New York Life Insurance & Trust Co. v. Kane

The question to be determined on this appeal is that involved in the controversy between the defendants entitled, by the terms of the trust deed, to the principal of the trust estate, and the personal representatives, and some of the legatees of Walter Lang-don, who was entitled to the income, as to certain transfers from income to principal, and the charges against income of the amount of premiums paid for the government bonds upon the change Of investment made during the trust term. It is urged that this question is to be resolved by some hard and fast rule, such as has been laid down by certain English authorities, which hold that no part of the income of a trust fund can be taken from a life tenant to make good to the remainder-men the premium paid in making the investment, which rule, it is claimed, has been applied in two leading cases in the state of Massachusetts (Shaw v. Cordis, 143 Mass. 443 , 9 N. E. 794 ; Hemenway v. Hemenway, 134 Mass. 446 ); or by the rule claimed to have been established by legal authorities in this state, that, where in the investment of the principal of a trust fund a premium is paid on the purchase of securities, such premium is in the nature of an advance from principal, which the remainder-men are entitled to have repaid from the principal (People v. Davenport, 30 Hun, 177 ; Farwell v. Tweddle, 10 Abb. N.

That no universal rule can be formulated, and that each case should be dealt with as it' arises, we think, becomes evident, not alone from the various views entertained in particular cases, but from a consideration of the elements that should be taken into account with respect to each particular case, only a few of which need be mentioned. As in wills, so in the construction of trusts, the first thing to be ascertained is the intention of the creator of the trust. When this is clear and explicit, it is the duty of the trustee to carry out such intention, regardless of whether it may be to the advantage of the life tenant or the remainder-man. Thus, if the trust instrument provides that a fixed sum or fund shall be invested in United States bonds, then selling at a premium, and that the entire income arising therefrom shall be paid to the life tenant, it is the duty of the trustee to purchase such securities, paying therefor whatever premium is necessary, and, without diminution, pay the entire income to the cestui que trust. Cases, however, arise where explicit directions are not given to the trustee, and where the intent is not clearly expressed; and then the rule to be adopted must be one that will secure substantial justice as between the life tenant and the remainder-men. Here the primary motive of Mr. Astor was undoubted solicitude for his grandson, the life tenant, Walter Langdon, for whose benefit the trust was originally intended, and to whom was given the right by will to apportion among his children the corpus of the fund after his death. The deed of trust provided that the investments to be made by the trustee should be with the consent and approval of Walter Langdon, the life tenant, and it is to be inferred from the facts appearing that it was so done. The deed of trust, while permitting an investment in United States securities, did not limit the trustee to such an investment, but, upon a change of investment, allowed him to reinvest “in the stock of the United States, or of the state of Hew York, or of the city of Hew York, or in bonds secured by mortgage of improved and productive real estate.” It was executed in 1847, and the reinvestment was made when the Ohio bonds became due, in 1881. At the latter date, the trustee, with the assent of Langdon, selected the highest form of security in which to invest; and, if Langdon were permitted to receive the whole income during life, it was certain that, as the United States bonds neared maturity, they would become of less value, and the principal sum to that extent would be diminished. There is nothing in the language of the deed of trust which expressly authorized the trustee to- impair the corpus of the fund for the benefit of the life tenant, and the trustee might well have questioned his-right, and hesitated to pay the large premium required to secure the government bonds, to the injury of the remainder-men. With the assent, however, of the life beneficiary, he might have adopted either one of three courses: (1) The premiums might have been charged against the income at the outset; or (2) the burden might have been divided and distributed over the years which would elapse before the .maturity of the bonds; or (3) he might have provided for the reten

Outside of the disputed question as to whether a portion of the income should go to make good the sum paid for premiums, it is conceded that the balance was the property of Langdon, to which he was at all times entitled, unless, upon some facts or principle of law, he at some time lost the right to claim it. These, it is insisted, are to be found in his assent to the application which, it is said, was made by the trustee of the income to increase the principal of the trust fund, as shown by the expression already referred to in his letter, by which, in respect to a certain account sent him, he said, “I accept it.” Such action we do not think operated as a gift or an estoppel, because the elements to constitute either are wanting. But it is insisted that it acted by way of ratification, which, whether revocable or not during Langdon’s lifetime, is conclusive upon his executors after his death. This insistence is supported by an argument that, the original action of the trustee being unauthorized, the assent of Langdon thereto effected a ratification, which was binding upon his executors.

The principles applicable to ratification and acquiescence are well stated in Adair v. Brimmer, 74 N. Y. 539 . And in Iron Co. v. Sherman, 30 Barb. 575 , it is said: “(2) The confirmation must be a solemn and deliberate act,—not, for instance, fished out from expressions in a letter;” that the court will watch it with the utmost strictness, and will, not allow it to stand but on the very clearest evidence; that the cestui que trust must be honestly made acquainted with the material circumstances of the case. “The confirming party must not be ignorant of the law; that is, he must be aware that the transaction is of such a character that he could impeach it in a court of equity.” Acquiescence, therefore, with full knowledge of all the facts, implies active consent, and is not to be spelled out from doubtful or ambiguous acts. We find no evidence to show that Langdon thought that his legal right to the accumulated income in the hands of the trustee would be in any way affected or impaired by the method adopted by the trustee in keeping the accounts, or that he knew or understood that the trustee was making an illegal application of his money. Nor do we think, the trus

After the sale of the Ohio bonds, the investment in government bonds, for which a high premium was paid, shows that the trustee, with Langdon’s approval, selected the highest class of securities; and, to provide against the possibility of any loss by reason of the payment of such premium, Langdon left in the hands of the trustee this aebumulated income, which was invested and remained with the trustee. Beyond an amount sufficient to protect the trustee, Langdon had the right to claim, and could at any time have claimed and withdrawn, such moneys or the securities into which they were converted. It is a fair presumption that the intention of leaving such income with the trustee was to prevent at all times the capital of the estate from being in any way diminished or depleted, and to save harmless the trustee from any possible liability.

