Bank of Poughkeepsie v. Hasbrouck (6 N.Y. 216, 1852)

Johnson, J.,

after stating the facts, proceeded: — It was insisted on the part of the defendant: 1: That the complaint was unproved in its whole scope and meaning, there being no decree recognising the plaintiffs as creditors of the estate. 2. That the neglect of the plaintiffs to give notice of their *claim to the administra- ^ tors of Jophat Hasbrouck, under the circumstances, and because of the payment by the defendant of the amount of the note to Joseph 0. Hasbrouck, in good faith, before notice of the plaintiffs’ rights, was a good defence. 3. That the surrogate’s decree on final settlement was a bar to the plaintiffs’ claim.

The defendant’s claim to the note in question, and to the amount awarded to be paid thereon, out of the estate of the deceased, is not founded upon payments made by him, in course of administration, but upon the ground that he had become the purchaser of the note, and thereby a creditor of the estate of the intestate. Upon this ground, he put his claim, before the surrogate, and upon this ground, the surrogate adjudged him to be a creditor of the estate. He could not become the bond fide holder of a note, which was not owned by, nor in the possession of, the person from whom he professed to derive title. The fact of want of possession was, in itself, notice, and if he did not require the production and delivery of the note, it was his own folly, to trust to the person with whom he was dealing, and he must bear the consequences, if any loss occurred. Except, therefore, for the decree of the surrogate, the defendant could not retain the money paid on account of the note, from the actual holder, but would be liable to a suit by him for money had and received to his use. (Talbot v. Bank of Rochester, 1 Hill 295.)

The more serious question remains, as to the effect of the surrogate’s decree. Upon the face of the pleadings, it is admitted, that the citation to settle the account of the administrator and administratrix, was served in such manner as the law directs, and this, we think, is a full admission of legal notice to the plaintiffs in this suit, of the proceedings by the administrator and administratrix for the settlement of their accounts.

An executor or administrator, after ■ eighteen months from his appointment, may be required to render an account of his proceedings, by the surrogate, either on the application of some person having a demand against the personal estate of the deceased, or without any such * 2211 aPP^ca^on- *When so required to render an -* account by the surrogate, or upon the voluntary rendering of an account of all his proceedings, the executor or administrator may have a citation to all persons interested in the estate, to attend a final settlement of his accounts. This citation is to be served in the manner pointed out by the statute. (2 R S. 93, §§ 61, 62, 63.)

The final settlement of the account by the surrogate, and the allowance thereof, is to be deemed .conclusive evidence against all persons in any way interested in the estate, upon whom the citation has been duly served, of the following facts, and no others:

1. That the chargés in the account for payments to creditors, legatees and next of kin, and for necessary expenses, are correct.

2. That the executor or administrator has been charged with all the interest with which he is chargeable, upon such moneys received by him, as are embraced in his account.

3. That the moneys stated in the account as collected, were all the moneys collectible at the time of the settlement, on- the debts stated in the account.

4. That the allowances for decrease, and the charges for increase, in the value of any assets, made in the account, were correctly made.

, The account provided for by these sections, though termed a final account, and the settlement thereof, though also termed final, are not, in any broad sense, possessed of that [character. Their finality is limited to the particulars enumerated in the above four subdivisions of § 65; and even as to those particulars, they are final only as to such persons as were notified in the particular manner required by statute.

The executor or administrator, on such accounting, gets no adjudication that no other assets are chargeable to him, as having been received, than those which are stated to have been received. He may still be charged for not collecting debts, collectible, and not stated in the account, and with interest on both these classes of charges; and it is quite obvious, that besides these, and probably other matters relating to the time prior to the settlement *of the accounts, the executor may ^ ^ discover and be able to get possession of assets, the existence of which was unknown at the time of the settlement; and that as to all these, his duties and the rights of creditors and others interested in the estate of the deceased, remain unaltered by these proceedings upon the so-called final accounting.

