
    Matter of the Accounting of Nathan A. Downs and William H. Wells, as Executors of the Will of Daniel Griffing, Deceased.
    (Surrogate’s Court, Suffolk County,
    January, 1903.)
    Interest — When the estate o£ a testator and his legatees stand to each other as creditor and debtors — Executor’s right of retainer — Loans of estate moneys made by an executor to himself as an individual
    The third clause of the will of a testator gave his residuary estate to his children and grandchildren. The fourth clause directed that, if within ten years of his death, any of them died without issue living then the survivors should take the share or shares. The fifth clause directed that “ all moneys with interest due me at my decease ” from the (his) residuary legatees should be included as a part of his personalty, whether or not the debt were outlawed, and that each and every debt which the said legatees “ may owe me at my decease with interest shall be treated and reckoned in as so much had and received on account of the provision I have made herein for them and each of them ”,
    Held, that a grandson who had lived for more than ten years after the death of the testator and, who at the latter’s death owed him money secured by notes, must pay thereon simple interest from the dates of the notes to that of the testator’s death, and that the executors, in settling with the grandson, might retain and set off against his share so much of the principal and simple interest as remained unpaid at the time of the settlement.
    An executor of an estate, who borrows its moneys and repays them, is chargeable on the loans with five, and not with six, per cent, interest.
    Objections to executors’ account. Interests determined.
    George F. Staekpole, for executors.
    Augustus M. Price, for contestant.
   Petty, S.

The provisions of the will relevant to this inquiry, are as follows:

" Third. I give, devise and bequeath all the rest and residue of my property both real' and personal to my children and certain grandchildren herein named as follows, viz: To my daughters Huldah Williamson, Caroline M. Wells, Georgiana Downs and Martha J. Parsons and my Grandson Willis Reeve, each, one equal undivided two thirteenth parts thereof, and to my Grandsons Addison H. Grilling and Gilbert B. Griffing and my Granddaughter Lilian A. Jackson, each, one equal undivided thirteenth part thereof to them and each of them and to their heirs forever, except as hereinafter provided.
“Fourth. In case any of my children or Grandchildren mentioned in the Third clause herein, die before the expiration of ten years after my death without issue living, I direct that the share of such child or Grandchild, be distributed among the remaining children and Grandchildren as devised and bequeathed in the third clause herein.
" Fifth. I order and direct that all money with interest due me at my decease from my children and Grandchildren also due me from the Husband of my daughter Martha J. Parsons, be added in and included as a part of my personal property whether any of the debts are outlawed or not and that each and every debt of my children and Grandchildren, which they or any of them may owe me at my decease with interest shall be treated and reckoned in as so much had and received on account of the provision I have made herein for them and each of them and I also direct that the debt • due me from the Husband of my daughter Martha J. Parsons, shall be inventoried as part of my personal property and treated & considered as so much had & received by my daughter Martha J. Parsons on account of my provision for her herein.”

At the decease of the testator the principal of and certain interest on two notes given him by the contestant for money loaned were due and unpaid. At the expiration of the ten years limitation the executors made distribution to the legatees, charging against the share of the contestant, a grandson, the principal of these notes and interest to the date of the distribution. It is the contention of the contestant that no interest should be charged to him on these notes subsequent to the testator’s death, but that the principal of the notes with the interest accrued to that time alone should be deducted from his share, as received by him then, on account of his interest in the estate. Whether this be the correct view or not depends solely upon the intention of the testator and in determining this I am limited to the language of the will, which, in this respect, is unfortunately obscure.

It is first to be observed that the words “ at my decease,” occurring twice in clause fifth are without significance. They express what is true as a matter of law, namely, that debts due a decedent mean due at his death, but so far as aiding in the interpretation of the instrument they neither add nor take away.

