JOHNSON v. MARTIN, 87-1205

• Decision Date: 21 December 1989
• Docket Number: No. 87-1205,87-1205
• Parties: Nancy Jane JOHNSON, et al., Appellants, v. Evelyn Patricia MARTIN, et al., Appellees.
• Court: D.C. Court of Appeals

567 A.2d 1299

Nancy Jane JOHNSON, et al., Appellants, v. Evelyn Patricia MARTIN, et al.,Appellees.

No. 87-1205.

District of Columbia Court of Appeals.

Argued May 23, 1989.

Decided December 21, 1989.

Appeal from the Superior Court, Iraline G. Barnes, J.

Matthew A. Kane for appellants.

Philip L. O'Donoghue, with whom Julia L. O'Brien was on the brief, for appellees Evelyn Patricia Martin, et al.

Stanley A. Racoosin, with whom Jack C. Sando was on the brief, for appellee Leonard Abrams.

Before TERRY and STEADMAN, Associate Judges, and PRYOR, Senior Judge.

TERRY, Associate Judge:

This case comes before us for the second time. The relevant facts are set forth in our prior opinion, Martin v. Johnson, 512 A.2d 1017 (D.C. 1986) (Martin I), and we summarize them here only briefly. In her will Mary Connor left her home on University Terrace, N.W., which was then encumbered by a deed of trust, to her niece, Evelyn Patricia Martin. Mrs. Martin in turn disclaimed her interest in the property in favor of her children ("the Martin children"), who, along with their mother, are appellees here and were appellants in the first appeal. The residuary legatees, appellants in the instant appeal and appellees in the first appeal, contended in Martin I that the common law doctrine of exoneration did not apply and, as a result, that the debt on the University Terrace property could not be discharged at the expense of the residuary estate. This court disagreed and held in favor of the Martin children.

While the appeal in Martin I was pending, a buyer was found for the house on University Terrace. The personal representative, Leonard Abrams, agreed to distribute the property to the Martin children on the condition that, when the property was sold, the net proceeds would be used to pay the principal and accrued interest owed on the deed of trust note, and that $40,000 of the proceeds would be placed in escrow pending the outcome of the appeal. On remand after our decision in Martin I, the residuary legatees argued before the trial court that the proceeds from the sale of the house should be used to pay the principal amount owed on the deed of trust, but not the accrued interest. They also filed an exception to the third accounting of the personal representative, claiming that the residue of the estate should not be charged for expenses incurred in maintaining the house before it was sold, viz., real estate taxes, utility bills, insurance premiums, and sundry repairs.¹ They further contended that even if these maintenance expenses were properly to be charged against the residue, the personal representative breached his fiduciary duty by neglecting to rent the house during his administration of the estate or, in the alternative, by failing to sell the house sooner than he did.

The trial court held that both the principal and the interest on the note were to be paid from the residue of the estate. The court also ruled that the expenses to which the residuary legatees took exception were proper administrative expenses and, as such, were chargeable to the residue. We affirm both of these rulings. We remand the case to the trial court, however, for consideration of a matter on which it has not yet ruled: the residuary legatees' assertion that the personal representative breached his fiduciary duty by neither renting the house nor selling it in a timely manner.

I

[1] In Martin I this court said:

A review of the salient factors in this case, therefore, yields no clear picture ofwhether Decedent intended that the real estate devised to Mrs. Martin pass subject to — or free of — the deed of trust loan encumbering it. It is in precisely such a circumstance that the common law rule of exoneration is operative, and directs that the debt on the specifically devised real property [i.e., the home on University Terrace] be discharged at the expense of the general residuary gift of Decedent's personal estate.

512 A.2d at 1023 (emphasis added). The residuary legatees now ask us to ignore long-settled and well-recognized law when they argue that this court intended "the debt" on the devised realty to include only the principal, but not the interest, on the deed of trust loan. This we cannot do.

