author: Andrews, Oh. J.

text:
    John W. Cochrane et al., as Executors, etc., Resp’ts, v. Cornelia Elizabeth Schell, app’lt, Impl’d, etc., et al., Resp’ts.

      (Court of Appeals,

      Filed January 16, 1894.)

    1. Wills—Trusts.
    Under subd. 3, § 55 of 1 R. S., 728, an express trust may be created for the payment of annuities.
    2. Same.
    Where such a trust is duly limited in point of duration, but there is connected with the lawful purpose an express or implied direction for an unlawful accumulation, the title to the whole estate vests in the trustee during the trust term, though the valid trust purpose will not absorb the whole income, except perhaps where the valid purpose is nominal merely, and it can be seen that it was inserted as a mere cover for an attempted illegal accumulation. »
    3. Same—Contingent limitation.
    A contingent limitation of a future estate necessarily suspends the power of alienation provided it is, or may be, in favor of persons not in being at the death of the testator, and the suspense continues so long as there is a possibility that persons may come into being who would be entitled to take under the ulterior limitation.
    Appeal by the defendant, Cornelia Elizabeth Schell, from a judgment of the general term of the supreme court in the first ¡judicial department, entered upon an order made June 3, 1892, which modified, and affirmed as modified, a judgment in favor of plaintiff, entered upon a decision of the court on trial at special term.
    This is an ordinary action for the construction of a will.
    The testator, Adam.W. Spies, after making various devises and bequests, disposed of his residuary estate as follows :
    “ Ninth. All the rest, residue and remainder of my estate, both real and personal, I give, devise and bequeath to my executors and trustees hereinafter named, and to the survivor and survivors of them and their successors, in trust, nevertheless, to collect and receive all rents of my real estate, and all interest, dividends and income from my personal estate, and after payiny all taxes, insurance and other legal and necessary expenses thereon to pay there-out to my daughter Sarah Ann, the widow of William B. Kip, during her natural life, the sum of ten thousand dollars per annum. I further direct my said executors and trustees to pay to Adam W. Spies Cochrane, a child of my deceased daughter Hilah, the sum of three thousand dollars annually, until the death of my daughter Sarah Ann, and that they further pay therefrom to my grand-daughter Cornelia Elizabeth Schell the sum of three thousand dollars annually, until the death of my said daughter Sarah Ann, and that they further pay thereout to Arthur De Witt Cochrane, a child of my deceased daughter Hilah, the sum of one thousand dollars annually, until he shall arrive at the age of twenty-five years, or whichever event shall first happen, but in case the said Arthur De Witt Cochrane shall arrive at the age of twenty-five years before the decease of my said daughter Sarah Ann, then I direct my said executors and trustees to pay over to him from and after said age of twenty-five years the sun of three thousand dollars annually until the death of my .said daughter Sarah Ann ; said payments to my three grandchildren to be made in quarter-yearly payments, and to be free from the control of any husband of my said dranddaughter.
    “ Tenth. I hereby authorize and empower my said executors and trustees, and the survivors and survivor of them, during the continuance of the above trust and for the purposes above mentioned, to sell and dispose of any and all of my real estate at public or private sale, to let or lease the same, and to sell, assign and transfer any or all of my personal property, for the purposes of carrying out said trust, they to re-in vest the proceeds thereof in their names as such pxecutors and trustees, but I hereby direct that they shall not invest in any storks or bonds of any manufacturing or metal mining company, but shall invest in good bonds and mortgages or productive real estate, Northern State bonds, United States securities and the bonds of trunk lines of railroads earning and paying dividends on their stocks, I hereby giving and granting to my said executors and trustees full power and authority to change from time to time said bonds and securities into non-taxable securities when, in their judgment, such change will inure to the benefit of my estate.”
    “ Twelfth. At the death of my said daughter, Sarah Ann, to close this trust, I direct that my executors and trustees convey and transfer all of my estate, both real and personal, then remaining in their hands, to such of my grandchildren as shall then be living, except my said granddaughter, Sarah Ann French, viz,: Arthur De Witt Cochrane, Adam W. Spies Cochrane, Cornelia Elizabeth Schell, Henry Spies Kip, Garret Berg Kip, William Budolph Kip and Florence Adele Kip equally, share and share alike, and I hereby give, devise and bequeath the same to such seven grandchildren, but if any of said seven grandchildren shall die previous to the decease of my daughter Sarah Ann, leaving issue, him, her or them surviving, then I direct that such issue shall take the share to which their parent would have been entitled hereunder, if living, under this clause of my said will, said shares to be received by said grandchildren or their descendants free from any control or claim of any husband that she or they may have at any time.”
    By the second codicil to his will he included his grandchild, Sarah Ann French, in the foregoing provisions, by the terms of which she had been originally expressly excluded, and accordingly provided as follows:
    ‘ Third. I hereby direct my executors and trustees, out of the rents of my real estate, interest, dividends and income from my personal property mentioned in the ninth clause of my said last will and testament, to pay to said Sarah Ann French the sum of $3,000 annually until the death of my daughter Sarah Ann, said payments to said Sarah Ann French to be made in quarter-yearly payments, and to be free from the control of her husband.
    “ Fourth. I hereby direct that my said granddaughter, Sarah Ann French, shall be included in the division of my estate as mentioned in the twelfth clause of my said will and testament, and shall share therein equally with my other seven grandchildren, I hereby directing that said twelfth clause of said will shall apply to her and her heirs as though she had been originally named therein.”
    The testator left him surviving the defendant Sarah Ann Kip, his only living child, and the person mentioned in the ninth clause of the will, and the eight grandchildren referred to in the foregoing provisions. The defendant Cornelia Elizabeth Schell is the child of the testator’s deceased daughter Mary S. Barnes. Sarah Ann French, Adam W. Spies Cochrane and Arthur De Witt Cochrane are the children of the testator’s deceased daughter Hilah M. S. Cochrane. Henry Spies Kip, Garret Berg Kip, William Ruloff Kip and Florence Adele Kip are the only children of the surviving daughter Sarah Ann Kip. This surviving daughter, and the other defendants mentioned, who are the children of the deceased daughters Mary S. Barnes and Hilah M. S. Cochrane, respectively, are the testator’s only heirs at law and next of kin. All of the heirs at law and next of kin are now of full age. All but one of the Kip children, the children of the surviving daughter, are now infants, but within four or five years will all be of age.
    The testator’s estate consists of both real and personal property. After the payment of the bequests and the indebtedness, the residuary estate amounts to $1,000,000 in real estate, yielding an annual income of about $30,000, and $2,000,000 in personal estate, yielding an annual income of about $60,000.
    The testator died a little less than two years after making his will, and the court below found that “ the net income of the said estate for three years prior to the decease of the said Adam W. Spies, from both his real estate and personal property, exceeded the sum of $80,000 per annum, of which about three-fourths were derived from personalty and one-fourth from realty, and it is probable that the annual net income will continue' to exceed the sum of §80,000, and be derived in about the same proportion as above stated from personalty and realty.”
    It was also found that “ the personalty included stocks and bonds of such a kind that sufficient thereof could be set aside to furnish the amount required to pay the annuities provided for by the ninth clause of the will without affecting the balance of the property.”
    The annuities thus provided for now amount to twenty thousand dollars, and after 1897, when Arthur De Witt Cochrane will reach the age of twenty-five, may, by the terms of the ninth clause, amount to twenty-two thousand dollars per year. There is now a surplus of income of upwards of sixty thousand dollars per year, and the question presented by this appeal relates to the disposition to be made of this surplus.
    It is claimed in behalf of the appellant, the only child of the testator’s deceased daughter Mary S. Barnes, that the trust attempted to be created by the ninth clause of the will is invalid, and that the remainders limited to the eight grandchildren are dependent on the trust and fall with it, and further, that assuming the trust to be valid, the income from the real and personal estate not required for payment of the annuities, is distributable to the heirs at law and next of kin of the testator, and in case of intestacy, according to the nature of the property from which it will arise, and does not go under section 40 of the Revised Statutes, entitled “ Of the creation and division of estates,” to the eight grandchildren.
    The court below, at special term, upheld the validity of the pretended' trust, and declared that the residuary estate “is vested m remainder in the grandchildren of the testator named,” subject to the trust estate, and found, “ That, in consequence of a valid limitation of an expectant estate in said residuary estate, there has been a lawful suspension of the power of alienation thereof, during which a part of the rents and profits thereof are undisposed of.”
    Thereupon the court declared that the eight grandchildren named in the twelfth clause and the codicil were entitled to the surplus income as persons presumptively entitled to the next eventual estate.
    Upon this decision judgment was duly entered, adjudging that the eight grandchildren were entitled to the surplus income in equal shares as aforesaid, and that the same should be paid to them “ and to the heirs at law and next of kin of such of them as should die during the lifetime of the said Sarah Ann Kip.”
    The general term, deeming it unnecessary to pass upon the point last decided at special term, on the ground that it was a premature determination of a question which might or might not arise hereafter, modified the judgment by striking out the provision adjudging that the share of the income of each grandchild dying during the lifetime of Mrs. Kip would go to his or her heirs and next of kin, and as thus modified affirmed the judgment.

