130 N.E. 625 | NY | 1921
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *497 This is the not unusual dispute between those entitled to the principal and those entitled to the income of a trust estate. One William P. Furniss died in 1871. By his will he created a trust fund for the benefit of his daughter, Margaret E. Zimmerman, now deceased without issue. After her death, there was no disposition of the principal. It goes, therefore, to the heirs or next of kin of Mr. Furniss. Any income to which Mrs. Zimmerman was entitled goes to strangers, legatees under her will. Representing them, her executors are appellants here. On their behalf three claims are presented. 1. At the time of his death Mr. Furniss owned a tract of land in Bloomingdale, unoccupied and unproductive. It was included in the trust. For many years the trustees held it. Finally when it was sold it had greatly appreciated in value. Some at least of the proceeds of this sale should be regarded as income. The Special Term and the Appellate Division held otherwise. 2. Taxes on this property should be charged to capital. Again the Appellate Division negatived this claim. 3. Certain bonds were purchased by the trustees at a premium as a trust investment. Later they were redeemed at par. The trustees were not bound, as the Appellate Division held, to amortize the difference so as to preserve the principal intact.
1. When the trust fund for Mrs. Zimmerman was set up on December 18, 1874, it consisted of personal property, productive real estate and unproductive real estate, the last valued at $137,250. Between 1885 and 1902 these lands were sold for a total of $439,337.85. The net proceeds were $356,760.89. All have been regarded *500 as capital. The appellants claim $164,474.36 as income, not because of the increase in value but because of the supposed intent of the testator that the cestui que trust — his daughter — should not be deprived of income through a delay on the part of the trustees to effect a sale.
The latest case in this state on the subject is Spencer v.Spencer (
We must, therefore, determine whether the testator *501
here designed an imperative power of sale with discretion only as to the time of its exercise or a power that in the trustees' discretion might never be exercised at all. If there is any ambiguity in the will, we may regard the situation of the testator's property at the time of his death, the condition of the beneficiaries and the circumstances surrounding the execution of the will. (Spencer v. Spencer,
Mr. Furniss was survived by a widow who has since died, and by three sons and three daughters, all of whom are also now dead. After some devises and bequests to his wife and some other small bequests, he directed his executors to divide his residuary estate, real and personal, into equal shares, equal in number to his surviving wife and children, and he gave one of such shares to his wife. Another of these shares he gave to his executors in trust to receive the income of so much as shall be real estate and the income of the personalty and pay it over to his son William. On the death of William, he gave the principal to such of William's surviving brothers and sisters as he should by will appoint or on failure of appointment to his surviving brothers and sisters. If, however, any decree for the payment of money was obtained against the son, then, so long as it remained in force, the executors were to pay to him so much as might be necessary for his support and the balance to his sisters then living in equal shares. Two other shares were given to the executors under identical trusts for the two remaining sons. Three other shares were then given to them under similar trusts for each of his daughters except that the provision as to the decree for the payment of money was omitted and except that on the death of a daughter the principal was given to such of her issue or brothers or sisters as she might appoint, or on default in appointment, to her mother if surviving or if not to her sisters. He named his wife, two of his daughters and a friend his executors *502 and trustees and he authorized his trustees of each trust to sell any real estate comprised therein; to mortgage any land "if they shall deem it advisable;" to lease lands for a term not exceeding twenty-one years; to agree to a partition of lands held in common with others and to partition his real and personal estate into the necessary shares; to collect the rents until such partition and apply them to the payment of debts, and to the payment of taxes, insurance and repairs on his real estate; and to compromise "in their discretion" any claims against his estate. Those of the trustees as shall undertake the execution of the several trusts are authorized "to do and perform every act discretionary or otherwise" that all could perform under the will. Finally "I hereby declare that all the powers herein given are intended to be discretionary, and to be exercised or not as said executors and trustees shall think proper, hereby authorizing a majority of trustees of any share to exercise such discretion if there shall occur a difference of opinion between them."
As to the condition of these sons and daughters in 1871, not only are there no findings but no evidence on which findings could be based except that it may be inferred that one son, at least, had living children. Nor are there findings as to the situation of the property of Mr. Furniss unless the reference in the 9th finding of fact to a certain account is sufficient to make it a part thereof. We assume that it is, especially as by consent it is included in the record. If so, the inferences drawn by the appellants are substantially correct. He had at the time of his death personal property valued at $41,899.33 which was used to pay debts and legacies. Available for the trust funds was productive real estate of the value $490,000 and the unimproved Bloomingdale lots worth more than $1,400,000. These deductions do not seem to be questioned by the respondents. If the trustees succeeded in obtaining six per cent on the productive *503 property a gross annual income of $29,400 would result subject to be lessened by commissions and expenses. What the carrying charges on the Bloomingdale lots amounted to in 1871 does not appear. In 1875, however, after the taking by the city of land valued at $524,258 and the reduction in value of the remainder to $962,500, they were $12,150.25. As the respondents also concede, after deducting some small rentals, in 1871 these charges must have amounted to $17,000 annually. The testator knew, however, that these charges would be decreased, and the income of his estate increased when the award in certain pending condemnation proceedings brought by the city was made and paid. The daughters were unmarried.
