In re the Judicial Settlement of the Accounts of James

The first of the questions we shall consider is one which arises upon the appeal of the executrix. She made a personal claim, amounting to $127,123.16, which the surrogate allowed; but which the general term, upon appeal, disallowed. The facts upon which it was based are these: In 1879, a few years before the death of Mr. James, he executed and delivered to his wife two bonds ; one of which was conditioned for the payment of $43.920, one year after date, and the other for the payment of $30,720, one year after date. Both bonds bore interest and were secured by mortgages upon lands in the state of Iowa;' the legal and record title to which was in Mr. James. A few days after-wards, Mr. James conveyed all of the lands covered by these mortgages to a grand-nephew of Mrs. James; at the time an infant of the age of nine years. It was found with respect to this latter transaction that it was advised as a mode of delaying, and to enable legal proceedings to be taken to defeat, the payment of taxes, which had been laid upon them and which were believed to be illegal. In 1882 a suit was commenced to foreclose the mortgages by Mrs. James ; who made her husband and the infant Wheeler, the grantee of the lands, parties defendant. Process in the suit was served outside of the state of Iowa upon the defendants, but Mr. James did not appear. In 1883, judgment of foreclosure and sale was entered," in which the amount due to Mrs. James upon the bonds was fixed at $94,973.83. No sale was made during the lifetime of Mr. James under the decree; but, after his death and in 1885, Mrs. James caused a sale to be made, at which the mortgaged premises were sold for the sum of $5,280. The decree of foreclosure and sale gave no judgment against Mr. James personally, forasmuch as the district court in Iowa had acquired no jurisdiction to render judgment in personam upon a service without the state

The question of the validity of a gift, in the form of a promise to pay, only, without consideration, was elaborately considered in Harris v. Clark, 8 N. Y. 93 , and it was there held, to quote the language of Judge Ruggles, “that a volunteer promissory note-without consideration is not, as the law now stands, the subject of a valid gift by the maker, either as a present donation, or as a. gift to take effect at the death of the donor.” The fact that in that case the subject of the gift was a bill, or draft, does not affect its application to the case of a bond; inasmuch as no presumption of a valuable consideration obtains from the presence of the seal, in view of the findings of fact that the bonds were executed and delivered as a gift and not because of any indebtedness. In Whitaker v. Whitaker, 52 N. Y. 368 , the question discussed was whether a meritorious consideration was sufficient in equity to sustain a promissory note given by a husband to his wife, as against his collateral heirs ; and the conclusion reached by JudgePeckham (in which all his associates concurred), after a review of the English authorities, was that the law was well settled, contrary to the doctrine in the early case of Wright v. Wright, 1 Cow. 598 , “that a meritorious consideration, or the duty to provide for a wife or child, is not sufficient to support an executory covenant.” The case of Hunt v. Johnson, 44 N. Y. 27 , was referred to in the opinion and deemed to be without the rule: because it was a case of an executed sale or transfer of real estate, to uphold which natural affection is undoubtedly a sufficient consideration. Nor does the fact that the gift in Whitaker v. Whitaker was of a

Another question, as to which the executrix has appealed, is with reference to the payment to her of $2,500 upon the day of the testator’s death. It seems that, in the morning of that day and while Mr. James was in fact dying, a clerk of F. P. James & Co., holding a power of attorney to sign checks for the firm, was requested by some one, acting as a messenger from the residence, to draw two checks for Mrs. James’, account, one for $1,000 and the other for $1,500. Upon the clerk’s demurring to the request, he was assured that it was all right and he then drew the checks, which the messenger caused to be cashed and deposited to the individual credit of Mrs. James. The surrogate found that these ■checks were delivered to Mrs. James by her husband’s authority ; but the general term has reversed the surrogate in that respect; holding that there is no evidence to sustain the finding. I think their conclusion was correct and that the facts of the transaction would not warrant any inference that the authority of the clerk, under the power which he held from the firm, had been validly ■called into exercise. If the transaction had been merely one, as to which all we knew was that the clerk had delivered the checks to Mrs. James, an inference might have been possible, which is ■quite rebutted by the circumstance that the clerk only drew and delivered them when moved to do so by a messenger; whose ■source of authority to make the request was not shown to be in Mr. James.

