New York Life Insurance v. Brown , 32 Colo. 365 ( 1904 )

Chief Justice Gabbert

delivered the opinion of the court.

The executor, heirs and devisees of the testatrix move to dismiss the appeal, and also contend that the case cannot be considered on error for reasons based substantially upon the following grounds: (1) That the plaintiffs in error are not aggrieved by the decree from which they appeal; (2) that no question is involved, nor is the subject-matter of controversy or the judgment rendered such as to give this court jurisdiction on appeal; (3) that the questions which the plaintiffs in error sought to have adjudicated by their several answers and defenses were not within the jurisdiction of the county court to determine in a proceeding by the executor for leave to sell real estate to pay debts,'and that the value of their several alleged property rights severally exceeded the constitutional limit of the court to adjudicate.

The first proposition is clearly untenable. Plaintiffs in error were made parties to the proceeding because, it was alleged, they claimed an interest in the property which the executor sought to have sold for the payment of estate indebtedness. The object in maldng them parties was to cut off their alleged interest in such property by virtue of a sale and disposition thereof by the executor for the purpose of raising funds to pay debts against the estate. They sought to interpose a defense which they claimed was sufficient to entitle them to a decree directing that the property in which they claim to be interested should not be subjected to the payment of estate indebtedness, except for the balance remaining unsatisfied after all other property subject to such indebtedness had been exhausted. This relief was denied, and a decree rendered the effect of which is to deny them all rights in the property in which they claim to be interested, and when enforced will divest them of all title thereto. When a judgment purports to determine that parties to the action in which it is rendered have no rights in .the subject-matter of controversy in which they claim an interest, they are aggrieved thereby, in the sense that such an adjudication entitled them to have the judgment rendered reviewed, when reviewable, for the purpose of ascertaining whether or not it is correct.

We shall not attempt to determine whether any question is involved, or the subject-matter of controversy such, or a judgment rendered adverse to plaintiffs in error in an , amount which would vest this court with jurisdiction to entertain the appeal by virtue of the law regulating appeals to this court— sec. 406a, Mills’ Ann. Code. The Civil Code, sec. 388a, provides that if the supreme court does not have jurisdiction to entertain an appeal, but would have, had the action come up on writ of error, the appeal shall be dismissed and the cause redocketed on error. The judgment appealed from is final. The constitution, by sec. 23, art. YI, expressly provides that writs of error shall lie from the supreme court to every final judgment of the county court. This provision is supplemented by the statute — sec. 1091, 1 Mills ’ Ann. Stats. By virtue of those provisions a decree of the county court for the sale of land of a decedent to pay debts, may be reviewed on error— Sloan v. Strickler, 12 Colo. 179 — and we therefore dismiss the appeal and consider the ease on error, because, under that procedure, the case is reviewable here on such questions as the record presents.

In a certain sense the jurisdiction of the county court to entertain the defenses interposed by plaintiffs in error and adjudicate the questions thereby raised, may be involved, but a decision of the case as argued by counsel for the respective parties depends principally upon the determination of these two propositions: (1) The general scope and authority of the county court in proceedings by an executor to sell real estate to pay debts; and (2), did the defense upon ^which plaintiffs in error severally predicate their right to a decree directing a sale of the several tracts of realty described in the petition in such order as would protect their equities, state facts sufficient to entitle them to this relief? We limit the discussion of the defenses interposed by plaintiffs in-error to this one, because we do not deem it necessary to pass upon the others at this time. In discussing these two propositions we shall not. attempt to determine the many questions argued by counsel, because, by determining the two main questions involved, it will appear they either have no application or are disposed of in the two propositions determined.

In the settlement of estates of deceased persons the county court is vested with original and unlimited jurisdiction — sec. 23, art. VI, constitution; Lusk v. Kershow, 17 Colo. 481; Wyman v. Felker, 18 Colo., 382. One of the functions which the county court is authorized to exercise in the settlement of estates is authority to entertain a proceeding by an executor to sell real estate to pay debts. Tbe statutes on tbe subject provide who shall be made parties to such proceeding; that any person interested in the estate as creditor or otherwise and not made defendant, may appear and answer the petition and show cause against the prayer thereof at any time before final judgment; that such proceedings shall conform as nearly as' practicable to the proceedings of courts of chancery in like cases, and that upon the hearings of the issues formed the court shall specify the order in which the real estate shall be sold, with due regard to the rights of all — secs. 4751, 4758, 4760, 4761, 2 Mills’ Ann. Stats.

