IN RE: GRANT'S ESTATE. WOODWARD et al. v. GRANT.d1
Respondent, America W. Grant, is the widow of Ulysses S. Grant, Jr., and executrix of his will. The estate, as shown by her final account, is insolvent, and, by the order settling the first account of the executrix, it is determined that, after payment of such funeral expenses and expenses of administration as are entitled to priority, other than executrix' commissions and attorneys' fees, the executrix is chargeable with $2,443.11, out of which it is adjudged that she may pay herself $129.60, being three-fourths of her statutory fees; to her attorneys the sum of $129.60, being three-fourths of their statutory fees, and shall reserve for payment of the balance of such fees, the sum of $86.40; that she shall pay or reserve a sufficient fund to discharge any inheritance tax due the state of California, and shall thereupon prorate the balance upon the following demands:
From this order the trustees of the George J. Keating Medical Fund, a charitable endowment, appeal. The record shows that the said trustees had, out of said fund, loaned $7,200 to the decedent individually prior to his marriage with said America W. Grant, on his promissory note secured by a mortgage upon property which, in ordinary times, should have been sufficient in value to insure payment of the note. Respondent, America W. Grant, got no part of the proceeds of the loan but, after decedent's marriage to her, he transferred the mortgaged property to a trust of which she was one of the beneficiaries. Eventually the loan was renewed, and, though decedent alone signed the new note, Mrs. Grant joined with him in signing the mortgage which contained an agreement to make certain payments and voluntarily paid appellants $1,200 from her own moneys, as interest from time to time accruing. Default being thereafter made, appellants, as trustees of the medical fund, foreclosed the mortgage and at the foreclosure sale the mortgaged property brought only $5,000, leaving a deficiency for which judgment was docketed against decedent's estate and as to $922.41 of it against Mrs. Grant also. This $922.41 she paid from her own funds. After its payment, the remainder of the deficiency judgment docketed against the estate was $3,764.94.
On October 9, 1929, U. S. Grant Hotel Company was indebted to Mrs. Grant, but contrariwise decedent and his wife had, on September 26, 1929, the date of decedent's death, been jointly indebted to the said hotel company to the extent of $1,759.44, which indebtedness the hotel company collected by offsetting it against its debt to Mrs. Grant. Similarly Bank of Italy National Trust & Savings Association was indebted to Mrs. Grant, but decedent and Mrs. Grant were, at the date of decedent's death, jointly indebted to it in the balance of $6,092 of principal and interest on a promissory note, which indebtedness the bank collected by offsetting it against its debt to Mrs. Grant.
The trial court found that, with respect to the $922.41 which Mrs. Grant paid on the deficiency judgment in favor of the medical fund trustees and with respect to the $1,759.44 and the $6,092 which she in effect paid to the U. S. Grant Hotel Company and to the bank, respectively, she was, as between the decedent and herself, merely a guarantor for him, but that, as to the creditors, both decedent and she were jointly and severally liable.
Within the time allowed for the presentation of claims against decedent's estate, the said S. A. Reed presented his claim for $457.03, and appellants, as trustees of the medical fund, presented their claim on their mortgage note on which as we saw there has since resulted the said remaining deficiency judgment of $3,764.94, both of which claims were duly allowed and filed, but Mrs. Grant omitted to present any claim for all or any part of the moneys paid out by her or charged against her on account of the said items for which, as between decedent and herself, she was merely the guarantor.
The effect of the order now appealed from is to permit her to share in the division of the balance now adjudged to be available for prorate among the creditors of the estate on the same basis as though, within the time for presentation of claims, she had presented and there had been allowed a claim on her part to be reimbursed for the said sums charged against her by the hotel company and the bank, respectively, aggregating $7,851.44, but not to allow her any reimbursement for any of said payments theretofore made by her on the said obligation to appellants.