We do not think, therefore, that the facts support the presumption indulged in by the learned referee, that Langdon transferred or assigned or gave his income to the trustee, to be added to and made a part of the principal. Unless he had done so by some formal act or in some way by which he was estopped,—and none of the elements of a gift or estoppel are present,—we fail to see why it would not have been entirely competent for Langdon at any time to withdraw his income accumulated over and above an amount sufficient to protect the trustee, and to leave the principal of the fund intact. If we take this latter view, which is the more natural and reasonable one, instead of assuming that he turned over or assigned his-income to the trustee, then the letter, which is regarded as creating in some way a ratification, a gift, or an estoppel, is made clear and unambiguous. If the trustee was investing the trust fund, and, in- connection therewith, was investing Langdon’s surplus income-in the same securities, nothing would be more natural than, upon receiving an account of investments made in accordance with his views, that Langdon should have written that he accepted the account. This would be but another way of saying that he approved' of the character of the investments, and acquiesced in the correctness of the figures contained in the account. But it was a strained' and unreasonable view, and one unsustained by authority, to hold,

■ The judgment should be accordingly modified by directing payment to the executors of Langdon, less commissions to the plaintiff, of the amount in excess of $150,000, with costs to the appellants.

WILLIAMS and PARKER, JJ., concur.

I concur with Mr. Justice O’BRIEN in the conclusion at which he has arrived. Under the deed of trust, there was transferred to the trustee $150,000 of the public debt of the state of Ohio. The income of the securities thus constituting the corpus of the trust was undoubtedly payable to Walter Langdon so long as the trust fund remained invested therein. These specific securities constituted the trust fund, and, the trust deed having directed that the interest and income thereof should be paid to Mr. Langdon, the market value of such securities became entirely immaterial. What Mr. Lang-don was entitled to receive was the income received from such specific securities which constituted the trust fund. When, however, the amount due upon those securities was paid, the trustee received the sum of $150,000, and that then constituted the corpus of the trust.

We are now dealing with a case of a sum of money in the hands of the trustee, which he was bound to invest, and to pay the income from that sum of money or trust fund to the beneficiaries. In this case such investment was made, but instead of investing the trust fund, viz. $150,000, in such United States bonds, receiving the interest from such bonds, and retaining a sum sufficient to make good the impairment of the capital of the trust upon the payment of the bonds at maturity, the trustee, with the assent of the beneficiary, took the money of the beneficiary, and invested it with the trust fund, thereby securing a larger amount' of United States bonds than the trust fund alone would furnish. It is clear that the result of this proceeding would be that the amount of bonds held by the trustee would include, a certain amount of bonds belonging, to the trust fund, and, in addition thereto, an amount belonging to the beneficiary.1 As the income was received by the trustee, it would have been entirely justified in

Whatever form the arrangement between the trustee and the beneficiary took, it was the duty of the trustee to see that the trust fund remained intact, at least so far as any payment to the beneficiary was concerned that would reduce it below the amount at which the fund itself stood. I think there is nothing in this record to justify an assumption that either of the parties understood at the time that they were doing any more than this when the investment was made. The account, as it was sent to Mr. Langdon, showed a purchase by the trustees of $17,850 United States 4 per cent, bonds, which, with the bonds previously purchased and held by the trustee, make an aggregate of $150,000 United States 4 per cent, bonds at par. The account also showed that there had been transferred from what was called the income account to the principal account about $20,000, and that it was by virtue of this transfer, or, in other words, by an appropriation of money which belonged to Mr. Langdon, that these bonds had been purchased. It was that account that Mr. Langdon accepted. There was nothing in this acceptance of the account to indicate an intention on the part of Mr. Langdon to increase this trust fund by this amount, and I do not agree with the referee in his conclusion that such an acceptance of the amount was, in effect, a gift by Mr. Langdon to this trustee of this sum of about $20,000, by which this trust fund was to be increased to that amount. It was a simple approval by him of the investment by the trustee of his-money in United States bonds, to be held by the trustee for him. After this transaction, Mr. Langdon allowed the interest upon this trust fund to accumulate with the trustees, except that it appears that on May 8, 1888, he received $17,100 in cash; the balance of such income, excluding that invested in United States bonds, amounting to upwards of $48,000, having been paid to his executors after his death. There is nothing except the mere entry transferring this $20,000 from income to principal that would indicate any intention to treat these bonds in any different way from that of the other income of the trust fund, which was allowed to remain in the hands of the trustee; and Mr. Langdon’s acceptance of an account which showed such investment was certainly insufficient to do more than estop him from objecting to such investment as an improvident one, or not justified under the circumstances. There is no evidence to show that these •bonds materially appreciated or depreciated between the time they were purchased and the time of Mr. Langdon’s death, except so far as their value decreased because of the approach of the period when they would be paid off at par; nor does it appear that there was any

The judgment should be modified accordingly, and, as modified, affirmed.

VAN BRUNT, P. J., and PARKER, J., concur.