Summary
In Matter of Juilliard (238 N.Y. 499) it was stated: "The statute changed the common law rule which determined how far fixed income made payable or becoming due after the termination by death of an interest or estate in the fund, from which the income was derived, is an incident of that interest or estate, * * *."
Summary of this case from Matter of OetingerOpinion
Argued May 22, 1924
Decided July 5, 1924
Joseph S. Auerbach, Edward Cornell, Charles H. Tuttle and Martin A. Schenck for Juilliard Musical Foundation, appellant. Richmond Weed for St. John's Guild, appellant.
E.J. Dimock, Lewis L. Delafield and Alfred Gregory for American Museum of Natural History, appellant and respondent. Charles E. Rushmore for Frederic A. Juilliard, respondent and appellant. Isaac N. Mills and Joseph M. Fowler for Catherine J. Walker et al., respondents and appellants. George Gordon Battle for Laura C. de T. Machado, individually and as administratrix et al., respondents.
Augustus D. Juilliard died on April 25, 1919. He was a childless widower, possessed of a large estate. By his will he left to his nephew and partner Frederic A. Juilliard the sum of $3,000,000, his house in New York city and his country home at Tuxedo with all their contents, his opera box and all his jewels, furnishings and articles of personal effects of every kind or nature. He made further specific bequests, none of which exceeded the sum of $100,000, to other relatives and to charitable corporations. He appointed Central Union Trust Company of New York, Guaranty Trust Company of New York, his nephew Frederic A. Juilliard and his partner Chester A. Braman and Robert Westaway "to be the executors and trustees under the various Trusts created by this my Will," and to them he left, by the forty-fifth section of his will, the residue of his great estate with a direction "as soon after my death as may be practicable and within the lifetime of my nephew Frederic A. Juilliard and my partner Robert Westaway and the survivor of them, to incorporate or cause to be incorporated under the general laws of the State of New York or by special act of the Legislature of the State of New York, a corporation to be known as the 'Juilliard Musical Foundation' which shall have authority, among such other powers as may be conferred upon it, to take and hold property and administer, invest and reinvest the same and to devote the income therefrom to the objects of said organization which shall be in general scope as follows * * *." The objects of the corporation to be formed as set forth in the will were undoubtedly charitable and educational. The will further directed the testator's executors and trustees "upon the organization of said corporation, the Juilliard Musical Foundation and within the lifetime of said Frederic A. Juilliard and Robert Westaway and the survivor of them, to transfer and pay over into the said corporation the entire capital of the said trust fund created by this section of my Will. * * * Until the organization of the corporation Juilliard Musical Foundation as hereinbefore provided (which I trust may be accomplished without any appreciable delay after my death) and within the lifetime of said Frederic A. Juilliard and Robert Westaway and the survivor of them, I direct my said Executors and Trustees under this will to pay over unto said Frederic A. Juilliard all income that may be actually received from the fund provided to be transferred to said corporation upon its organization, but that upon the organization of said corporation all distribution of income from said fund unto said Frederic A. Juilliard shall cease, and there shall be no apportionment to him of income partially or wholly earned, but not yet due and payable at the time above stated."
"If for any reason the said corporation shall not be organized within the time specified, to wit, within the lives of said Frederic A. Juilliard and Robert Westaway,. and the survivor of them, or if for any other reason the provisions of this clause shall be ineffectual, then I give, devise and bequeath the entire fund and estate referred to in this section of my will marked 'Forty-fifth' unto the American Museum of Natural History and St. John's Guild in the City of New York in equal amounts."
The Juilliard Musical Foundation was incorporated by special act of the Legislature on March 30, 1920, more than eleven months after the death of the testator, and the questions which arise upon this appeal relate solely to the disposition of certain items in the executor's accounts which, it is claimed, constitute interest or income earned or accruing before the incorporation of the Musical Foundation. It was the undoubted intent of the testator as expressed in the will that all interest or income which should be earned or should accrue upon the fund prior to the incorporation of the Juilliard Musical Foundation should be paid to the Juilliard Musical Foundation upon its incorporation, except such income as the testator specifically directed should be paid to his nephew Frederic A. Juilliard, but the courts below have held that they cannot give effect to this intention without creating an unlawful accumulation of income, and they have, therefore, ruled that all such income which was intended by the testator to be paid to the Juilliard Musical Foundation passes to his next of kin as if he had died intestate as to it.
