CHAPTER III.
It was enacted by the 47 Geo. III., c. 74, that the property of any trader who died possessed of, or entitled to, any real estate or interest in real property which would be assets for the payment of any debts due on specialty, in which the heir was bound, should be equally applicable through the administration of a court of equity, forallthe just debts of such trader, whether debts due on simple contract, or otherwise; thus remedying one of the most unjust mischiefs which ever disgraced the jurisprudence of any country. For, before, a man would die possessed of immense landed estates, and owe immense sums as debts upon simple contract, one hundreth part of which, perhaps, would scarcely be liquidated before the day of doom, in consequence of his leaving but a small personal property to pay them, while his real property could not be touched for the purpose.
That statute, however, only applied to those persons who were traders at the time of their decease, and not to those who left off businessbefore they died; and it was repealed by 1 Will. IV., c. 47, but re-enacted by the same act, in order to remedy the frauds for which no previous provision had been made. By this act it was decreed, that “all wills and testamentary limitations, dispositions or appointments of real estates, whereof any person shall be seized in fee simple, in possession, reversion or remainder, or have power to dispose of by will, shall be deemed fraudulent and void as against creditors, by bond, covenant, or other specialty binding his heir,” and right of action is given the creditors against the heir or devisee. A further improvement was made by the 3 and 4 Will. IV., c. 104, by which all landed estates of freehold, custom, or copyhold, are made liable for the payment of simple contract as well as specialty debts, as much as they had previously been for the debts in which the heir was bound; but still the creditors in specialty in which the heir is bound, are to be paid in full before the creditors by simple contract, or the other specialty creditors, are paid any part of their claims. By the 5 Geo. II., c. 7, all the real property in the British plantations in America, is made subject to debts as if it were only personal.
Lands may be devised to be sold for thepayment of debts only to which it will be alone restricted; or if there is sufficient to satisfy all claims, it may be sold for the payment of legacies only, and not debts, in which case no debts can be paid out of the funds it produces. But in the first place, the personal assets of the testator shall in every instance be applied in the discharge of his debts or general legacies, unless by manifest intention they are exempted, as a plain declaration, or an inference so necessary, as to be tantamount to a declaration. A devise of the real estate, therefore, subject to the payment of debts, will not exempt the personal estate, at least only in appearance; for if even the testator direct the real estate to be sold to pay the debts, the personal estate will, by the rule of law, be taken to exonerate the rule, unless the whole of the personal estate be left in specific legacies. It is indeed directed, by the decisions in several cases, to be thus applied, even though the personal debt should be secured by mortgage, and whether or not there be a bond or covenant for repayment. By the same rule, lands which have descended will exonerate lands which have been devised; and both unencumbered and mortgaged lands which are devised, though even specifically and expressly after the payment ofalldebts, will be used to throw off the mortgage, for in every such instance the debt is considered as only a personal debt of the testator, and, consequently a merely collateral charge upon the real estate.
Where, however, the charge is chiefly on the real estate, and the charge on the personal is only collateral, a different rule prevails. As, for instance, where a real estate has been bought subject to a mortgage, for then the real estate which bears the burden, and not the collateral personal estate of the purchaser, shall be used to discharge the debt, unless it evidently appears that he intended that effect; but a mere covenant for making the debt secure would not absolve the real estate from its liability.
In the application of real assets, when the personal estate is exhausted or exempt, the order to be observed is, firstly, “the real estate expressly devised for the purpose shall be applied; secondly, to the extent of the specialty debts the real estate descended; thirdly, the real estate specifically devised, subject to a general charge of debts.”
It is necessary also, in order to understand the right position of legatees, to state, that where a creditor has more than one fund to resort to forthe satisfaction of his claims and, another has only one, and he who has more than one chooses that fund on which he who has only one has a claim, that the creditor who has only one shall be able to come upon the other on which he had previously no lien; so that if a special creditor be satisfied out of the personal assets when they are only sufficient to satisfy the simple contract debts, the simple contract creditor shall have a claim against the real assets when the personal assets are exhausted. The same marshalling of assets may take place in favour of legatees, and against assets descended they have the same equity; as, for instance, when a simple contract creditor, who is prior in his claim to a general legatee, shall have been satisfied out of the personal assets, when they ought to have been left for the satisfaction of inferior claims, the general legatee shall stand in his place as to the real assets; so when the legacies are charged by the will on the real estate, and the legacies given in the codicil are not, the former shall resort to the real assets when there is an insufficiency of the personal assets to pay the whole. In the same manner, should a specialty creditor choose that his claim shall be satisfied from the assets in the hands ofthe heir, the heir shall be entitled to a recompense out of the personal estate.
But the principles of these rules do not extend so far as to enable one claimant to overrule the rights of another, and a pecuniary legatee will not, consequently, stand in the place of a specialty creditor in his right against any lands specifically devised, though he will against those which have descended in an ordinary manner. Where, however, a mortgagee has exhausted the personal assets, instead of taking the estate over which he held his particular power, the legatee will come upon the mortgaged premises for the satisfaction of his claim, for the personal assets ought not to be so appropriated, to the defeating of any legacy, either specific or pecuniary. Where, also, a specialty creditor shall have exhausted the personalty, the legatee will have a claim upon the real estate before a residuary devisee. Yet in the case ofHandleyv.Roberts, where the testator had left three leasehold estates, one of which was mortgaged, and the residuary personalty, which was the fund he appropriated to the payment of the debt, was exhausted without fully satisfying the claim, the other two leaseholds were held exempt from any share of the burden, and thelegatee of the mortgaged estate took it with its weight as it was. None of these rules subject any portion of an estate to claims to which it was not liable before, but only go to the extent of securing the rights of every claimant with equal fairness.
Where a testator dies possessed of both copyhold and freehold property, and he charges all hisrealestate with the payment of his debts, both species of property will be equally subject to the impost, if he shall have surrendered the copyhold to the use of his will, but if not, the freehold must be exhausted before the copyhold can be applied.
If a legatee be entitled to a legacy at some future day, out of the mixed fund of real and personal estate, and he die before that day arrive, the legacy will become vested and transmissible if it be made payable out of the personalty, but will sink on the death of the legatee if it be charged on the real estate. The wife will stand in the place of specialty creditors, for her paraphernalia, against real assets descended, but whether or not against such as are devised is not yet finally determined, unless such real assets shall have been stated specifically, to assist the personalty in the liquidation of debts.
As respects bequests for charitable objects, a court of equity will not marshall the assets so as to give effect out of the personalty, notwithstanding that they are void as regards land. Under a devise of real and personal estate in trust to pay debts and legacies, some of which were void by statute as (charges for charitable objects upon real and leasehold estates), and there proving a deficiency of assets, the other legatees were preferred to the heir.