After the provisions above cited from chapter 6, part 2 of the revised statutes, follows, in § 71, page 95, a provision, that whenever an account shall be rendered and finally settled as aforesaid, “ if it shall appear to the surrogate that any part of the estate remains to be paid or distributed, he shall make a decree for the payment and distribution of what shall so remain, to and among the creditors, legatees, widow and next of kin to the deceased, according to their respective rights; and in such decree, shall settle and determine all questions concerning any debt, claim, legacy, bequest or distributive share, to whom the same shall be payable, and the sum to be paid to each person.”

To give a construction to this section, it is necessary to keep in view the other provisions of this 6th chapter, in order that, if possible, an harmonious system may be discerned and declared, where the provisions of the law, unless carefully considered, might seem to be in conflict with each other.

The general object of the chapter is, to insure the speedy administration of the estates of deceased persons, adequate facility of enforcement to the rights of claimants against the estate, and adequate protection to executors and administrators against claimants upon the estates of which they are the representatives. It is these two classes of interests with which the chapter is particularly concerned, and with reference to them its provisions are in the main to be expounded. The rights of claimants inter sese, except in so far as the determination of those rights is necessary to the fixing of the rights of the two classes specified, are not within the general purview of the chapter.

The statute does not anywhere, in terms, attempt to take away or diminish any of the substantial rights of creditors upon, or as consequent to, the mere fact -* of the death of the debtor. The period in which a debt shall become barred by lapse of time, is not diminished, hut, on the contrary, is increased. It is not, in terms, declared to be the duty of the creditor to present his demand, or to seek the enforcement of it against the executor or administrator, on pain of being barred of his claim. In short, there is no expression nor provision in the statute, which, as a consequence of the creditor’s lying by and merely doing nothing, for any period short of the time provided by the statute of limitations, takes away of at all impairs his demand against the estate of the deceased debtor.

In case, after notice by the executor or administrator under 2 it. S. 88, § 34, &c., the creditor presented his p.1 aim and it was rejected, then, it is true, if suit was not brought in six months, the claim was barred. But it was not obligatory on the creditor to move, and so this provision is not in conflict with the view above taken. The consequence of not moving on the part of the creditor is not, under those provisions, general, to take away his right against the estate of the deceased; but particular, to enable the executor or administrator to proceed in administration, as if the claim did not exist, and to protect him in so proceeding. Thus § 39 (2 B. S. 89) provides, that in a suit on such a claim, the executor or administrator shall not be chargeable for any assets or moneys that he may have paid on claims inferior in degree, or on legacies, or in distribution; and by §40, in such action, the plaintiff shall be entitled to recover only to the amount of such assets as shall have been in the hands of the executor or administrator at the time of the commencement of the suit; or may take judgment for the amount of his claim, or any part of it, to be levied and collected of future assets; and by §42, the creditor so neglecting to present his claims may, notwithstanding, recover from the next of kin and legatees, to whom assets have been paid or distributed.

The effect, and the whole effect of the creditor lying by, is, that while the general obligation of the debtor’s estate remains, *even to that extent that he may ^ follow it into the hands of legatees and distribu- *- tees, so much of the assets as have, in the course of administration, been paid to other creditors, even if inferior in degree, is no longer subject to his claim. This exemption proceeds not upon the ground that the claims of two creditors under such circumstances are to be deemed adverse to each other, as well as to the estate of the debtor, but that each creditor stands upon independent ground, representing his own claim; and that when, between the creditor so standing and the executor or administrator representing the estate, the rights of those two parties have been adjusted in due course of administration, this other creditor cannot be heard to allege anything against their doings, fraud and collusion always excepted. (Candee v. Lord, 2 N. Y. 269.)

