In re McAusland

• Decision Date: 08 August 1916
• Citation: 235 F. 173
• Parties: In re McAUSLAND.
• Court: U.S. District Court — District of New Jersey

235 F. 173

In re McAUSLAND.

United States District Court, D. New Jersey.

August 8, 1916

[Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted]

Merritt Lane, of Jersey City, N.J., for trustee.

McDermott & Enright, of Jersey City, N.J., for Lincoln Trust Co. of New Jersey.

Fisk & Fisk, of Jersey City, N.J., for Third Nat. Bank of Jersey City.

Treacy & Milton, of Jersey City, N.J., for Burke Bros. Co. & Burke Bros.

James A. Gordon, of Jersey City, N.J., for Jaburg Bros.

Collins & Corbin, of Jersey City, N.J., for New Jersey Title Guarantee & Trust Co.

RELLSTAB District Judge.

This is a controversy over the distribution of the proceeds of the trustee's sale of certain lands which were devised to Mary E. McAusland, the bankrupt, by John McAusland, her husband, who died on April 14, 1911. By his last will and testament, probated on April 25, 1911, after directing that all his just debts be paid and appointing his wife sole executrix, he gave to her absolutely all the remainder of his estate. The widow took out letters testamentary, but, beyond taking a rule to bar creditors and a decree based thereon, took no steps in the administration of the estate; she filed no inventory, made no application for the sale of the testator's real estate to pay his debts, and rendered no account of her stewardship. Under the laws of New Jersey, the deceased's personal representative who is the sole residuary of the estate, is not required to file either an inventory of the personal property or an account of his stewardship. However, a creditor may force such an administration of the estate, if his claim has not been satisfied. 3 N.J.Comp.Stat.p. 3855, Secs. 119, 120.

The testator died seised of both real and personal estate. For some years prior, and up to the time of his death, he had carried on a bakery and ice cream business, the first under the name of the City Bakery, and the latter as the Columbia Ice Cream Company. These businesses the widow continued until the commencement of the present bankruptcy proceedings. While carrying on said businesses, she paid a part of her husband's indebtedness, contracted additional debts, only a part of which she paid. Not all of the creditors of the deceased filed claims against his estate, and none took any legal proceedings in the orphans' courts (court of probate, etc.) before the intervention of bankruptcy, to compel the executrix to proceed with the administration of her husband's estate, but about the time the bankruptcy proceedings were begun some of such creditors took legal proceedings to enforce their claims against the assets of the decedent's estate.

The petition in bankruptcy was filed against the widow on the 27th of March, 1913. Between the time of her husband's death and the commencement of said bankruptcy proceedings, the widow sold three of the parcels of real estate of which her husband died seised. The suits begun in the courts of New Jersey against the bankrupt as the beneficiary of her husband's will were by Burke Bros. Company, the Third National Bank of Jersey City, Jaburg Bros., Ambrose L. O'Shea, trustee in bankruptcy of the New York White Cross Milk Company, under the New Jersey act entitled 'An act for the relief of creditors against heirs and devisees' (2 N.J.Comp.St.p. 2739, commonly known as the 'Heirs and Devisees Act'), and by the Lincoln Trust Company of New Jersey, and Jessena Kerr, to enforce the liens said to arise in favor of creditors, under the will of said testator.

All these suits were enjoined by this court, and the plaintiffs were relegated to the bankruptcy court to establish their claims. The New Jersey Title Guarantee & Trust Company, a creditor of the decedent, who held a mortgage covering one of the decedent's parcels of real estate, was permitted to foreclose and sell such mortgaged real estate. The trustee in bankruptcy, under order of the referee, after notice to the creditors, sold the remaining parcels of real estate free and clear of all the liens which the creditors of the decedent, other than mortgage creditors, claimed they held against such real estate These sales netted $15,877.74, and the referee's disposition of this fund is challenged by the present reviews. Broadly stated, the referee decided that the creditors of John McAusland were entitled to be first paid out of this fund. Specifically he decreed (so far as pertinent to the present reviews) that the following claims had priority:

