Sartor v. Beaty , 1886 S.C. LEXIS 140 ( 1886 )

The opinion of the court was delivered by

MR. Chief Justice Simpson.

It will be sufficient for the understanding of this case, to state the questions which are before us on appeal, with the further statement that the pleadings are in proper form to have these questions adjudicated, and that the facts involve them. These questions are as follows:

1st. Can the equitable doctrine of set-off or retainer be allowed to an administrator against the share of a distributee in the personal estate or against an heir at law as to his share in the real estate, one or both, by virtue of a sealed note held by said administrator on said distributee and heir, due more than twenty years before the action, which note was originally given to a third party, but had been in possession of the intestate for years before his death and up to his death, and had reached the possession of the administrator by virtue of his office as administrator, the said distributee having enumerated this note in a petition for bankruptcy, filed, within twenty years, as unpaid, and as belonging to the intestate, and having since been discharged in bankruptcy, and the intestate having received dividends on said note from the bankrupt’s assets ? Under these facts, can the administrator claim the right at' settlement of the estate to retain from the personal assets and the real estate of the intestate, so much of the share of the distributee (debtor), as may be necessary to discharge the note in question? Or can this right be resisted and defeated on the ground, either of want of mutuality in contract, bankruptcy, or presumption of payment by lapse of time, one or all ?

2nd. Can retainer be allowed an administrator against a dis-tributee and his assignee on a judgment obtained within twenty years by a third party, and which the said administrator has become possessed of by transfer to him in payment of the interest of his intestate in the estate of the judgment creditor, since deceased ? Can the claim of retainer be defeated for the want of mutuality in the contracts, preventing set-off?

8rd. Can this doctrine of retainer be applied on sealed notes held by the administrator on distributees, and heirs of more than twenty years standing? Or will the presumption of payment extinguish the notes and prevent the retainer?

As. to the first question, the Circuit Judge held, 1st, that the doctrine of retainer did not apply to the interest of a distributee debtor, in the real estate of the intestate, subject to partition, nor in the proceeds thereof. 2nd, that it did apply as a general proposition to the interest of the distributee debtor, as to his share in the personal estate. 3rd, that discharge in bankruptcy of the distributee would not prevent the retainer, relying upon Wilson v. Kelly. 4th, that an acknowledgment of the debt by the distributee, within twenty years before action, in a petition filed for the benefit of the bankrupt act, was sufficient to prevent the presumption of payment from arising; and lastly, that the debts were in the same right, or sufficiently so, to authorize the set off, or retainer. As to the second proposition, he held that the judgment having been obtained within twenty years before action, no presumption of payment could arise, and the administrator being the legal holder of the judgment, as administrator, he could claim a set off, or retainer, even against the assignee of the distributee. As to the third proposition, he held that the presumption of payment arising from the lapse of the full period of twenty years before action, was conclusive, extinguishing the notes, and therefore leaving no room or ground for the claim of retainer — different in this respect from the statute of limitations, which only suspends the remedy, but does not presume payment.

The ruling of his honor upon the first proposition, that the doctrine of retainer did not apply to the interest of the distributee in the real estate of his ancestor, is supported by the case of In re Covin's Estate, 20 S. C., 475. That it did apply to the personal estate, and that bankruptcy would not prevent its application, is supported by Wilson v. Kelly, 16 S. C., 216. And it is hardly necessary to cite authority in support of the proposition, that the enumeration of the debt by the bankrupt in his sworn petition for the benefit of the bankrupt act, within twenty years before action brought, in which petition the bankrupt acknowledged the debt to be unpaid, and set it down as one of the claims entitled to a portion of his assets, was sufficient to prevent the presumption of payment, the acknowledgment giving a new starting point for the currency of the presumption. Iiis honor held, further, that the objection, that the debts were not in the same right could not avail here.