      Joseph H. Choate and James Otis Hoyt, for app’It; William G. Choate, for resp’t, Sarah Ann Kip; William G. Wilson, for resp’ts, Florence Adele Kip et al.; Charles Steele, for resp’ts, Sarah Ann French et al; Frank S. Hall, for executors, resp’ts.

      Affirming 46 St. Rep., 819.

   Andrews, Oh. J.

The time fixed by the will for -the final vesting of the estate is the death of the testator’s daughter Sarah Ann Kip. Whatever view, therefore,, may be taken as to the nature of the remainders, whether they are regarded as vested or contingent, there can under the will be no suspense of the power of alienation of the estate beyond the period of a single life in being at the death of the testator. The remainders must vest in possession on the death of the daughter, and whether vested or contingent they do not, as limited, transgress the rule of perpetuity, and unless they fail for some other reason they must be sustained.

■ The judgment below affirmed the validity of the trust created by the ninth section of the will and of the remainders given to the eight grandchildren of the testator by the twelfth section and adjudged that the income from the trust estate, beyond what was required to pay the annuities given by the ninth section, belonged to and was distributable among the eight grandchildren, all of whom are still living. The general term did not in terms decide whether the remainders given, to the grandchildren were vested or contingent, and declined to pass upon the question argued by some of the counsel, whether upon the death of any grandchild during the continuance of the trust estate, leaving no issue, the share of the one so dying would descend to his or her heirs or next of kin, or would accrue by survivorship to the surviving grandchildren. The general term was of 'the opinion that as this latter question might never become a practical one, and was not material to the disposition of the question before it, its determination should be postponed until an exigency arises which shall render its determination necessary. The decision of the general term upon this point is justified upon the ground stated, as also by a consideration of the issues framed by the pleadings, and involves to so great an extent a matter of judicial discretion, that this court should not, we think, review its conclusion.

The primary question in the case respects the validity of the trust created by the ninth section of the will. It is claimed in behalf of the appellant that the trust is void on the ground that it was a trust for the receipt of rents, profits and income of real and personal estate to pay annuities, and that this is not a purpose for which an express trust, under the 3d subdivision of § 55 of the statute of Uses and Trusts, is authorized, and that consequently under § 58 of the same statute, no estate in the land vested in the trustees, and that the whole estate subject to the payment of the annuities as a charge descended according to its nature to the heirs and next of kin of the testator. The remainers it is insisted were so limited as to be dependent upon the trusts, and that failing, the remainders fell also. The further claim is made that even if the trust is valid to any extent, it can be sustained only as to such portion of the estate as is required to provide an income to meet the annuities, and that the residue of the estate beyond that amount is liberated from the trust.

The validity of the trust will be first considered, and in disposing of this question it will be convenient to regard it as a trust of realty only, since if it can be sustained as a trust of that species of property, a fortiori can it be sustained as a trust of personalty. By the ninth section of the will the testator devised and bequeathed to his executors and trustees all the residue of his real and personal estate in trust, to collect and receive the rents, profits and income and pay thereout, first the taxes, insurance and expenses, and then the annuities specified therein during the life of the daughter. The substantial purpose of the trust expressed'in the ninth section, and the only one which it can be claimed supports the title in the trustees, was to pay the annuities mentioned, amounting in the aggregate to the sum of $20,000. The payment of the charges and the annuities would not exhaust the probable income of the estate. It is found that the net annual income of the testator’s estate for three years prior to his death had been $80,000, and that it was probable that the annual income thereafter during the trust term would exceed that sum. There was no express direction for the accumulation of the large surplus income which would be likely to arise and be received by the trustees, nor any express disposition thereof as such made by the will. But in the absence of any express direction for. accumulation or other disposition, it would be the duty of the trustees under the will to retain and accumulate it, and from this duty a direction for accumulation is implied. Gilman v. Reddington, 24 N. Y., 9. If the will in this respect is carried out, the accumulated fund, together with the corpus of the estate, will go to the eight grand-children or their issue at the termination of the trust under the twelfth section. But it is conceded that the implied direction for accumulation is void, because it was to commence at the testator’s death and was, or might be, for the benefit of persons not then in being, and of adults as well as infants. 1 Rev. St., 726, § 37; Manice v. Manice, 43 N. Y., 376. This implied direction for an unlawful accumulation is one of the grounds relied upon for invalidating the trust and will be hereafter considered.

The testator attempted to create a trust under the third subdivision of § 55 of the statute of Uses and Trusts. The main objection to the trust, viz., that a trust for the receipt of the rents and profits of land for the payment of .annuities, is not one of the purposes for which an express trust can be created under that subdivision, presents a question which has not, as we understand, been adjudicated by any court of final jurisdiction in this state. But in the case of Lang v. Ropke, 5 Sandf., 363, Judge Duer expressed the opinion that a trust to pay annuities could not be created under the third subdivision of § 55 of the statute, but only under the second subdivision. The question in that case related to the validity of a trust of real and personal property created by will, which as was claimed unduly suspended the power of alienation. It was insisted that alienation was suspended, not only during the life or minority of the youngest child of the testator, but also during the lives of two annuitants whose annuities were charged on the income of the estate. The learned judge first answered the claim by showing that if the annuities suspended alienation, they being distinct and independent, the suspension would terminate as to each annuity and as to each share of the capital set apart to produce it, on the death of the annuitant, thus creating a suspension at most for two lives, viz., the life of the youngest child of the testator and of an annuitant in addition, a term within the statutory period. The learned judge having thus given a conclusive answer to the objection made, proceeded to make the further answer that annuities charged on land or the rents and profits of land, whatever, direction may be given for their payment, are alienable by the beneficiary and do not suspend the power of alienation of the land by the trustee, for the reason that a trust for the payment of annuities can only be created under the second subdivision of § 55, and that such a trust is not subject to the prohibitory clauses of §§ 60 and 63. The learned judge rests his opinion that a trust to pay annuities could not be constituted under sub. 3 of § 55, but only under sub. 2 of that section, upon the case of Hawley v. James, 16 Wend., 61, which, as he understood it, “ settled the law ” upon the question. The same conclusion was re-affirmed by the same judge in Griffin v. Ford, 1 Bos., 123, following the supposed authority of Hawley v. James, and his prior opinion in Lang v. Ropke, but in Griffin v. Lord, as in Lang v. Ropke, the decision of the point does not seem to have been necessary to uphold the judgment rendered. The opinion of this eminent jurist is entitled to the highest respect, especially on a question of this character. But we have been unable, upon a careful examination of the decision in Hawley v. James, to find that the question was there decided, and w'e are confirmed in the opinion that the judgment in that case furnishes no support to the doctrine that a trust to pay annuities cannot be lawfully constituted under the third subdivision of § 55, by the remarks of the chancellor in Clute v. Bool, 8 Paige, 83, who interprets the opinions in Hawley v. James, as leading to a conclusion directly contrary to the view taken by Judge Duer. The case of Hawley v. James is one of the landmarks in the exposition of the law of uses and trusts, as modified by the Revised Statutes. There were two main questions in that case: First, whether the trust term was lawfully constituted in respect of duration ; and, second, whether the remainders were so limited that they would vest within the period prescribed by statute. Both of these questions were determined adversely to the limitations in the will, and the trust term and remainders were held to be void for remoteness. By the will certain annuities were given by independent clauses, absolute in form; and preceding the clauses constituting the trust. The trustees were directed to pay the legacies and annuities out of the profits and income of the estate. One of the questions argued at the bar was whether the trust was created for a purpose which, if the trust was otherwise valid, would vest the legal title to the estate in the trustees during the trust term, and the purpose principally relied upon to sustain the title of the trustees was the trust for the payment of annuities. This question only became important in case it should, be held that in point of duration the trust was legal. If the trust term was void, as transgressing the statute, valid trust purposes would not suffice to uphold the trust. The question whether a trust to pay annuities could be lawfully constituted under the third subdivision of § 55 so as to support a legal title to the estate in the trustees, was considered in some of the opinions. Judge Nelson was of opinion that such a trust could be created under the third subdivision, and also that an annuity under a trust was not a gross sum within the last clause of § 63, and was, therefore, inalienable by the beneficiary. Judge Bronson condemned the purpose of the trust on the ground that it was a trust to “ pay over ” and not to “ apply ” the rents and profits of lands, raising a question which was not finally settled until the decision in Leggett v. Perkins, 2 N. Y., 297. Judge Bronson agreed with Judge Nelson that an annuity was not a gross sum within the sixty-third section. Judge Cowen was in favor of sustaining the will in its general aspects, but condemned some of the remoter limitations. The decree in the case is given in full in the report. . It adjudged the trust term and the remainders to be void, because they violated the rule of perpetuity.