The general scope of the chapter in question, regarded in this way, affords considerable light upon the construction of some of its particular provisions. The distribution which the surrogate is directed to make,’after an account shall be rendered and finally settled, is to be made only after the application of the administrator or executor to have his account finally settled; for it is only on such an application that the surrogate has power to proceed to a final settlement. Such final settlement and distribution are, therefore, made on the motion of the executor and administrator, and are intended for his protection in the administration- of the estate; that is their primary purpose, and contests between creditors, so far as they arise and are necessary to be disposed of, in' order that this protection may be given to the executor or administrator, must be disposed of, and such disposition will be conclusive upon the parties to them. But in case of a creditor who does not appear, we have seen, that notwithstanding his failure to appear, he retains his whole claim upon the estate, though he loses his right to the particular fund. This' construction is in harmony with the whole scope of the chapter; as well with that part which provides how far the settlement of the account of the executor or admin- * ces T Orator shall be final, as *with that in regard to -* the presentation of claims to the executor or administrator, after notice.

As, therefore, the true construction of the whole chapter requires us to hold, that a creditor’s demand is not barred by any determination under § 71, at all events, unless he appears and his claim comes, thus directly in contest, we thereby, in effect, determine, that in the absence of an appearance by any particular creditor, any determination of the surrogate as to the payment or nonpayment of a particular demand, is a determination between the estate and the person presenting the demand, and not between that person and all the other creditors as well as the estate.

In this case, if the plaintiffs had appeared before the surrogate, and claimed to be paid the note in question, in course of administration, and the defendant had advanced his counter-claim, and the surrogate had then decided in his favor, that determination would, probably, have been conclusive j but as the plaintiffs did not appear, and the surrogate’s determination could not, therefore, bar their claim against the debtor’s estate, it is to be regarded as a determination between the defendant and the estate only, and so far, conclusive upon all the world, except for fraud or collusion. In short, that the defendant, with this determination in his favor, is precisely in the same position with reference to the plaintiffs’ rights, as he would have occupied, had he recovered a judgment at law against the estate, claiming upon the note in question. In that case, the plaintiff might either sue him for money had and received, or sue the party liable upon the note.

The judgment of the general term should be reversed, and that entered on the report of the referee affirmed.

Welles, J.

— The claim of the plaintiffs in the court below, is founded upon the theory, that the money received by the defendant, in pursuance of the decree of the surrogate, as between the parties, belonged to the plaintiffs, it being the product of, or substitute for a note owned by them, and to which the defendant never had * 226 1 aC(lu^re<^ any legalor equitable title; and *which -* should, therefore, be regarded and treated as money had and received by the defendant, to the plaintiffs’ use.

On the part of the defendant, it is urged, that the plaintiffs, by reason of their neglect to present the note in question to the administrators, in pursuance of their notice, calling upon the creditors of the intestate to exhibit their claims, have forfeited their right to this money. Also, that the decree of the surrogate, adjudging the money in question to be due to the defendant, is a conclusive bar against the plaintiffs’ right to it. It is furthermore contended, in behalf of the defendant, that as the plaintiffs received the note as collateral security upon the bond of Joseph 0. Hasbrouck, they do not occupy the position of bona fide holders, so as to preclude a defence by the maker as against the payee; and finally, that as the defendant allowed the note as a proper demand against the estate of his intestate in favor of Joseph 0. Hasbrouck, the payee, and paid and settled with him for all he was allowed upon it from the assets of his intestate, in good faith, and without any notice or knowledge of the plaintiffs’ interest or claim, he is not liable to the plaintiffs or any one else for such money.

