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IN RE JACKSON'S ESTATE
Factual and Procedural Background
Rose T. Jackson died testate on May 6, 1932. Her will divided the residue of her estate equally among Anton J. Nilsen, the Puyallup, Washington, Home for Ladies of the Grand Army of the Republic, and Fenton Jackson, and named Nilsen executor. [1]
The estate included real and personal property and a $3,750 promissory note owed by Nilsen. After becoming executor, Nilsen assigned his estate interest and executor’s fees to O.M. Knudsen to secure a $2,500 debt. The court later fixed Nilsen’s executor fees at $2,500. [2]
The final decree directed that Nilsen’s fees and one-third share of the estate be applied to his $3,750 debt to the estate. Nilsen and Knudsen appealed. [3]
Legal Issues Presented
- Whether the court could apply Nilsen’s executor fees toward his indebtedness to the estate. [4]
- Whether the right of retainer applied to Nilsen’s interest in real property as well as personal property. [5][6]
- Whether the assignment to Knudsen prevented the estate from retaining Nilsen’s distributive share and fees. [7][8]
- Whether evidence of Nilsen’s insolvency or testimony denying the note debt was admissible. [9][10]
Arguments of the Parties
Appellants' Arguments
- The appellants accepted retainer as to personal property but argued that it did not apply to real property. [5]
- They sought to distinguish Boyer v. Robinson and argued that, if it could not be distinguished, it should be overruled as unsound and contrary to the weight of authority. [11]
- They attempted to prove Nilsen’s insolvency and to establish through Nilsen that he was not indebted on the note. [9][10]
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| In re Smith's Estate, 179 Wn. 417, 38 P.2d 244 | Distinction between retainer and set-off. | The court characterized the doctrine as retainer rather than technically as set-off. [5] |
| Boyer v. Robinson, 26 Wn. 117, 66 P. 119 | A debt owed by a devisee may be retained from the devisee’s share of real property. | The court followed the decision because the rule was equitable and just. [6][11] |
| Stanley v. United States Nat. Bank, 110 Ore. 648, 224 P. 835 | A distributee’s indebtedness is an estate asset and may satisfy or extinguish the distributee’s claim to estate property. | The quoted principle supported retention of the debtor’s distributive share. [12][13] |
| Streety v. McCurdy, 104 Ala. 493, 16 So. 686 | Authority cited within the rule concerning a debtor-distributee’s estate interest. | It was included among authorities supporting the principle quoted from Stanley. [13] |
| Webb v. Fuller, 85 Me. 443, 27 A. 346, 22 L.R.A. 177 | Authority supporting retainer of a debtor’s distributive share. | The court relied on it as support for the equitable retainer rule. [13][11] |
| Fiscus v. Moore, 121 Ind. 547, 23 N.E. 362, 7 L.R.A. 235 | Authority cited concerning treatment of a debtor’s distributive interest. | It was included in the authorities quoted in support of the retention rule. [13] |
| Holmes v. McPheeters, 149 Ind. 587, 49 N.E. 452 | Authority cited concerning retention of a debtor’s estate share. | It was included among supporting authorities. [13] |
| In re Lietman, 149 Mo. 112, 50 S.W. 307, 73 Am. St. Rep. 374 | Authority cited concerning the effect of a distributee’s indebtedness. | It was included among supporting authorities. [13] |
| Armour v. Kendall, 15 R.I. 193, 2 A. 311 | Authority cited concerning retention of a debtor’s distributive share. | It was included among supporting authorities. [13] |
| Oxsheer v. Nave, 90 Tex. 568, 40 S.W. 7, 37 L.R.A. 98 | Authority cited concerning the effect of indebtedness on an estate distribution. | It was included among supporting authorities. [13] |
| New v. New, 127 Ind. 576, 27 N.E. 154 | Authority cited concerning retention of a debtor’s estate interest. | It was included among supporting authorities. [13] |
| Romig v. Erdman, 5 Whart. (Pa.) 112, 34 Am. Dec. 533 | An assignee takes subject to existing equities and is no better positioned than the assignor. | The rule supported subjecting Knudsen’s assigned interest to Nilsen’s debt. [7] |