The decree fas we read it) does not determine whether the trust was created for lawful purposes or for purposes which would vest the title to the estate in the trustees if the trust was otherwise valid. It preserves the annuities and provides for their payment, but imposed upon such of the annuitants as were heirs of the testator the duty to elect whether they would take under the will, or as in case of intestacy. There is no express declaration of the ground upon which . the annuities were sustained. We think the inference from the opinions, in connection with the decree, is that they were regarded as separate and independent gifts distinct from the trust, and could be sustained as a charge, although dissevered from the trust, and that the direction to the trustee to pay the annuities out of the income of the estate was inserted merely as a convenient mode of satisfying the charge. We think it cannot be gathered that the court decided, or intended to decide, that a testator could not, under the 3d subd. of § 55, constitute a trust to pay annuities, and make them, not a charge merely on rents and profits, but an inalienable interest under § 63. In McSorley v. Wilson 4 Sandf. Ch., 515), the testator, by the will under consideration in that case, created a trust of real and personal estate, among other purposes to pay out of the rents and profits an annuity to his mother for life. The trust was held to be void on the ground that the power of alienation of the estate was suspended during three lives, the life of the annuitant being reckoned as one. The vice-chancellor, referring to the annuity, said: “ This is an inalienable trust interest, and requires the estate to continue in the trustees while she lives.”' This seems to be a precise adjudication upon the question now presented.

There are no authorities on the subject binding upon this court, and it becomes necessary in this case to determine upon the statute, interpreted in view of its language and the policy which shall seem most consistent with the legislative intent, the question whether a trust to pay annuities may be created under the 3d subd. of § 55. The legislature did not, by the revision, create uses and trusts, but regulated them only. It was deemed wise to define and limit the purposes for which express trusts in land might be created, which should vest the legal title in the trustees during the continuance of the trust. They are included in the enumeration in § 55. But trusts under the name of trust powers were left undefined. Powers in respect of lands are trusts, but a valid, express trust, under the statute, to receive the rents and profits of the trust estate, is a power coupled with the title.

The question early arose as to the principle of construction to be applied to the statute, whether it should be strict and technical, confining the authorized trusts to the narrowest limits, or liberal, so as to embrace as far as possible'all the cases where the exigencies of families and family arrangments might reasonably require the separation for the time being of the legal and equitable estates. The apprehension was frequently expressed by eminent judges that difficulty might arise from the attempt to limit so closely, as was done in the revision, the purposes for which express trusts might be created, see Comstock, Ch. J., Downing v. Marshall, 23 N. Y., 380, but this view was vigorously opposed by Duer, J., in Lang v. Ropke. One of the great questions which vexed the courts from a period soon after the revision, arose on the construction of the 3d subd. of § 55, that is to say, whether a trust to receive the rents and profits of land, and “ pay ” them over to a beneficiary, was an application of the rents and profits under that subdivision. After a long contest the question was finally settled adversely to the advocates of a strict construction. The reports show an increasing tendency in the direction of liberality in construing the statute, and while there has( been no abatement by the courts of the strictness with which limitations are construed, which transgress the rule of perpetuity, arrangements within that limit, and dispositions by way of trust are sustained if they can fairly be brought within the spirit of the statute, although not within its literal language. In considering whether a trust to pay annuities out of rents and profits of real estate is a valid trust within the 3d subd. of § 55, and if so whether the interest of the annuant is inalienable under the operation of § 63, it is important to bear in mind that it do.es not tend to solve the question to show that annuities which are a charge simply on real estate, or on the rents and profits of real estate, are alienable at common law, as they undoubtedly are. The same is true of rents and profits of land. But the precise object of the 63d section was to take away for the time being the alienable quality of interests connected with and based upon a trust constituted under the 3d subd. of § 55, which otherwise would be alienable. The trusts authorized by the 2d subdivision of that section are in the main trusts involving the alienation of the corpus of the estate. If the authority to lease lauds under that subdivision would authorize a trust to receive the rents and profits by way of lease for the purposes mentioned therein, and a trust to pay an annuity could only be constituted under that subdivision, it would confine the power of a testator who desired to preserve the corpus of the estate, and at the same time provide by a trust, for annuities to be paid out of income, within narrow limits. The primary purpose of subdivision 3 of § 55, as stated by the revisers, was to enable the owner of lands to make provision for the maintenance of infants, married women or improvident persons out of the rents and profits of his estate, and of § 63, to make the interest of the beneficiary inalienable. (Revisers’ notes to §§ 55 and 63). But for obvious reasons the objects of a trust under the third subdivision were not specified, and it permits a trust for the receipt of rents and profits for the benefit of any person whomsoever. We are unable to perceive any reason why a trust for the receipt of the rents and profits of land for the benefit of an annuitant is not within the purpose of subdivision 3, as much as a trust to pay the whole or an aliquot part of such rents and profits to beneficiaries. Provision by way of annuity is usually intended for maintenance. The testator, by providing for payments at periodical times of fixed sums by way of annuities, secures to the annuitant a certain and constant means of support to the extent of the annuity given. In this way he can measure his bounty according to what he shall deem to be the necessities or desert of the annuitants,' and if a trust under subdivision 3 can be created for the payment of annuities, and the interest of the annuitant is subject to the operation of § 63, the latter is, in a measure at least, secured against penury resulting from improvidence or misfortune. The payment of an annuity out of the rents and profits of land is as much an application of rents and profits as is the payment over of a share of the rents and profits, the amount of which is not ascertainable until realized. There is another suggestion which we think is entitled to weight in determining this question. Trusts of personal property, as is well known, are not fettered by the limitations prescribed for trusts of real estate. They may be created for any purpose not unlawful, subject only to the law of perpetuity. Gott v. Cook, 7 Pai., 521. The title to personal property, given in trust, vests in the trustee, for the purposes of the trust, and continues in him until those purposes are accomplished. The increase nf personal property in this age of commercial and business activity has been so rapid that it now represents a large aggregate of the wealth of the .world. It cannot be questioned that a trust of personalty may be created to any amount, limited only by the possessions of the testator, for the payment of annuities out of income. Meanwhile the title remains in the trustee, and so long as the interest of the beneficiaries continues, any disposition of the corpus not authorized by the instrument creating it would be in contravention of the trust. The case of De Puyster v. Clendining, 8 Pai., 295, is an instance of a trust of personalty to pay annuities to a large amount out of income, and the chancellor was of opinion that the interest of the annuitant was inalienable under § 63. There is a manifest propriety in assimilating as far as practicable the rules governing trusts and limitation of real and personal property, and the tendency in this direction has been very marked in the decisions of the courts. Graff v. Bonnett, 31 N. Y., 9; Cutting v. Cutting, 86 id., 523; Williams v. Thorn, 70 id., 270; Hutton v. Benkard, 92 id., 295; Cook v. Lowry, 95 id., 103. It would be unfortunate, we think, if it was necessary to distinguish between trusts of real and personal property for the payment of annuities out of income, holding such trusts valid as to one species of property and void as to the other. Upon the best consideration we are able to give to the subject we are brought to the conclusion that the opinion of Nelson, J., that a valid trust to pay annuities out of the. rents and profits of land, may be created under subdivision 3 of § 55, is a sound exposition of the law. We concur also with the opinions of Judge Nelson and Judge Bronson,1 expressed in Hawley v. James, that an annuity is not a gross sum within the exception m § 63. That term is applicable where a single sum is given, payable at one time or in installments, but not to periodical sums given as annuities are usually given, for permanent maintenance. Such provisions are within the policy of the prohibition against assignments contained in that section. But if an annuity may be considered as a gross sum, we do'not perceive that it would change the result in this case, provided a trust for the payment of annuities may be created under the 3d subd. of § 55. The case of Radley v. Kuhn, 97 N. Y., 27, is an example of a provision in a will for the payment of a gross sum within the statute.

