Friedley v. Security Trust & Safe Deposit Co.

10 Del. Ch. 74 | New York Court of Chancery | 1912

The Chancellor.

The motion argued is one by the complainant for a decree notwithstanding the answers, and is in the nature of a demurrer to the answers. The new rule of court provides a way to test the main question raised in .this case in limine, without waiting for a determination of it at the end of the usual proceeding to bring a cause to trial in Chancery.

By their bill, the executors of John Alexander seek a revocation of the appointment of a trustee to succeed John Alexander, the trustee named in the will. Two questions should be considered: (1) Should the appointment have been made, and (2) should it be revoked? In brief the facts are that George Jones by will devised a farm to John Alexander in trust for the equal benefit of the children of John Alexander by his wife, Mary Jane (a daughter of the testator), with authority to manage the farm and sell it, the proceeds of sale to be still held in trust for said grandchildren of the testator, “or at his [John Alexander’s] discretion to be paid over to them respectively discharged of any trust, at such times and manner as he shall deem most beneficial to them respectively.” Soon after the death of the testator the land was sold. After the death of the testamentary trustee the Court of Chancery of Delaware appointed a new trustee.

For the executors of the deceased trustee it is contended that after the conversion of the realty into money the trust was a personal confidence in John Alexander, at his full and unbound discretion to either hold the money or to pay it over to the beneficiaries at such times and in such manner as he only should deem beneficial ; and that on his death, as no one could withhold payment, the beneficiaries ipso facto became legal owners of the trust fund, and, therefore, no new trustee could be appointed.

It was not contended by the solicitor for the defendants that the trust was not a personal confidence, but it was admitted for the purpose of the argument that as to the proceeds of sale the trust was discretionary in John Alexander and the discretion did not pass to the substituted trustee. But it was urged that as the duty to distribute the money among the beneficiaries remained, the trust did not terminate at the death of John Alexander and the appointment of a new trustee was proper and necessary.

. The language of the trust under consideration in the case of Wilmington Trust Co. v. Jacobs, 9 Del. Ch. 77, 77 Atl. 78, affirmed by the Supreme Court 9 Del. Ch. 400, 80 Atl. 346, was so different from the case under consideration that the case is not helpful in construing the will of George Jones. Even tested by the principles of law stated therein, the powers given to John Alexander were personal to him and were not given to him ex officio. It is really unnecessary in this case, however, to consider whether the power to withhold or distribute the proceeds of sale was or was not given to John Alexander only, because it is not so contended. It is quite clear from the will, however, that the power to determine the trust and the manner of payment of the purchase money to the beneficiaries was personal to John Alexander. While the trust estate consisted of real estate it was an active trust, and, therefore, because of the character of the devise, the legal title vested in John Alexander, the trustee. It was also expressly directed by the will that the trust should continue as to the proceeds of sale, the words of the will being, “the said purchase money to be still in trust by him or them.” From the context it is clear that the word ‘ ‘him’ ’ refers to John Alexander and the word ‘ ‘them” to the word ‘ ‘heirs, ’ ’ immediately preceding. Thus it was indicated that the trust continued after the death of John Alexander.

A fair construction of the will is that upon the conversion of the trust property from real estate into money, as authorized by the will, the grandchildren became entitled to an equal share thereof, subject to the right of John Alexander, their father, to withhold from either one or all or them their respective shares. This appears clear from the vesting in him of the power to pay the purchase money over to them respectively, i. e., to each his equal share thereof, at such time and in such manner as he, John Alexander, should deem most beneficial to each of them respectively. In this way the testator insured the exercise of the personal judgment of the named trustee to select the best time and manner for paying over to each beneficiary his share of the trust property. John Alexander alone could withhold from any beneficiary his equal share. The power to withhold payment was vested in John Alexander only, and not in his “heirs,” whoever was meant by the use of that word. It was “at his discretion,” meaning at John Alexander’s discretion, that' the money could be withheld. If the testator had intended to give the discretion to the “heirs” of John'Alexander the will-would have read “at his or their discretion.” In case John Alexander had not in his life, after the conversion, exercised such power and discharged such duty, then that part of the trust and the power of withholding payment terminated.

