Summary
holding that a trustee who is also a beneficiary under a trust is charged with the duty of paying off mortgages on real property at the earliest possible date and distributing the estate to the beneficiaries, cannot defeat the right of the beneficiaries to their share of the estate by postponing distribution through failing to pay off the mortgages when there is sufficient income to do so
Summary of this case from Estate of Cornell v. Johnson (In re Revocable Family Trust of Michael S. Cornell)Opinion
No. 20622
Decided April 4, 1928.
Wills — Trustee to pay mortgages at earliest possible date and distribute estate — Beneficiaries' right to shares cannot be defeated by trustee not paying off mortgages — Equity regards that as done which ought to have been done.
A testamentary trustee, who is also a beneficiary under the testamentary trust and is charged under the will with the duty of paying off mortgages on real estate at the earliest possible date and distributing the estate to the beneficiaries, cannot by failing to pay off such mortgages when there is sufficient income for such purpose, and thus postponing the distribution, defeat the right of such beneficiaries to their proportionate share of such estate. In such case equity regards that as done which under the terms of the will ought to have been done.
ERROR to the Court of Appeals of Hamilton county.
This case arises as an error proceeding to a judgment of the Court of Appeals of Hamilton county, which reversed a judgment of the court of common pleas of Hamilton county rendered upon demurrer to a petition filed in that court.
The material averments of the petition are as follows: That John Webb, Jr., executed and published his last will and testament on October 8, 1902, and later, upon June 4, 1904, executed and published a codicil to his last will and testament, in which he revoked all of the original will except items first and ninth, and disposed of his entire real and personal estate.
In August, 1904, John Webb, Jr., died, leaving items first and ninth of the original will, and the codicil, unrevoked and in full force, and leaving his widow, Mary Webb, and the following persons as his only heirs at law, namely: John Benjamin Webb, a son, who intermarried with Elizabeth Voight; Henry Storrs Webb; Hannah Mary Biles, intermarried with W.C. Biles; Mary Rebecca Sorin, intermarried with Charles E. Sorin; and Lydia P. Sims, intermarried with Joseph W. Sims.
The defendant in error in this court is Elizabeth Voight Webb, the widow of John B. Webb.
Mary Webb, the widow of the testator, died in 1914. The son John B. Webb died October 29, 1923.
The last will and codicil of John Webb, Jr., was duly probated in the probate court of Hamilton county, and the last will and testament of John B. Webb was duly probated in the Surrogate Court, county of New York, state of New York. The will of John B. Webb devised, gave, and bequeathed his entire estate to his widow, Elizabeth Voight Webb, there having been no issue from their marriage. It is under this will that Elizabeth Voight Webb claims an interest in the property of John Webb, Jr.
The petition further alleges that under the will of John Webb, Jr., Hannah M. Biles was appointed executrix and trustee; that she entered upon the duties of her trust and is still acting as such executrix and trustee.
The petition further avers that:
"There remains a large amount of real estate and some personal property undisposed of by said trustee at present date, and that said trustee has been controlling and collecting the rents and profits of said estate for about twenty-two years, and that out of the rentals and profits of said estate the said trustee has been making an annual division of the rents and profits of the said estate, under the will of said John Webb, Jr., after the payment of all of the necessary taxes and expenses, as follows: John Benjamin Webb, one-fifth; Henry Storrs Webb, one-fifth; Hannah M. Biles, one-fifth; Lydia P. Sims, one-fifth; Ruth Neidig, one-tenth; and to Marie Matthews, one-tenth. That upon the death of said John Benjamin Webb, which took place on the 29th day of October, 1923, the said Hannah M. Biles, subsequent to said date, has been paying to all of said heirs the undivided one-fourth of said income, and wholly and totally ignoring the widow of said John Benjamin Webb."
The petition further avers that on January 12, 1926, the plaintiff served a written notice upon Hannah M. Biles, trustee under the will and codicil of the estate of John Webb, Jr., requesting her to bring suit in the court of common pleas of Hamilton county to have the will and codicil of John Webb, Jr., construed, which written request was refused by Hannah M. Biles, trustee.
