Majority
p. 664Julia Morris Curtis Lawrence, Respondent, v. Charles E. Littlefield, as Administrator with the Will Annexed, etc., of Mary G. Pinkney, Deceased, and Others, Defendants, Impleaded with Louis H. Morris and Others, Appellants. First Department, March 12, 1915.
Headnote
Will —• devise of lands in trust, with discretionary power of sale in executors — trust for lives, with remainders over — when life beneficiaries cannot compel sale of lands which do not produce income — sale to pay carrying expenses of lands — prior decree that residuary clause works conversion — effect of such decree.Where a testatrix conveyed unimproved and unproductive real estate to her executors in trust, to pay the income therefrom to certain beneficiaries for life, with remainders over, and further gave to her executors (not to the executors as trustees) a discretionary power to sell for the purpose of paying taxes and assessments and to dispose of the surplus pursuant to the trust, it was the intention of the testatrix that the power of sale should be executed by the executors as such, and not by the executors as trustees, the time, terms and circumstances of the execution of the power being wholly discretionary. Hence, the only right of the trustees was to receive for the life beneficiaries’ account such surplus as might remain after the taxes and assessments have been paid, and they cannot
p. 665
be compelled to set apart moneys representing principal from which the life beneficiaries may draw an income, where the lands have suffered a continuous depreciation in value and the cost of carrying the same has exceeded the income therefrom.
Such power of sale is not mandatory, hut is to be exercised only by the executors when necessary to pay taxes and assessments, and hence they are not required to sell the lands in order to obtain a surplus from which the life beneficiaries may draw an income.
Where it was decreed in a prior action that the effect of the residuary clause, which covered both real and personal property, was to blend the same and to work an equitable conversion of the real - estate into personalty, that judgment becomes the law of the case. But, giving it the fullest effect, it does not determine that the power of sale was mandatory, or that the executors were not vested with discretion both as to time and terms of sale.
Appeal by the defendant, Louis H. Morris, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 21st day of May, 1914, overruling his demurrer to the amended complaint.
Appeal by the defendants, Keith W. Morris and another, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 16th day of June, 1914, overruling their demurrer to the amended complaint.
The complaint set forth the following facts: Mary G. Pinkney died in December, 1908, leaving an estate consisting of personalty valued at about $700,000, and real estate valued at that time at about $8,000,000, nearly all of which was unimproved and unproductive, and has since suffered a continuous depreciation in value. By the 8th clause of her will, after making certain bequests of inconsiderable value, all of which have been paid, and certain devises of specific pieces of real property, she divided the residue of her real and personal estate into four parts, of which she gave absolutely to each of her nephews Thomas and Archibald one part. To her niece Grace she gave one-half of one part absolutely, and the remaining half to her executors in trust to pay the income thereof to Grace for life, with remainder over to the children of Grace. One part she gave to her executors in trust to invest and pay the income to the plaintiff (also a niece) for life, with remainder
p. 666
over to her children. By the 9th clause, in the event of the death of either of her nephews or nieces before the testatrix, leaving issue, the share of the one so dying was devised to such issue, but in default of any such issue, the share of the deceased nephew or niece was to be divided equally among his or her surviving brothers and sisters, “the whole of such part or share as may then fall to ” the plaintiff and one-half of that “then” falling to Grace to be held by the executors upon trusts as aforesaid, and the other half of Grace’s share to be taken and enjoyed by her absolutely.
The 10th clause was as follows: “I give unto my executors * * * power and authority to sell, either at public or private sale, all my real estate or any part thereof upon such terms as in their judgment they shall deem proper, and to execute proper conveyances thereof, and that they apply such portions of the proceeds as in their judgment they may deem proper to the payment of any taxes and assessments that may be liens upon said real estate or any part thereof, and to pay over the surplus that may not be required in their judgment for the above named purpose to the said ” nephews and nieces ‘ in the proportions [hereinbefore] mentioned,” the whole of such part or share as may “ then ” fall to the plaintiff, “to be held in trust by my executors as hereinbefore provided; ” one-half of the share that may “ then ” fall to Grace to be similarly held in trust, and the other half to her absolutely.