Therefore, upon the death of John Alexander ■ the trust' terminated as to any trust property- not administered in his life, and either one of two results followed, viz: either the trust failed and the beneficiaries thereby lost their right to have any portion of the trust fund because the only one-who had discretion to give it to them had died without doing so, or else the beneficiaries were then entitled to have the whole of the unadministered trust fund distributed to them' equally. Of course, if the first named result was the correct one,- the appointment of a new trustee was manifestly improper.

It is not contended, however, by either side that the right of the beneficiaries to have the trust estate would have been defeated entirely by the failure of John Alexander to exercise his discretion as to paying over the fund, and it is not necessary for the complainant to uphold such a view in order to be entitled to a decree vacating the order for the appointment of the new trustee. Both sides say - that the trust property passed to the executors of the deceased trustee. They differ on the point whether the beneficiaries should proceed to enforce their claims against the executors of the deceased trustee directly, or through a new trustee.

In general, upon the death of a trustee the trusteeship devolves upon the 'executors or administrators of the deceased trustee. 1 Perry on Trusts, §§264, 269 (note), 344. This duty is cast upon the executors by the will of George Jones. The purchase money, when received, was still in trust by John Alexander, or his “heirs,” meaning undoubtedly by the word “heirs” those persons upon whom the law cast the duty and power to do that which the testamentary trustee had not done, viz: upon his executors. But their duties and powers were only to divide equally and pay over to the class of beneficiaries, in case the trustee had not done so in his life time. Against such executors the beneficiaries could have proceeded directly and without the intervention or assistance of a new trustee. The persons entitled, and their proportionate shares thereof; were ascertained. It was not a case where there was a power of selection either as to the persons to be entitled or their shares.

The first question is narrowed down to this: Where the trust estate consists of personal property and the trust has terminated, so that the only duty remaining unperformed is to pay over in equal shares to certain beneficiaries the trust property, should a new trustee be appointed upon the death of the testamentary trustee?

In Delaware this question seems to be quite well settled as to a trust respecting real estate. If the active duties of a trustee have come to an end, the beneficiaries become immediately and solely, by operation of law, entitled to the trust property. If it be real property, the legal title vests directly in the beneficiaries without the need even of a deed from the trustee, or, if he be dead, from his heirs or representatives, for it will be assumed that such a deed was made. Doe dem. McMullen v. Lank, 4 Houst, 648; Jamison v. McWhorter, 7 Houst. 242, 251, 257, 31 Atl. 517; Reilly v. Conrad, 9 Del. Ch. 154, 78 Atl. 1080. See, also, Bacon's Appeal, 57 Pa. St. 504.

The same result applies to personalty, independent of the effect and operation of the statute of uses, which applies only to real estate, for the reason that the purposes of the trust being accomplished the interest of the beneficiaries is a present right to the possession of the trust property.

In the case of Hooper v. Feigner, 80 Md. 262, 270, 30 Atl. 911, personal property was bequeathed to trustees upon trust to pay the net income thereof to the testator’s daughter G. for life, without power to anticipate or encumber the estate, and after her decease upon trust for all the children of G. then living, and the issue of any deceased children. Held, that upon the death of G., leaving two daughters, one being an infant, the objects of the trust were accomplished, and G.’s daughters became the absolute owners of the property, the share of the infant daughter being payable to her guardian. At page 272 of 80 Md., and page 912 of 30 Atl., the court, after noticing that the statute of uses had been construed to relate only to realty, says:

“At the same time, however, it may be considered settled, that a trust in regard to personal property will continue so long and no longer, than the purposes of the trust require. And that when all the objects of the trust have been accomplished, the person entitled to the beneficial use is regarded as the absolute owner, and as such, entitled to the possession of the property. Under this will the objects and purposes of the trust, namely, that the trustees should pay the net income to Grace Feigner during her life, and for her sole and separate use, without power of anticipation, &c., were fully accomplished, and upon her death the trustees had no longer any active duty to discharge. And this being so, her two children being entitled to the ultimate use, became the absolute owners of the property.”