We have held that an unconditional gift in trust for, or to be paid over to, a charitable corporation thereafter to be formed, without a precedent gift to private persons, constitutes both as to principal and income an immediate gift to a charitable use, and a direction for the payment to the corporation of income received or earned before the corporation is formed cannot constitute a direction for an unlawful accumulation. ( Matter of Potts, 205 App. Div. 147; affd., 236 N.Y. 658; Matter of Le Fevre, 233 N.Y. 138; Maynard v. Farmers Loan Trust Co., affd., 238 N.Y. 592.) None of these cases had been decided when this will was drawn, and the draftsman may perhaps have had some doubts whether this court would hold that such a bequest as the testator intended to make constituted an immediate gift or whether the court would refuse to draw any distinction between such a bequest and the bequest which in St. John v. Andrews Institute ( 191 N.Y. 254) we held created an expectant estate. In that case this court held that income which accrued upon a trust fund after the termination of the estate of a life tenant could not be held by trustees until the creation thereafter of a charitable corporation which the testator had directed should be formed and to which he had left the trust fund upon the termination of the life estate as soon as the corporation was formed. Such income we held passes to the next of kin under the Statute of Distributions, because a bequest of income in favor of the holder of an expectant estate, even for a charitable purpose, would constitute a direction for an unlawful accumulation, and the income was not otherwise disposed of by will. The rule of that case has no application where the trust for a charitable use is a present and not an expectant estate but, perhaps in order to provide for the contingency that the trust estate in the present case might be held to be a future and not a present estate, the testator has here specifically provided that the trustees shall until the organization of the charitable corporation pay over to Frederic A. Juilliard all income "that may be actually received from the fund provided to be transferred to said corporation upon its organization," thereby precluding the charitable trust from receiving the benefit of any income which might come into the hands of the trustees before the organization of the corporation. Whether in view of this provision, the trust for a charitable use must be regarded as a future or expectant estate rather than a present estate, is of practical consequence only if the payment by the trustees of the remainder of the income to the Foundation when incorporated would then be in conflict with the statute regulating restraints on alienation and accumulation of income, and the intent of the testator that this remainder of the income should be paid to the Foundation consequently defeated. We find no such conflict even if we assume, without, however, passing upon such question, that the will creates only a future trust for a charitable use.
The provision for the payment of the income, which may be actually received by the trustees, to Frederic A. Juilliard is coupled with a stipulation against "apportionment to him of income partially or wholly earned but not yet due and payable." The testator evidently had in mind that if there was no apportionment of income which "was partially or wholly earned but not yet due and payable" and all income actually received was paid to his nephew, the entire income of the fund would be disposed of between his nephew and the Musical Foundation. He made no specific disposition of any income which might be due and payable but not actually reduced to possession by the trustees, and the courts below have held that the testator did not intend to use the words "actually received" in any narrow technical sense which would exclude income which was due and payable though for any reason the trustees did not reduce it to possession and that he intended that the Foundation should receive only such income as it would receive under the provisions of section 204 of the Surrogate's Court Act, then section 2674 of the Code of Civil Procedure, "in any case in which it shall be expressly stipulated that no apportionment be made." If the testator had intended any other division he would naturally have made express provision therefor instead of merely providing against apportionment. We agree with the construction of this provision placed upon it by the courts below, but we do not agree that the provision so construed creates a direction for an unlawful accumulation or that any of the disputed payments to Frederic A. Juilliard constitute income which was earned and due and payable before the Musical Foundation was incorporated.
Prior to the enactment in 1875 of the provisions of the law now embodied in section 204 of the Surrogate's Court Act in regard to apportionment of rents, annuities and dividends, there was at common law no apportionment, between persons having successive estates or interest in property under a will or deed of trust, of any rents payable after the termination of the first estate. Rents were an incident of the estate in existence at the time they were payable. The same rule applied to certain kinds of annuities, interest on public funds and dividends on corporate stock, but did not apply to interest on debts of a private individual or corporation which was subject to apportionment. The statute wiped out these distinctions which rested solely on technical considerations. Thereafter "payments of every description made payable or becoming due at fixed periods" were alike apportionable unless it was expressly stipulated that no apportionment be made. A stipulation that no apportionment be made of income which at common law was payable to the holder of the second estate could obviously not constitute a direction for accumulation of income in favor of that estate, and if such a stipulation cannot be made under the provisions of the statute as to income which was apportioned at common law without creating an unlawful accumulation, the old technical distinctions which the Legislature sought to abolish must still be kept alive at least for this purpose. It was the evident intention of the Legislature that all payments described in the statute should be placed upon the same basis and should be apportioned unless there was a stipulation that there should be no apportionment. When the Legislature expressly permitted such a stipulation, it was not laying a trap for the unwary by giving an apparent option which in fact could be exercised only in a limited class of cases determined by the very technical distinction which were otherwise abolished by the same statute. The statute changed the common-law rule which determined how far fixed income made payable or becoming due after the termination by death of an interest or estate in the fund, from which the income was derived, is an incident of that interest or estate, and in permitting the creator of the successive interests or estates to stipulate whether such income should be paid in whole or in part to the holder of the interest or estate at the time the income becomes due, the Legislature to that extent allows the donor to fix the incidents of the estates he is creating. He does not in such case either in form or in fact direct an accumulation of income in favor of the holder of a future estate; he merely determines to whom such income belongs at the very moment it becomes available or can be collected.