The orderly administration of estates has been found to require the provision of some method whereby, within a time limited by statute, creditors shall normally be required to present their claims, and this subject was therefore dealt with by the enactment of what was formerly chapter 6 of title 11 of part 3 of the Code of Civil Procedure, the subject-matter of which is now transferred with various changes to article 1 of chapter 12 of division 3 of the Probate Code. Whereas, at common law, if the creditor of a decedent were made an executor of his will or administrator of his estate, such creditor became entitled as of right (24 C. J. 436) and without special formality, to retain so much of the assets in his hands as were sufficient to pay his debt in preference to all other creditors of equal degree, provision was in this state made, originally in the Probate Act, but later in section 1510 of the Code of Civil Procedure, and provision is now made in section 703 of the Probate Code, for the presentation, in due form by an executor or administrator who is also a creditor of the estate, of his own claim which, if allowed, “must be paid as other claims in due course of administration” and is thus given no priority. In the present case it is appellants' contention that Mrs. Grant, having as between herself and the decedent been the guarantor of his indebtedness to the U. S. Grant Hotel Company and the Bank of Italy National Trust & Savings Association, respectively, was contingently as to such indebtedness a creditor of his estate, and might have filed in due course her claim as such; that once she had paid such indebtedness she became an absolute creditor of the decedent's estate and might have filed her claim as such, but that, having failed in either capacity to file any such claim, she is now barred from participating in the prorating between the claimants of the available assets. The circumstance that a claim may be contingent is no excuse for a failure to present it. Probate Code § 707. See, also, former section 1493, Code Civ. Proc.; Verdier v. Roach, 96 Cal. 467, 31 P. 554; Fratt v. Hunt, 108 Cal. 288, 292, 41 P. 12; Miller v. Miller, 171 Cal. 269, 271, 272, 152 P. 728.
Under the Probate Act it was held in Estate of Taylor, 10 Cal. 482, and reiterated in Estate of Taylor, 16 Cal. 434, by the Supreme Court speaking in each case by Mr. Justice Field, that the failure of an executor to present his claim to the judge within the time allowed for the presentation of the claims of other creditors bars the claim and that if, without presentation of such claim within such time, the executor has paid the debt due him from funds of the estate, he will not be allowed credit in his accounts therefor. Appellants also rely on In re Estate of Card, 64 Cal. App. 268, 222 P. 145, which involved these facts: A decedent dying in Oklahoma had in his lifetime conveyed his lands there situate to two minor sons and signed certain checks by use of which his adult daughter, a resident of California, after his death withdrew certain funds that he had in bank in Oklahoma with which she proceeded to pay some debts of the decedent there as well as the expense of her trip to Oklahoma and return “to conserve property of deceased” and also the fare of the minor sons to California. The deceased had left a parcel of land of small value in California, and the daughter, on her return to this state, commenced administration here on her father's estate, accounted therein for the California land and for the money that she had withdrawn from bank in Oklahoma, and, as against the assets for which she so accounted, claimed credit for her disbursements out of the Oklahoma moneys. Her account was contested by a creditor holding a California judgment against the decedent, and, the disbursements having been allowed by the superior court, its order was reversed on appeal.
It was provided in section 1513 of the Code of Civil Procedure, and is now provided in section 733 of the Probate Code, that: “If any debt of the decedent bears interest, whether filed or presented or not, the executor or administrator, by order of the court, may pay the amount then accumulated and unpaid, or any part thereof, at any time when there are sufficient funds properly applicable thereto, whether the claim be then due or not; and interest shall thereupon cease to accrue upon the amount so paid.”
It is manifest that respondent has not brought herself within the terms of this section, for her payment of her indebtedness to the hotel company and to the bank was not made “by order of the court.” Moreover, as respects these debts, since the estate was insolvent, there were not “sufficient funds properly applicable thereto.” Section 1632 of the Code of Civil Procedure, however, provided and section 929 of the Probate Code now provides that: “If it appears that debts of the decedent have been paid without verified claims having been filed or presented and allowed and approved, and it shall be proven that such debts were justly due, were paid in good faith, that the amount paid was the true amount of such indebtedness over and above all payments or set-offs, and that the estate is solvent, the court, in settling the account, shall allow the sums so paid.”