It is insisted, however, that assuming a trust for the payment of annuities may be created under subd. 3 the trust is void because the trust was in fact a cover for a scheme of unlawful accumulation. If the estate continues to yield an income equal to what it was yielding at the death of the testator, it will be sufficient to pay, not only the annuities charged, but there will be a very large sum in addition, which surplus is impliedly directed to be accumulated during the life of the testator’s daughter, and which direction is concededly void. The court is asked to infer that the primary purpose of the testator was to constute an unlawful trust for accumulation. It may be conceded that to support a trust under the 3d subd. there must be a purpose within that section, not illusory and nominal merely, but real and substantial. The objection assumes that the testator contemplated that nó contingencies could arise where, by losses, or shrinkage in value, or bad investments, or change in the rate of interest, the whole or substantially all the income of the estate would be required to pay the annuities. He did plainly intend that the whole income should be pledged for the payment of the annuities. Is it possible for the court to say that the trust for the payment of annuities amounting to $20,000 was evasive and veiled the real purpose of the testator ? The statute contemplates that there may be an unlawful direction for accumulation contained in a will or other instrument, but it applies the remedy. It makes the direction void. 1 Rev. St. 726, §38. It does not avoid the instrument containing the unlawful direction, although this would be the consequence if it subserved no purpose except to provide for the unlawful accumulation. But limitations of the estate, not depending upon the unlawful accumulations, are unaffected. The cases are numerous which hold that a trust otherwise lawfully constituted is not invalidated because of an unlawful direction for accumulation. See Williams v. Williams, 8 N. Y., 538 ; Phelps v. Pond, 23 id., 82. The surplus income to which the unlawful direction relates, will pass under the rules of the common law, or under § 40 of the statute. 1 Rev. St. 726, § 40. In this way the purpose of the statute limiting accumulations is effected, and a testator has no motive to transgress its provisions. It is worthy of notice that in the will under consideration in Hawley v. James, there was an implied direction for accumulation extending during thirteen lives, and that but a small part of the probable income would be required for the intermediate purposes of the will, but neither of the judges who took part in that case referred to this as a ground for invalidating the trust. We think the only rule consistent with the authorities is, that where a trust constituted under subd. 3 of § 55, is duly limited in point of duration, but connected with the lawful purpose is an express or implied direction for an unlawful accumulation, the title to the whole estate vests in the trustee during the trust term, although the valid trust purpose will not absorb the whole income, except perhaps where the valid purpose is nominal merely, and it can be seen that it was inserted as a mere cover for an attempted illegal accumulation. Phelps v. Pond, 23 N. Y., 69; Gilman v. Reddington, 24 id., 19; Savage v. Burnham, 17 id., 561. The claim that the court should direct the setting apart of sufficient of the capital of the estate to produce the annuities, leaving the remainder of the estate to go to heirs or next of kin until the death of the testator’s daughter, cannot be supported. There was a similar suggestion made when the case of Hawley v. James was before the chancellor (5 Pai., 313), and he declared that the court of chancery had no power to divest the legal title of the trustees to any portion of the estate. See 1 Rev. St., 729, § 60. We conclude, therefore, that the trust in the will now under consideration was valid, except as to the implied direction for accumulation.

The remaining question relates to the persons who are now entitled to the rents, profits and .income, not required to pay the annuities. It is claimed on the one side that they go to the heirs and next of kin of the testator, according to the nature of the property, and on the other, that, by force of § 40 of the article on the creation and division of estates (1 Rev. St., 726), they belong to and are distributable among the eight grandchildren as the persons presumptively entitled to the next eventual estate. By the rule of the common law, where there is a specific devise of a future estate, and no disposition of the intermediate rents and profits, they go to the heir,-unless there is a residuary devise, not future or contingent, in which case they go to the residuary devisee. But a residuary bequest of personalty, whether future or contingent, carries the prior income, and where real and personal estate are blended in one residuary gift the rule as to personalty governs: The same rules are applicable to trusts. Glanville v. Glanville, 2 Mer., 38; Genery v. Fitzgerald, Jac., 468; Ackers v. Phipps, 3 Cl. & Fin., 665 ; In re Dumble, 23 Ch. Div., 360 ; 1 Jar. (5th ed.), 652. But it was held that where the devise or gift was of a residue, as to part of which the disposition fails, that part will not accrue in augmentation of the remaining part, as a residue of a residue, but instead of retaining the nature of residue, devolves as undisposed of. Skyrmsher v. Northcote, 1 Sw., 566. This rule is applied by the English courts in the construction of the Thellusson act (39th and 40th George III, ch. 86) to the disposition of income unlawfully directed to be accumulated, and it is held that such income goes to the heirs and next of kin, as in case of intestacy, and not to the residuary legatee or devisee, under that clause in the act which declares that such surplus incomes shall go to such person on persons as would have been entitled thereto.if such accumulation had not been directed.” (1 Jar. [55th ed.), 312, 602.) If the rule of distribution was the same under our statute as under the English statute there might be some ground for claiming, in this case, that as the gift of the residue included by intendment the unlawful accumulation, the heirs and next of kin were entitled to it. Section 40 of our statute, before referred to, prescribes the rule of distribution in cases within it, and if it applies to the surplus income in question it must furnish the rule of distribution. That section is: “ When, in consequence of a valid limitation of an expectant estate, there shall be a valid suspense of the power of alienation, or of the ownership, during the continuance of which the rents and profits shall be undisposed of, and no valid direction for their accumulation is given, such rents and profits shall belong to the persons presumptively entitled to the next eventual estate.” It must be conceded, we think, that the surplus rents and profits were undisposed of within the meaning of this section. The implied disposition attempted was unlawful and void, and it is the same as if no disposition whatever had been attempted Williams v. Williams, 8 N. Y., 525. It is claimed in behalf of the appellant that the remainders given to the grandchildren were vested and not contingent. This was conceded by all the parties heard before us, except that the counsel for the executors suggested that the decision of the question was not now necessary. We shall assume, without deciding the question, that the appellant is right in this contention. It is claimed that if the grandchildren took vested remainders, then the statute does not apply, for the reason "that the limitation of a vested expectant estate does not suspend the power of alienation, and that it is only where the power of alienation is suspended by a contingent limitation of a future estate, that § 40 applies. In other words, that the present estate in the trustees, although the power of alienation is suspended thereby, by force of §§ 63 and 65 of the Statute of Uses and Trusts, does not create the suspension which brings the case within § 40, because that only applies where the suspension is “in consequence of a valid limitation of an expectant estate.” This construction ofr the statute seems to be the natural construction according to the ordinary meaning of the language. It seems to have been assumed by the revisers and the legislature that if the future estate was vested and absolute, the surplus income would, without any statutory rule, go to the persons in whom the estate was ultimately to vest in possession. See Gott v. Cook, 7 Pai., 521. But however this may be, we think the appellant, to succeed in her contention, must at least be able to point out that no contingency attended any of the limitations of the future estates, which prevented the conveyance by persons in being of an absolute remainder in fee. This, we think, cannot be done. Upon the death of any grandchild during the trust term leaving issue, such issue, whether born before or after the death of the testator, would take by way of substitution and as purchasers, the share of the deceased parent. Assuming as we have that the grandchildren took vested remainders, it is the common case of a limitation to one person in remainder, with a gift over to another person on the death of the first remainderman or the happening of any other event before the remainder vests in possession. The first remainderman takes a base or qualified fee, subject to be divested in favor of some other object on the happening of the contingency specified. Such a contingent limitation over necessarily suspends the power of alienation, provided it is or may be in' favor of persons not in being at the death of the testator, and the suspense continues so long as there is a possibility that persons may come into being who would be entitled to take under the ulterior limitation. This was the situation in this case. Until the death of a grandchild during the term it could not be ascertained in whom the remainder in the share of the one so dying would vest. Issue not yet in being may be born who will be entitled to take under the will That the word issue in the will means children is- plain from the context, and that it is word of purchase, and not of limitation, is plain also. Nodine v. Greenfield, 7 Pai., 544; Crystie v. Phyfe, 19 N. Y., 345; Smith v. Scholtz, 68 id., 42; Mead v. Mitchell, 17 id., 210; Wilson v. White, 109 id., 59; 14 St. Rep., 46; 2 Jar. (5th ed.), 104. The case is" clearly within § 40. The power of alienation is suspended by a valid limitation of a contingent expectant estate to the issue of the grandchildren, and meanwhile the rents and profits are undisposed of. The remainders to the grandchildren, whether vested or contingent, may ripen into a fee simple absolute. They are the persons entitled to the next eventual estate within the meaning of § 40, however it might be considered if they took a life estate only, and their estate, if they survive the daughter of the testator, will vest in' possession concurrently with the termination of trust estate and the period of accumulation. Holding as we do that the trust is valid, the contention on behalf of the appellant, based on the invalidity of the trust, that the future estates are" so limited that they cannot be supported because dependent upon the trust,, becomes immaterial, nor is it necessary to determine who would be entitled to the intermediate rents and profits of the estate, if it was held that the precedent estate failed and that the future estates were nevertheless valid.