Prior to the commencement of this action portions of the real estate were sold for approximately $2,660,000. The gross income from all the real estate to May 1, 1912, amounted to only about $101,000, whereas the “carrying charges” alone amounted to over $315,000. The surviving executor at various times between January and June, 1912, transferred to himself as plaintiff’s trustee an aggregate of $775,000, no part of which was derived from income of the estate, and not until January, 1913, did plaintiff receive from the estate devised to her any income whatsoever. In November, 1912, after the death of the surviving executor, the defendants Lincoln Trust Company and Fischer were substituted as trustees of the trust created for plaintiff and her remaindermen. Prior to the commencement of this action the executors brought an action for the con
p. 667
struction of the will, to which action this plaintiff was a party. By the judgment in that action it was determined that, for the purposes of the residuary clause, the effect of the will was to hlend the real and personal property and to work an equitable conversion of the real estate into personalty. For relief in the present action, plaintiff prayed that the trustees be decreed to set apart from the moneys theretofore received by them, and as well from any moneys they might thereafter receive from the administrator cum testamento annexo representing proceeds of real estate thereafter sold, a sum or sums to be ascertained by computation and which shall be taken to represent the principal of the devise for plaintiff’s use, which sums, with interest from the date of the death of the testatrix to the time when the several sums were or should be actually received, shall equal the sums so received, and that the difference or surplus be paid to plaintiff as and for income.
Henry A. Forster, for the appellant Louis H. Morris.
Abram I. Elkus, for the appellants Keith W. Morris and another.
Frederick H. Sanborn, for the respondent.
What, if any, relief plaintiff is entitled to depends upon the intent of the testatrix, to be gathered from the will itself. It must have been apparent to the testatrix that the real estate constituting the major portion of her estate could afford the plaintiff no income except from proceeds of sales. The devise of the share in which plaintiff is interested is direct to trustees, who were in fact identical with the individuals named as executors, although this identity was a coincidence of person merely and not of estate. But inasmuch as an express power of sale was given to the executors as such, and not to them as trustees, I think it was evidently the intention of the testatrix that this power should be executed by the executors as such, although the time, terms and circumstances of its execution were left wholly discretionary, as there are neither mandatory nor directory words in the clause creating the power. Viewed in this light, the only right of the trustees was to receive for plaintiff’s account such “ surplus ” as might remain after taxes
p. 668
and assessments had been paid. If the power to sell were to be construed to be an imperative power to be executed at once as to all the real estate, there would be no force in the words which authorized the executors to “ apply such portions of the proceeds as in their judgment they may deem proper to the payment of any taxes and assessments that may be liens upon said real estate or any part thereof, and to pay over the surplus that may not be required in their judgment for the above ” purposes, because the sale of any real estate on which liens for taxes or assessments existed would necessarily require the payment of such liens from the purchase money. It is manifest also that the discretion with which the executors were vested permitted them to sell from time to time so much only as might at the utmost be necessary to pay the taxes and assessments on the whole, thus leaving no “ surplus ” for distribution. What the testatrix evidently intended was that the real estate devised to the trustees should be held by them as such, and that as executors they should from time to time as to them seemed best, sell portions, and after paying the taxes and assessments on the whole or on such parts as they deemed proper, they should pay over to themselves as trustees any remaining “surplus,” the same to be held under the terms of the will. Until such sales were made, taxes paid, and “ surplus,” if any, paid over, there necessarily could be no income for plaintiff to enjoy. Nor can I see that any different result