I will consider these positions in the order in which they are raised and presented. And first, as to the loches of the plaintiffs. The revised statutes, vol. 2,. pages 88, 89 and 90, §§ 34 to 40 inclusive, and § 42, contain the provisions applicable to the question. Section 34 allows executors and administrators, after the expiration of six months from the granting of letters by the surrogate, to publish a notice to creditors to exhibit their claims, with the vouchers thereof, at a place to be specified in the notice, at or before the day therein named, to be at least six months from the day of the first publicatian of the notice. Section 35 authorizes the executor or administrator to require of persons presenting claims, satisfactory vouchers, and also affidavits of the claimants of the justice of the claims, &e. Section 36 authorizes a reference, in case the justice of the claim is doubted by the executor or administrator. Section 37 provides for the proceedings in case of a *reference. Section 38 provides that, where a claim *- shall be presented, and shall be disputed or rejected, &e., and shall not have been referred, the claimant shall, within six months after such dispute or rejection, &c., commence a suit for the recovery thereof, or be for ever barred from maintaining any action thereon, &c. Sec tian 39 provides that, in case a suit shall be brought upon a claim which shall not have been presented to the executor or administrator, within the six months mentioned in the notice, as directed in § 34, the executor or administrator shall not be chargeable for any assets or moneys that he may have paid in satisfaction of any claim of an inferior degree, or of any legacies, or making distribution to the next of kin, before such suit was commenced, &c. Section 40 provides that in such action, the plaintiff shall be entitled to recover only to the amount of such assets as shall have been in the hands of the executor or administrator, at the time of the commencement of the suit; or he may take judgment for the amount of his claim, or any part thereof, to be levied and collected of assets quando acciderint, &e. Section 42 allows a creditor who may have neglected to present his claims as aforesaid, to recover the same of the next of kin and legatees to whom any assets shall have been paid or distributed.

In the present case, the notice provided by § 34 was given and published by the administrators of Jophat Hasbrouck, deceased, who was the maker of the note in question. The plaintiffs, who were the holders of the note, neglected to present any claim upon it, under or within the time prescribed in the notice. But they were not therefore barred from a recovery; they were still the holders of the note, and entitled to prosecute the administrators upon it, notwithstanding any of the provisions referred to; and the only effect of their neglect to present the claim within the six months mentioned in the notice, was, to limit and restrict their remedy as respects the fund out of which to satisfy their judgment, when obtained. The intestate’s estate, if any should be left, after paying other debts, would still be' liable; and if moneys had been paid to legatees or next of kin, by * 228 1 way distribution, *the plaintiffs could have -* prosecuted them, and recovered to the extent of the moneys so paid.

The defendant’s right to retain the money in question, as between him and the plaintiffs, must depend upon the question which has the superior claim to it, and not upon the question whether the latter have exercised all the vigilance, as against the estate of the decedent, with ■a view to collect it, which they might have done. The report of the referee shows distinctly that the money was .received by the defendant, as being due upon the note, which was at the time held and owned by the plaintiffs. Their delay or negligence gave the defendant no more right to the money, as it seems to me, than the carelessness of the loser of a sum of 'money, would give the finder, to retain it as against the loser and true owner.

Suppose the estate had turned out just sufficient to pay all the debts of the intestate, including this note, and no more, and the defendant had been allowed, on the final settlement, and had actually received, the whole debt, instead of sixty per cent.; it would have effectually deprived the plaintiffs of ever collecting any part of it ; for, although they might have prosecuted upon it, and taken judgment for execution upon assets quando acdderint, yet, as the whole estate was exhausted, and no assets could thereafter come to the hands of the adminis.trators, such judgment could be worthless. Whereas, except for the fact that the defendant had received the money, there would have been funds in their hands for the payment of the demand to the plaintiffs. That the effect would be varied in the present case, for the reason that the assets were insufficient to pay the debts, does not, in my judgment, affect the principle, nor weaken.the force of the illustration. I repeat, therefore, that the question of the defendant’s liability must depend upon whether the money was rightfully received by him, as his own; which will be more appropriately considered under another head.

II. Was the decree of the surrogate, adjudging the payment *of this money to the defendant, a legal bar ^ ^ to an action by the plaintiffs to recover it of *- him ? The statute declares, that the final settlement of an account and the allowance thereof by the surrogate, &c., shall be conclusive evidence, against all creditors, legatees, next of kin of the deceased, and all persons in any way interested in the estate, upon whom the citation shall have been served, either personally, or by publication as before directed, of certain specified facts and no others, among which is the following: “ That the charges made in such account for moneys paid to creditors, to legatees, to the next of kin, and for necessary expenses are correct.” (2 B. S. 94, § 65.)