| Loverett v. Veatch, 268 Ky. 797, 105 S.W.2d 1052, 110 A.L.R. 1378 | Same assignment-and-existing-equities principle. | The court cited it in support of the general rule governing assignees. [7] |
| Lester v. Toole, 20 Ga. App. 381, 93 S.E. 55 | Contrary authority regarding application of retainer to executor fees. | The court expressly declined to adopt its holding. [14] |
| Chase Nat. Bank v. Sayles, 30 F.2d 178 | The right of retainer exists independently of insolvency. | The court relied on it in upholding exclusion of insolvency evidence as immaterial. [9] |
| In re Miller's Estate, 129 Wn. 211, 224 P. 607 | Application of the statutory restriction on interested-party testimony concerning transactions with a deceased person. | The court cited it in upholding rejection of Nilsen’s testimony denying the note debt. [10][15] |
Court's Reasoning and Analysis
The governing statute provided that appointment as executor did not discharge a claim held by the decedent against the executor; the claim had to be included in the inventory, and the executor remained liable as if not appointed. [16][17]
The court applied the doctrine of retainer, under which an executor or administrator who is indebted to the estate must have the debt retained from the person’s distributive share. The court held that this rule applies to real property as well as personal property. [18][5][6]
The doctrine is equitable: a person should not share in an estate fund until discharging the obligation to contribute to that fund. Because Nilsen owed the estate more than the value of the relevant interests, applying his share to the debt was equitable and proper. [11]
Knudsen’s assignment did not alter the result. An assignee of a legacy or distributive share takes subject to existing equities and stands in no better position than the assignor. [7]
The same reasoning applied to Nilsen’s executor fees. Allowing the fees to pass to Knudsen while Nilsen remained indebted to the estate in a larger amount would improperly remove funds from the estate and benefit a third party. [8]
Evidence of Nilsen’s insolvency was properly excluded because the right of retainer does not depend on insolvency. [9]
Nilsen’s testimony denying the note debt was also properly excluded. The opposing beneficiaries derived title from the deceased, and Nilsen was a party in interest whose testimony concerned a transaction with the deceased, bringing it within the statutory prohibition. [10][15]
Holding and Implications
Affirmed. The decree properly applied Nilsen’s executor fees and distributive share toward his $3,750 indebtedness to the estate. [3][7][19]
The assignment to Knudsen did not defeat the estate’s equitable right of retainer, and the challenged evidentiary rulings were upheld. The decision’s direct effect was to preserve the distribution for the estate’s benefit to the extent of Nilsen’s debt; no broader implications were discussed, and no new precedent was set. [11][8][9][15]
EXECUTORS AND ADMINISTRATORS — DISTRIBUTION OF ESTATE — DEBT OF EXECUTOR — RETAINER. Where an executor or administrator is indebted to the estate, the amount of his indebtedness is to be retained out of his distributive share as heir, devisee, or legatee; and this rule applies, not only as to personal property subject to distribution, but also as to real property.
SAME. The assignee of a legacy or distributive share of an estate, retained on account of the assignor's indebtedness to the estate, takes subject to existing equities and is in no better position than that in which his assignor would have been if the assignment had not been made.
SAME — LIABILITY OF EXECUTOR TO ESTATE — RETAINER OF FEES. The doctrine of retainer, being equitable in its nature and based upon the principle that no one should share in the distribution of a fund until he has discharged his obligation to contribute thereto, applies to the fees allowed by the court to an executor who is indebted to the estate, since it would be inequitable for the executor to take these fees out of the estate while indebted to it in a larger sum.
SAME — RIGHT OF RETAINER — INSOLVENCY OF DEBTOR. The right of retainer between executors and legatees exists independent of insolvency.