would be reached should we construe the power of sale to be mandatory and immediate, for in that event as well, all the trustees would have been entitled to receive was the “ surplus ” to which I have alluded, and until such “ surplus ” was obtained by the execution of the power there could be no income to which plaintiff would be entitled. If it be urged that the interpretation I put upon the will leaves the plaintiff at the mercy of the discretion of the executors and sacrifices her for the benefit of the remaindermen, I think a sufficient answer lies in the fact that in the event of any improper delay, the plaintiff might have appealed to the court to direct the executor to execute the power. Although I do not think it necessary to resort to rules of construction to ascertain the intent of the testator in this instance, should we revoke such rules, they do
p. 669
not in my opinion aid this plaintiff. We may accept it as settled law in this State that where the income or interest of a particular fund is bequeathed to one for life (Matter of Stanfield, 135 N. Y. 292 ), or where there is a clear bequest of a life estate in a residuary fund or some part thereof (Matter of Benson, 96 N. Y. 499 , 511), if the will evidences no different intent, the legatee for life is entitled to interest or to the income as afterwards ascertained, to be computed from the death of the testator. Necessarily the rule is not one of property, but one of construction, and its reason lies in the injustice of increasing the principal for the benefit of the remaindermen, who would thus be given just so much more than existed at the time of the testator’s death, and this at the expense of the Ufe estate. (Davison v. Rake, 44 N. J. Eq. 506 .) The cases in which this rule has been successfully invoked are very numerous. In some States, as in Massachusetts, the matter seems to be the subject of a statute. (See Ayer v. Ayer, 128 Mass. 575 .) But all the cases I have found are, I think, distinguishable from the present, and none of binding authority involved unproductive real estate. The cases may be roughly classified as involving productive real estate; gifts of productive personalty or of personalty easily susceptible of being made productive; of an annuity or income; gifts to widows or in lieu of dower, or to infants, children of the testator, or such as toward whom he stood in loco parentis; where part of the estate consisted of wasting property, such as leaseholds, or where mortgages or other investments of the trustees have been foreclosed or taken in and a question arose as to the apportionment of the proceeds which included a profit or something on account of income. That the principle is not a rule of thumb to be indiscriminately applied, and that even in the case of personalty it has regard for a situation where no income has in fact been earned, or might reasonably be expected to be earned, is clearly shown by the authorities and also appears in that portion of the opinion of the chancellor in Williamson v. Williamson, where the distinction is pointed out between those instances where a fife estate is constituted in a clear residuary fund and where “ the testator had directed one species of property to be converted into another, or the residuary fund to be invested in a particular manner, and had then
p. 670
given a life estate in the fund as thus converted or invested. ” In the former class, having regard for actual income conditions in esse or in posse, the income awarded to the life estate is computed from the time of the death of the testator, whereas, because of the delay in securing income necessarily incident to . the latter class, the computation is not made until “the conversion takes place or the investment is made,” for which purpose one year from the date of the testator’s death has been adopted as a convenient period from which the computation of income shall date. (6 Paige, 304, 305.) In Edwards v. Edwards ( 183 Mass. 581 ), which is so greatly relied on by the respondent, there was a gift of all testator’s property direct to trustees to pay the income, less certain specified sums, to testator’s wife for life. The estate consisted of unimproved real estate and personal property. The former, after a delay of some years, was sold at a large advance over its inventoried value, and the question before the court related solely to an apportionment of the proceeds between the widow and the remaindermen. A mere statement of the facts should be sufficient to show the material respects in which that case is different from the present.