Deeds of trust are essentially the same as common law mortgages. Yasuna v. Miller, 399 A.2d 68, 71 & n. 5 (D.C. 1979) (citing cases). It is well established in the District of Columbia and elsewhere that in a deed of trust, as in a mortgage, the debt includes both the principal and the interest. Taylor v. Drury, 56 App.D.C. 266, 267, 12 F.2d 489, 490 (1926) (mortgage debt includes both principal and "interest accruing upon the principal up to the time of payment"); Allstate Insurance Co. v. James, 779 F.2d 1536, 1540 (11th Cir. 1986) (mortgage debt includes unpaid principal and accrued interest); Brockton Savings Bank v. Shapiro, 311 Mass. 695, 700-02, 42 N.E.2d 826, 830 (1942) (payment of interest, as well as principal, on a mortgage debt is necessary to stave off foreclosure); Weems v. American Security Insurance Co., 486 So.2d 1222, 1229 (Miss. 1986) (debt owed on a promissory note secured by a deed of trust "certainly includes interest on the mortgage debt"); see Metompkin Bank & Trust Co. v. Bronson, 172 Va. 494, ___, 2 S.E.2d 323, 325 (1939) (secured creditor is entitled by contract to "payment of the entire debt, and the entire debt includes not only the principal but interest as an incident of the debt"). Moreover, in her will the testatrix devised the University Terrace house to her niece "absolutely and in fee simple." Thus the very terms of the will lead us to conclude that the residue must be drawn upon to extinguish the entire amount due and owing under the deed of trust — principal plus interest — and that the mortgaged property must pass to the Martin children unencumbered by the deed of trust. See Union Trust Co. v. Brendlinger, 59 App.D.C. 294, 296, 40 F.2d 806, 808 (1930); Tracy v. Atwell, 58 App.D.C. 397, 32 F.2d 392 (1929); O'Meara v. Shreve, 58 App.D.C. 220, 26 F.2d 998 (1928); In re Estate of Miller, 127 F. Supp. 23, 26 (D.D.C. 1955); Bridgeport Trust Co. v. Fowler, 102 Conn. 318, 326-29, 128 A. 719, 722 (1925) (unless the will indicates otherwise, exoneration of a mortgage debt includes both principal and interest). "Where the realty is devised free of encumbrances, the interest as well as the principal of a mortgage is payable out of the personal estate. . . ." 97 C.J.S. Wills § 1316, at 223 (1957) (footnote omitted).

II

The residuary legatees also claim that Mr. Abrams, as personal representative of the estate, was not empowered to use money from the residue to pay the real estate taxes, insurance premiums, repair bills, and utility bills for the University Terrace house which came due from time to time. They contend that these types of expenses must instead be paid by the specific devisee, Mrs. Martin, or by her successors, the Martin children.

Mr. Abrams filed three statements of account with the Probate Division of the Superior Court — one in November 1983, one in August 1984, and one in November 1985. All three stated that disbursements were being made out of the estate to cover the expenses now in dispute. Yet the residuary legatees did not file an exception to any of the accountings until September 12, 1986. Consequently, Mr. Abrams argues that because an exception to an accounting must be filed with the Register of Wills no later than thirty days after the accounting is filed, D.C.Code § 20-726 (1989), the residuary legatees' exception was untimely and cannot now be considered. Although this argument is initially attractive, on closer examination we must reject it.

A cause of action usually accrues when a wrongful act occurs, resulting in injury. In some cases, however, the relationship between the act and the injury is so obscure that the cause of action accrues only when the party claiming injury discovers, or by reasonable diligence should discover, the injury, its cause in fact, and some evidence of wrongful conduct. This so-called "discovery rule" has been applied by this court in several areas of the law, including the law of estates and trusts. See Interdonato v. Interdonato, 521 A.2d 1124, 1135 (D.C. 1987) (fraud and breach of fiduciary duty under a testamentary trust); In re Estate of McCagg, 450 A.2d 414, 418 (D.C. 1982) (dispute over two paintings claimed to be assets of estate); see also Knight v. Furlow, 553 A.2d 1232, 1233-1234 (D.C. 1989) (legal malpractice claim); Ehrenhaft v. Malcolm Price, Inc., 483 A.2d 1192, 1194 (D.C. 1984) (breach of contract and breach of warranty claims); Burns v. Bell, 409 A.2d 614, 616-617 (D.C. 1979) (medical malpractice claim). In the instant case, the accountings only informed the residuary legatees that Mr. Abrams was paying certain expenses related to the University Terrace property. At the time the accounts were filed, the residuary legatees could not be expected to know whether they or the specific devisee would ultimately be charged with these expenditures. It was not until the house was sold, until our opinion in Martin I was published, and until the estate was distributed that the residuary legatees could have known that the expenditures were to be charged to the residue and not to the specific devisee. Thus, applying the discovery rule, we hold that the residuary legatees are not time-barred from contesting the personal representative's power to pay expenses related to the devised realty from the residuary estate.

Nevertheless, they cannot prevail on the merits of this issue. D.C.Code § 20-741 (1989) empowers a personal representative to:

(a) take possession of and hold assets owned by the decedent pending distribution or liquidation . . .;

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(h) obtain insurance to protect the property of the estate against damage, loss, and liability . . .;

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(j) pay taxes, assessments, and other expenses incident to the administration of the...