Summary
In Farmers' Loan Trust Co. v. Kip (192 N.Y. 266) the Court of Appeals says (at p. 279): "the statutory effect, and not the donor's intent, is the controlling factor in the construction of powers."
Summary of this case from Matter of DeanOpinion
Argued April 3, 1908
Decided May 26, 1908
Ernest P. Hoes and Frank L. Hall for Frances C. Kip, appellant. Fritz W. Hoeninghaus for William B. Kip, appellant.
Frederick H. Man for plaintiff, respondent.
Charles F. Brown, Lyman Ward and Thomas J. Sanson for Lewis L. Jones et al., defendants, respondents. Francis Smyth and John L. Cadwalader for Daniel B. Fearing, defendant, respondent.
The intricate questions presented upon this appeal have been considerably simplified by the able and illuminating arguments of counsel. These questions relate wholly to the testamentary disposition attempted to be made by Frances Jones of the remainder in an undivided one-fifth of the premises No. 70 Broadway, over which she had been vested with a power of appointment under the will of her father, the late George Jones. This latter will had created a trust for the benefit of the daughter, Frances Jones, in an undivided one-fifth share of the premises referred to, which was to continue during the life of the longest liver of the testator's daughters, Frances and Rebecca; and upon the death of the survivor of these two, the one-fifth share which was the subject of the trust was to go to the appointees, "by deed or by will," of the testator's daughter Frances, and in default of such appointment, to her heirs at law. The attempt of Frances Jones to execute by will the power thus conferred upon her has given rise to the questions at bar. In the residuary clause of her will the testatrix created a trust which, in addition to her own estate, expressly included all property subject to her disposal by will. This trust was to continue during the life of Frances Coster Kip, the daughter of a nephew of the testatrix, to whom the income was to be paid, and at her death the reminder was to go to her issue. As the trust created by the will of George Jones, which is concededly valid, suspended the power to alienate the corpus of the trust estate during the whole of two statutory lives, the principal question with which we have to deal is whether the trust attempted to be created by Frances Jones is valid in so far as it relates to the subject of the trust under her father's will, to wit, the property known as No. 70 Broadway. If, as to that property, the trust set up in the will of Frances Jones, operates to suspend the power of alienation for another life, in addition to the two lives which measure the term of the trust created under the will of George Jones, it clearly contravenes the statutes against perpetuities and is void. (Real Property Law, § 32, L. 1896, ch. 547.) In support of the contention that the trust in the will of Frances Jones is void, in so far as it relates to No. 70 Broadway, the respondents refer to the statute which provides that: "The period during which the absolute right of alienation may be suspended, by an instrument in execution of a power must be computed, not from the date of such instrument, but from the time of the creation of the power." (Real Property Law, § 158.) Measured solely by the standard prescribed by that section of the Real Property Law, the period of suspension imposed by the two trusts under discussion is extended through three lives. The appellants concede that, in cases where a power can only be executed by will, the statute and arguments relied upon by the respondents are controlling, but they contend that these have no application where a power may be executed either by will or by deed because, in the latter case, the period of suspension must be computed from the date of the execution of the power rather than from the time of its creation. This contention is based upon the provisions of the Real Property Law relating to powers, which are substantially re-enactments of the earlier Revised Statutes. The first section of the article upon the subject of powers ordains that: "Hereafter the creation, construction and execution of powers, affecting real property, shall be subject to the provisions of this article." (Real Property Law, § 110.) In Cutting v. Cutting ( 86 N.Y. 522, 535) the corresponding section of the Revised Statutes was declared to mean that in construing powers the courts must look to the provisions of the article on powers to ascertain the effect in law which the creation and execution of a power has upon the property subjected to it. The sections of the statute invoked by the appellants in aid of their contention are as follows:
"§ 129. Where an absolute power of disposition, not accompanied by a trust, is given to the owner of a particular estate for life or for years, such estate is changed into a fee absolute in respect to the rights of creditors, purchasers and encumbrancers, but subject to any future estates limited thereon, in case the power of absolute disposition is not executed, and the property is not sold for the satisfaction of debts."
"§ 130. Where a like power of disposition is given to a person to whom no particular estate is limited, such person also takes a fee, subject to any future estates that may be limited thereon, but absolute in respect to creditors, purchasers and encumbrancers."