The precise situation we have here is one which, so far as I can find, has never been presented in any reported, case in this State. It is one of a gift of personalty and unproductive real estate combined, to trustees, with an absolute power in the executors to convert, accompanied by a discretion as to the time when such conversion is to take place, and where there has been no profit and the conversion has been justifiably delayed. In every case I have been able to find involving the interpretation of a testamentary devise of this character, where the court has applied the rule adopted by the court below, there had been an increase in value, or the court was dealing with a species of property which lent itself to the presumption that the testator intended that the life tenant should participate in the enj oyment of the income which the subject of the devise produced or was capable of producing. If the rule invoked were applicable here, I take it that the fact that the express power to convert is given to the executors as such, and not to them as trustees, would not necessarily defeat its application, and inas
p. 671
much as the complaint is silent concerning any income from the personal property and asks for no relief in that regard, the fact that the estate is one of mixed real and personal property might also be disregarded, and the case treated as a trust to convert unproductive real estate at the discretion of the trustees. In Rodman v. Fincke ( 68 N. Y. 239 ) unproductive real estate was involved. Referring to the principle applicable to gifts in trust to convert with a life estate and remainder over, Rapallo, J., spoke of it as one which “has been adopted,” implying, I presume, that it was applicable to the character of property there involved, but as, on its facts, the case was not one between life tenant and remaindermen, the learned judge said the principle was not applicable. As authority for the rule as he stated it, Judge Rapallo (p. 244) cited Yates v. Yates (28 Beav. [1860] 637, 639) and Livingston (sic) v. Gray (2 Sim. & Stu. [1825] 396.). Kilvington v. Gray involved personal property in certain of which the testator created trusts, and also directed that his personalty be converted into land as soon as convenient, and in the meantime the uninvested estate was to be invested in public stocks to be held upon certain trusts. It proving impossible to make the conversion, the court held that the life tenant was entitled to the income after one year from the testator’s death. I cannot regard Kilvington v. Gray as a case in point. In Searle v. Baker (L. R. [1900] 2 Ch. Div. 829, 832) Kekewich, J., refused to follow Yates v. Yates, saying that it was at variance with the later cases. Searle v. Baker was followed by Warrington, J., in Wilson v. Oliver (L. R. [1908] 2 Ch. Div. 74, 80). In Searle v. Baker the residuary estate, consisting of both real and personal property, was given to trustees for sale and conversion, the proceeds to be held in trust to pay the income to the testator’s wife for life, with express power to postpone conversion so long during the wife’s life as the trustees saw fit. The real estate was productive, but no conversion having been made, the widow was held entitled to the rents and profits. In the course of his opinion, after referring to passages which he had already quoted in a former case from Jarman and Lewin, Judge Kekewich said (p. 834): “I thought at first that there was a little ambiguity in Lewin’s statement (10th ed. p. 1161): ‘If a testator direct his
p. 672
real estate to be sold, and the proceeds laid out and invested in trust for A. for life with remainders over, the tenant for life is entitled to the rents only of the estate from the testator’s decease.’ But now that I have threshed the matter out, I think that there is a good deal of truth in it; for in the case of real estate, if the estate produces nothing, the tenant for life can get nothing, whereas in the case of personalty he would get something upon the principle laid down In re Earl of Chesterfield’s Trusts ” (L. R. [1883] 24 Ch. Div. 643), a case similar in general principle to Williamson v. Williamson (supra).
There is one feature of the complaint to which I have not yet alluded. I refer to the judgment in the action to construe the will. (Pierce v. Thomas, not reported.) Whatever doubt may exist as to the soundness of the decision involved in that judgment, it must be accepted as the law of the case. Giving to this judgment the fullest effect to which it is entitled, it is not alleged in the complaint herein, nor could it properly be held, conceding the trust to sell was mandatory, that the executors were not vested with a discretion both as to the time and the terms of sale. The opinion of Mr. Justice Bischoff in Pierce v. Thomas clearly shows such to have been his view. The fact that this judgment determined that an equitable conversion was worked by the terms of the will does not affect the question of the plaintiff’s right to the relief she seeks. The doctrine of equitable conversion has properly been characterized as both artificial and arbitrary, and granting to it the fullest effect so far as devolution, succession and other matters affecting title are concerned, I cannot see how it can be applied so as, by presumption of law, to produce income from an estate where no income has in fact been earned, or the right to income, save as it might arise from an application of the doctrine. (See Hite v. Hite, 20 S. W. Rep. 778 .)
The orders should be reversed, with ten dollars costs and disbursements, and the demurrers sustained, with ten dollars costs.
Ingraham, P. J., McLaughlin, Laughlin and Scott, JJ., concurred.
Orders reversed, with ten dollars costs and disbursements, and demurrers sustained, with ten dollars costs.
Cases cited
- In re Stanfield 135 N. Y. 292 p. 669
- In re the Accounting of Benson 96 N. Y. 499 at 511 p. 669
- Rodman v. Fincke 68 N. Y. 239 p. 671