Locke v. Farmers' Loan & Trust Co.

• Citation: 140 N.Y. 135,35 N.E. 578
• Parties: LOCKE et al. v. FARMERS' LOAN & TRUST CO. et al.
• Decision Date: 28 November 1893
• Court: New York Court of Appeals

140 N.Y. 135

35 N.E. 578

LOCKE et al.

v.FARMERS' LOAN & TRUST CO. et al.

Court of Appeals of New York.

Nov. 28, 1893.

Appeal from supreme court, general term, first department.

Action by Franklin D. Locke, Donald T. Warner, and William M. Barrum, as executors of Jonathan Scoville, deceased, against the Farmers' Loan & Trust Company and Franklin D. Locke, as trustees under decedent's will, and others, to determine the validity of a certain trust attempted to be created by testator by an instrument in the form of a declaration of trust, and the effect and validity of testator's will in relation to such attempted trust and the property affected thereby. From a judgment of the general term (21 N. Y. Supp. 524) affirming a decree of the special term declaring the trust deed invalid, and the property to be a part of the residuary estate, Magdalena Rings, individually and as guardian, and other beneficiaries of the attempted trust, appeal. Reversed.

John G. Milburn, for appellants.

Sherman Evarts, for respondents.

FINCH, J.

The testator, in his lifetime, executed a formal declaration of trust relating to 400 shares of the capital stock of the New York & Harlem Railroad Company standing in his name on the books of that corporation, and for which he held four certificates. By the terms of the trust the net income and dividends of the stock were to be apportioned into ten equal parts, three of which were to be paid over to the use and benefit of Magdalena Rings, three to the use of Anna Rings, two to the use of Henry Rings for the term of his natural life, and two to Minnie Rings until her decease. The deed further provided that upon the death or marriage of Magdalena, or the decease of Anna, whichever of the three events should first happen, ‘the portion allotted’ to such person should be paid over to the use and benefit of the St. John's Episcopal Church and Society of Salisbury, Connecticut; and ‘the portion allotted’ to the other of the two should, upon the happening of the prescribed event, go to the Buffalo Orphan Asylum. In like manner, at the termination of the life interests of Henry and Minnie, ‘the portion allotted’ to the former was to go to the St. Vincent's Female Asylum of the city of Buffalo, and that allotted to the latter to the Buffalo Hospital of the Sisters of Charity. Practically there were thus created four separate and distinct life interests, each one in a prescribed part or portion of an entire fund, with a remainder over to a new beneficiary forever. The settlor, after executing in tripilicate this declaration of trust, which contained also a power of revocation, deposited one original thereof, and also the four certificates of stock, in s sealed envelope in his box in the vaults of the Mercantile SafeDeposit Company in the city of New York. The envelope was indorsed: ‘Declaration of Trust. Jonathan Scoville to Magdalena Rings and others,’-in a handwriting which was not the settlor's; but following that there was added by his own hand these words: ‘Declaration of trust, with certificates of New York & Harlem R. R.; certificates belonging to trust, and being numbered 21,815, 21,816, 21,817, 21,818, 100 shares each. Duplicate declaration of trust filed with the beneficiaries and M. A. Whitney, 202 Main St., Buffalo, N. Y.’ And then attached thereto was this further memorandum in the testator's handwriting: ‘N. C. Scoville, for and in behalf of the within-named beneficiaries. In case of my decease, please see that the inclosed trust is faithfully carried out. Duplicates filed with beneficiaries and M. A. Whitney, 202 Main St., Buffalo. J. Scoville.’ And in the margin of such memorandum appeared the words: ‘Dated at Buffalo, January 24, 1887. J. Scoville.’ The persistent purpose and obvious care of the settlor to make the trust effective and carry its proceeds safely to the appointed destination are further shown by his will, made in December of 1890, after the trust had stood and been fulfilled for almost four years. In article 6 of that will he recites the deposit of the deed of trust, adding, as descriptive of it, the words: ‘Which affects a portion of my estate, which portion is more particularly described in a paper inclosed with such deed of trust.’ He then directs his executors to carry out the provisions of such deed of trust so far as they can, but, in case they cannot, attempts to make a substituted trust for the use of the same beneficiaries, and in the same proportions as recited in the deed. The testator made Locke and the Farmers' Loan & Trust Company executors of and trustees under said will, but by a codicil the present plaintiffs were appointed executors, and Locke and the trust company became trustees under the will, article 6 being specifically included. On this state of facts the special term held the trust deed invalid, as creating a perpetuity, and the attempted trust of article 6 of the will also invalid and ineffectual, and carried the stock over to the residuary disposition, and so to persons other than the named beneficiaries. The general term affirmed this decision, holding that the testator meant by the ultimate legacy to the four corporations, respectively, to keep in existence a trust to pay over income during the entire corporate life, the result being that the purpose of the testator is wholly thwarted and defeated.