It will not be contended, that either of the other specifications applies to the present question; nor does the one recited, in' my judgment, have the slightest application to it. The object of the statute was, to make certain facts final, after they should be adjudged by the surrogate, as-against creditors and others, in favor of the executors or administrators, as such. If this action had been against the defendant, in his character of administrator, the plaintiffs would, probably, be estopped by the decree. But the defendant is sued in his individual capacity, for moneys alleged to be in his hands belonging to the plaintiffs; and I am not aware of any principle, by force of which, the decree in this case can be regarded as a bar to the plaintiffs’ claim. Suppose the plaintiffs had delivered the note in question to the defendant, as their agent, in due season, for the purpose of collection, or of receiving a distributive share upon it from the assets of the estate of the maker, and the defendant had treated it as a claim of his own, and received in his own name the sixty per cent, on the amount; no one would pretend, that under such circumstances, the decree of the surrogate, adjudging the money to be due to him, would protect the defendant against the plaintiffs’ action to recover the money thus received. This, it seems to me, is conclusive, to show that the decree of the surrogate possesses no efficacy as a legal * 230 1 kar *n ^le Present case, and that the question *of -* the plaintiffs’ right of recovery is an open one, depending entirely upon other principles.

To allow the plaintiffs to sustain the present action, so far from attacking or impeaching the decree, is affirming and sustaining it. The plaintiffs say, that the defendant, by virtue of a legal and valid decree, has received money which legally and equitably belongs to them, and which, it would be contrary to justice to allow him to retain. If the facts found by the referee justify such allegation, the decree of the surrogate, in my judgment, is not in the way of a recovery.

III. Did the plaintiffs receive, and have they continued to hold, the note on account of which the money in question was received, under such circumstances as to, make them bona fide holders, or to protect them against payments to, or acts done by, the payee. The note bore date March 15th, 1841, payable to Joseph 0. Hasbrouck, or bearer, and was payable April 1st, 1843. On the first day of May 1841, the payee assigned and delivered it to the plaintiffs, with other securities, for the purpose of securing the payment of a bond, at the same time given by him to them, and the plaintiffs have ever since held the note. The debt, to secure the payment of which, the note in question was transferred to the plaintiffs, remains unpaid, to an amount greater than that received by the defendant on the note.

According to the case of Manhattan Co. v. Reynolds (2 Hill 140), no act of Joseph Hasbrouck, the payee, either of payment or otherwise, made or done after the transfer, could affect the note in the hands of the plaintiffs. The transfer to the plaintiffs did not render them bond jide holders, in a commercial sense, so as to preclude a defence existing at the time of the transfer; but it carried a qualified property to the plaintiffs, which neither the payee nor any person deriving title from him, had power to divest or affect in any way. The court, in the case referred to, say, “ The distinction lies between the transfer of a legal and an equitable interest in a chose in action. In the latter case, the debtor may treat with the payee, (assignee ?) until he has notice; in the former, not.” I incline to think, the distinction *is sound, and am prepared to adopt the doctrine of the case. It follows, that the objection *- under consideration must fail.

IV. Is the defendant entitled to protection, because he allowed the note as a proper demand against the estate of which he was administrator, in favor of the payee, and /paid him all he was allowed on account of it, from the assets of the estate, in good faith and without notice, &c. If the case warranted the assumption, tfiat the defendant had paid the money in question to the payee of the note, as a creditor of the estate, in good faith, and had charged the moneys so paid in his /account with the estate, in the regular course of administration, the case might be different. The facts, as they appear in the referee’s report, will not justify any such view of the case.

