Opinion
Argued October 29, 1889
Decided November 26, 1889
Alexander H. Van Cott for appellant. Sidney S. Harris for respondents.
A bare statement of the facts of this case will show that grave injustice has been done to the rights of the infants who appeal, and that the statutory provisions supposed to be conclusive have been incorrectly interpreted.
By his will the testator gave to his infant daughters, Lilly and Emma, respectively, specific parcels of real estate which he identified and described, and which were incumbered by mortgages the amount of which he named. He had already charged upon the same lands a life estate for his wife, to whom he had given all his personal property which should remain after the payment of debts, and a further right to use other real estate for a narrow and limited period. The provision for the wife was in lieu both of dower and distributive share, and the life estate of the widow in the lands devised to the infant daughters was further burdened with their support and education. The testator had other children and possessed other lands. He devised to his son James the house and lot No. 87 Clermont avenue, Brooklyn, and the stable in rear of 85 Clermont avenue, for his life, with remainder to his issue. The will gave twenty-five lots in Suffolk county to William McComb who was testator's brother-in-law and one of his executors. He devised to his daughter Catharine a life estate in two houses in Prince street, with remainder to her issue: and to his daughter, Eliza Smith, a life estate in three other houses on Prince street, with remainder to his other children. The will finally conferred upon the executors a power to sell all or any of the property devised except that given to James and his issue, but subject to the consent and approval of the widow, the sum so arising to "be invested and the income and principal applied by my executors for the use and benefit of the same persons to whom the said lands and the income therefrom respectively were specifically devised and bequeathed." The personal estate was sufficient to pay all the debts of the testator except one of $4,000 to one Baylis which remains unpaid. The executors sold at public auction a part of the property devised to the infant daughters, all of that devised to Catharine and Eliza Smith and received therefrom, after paying incumbrances and expenses, something over $11,000. The executors rendered an account and the surrogate ordered the debt of Baylis to be paid out of the unexpended proceeds of the real estate, and that decree has been affirmed by the General Term.
By this process several things have been accomplished. The son James and the executor McComb, to whom valuable parcels of real estate were devised, have escaped thus far any contribution to the unpaid indebtedness, and the whole burden has been cast upon the wife and daughters. A discretionary power of sale for the benefit of devisees, and a direction to apply the proceeds to their use, is converted into a power of sale to pay debts, and the lands not charged by the will are so charged by the surrogate in an ordinary accounting. A trust fund, created as such by the direction of the testator, and required to be held by the executors as trustees, precisely as if the land from which it arose had never been sold at all, has been turned into legal assets and treated as if it had been the personal estate of the decedent. The doctrine of equitable conversion out and out, arising from an imperative command, and founded on a testator's intention to turn his land into money and dispose of it as such, is invoked as applicable to a case where the decedent devised land and not money, but gave a discretionary power to be exercised for the benefit and advantage of the devisee for the conversion of the land into an invested fund. A debt which, in a proper proceeding, it might have been the duty of the surrogate to order paid by means of a mortgage or lease is arbitrarily paid from the proceeds of a sale without opportunity to the devisees to contest the claim thus enforced upon their lands. More of error or of wrong is seldom seen in one adjudication.
The justification of the decree is rested mainly upon the provisions of the Code. It is said that section 2724 enumerates the cases in which the surrogate may compel a judicial settlement of the accounts of executors; that subdivision 4 gives such jurisdiction where the executor "has sold or otherwise disposed of any of the decedent's real property or devisable interest in real property, or the rents, profits or proceeds thereof pursuant to a power contained in the decedent's will where one year has elapsed since letters were issued to him;" and that under this provision the executor may be required to account as well for the proceeds of lands sold as for the personal estate. All that is true, but something more is requisite to sustain the respondent's position. The Code must be found to require in addition that, when he does so account for the proceeds of land sold, the trustee or the court may lay violent hands upon the trust fund, and divert it from the purpose of its creation and the directions of the will. That the executor must account for proceeds of real estate turned into money, and whether the sale has been authorized by the will or commanded by the surrogate, the Code does declare, but it is very far from compelling a misappropriation of the funds in either event.
In this case the executor accounted under the will; that was for him and for the surrogate the charter of authority and the warrant to be obeyed; the testator supposed his personal estate to be sufficient for the payment of his debts, and devised to his daughters land and not money; he charged no dollar of debt upon that land and furnished his creditors with no remedy against it; the sale he permitted was discretionary, and he impressed upon its proceeds the same beneficial uses which attached to the land; equitably it remained land and an unchanged devise. Where the statute permits the land of an infant to be sold and turned into money under the order of the court it is careful to provide that the fund shall be treated as real estate remaining unchanged for the safety and benefit of all concerned. (3 R.S. [5th ed.] 276, § 110.) The statute but repeated the existing rule of equity as a measure of precaution. ( Forman v. Marsh, 11 N.Y. 544.) Less than that is not to be said where the conversion is under a discretionary power only to be exercised at all in the interest and for the benefit of the infant. This trust fund, therefore, never became legal assets, and could be accounted for only as the law of its creation required until some proceeding paramount to the will, sovereign even over the intention and direction of the testator, called for an accounting under its authority and for its purposes.
The authorities cited are in no respect to the contrary. In Glacius v. Fogel ( 88 N.Y. 444) the entire real estate was devised to the executors, who were to divide and distribute the proceeds. The sales were for the estate and all its purposes, and not for the sole benefit of devisees. In Hood v. Hood ( 85 N.Y. 561) the real estate again was devised to the executors in trust to sell and hold and distribute the proceeds as money. In Erwin v. Loper ( 43 N.Y. 521) the power of sale given to the executors was general and unrestricted. The same thing was true of Kinnier v. Rogers ( 42 N.Y. 531), and the court added that, since there was no ground for an inference that the testator intended to appropriate his land to the payment of debts, the power of sale could not be exercised for that purpose.
To these cases should be added that of Russell v. Russell ( 36 N.Y. 581), cited by the respondent, in which the power to divert a trust fund resulting from an authority to sell "for the best interests" of certain legatees was denied.
We are satisfied that the creditor in this case has mistaken his remedy and that the decree was erroneous.
The order of the General Term and of the surrogate should be reversed, with costs to the appellant in all the courts against the executors of Baylis personally.
All concur.
Order reversed.