Where no duty remained to be done by a deceased trustee, except transfer to the beneficiaries the trust estate a new trustee will not be appointed, for his only duty would be to act as a conduit to transfer the trust property, the duty to do which devolves on the executor of the deceased trustee. In re Kittinger’s Estate, 9 Del. Ch. 71, 77 Atl. 24; Reilly v. Conrad, 9 Del. Ch., 154, 78 Atl. 1080; In re Sheaff’s Estate, (1911) 231 Pa. St. 251, 80 Atl. 361.

In the case of In re Kittinger’s Estate, supra, this court refused to appoint a new trustee where the trust had terminated, and the only duty to be performed was to convey real and personal estate, the sole beneficiary being the holder of the legal title as the heir at law of the deceased trustee and because it was the duty of the executor of the deceased trustee to pay over the personal property to the beneficiary.

The solicitor for the defendants suggested no other duty to be performed by the new trustee than to collect the trust fund and distribute it among the beneficiaries, and it is a sufficient answer to the proposition to say that admittedly the law casts this duty on the executors of the deceased trustee, and the beneficiaries could proceed against them directly and needed not a new trustee to enforce their rights. The only case cited by the defendants against this course is the case of In re Laing, 59 App. Div. 612, 69 N. Y. Snpp. 214, affirmed 170 N. Y. 621, 63 N. E. 1119, but is not a satisfactory authority, and will not be followed.

It is clear, then, that the Security Trust and Safe Deposit Company should not have been appointed in 1899 by the Chancellor as trustee in place of John Alexander, deceased.

The second question is this: Should the order appointing the trustee be vacated and the appointment revoked? As herein stated, there is no reason stated, or now conceived, why 'the beneficiaries should not have taken steps to enforce in their own name their rights against the executors of the deceased trustee. From the record of the cause there is at least grave danger that injustice be done to the estate of John Alexander by a continuance of the trusteeship. If the deceased trustee in his life .time settled with the beneficiaries, or they were indebted to him for advances, or if he had otherwise practically distributed the' trust. estate, or provided by his will for a dis- ■ tribution. thereof among the beneficiaries, as is alleged by the executors and as appears in part in his will, then it would be inequitable and unfair that the continuance of the new trustee in office should be. interposed as even a temporary barrier to the benefit of such defenses by the executors.

It is further urged by the defendant that as the beneficiaries "of the trust asked, for the appointment of a new trustee ’the executors of the deceased trustee had no right to object tó the making of the, appointment. But if the court had no "power to make the appointment, the appointment may be invalidated even ".at the instance of one other than, the beneficiary. " On the other hand, if the court had power to make the. new, appointment, and it appeared that injustice would likely be done by exercising the power, the court should refuse “to so'appoint,'arid, in case an appointment had been made, it should be révóked upon a discovery of the facts showing that the appointment should, not 'have been made originally,

j" .' The" executors of the deceased trustee have such an inter-jest in the appointment of a new trustee as to give them a right ■ to oppose such "an appointment, or, at least, to seek a revocatian of an appointment inadvertently or unwisely made. The , case of Elsworth v. Hinton, 4 N. Y. Supp. 573, is not applicable to the case at bar, where the executors in fact have a live duty to protect the estate of the deceased trustee from assaults made through a substituted trustee, which could not be made by the beneficiaries directly.

It is clear, then that the order appointing the new trustee should be revoked.

For the reasons, therefore, that the trust as to the selection of the time and manner of payment of the trust estate consisting of personal property was a personal confidence in the testamentary trustee, not given to him ex officio, it could not be exercised by a substituted trustee, and, therefore, at the death of the testamentary trustee the trust terminated and the beneficiaries being then entitled to have paid to them the trust property, without the intervention of a new and substituted trustee to act as a mere conduit, the court had no power to appoint such new trustee, or at least should not have made the appointment, and the appointment heretofore made should be revoked, especially where, as the result of the appointment, injustice may be done to the estate of the deceased trustee.

Let a decree be entered accordingly.