One of the most important questions raised upon the accounting was, whether dividends received upon the stocks of certain railroad construction companies should be treated as capital, or as income. Two of the companies constructed railroads and upon their sale received land grants in payment. The other company also constructed and sold a railroad, but received in part payment a certificate of indebtedness secured by a mortgage upon land. The surrogate apportioned the dividends, paid by these corporations since the death of Mr. James, by holding so much as were derived from the purchase price of lands sold to be capital and so much as were derived from interest on deferred payments on contracts of sale, or upon the certificate of indebtedness, he held to be income. The general term reversed that ruling and held that all the

It stands out very clearly from the peculiar and stong language selected by the testator, that the interest which was to be enjoyed by his “legal heirs” in the estate was subordinated to the interest of his wife. To him she was everything and they were, merely kindred, having by law certain claims which he was not disposed to 'recognize and which he provided for in the manner described. Although in the case of Woodward v. James, 115 N. Y. 346 ; 26 St. Rep. 147 , we held that a legal trust was created of the testator’s real and personal estate, not given to the widow absolutely for her life, we reached that conclusion, inasmuch as it was necessary, because of the authority and duty imposed upon the widow, that the legal title should be vested in her as trustee, of course there was nothing in the language used in the will, which conveyed the idea that the testator intended or thought of a trust; but the exigencies of the situation, in our judgment, required the creation of a trust by implication. The question might have been a very different one, if the language of the will spoke of a trust, or indicated the notion of the testator that his wife, with respect to the management and use of the property, should be clothed with the duties of a trustee and guided by the strict rules to which trustees are subjected. In this case, while a trust is created by implication, all of the stringent injunctions of the testator with respect to his widow’s use, enjoyment, or control, of the property,.remain with all their meaning. The one-half of the income of “ all of his property of every kind,” of which he might die seized, is given to his wife “without restraint, deduction or interference in any manner whatsoever." Such language, in connection with that subsequently used, enjoining his legal heirs against attempting to interfere with the “full enjoyment, use, management and direction and disposition of the property and income of his estate,” under penalty of being excluded from any interest or share therein, contains most significant expressions of an intention that his widow should have a half of the income of his property “of every kind,” which could not be cut down and which she was fully to enjoy and manage. It is also significant that the direction to sell is only in the event of a sale becoming necessary to discharge debts. I cannot read this will without, not only inferring the intention of the testator to have been that his property

I deem it of considerable significance, when considering this case in connection with others, to which our attention has been referred, and in addition to the difference in the facts and phraseology upon which I have commented, that this testamentary disposition was not that of a gift of the residuary estate to trustees ; although even in such a case a plain intention discoverable in the will would prevail against an arbitrary rule of law. In Jarman on Wills, (p. *613), it is said with reference to a residuary devise that the same principle applies, “if an intention that the property

Howe v. Earl of Dartmouth, 7 Ves. 137, is considered to be the leading case in England, upon the question whether property bequeathed by a testator shall be retained in specie, or whether, if of the perishable class of securities, it shall be converted in such a way as'to produce capital bearing interest. The rule as laid down by Lord Chancellor Eldon in that case, as explained by subsequent decisions, among which is particularly to be mentioned that of Lord Cottenham in Pickering v. Pickering, supra, is this: that where there is a residuary bequest of personal estate, to be enjoyed by several persons in succession, a court of equity, in the absence of any evidence of a contrary intention, will assume that it was the intention of the testator that his legatees should enjoy the same thing in succession and, as the only means of giving effect to such intention, will direct the conversion of personalty into permanent investments of a recognized character. Lord Eldon laid down the rule in that case, because of the absence of language in the will from which the direction of the testator might be inferred that his estate should continue as it was. Some difference of opinion has existed among the English judges with respect to the application of the rule laid down in Howe v. Earl of Dartmouth, which, in the recent case of Macdonald v. Irvine, L. R., 8 Ch. D. 101. is adverted to in the opinion of Lord Justice Thesiger. In the previous case of Hinves v. Hinves, 3 Hare, 611, Vice-Chancellor Wigram had said : “ The court in applying the rule has leant against conversion as strongly as is consistent with the supposition that the rule itself is well founded.” In Morgan v. Morgan, 14 Beav. 72, the master of the rolls, Sir John Romilly, said that, “ the effect of the later cases has been to allow small indications of intention to prevent the application of the rule.” Lord Thesiger, referring to the leaning of these judges, with others, against the application of the rule, adopts the following words of Lord Romilly : “ That unless there can be gathered from the will some expression of intention that the property is to be enjoyed in specie, the rule in Howe v. Earl of Dartmouth is to prevail. It is therefore incumbent on the persons contesting the application of that rule, and on the court which forbids that application, to point out the words in the will which exclude it, and if this cannot be done the rule must apply. * * * In almost all, if not all, the cases which have been cited in argument,,

