165 N.Y. 484 | NY | 1901
Lead Opinion
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *486 The only question arising on this appeal to which reference will be made in this opinion is whether this accounting trustee should have set apart out of the income a sufficient sum each year with which to form a sinking fund of such extent that the principal of the trust would be kept intact and unimpaired. The referee before whom the case was tried decided that it was the duty of the trustee under the will to have so set apart out of the income a sufficient sum each year so that at all times the principal of the fund would be unimpaired, and that because of its failure to do so the trustee was properly chargeable for an amount equal to such a portion of the income as should have been so set aside while it was the trustee. Such portion was found to amount to the sum of $5,260.75, and with that sum the trustee was charged.
The Appellate Division affirmed the judgment entered upon the report of the referee in an opinion that fully covers the question whether under this will it was the duty of the trustee to keep intact the principal of the trust fund by devoting yearly such portion of the income of the bonds as should be required to pay the amount of premiums that the trustee was obliged to pay in order to secure the bonds in which the trust estate was invested. We approve of what was said in that opinion and should affirm on it without further comment were it not that since it was written this court has decided the Hoyt case (Matter of Hoyt,
In the surrounding facts and circumstances in this case we find nothing that leads us to the conclusion that the testator intended any different treatment of the trust than that which the language of the clause creating it plainly indicates, viz., that the capital of the trust should be kept intact, and that to that end an adequate proportion of the annual income should be set apart to make good the amount paid in premiums in order to secure a proper investment.
The referee made a slight error in calculation resulting in an overcharge of $146, as the respondent concedes.
The judgment should, therefore, be modified by deducting therefrom the sum of $146 as of the date of its entry, and as thus modified should be affirmed, with costs to the guardian adlitem, against the plaintiff, appellant.
Dissenting Opinion
The judgment in this case has determined that the plaintiff, as trustee of a testamentary trust, has violated the provisions of the trust instrument and thus is guilty of a breach of the trust committed to its charge by the testator and the court in that it has suffered the capital of the trust fund to be impaired to the extent of nearly six thousand dollars. I think that this conclusion is unjust to the plaintiff and that the principle decided must operate unjustly upon all trustees similarly situated, and, in the nature of things, there must be numerous trusts to which the rule applies. The reasons upon which this result is based are, as I think, strained, and the argument in support of it is based upon theories and speculations that may be correct enough for an expert or trained financier, but are of very doubtful utility in the practical affairs of life. *491
The only violation of the trust that the plaintiff has been charged with is that it paid over to the defendant William J. Baker annually the interest on the United States bonds, constituting the capital of the trust. That is literally the full extent of its offending. If, in so doing, the trustee simply obeyed the will of the testator, it ought to be commended and not punished, since that instrument was the charter that prescribed the powers and duties of the trustee and the rights of the beneficiaries. We must, therefore, examine that instrument in order to see whether the claim that the plaintiff violated any of its terms or provisions has any support. By the will of James Baker, who died in 1876, a share of the estate was devised and bequeathed in trust for the use of his son, the defendant William J. Baker, during his life, with remainder to his children, who it seems are the infant defendants in this case. The trustee was given power to sell the property embraced in such share at public or private sale, and at such time and upon such terms as he might think best, and to invest the proceeds in certain securities named, among which were government bonds. The testator then directs the trustee "to collect and receive the income, dividends and profits thereof and apply the same to the use of my said son William during his natural life," with remainder to his children.
