Northrup v. Browne

WILLIAM II. MUNGER, District Judge.

About the year 1875 one Hiram M. Northrup formed a partnership with his son, Thomas C. Northrup, for the purpose of conducting a banking business in Kansas City, Wyandotte county, Kan. Said partnership continued until the death of the son in 1876. Thereafter Hiram M. Northrup continued the banking business as sole owner under the name of Northrup & Son until the year 1887, when pursuant to the laws of the slate of Kansas he incorporated said banking business under the corporate name of the Northrup Banking Company. Eor some years prior to the incorporation Kenneth L. Browne and Eldridge H. Lovelace had been in the employ of Hiram M. Northrup, and upon the incorporation Hiram M. Northrup became the president, and Kenneth L. Browne and Eldridge H. Lovelace, respectively, cashier and assistant cashier. The capital stock was $100,000, of the par value of $1,000 a share. Hiram M. Northrup became the owner of 52 shares, Kenneth L. Browne 24, Eldridge H. Lovelace 1 share, and Joseph S. Chick, who was then and for some years thereafter the president'of the Kansas City National Bank, became the owner of 1 share, and the remaining other shares were owned by various other persons. For the purpose of accomplishing a transfer of the property, business, and good will of the said banking concern of Northrup & Son to the said corporation, the said Hiram M. Northrup after the incorporation duly made assignments of the securities, theretofore owned by him as the proprietor and owner of the said business of Northrup & Son, to the said Northrup Banking Company, and, as alleged in the bill hereinafter referred to, said Hiram M. Northrup did not by said transfer intend to assume any personal liability, but solely for the purpose of transferring the ownership of the asset's of the bank of Northrup & Son to the Northrup Banking Company. Hiram M. Northrup continued as president and active manager of the Northrup Banking Company until his.death, March 22, 1893. He left a last will and testament, which was duly probated in the probate court of said Wyandotte county March 31, 1893. The will named said Browne, Lovelace, and Chick as executors. Chick, being a nonresident of the state of Kansas, was disqualified from acting as executor, and letters testamentary issued to Browne and Lovelace.

Hiram M. Northrup upon his death was the owner of a large amount of real estate as well as personal property. Numerous specific bequests of real property were made to his grandchildren and others. To one of his grandchildren all of his real estate in Sterling, Johnson county, Neb.; to a number of others improved real estate, to be selected by his executors, to the value of $10,000 to each, aggregating $70,000. Various .charitable bequests were made, and to keep the cemetery in Huron Place in repair and suitable adornment the total sum1 of $10,500. The will contained the following provision:

“It is my will and request that all of the capital stock of the Northrup Banking Company standing in my name shall not be sold but kept intact during the existence of the charter of said Banking Company, the cash dividends déelared upon said stock, after first deducting the costs and expenses of executing this will, to be paid to the legatees, one-half to Milton C. Northrup and one-half to Frank A. Northrup and Andrus B. Northrup, share and share alike. The said cash dividends to descend to the heirs of the respective bodies of the legatees in this paragraph named, if any there be; otherwise to be paid in like proportion to their legal heirs. None of said property in this paragraph named to descend to the present wife of said Milton C. Northrup. But • the surplus earnings of said banking company to remain to augment its capital stock.”

After the specific bequests before mentioned the will provided as follows:

“I will and bequeath one-half of the remainder of my estate both real and personal to my son, Milton C. Northrup to descend to the heirs of his bbdy. None of such property to descend to the present wife of said Milton C. Northrup.”

“I will and bequeath the remainder. of my estate both real and personal, share and share alike to my grandsons Frank A. Northrup and Andrus B. Northrup, to be by them received when said Andrus B. Northrup arrives at the age of twenty-one years.”

On the death of Hiram M. Northrup, Joseph S. Chick was elected president of the Banking Company, and Browne and Lovelace continued as cashier and assistant cashier. For some 10 years before the death of Hiram M. Northrup, one A. B. Hovey was in his employ in the capacity of bookkeeper.

