, the judgment must direct that the debt of the plaintiff be collected out of the real property. Hauselt v. Patterson, supra.
"The basis of the action is the debt which the deceased owed the plaintiff; but that is not the gist of it. It is not an action for the recovery of money only, although the ultimate object of it is to obtain money; * * * but it is an equitable action to reach certain real estate, which the deceased devised to the defendants and to authorize its sale for the purpose of satisfying a debt that the deceased owed the plaintiff. It is strictly an action in rem." Wood v. Wood, 26 Barb. 356.
The general rule is well settled that sureties are not liable until there is a default of their principal, and such default has been established. It has been repeatedly held that no action can be maintained against such sureties until an accounting has been had, or until their principal or personal representative has disobeyed some valid order or decree of the court having jurisdiction. Hood v. Hood, 85 N.Y. 561; Rouse v. Payne, 120 A.D. 667; Haight v. Brisbin 100 N.Y. 219; Perkins v. Stimmel, 114 id. 359; French v. Dauchy, 134 id. 543.
In the administration of this estate it has been determined that the absentee as trustee under the will of Anna D. Lockwood is indebted to the trust estate in a certain sum. The substituted trustee has presented a claim and the claim has been compromised and adjusted and the amount determined to be due the substituted trustee representing the trust estate has been fixed. The estate of the absentee is liable to the substituted trustee as a creditor the same as it is liable to other creditors. The substituted trustee now seeks under this state of facts to procure a decree directing the proceeds of the sale of the property which came to the absentee from his father, the surety, shall be paid to him in satisfaction of such debt in preference, and prior to the claims, of all other creditors.
As before stated no case directly in point has come to the attention of the court, although it has been held that a creditor holding a specialty debt due from an intestate and coming against the estate of his administrator on account of a devastavit can only take equally with such administrator's simple contract creditors. Carow v. Mowatt, 2 Edw. Ch. 56.
The claim of the substituted trustee cannot be allowed. The property owned by the absentee and which was sold in this proceeding for the payment of his debts must be applied pro rata in satisfaction of all of his obligations.
The estate of the absentee is liable as principal to account for the trust funds in his possession, but the remedy as to the sureties, if the funds coming into the hands of the temporary administratrix are insufficient to pay all of the debts, including such fund, is not in this proceeding.
A decree may be prepared in conformity with this opinion. The question of allowances will be held open until such time as the decree is noticed for settlement.
Decreed accordingly.