It appears that the trustee named in the will refused to act and that the person appointed in his place resigned, and that by an order of the court made on the 4th of August, 1882, the plaintiff was appointed the trustee of the trust and there was passed over to it by the order the corpus of the fund, consisting, with a small item of cash, of $50,000 par value in United States registered four per cent bonds and $31,000 par value registered four and a half per cent bonds. The latter were to become due in 1891 and the former in 1907. These bonds had been purchased at a premium, which amounted in all to about $10,000. The plaintiff in the administration of the trust paid to the life beneficiary the interest collected on the bonds and no more, and this is the only act claimed to be in violation of its duty as trustee or of the terms of the will *492 creating the trust. A government bond is a contract which imports a loan of money by an individual to the government at a stipulated rate of interest payable at a designated time and place. The "income and dividends" of such a bond is generally supposed to be this interest. It is entirely safe to say that this was the sense in which the testator used these words. The words of the testator should be understood in their general and popular sense unless it appears that he used them in some special or restricted sense. When the testator directed the creation of a trust consisting of these bonds he knew that they could not be purchased without payment of a premium, and yet he directed the trustee to pay the income and dividends of the same to his son. It seems to me that no fair mind can entertain any doubt with respect to the intention of the testator when he made use of the words "income and dividends." He intended that the life beneficiary, his son, should be paid the interest on the bonds.
But the decision in this case imputes to him quite another and different intention which it is safe to say never entered into his mind at all, and that is that he intended to direct the trustee to pay to his son, not the four per cent or four and a half per cent interest collected on the bonds, but three per cent or such other reduced rate of interest as would enable him to provide a sinking fund to make good the premium paid for the bonds when they matured. To say that this is what the testator intended when he gave the income of the bonds to his son for life and what the trustee was bound to know from the use of these words in the will, is to ignore entirely the natural and general meaning of the testator's words and to give to them a meaning altogether artificial. The plaintiff paid over the interest to the son just as did the prior trustee who formed the trust, and it seems that the latter was discharged, as a good and faithful servant of the court, by the same order that appointed the plaintiff. The latter might very well suppose that it could not be subjected to loss and censure by the court for following a line of conduct that had been approved in the case of its *493
predecessor in the trust. The plaintiff, in assuming the duties of trustee, had the right to rely not only upon the order of the court conferring the appointment, which was in the nature of an adjudication of the question in the very case (In re Talmage,
But quite independent of this question, there is another feature of the case which seems to me to be even more unjust to the trustee. The trust is still in operation and the action was for an intermediate accounting. The parties are the trustee, the life tenant and his two children who are entitled to the remainder. The action was sent to a referee to hear and determine. In his report the findings of fact and conclusions of law are separately stated. On the trial the plaintiff's counsel requested the referee to rule and decide that the life tenant should be adjudged liable to refund any income which has been paid to him and which should have been set apart by the trustee as a sinking fund to be added to the principal, and that the trustee might deduct such income improperly paid to the life tenant from any payments of income thereafter payable to him. The referee refused to so find or decide on the ground that it was not within the issues in the action, and the plaintiff excepted to this ruling. I think this ruling was error for which the judgment should be reversed. There were really no issues in the case. All the parties were before the court and all prayed that an accounting be had. The life tenant did not allege in his answer that he had been paid too much, nor did the infant defendants allege that their father had been paid more than he was entitled to. The question of over-payments to the life tenant was not raised by any *495 pleading, but by the court without pleading, as it doubtless might. But the whole case was before the court and it was not embarrassed by any issues whatever. It had the power to do justice to the trustee as well as to the beneficiaries. If the life tenant had been paid too much the court had ample power to order him to restore the excess to the trust fund or to permit the trustee to deduct such excess from any payments made to him thereafter. The court should not have permitted the life tenant and the remaindermen, his two children, to combine and take from the private property of the trustee nearly six thousand dollars for no other reason than that the latter made a mistake in assuming that the direction in the will to pay income authorized it to pay the full interest. The ruling of the learned referee is not calculated, as it seems to me, to promote common honesty or commercial morality on the part of the beneficiaries of a trust when dealing with their trustee. The latter, beyond all question, acted in good faith, and the court had ample power to protect its own officer. If there was a mistake, clearly the life tenant was the beneficiary of it. He, as well as the trustee, was in the attitude of asking the court to do justice, and unless I am greatly mistaken the court had full power in that respect and should have ruled as requested.
The judgment should, for these reasons, be reversed.
GRAY, HAIGHT, LANDON and WERNER, JJ., concur with PARKER, Ch. J., for affirmance as modified; O'BRIEN, J., reads dissenting opinion; CULLEN, J., not sitting.
Judgment accordingly. *496