We think the judgment below correctly disposed of the questions in the case, and it should, therefore, be affirmed, with costs of all parties to be paid out of the estate.

All concur, except Bartlett, J., not sitting.

Judgment affirmed.


source: Caselaw Access Project

author: O’Brien, J.

license: Public Domain

text:
    George H. Stonebridge, Jr., as Receiver, etc., Resp’t, v. George F. Perkins et al., App’lts.

      (Court of Appeals,

      Filed January 16, 1894.)
    1. Execution—Sale.
    To. protect a party defending under an execution sale, he must show (lj such'a levy as would subject him to an action of trespass by the owner, if not justifiable; (2) a sale, with the' property actually present and within the view of the bidders or’persons attending the sale.
    2. Action to set aside transfer—Answer of title.
    In an action to set aside a transfer, an answer of title in a stranger, without an allegation connecting the defendant with such title, is no defense.
    3. Same.
    A subsequent sale to a third person, on an execution against the transferrer, subject to such transfer, is no bar or defense to an action to set it aside.
    Appeal from order of the general term of the New York superior court, affirming a judgment rendered at the equity term thereof by Judge Me Adam.

      Charles D. Ridgway, for app’lts; Frederick R. Kellogg,• for resp’t.

      Affirming 50 St. Rep., 221.

   O’Brien, J.

The plaintiff, as receiver of the New York Book Company, a manufacturing corporation, brought this action to set aside the transfer of certain property made to the defendants by the corporation in contemplation of insolvency, and in violation of the statute, 1 R S., chap. 18, title 4, § 4, and has thus far succeeded. The answer put in issue the plaintiff’s character as receiver and his right to sue as such, and also the charge that the transfer was made in contemplation of insolvency. In a separate defense it was alleged that subsequent to the transfer, and before the appointment of the plaintiff as receiver, third parties, under a judgment and execution against the corporation, sold the property transferred to defendants as the property of the corporation, and under such sale acquired the title thereto, and hence the plaintiff never took any interest therein. - The. learned trial judge, upon sufficient evidence, found that at the time of the transfer the corporation was insolvent to the knowledge of the directors and managers who made it, and that it was in violation of the statute and void. He refused to find, that the property was sold upon execution in favor of the parties mentioned in the answer, or that the plaintiff’s title and right to maintain the action were in any way affected thereby, and to this refusal the defendants excepted, and the only question of law presented by the appeal arises upon these exceptions. The plaintiff sought to set aside a fraudulent transfer of the corporation, and to compel payment by the defendants of its value. While the action was in form one of equity, it had all the characteristics of an action at law for conversion. Assuming, as the trial court found, that all the property of the insolvent corporation vested in the plaintiff as receiver, and that the transfer was void, there is no reason why the plaintiff could not have maintained an action at law for the recovery of the property from the defendants or its value. The separate defense pleaded by the defendants, and upon which their counsel now relies, was that the property belonged to a third person by virtue of the execution sale, but the defendants do not in any way connect themselves with this title, or claim any right under it, It is not clear that the facts stated under any eircnmstance constitute a defense. The general rule is that in actions of trespass or trover, an answer of title in a stranger, without an allegation connecting defendant with such title, is no defense. Stowell v. Otis, 71 N. Y., 36; Duncan v. Spear, 11 Wend., 54; Rogers v. Arnold, 12 id., 30; King v. Orser, 4 Duer, 431; Hoyt v. Van Alstyne, 15 Barb., 568; Gerber v. Monie, 56 id., 652. And while this rule has been modified by statute in actions for recovery of a specific chattel (Code, § 1723), the legislature has not in terms, at least, abolished it as to other actions. But there is no finding that the sheriff sold the property under the execution, in hostility to the transfer, and the court refused to so find. The sale was upon a judgment of $100, and the amount bid was one dollar, The facts and circumstances disclosed at the trial were such that the trial court was justified in holding that the sale was subject to the transfer to defendants. In other words, the sale did not touch the fraudulent transfer, but left the defendants in the possession and enjoyment of the property, so that at best all the purchaser attempted to acquire was an intangible equity which was not the subject of sale on execution. But perhaps the plainest answer to the defendant’s contention is to be found in the evidence in regard to the sale itself. The burden of proof was upon them to establish all the facts stated in the separate answer. They not only failed to show that the sheriff ever made a valid levy upon or sale of the property, but the contrary conclusion was a fair inference from the evidence. It did not appear that the sheriff ever made an actual levy under the execution, and' no such fact has been found. The proofs warranted the court in finding that at the time that the auctioneer made the sale for the sheriff, the property was not present or within the view of the persons attending the sale. A sale upon the execution of personal property affords no protection to a party defending under it unless he shows first a levy, that is, such exercise of right and dominion by the officer over the property as would subject him to an action of trespass by the owner, in case the levy was not justified, and, secondly, a sale with the property actually present and within the view of the bidders or persons attending the sale. Code, § 1428 ; Roth v. Wells, 29 N. Y., 471; Hathaway v. Howell, 54 id., 97. So that even if the defendant’s answer, setting up title in a stranger under a sale upon execution, could be held good as against the plaintiff’s claim without any allegation connecting themselves with such title, the facts upon which the defense rested were not established.

The judgment is right and should be affirmed, with costs.

All concur, except Bartlett J., not sitting.

Judgment affirmed.


author: Earl, J.

text:
    The People ex rel. Charles S. Fairchilds, App’lt, v. Charles M. Preston, Superintendent of Banks, Resp’t.

      (Court of Appeals,

      Filed January 16, 1894.)