The Third National Bank of Jersey City for $3,300.00

Jaburg Bros. for 3,700.00

Burke Bros. & Burke Bros. Company for 2,242.72

Jessena Kerr for 2,300.00

Ambrose L. O'Shea, trustee of the New York White Cross Milk Company, for 888.10

Chas. W. Cropper for 92.00

J.C. Coal Company for 156.25

Voss Ice Machine Works for 1,407.50

He disallowed the following claims: Lincoln Trust Company of New Jersey for $98.75, alleged debt of John McAusland, and for $3,700, alleged advances for payment of taxes, and the New Jersey Title Guarantee & Trust Company alleged deficiency for $7,618.30. He also denied interest on the allowed claims subsequent to the death of John McAusland. The effect of this decision is to practically exclude the holders of the unpaid bills incurred by the bankrupt, while she conducted such business, from receiving anything out of the assets which came into the hands of the trustee. The correctness of this decision of the referee allowing priorities is challenged by the trustee. He and several of the creditors of the decedent also attack the referee's findings applicable to specific claims of such creditors, and the said creditors, who were allowed priorities, attack the said disallowance of interest.

First, as to priority of decedent's creditors: By the laws of New Jersey, a direction by the testator in his will that his debts be paid serves to charge such debts on his realty. Shreve v. Shreve, 17 N.J.Eq. 487. By reason of such charge the creditor obtains an equitable estate or interest in such realty enforceable within 20 years from the testator's death. McKinley v. Coe, 66 N.J.Eq. 77, 57 A. 1030. The laws of the state where the assets are control as to the nature and effect of the lien. Thompson v. Fairbanks, 196 U.S. 516, 25 Sup.Ct. 306, 49 L.Ed. 577; Humphrey v. Tatman, 198 U.S. 91, 25 Sup.Ct. 567, 49 L.Ed. 956; Hiscock v. Varick Bank of New York, 206 U.S. 28, 27 Sup.Ct. 681, 51 L.Ed. 945. That the personal estate is the primary fund from which the debts of a decedent are to be paid is of no moment on the general question here considered.

These equitable liens in favor of the creditors of decedent were not lost by the passing of the legal title of the lands affected to the trustee, for such property passed in the same plight and condition as that in which the bankrupt herself held it, and subject to all the equities impressed upon it in the hands of the bankrupt. York Manufacturing Co. v. Cassell, 201 U.S. 344, 26 Sup.Ct. 481, 50 L.Ed. 782; Bryant v. Swofford Bros., 214 U.S. 279, 29 Sup.Ct. 614, 53 L.Ed. 997. The trustee does not deny that such an equitable lien or charge upon the realty of the decedent inured to his creditors, but contends that, in this case, by their conduct with relation to the bankrupt's continuing the business of the decedent, they waived their liens, or that they are estopped from claiming any priority over the debts incurred by the bankrupt. The bankrupt mingled $5,000 insurance, payable to her on a policy on her husband's life, with the moneys derived from her husband's business continued by her and the income from his real estate, and applied them indiscriminately to the payment of taxes, interest, repairs, business and other debts of hers and her husband's, including the family living expenses. She had several checking accounts with the local banks; one in the name of the City Bakery, another in the name of the Columbia Ice Cream Company, another in the name of the Estate of John McAusland, and a fourth in her own name.

The City Bakery business, during the period it was carried on by her, was apparently run at a loss, approximating $6,000, but during this period she reduced the debts of such business as they stood at the time of her husband's death approximately $5,800. The ice cream business was run at a profit, and by the time of the filing of the petition in bankruptcy, the indebtedness of decedent on account of this business had been reduced approximately $11,000. The profits, however, did not net this sum by about $3,500. This net reduction of decedent's indebtedness by approximately $9,300 came from some source outside of these businesses, and the contention of the trustee is that it came principally from the assets furnished by the bankrupt's creditors, and that it would be inequitable to permit the creditors of the decedent, who stood by while all this was being done by the bankrupt, to now appropriate to themselves the fund realized from the sale of the real estate to the exclusion of the other creditors, whose property in part enabled her to pay some of the said $9,300 to her husband's creditors. The record fails to sustain this contention, or that these creditors had knowledge that one of these businesses was being carried on at a loss, or that decedent's indebtedness was being reduced by moneys contributed by the bankrupt's creditors.

The fact that the checks were made by bankrupt as executrix did not bring home to the creditors of decedent that the payments were from an improper or even suspicious source. If they had been as pressing for the payment of their claims against the decedent as the trustee thinks they should have been, that method of payment would be the regular way to settle their accounts. Nor is that way of paying...