The respondents' argument rests upon two propositions: The first, that no trust at all was created by the deed, but that instrument amounted only to a promise without consideration to pay to the beneficiaries future accruing income from securities never transferred by the settlor, and of which he remained the absolute owner until his death; and the second, that if there was a trust it necessarily suspended the absolute ownership of the fund for more than two lives in being.

The first proposition has little support in the terms of the instrument itself, and none in its surroundings. It is abundantly settled by authority that a trust of personal property may be effectually framed in which the author of the trust is himself the trustee. Martin v. Funk, 75 N. Y. 137;Barry v. Lambert, 98 N. Y. 306. In the present case there were both words and acts. The settlor first described the property which he severed from his general estate, and set apart as the productive source of the income and dividends which he could not hold as trustee before they accrued or existed, except as he so held the certificates which gave the potential right, and then declared himself a trustee of the named beneficiaries, to receive and pay over to them, for their own use and denefit, all future income and dividends which should accue. No beneficial interest in the propertywas left in himself, but the whole of that interest was by his own act vested elsewhere. He held the legal title to the stock, but necessarily held it, from the date of his declaration, as trustee for the beneficiaries. There was no formal transfer on the books of the company from himself as an individual to himself as trustee, and he remained the nomial owner, holding the naked and barren legal title. In such a case, as between a vendor and vendee of stocks, the vendor holds the legal title as trustee for the vendee, because the former, having parted with the entire beneficial interest, can hold the legal title in no other way. Johnson v. Underhill, 52 N. Y. 203. In like manner, as between settlor and beneficiary, a transfer to the latter of all income and dividends necessarily transfers the whole beneficial interest, and leaves the settlor a holder of the naked legal title on the books of the company, as trustee for the beneficial owners. That is the situation in which, by the deed of trust, the settlor put himself, and intended to put himself, and his concurrent acts clearly demonstrate that intention. He selects out and separates the four certificates from his general estate, places them in a sealed envelope, and indorses on that a memorandum, describing the certificates as ‘belonging to the trust,’ and so explicitly declares himself trustee of the stock itself. It is quite true, as the learned counsel for the respondents contends, that the settlor kept, and meant to keep, in himself, for the time being, the nomial legal title. The reserved power of revocation made that a convenient and useful measure, but it is perfectly consistent with an explicit purpose to hold that legal title as trustee for those to whom he had given the whole beneficial interest. Young v. Young, 80 N. Y. 438. His further language, which has been the subject of comment, is easily understood in the light of what he did. The words, ‘in whose possession the said several certificates of stock may come without actual transfer,’ and ‘in trust to myself or to any custodian in whose hands the said certificates of stock may be deposited by me or by my order,’ show that he meditated the change of actual possession and the deposit which occurred, and meant that the trust should nevertheless follow and envelope the certificates, although there should be no ‘actual transfer’ on the books of the company. I think, therefore, that a good and valid declaration of trust was made, and that upon its execution the settlor held the legal title to the stock in trust for those to whom he had given the income expected to issue from it, which amounted to the entire beneficial interest.

The respondents' second proposition is more difficult to answer, until we see clearly the real point upon which it turns, and which I take to be whether the words and acts of the settlor will bear the interpreation of four several trusts, each for the life of a beneficiary, with an absolute gift over in each instance; or whether, because that interpreation is impossible and inadmissible, we are driven to the construction that the trust was to continue forever as the instrument of an eternal distribution of income and dividends, an interpreation involving, in...