After the probate of said will appraisers were duly appointed by the probate court to appraise the property of the deceased. The 52 shares of bank stock, par value of $52,000, were appraised at $78,000. On July 15, 1893, the Attorney General of the state of Kansas applied to the judge of the district court of said Wyandotte county, Kan., for the appointment of a receiver of said Banking Company on the ground that the Banking Company was insolvent. The district court appointed said A. B. Hovey receiver, who'duly qualified and entered upon his duties as such.

Numerous claims were filed against the estate of Hiram M. Northrup, duly allowed by the probate court, and suits were brought by the receiver against the executors of the estate upon some of the- notes which were assigned by Hiram M. Northrup to said Banking Company upon its incorporation as before mentioned, and judgments were rendered in favor of the receiver. Suits were also brought by the owners of depositors’ accounts in said Banking Company against the executors to recover under the laws of the state a sum equal to the par value of the stock so held by deceased under what is denominated as the “stockholder’s double liability law” of the state of Kansas. One of the suits was tried, and a stipulation entered into between the parties to the others that the remaining suits should abide the result of the one suit which was tried. Judgments were rendered upon the depositors’ claims against the executors to the amount of the par value of deceased’s bank stock.

November 17, 1893, the executors presented their petition to the probate court for an order to sell real estate to pay debts and taxes, etc. The statutory notice was given, and an order entered directing the sale of certain of the real estate. November 10, 1894, a second petition was presented to the court for an order to sell real estate to pay debts, etc., and after notice and hearing the order was granted. November 25, 1905, a third petition was presented to the court for an order to sell additional real estate to pay debts, etc., which order after notice and hearing was granted. On account of financial stringency, it having been difficult to sell real estate under orders for a fair value, the executors on March 4, 1898, petitioned the court for an order authorizing them to exchange real estate in payment of debts, etc., which, after notice and hearing, was by the court granted.

On Janttary 22, 1904, Milton C. Northrup, appellant, with others, filed their bill in the United States Court for the District of Kansas against Kenneth L. Browne, Eldridge H. Lovelace, and one C. K. Wells, alleging the facts hereinbefore stated; also alleged that the District Judge who appointed Hovey receiver of said Banking Company was disqualified to act, being an interested party, in that he was indebted to said Banking Company upon a note executed by him and held by the Banking Company. It also alleged that Hovey was disqualified as receiver, because of the fact that he also was indebted to the Banking Company upon a note, and alleged that judgments obtained upon the notes assigned by Hiram M. Northrup to the Banking Company were invalid, without .consideration, and that no notice or protest was given Hiram M.' Northrup of the nonpayment of said notes; that, while the executors made some pretended defense against said notes, they failed to make that defense. The bill alleges that many of the claims which were filed against the estate and allowed by the probate court were not valid claims against said estate. They further claimed that the executors had received the rents of certain real estate, which rents did not belong to the executors; and the bill further alleged that the orders to sell real estate were improperly granted, for the reason- that the personal property would have been sufficient to have paid all of the claims which complainants in the bill alleged were just and valid claims against the estate. The bill also charged that the executors had been derelict in their duty, in that they failed to sell the shares of stock held by Hiram M. Northrup in the bank within three months after the bond, as it was alleged was their duty to do under and by virtue of statutory provisions of the state, reading ■as follows:

“The executor or administrator shall, within three months after the date of his bond, sell the whole of the personal property belonging to the estate, which is liable to the payment of debts, and is assets in his hands to be administered, except the following: * * * Such property as is specifically bequeathed shall not be sold until the residue of the personal estate has been sold, and is found by the executor or administrator to be insufficient for the payment of the debts of the estate.” Gen. Stat. 1909, p. 798.

Their prayer for relief was that thq executors be enjoined from further proceeding in the probate court with the administration of the estate, that the executors be required to make a full statement and accounting of their acts as executors, that the court ascertain the validity of the judgments before mentioned rendered against said executors, and for equitable relief. The bill contained various charges of fraud against the executors 'in permitting said judgments to be obtained, in the appointment of the receiver for the Banking Company, and in not properly resisting the allowance of numerous claims against the estate. Thesé charges, however, are general, and not supported by allegations of specific facts from which fraud or misconduct could be inferred.