These facts and the will itself were before the Appellate Division. Nothing more. Upon them and the will must be based its findings that "the will of the testator, considered in the light of the circumstances existing at the time it was made, including the conditions of his property and the probable needs of his family, evinces a clear intent that the principal of the trust funds provided by his will should remain intact;" and that "the income from the testator's real property even prior to the payment of the award * * * was sufficient to meet the probable requirements of his widow and children for their support and maintenance, together with taxes and carrying expenses of all real property belonging to the estate."
We reach the conclusion that the intention of the testator as derived from the will was to effect an equitable conversion of his real estate — not to leave it to his trustees to determine in their discretion whether or not a sale should ever be had; and that such an intention is confirmed, not negatived by the facts recited. If so the entire proceeds of the sale of the Bloomingdale lots should not be credited to capital.
From the will itself it appears that the persons whom *504
the testator wished to benefit were his widow and children. For existing or possible grandchildren he had little care. In no event were children of his sons to benefit, and children of his daughters only in the event an appointment was made in their favor. Stronger than usual is the argument that the life tenant is the object of the testator's particular solicitude. The estate, real and personal, is to be divided into seven equal shares to be partitioned by the trustees. The personal estate is to be invested and the rents and income of the real estate received, and the total net income paid to the beneficiaries. Upon the death of any of them, however, "the principal sum" is disposed of by appointment. This is a slight indication that the real estate to be held shall produce an income and that it was contemplated that all should be converted into personalty at least before the death of the beneficiary. If judgments were obtained against a son he was to be given only enough for his support and the balance of the income to his daughters. If the total income of the testator's productive property was $29,400 and the carrying charges on the Bloomingdale lots $17,000 a balance remains of $12,400. Each son would, therefore, receive $1,800, yet after providing for his support the testator contemplated a surplus. The will next authorized the trustees to sell any real estate contained in the trust, to mortgage it "if they shall deem it advisable," to lease it, to partition real estate held in common with others, to partition it among the trusts, "in their discretion" to compromise claims, and if any trustee fails to qualify the remainder may do anything "discretionary and otherwise" which all might do "under the expressions of this will." If this were all there could be little doubt that an equitable conversion was effected and that it would be the duty of the trustees to sell unproductive real estate. (Lawrence v. Littlefield,
Authorities are of little help. The construction of every will depends upon the varying language used and the varying conditions surrounding the testator. Perhaps the case most nearly in point is Spencer v. Spencer (
The cases cited by the respondents do not seem to be in conflict with the conclusion we have reached. In Yates v.Yates (28 Beav. 637) the language used was: "I authorize the said trustee * * * at such times as he or she shall think proper, in case they * * * shall think it necessary so to do, but as to which they * * * shall have absolute discretion, to mortgage, sell or dispose of," etc. The court said the trustees were not bound to sell at all. In Patterson v. Vivian (
the facts are not similar. In Martin v. Kimball (
Although not argued but as a suggestion, something is said about an estoppel affecting the rights of the life tenant or those of her successors in interest. Such a claim cannot be sustained. Mrs. Zimmerman knew that the property remained unsold. She consented to this manner of administering the estate. As against her this certainly created no estoppel in favor of a remainderman.