"§ 131. Where such a power of disposition is given, and no remainder is limited on the estate of the grantee of the power, such grantee is entitled to an absolute fee."
"§ 132. Where a general and beneficial power to devise the inheritance is given to a tenant for life, or for years, such tenant is deemed to possess an absolute power of disposition within the meaning of and subject to the provisions of the last three sections."
"§ 133. Every power of disposition by means of which the grantee is enabled, in his lifetime, to dispose of the entire fee for his own benefit, is deemed absolute."
The foregoing sections of the Real Property Law were numbered 81 to 85 inclusive in the Revised Statutes (Vol. 1, pp. 732, 733). They are substantially identical, and when they were created many of the perplexing intricacies of the common law relating to powers were swept away. The appellants argue that the effect of these sections upon the power of Frances Jones to appoint by deed was to transmute her estate in remainder into an estate in fee, and that her absolute power of disposition was tantamount to unrestricted and complete ownership. From this premise the argument proceeds to the conclusion that, since the estate of Frances Jones was a fee which she could convey by deed, the period of suspension is to be computed from the date of her exercise of the power, and not from the time of its creation. This contention is not without force, but we think it is fundamentally unsound. It was undoubtedly the rule of the common law that under a general power giving the donee the right to appoint at his pleasure, the period of suspension was computed from the time of the exercise of the power. This was because such a donee could appoint himself, and thus acquire an absolute power of disposition which was equivalent to actual ownership. ( Genet v. Hunt, 113 N.Y. 158; 1 Jarman on Wills [5th Am. ed.], 291; Gray on Porpetuities, § 524; Sugden on Powers [1st Am. ed.], pp. 482, 483.) It is clear to the point of demonstration that in recommending for adoption the sections of the statutes above referred to, the revisers intended that this broad general rule of the common law should be embodied in the statutes, and their evident purpose was to protect creditors against unscrupulous persons who, by the exercise of such powers, should seek to retain practical control and ownership of their property, and yet exempt it from the payment of their debts. This purpose is very succinctly set forth by the revisers in their notes (5th Ed. Stat. at Large, p. 327), where they say: "In reason and good sense there is no distinction between the absolute power of disposition and the absolute ownership; and to make such a distinction, to the injury of creditors, may be consistent with technical rules, but is a flagrant breach of the plainest maxims of equity." All that, however, is quite beside the real point upon which the case at bar must be decided. The question here is whether the statute has taken a remainder limited upon a precedent trust, out of the general rule that the computation of the period of suspension must be made from the time of the creation of a power, instead of from the day of its exercise. As bearing upon that question it is to be observed that the revisers had a very definite idea as to the requisites of an absolute power of disposition, for in section 133 of the Real Property Law, which, as above stated, is but a re-enactment of the corresponding section of the Revised Statutes, "every power of disposition by means of which the grantee is enabled, in his lifetime, to dispose of the entire fee for his own benefit, is deemed absolute." In the late Judge FOLGER'S very able and exhaustive analysis of the statutes relating to powers he said that this section (86, Rev. Stat.; 133, Real Prop. Law) shows what the revisers meant by their notes when they referred to a man's having property in that which he can sell when he chooses and dispose of the proceeds as he wills; and he concluded that when they spoke of the power of disposition as being equivalent to actual ownership "they meant that power of disposition by which a person is enabled, in his lifetime, to dispose of the entire fee for his own benefit." ( Cutting v. Cutting, supra.) That conclusion seems inevitable, but it cannot be adopted unless we give to the word "entire" its proper meaning and emphasis in the context of the statute. Unless that word includes the right to give possession as well as to convey title it has no meaning; and when it is so interpreted as to embrace both of these quantities it becomes evident that Frances Jones had no absolute power of disposition of the entire fee as to No. 70 Broadway during her lifetime. In this view of the case we may give to the words "by deed" in the will of George Jones their broadest possible signification, and yet decide that Frances Jones could have made no deed which would have been effectual to deliver possession of the trust estate during the trust term created by her father's will. The absolute power of alienation is suspended when there is no person in being who can convey an estate in possession. (Real Property Law, § 32.) Possession of this estate could not have been delivered within the two lives upon which the trust term was measured, except in contravention of the trust ( Robert v. Corning, 89 N.Y. 225), and the trust attempted to be created by the will of Frances Jones continued the suspension for another life. The latter trust was, therefore, void in so far as it relates to the property No. 70 Broadway. This result is both logical and just. There is nothing peculiarly sacred about estates which are transmitted by means of powers, and there is no sound reason why they should not be governed by the same rules which control the devolution of estates