    1. Banks—Stock.
    Under § 170, chap. 689 of 1892, a certificate may provide for prepaid and income stock as well as stock payable in installments.
    2. Same—Mandamus.
    A mandamus is proper to compel the filing of a certificate which provides for installment, prepaid and income stock, where the superintendent refuses to file it, because it is not confined to the former stock.
    Appeal from order of the general term of the supreme court in the third judicial department, made December 5, 1893, which affirmed an order of special term denying an application by the relator for a mandamus against the superintendent of banks to compel him to approve and file a certificate of incorporation of the Peter Cooper Savings and Loan Society.
    The certificate in question recited that the signers thereof had associated themselves together “to form a corporation for the purpose of accumulating a fund for the purchase of real property, the erection of buildings or the making of other improvements on land and paying off incumbrances thereon, aiding its members in acquiring real estate, making improvements thereon and removing incumbrances therefrom, and for the further purpose of accumulating a fund to be returned to its members who do not obtain advances when its funds shall amount to $100 per share.”
    The provision of the certificate as to capital and stock is as follows:
    “XXII. Capital and stock.—The capital of the corporation shall consist of the accumulated savings of its stockholders paid in upon stock, with the profits arising from the investment thereof.
    “ The stock of the corporation shall consist of shares of the maturity or par value of $100 each, and shall be of three kinds or classes, to be known as installment, prepaid and income stock.

      “ Upon installment stock cash dividends shall not be paid, but the profits awarded to such shall be credited thereto until the maturity of the stock. The directors may permit payment of dues in advance on such stock, and upon such advance payments allow a rebate or discount at such rate per centum per annum for the time of payment in advance as they shall from time to time prescribe. •
    “ Upon prepaid stock there shall be paid at the time of subscriptions dues to the amount of sixty dollars, and the holder thereof shall be entitled to receive out of the profits apportioned thereto semi-annual dividends in cash up to the rate of six per cent, per annum. The profits apportioned to such stock over and above such dividends shall be credited thereto and be payable with the stock at its maturity.
    “ Upon income stock there shall be paid at the time of subscription dues to the amount o£ sixty dollars, and the holder thereof shall be entitled to receive out of the profits apportioned thereto semi-annual dividends in cash up to the rate of eight per cent, per annum. Any balance" of profits apportioned to such stock, over and above the sum requisite to pay such dividends, shall not be credited thereto,' but shall be reapportioned and credited to the other stock of the corporation.
    1 “ The board of directors may, at any times refuse to issue income or prepaid stock, and may retire at any time any stock issued by the corporation by giving thirty days’ written notice to the holder of such stock and paying to him the full value thereof as the same appears upon the books of the corporation.
    “All stock shall mature and be paid when the dues paid in thereon, with the profits apportioned and credited thereto, including cash dividends paid thereon, shall equal $100 per share.
    “ Uo member shall hold more than 800 shares of stock; provided, however, that he may, in addition to his individual holding, hold a like number as trustee for a minor child or children.”

      Matthew Hale, for app’lt; S. W. Eosendale, attorney-general, for resp’t.
   Earl, J.

The relator and others attempted to form a corporation under article 5 of the banking law (chap. 689 of the Laws of 1892), and for that purpose they made and acknowledged a certificate under § 170. They presented the certificate to the defendant as the superintendent of banks, to be approved and filed by him as required by that section, and he declined to approve or file it on the ground that it provided for three kinds of stock, to-wit, installment, prepaid and income stock, his claim being that such a corporation can have only installment stock to be paid for in installments The relator then applied for a peremptory writ of mandamus to compel him to approve and file the certificate, and his application has been denied.

Persons seeking to form a corporation under any general law must have a reasonable latitude as to what they may insert in their certificate of incorporation. They must insert therein all the matter particularly required, by tlie law, and they may insert other provisions not inconsistent with law or public policy which are germane to the purposes of the corporation, and necessary, convenient or appropriate to the accomplishment of such purpose. If they keep within such- limits the public authorities have no reason to interfere, the interests of the public are not jeopardized, and the rights of no citizen are violated. Section 170, after specifying certain matters to be inserted in the certificate of incorporation under that section, specifically provides that the certificate may contain “ such other provisions not inconsistent with law as shall be necessary for the convenient and effective transaction of its business.” There is no requirement in the law that the stock of such a corporation shall be paid for in installments from time to time as they fall due. The law requires the certificate to set forth “ the amount of each share ” of stock, and “ the monthly or weekly dues per share.” A certificate which did not provide for the payment of monthly or weekly dues by any member of the corporation who wished to pay in that way, would undoubtedly be a departure from the law. The evident purpose of the law is to authorize the formation of these corporations mainly for the benefit of wage earners and other people of limited means to enable them to acquire homes and to accumulate their savings, and no provision should be inserted in any certificate of incorporation under this law which would thwart this purpose.

This certificate provides for shares of $100 each, and for monthly dues of fifty cents on each share. The general scheme is that the dues, fees, penalties and all other income of the corporation shall go into a common fund, and from this fund annual dividends are to be made which are to be applied upon the shares of stock until they are fully paid for. Dues may be paid in advance with the assent of the directors, and upon such advance payments the directors may allow a rebate or discount at such rate per annum for the time of payment in advance as they shall from time to time prescribe. Such payments instead of being contrary to the purpose of such corporations may be pro-motive of that purpose. If „a wage earner has the money, it may be wise to permit him to make the advance payments, and thus to save his money ; and in this way, too, money is accumulated by the corporation more'rapidly for loan to its members. So the law is not violated by these advance payments upon installment, stock, and no injustice is done to any of the members thereby.

The certificate provides that “upon prepaid stock there shall be paid at the time of subscription dues to the amount of sixty dollars, and the holder thereof shall be entitled to receive out of the profits apportioned thereto semi-annual dividends in, cash up to the rate of six per cent, per annum. The profits apportioned to such- stock over and above such dividends shall be.credited thereto and be payable with the stock at its maturity.” The character of such stock must be determined at the time of. the subscription. What harm can come from the creation of such stock? It allows a member who has money enough to pay his dues for ten years in advance, and why is that not wise policy ? Having thus paid in advance, his dividends are not needed to carry his stock to maturity, and hence he may draw his dividends up to six per cent., and the balance of his dividends over that sum are applied to carry Ms stock to maturity. He has no advantage over the holders of installment stock. Their dividends are applied to carry their stock to maturity, and they thus have the same benefit that they would have if the dividends were first paid to them and then by them paid upon their stock. All dividends are required to be made upon the net sums to the credit of the shares, and not upon the par value of the shares, and hense the holders of prepaid shares get precisely the same dividends proportioned to the amount standing to the credit of their shares as are paid to other stockholders, and no more. It is impossible for us to perceive how this scheme violates the law or any public policy. It does not prevent or defeat equality or mutualite among the members; and if the prepaid stock is to be condemned then it is not perceived how prepayment of installments upon installment stock can he upheld. Money must come into the treasury of one of these corporations from the small monthly dues very slow, and members desiring to borrow the money for the purchase or improvement of homes must wait a long time before they can be accommodated with loans from money thus contributed but if prepayment of debts is permitted, the ability of the corporation to aid its members by loans is greatly facilitated, and the main purpose of the corporation is thus promoted.

The income stock upon which the members are also required to pay in advance sixty dollars per share differs from the prepaid stock only in the fact that the holder of such stock may receive dividends, in cash up to eight per cent, and in case the dividends are more, such dividends are apportioned among the holders of other kinds of stock; and what we have said about the prepaid stock applies to this stock. The corporation has protection against the prepaid and income stock, as it is provided in the certificate that the directors may at any time refuse to issue such stock, and may at any time, upon thirty days notice, retire such stock by paying the book value thereof.

But it is said that there is no requirement that the prepaid and income stock shall be carried to maturity so as to be full paid. We are not sure of this. As the shares are fixed at $100, and are not mature until they reach that sum, it may be that the directors may require that these shares shall, at the proper time, be brought to maturity on an equality with the other shares. B.ut even if this be not so, no injustice can come from this situation, because in no event can the holder of these shares draw more than the amount that has been credited upon them, nor can they draw dividends on more than such amounts.

