In re Estate of Shipman

* Cited here doubtless because in substance a codification of the doctrines of equity on this point. *296 adverse to the interest of his beneficiary in the subject of the trust, he must immediately inform the latter thereof, and may be at once removed.” Counsel for the executor contends strenuously t.iat the executor is not a trustee. Upon the argument of the exceptions to the report of the referee, where the special guardian urged that the life tenant should be required to give security before taking possession of the residuary estate ithe counsel for the executor insisted that testatrix intended that the life -tenant should retain actual custody of the estate without giving bonds. In this connection- attention is called to the case of Smith v. Van Ostrand ( 64 N. Y. 282 ), cited in the brief of executor’s counsel, where it was held that the testator may confide a fund to a legatee for life, -trusting to such legatee to preserve the fund for the benefit of those entitled to it in remainder, and in such case the legatee for life becomes trustee of the principal fund during the continuance of the life estate. This would constitute him a testamentary trustee. It may add some force to the suggestions already made, that the executor is in effect and for all practical purposes, under the circumstances existing in the case at bar, a trustee. Thus, by the English Trustee act of 1850, the words “trust” and “trustee” are defined as extending to and including “the duties incident to the office of personal representative of a deceased person. ” And again, “ executors . . . hold the property of their testators in trust for the payment of debts and legacies, and for the application of the surplus according to the will of the testator; and courts of equity proceed in cases of this ’kind as in the execution of trusts” (Tiffany and Bullard on Trusts, 483). The executor always takes the legal title to the personal property of the testator as trustee (Bowers v. Smith, 10 Paige, 199). All the cases cited by the executor’s counsel'recognize that security •should be taken for the return of the principal at the termination of the particular estate; if it is permitted to go into the hands of the legatee, -they all look to the protection of the interest of the remainderman as against the person who has possession of the residuary estate. Now, the fact that this person happens to hold, likewise, the position of executor, does not obviate the necessity for this requirement; he is none the less likely to dissipate or misappropriate the funds on that account. It is against just such misappropriation, dishonesty or improper investment of the funds that the rule is intended to guard. A person -who holds property simply as trustee, or as executor, will seek to guard chiefly the corpus of the estate and could not be tempted to injudicious investments in order to increase the revenues, whereas the person entitled'to the income might, with the most honest intentions, run greater *297 risks in order that the income from the principal might be enlarged. This is the evil which the law seeks to remedy and the disastrous result which it seeks to prevent by requiring security. Executor’s counsel quotes from the decision in Montfort v. Montfort ( 24 Hun, 120 ) : “That a duty devolved upon the executrix to protect and preserve the fund for those entitled to in remainder.” Is it not anomalous to require a man to protect some one against himself ; to preserve the interests of another against his own misconduct or incapacity ? Suppose the fund should remain, as claimed by the executor, and occasion should arise for complaint as to his management of the fund, would Mr. Shipman, as life tenant, complain that he himself, as executor, was wasting the funds ? or would he, as guardian of his child, complain against his own acts as executor ? As a matter of fact there would be nobody who could complain. He would represent in himself every interest entitled to institute proceedings for waste, misappropriation or other misconduct. In the case of Marlett v. Marlett ( 14 Hun, 313 ), the precise point at issue here was not determined. There the court expressly refrained from construing the will, and it would have been an important factor in determining, if a bond should be given, whether the executrix, who was also life tenant, had the power to dispose of the property during her lifetime ; for, in the event of the exercise of that power, there would be no remainder to" protect. In Bundy v. Bundy ( 38 N. Y. 410 ) the judgment appealed from provided that the executors, upon giving proper security, should continue in charge of the fund, and that position was approved by the appellate court. They say: “ In this, there was no error; the will not having designated a trustee for this purpose, it was competent for the court to appoint a trustee. This may be regarded as such appointment.” While the executor and executrix were not constituted trustees by the will, the court held that they might act as such, but upon giving bond. It also held that the executrix could not act as trustee for that portion of the estate as to which she was cestui que trust (See also Postley v. Cheyne, 4 Dem. 492 , 501). But one case has been cited by counsel for the executors which at all embarrasses adherence to the views heretofore expressed by me, the case of Moke v. Norrie ( 14 Hun, 128 ). In that case it was contended that the word “ executors ” did not include an executrix for the purpose of constituting her a trustee under the will, the “ executors ” being constituted trustees. One of the arguments urged to sustain this interpretation was, that if she were not excluded, she would be constituted a trustee for herself. The court held (p. 132): “If this fact were fatal to a trust, its *298 effect, we think, would be limited in this case to the portion which is-for her own benefit. But the law is now settled, that a cestui que trust is not absolutely excluded from occupying the relation of trustee for his own benefit; and especially is this so where he is but one of several trustees.” It will be noticed that the General Term (Judge Davis writing the opinion) entirely ignored the leading case decided .by the court of appeals. Bundy v. Bundy. The case of Hovey v. McLean ( 1 Dem. 396 ), is not an authority here, for, in the language of the surrogate, there was a grave question of construction of the will, whether the executrix did not have an absolute po-íver of disposition of the personal estate. In Rogers v. Rogers ( 18 Hun, 409 ), referred to in the brief of executor’s counsel, it is claimed the General Term “sustained the right, of the beneficiary in the trust to execute the same as trustee thereof.” That case, so far as the opinion shows, held that because the trustee-was likewise cestui que trust, would not render the trust void. In effect the opinion recognizes the impropriety of the same person acting as trustee and cestui que trust; for the court says, that -if any of the-other trustees named in the will had qualified, it would have been proper to direct that the trustees, other than the widow, should apply to her use what was her right under the will. This case was taken to the court of appeals, and the decision will be found in 18 N. E. Rep. 636 . There the court squarely decided that as to the portion of the trust estate of which the widow was beneficiary she was incompetent to act as trustee. The court also-held that, although the trustees other than the beneficiary might die or decline to act, the court has power , to supply their places, or, if need be, take.upon itself the execution of the trust so far as it ought not to-be executed by the trustee who is also the beneficiary. See also opinion of General Term (Davis, P. J., writing) in De Rivas v. De Herques, reported without opinion in 24 Hun, 341 , and afterwards affirmed by the court of appeals on the General Term opinion and reported only as a memorandum in 85 N. Y. 645 . The law seems to be that, except where there is a power given to the life tenant to dispose of the funds, either absolutely or for certain purposes, the general -rule, that the same person cannot be trustee and cestui que trust, applies (Rogers v. Rogers, supra; Marlett v. Marlett, supra; Hovey v. McLean, supra; Smith v. Van Ostrand, supra). The reason for the rule disqualifying executors or other trustees from entering into contracts with their cestuis que trust applies with equal force in this case to prevent the petitioner from occupying those conflicting relations. “This rule is based upon our recognized obli *299 gation from placing ourselves in relations which ordinarily excite a-conflict between integrity and self-interest. The disability in such cases is a consequence of that relation between the parties which imposes on the one the duty to protect the interests of the other, from the faithful discharge of which duty his own personal interests may withdraw him. In this conflict of interests the law wisely interferes. It is-true that a sense of duty may prevail over motives of self-interest, but it is equally true that the dictates of self-interest may exercise a predominating influence, and supersede those of duty. Experience has-taught that it is not well to subject men to so severe a trial ” (See Tiffany and Bullard on Trusts, 484.) Motion denied.