by other methods. This is the view of this subject expressed by this court in the language of Judge FINCH. ( Crooke v. County of Kings, 97 N.Y. 421.) In that case Mrs. Catin left her estate in trust for the benefit of her daughter Margaret during her life, and then gave Margaret power to dispose of the whole estate by grant or devise. There, as here, the power to grant an absolute estate was incompatible with the trust. In construing and reconciling the inconsistent provisions of Mrs. Catin's will this court held that Margaret took only a power to convey the remainder. That deduction was very aptly expressed by Judge FINCH as follows: "From that conclusion it follows that Mrs. Crooke (Margaret) did not take under Mrs. Catin's will an absolute fee. And this result is inevitable because the granting power did not cover the entire fee. In Cutting v. Cutting ( 86 N.Y. 536) the meaning and construction of the absolute power of disposition specified in sections 81 and 85, inclusive, of the statute relating to powers, was settled with a care and precision which leaves us at liberty to take and depend upon the result without repetition of the analysis which led to it. But one of the sections relates to a devising power, and as that involves transmutation into a fee only in a case where given to `a tenant for life or for years,' which is not the situation here, our attention must be confined to the remaining four sections. These, it was ruled, operated only upon an absolute power of disposition, such and so broad that it permitted the alienation of the entire fee during the lifetime of the donee. Upon the construction to which I accede, the granting power conferred upon Mrs. Crooke was not of that character, but limited to a transfer of the remainder subject to the outstanding estate for her life in her trustee. So she took no fee under Mrs. Catin's will, and upon the power to devise given by that will to Mrs. Crooke, and its due execution by the latter, must depend the validity or invalidity of the defendant's title."
Thus far we have discussed the question solely upon its relation to the statute. In other words, we have considered what we deem to be the logical and necessary effect of the statute upon such a power as the one before us. We concede, as we think we must, that the statutory effect, and not the donor's intent, is the controlling factor in the construction of powers. It may be added, however, that our interpretation of this power is not at war with the testamentary intent disclosed in the will of George Jones. We think that when he gave to his daughter Frances the right to appoint as to one-fifth of No. 70 Broadway, by deed or by will, upon the termination of a trust, which was to continue during the lives of the donee and her sister, the testator did not intend to give her a vested fee in remainder which she could dispose of absolutely during her lifetime, either for her own benefit or for her creditors. The creation of a trust during her life was inconsistent with a right of appointment to herself and a right of absolute disposition for her own benefit. To give the words "by deed" a meaning which would sanction such an incongruous result would be no less hostile to the obvious intention of the testator, than it is repugnant to a fair interpretation of the statutes. The testator's intent is entirely in harmony with such a restricted meaning of the words "by deed" as would have enabled the donee of the power in her lifetime to execute it in favor of any one who could have taken title in subjection to the trust and not in hostility to it. To prove that this interpretation of the will of George Jones is not unwarranted, we need only look to its later paragraphs in which he gives to his daughter Frances one-fifth of the residue of his estate "absolutely and forever." This residue was not a mere remnant of the testator's estate, but a substantial part of it and, as to that, he had no difficulty in making it plain beyond the possibility of misconception, that he intended Frances to have absolute control and dominion over it. The very contrast between this language and the words of the trust at once lead the mind to the opposite conclusion as to the trust estate.
In Genet v. Hunt ( 113 N.Y. 158), which is relied upon by the appellants, the question at issue in the case at bar was not before the court. There the question was whether certain trusts created in a will were void or valid under the statute of perpetuities. The will had been executed pursuant to a power of appointment reserved by the testatrix in a trust deed which she had executed in anticipation of marriage and the question, there as here, was whether the period of suspension should be computed from the time of the creation of the power or from the day of its execution. The difference between the two cases, it will be observed, lies in the fact that in the Genet case the power reserved was one that could only be executed by will, and in the case at bar it was one that could have been executed either by will or deed. The appellants have seized hold of certain broad generalizations in the opinion of Judge ANDREWS in the Genet case to support their contentions. We can find nothing in that opinion which is in conflict with our views now expressed, but, even if we were mistaken about that, it is enough to say that any discussion in the Genet case of powers to be executed by deed was purely obiter, because not germane to the question actually involved and decided. The cases of Livingston v. N.Y. Life Ins. T. Co. (36 N.Y. St. Rep. 566; affd. on opinion below sub nom. McCurdy v. N.Y.L.I. T. Co., 151 N.Y. 667) and N.Y.L.I. T. Co. v. Cary ( 191 N.Y. 33) are not opposed to our view of the question at bar, because neither of them involve the construction or effect of the law of powers.