The only specific limitation on any defendant is, that he shall not be permitted to put in issue the decedent’s title or interests in the lands described in the petition — sec. 4758, supra. Authority conferred upon a court for a particular purpose carries with it, by implication, such incidental powers as are 'requisite to the complete execution of the poiver expressly granted.- — Hyland v. Baxter, 98 N. Y., 610. Logically, then, it must follow that in proceedings to sell real estate to pay debts of a deceased, the constitutional limitation of value does not apply, and the authority of the county court, in order to enable it to fully discharge the functions conferred by law, must extend to the adjudication of all questions in such proceedings except the one limited, involving the rights of those before the court interested in the real estate sought to be sold, whose rights therein will be injuriously affected by a decree of sale. — 1 Woerner’s Law of Administration, §§142, 150, 154; Lowry’s Appeal, 114 Pa. St. 219; Appeal of Miskimins, 114 Pa. St. 530; 2 Woerner’s Law of Administration, § 487; Callahan v. Griswold, 9 Mo. 775; Payne v. Pendleton, 32 Miss. 320; Pearce v. Calhoun, 59 Mo. 271; Titterington v. Hooker, 58 Mo. 593.

Plaintiffs in error were not attempting to make an issue on the title of the testatrix. On the contrary, they claimed title from that source. Neither were they attempting to have their rights as against the heirs and devisees determined, except in so far as such determination incidentally involved their rights to a decree which would direct the order in which the real estate should be sold. In short, their defense under consideration was intended to invoke the ■ equitable doctrine of marshaling assets. The rules of equity are as valid and binding upon the county court in exercising the functions conferred by law in the administration of estates as upon any other tribunal, and when it becomes necessary to protect the rights of parties interested in property which is to be sold for the payment of estate indebtedness, the equities between the parties to the proceeding instituted for that purpose must be recognized and enforced by the court having authority to entertain it, and render judgment therein — sec. 495, 2 Woerner. We therefore conclude that plaintiffs in error were proper parties to the proceeding, and by'their defense under consideration presented questions within the scope of the authority of the county court to adjudicate.

Generally speaking, the marshaling of assets consists of arranging the order that distinct pieces of property, in which several are interested, shall be resorted to for a specific purpose, so that the equities of each-will be protected as far as possible, without substantial prejudice to the rights of either. The doctrine is fully recognized and enforced in courts charged with the administration of estates, and is based upon the broad principle that no one will be permitted to arbitrarily exercise a right to the injury of another. It is an equitable remedy peculiarly applicable in proceedings to sell real estate in which, several are interested, to pay debts against the estate 'of a deceased person, for, by its application, the burden of surrendering the realty which may be subjected to the payment of such indebtedness is equitably distributed among the several persons interested therein, and placed where, in justice, it belongs. — 1 Story’s Jurisprudence, §§558-561; 19 Enc. Law (2 ed.) 1256-7, 1292-3; Howell v. Duke, 40 Ark 102; Eddy v. Traver, 6 Paige, 521.

The sufficiency of the defense of the several plaintiffs in error upon which they predicate their right to a decree marshaling the several tracts of realty described in the petition depends on the construction of the will, in so far as it fixes the status of the parties to the proceeding instituted by the executor, in connection with the ultimate facts stated in the defense under consideration. "When the will was admitted to probate, title to the property of Class 2 vested in Henry C. Brown, subject only to the payment of estate indebtedness — sec. 4670, 2 Mills’ Ann. Stats.; Childs v. Insurance Co., 25 Colo. 360. He could convey that title subject to the rights of the estate creditors. He was devised a life estate in the hotel with full power to incumber the fee. This devise, by operation of law, was also subject to estate indebtedness. According to the will, the interest of the other heirs and devisees in the hotel was entirely contingent, for it depended upon the action or non-action of Henry C. Brown in designating who should take the remainder. "Whatever interest is now vested in them in this property under the will by virtue of the deed of waiver executed by Henry C. Brown is subject to unpaid estate indebtedness, and by the express terms of the will is subject to the incumbrances placed thereon by Henry C. Brown. They never had any interest whatever in the property of Class 2.

Certain of plaintiffs in error have become the owners of the interest of Henry C. Brown in specific parcels of Class 2. Others are his judgment creditors, and have acquired a lien on his interest in the remainder of the property described in the petition as it existed on the date when they filed transcripts of their judgments for record. He has incumbered the property devised other than that owned by plaintiffs in error by mortgages and deeds of trust. He still owns the property of Class 2 so incumbered, subject, however, to the payment of the indebtedness secured by such mortgages and deeds of trust. Whether the deed of waiver has terminated his interest in the hotel so that it cannot be reached by the plaintiffs in error, who are his judgment creditors, is immaterial. That property, so far as the other heirs and devisees are concerned, is expressly subject to the payment of the incumbrances placed thereon by him before the execution of the deed of waiver to them, and if he still has an interest in that property, the judgment liens of plaintiffs in error have attached.