It appears, that “soon after” the letters of administratian were granted, Joseph 0. Hasbrouck, the payee of the note, presented a claim in his own name, &c., on account of the note and another note of the decedent, and of an account against the decedent, which claim was not contested, but was admitted by the defendant as a just claim against the estate. That the defendant advanced to and for the benefit of the said Joseph 0. Hasbrouck, on account of such claim, about the month of June 1844, $120.67, and in 1845, before July of that year, paid to one Winfield, at the request of ■ the said Joseph 0. Hasbrouck, $130, or thereabouts, under an agreement with the said .Joseph 0. Hasbrouck that such payment was to be deemed an advance and payment of the said claim; and that it was also at the same time agreed by said Joseph 0. Hasbrouck that he would give the defendant a receipt in full against said claim, the defendant agreeing to apply any balance owing to the said Joseph on such claim, to his credit on defendant’s account against him. This is all there is in the case, to show that the defendant paid the two sums, as administrator, and in the regular course of administration. If it stopped here, it would present, to say the least, a doubtful and suspicious case.

- In the first place, it is' not shown, what was the amount of the claim presented upon which the payments were made. It was the note in question> with another note, and an account against Jophat Hasbrouck, * 232 1 ^ecease<^’ Without stating the amount of such -* other note and the account, or of either of them; the times when the sums were paid is left indefinite. The balance which might remain due on the claim wop to be, and was credited by the defendant on bookv account, and it does not appear what such balance wasA In the next place, when the administrator and administratrix rendered their accounts to the surrogate, no charge was made of these payments, although an account for expenses and payments was rendered and allowed by the surrogate. And where it distinctly appears, as it does, that the defendant was placed in the list of creditors of the estate, on the same footing as other general creditors, for the amount, and expressly on account of this very note, and entitled to the sixty per cent, out of the assets in the hands of himself, as administrator, and the administratrix, in common with other creditors, and that he afterwards received the sixty per cent, accordingly, it seems to me, there can be no doubt, that his claim to the note in question was that of purchaser only, and was so regarded and treated by the surrogate.

Assuming then, as I think we are bound to do, that the defendant’s only, claim to the money in question, was as the purchaser from Joseph O. Hasbrouck of the note in the hands of the plaintiffs, and the legal title to which was in them, did he, under the circumstances, acquire any legal right to the note, or to the money which was the fruits of it, by his purchase from the payee ? The question admits of an answer in the negative only. If the note had been payable to Joseph 0. Hasbrouck’s order, and had been indorsed by him to the order of the plaintiffs, and had been purchased by the defendant, on a forged indorsement of the plaintiffs, it is clear, upon the principle of adjudged cases, that he would be liable to pay over to the plaintiffs whatever moneys he should have received on account of the note. (Canal Bank v. Bank of Albany, 1 Hill 287; Talbot v. Bank of Rochester, Id. 295.) The defendant acquired no more right to this note, or the money in question, than if he had received it through a forged indorsement. There was a total defect in his title, or rather an entire absence of title to either; the payee of the note could pass no more title than he had himself, *which # „ was none whatever. It follows, that the money ^ u he received upon it, belonged to the plaintiffs, who should have been allowed to recover it.

The judgment of the general term should be reversed, and that of the special term affirmed.

Judgment reversed, and that of the special term affirmed.

In Tucker v. Tucker, 4 Keyes 149, it is said, that this dictum of the learned judge cannot be held to overrule the numerous cases, in which it has been decided by the supreme court, that the surrogate has no jurisdiction of a contested claim of a creditor of the decedent. He has jurisdiction, however, to try and determine a disputed claim of the executor against the estate. Kyle v. Kyle, 67 N. Y. 400; Shakespeare v. Markham, 72 Ibid. 400; Boughton v. Flint, 74 Ibid. 476. And this appears to have been the case at bar. The act of 1870, c. 359, gives the surrogate of New York, upon an accounting, the power to hear and determine disputed claims, relating to the said accounts. As to the construction of this act, see Cooper v. Felter, 6 Lans. 414; Bevan v. Cooper, 72 N. Y. 317.