Another question which comes to us on this appeal is whether the debts which existed against the testatrix Frances Jones at the time of her death should be paid out of the proceeds of No. 70 Broadway, or out of her own estate. These debts amounted to $5,000, and the estate of the testatrix, consisting wholly of personalty, was inventoried at $381,907.69. It is to be noted that this is not an action by creditors to compel the application of the appointed estate to the payment of their claims, and that the individual estate of the testatrix was ample to pay them. As to creditors and purchasers, a person vested with such a power of disposition as was given to Frances Jones becomes the owner of a fee, but there is no question before us arising out of any such relation, since we have neither creditors nor purchasers before us. For this reason we think the debts of Frances Jones are not to be paid out of the estate over which she had a power of appointment, but out of her own general estate.
The final question submitted for our decision is whether the specific legacies in the will of Frances Jones are to be paid out of her own estate or out of the estate as to which she held a power of disposition. The case of Fargo v. Squiers ( 154 N.Y. 250) is cited as authority for the contention of the appellants that equity will compel the payment of the specific legacies provided for in the will of Frances Jones out of the estate over which she had a power of appointment rather than out of her individual estate. In the Fargo case, as in the case at bar, the testatrix had attempted to create a trust which was void because in contravention of the statute against perpetuities; but there the parallel ends. In that case the opening words of the will expressed the intention of the testatrix to dispose of her own property and that over which she held a power of appointment. Her individual estate amounted to about $80,000, and she made specific bequests amounting to about $50,000. In these circumstances it was thought proper to charge the specific legacies upon the appointed estate, which was very large, leaving her own estate to be devoted to the trust which she had attempted to create in both estates, but which was only valid as to her estate. There the equitable rule of marshaling assets was properly invoked, for without it the trust, even so far as valid, would have largely failed for lack of financial support. In the case at bar the conditions are entirely different. The testatrix made no mention of the estate over which she had power of appointment until she reached the third paragraph of her will, in which she sets up a trust of the residue in both estates after having given directions for the payment of her debts and the specific legacies. As compared with the size of her individual estate of $381,907.69 her indebtedness of $5,000 was practically nominal, and the same disparity exists when the specific legacies are scrutinized. She divided her strictly personal effects among her near relatives and gave several specific money legacies; one for $5,000 to her sister Margaret Smith, and $1,000 to each of the children of her nephew William Alexander Smith. These facts have been referred to because they bear materially upon the propriety of equitable interference with the general rule that a decedent's own estate should be exhausted in the payment of his debts before resort can be had for that purpose to another estate over which he may have only a power of appointment. As the contention of the appellants under this head rests wholly upon the doctrine of marshaling assets it may be profitable to discuss most briefly the reason and extent of the rule upon which it rests. Broadly defined it is a rule which courts of equity sometimes invoke to compel a creditor who has the right to make his debt out of either of two funds, to resort to that one of them which will not interfere with or defeat the rights of another creditor who has recourse to only one of these funds. It is not a vested right or lien founded on contract, but rests upon equitable principles called into action by the benevolence of the court. The main ground for judicial intervention in such cases is that it is necessary to secure the satisfaction of the claims of both creditors, and the rule is never applied where the party who seeks the aid of the doctrine has a complete remedy at law. (26 Cyc. 928 et seq.) As applied to the settlement of estates the doctrine may be defined to be such an arrangement of the different funds under administration as will enable all parties having equities therein to receive their due proportions notwithstanding any intervening interests, liens or other claims of particular persons to prior satisfaction out of a portion of these funds. (19 Am. Ency. Law, p. 1302.) The general rule is that the testator's personal estate, which the will does not otherwise dispose of or exempt, constitutes the natural and primary fund for the payment of legacies as well as of debts. ( Bevan v. Cooper, 72 N.Y. 317.) This rule is controlling unless the will, either in express terms or by necessary implication, discloses a different intention on the part of the testator. ( Harris v. Fly, 7 Paige Ch. 421.) In the will of Frances Jones there is not only no direction or intimation that the debts and legacies are to be paid out of the estate over which she had a power of appointment, but there is intrinsic and cogent evidence that they were designed to be paid out of her own estate. The will first provides for the payment of debts and specific legacies, and then proceeds to dispose of the appointed estate in connection with the residue of her own estate, thus indicating that her own estate was first to be devoted to these purposes and then to the trust; but the estate over which she had a right of appointment was to go wholly into the trust which she was attempting to create. When we consider the comparatively trifling indebtedness of the testatrix, and the very limited scope of her specific benefactions as contrasted with the volume of her estate, we can think of no reason why equity should interpose its aid to change the usual rules governing the payment of debts and specific legacies. It is to be borne in mind, moreover, that the fund in court in the case at bar is real estate, and that debts and legacies are payable out of personalty, whenever that is ample for the purpose.
