Brown v. Farmers' Loan & Trust Co.

The action was brought to recover the proceeds of fifteen bonds of $1,000 each, payable with interest at the rate of eight per cent, which were made by Simeon B. Buckner, of the city of Chicago, and secured by a mortgage upon real estate situated there. The bonds in controversy were the property of Mary R. Burnside during her life. She died on the 9th of March, 1876, and left a last will and testament, by which she devised and bequeathed to her husband, Ambrose E. Burnside, .for and during the term of his natural life, the free use and improvement, rents, profits and income of all her estate, real, personal and mixed. By her will she further declared and provided that he should, diming his natural life, have “full power and authority, at his pleasure, to change the investment of any personal property and estate, and also with power and authority, at his pleasure, to sell, transfer and convey any portion of my personal property and estate, execute the requisite conveyance and conveyances thereof, receive the proceeds of any such sale or sales, and apply and appropriate the net proceeds thereof to and for his own use, benefit and behoof forever.” She also appointed him executor under her will, and, after his decease, provided for the payment of certain legacies, and then gave and devised all the rest, residue and remainder of her estate, real,0personal and mixed, then remaining, in equal shares, to certain charities existing in the city of Providence, in the State of Rhode Island. The will was executed

After that, and in January, 1879, General Burnside applied to the defendant for a loan to him of the sum of $15,000 on the security of the fifteen bonds now in controversy. The loan was made and the bonds were delivered to the defendant, in whose possession they remained until they were paid out of the proceeds of the mortgaged property. This disposition of the bonds was assailed by the plaintiff, as ancillary administrator of the estate, appointee^ by the surrogate of the county of New York, on the ground that General Burnside had no power or authority to borrow money upon the bonds as he did from the defendant in this manner. And this position was sustained at the trial, and by the judgment from which the appeal has been taken. It was placed upon the ground that the only authority given him over the bonds, was to sell, transfer, or convey them, and that this disposition was neither a sale, transfer or a conveyance of these bonds. The construction which was given by authorities at common law to a devise and bequest for life, although empowering the devisee and legatee to dispose of the property by sale, was that it was no more than a power of sale, without enlarging and extending the life estate, otherwise given and declared by the will. In Jackson v. Robins ( 16 Johns., 538 ), the distinction was drawn between a devise of the property itself, with the addition of a power of sale, in which case the devisee would take the entire title, and a ''disposition of the same property for life, to which the devisee was given a power of disposal, for his or her own use and benefit. In the latter class of cases it was held by this, as well as other authorities, that the power did not enlarge or extend the life estate, and was no more, in any event, than a mere power of disposition, no way affecting the title, unless it was exercised in strict conformity to the language of the will. (Terry v. Wiggins, 2 Lans.,

In the exercise of this authority it has been said-: “ The intention of the donor of the power is the great principle that governs in the construction of powers, and, in furtherance of the object in view, the courts will vary the form of executing the power ; and, as the case may require either enlarge a limited to a general power, or cut down a general power to a particular purpose.” (4 Kent [7th ed.], 362; [11th ed.], 381, 345.) And this case ought justly and rationally

The case of Herring v. Barrow (L. R., 13 Ch. Div., 144) has no application to this controversy. For it has not been contended, and cannot be, that the surviving husband, under this will, would have the power to dispose of the estate, or any part of it, by a testamentary devise or bequest ; the sole and only point being- whether this transaction, as it is shown to have taken place, was within the authority conferred upon the surviving husband. According to the strict letter, even though within the intent, it probably was not, although the contrary was held as to this particular power, by the Circuit Court of the United States for the Eastern District of Massachusetts, in the case of the Rhode Island Hospital Oompamp v. Travers.

But further evidence was given concerning the business transacted between General Burnside and the defendant, which seems to carry .this case beyond the reach even of this doubt. For after the loan itself had been made, and the bonds had been received by the defendant as security for its payment, a further agreement was made between the borrower and the defendant. He had then paid interest upon the loan, and informed Mr. Rolston, the president of the defendant, that it was impossible for him to pay the loan, and that the company must take the bonds for the money owing to it. And in answer to this offer and suggestion made by General Burnside, the president of the company agreed to take the bonds in this manner, and they afterwards remained in its possession without anything further being said or done between these parties until after the decease of General Burnside, which took place on the 13th of September, 1881. This transaction has been resisted on