Had the estate been solvent, therefore, and the executrix paid the debts to the hotel company and the bank, from its assets, it cannot be doubted that she would, under section 929, be entitled, upon the settlement of her accounts, to credit for such payments. It is respondent's claim that the purpose of the statute in thus appearing to make the solvency of the estate one of the conditions to the allowance, in the settlement of an executor's accounts, of such payments was merely to avoid any such construction of its terms as would permit credit for the payment in full of debts which, though just, were not presented as claims, while for want of sufficient assets, the debts that were presented as claims had not been so paid, and that “there is nothing * * * in the statute to indicate that it was the intention of the legislature that if the estate was insolvent no credit whatever should be allowed to the personal representative” for payments on debts not presented as claims. Respondent's contention appears to be in substance that the effect of the statutes of this state is not to abolish the common-law right of retainer but only to circumscribe and limit it; that the right of such representative was not merely to retain from the assets of the estate the amount of any debts owing absolutely to him from the decedent at the date of death, but also to reimburse himself for any payments he might subsequently have made on account of the decedent's debts, and that section 929 of the Probate Code and the corresponding prior enactments in this state should be construed as limitations of these common-law rights rather than as creating new rights; that the provisions of the statute should be construed with the view to preserving so much of the common-law right of retainer as they do not clearly cut away, and that it ought to be held that no intention appears in the language now embodied in section 929 to further limit the right of the personal representative to reimbursement for payments made upon the decedent's debts than merely to forbid his reimbursement in full unless the estate is solvent. It seems to us, however, that these contentions are rather ingenious than sound. In general, the principle of the common law that statutes in derogation thereof are to be strictly construed is without application to our Codes which establish the law of this state respecting the subjects to which they relate. Code Civ. Proc. § 4; Civ. Code, § 4. Though a superior court is a court of general jurisdiction, yet when sitting in probate it must administer a statutory probate system. In doing so it may exercise equity jurisdiction. In re Estate of Barreiro, 125 Cal. App. 752, 764, 14 P.(2d) 786, and authorities there collected. But, as said in Verdier v. Roach, 96 Cal. 467, 478, 31 P. 554, 557, such powers are exercised by the superior courts “in connection with, and as incidental to, their powers in probate matters, to the extent necessary to a complete administration and distribution of estate; provided, of course, that nothing be done in contravention of any statutory provision.” The general rule is that claims not presented within the time limited in the notice to creditors or as extended by section 702 of the Probate Code are “barred forever.” Section 707, Probate Code. See former section 1493, Code Civ. Proc. The special provisions of sections 733 and 929 of the Probate Code (formerly found in sections 1513 and 1632 of the Code of Civil Procedure) above quoted, allowing in certain circumstances payments made on debts for which claims have not been presented, seem to us exceptions to the otherwise universal rule laid down in sections 700 to 703, both inclusive, and section 707 of the Probate Code and the corresponding former sections of the Code of Civil Procedure requiring the presentation of creditors' claims within the time limited, rather than merely recognitions of some survival in this state of the right of retainer as it was at common law. In our opinion the right of retainer does not survive at all ex proprio vigore in this state. On the contrary, the personal representative, if a creditor of the estate, is as to debts existent at the date of the decedent's death, reduced by our statute to a position of complete equality with other creditors; the only difference being that because of his relation to the estate a slightly different procedure is necessary for the presentation and prosecution of his claim. Moreover, we do not agree that the right of a personal representative, as such, to reimbursement for debts of the decedent that he may have paid during administration has any relation to the common-law right of retainer. The right of retainer belonged to him at common law because, being executor or administrator, he had also been a creditor of the decedent at the time of the latter's death, and it was not deemed convenient in the circumstances to place him in the same position with other creditors. The right to reimbursement, on the other hand, for disbursements made in the course of administration, belongs to him because, being executor or administrator, he has expended moneys after the decedent's death in the process of administering the estate and as a part of the discharge of the duties of his office. His right to reimbursement for expenditures so made is merely the ordinary right of any trustee to be reimbursed for expenditures made by him for the benefit of the estate intrusted to him, provided the expenditures were such as the law permitted him to make.
We cannot agree with appellants' counsel that any part of the test as to whether such expenditures, as made by a personal representative, ought to be allowed him on the settlement of his accounts is whether he has made them from his own funds or the funds of the estate. That distinction is beside the point. If they were disbursements that might lawfully have been made from the estate funds, but for convenience he has advanced them from his own, as is in practice often done, there is no more reason why he should not be allowed credit for the advance on his accounting than as though he had made the disbursements from estate funds in the first instance. Nevertheless, when the particular disbursements made by a personal representative, whether from his own funds or estate funds, for which credit is sought, were in payment of creditors' claims that should normally have been presented as such but were not, it is the burden of such representative, in seeking credit for the payment to bring himself within one of the statutory exceptions to the general rule that only such claims as have been presented may be paid. To show herself to be within such an exception, respondent, America W. Grant, in the instant case has cited a variety of authorities in which disbursements by personal representatives have been allowed, such as Estate of Machado, 186 Cal. 246, 249, 199 P. 505, 506; Estate of Houston, 205 Cal. 276, 270 P. 939, 60 A. L. R. 730, allowing disbursements made in payment of just claims not presented; Burnett v. Lyford, 93 Cal. 114, 28 P. 855, allowing disbursements for the acquisition of mortgages or other outstanding claims amounting to incumbrances against estate property; Estate of Freud, 131 Cal. 667, 63 P. 1080, 82 Am. St. Rep. 407, allowing disbursements for the redemption of estate property from a mortgage foreclosure sale by payment on a mortgage lien thereon not presented as a claim, when the effect of such redemption was to prevent the loss of the property; Estate of Bottoms, 156 Cal. 129, 103 P. 849, and Estate of Fulmer, 203 Cal. 693, 265 P. 920, 58 A. L. R. 430, allowing disbursements in completing purchases of property undertaken by decedent in his lifetime; and In re Clos' Estate, 110 Cal. 494, 42 P. 971, allowing disbursements in making repairs and necessary reconstructions on property of the estate. Most of these authorities seem to us to cast little light on the case at bar. Several of them have to do merely with disbursements essential to the conservation of the assets of the estate. It is significant that in Estate of Machado, supra, which involved payment from a solvent estate of a claim found justly due but that had not at the time payment was made been yet presented, it is said: “This method of handling an estate is not to be commended, and the court should scrutinize such transactions with great care. But in this case there seems to be no doubt of the facts, and under the provisions of section 1632 of the Code of Civil Procedure the claim was properly allowed. In a thoroughly clear case the law tolerates such payments.”