The judgment herein should, therefore, be affirmed, with a separate bill of costs to each respondent appearing in this court payable out of the fund; and each of the three questions certified to us should be answered in the negative.
CULLEN, Ch. J.
With great reluctance I feel constrained by authority to concur in the opinion of Judge WERNER that the will of Frances Jones did not create a valid trust in the lands over which she held a power of appointment under her father's will. This reluctance is based on the belief that either the learned revisers must have failed to accomplish their avowed object or the courts have perverted their intention. In the note to the chapter on powers the revisers say: "That a change of the existing law is here not merely proper, but necessary, will be admitted by all * * *. In reason and good sense, there is no distinction between the absolute power of disposition and the absolute ownership; and to make such a distinction, to the injury of creditors, may be very consistent with technical rules, but is a flagrant breach of the plainest maxims of equity and justice." It is very difficult to see any distinction in the application of this principle to a case where the donee of a power can alienate in his lifetime for his own benefit the whole fee of the property and one where he can alienate only some particular interest. The interest that can be alienated for the benefit of the donee of the power should, on the principle which the revisers declare, be deemed the property of the donee, whether that interest be little or great. The difficulty is caused by the provisions of sections 77 and 78 (1 R.S. p. 732), defining general and special powers, by which the power is made general where it authorized the transfer or incumbrance of the fee, and special where it authorized the transfer or incumbrance of less than a fee. At common law the distinction between general and special powers depended upon the presence or absence of a limitation of the appointees under the power, and not upon the estate which was its subject. (Fowler on Real Property, pp. 471, 472; Sugden on Powers, p. 432.) If it were an original question I think the intent of the revisers should be carried out by holding that a remainder in fee is an entire fee within the terms of the section, but I concede that we are concluded to the contrary by authority. My reluctance is further occasioned by the reflection that had Frances Jones been properly advised her will might have been rendered entirely efficacious. The power of appointment being general she might by deed at any time during her life, have executed the power in favor of herself. ( Wood v. Wood, L.R. [10 Eq.] 220; King v. Warren, 32 Beav. 111; Beck's Appeal, 116 Pa. St. 547.) Had she done so she could, under the decisions of this court, have created every estate, trust or otherwise, in that remainder which she could have done in the fee. ( N.Y. Life Ins. T. Co. v. Cary, 191 N.Y. 33.)
I agree with Judge WERNER that the debts cannot be charged on the property, the subject of the power, because there is no direction in the will for their payment, but I see no reason why the legacies should not be so charged. ( Fargo v. Squiers, 154 N.Y. 250.) The relative amounts of the personal estate of Frances Jones and of that which she had the power to dispose of by will seem to me to be wholly immaterial. The principle is that we should endeavor to execute the testator's intention, so far as is consistent with law, and that where a claimant has a right to payment out of two funds and another claimant can only look for satisfaction out of one fund, the first claimant shall be satisfied out of the fund in which he alone has a claim and that the second fund shall not be unnecessarily depleted for that purpose at the expense of the other claimant. Under section 126 (1 R.S. p. 737) it was not necessary that Frances Jones should in terms refer to the power of appointment given to her by her father's will.
GRAY, HAIGHT, VANN and CHASE, JJ., concur with WERNER, J.; CULLEN, Ch. J., reads memorandum for modification; HISCOCK, J., absent.
Judgment affirmed.