Even admitting, for the sake of the argument, that the claim of the administrator here, was not, and could not be, set up as a legal set off or counter claim to the distributee, yet that is not the principle upon which the doctrine of retainer is founded in a case like that before the court. “The right of retainer depends upon the principle, that the legatee or distributee is not entitled to his legacy or distributive share while he retains in his own hands a part of the funds out of which that and other legacies or distributive shares ought to be paid, or which is necessary to extinguish other claims on those funds. And it is against conscience that he should receive anything out of such funds without deducting therefrom the amount of the funds which is already in his hands as a debtor to the estate. And the assignee of the legatee or distributee in such case takes the legacy or distributive share subject to the equity which existed against it in the hands of the assignor.” The above is an extract from the case of Smith v. Kearney, in which Chancellor Walworth delivered the opinion, and in which most of the authorities upon the subject are referred to and discussed, and especial reference is made to this case and the cases there cited, as being applicable not only to the immediate point now under consideration, but also to several other points involved in the case at bar. It was there held, that this doctrine did not apply to funds arising from the sale of real estate which descended to the debtor as one of the heirs at law, the proceeds of real estate converted into personalty being still considered as real estate. Smith v. Kearney, 2 Barb. Ch., 534.

The same principle as that found in the extract above, has been perhaps more directly and clearly expressed by Lord Cottenham in Cherry v. Boultbee (4 Myl. & Cr., 442-447), as follows: “It must be observed that the term set off is very inaccurately used in cases of this kind. In its proper use it is applicable only to mutual demands, debts, and credits. The right of an executor to retain a sufficient part of a legacy given by the creditor to the debtor to pay a debt due from him to the creditor’s estate, is rather a right to pay out of the fund in hand, than a right of set off; such right of payment, therefore, can only arise where there is a right to receive the debt so paid, and the legacy or fund so to be applied in payment of the debt must be payable by the person entitled to receive the debt.” Whether, then, the claim in the hands of the administrator could be set up or not, as a strict counter claim, yet it being a debt against the distributee and a debt which he holds as administrator, the right of retainer under the above principle as to the personal estate seems to us to bp complete, both against his distributee and his assignee.

This disposes of all of the questions embraced in the rulings of his honor above, except the one arising out of that ruling in, which his honor differentiated a case where the debt of the dis-tributee was barred by the statute,, and a case -where it was presumed paid by the lapse of twenty years or more before action, his honor holding in the latter case, that the presumption, of payment was a bar to the retainer. We concur with this ruling. The lapse of twenty years, as has been said in several cases, has an artificial force, and extinguishes the debt, as effectually as absolute payment, in the absence of all such testimony, which in law would revive an unsealed note barred by the statute of limitations. Boyce v. Lake, 17 S. C., 481, and the cases thei’e cited. Such being the effect of the presumption, we think his honor was correct in holding in this case, that the retainer could not be claimed by the administrator against the sealed notes of over twmnty years standing. ¹

In the application of these principles to the case at bar, Robert Beaty, jr., was held accountable for his note to the extent of his interest as a distributee in the personal estate of the intestate. So, too, the share of W. S. McJunkin in the personal estate was held subject to the judgment in the hands of the administrator against him, but the sealed notes against the said McJunkin and John W. Sartor, being presumed paid by the lapse of twenty years, were adjudged extinguished, and therefore could not give foundation to the right of retainer. It is stated in the decree of the Circuit Judge that W. S. McJunkin had been discharged in bankruptcy. This seems to have been a mistake, as admitted in the argument on both sides; that question, therefore, does not arise as to him. The judgment against McJunkin was obtained in April, 1869, and we do not see why this judgment did not have lien on the interest of McJunkin in the real estate of the intestate, thereby giving the administrator the right to have that interest subjected to its payment, in addition to the right of retainer as to his share in the personal estate, if necessary.

The counsel of defendants, appellants, has, by permission, reviewed the ease of Wilson v. Kelly, supra. We have carefully considered the grounds presented in opposition to that case, and have not found them sufficient to overrule it. Previous to that case it had been decided, that a debt barred by the statute of limitations could still be claimed out of a legacy or distributive share of the debtor in the estate to which he was thus indebted, under the law of retainer as set forth above. This was upon the principle that the statute of limitations did not extinguish the debt, but only prevented a bar to an action thereon; the moral obligation to pay still remaining, which obligation would support a promise to pay. See the cases referred to in Wilson v. Kelly. This principle, it was thought, applied to a discharge in bankruptcy ; that the discharge did not pay the debt, but prevented any further action for its recovery, leaving the debt unpaid and the moral obligation unaffected. In fact, that a debt due by a discharged bankrupt occupied almost the exact position of one barred by the statute, and could, like a debt barred by the statute, be paid out of a legacy or distributive share of the debtor in the estate to which he was indebted, by retainer.