The only California case cited, wherein disbursements from an estate which ultimately became insolvent in payment of claims not presented were allowed, is Estate of Houston, supra, and it there appeared that at the time the disbursements were made and after the time allowed for the presentation of claims had fully expired, the estate still appeared to be solvent and that its insolvency was a later development unexpectedly resulting from a judgment in a tort action brought by a party who had filed but abandoned a claim against the estate based on a contract, which tort action was not brought at all until after the time for filing claims had expired. There the court held, since the executrix, knowing that she was the sole legatee, acted in good faith in endeavoring to close the estate by clearing up all the indebtedness at a time when, to the best of her knowledge, and in fact it was solvent and apparently could not but remain so, as the period within which creditors could present their claims had expired and the claim of the party who later recovered on the tort action had been abandoned, that in these circumstances she should not be made to suffer by reason of the later insolvency, nor could said insolvency be held to retroactively invalidate said payments. The court went on to say that the holder of the tort judgment was alone at fault in having negligently allowed his rights to sleep, and hence equity would not come to his aid by disallowing the credit sought by the executrix for payment of the just but unpresented claims merely to provide a fund for the payment of the tardy tort judgment. The facts in that case were obviously distinguishable from those in the case at bar, wherein, the claim of appellant trustees having been regularly presented, a deficiency judgment on it was to be anticipated as at least possible. The only authority which respondent has been able to present that is even claimed to directly support her position with respect to the construction of section 929 of the Probate Code is In re Wiley's Estate (N. J. Prerog.) 65 A. 212, 213, which appears to have involved an asserted right of retainer and in which all that the court says is: “With reference to the right of retainer, the contention by the accountant that, although this estate is insolvent, he has the right to retain his debt in full is not supported by the law in this state, and the orphans' court correctly found that he must accept a dividend along with the other creditors of the estate.” As to this decision it is enough to say that no statute seems to have been involved contemplating any presentation at all by an executor of his own claim and that the case can have little application to the construction of the statutes in this state with which we are here concerned. In fine, while we fully recognize the hardship of respondent's position, we are constrained to hold that her construction of section 929 of the Probate Code is untenable, that it is not permissible under the provisions of that section for a personal representative to pay out of an insolvent estate either all or any part of such claims as are ordinarily required to be presented unless presentation is made of the same in the manner and within the time required by law, and therefore that respondent is not entitled to participate in the division of the net residuum applicable to the payment of creditors of the estate.
Appellants further urge that the provision in the order appealed from requiring the executrix to pay or reserve a sufficient fund to discharge any inheritance tax due the state of California should be deleted for the reason that the estate is now shown to be insolvent and no share is payable to any one interested under decedent's will, as a consequence of which there can be no tax to the state. This result, however, does not necessarily follow, for the record shows that the decedent had transferred some property, at least, upon trusts in his lifetime, and we do not know what effect, if any, such transfers may have on any claim that the state of California may make for a tax.
From what has been said, it follows that the concluding paragraph of the order appealed from must be so modified as to read as follows:
“Wherefore, it is hereby ordered, adjudged and decreed that the account of said Executrix be and it is hereby settled as hereinbefore set out and such Executrix is charged with the sum of $2443.11, out of which she may pay to herself the sum of $129.60, being 3/434ths of her statutory fees; to her attorneys the sum of $129.60, being 3/434ths of their statutory fees, and shall reserve for payment of the balance of such fees the sum of $86.40; that she shall reserve a sufficient fund to discharge any inheritance tax due the State of California which shall be found to be payable from the moneys now found chargeable to her, and shall thereupon pro rate the balance upon the following demands:
The order is so modified, and, as modified, is affirmed.
HAINES, Justice pro tem.
We concur: BARNARD, P. J.; MARKS, J.