September 14, 1905, the action was dismissed for failure to comply with a certain order of the court relative to the payment of the costs, and on December 9, 1905, the action was reinstated by order of the court. Nothing further was done until November 7, 1911, when a supplemental bill was filed.' The supplemental bill alleged that on December 8, 1905, Browne and Dovelace, as executors, filed their application for a full and final settlement of their account as' executors of said estate, with proof of the publication of notice thereof. It is alleged in the said supplemental bill that said executors’ account did not contain a full and accurate accounting of the moneys received and disbursed, and alleged numerous objections and exceptions to the correctness of said account. The supplemental bill shows that the hearing of the application of the executors for the final settlement was continued by the probate court from the December term, 1905, to the February term, 1906, and various parties interested in the estate as creditors filed exceptions to the report, and that Milton C. Northrup, complainant, also appeared and filed exceptions to said report. The said Milton C. Northrup also filed a motion that the hearing on said account for final settlement and the objection's and exceptions filed thereto be continued and held in abeyance until the final hearing and disposition of their suit brought in the United States court be finally heard and determined, and for the further reason that said probate court had no jurisdiction to hear and determine the questions and exceptions filed to the final account of said executors. The probate court overruled the motion, whereupon said Milton C. Northrup, bv his attorneys, announced to the court that no evidence would be offered, but that he would stand upon the objections to the jurisdiction of the court to hear and determine the matters. The court entered upon a full hearing upon the exceptions filed by the other parties, heard the evidence which was offered by the parties, found generally that the exceptions were not true and well taken, and entered a final judgment approving the account of the executors, finding the residue after the payment of debts, etc., due and in the hands of the executors, and ordered distribution thereof, and that the executors be discharged as executors and from further liability as such.

On June 28j 1912, Milton C. Northrup filed an amendment to the supplemental bill, setting forth that because of his illness and financial inability, and his counsel and attorney having been engaged in other matters, he had been unable to prosecute his action more diligently. The record shows that in the meantime, before the filing of the amendment to the supplemental bill, the defendant Eovelace had died, and that for various reasons all parties complainant and defendant had been dismissed out of the case, excepting complainant, Milton C. Northrup, and Kenneth E. Browne, defendant.

A demurrer was filed to the bill and supplemental bill as amended, "which demurrer was on July 2, 1912, sustained by thep court, and the cause dismissed, from which judgment Milton C. Northrup, appellant, has brought the case to this court.

[1] It: is to be observed that the object and purpose of the bill and supplemental bill is to obtain in the United States court an accounting of the acts of the executors, re-examination of the validity of claims allowed by the probate court, and readjudicate the necessity and propriety of the orders authorizing the sale of real estate for the payment of debts, etc., and to charge the executors with what may be found due upon such accounting. This presents the question of jurisdiction of the federal court to grant such relief. The Supreme Court in Waterman v. Canal-Louisiana Bank Co., 215 U. S. 33, 30 Sup. Ct. 10, 54 L. Ed. 80. the latest decision of that court on the subject which has been called to our attention, after reviewing the previous cases of Payne v. Hook. 7 Wall. 425, 19 L. Ed. 260, Byers v. McAuley, 149 U. S. 608, 13 Sup. Ct. 906, 37 L. Ed. 867, Yonley v. Lavender, 21 Wall. 276, 22 L Ed. 536, Farrell v. O’Brien, 199 U. S. 89, 25 Sup. Ct. 727, 50 L. Ed. 101, and other cases cited, said:

“In view of the cases cited, and the rules thus established, it is evident that the bill in this ease goes too far in asking to have an accounting of the estate, such as can only be bad. in tbe probate court having jurisdiction' of tbe matter; for it is tbe result of the cases that in so far as tbe probate administration of tbe estate is concerned in tbe payment of debts, and tbe settlement of tbe accounts by tbe executor or administrator, tbe jurisdiction of tbe probate court may not be interfered with. It is also true, as was held in the court below in the case at bar, that tbe prior possession of the state probate court cannot be interfered with by tbe decree of tbe federal court. * * ® ’ If the federal court finds that tbe complainant is entitled to the alleged lapsed legacy and the residue of tbe estate, while it cannot interfere with the probate court in determining tbe amount of tbe residue arising from tbe settlement of tbe estate in tbe court of probate, tbe decree can find the amount of tbe residue, as determined by tbe administration in tbe probate court in tbe bands of tbe executor, to belong to tbe complainant, and to be held in trust for her, thus binding tbe executor personally.”