In Blann v. Bell, 2 De Gex, Macn. & G. 775, the principle was distinctly recognized that the intention in the will should govern upon the question of the retention of property in specie and that where it is seen to exist the case will be taken out of the general rule. In Collins v. Collins, 2 My. & K. 703, the language of the gift to the wife is not unlike, in its effect, to that in the present case. The testator there gave “ all and every part of his property in every shape and without any reserve and in whatever .manner-situated, for her natural life,” and at her death the property was to be divided among his father, brothers and a sister. Sir John Leach, M. R, held the rule in Howe v. Earl of Dartmouth did not apply. In this state the rule laid down in the Earl of Dartmouth's case was early adopted, as applicable in the absence of any indication of an intention on the part of the testator that the legatee for life should enjoy the property in its then state. See Spear v. Tinkham, 2 Barb. Ch. 211 , and other cases cited on brief for heirs. In every case, in this, or any other state, however stringently that rule is applied as between a tenant for life and remainderman, it is the absence of manifest or plain intention which sets-it in operation. In Clarkson v. Clarkson, 18 Barb. 646 , the decision of the question of the disposition to be made of extraordinary dividends was referred to the discoverable intention of the testator. The case of King v. Talbot, 40 N. Y. 76 , frequently cited, has no application. The question discussed was with reference to how the discretion of trustees is prudently and lawfully exercised in the investment of moneys held for the benefit of minors and a very strict rule was laid down.

What I have said is applicable to the question of the right of the widow to retain in specie the personal estate bequeathed and to her right to have and to enjoy the income from it, as it had been received by the testator in his lifetime.

The testator knew about his investments. They were spread out on his books and the comprehensive words of a gift of his “property of every kind,” “ without restraint, deduction or interference in any manner,” are especially significant of the intention

The point is, also, made by the contestants that certain interests and dividends, collected upon1 certain stocks and bonds prior to his discharge by the receiver, who was appointed of the firm property should have been carried to capital, instead of being credited to, and distributed as, income. The question concerns the receiver’s liquidation of the partnership affairs. In an action brought within a few months of the testator’s decease' by a creditor of the firm, for the protection and distribution of its assets, a receiver was appointed; who continued until December, 1885, when a judgment in the action was rendered, settling his accounts and directing him to deliver over the assets in his hands to Mrs. James ; who was entitled, in her capacity as executrix of the surviving partner, to settle with the legal representatives of the deceased partner. Under the provisions of Mr. James’ will his executrix became vested at once with the title to all of his estate, in' the capacity of a trustee for the purposes mentioned. Included in the property of the estate was the testator’s interest in the firm of F. P. James & Go. The direction as to his widow’s right to one-half of the income applied, of course, as well to that species of property. For the reasons I have just expressed, she was under no obligation to convert and to capitalize those assets, or the income received thereon. The interest of Mr. James’ partner, Mr. Taylor, was in one-fifth of the profits of the business and that interest, which, upon his death, vested in Mrs. Taylor as his executrix, has been settled with. So far as the question of the winding up of the partnership business is concerned, I fail to find any substantial ground for the objection of the contestants as to the treatment by the receiver of the income and expenses. The evidence is that twenty per cent, of the income was credited to the Taylor account; to which was, also, charged its due proportion of the expenses of the receivership. That seems to me to have been a proper method of liquidating the business. The decree in the receivership action passing on the accounts is not open to attack in this proceeding and, with respect to the right of the executrix of Mr. James to treat as income the particular moneys collected by way of dividends and interest and paid over to her by the receiver, I do not see how the next of kin can be heard to complain. That, was her right under the provisions of the will and indirectly, if not directly, they were benefited by all that was income to the estate.

Objection was made by the contestants to the settlement which was effected by the executrix as to the interest of her husband’s former partner, Mr. Taylor. He predeceased Mr. James by a few days only, leaving his widow sole executrix. Pending the administration of the receiver, who had been appointed of the partnership property, Mrs. James commenced. negotiations for a settlement with Mrs. Taylor as to the claims of the Taylor estate. They eventually agreed upon the sum of $27,000, after varying more or less widely in their estimates of what was due upon the Taylor interest. The settlement was not, however, consummated between

With respect to the question of the propriety of crediting Mr. James’ capital with interest to the time of the final settlement, there is no evidence of any agreement to allow interest and the fact that, in making up previous accounts between the partners, interest had been credited is not sufficient evidence of usage to dispense with the necessity of proving a special agreement. There were no articles of co-partnership and all that was found with respect to the partnership interests was that Mr. Taylor was to have one-fifth of the profits and was to bear one-fifth of the losses of the business. When their association of interests was dis-dissolved by death, there was nothing upon which a right to claim interest on Mr. James’ capital could rest.

As to the claims of Jansen, as assignee of Taylor’s executrix, with reference to the lands in Iowa and Texas, they do not seem to have been comprised within the settlement Such claims must be the subject of future arrangement.

The questions which I have considered with respect to this accounting are all which demand any review by , us. The record is very voluminous and has required much time for its consideration.

All concur, Bartlett, J., upon all points except as to the alleged dividends of the construction companies, so called, he holding the judgment should be entirely reversed so far as it decides the dividends paid by the companies to be income and the accounts changed accordingly; Finch, J., not voting.

Ordered accordingly.