In England building and loan associations existed and were authorized and regulated by statute long before any of them were organized in this country, and in 1874 they were specially authorized by law to have prepaid stock. (Chapter 42 of 37 & 38 Viet., § 5.) There it was held in Scott's Case (L. R. [23 Oh. Div.] 453), that under the law as it existed prior to 1874, which was substantially like the present law of this state, prepaid stock was not illegal. There the learned master of the rolls said : “Again, is it contrary to the constitution of such a society that, members shall pay up installments in advance? I say clearly not The more money you get from investing members the more money you have ready to advance to the borrowing members, and the more rapidly you will bring your society to an end if the society is established without a fixed period. It seems to me there is no reason why the judicature should say that these arrangements, which, as far as I am concerned, appear to be perfectly reasonable, and not only framed not to obstruct, but to further the objects of these societies, are illegal because they are contrary to the policy on which these societies are founded.” And that case was affirmed in the House of Lords. (L. E. [9 App. Cases], 528.)

Our conclusion, therefore, is that the order of the general and special term should be reversed, and the case remitted to the special term for its action upon the relator’s application, with costs in all the courts to the relator against the defendant.

All concur, except Peckham, J., not voting, and Bartlett, J. not sitting.

Order reversed.


author: Gray, J.

text:
    In the Matter of the Judicial Settlement of the Account of Henry E. Nesmith, as Sole Surviving Testamentary Trustee, etc.

      (Court of Appeals,

      Filed January 16, 1894.)

    1. Trustees—Power.
    A discretionary power to make a disbursement of income, in the course of the management of the trust property, is, it seems, given to trustees; and, if it is restricted to such matters as tend to preserve it, or to make it efficient for earning purposes, the statute against accumulation of income is not violated.
    2. Same.
    Such expenditure is a matter for the exercise of the discretion of the trustees.
    3. Same.
    Even though the trustees had no such power, it is within the power and discretion of the surrogate to direct such expenditure from the income which the property was then earning.
    4. Same.
    In such case, the trustees are not required to mortgage the property to raise the money for the improvement.
    5. Same—Interest.
    When the trustee, acting in entire good faith and with no intention to commit a breach of trust, deposits, in his own bank account, trust moneys which were received, not for investment, but for distribution among the beneficiaries, he does all that can be exacted of him, if he charges himself with interest on the overdrafts.
    6. Same—Expenses.
    The trustee should be credited with items of money retained for office rent and expenses, in case it is necessary to have an office in connection with the business.

      Appeal from order of the general term of the supreme court in the second judicial department, made the second Monday of May, 1893, which- affirmed a decree of the surrogate’s court of Kings county, settling the accounts of the petitioner as the sole surviving trustee under a codicil to the will of James Nesmith, deceased.
    The facts, so far as material, are stated in the opinion.

      J. Tredwell Richards, for app’lt; L. H. Arnold, for resp’t.

      Affirming, 54 St. Rep., 216.

   Gray, J.

James Nesmith, the testator, died in 1872 ; leaving a last will and testament; by a second codicil to which he created an express trust during the lives of his two sons, James I. and Henry E. Nesmith, who were also named as trustees, affecting certain valuable property, consisting in warehouse, piers and wharves in the city of Brooklyn, which were known and described as the “ Empire Stores.” In 1886 James I. Nesmith died, and since then Henry E. Nesmith has acted as the sole surviving trustee. This proceeding was instituted by the trustee to obtain a judicial settlement of his accounts for the year 1891, and certain of the objections, which were made to his accounts, form the subjects for our consideration. The contestants and appellants here are the widow and children of the deceased trustee James I. Nesmith. During testator’s lifetime, he had been engaged in the warehouse business upon a large scale, and after his death that business was continued by his trustees, under the provisions of this codicil. In 1888, the trust property referred to was leased to the Empire Warehouse Company for five years. In 1891, the trustee, deeming it necessary for the purposes of the business, erected a shed upon one of the piers, at a cost of $12,000, In his accounts appeared the item of $7,500 ; which represented a payment towards that cost, and these appellants objected that it was an unlawful appropriation of income to the erection of a permanent improvement and addition to the trust property. The codicil, after creating the trust in favor of testator’s children and certain grandchildren, provided, with respect to the trust property, as follows, viz: “ Said James I. and Henry E. to have sole direction and management of said property, to improve the property if they see fit, and to buy the adjoining property on same block (any such purchases to be included in this trust) if they see fit, raising money on mortgage for either or both purposes if in their judgment necessary ; to receive the earnings of said property, and after deducting therefrom all charges, expenses and disbursements, including the aforesaid annuity, to account to the heirs for their respective portions,” etc.

• Upon the death of the survivor of the two trustees the trust property was directed to be sold and the proceeds divided among the testator’s children, in a prescribed mode, not necessary to consider critically. The objection to the payment for the shed was sustained and the credit disallowed to the trustee; the referee holding, in an opinion, that the cost of the shed was properly chargeable to the corpus of the estate; upon which the trustee would have an equitable lien for repay-meat. In this view he was sustained by the surrogate; who thought that if the codicil made a provision for creation of betterments and permanent improvements out of the income of the trust fund, it was in reality an accumulation pro tanto ” and, hence, there would result a violation of the statute us to accumulations. But he was of the opinion that, while there was no authority for the trustee to make the expenditure, he was entitled to be presently indemnified and might retain the increased income which arose from the additional structure, until his advances for its construction should have been repaid to him. The surrogate’s decree was sustained at the general term. If it were necessary to decide the question, we very much doubt that we should be disposed to hold that there was any violation of the statute against accumulations, in the provisions of this codicil; or any improper application of the income, under the circumstances of this case. The testator gave to his trustees the sole direction and management of this warehouse property and wide discretionary powers respecting it. The codicil is not expressed in very apt language ; but it is evident that the discretion does not comprehend a purchase of other property, or an improvement, of an extraordinary nature not called for by the exigency of the business, by the use of the income from the trust. But, within the lines of a reasonable management of the trust property, whether an expenditure of the income should be made upon it, in order to perfect, or to protect, the business, was a matter for the exercise of the discretion of the trustees. The earnings of the property, which they were to account for,- might well be diminished by a disbursement necessary for an improvement, which was a protection of the trust business, as a going concern, without violating the direction as to their distribution among their heirs. What the law forbids is an accumulation of either rents, profits, or income, except in the manner and for the period of time specified in the statutes. A testamentary direction otherwise is declared void. 2 B. S., 726, §§ 37. 38; id., 773, 774, §§ 3, 4. We cannot read any such unlawful direction in this codicil. A discretionary power to make a disbursement of income, in the course of the management of the trust property, may be deemed to be within the testamentary intention, and if it is restricted to such matters as tend to preserve it, or to make it efficient for earning purposes, there can be no violation of the statute. We should say that it is within the purview of the trust that the trustees should expend its income in maintaining its efficiency. Whether, in a particular case, the application of the income was for such a necessary purpose, or not, is largely, if not wholly, a question to be determined by the facts. The referee has found, and in doing so he was amply warranted by the evidence, that “ the erection of the shed was necessary to the successful prosecution and retention of certain valuable parts of the business carried on.” The evidence showed that, for the purpose of storing hides, which was a valuable part of the storage business,, the erection of a shed on the pier was essential, in order to retain that branch of the business, and it was shown, in addition to that consideration, to have re-suited in an increase of the rental by the sum of $6,000 a year. Under the circumstances, it is difficult to see how the application of income to such a purpose is not in effectuation of the objects of the trust created.

As it was testified, it might well have been regarded as a veryunbusinesslike and unwise transaction to borrow the small sum of $12,000 by a mortgage upon this extensive and valuable property, already mortgaged for $300,000, and it is scarcely conceivable that the testator intended that the trustees should be comjjelled to resort to it. But while we entertain these views, they are not, perhaps, essential to the affirmance of the surrogate’s decree. In ordering that the trustee retain the increased income, arising from the building of the shed on the pier of the trust property, until he shall have been repaid his advances and interest, the surrogate was within a legitimate exercise of his judicial powers. Under the general jurisdiction conferred upon surrogates’ courts, in matters relating to the conduct of executors, administrator’s and testamentary trustees and to the settlement of their accounts, the surrogate has the right to order the direction of their conduct, within the rules of law, as reason and equity seem to him to dictate. In re Wagner, 119 N. Y., 28; 28 St. Rep., 266.