Mrs. Zimmerman, therefore, or her estate is entitled to be made good for the income she would have received had the conversion taken place within a reasonable time. Ordinarily that time is assumed to be one year after the death of the testator. Here, however, the trustees were given the power of sale only after the trusts were constituted. Before any sale could be had the real and personal property was to be turned over to them in specie. This occurred on December 18, 1874. We should fix the date December 18, 1875, as the date since which Mrs. Zimmerman became entitled to this income. *508
What, then, is the basis for an equitable division between principal and income? The question is not an easy one to answer. If the trustees were imperatively required to sell this property before December, 1875, to invest the proceeds at once, and to pay the income to the life tenant irrespective of any interests of the remaindermen, there would be little difficulty. What the life tenant lost, if no sale was made, would be measured by what she was entitled to, yet failed to receive — let us say four per cent on $137,250. But while the testator did not intend her to lose all income until the sale was actually made, yet he also intended to preserve permanently a trust fund. He did not require an immediate sale. Speculative considerations were in his mind. The property might increase in value. Probably it would. A sale to-day might result in a sacrifice. In this matter he rested on the judgment of the trustees. That judgment, rightfully exercised, might induce them to hold it for years. When the sale did come the judgment might prove to be a mistaken one. The property might bring less than if sold in 1875. If so, the principal would be diminished. The life tenant would receive a smaller income than he expected. Or it might bring more. Then the principal would be increased. So would the income. By conferring this discretion this was precisely the kind of risk to which the testator subjected both life tenant and remainderman. But, meanwhile, while the sale might be postponed, it was not intended that the delay should inure solely to the benefit of the remainderman, or that an ultimate loss should be his loss alone. To some part of the proceeds the life tenant was entitled. Any simple rule, as that of damages, will not do. If the sale was at a loss, such a rule might easily take all the principal and so destroy the trust. If there was an abnormal increase the rule might work injustice to the life tenant. For this reason certain courts have adopted this theory. Take a sum, which invested in 1875, at *509
such a rate, as the trustees would probably have received would amount on the day of the sale to the net amount received. That sum is principal. The balance is income. (Edwards v. Edwards,
In Lawrence v. Littlefield it was said that in such an apportionment between capital and income, the rate of six per cent should not be used but only such a rate as could have been realized by the trustees on a proper investment had the funds been actually in existence and that it was the duty of the trial court to fix this rate. So in Edwards v. Edwards, where again the six per cent rate was claimed, the case was referred to a master, to determine what income the trustees would probably have received. This course is not necessary in the case before us. Here the findings show that the trustees were able to invest the trust funds at a rate in excess of four per cent. We may take judicial notice of the fact that during these years that rate would be a moderate rate for authorized investments. And it is all that the appellants ask. If so, we may make the following statement.
*510Amount required on December 18, Parcel. Date of sale. Net proceeds. 1875.
A ............ September 3, 1885 $44,887 00 $32,332 35 E ............ December 31, 1897 126,112 33 67,031 11 B ............ October 2, 1899 90,675 18 46,464 35 C ............ October 9, 1899 66,385 35 34,003 66 D F ........ October 6, 1902 28,701 03 13,852 05 ___________ Making a total of ......................... $193,683 52 ===========
The net total of the sales was $356,760.89. The difference would be $163,077.37.
To this sum the life tenant is entitled. It is true that because of the increase in value, because of the good judgment of the trustees, she actually received far more in all than she would have received had the property been sold in 1875 for $137,500. The respondents calculate that if this had been done her total income to the date of her death would have been $485,317.15 and that she actually received $546,854.97, a difference of $61,537.82. Figured at four per cent, we make the difference far more. Which figures are correct, however, is immaterial, unless under some theory Mrs. Zimmerman is to be charged with the excess of these receipts over what she would have received had the sale been promptly made. It might be argued that she should be. It may be said her claim is that the sale should have been made in 1875. What she has lost, therefore, is the difference between what she would have received had it then occurred and what she actually received. But this is the theory of damages. Her position is not that the sale should have been then made, but that it was the testator's intention that when the sale was made in the future she should be thereafter entitled to whatever income the trust fund should yield; and that as to the past she should be equitably recompensed for the period of abstinence.
2. As to the taxes on the Bloomingdale lots the trustees charged them to capital. The Special Term approved. The Appellate Division, however, reversed this result and charged $36,890.04 to income. This was error. If the testator intended to effect an equitable conversion, they should be paid from principal. (Spencer v. Spencer,
3. As to the question of amortization, the Appellate Division is so clearly right that no discussion is required. (Matter ofStevens,
The result would be that we should modify the judgment appealed from by (a) reversing that part of the judgments of the Appellate Division and the Special Term as hold that the income of the trust fund should be credited with no part of the proceeds of the sale of the Bloomingdale lots and by decreeing that the sum of $163,077.37 should be credited to the income of the trust fund and not to the principal and by surcharging the trustee in regard to income with that amount and by crediting her in regard to principal with the same amount; (b) by reversing that portion of the judgment of the Appellate Division which provides that the taxes, water rates, marshal's fees and legal expenses in connection with said lots were properly chargeable against the income of the trust estate and affirming the judgment of the Special Term in that regard and by further decreeing that the sum of $1,883.11 should be credited to the income of the trust estate and not to the principal, and by surcharging the trustee in regard to income with that amount and by crediting her in regard to principal with the same amount; and as so modified the judgment appealed from should be affirmed, with costs in this court and in the Appellate Division to the appellants.
HISCOCK, Ch. J., POUND, McLAUGHLIN and CRANE, JJ., concur; HOGAN and CARDOZO, JJ., dissent.
Judgment accordingly. *512