From this resume we conclude that all the real estate of which Mrs. Brown died seized is subject to the payment of estate indebtedness. The individual property of Henry C. Brown is liable for the payment of his individual debts. The rights of all the devisees and heirs in the property described in the petition only attach to that undisposed of. Henry C. Brown will not be permitted to take property which he has disposed of to pay his debts. The other heirs and devisees cannot resort to property in which they never had an interest, for the purpose of paying off debts against an estate in which they claim to be interested. They are bound by the incumbrances placed on the hotel, and must discharge them out of their own property. Consequently, they cannot have any of these incumbrances paid out of property of Class 2, belonging to Henry C. Brown, to the detriment of either of plaintiffs in error. The judgment-creditors of Henry-C. Brown are entitled to subject whatever interest he has remaining in the property incumbered after these incumbrances are discharged. Consequently, it is immaterial, so far as the rights of all the heirs and devisees are concerned, whether that remainder is in the hotel or in property of Class 2, because Henry C. Brown takes nothing in the property in which he is interested until his obligations are discharged; and the other heirs and devisees in discharging the indebtedness on the hotel, which is the only property in which they have. an interest, cannot take property of Henry C. Brown for that purpose, to the exclusion of his creditors. L either can the heirs and devisees require that the indebtedness to the Clark heirs be made a lien on property of which plaintiffs in error are the owners, or on which they have a lien, to their prejudice. . The rights of the creditors cannot be impaired, but they will not be permitted to resort to property for the satisfaction of their indebtedness to the detriment of the rights of plaintiffs in error except to the extent necessary to satisfy their claims after exhausting the property upon which they have specific liens.

In brief, the entire case on the two propositions considered is simply this: The court had jurisdiction to entertain the defense interposed by plaintiffs in error. All property of which Mrs. Brown died seized is subject to the payment of estate indebtedness. The heirs and devisees cannot require property of plaintiffs in error to be subjected to the payment of such indebtedness in order to free their own property therefrom, or to the detriment of the individual creditors of Henry C. Brown. The rights of the estate creditors cannot be impaired, bnt in satisfying their indebtedness ont of the real estate described in the petition, the equities between the other parties to the proceeding must be protected as far as possible without prejudice to the rights of such creditors. In other words, on the merits as presented by the defense of plaintiffs in error relative to the marshaling of the real estate, their equities are superior to those of the heirs and devisees, and must be protected to the extent this result can be accomplished without prejudice to the rights of the estate creditors. If, then, they severally establish the facts stated in this defense, those who are owners of specific parcels would be entitled to a decree exempting their property from sale, except for the balance of indebtedness unsatisfied after exhausting all other property described in the petition; and those who are judgment creditors, to a decree directing that the hotel property be first subjected to the payment of the indebtedness secured thereoii before the other property pledged for that indebtedness be resorted to for the payment thereof. We do not specifically mention what decree the Clark heirs would be entitled to, because it appears that the property upon which they are secured is sufficient to satisfy their claim. If this is not the fact, then protecting the rights of the judgment creditors in the manner indicated fully protects them. The court erred in sustaining the exceptions to the defense under consideration.

Counsel for the executor appears to rely upon the proposition that no conveyance by a devisee is of any validity until after all debts against the estate are paid, and an order for distribution made. In support of this contention he cites section 4798, 2 Mills’ Ann. Stats. It is true that the executor of an estate can make no distribution until after the estate indebtedness is paid, but that does not prevent a devisee from disposing of his interest subject to the payment of estate indebtedness, and if he does make such disposition he is, bound thereby, and cannot subsequently require that the interest which he has disposed of shall thereafter be subjected to the lien of estate indebtedness, so as to protect his interest in any of the property which he still retains.

So far we have proceeded upon the theory that all indebtedness scheduled in’ the petition constitutes liabilities against the estate, but we must not be understood as so deciding. The value of the property covered by the several mortgages and deeds of trust is sufficient to satisfy the indebtedness thereby secured as well as the judgment creditors of Henry C. Brown. For this reason it is not necessary to determine the questions raised on the defenses of waiver, laches and estoppel, or whether the indebtedness to the Clark heirs and trust company can legally be charged against the estate. The title of the heirs and devisees in the property incumbered by the several mortgages and deeds of trust is subject to such incumbrances; but on account of the value of the property so incumbered it will not be necessary to resort to that owned by plaintiffs in error to satisfy the indebtedness secured by such incumbrances. If the property so incumbered is disposed of in the order indicated in this opinion, there will be ample left, after such indebtedness is discharged, to satisfy the individual judgment creditors of Henry C. Brown and the claim of the Clark heirs. The creditors cannot complain of being confined to the property pledged for their security so long as their indebtedness is paid in full; so that an adjudication of these questions is not material to the rights of any of the parties to the proceeding on the record now before us.

The judgment of the county court is reversed and the canse remanded for further proceedings not inconsistent with the views expressed in this opinion.

Reversed and remanded.

Steele, J., not participating.