Opinion
Rehearing Denied Jan. 28, 1929
Hearing Granted by Supreme Court Feb. 25, 1929
Appeal from Superior Court, Lassen County; H.D. Burroughs, Judge.
Action by the United States Fidelity & Guaranty Company against N.G. Matthews, personally and as administrator of the estate of Thomas W. Wilson, deceased, and another. Judgment for defendants, and plaintiff appeals. Affirmed. COUNSEL
Horace W.B. Smith and P.R. Lund, both of San Francisco, for appellant.
J.E. Pardee, of Susanville, for respondents.
OPINION
JAMISON, Justice pro tem.
This case was brought up on the judgment roll alone.
The facts, which are not disputed are briefly these: Thomas W. Wilson died intestate on June 18, 1920, in Lassen county, leaving as his heirs three children, including George W. Wilson. On August 2, 1920, the said George W. Wilson was appointed administrator of deceased’s estate. He qualified and gave bond with Cady and Spaulding as sureties. On March 3, 1921, said George W. Wilson borrowed from the Growers’ Bank of San José $2,600, and as security for its payment gave his promissory note to said bank and an assignment of all his interest in said estate and all fees and commissions accruing to him as such administrator, the note being made payable six months after date. A copy of this assignment was filed in the superior court of Lassen county with the papers of said estate on October 27, 1921.
On September 12, 1921, the sureties, Cady and Spaulding, on application therefor, were released from said bond, and said administrator filed a new bond with appellant as sole surety thereon.
On June 27, 1922, the said Growers’ Bank assigned to defendant Bank of Lassen County the said note and assignment of interest of said George W. Wilson in said estate, and on September 25, 1922, the said last-named assignment was filed in said superior court with the papers of said estate.
On January 8, 1924, on the application of said Bank of Lassen County, George W. Wilson was removed as said administrator, and defendant N.G. Matthews was appointed administrator of said estate in his stead. On April 9, 1924, said Matthews, as said administrator, began an action against George W. Wilson for an accounting of his administration of said estate, and as a result of that action judgment was rendered against said Wilson for the sum of $637.39 on his first bond and for $2,249.77 on his second bond. Appellant paid said last-named amount and took an assignment of said judgment from the said administrator.
Appellant seeks by this action to have the court adjudge that it is entitled to the priority and preference in the payment of its said assigned judgment, out of the distributive share of said George W. Wilson. Therefore the matter presented for determination by this appeal is whether, upon the distribution of said estate, appellant, by virtue of its assigned judgment, shall first be paid out of the distributive share of said George W. Wilson, or whether the respondent, by virtue of the assignment of the distributive share of said Wilson, shall first be paid out of same. It is conceded that the distributive share of said Wilson will not be more than sufficient to pay one or the other of said claims.
Section 2848 of the Civil Code provides that a surety, upon satisfying the obligation of the principal, is entitled to enforce every remedy which the creditor then has against the principal to the extent of reimbursing what he has expended. By the payment of this debt owing by the said heir, George W. Wilson, to said estate, appellant became subrogated to every remedy the said estate had against the said George W. Wilson, by virtue of said debt. Appellant contends that the estate, or rather the administrator acting for the estate, has the right to set off this indebtedness owing to the estate by the administrator, against the distributive share of the said George W. Wilson, upon the distribution of said estate. The authorities generally support this conclusion, and such has been decided to be the law of this state by recent decisions of the Appellate and Supreme Courts.
In the case of In re Clary’s Estate, 253 P. 778, Plummer, J., in a decision rendered by the appellate court, Third district, reviewing the authorities bearing on this question, said, "The right of retainer or set-off is recognized as applicable upon distribution in this state; " and upon a rehearing in the Supreme Court, 264 P. 242, the Supreme Court adopted and affirmed the said decision of the appellate court. No question of priorities was involved in this case. If, therefore, there were no priorities to be determined, it is apparent that appellant would be entitled to have its said judgment retained out of the distributive share of the said George W. Wilson upon the distribution of said estate.
Appellant maintains that by reason of the fact that, during his administration of the estate of said Thomas W. Wilson, the said George W. Wilson became indebted to said estate by withholding funds belonging to said estate, the right of the estate to retain or set off such funds so withheld, from or against the distributive share of said George W. Wilson, takes precedence over all liens or assignments of said distributive share. Appellant cites no decision of the courts of this state in support of this proposition. The only case that has been brought to the attention of this court that deals directly with this proposition is that of In re Smith, 108 Cal. 115, 40 P. 1037, cited in respondent’s brief. In that case Smith died leaving a will devising his property to his children and grandchildren. Two of his sons, John A. and William R., were appointed executors of his will. John A. died pending the administration, and at the time of his death he had in his hands $247.15 belonging to said estate. Upon distribution of the estate the court did not deduct this sum from the distributive share of the said John A. The administrator appealed from the decision of the trial court. In the course of its opinion in that case the court said: "John A. held the estate’s money as trustee, and upon his death, being indebted to his beneficiary, the estate, its position became no better than that of any other creditor, unless it was able to pursue the precise trust fund." While that portion of this decision, to the effect that the sum owing by the deceased executor, could not be set off against, or retained from his distributive share as an heir of the estate, has been overruled in Re Clary’s Estate (Cal.App.) 253 P. 778, the part quoted has not since been passed upon either by the Supreme or Appellate Courts of this state.