It is to be further observed that whatever rule of construction be adopted it must be one which will meet and harmonize with all parts of the will and with all the possibilities which may have arisen thereunder. At the death of testator there was no certainty that the contestant would ever be entitled to a share in the estate. He was not an ordinary legatee but was required by the deceased to survive him for ten years, or, dying within that period, to leave issue surviving in order to qualify himself as a beneficiary. He had, undoubtedly, at the death of the testator an interest, but it was not one which entitled him to the payment of money of the estate until the terms imposed had been met and satisfied. Being entitled to no share at testator’s death no payment on account thereof could be made at that time. If the executors could not at that time advance to him in cash on account of his interest they could not accomplish the same end by canceling afi indebtedness then existing from him to the testator. ■ The words “ had and received,” as used in the fifth clause, do not warrant a different conclusion, for by express direction he shall not “ have and receive ” until the ten years expires and, perhaps, not even then.

It appears, furthermore, from a study of the entire will that the idea uppermost in the testator’s mind was equality: Why he made of his legatees two classes is immaterial. It remains that the members of each class must share and share alike. This cannot be accomplished unless the interest on the debts of the legatees continues until those debts are actually paid. The estate began at less than $5,000 personalty. It has increased to nearly $20,000, mainly from accumulations of income. In this increase, as in the principal, the contestant shares to the extent of his one-thirteenth. So do others of his class, but unless his obligations bear interest he receives a decided advance over them, namely, the entire income for ten years on his indebtedness instead of one-thirteenth only. It was the express wish of the testator that no such disparity should exist, ^nd the equitable right of retainer applies as to both principal and interest. A similar view was that expressed in Matter of Foster, 38 Misc. Rep. 347; 77 N. Y. Supp. 922.

• The estate is in fact for all intents and purposes the same as if the testator had himself lived during the ten-year limitation, and at the end thereof divided his estate into thirteenths to take effect at once and despite the lapse of time either before or after the testator’s death the equitable rule requires that the executors shall deduct from the share paid the legatee his indebtedness, both principal and interest. Rogers v. Murdock, 45 Hun, 30; 9 N. Y. St. Repr. 660.

That this rule would have been adopted in Matter of Robert, 111 N. Y. 372, had not the testator expressly negatived the question of interest is strongly intimated in that case. At page 380 the court says, speaking of a debt due from a beneficiary on which the testator directed no interest to be charged: “ In this clause we find an added incident of the indebtedness before referred to. It is such as is interest bearing, either by its own terms or by operation of law consequent upon its being due and payable, and the object of the provision is to interfere with and modify the legal rules which would attach interest to the debt due or to become due.”

That the relations of testator and contestant were those of the ordinary creditor and debtor is established by the decision in Ritch v. Hawxhurst, 114 N. Y. 512. In this case the provisions of the will, save for the ten-year limitation, were the same in substance as those of the will'under discussion. It was clearly held that no gift or advancement was intended; that the transaction remained as it was at the beginning, a simple debt, and the judgment entered therein, to be consistent with the opinion, must have included interest.

In Verplanck v. De Went, 10 Hun, 611, the. will directed the sum of $5,000 paid the legatee by testator during life “ to go in diminution ” of his share in the estate. Interest on this amount was charged to the date of settlement, the court saying: “ It stands upon the same footing as any other debt due the estate; the time the debt is due being fixed as the day the will takes effect, its collection being deferred to the date of distribution of the 'legatee’s share. It forms a portion of the assets of the estate, and the legatee receiving "his share of it upon the distribution of his share.”

In Adair v. Brimmer, 74 N. Y. 539, as in the case in issue, a legatee was indebted to the testator at the death of the latter. At page 560 the court says: “ This indebtedness is to be taken into account however as reducing or satisfying the amount which he was entitled to draw as his distributive share of the principal and income of the estate and which amounted on the 31st of Beeember, 1871 — the date to which the accounts were made up — to about $85,000, on the basis of the account as settled. Interest being chargeable to him on his indebtedness, from the date of the death of the testator.” Again at page 566: “For the indebtedness of Charles, existing at the time of the departure of Mr. Brimmer for Europe in August, 1867, or so much of it as is in excess of the amount payable to Charles at the time of the accounting less the portion of indebtedness which existed at the death of the testator, Mr. Brimmer should be held responsible with the other executors, and the amount due' by Charles at the testator’s death, with the interest thereon, should be first applied to the extinguishment of his distributive share of the estate.”