When the transaction came to be finally closed up the company realized an excess, over and above its debt and interest, amounting to the sum of $5,300, and that it paid over to the administrator of the estate of General Burnside. And this circumstance has been considered as having a controlling weight over what occurred and transpired at the time when the bonds were surrendered to the defendant. But there is no reason for doubting the correctness and truthfulness of the statement made by Mr. Rolston, as to what took place between himself and General Burnside. And as that amounted to a surrender, or a completion of the sale of the bonds, the company was' under no obligation whatever to pay over the surplus. It had, on the contrary, the right to retain

But if any doubt can remain as to the legality of these transactions, and the effect to be deduced from them by way of protecting the defendant from liability, it seems to be removed by the statute of this State declaratory of and defining the law concerning the creation and execution of powers. -This statute was considered, in Hutton v. Benkard ( 92 N. Y., 295 ), to be applicable both to personal and real property; and that, under its provisions, the creation, construction and execution of powers concerning personal property are to be governed by the same rules, so far as they can be applied, which govern the creation, construction and execution of powers as to real estate. (Id., 305.) By the first section of the article containing these statutory provisions it was declared, in the most general language, that powers, as they previously existed by law, were abolished, and, so far as the authorities have already been examined in their application to a 'will of -this description, they may, by this enactment, be considered to have been certainly limited and abridged. And the court has been left at liberty by it to carry into effect the design and intention of the testatrix without subordinating it to the mere form in which it was indicated that end might be accomplished. (2 R. S. [6th ed.], 1113, § 94.) But this statute nas proceeded very much further in its definitions and provisions concerning the creation and effect of powers. And under its provisions the power given to G-eneral Burnside in this instance was a general power and within the language of section 98 (page 1114) of this article declaring that “ a power is general when it authorizes the alienation in fee by means of a conveyance, will or charge * * * to any alienee whatever.” And by section 100 of the same article it has been declared to be beneficial where no person other than the grantee has, by the terms of its creation, any interest in its execution. These sections are plain in their language and appear to be directly applicable to this case. And they are followed by section 102 declaring that, “ when an absolute power of disposition, not accompanied by any trust, shall be given to the owner of a particular estate for life or years, such estate shall be changed into a fee absolute in respect to the rights of

By the force and effect of these sections, which are applicable to this case, for the transaction affected by it wholly arose and occurred in this State, General Burnside was clothed with the absolute power of disposing of these bonds, so far as the rights of creditors or purchasers might intervene. In dealing with him they were entitled to the full benefit and effect of the directions contained in the will of the testatrix and construed in this manner. The rights were the same as though the will itself had been presented for the inspection of the defendant’s president at the time when the application was made for the loan upon the security of the bonds; and one object of the statute was to enable persons dealing under the authority of a testamentary disposition of this description to act upon the fair effect and import to be attributed to the language itself, as the exponent of the intention of the person employing it. And the conclusion would be justified, on the perusal of such a document, that the person entitled to the proceeds of the property for his own benefit, use and behoof forever, was authorized to deal with it as its absolute owner, and, as such, to hyphothecate it for the payment of a debt contracted in his behalf and for his benefit and use. This

It is not essential to the right of the defendant to the protection of these statutory provisions, that direct reference should have been made to them in any instrument to execute the power. For as long as the donee was restricted in his right of disposition for his own use and benefit to the power, it is to be presumed that in the transaction the .power itself was employed as the source of the authority, for without it the donee would be incapable of. making the disposition of the property purposed to be, and in fact made by him.

The phrase “ creditors and purchasers,” employed in the enactment of section 102 of the article, is sufficiently broad to include

There would clearly be no justice in holding, as General Burnside had the authority under the will to receive the proceeds of the sale or sales of any part of the property of the testatrix and apply and appropriate them to and for his own use, benefit and behoof forever, that the defendant should be liable to pay over to the plaintiff as, ancillary administrator of this estate, the moneys it had previously paid to and which had been used by the donee of this power under this authority. It was, on the other hand, the intention of the testatrix that he should have and enjoy such proceeds to his own use, and to that extent, certainly, the defendant was entitled to protection even under the cases already referred to of Stuart v. Walker, Downey v. Bissell, Bloomer v. Waldron (supra). The right of the defendant to protection as a Iona fide holder of these bonds as negotiable instruments need not be considered. If the case should be disposed of on that ground it probably could not result in protection to the defendant. For it liad become aware of the fact by the registration of the bonds, that they were the property of the testatrix, and continued to be so until the period of her own decease. And the subsequent dealings of the defendant in these securities would be affected by the continued application of this knowledge. (Loring v. Brodie, 134 Mass., 453 .)

But on the other legal grounds, which have been fully considered,

Brady and Bartlett, JJ., concurred.

Judgment reversed and new trial ordered, with costs to abide the event.