We recognize that in the cases of Matter of Lamb ( 182 App. Div. 180; affd., without opinion, 224 N.Y. 577) and Equitable Trust Co. of N.Y. v. Miller ( 197 App. Div. 391; affd., without opinion, 233 N.Y. 650) the courts below assumed that a stipulation that no apportionment should be made would create an unlawful accumulation. That question was not, however, before the court in either case for decision. In both those cases the question at issue was whether under a fair construction of the provisions of a will the testator intended that the income should be apportioned. Doubtless the courts below reached the conclusion that the testator intended that there should be an apportionment, because they believed that a stipulation against apportionment would be illegal, but the same result would necessarily follow from the rule that a stipulation against the statutory rule of apportionment should not be implied from words of doubtful construction. It follows that the Juilliard Musical Foundation is entitled under the provision of the will to all income derived from the residuary estate of the testator which "was partially or wholly earned but not yet due and payable at the time" it was incorporated.
So far as the record shows, all income that was due and payable at that time had been received by the trustees and was paid to Frederic A. Juilliard under the terms of the will, and no party disputes the propriety of such payment. Thereafter in November, 1920, the trustees sold to the testator's surviving partners his interest in the firm of A.D. Juilliard and Company and in certain securities in mill corporations which were apparently to some extent connected with the business of that firm. The purchase price was over $14,000,000, and the trustees received notes for this sum antedated upon the day of testator's death, with interest at four and one-half per cent payable semi-annually and in addition a check for $965,471.60, being interest at the same rate for the eighteen months from the death of the testator on April 25, 1919, to October 25, 1920. By the thirty-ninth section of his will, the testator provided:
"I authorize and empower my executors and trustees * * * to sell my interest in the firm of A.D. Juilliard and Company to my surviving partners for a sum which shall equal the value of my interest therein at the date of my death, the value of which interest shall be determined upon the inventory value of all the property of said firm * * *, and I authorize my executors to receive in payment for my said interest in said partnership the notes of the surviving members of my said partnership, bearing interest at four and one-half per cent. (4½%) per annum." A similar provision was made for the sale of the testator's interest in the securities of any mills. The courts below have held that under these provisions of the will the trustees were authorized to receive for the property sold, notes bearing four and one-half per cent interest from the date of testator's death; that they could in their discretion make such interest payable semi-annually and that even though the notes were received more than eighteen months after the death of the testator, interest thereon became due and payable under their terms and in contemplation of law six months after the death of the testator. The interest on this large sum for six months has been ordered paid to Frederic A. Juilliard and only that portion of the interest earned after the date of the incorporation of the Musical Foundation has been paid to it. We pass without considering it the question of whether the sale was made in accordance with the power given by the will; for even though we assume that under that power the trustees could make such sale as of the date of the testator's death, yet such a sale could be made only after agreement with the surviving partners, and when the Musical Foundation was incorporated, no such agreement was in existence. The surviving partners had not at that time obligated themselves to purchase the property; no price was fixed and no interest was earned, due or payable upon such purchase price. Even though for some purposes the sale when executed might date back to the time of the testator's death, no agreement and no fiction of law could make interest due and payable at a date when no one was obligated to pay such interest and there was no fund in existence which could earn interest. After the Juilliard Musical Foundation was incorporated, any rights of Frederic A. Juilliard to income from the residuary estate ceased; and the Juilliard Musical Foundation became entitled to the entire fund with any increments that might be added thereafter. The interest of the testator in the copartnership of A.D. Juilliard and Company and in the mill securities was part of this residuary estate, and when sold thereafter the Juilliard Musical Foundation became entitled to all the proceeds of the sale, including that portion thereof which constitutes so-called interest on a fund which had no existence until the sale was made, and which in fact represents part of the purchase price which the buyers agreed to pay.
The order of the Appellate Division and decree of the surrogate should be reversed and proceedings remitted to the surrogate to restate the account in accordance with this opinion, with costs to the Juilliard Musicial Foundation payable out of the estate.
HISCOCK, Ch. J., CARDOZO, POUND, McLAUGHLIN, CRANE and ANDREWS, JJ., concur.
Order reversed, etc.