Upon principle and authority, therefore, interest on-the indebtedness of all legatees is properly chargeable to the date of settlement. Simple interest alone, however, should be charged. The executors have in good faith and in an honest interpretation of the will added to the principal of the contestant’s notes the interest due thereon at testator’s death and on the sum so found have computed interest to the settlement. With this I do not agree. The contestant while having a debtor’s liabilities is also entitled to a debtor’s privileges. The computation as made amounts to compound interest. This would be as unjust to the contestant as it would have been to others, strangers, whose notes the testator held at his death and who paid simple interest thereon for some time thereafter. Nothing in the will requires interest on interest. Being an ordinary debt the every-day rules of interest apply. The proper method is to compute interest on the notes from their dates to the date of settlement at the expiration of the ten years, deducting from the sum so found all payments of interest made.

The objection that the managing executor should be charged with six per cent, interest on the loans made to himself is not sustained. There is no hard and fast rule fixing the liability of executors for interest. The rate is to be determined from an examination of all the circumstances in each case, the most important of which is good or bad faith, as the case may be. The executor has, in good faith, loaned to himself various sums and given therefor in each case a note payable to the estate with interest at five per cent. Principal and interest have been fully paid. The notes have been kept with and as part of the assets of the estate and marked “paid” at the proper time. The entire estate has been ably managed. Exclusive of the proceeds from realty the estate has about doubled in ten years. At no time has there been a loss. A large part of the income is that paid by the executor on the notes. Upon principle he is rather to be commended than censured. The difficulty in obtaining investments should not be lost sight of. A safe investment at six per cent, is as rare as it is desirable. Safety and good income are strangers. The executor has paid the going rate and the legatees have benefited by one per cent, over and above the income from the savings bank accounts to which there is no objection. Had the executor loaned to his neighbor on similar notes with the same successful outcome, no objection could have been made. That such a loan, in event of loss, would render him personally liable for principal and interest at the legal rate is immaterial when in fact no loss occurred. Certain trust investments are not illegal in the ordinary use of that term, but illegal in the sense that the investor takes the risk and must make the principal good with legal interest in event of loss. Where he takes the risk, however, and that successfully, he should not be charged a penalty of one per cent, for benefiting the estate by five.

The cases cited in supporting this objection are distinguishable. In King v. Talbot, 40 N. Y. 76, while six per cent, was charged, it was one less than the highest legal rate, and the court observes, at page 95: Where the failure of a trustee in his duty is wilful, or characterized by bad faith, the highest rate of interest should be imposed. But where good faith and honest mistake concur, the rate of interest rests in a discretion, that permits the consideration of all the circumstances, which show that substantial justice can be done to the cestui que trust, by allowing a less rate.” In Matter of Myers, 131 N. Y. 416, the assets of the deceased were actually appropriated to the use of the executors individually. Here was an actual devastavit. A speculative business was carried on by them with the testator’s capital. Hot the slightest attempt was made to invest the estate for the beneficiaries. As in the Matter of Thorp, 31 Misc. Rep. 581, the assets of the decedent had lost their identity as estate funds and became individual capital. In Matter of Hall, 164 N. Y. 196, the funds were invested in a manufacturing corporation which failed and most of the investment was lost. The executor was charged with principal and legal interest. Such could not have been the decision had the corporation prospered and he accounted at the proper time for the principal with five per cent, dividends in cash.' In Matter of Wotton, 59 App. Div. 584, a similar loss occurred. In Baker v. Disbrow, 18 Hun, 29, there was an entire loss of principal and a partial loss of income. In Adair v. Brimmer, 74 N. Y. 539, no income was derived and there was a loss of principal.

The following cases will be found to support the rule declared: Price v. Holman, 135 N. Y. 124; Wilmerding v. McKesson, 103 id. 329; Collyer v. Collyer, 6 N. Y. St. Repr. 693; Matter of McKay, 5 Misc. Rep. 123; Shepard v. Patterson, 3 Dem. 183; United States Trust Co. v. Bixby, 2 id. 494; Du Bois v. Brown, 1 id. 317.

Yaluable assistance having been rendered the court by counsel, costs will be awarded to both sides.

Decreed accordingly.  