WITNESSES — COMPETENCY — TRANSACTIONS WITH PERSON SINCE DECEASED — PARTY IN INTEREST. Under Rem. Rev. Stat., § 1211, providing that, where the adverse party sues or defends as having derived right or title through or from any deceased person, then a party in interest can not testify in his own behalf as to any transaction had by him with the deceased person, the testimony of an executor and heir that he was not indebted upon a note executed by him to the decedent and listed as an asset of the estate, is properly rejected, since he was a party in interest.
See 110 A.L.R. 1384; 21 Am. Jur. 634.
MAIN, J.
This is an appeal from a portion of the decree of distribution entered in the estate of Rose T. Jackson, deceased, who died testate May 6, 1932. By her will, she devised and bequeathed the residue of her estate, one-third to Anton J. Nilsen, one-third to the Puyallup, Washington, Home for Ladies of the Grand Army of the Republic, and one-third to Fenton Jackson. Nilsen was named as executor.
The estate consisted of real and personal property. In the inventory filed, there was listed a note of Nilsen's due the estate, in the sum of $3,750. Sometime after Nilsen was appointed executor and qualified, he assigned all his interest in the estate, including his fees, to one O.M. Knudsen, to whom Nilsen was indebted in the sum of $2,500. September 15, 1938, the court fixed the executor's fees at $2,500.
Thereafter, and on December 2, 1938, the court entered a final decree of distribution, in which it was ordered that Nilsen's fees, as well as his one-third interest in the residue of the estate, should be applied upon his indebtedness thereto, as represented by the note for $3,750. September 20th, Nilsen executed and delivered to Knudsen a new assignment in writing, covering the fees as fixed and allowed by the court. From the decree as entered, Nilsen and Knudsen appeal.
The principal question is whether the court had the right to provide that Nilsen's fees as executor should be applied upon the indebtedness which he owed the estate.
Rem. Rev. Stat., § 1467 [P.C. § 9923], provides that the naming of a person as executor in a will or the appointment of a person as administrator
". . . shall not operate as a discharge from any just claim which the testator or intestate had against the executor or administrator, but the claim shall be included in the inventory and the executor and administrator shall be liable to the same extent as he would have been had he not been appointed executor or administrator."
[1] Where the executor or administrator of an estate is its debtor, the amount of his indebtedness is to be retained out of his distributive share as heir, devisee or legatee, in like manner and to the same extent as though he were any other person entitled to distribution. 3 Bancroft's Probate Practice, § 1138.
The right of retainer is sometimes referred to as a set-off, but this is technically incorrect, because, as pointed out in In re Smith's Estate, 179 Wn. 417, 38 P.2d 244, there is a difference between retainer and set-off. The appellants recognize the right of retainer, as to the personal estate subject to distribution, as against a debt due the decedent from a distributee, but contend that that rule does not apply to the real property. The trial court, in its decree, provided:
"That said executor is hereby directed to set off the fee of $2,500 allowed to him and any legacy which he may have from the estate against his note in the sum of $3,750, plus interest, and said fee and legacy are hereby distributed to the other heirs of the estate."
In the case of Boyer v. Robinson, 26 Wn. 117, 66 P. 119, it was held that a debt due from a devisee can be retained from his portion of the real estate by the executor and applied on the indebtedness of the devisee to the estate. This was on the theory that, since an heir or devisee owes the estate more than the value of his share and does not pay his debts, he has no interest in the property of the estate, because the property would not descend until his debt was satisfied.