THus it clearly appears that the federal court may in the first instance adjudicate a claim against the estate of a deceased person in an action brought by the creditors against the administrator or executor, the requisite amount in controversy and diversity of citizenship existing. The federal court may also in a proper case determine the right of a party as heir, legatee, or distributee; but the court has no jurisdiction to determine those matters which are purely matters of administration, and the relief asked in the present case relates solely to matters purely administrative.

[2] Again it appears that the executors presented their final itemized account for settlement with the probate court. Complainant had due notice thereof, filed exceptions thereto, then objected to the jurisdiction of the probate court, for the reason that'jurisdiction had become vested solely in the federal court, because of the action brought therein. The probate court overruled the objections to the jurisdiction. Complainant elected to stand upon his motion, and offered no proof relative to the correctness of the executors' account. The probáte court, after hearing the evidence offered by other objectors, specifically found that the objections were not well taken, that the executors had duly and faithfully administered the trust and rendered a true and correct account thereof, the same was approved by the court, and the executors discharged. This constituted a final judgment, and was conclusive as against collateral attack, unless impeached for fraud; and, as we have said, the allegations of fraud are too general and present no facts upon which it can be based. Proctor v. Dicklow, 57 Kan. 119, 45 Pac. 86; Lewis v. Woodrum, 76 Kan. 384, 92 Pac. 306.

[3, 4] Again, the complainant had an opportunity to have, at the time the application for orders t.o sell real estate to pay debts was made, the validity and justness of the claims which had been allowed by the probate court against the estate re-examined and reviewed. Black v. Elliott, 63 Kan. 211, 65 Pac. 215, 88 Am. St. Rep. 239. The proceeding for an order to sell real estate to pay debts being an adversary proceeding, complainant was a party thereto. He neglected to avail himself of this right, and took no steps to question any of the proceedings until January, 1904, nearly 11 years after the institution of the probate proceedings, 10 years after the second order of sale, and 6 years after the last order of sale was granted. Then the bill was filed. No steps were taken to prosecute the bill for 6 years thereafter. Thus we have a case in which the complainant is clearly guilty of laches. lie was not only guilty of laches before filing the original bill, but guilty of laches in not prosecuting- the same with reasonable diligence; for the law is well settled that the mere institution oí a suit does not relieve a person from the charge of laches, and if he fails in its diligent prosecution the consequences are the same as if no action had been begun. Johnston v. Standard Mining Company, 148 U. S. 360, 13 Sup. Ct. 585, 37 L. Ed. 480; Willard v. Wood, 164 U. S. 502, 17 Sup. Ct. 176, 41 L. Ed. 531.

[ 5 ] There is no merit in the claim that the executors should be held personally liable for the value of the bank stock because of the failure to sell the same within three months after the date of their bond. We think by the terms of the will this stock veas brought within the ex-, ception provided for in the statute, as it was property specifically bequeathed. The will provided, as we have seen, that it should not be sold during the existence of the charter of the Banking Company, but the dividends should be paid, one half to appellant, and the other half to two of the testator’s grandchildren, the surplus earnings to remain to augment the capital stock. Upon the termination of the charter of the Banking Company, it doubtless went to the residuary legatees. In any event, however, under the circumstances, the executors cannot be charged with bad faith and rendered personally liable for the loss of the stock, because complying with the testator’s request not to dispose of the same.

'It is further claimed that the notice given of the hearing for the final settlement of the executors’ accounts was insufficient. This is unavailing to complainant, because he alleges that he appeared at the hearing and filed exceptions to the account as before stated, and objected to the jurisdiction of the court on the ground that the case was pending in the United States court. Even if the United States court had jurisdiction to examine the accounts of the executors, and recharge and falsify the same, that wottld not oust the jurisdiction of the probate court, as in such case the jurisdiction of the federal court would be concurrent, rather than exclusive.

From a full consideration of the entire case, we think the demurrer was properly sustained, and the decree is therefore affirmed.