His decree works out a perfectly just result. The erection of the shed has not diminished the earnings, nor impaired the earning capacity of the property; but, to the contrary, has increased the one and preserved the other’. The persons entitled to a distribution of the earnings of the trust estate have received them undiminished, and will continue to receive them. They are not prejudiced and, if the trust survives the period of time required to reimburse the trustee for his advances, they will be the gainers. There has been no accumulation of income. The trustee has advanced the money out of his own pocket and the increased rental, as it comes in, goes to re-pay him. We think that the surrogate’s ruling on this question is quite unobjectionable and it was most favorable to the appellants.

Another question upon this accounting grows out of the use by the trustee of the moneys coming in from the trust estate and deposited in bank to the credit of an account in the name of Nesmith & Sons. That was the name under which the testator and his sons had always conducted the business and it continued to be the business name for his sons after his death, without any change. His two sons, as trustees, and the present surviving trustee had deposited all the trust moneys received to that account. It appeared upon this accounting that this trustee had made use of the bank account in his own private affairs. The finding of the referee, and which was adopted by the surrogate, was that Nesmith & Sons, or this trustee, who, individually, was the sole member of that firm, acted as bankers for the trust estate; that at some periods the trust estate was indebted to Nesmith & Sons for advances and at other periods * * the bank balance of Nesmith & Sons was less than the amount of the estate fund with which said trustee was chargeableand “ that the interest on the amount of the trust fund overdrawn from April 18, 1891, to December 11, 1891, was $219.40." Objection was, for the first time, made to the trust fund being so deposited upon this-accounting and the trustee at once opened a separate bank account for the trust and voluntarily charged himself with the full interest on his overdrafts. But the appellants objected,, and now insist, because the trustee had mingled the trust moneys with his own funds, that he should be charged with legal interest upon all the trust moneys deposited in his bank account.

We think this demand was very properly overruled and, though the objection may have been within their legal right to make, it came with somewhat bad grace from the widow and children of the deceased co-trustee; in whose lifetime the trust estate had been managed in the same manner and the trust income had been deposited and kept. under the same account; and it is not pretended that any loss, or prejudice have resulted. The trustee had acted in perfect good faith and under the idea that, in following the course previously pursued with the income, he was acting in the interest of the trust estate. There is nothing to show that he had the slightest intention of committing a breach of his trust.

A strict observance of established rules requires that trust funds received for investment, in the absence of any discretion in the matter, shall be invested, as speedily as it is reasonably possible, in the modes which the law recognizes to be proper and prudent While awaiting investment, or distribution, it is manifestly in the line of a more correct performance of the trustee’s duty that he should place and hold them separately, and apart from his own funds. If he fail to do so and loss ensues, he becomes personally liable. If he use or venture them in his own business, he should be allowed to derive no personal benefit therefrom. Unreasonable neglect to invest, or to pay over, trust funds, or a personal use of them, in bad faith, would be grounds for charging him with legal interest Adherence to such rules insures a more faithful administration of the trust and removes the elements of temptation to the trustee and of danger to the trust. In the present case, the moneys, which this trustee kept in his bank account, were not received for investment purposes; but, as income, were held by him for distribution among the beneficiaries. These parties have suffered no loss and, in voluntarily charging himself with legal interest, the trustee, if he has not done more than he might have been compelled to do, has certainly done all that could have been exacted of him. In Price v. Holman , 135 N. Y., 124; 48 St. Rep., 381, it was observed, on the authority of Rapalje v. Hall 1 Sandf. Ch., 399, and Jacot v. Emmett, 11 Paige, 142, that “ a trustee is not to pay interest, even simple interest, solely for1 the reason that he deposits the trust moneys indiscriminately with his own; nor because he makes, use of them in his own business; that there must be superadded a breach of trust, a neglect or refusal to invest the fund, at the time or in the mode, which the trust instrument, or the law itself, has pointed out.” More recently we had occasion to hold to the same effect in Beard v. Beard, decided November, 1893.

The intermingling by this trustee of the trust moneys with his own was not without excuse, in the circumstances of this case. He intended no wrong and his conduct is not to be visited with any such wholesale condemnation and penal consequences as these appellants insist upon. In paying into the fund interest upon the overdrafts, he exempted himself from liability to adverse criticism.

The contestants further objected that the trustee was not entitled to be credited with items of moneys retained for office rent and office expenses, and have argued at length in support of their objection here. There was neither merit or force in the objection. The surrogate found as a fact that it was necessary to have an office in connection with the business carried on at the Empire stores. Whether it was, or not, depended upon the evidence adduced upon the subject. There was abundance from which the referee and surrogate could properly infer as they did, which we think unnecessary to review. We should have reached the same conclusion.

The order of the general term, affirming the decree of the surrogate, should be affirmed; with costs to the respondent, to be paid out the estate.

All concur, except Bartlett, J., not sitting.

Order affirmed.


author: Andrews, 0. J.

text:
    Jane McKenzie et al., as Executors, etc., Resp'ts, v. Loftus D. Hatton, App’lt.

      (Court of Appeals,

      Filed January 16, 1894.)

    1. Landlord and tenant—Excavating permit.
    A permit to enter upon the demised premises, given by the lessor to parties excavating on an adjoining lot, does not make them his agents, servants or employes.
    2. Same.
    The entry of such parties, without the consent of the tenant, makes them trespassers, but does not constitute an eviction of the tenant, who still remains liable for the rent.
    Appeal from a judgment of the general term of the first department, rendered in favor of the plaintiffs, on a verdict directed at circuit, with exceptions to be heard in the first instance at general term.

      Foley & Powell, for app’lt; Edward W. S. Johnston, for resp’ts.

       Affirming 53 St. Rep., 776.

   Andrews, 0. J.

The only act of the lessors upon which the defense of eviction is sought to be supported was the granting of the permit to the contractors for the excavation on the adjacent lot, to enter upon the leased premises “ to do all things necessary for the purpose of preserving the walls and buildings from injury.” The permit was given to comply with the conditions imposed by § 474 of the consolidation act, 1882, in order to subject the party making the excavation to the obligation of protecting the building on the leased premises from injury therefrom. The permit of the lessors was not, however, alone sufficient to give a right of entry to the licensees. ¡No entry could be lawfully made, unless, in addition, the tenants consented. Johnson v. Oppenheim, 55 N. Y., 280; Sherwood v. Seaman, 2 Bos., 130. The right to enter for this purpose was not reserved to the lessors in the lease, and this made the consent of the lessees to such entry necessary to render the statute available. Both the lessors and the lessees were interested to impose upon the parties making the excavation the obligation to secure the leased building from any injury which might be occasioned thereby ; the lessors because of their reversion and the lessee because his obligation to payment would continue, notwithstanding the premises were rendered untenantable as the result of the excavation so long, at least, as he retained possession. Johnson v. Oppenheim, supra. The covenant in the lease on the part of the lessors to repair was limited, and did not . impose upon them an obligation to repair in case of injury from such a cause. This was the situation when the permit of the lessors was given. The permit was not a direction by lessors to the contractor to enter upon the premises. It was an authority, simply, which 'would become complete when supplemented by a similar authority from the defendant. It is a clear inference from the evidence that the lessors and the lessee so understood the transaction. The defendant testified that, before the entry, he was informed by the attorney for the lessors that the permit had been given, and, on being assured that it was right, he testified that he made no objection. Here, so far as appears, the relation of the lessors to the transaction ended. The contractors, having the permit, subsequently went to the defendant and insisted upon the right to enter to shore up and brace the building, and the defendant stated that he had given them no authority, and informed them that he required to be secured against loss or damage, and that he would hold them responsible until he consulted counsel. The contractors insisted that they would enter “ anyway,” and then the defendant desired them to consult with his engineer. There is evidence that the defendant consented to the entry by the contractors and only objected after he had found that the insertion of the needle beams interfered with the use of his engine-room. But if the contractors entered by force, without the defendant’s consent, they were trespassers, and so also if they abused any license they had. For this the lessors were not responsible, for the clear import of the evidence is that they did nothing in act or intention hostile to the right of the defendant under the lease.

The judgment should be affirmed, with costs.

All concur, except Bartlett, J., not sitting.

Judgment affirmed.