In Stanley v. United States Nat. Bank, 110 Ore. 648, 224 P. 835, it was said:
"Indebtedness of a legatee or distributee constitutes assets of the estate, which it is the duty of the executor or administrator to collect for the benefit of creditors, legatees and distributees. To the extent of his indebtedness withheld from the estate by the legatee or distributee, the distributive share or legacy of the debtor, is regarded as having been paid, and his claim upon the estate satisfied pro tanto, and where the amount of the indebtedness of the distributee or legatee exceeds the value of the legacy or distributive share, it extinguishes his title to the property of the estate in the hands of the executor or administrator available for distribution: Streety v. McCurdy, 104 Ala. 493 ( 16 So. 686); Webb v. Fuller, 85 Me. 443 ( 27 A. 346, 22 L.R.A. 177); Fiscus v. Moore, 121 Ind. 547 ( 23 N.E. 362, 7 L.R.A. 235); Holmes v. McPheeters, 149 Ind. 587 ( 49 N.E. 452); In re Lietman, 149 Mo. 112 ( 50 S.W. 307, 73 Am. St. Rep. 374); Armour v. Kendall, 15 R.I. 193 ( 2 A. 311); Oxsheer v. Nave, 90 Tex. 568 ( 40 S.W. 7, 37 L.R.A. 98); New v. New, 127 Ind. 576 ( 27 N.E. 154)."
The appellants seek, first, to distinguish the case of Boyer v. Robinson, supra, and then take the position that, if it cannot be distinguished, then it should be set aside, because it is claimed it is not based upon sound reason and is out of harmony with the weight of authority. We think the decision should not be departed from, because it is equitable and just in its operation. The right of retainer is based upon the equitable principle that no one should be permitted to share in the distribution of a fund until he has discharged his obligation to contribute to the fund. If the personal representative is indebted to the estate and is also entitled to a distributive share therein, he is required to satisfy the indebtedness, as far as possible, out of the portion coming to him. 3 Alexander, Commentaries on Wills, § 1496; Case Note Annotation, 1 A.L.R. 1031; Webb v. Fuller, 85 Me. 443, 27 A. 346, 22 L.R.A. 177.
[2] It is the general rule that the assignee of a legacy or distributive share, whether with or without notice of his assignor's indebtedness to the estate, takes subject to the existing equities, and is in no better condition than his assignor would have been had the assignment not been made. Romig v. Erdman, 5 Whart. (Pa.) 112, 34 Am. Dec. 533; Loverett v. Veatch, 268 Ky. 797, 105 S.W.2d 1052, 110 A.L.R. 1378; Case Note, 75 A.L.R. 886.
[3] We now come to the question of whether the rule, as applied to bequests and devises with reference to retainer, should be applied to fees earned as executor. It will be admitted that the executor's fees bear a little different relation to the estate than does the distributive share of the estate to a legatee or devisee. As pointed out, the rule of retainer is equitable in its nature and based upon the principle that one should not be permitted to share in the distribution of a fund until he has discharged his obligation to contribute to that fund. If the fees of the executor are not applied upon his indebtedness to the estate, then they will go to Knudsen under the assignment. It would seem to be inequitable to take these fees out of the estate, while Nilsen is indebted to it in a greater sum than the amount thereof, and give them to a third person. In our opinion, the trial court correctly ruled upon this question.
It will be admitted that the case of Lester v. Toole, 20 Ga. App. 381, 93 S.E. 55, holds to the contrary, but we are not disposed to adopt the holding in that case.
[4] Upon the trial, the appellants sought to prove the insolvency of Nilsen, but the testimony was rejected. The ruling was correct, because the right of retainer between executors and legatees exists independent of insolvency. Chase Nat. Bank v. Sayles, 30 F.2d 178.
[5] Also, upon the trial, the appellants sought to prove by Nilsen that he was not indebted upon the note, and this testimony was properly rejected. In Rem. Rev. Stat., § 1211 [P.C. § 7722], it is provided that, where the adverse party sues or defends as having derived right or title through or from any deceased person, then a party in interest shall not be admitted to testify in his own behalf as to any transaction had by him with, or any statement made to him, or in his presence, by the deceased person.
The respondents in this case, Puyallup, Washington, Home for Ladies of the Grand Army of the Republic and Fenton Jackson, derive title through or from the deceased. Nilsen was a party in interest, and, under the statute, his testimony was rightly rejected. In re Miller's Estate, 129 Wn. 211, 224 P. 607.
The decree will be affirmed.
BLAKE, C.J., JEFFERS, ROBINSON, and STEINERT, JJ., concur.
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