Section 1384 of the Civil Code provides that both real and personal property of deceased, where there is no will, passes to the heirs of an estate, subject to the control of the probate court and to the possession of the administrator for the purposes of administration. And they may enter into contracts with respect thereto, or convey same subject to the possession of the administrator for the purposes of administration. Cal.Jur. vol. 9, p. 478. The heir takes the title to the property subject to the liens of the administration which cover the payment of the debts and funeral expenses, the family allowances and expenses of administration. Cal.Jur. vol. 9, p. 472. That no lien exists against the distributive share of the heir growing out of his indebtedness to the estate was declared in the case of Estate of Polito, 51 Cal.App. 752, 197 P. 976. In that case the administratrix sought to have a judgment recovered by the estate against an heir, set off or deducted from the heir’s distributive share. It appeared that a prior judgment had been rendered in favor of a creditor of the heir. The trial court decision was in favor of the judgment creditor, from which the administrator appealed. In its opinion the appellate court said: "It would seem that the trial court acted correctly in refusing to accede to the petition of appellant herein, since it appears from the record herein that the respondent, Sarah A. McCurdy [the judgment creditor], had obtained and duly docketed a judgment against said John L. Polito [the heir], for the sum of $4,452.45, which had thus become a first lien upon the interest of said John L. Polito in such real estate, and that this lien was prior to the lien which the estate had acquired upon said interest by its judgment thereafter obtained. We are directed to no provision of law and to no decision of the courts of this state which purport to give to an estate in the course of its administration a lien upon the undivided interest of the heirs or devisees in the real property of said estate arising out of the fact that such heir or devisee may be indebted to said estate."
Appellant, in its brief, has cited cases from other jurisdictions which it claims supports its contention that it is entitled to priority in the distributive share of George W. Wilson upon distribution of the estate. One of the cases relied upon by it to sustain this contention is that of In re Baily’s Estate, 156 Pa. 634, 27 A. 560, 22 L.R.A. 444, but in that case the obligation of cosureties toward each other and contribution between cosureties was involved, and it was mainly because of the relationship that existed between them as cosureties that the court held that a debt due the estate from one of them was entitled to priority over an assignment by that one of his interest as one of the heirs of the estate. Another case largely relied upon by appellant is the case of Clapp v. Meserole, 1 Abb.Dec. (N.Y.) 362; Id., 38 Barb. (N.Y.) 661. In this case it appears that two of the heirs were appointed executors of the estate of their deceased father, and that the father had made an advancement to each of $10,000, and, in addition, they were indebted to him upon a mortgage. The will provided that the advancements were to be deducted from the distributive share of each. Some six years after their appointment as executors they assigned their distributive shares to the plaintiff Clapp. He necessarily took the assignment with knowledge of the provisions of the will and the existence of the mortgage. Upon the final accounting it was found that the distributive share of each of the two sons was less than the advancements, and upon this state of facts the court affirmed the judgment giving priority to the estate. Nor does the case of Ford, Administrator, v. O’Donnell, 40 Mo.App. 51, also cited by appellant, support his contention. In that case the administrator sought to have a debt owing by the son to his father set off against the distributive share of the son in his father’s estate. The court held in that case that the debt owing by the son to his father had priority in the distribution of the sons’ distributive share, over an assignment by the son of such share, but based its reason for so holding upon the fact that the debt was in existence at the time of the assignment.
In the case under consideration there is no showing that any portion of the debt owing by George W. Wilson to the estate of his father was in existence at the date he made the aforesaid assignment. George W. Wilson was appointed administrator of his father’s estate on August 2, 1920, and the assignment of his interest in the estate was made on March 3, 1921. On October 28, 1921, the said George W. Wilson filed his annual account of his administration and same was allowed and approved, and it was not until his final account was presented in 1924 that it was discovered that he was indebted to the estate. The trial court found that of the indebtedness of George W. Wilson to said estate, $637.39 accrued against him during the period of his first bond, that is, during the period commencing August 2, 1920, and ending November 10, 1921; but there is no showing that any portion of this debt accrued prior to the assignment by George W. Wilson of his interest in the said estate. Apparently the assignor of respondent bank took the assignment from George W. Wilson in good faith, paid valuable consideration therefor, in ignorance of any indebtedness owing by said Wilson to said estate, if in fact such indebtedness existed at that time, of which no proof had been offered.
The trial court found that the lien of respondent on the distributive interest of George W. Wilson in said estate is prior and superior to the lien of plaintiff’s judgment, or of any right that may have resulted from subrogation, and, in the opinion of this court, it was justified in so doing.
In its reply brief the appellant raises the point that the lien of respondent is extinguished by the provisions of section 2911 of the Civil Code. However, appellant admits that, prior to the running of the statute of limitations against the promissory note, to secure which the assignment was made, respondent bank commenced an action against the said George W. Wilson for the collection of said note. This being true, limitation would not have run against the lien existing by virtue of the assignment. A lien is not extinguished by lapse of time so long as the principal obligation is kept alive. Worth v. Worth, 155 Cal. 599, 102 P. 663; Weinberger v. Weidman, 134 Cal. 599, 66 P. 869.
The judgment is affirmed.
We concur: HART, Acting P.J.; PLUMMER, J.