In the case of Cherry v. Boultbee (4 Myl. & Cr., 18 Eng. Ch. R., 448), which the counsel claims overruled Ex parte Man, where the bankruptcy was held not sufficient to prevent the retainer, the facts were that the assignee in bankruptcy was claiming the legacy of the bankrupt as part of his assets, and the court held that inasmuch as the assignee was only liable on the debt to the extent of the dividend to which the creditor was entitled, the retainer could be allowed only to that extent, and that as to the balance of the debt a retainer could not be enforced. This was upon the ground that the party claiming the legacy, to wit, the assignee, did not owe the debt, except as to the dividend, and consequently the remainder of the legacy after the dividend was paid therefrom was due the assignee with no counter claim against it. The Lord Chancellor, in delivering the opinion in that case, said: “In the present case, however, the bankruptcy of the debtor having taken place in the life time of the testatrix, her executors never were entitled to receive from the assignee more than the dividends upon the debt, and although the bankrupt had not obtained his certificate and the liability incident to that state remained upon him, yet he, for the same reason, was never entitled to receive the legacy, and consequently there was never a time at which the same person was entitled to receive the legacy and liable to pay the entire debt. The right, therefore, of retaining a sufficient sum out of the legacy to pay the debt, can never have been vested in any one.' The assignee who claims the legacy would, indeed, have been liable to the payment of any dividend upon the debt, had it been proved, and the master of the rolls proposed to the executors to make provision for deducting the amount of such dividend frpm the amount of the legacy.” And he further says: “That in all the cases, except that of Ex parte Man, the liability to pay the debt and the right to receive the money had been at some time vested in the same person, and all that the court did in these cases was to consider that the party liable to pay the legacy had actually done what the law considers him entitled to do, namely, to apply a sufficient part of the legacy to the payment of the debt.”

The facts in Ex parte Man, the Lord Chancellor says, were as nearly as possible the same as in the case he was discussing. Ex parte Man is reported in Mont. & McA., 210. This volume has not been within our reach, but we suppose it was a case like Cherry v. Boultbee, supra, where the assignee of the bankrupt was claiming the legacy, and consequently a case like Cherry v. Boultbee, where the liability to pay the entire debt and the right to claim the legacy never vested in the same person, and consequently, as in Cherry v. Boultbee, the administrator or executor had no foundation to retain the legacy for said entire debt. In the case at bar, however, the distributive share in the estate of the intestate is claimed by the distributee himself. He owes the entire debt and he claims the distributive share. Thus the two are vested in the same person, and the state of things exists, the absence of which authorised the judgment in Cherry v. Boultbee, overruling Ex parte Man, and which, had they existed in that case, would have no doubt resulted in a different judgment.

It is urged that the creditor here having received dividends out of the bankrupt assets, should prevent the retainer and Orpen in re Beswick v. Orpen, 16 L. R. Ch. Div., 202, is referred to as sustaining this proposition. In that case, at a meeting of creditors by resolution, a composition of 2s. 6d. was accepted in satisfaction of the debts due to them. The executors did not prove the debt under the composition, and the debtor assigned his share in the estate to a third party, who sued the executor. The executor claimed the right to retain for the full amount of the debt. It was held that he could retain only to the amount of the composition, the court holding that the debt was within the scope and operation of the resolution of the creditors passed under the bankrupt act, and was bound by them, the 2s. 6d. being accepted as satisfaction of the whole debt. We do not understand that proving the debt and receiving dividends in bankrupt proceedings, is the same thing as resolution of composition, where the creditors agree to accept a certain amount in satisfaction of the whole, and, therefore, we do not regard the case of Orpen v. Beswick as applicable here.

Upon the whole, we sustain the Circuit Judge except as to the liability of W. S. McJunkin’s share in the proceeds of the real estate to the judgment against him. This judgment having lien upon this share, it should be applied so far as may be necessary to the payment thereof.

As to the exception that the referee should not have testified on the matter of the value of the property purchased at the sale by the administrators. The principle contended for is doubtless correct. Eliminating this testimony from the case, that remaining seems quite sufficient to sustain the findings of fact on that subject.

It is the judgment of this court, that the judgment of the Circuit Court be modified to the extent of subjecting the share of W. S. McJunkin in the proceeds of the real estate to the judgment against him; and in every other respect that said judgment below be affirmed.