The petition further avers that under the codicil and will of said John Webb, Jr., the plaintiff is entitled, as the wife of John Benjamin Webb, to participate in the distribution of the estate, and in the prayer of the petition plaintiff asks that the defendants Hannah M. Biles, individually and as trustee, Henry Storrs Webb, Lydia P. Sims, Ruth Neidig and Marie Matthews be required to answer and state any claims they may have under said will and codicil in regard to said estate; that their claims be determined and settled; that the court give judgment and direction in regard to the true construction of said will and codicil and as to what plaintiff's duties are in the premises, and what the duties of Hannah M. Biles, as such trustee of the estate of John Webb, Jr., and for all proper relief.
The defendants Ruth Neidig and Marie Matthews are the children of Mary Rebecca Sorin who is now deceased.
Inasmuch as the will of John Webb, Jr., was entirely revoked by the codicil, with the exception of items first and ninth, and since items first and ninth of such will have no reference to this action, we omit to quote any part of the will.
Item second of the codicil revoked and annulled every part of the will excepting items I and 9, thus retaining certain charitable legacies which are not in question here. Items first, second, third, fourth, fifth, sixth, fifteenth, and sixteenth of the codicil have no relation to this controversy, and are therefore omitted. The pertinent and material portions of the codicil read as follows:
"Seventh. All the remainder of my estate, both personalty and realty, and choses in action, I give, bequeath and devise to my two sons, John B. Webb and Henry Storrs, and to my daughter, Hannah M. Biles, wife of W.C. Biles, and to the survivor of them, in trust for the uses and purposes hereinafter mentioned and declared. In case either of the three trustees above named shall not survive me, or shall decline to accept the said trust, I give, bequeath and, devise the said property to the other of the said trustees and to the survivor of them, in trust for the uses and purposes hereinafter mentioned and declared."
(Hannah M. Biles alone, of the three named as trustees, accepted the trust and qualified as such trustee.)
Item eight provided that the testator's wife be allowed the use of the homestead, but that in the event of her not desiring to reside therein, the homestead should be rented as the other real estate.
"Tenth: I will and direct that my trustees hereinbefore named shall have the entire control and management of my real estate, shall collect the rents and income therefrom, keep the same insured and in reasonable repair at all times, and shall in general manage the same as if it were their individual property. The rents and profits derived from my real estate shall be applied by my trustees first to the payment of taxes, repairs, insurance and other expenses of management and to the interest of any debt that may be secured by mortgage on said real estate. If, in the management of my real estate, it should become necessary or expedient to mortgage any part or parts thereof, or all of the same, my said trustees are hereby authorized and empowered to make, execute and deliver such mortgage or mortgages, and they are hereby given full power and authority to determine whether it is desirable, necessary or expedient to execute and deliver any such mortgage or mortgages."
Item eleventh provided for certain yearly payments to be made to the testator's wife out of the remainder of the net income of the estate, such payments to be made by the trustees.
"Twelfth: I direct my said trustees to use the remainder, if any, of the net income of my entire estate real and personal, to pay off the mortgage indebtedness on my real estate. It is my desire that my entire real estate shall be clear of all incumbrance at as early a date as possible."
Item thirteenth directed that the trustees convey certain specific parcels of real estate after the death of the testator's wife, all of which conveyances have been made.
"Fourteenth: I direct my said trustees to hold, manage and control the remainder of my real estate, and use the net income thereof in discharging and paying all mortgages and obligations thereon, and all other claims against the same. When all claims against the said real estate are paid, I direct my said trustees, or the survivor of them, to sell the said real estate, and out of the proceeds thereof pay the legacies given in my will above mentioned and described, and to pay the remainder of the entire proceeds of said real estate and all moneys belonging to my estate in their hands, share and share alike, to my five children, John B. Webb, Henry Storrs Webb, Hannah M. Biles, Mary Rebecca Sorin and Lydia P. Sims, and to the issue of any deceased child per stirpes. If my children shall desire to hold said real estate without having the same sold, I direct my said trustees to manage and control the same until the net income thereof shall be sufficient to pay off the said legacies; then said trustees are directed to pay said legacies, and thereafter immediately convey and deed all of my real estate and any moneys that may remain in their hands, to my said children and the issue of any deceased child share and share alike, per stirpes."
The defendants demurred to the petition upon the ground that it did not state facts sufficient to constitute a cause of action. The court of common pleas sustained the demurrer. The Court of Appeals reversed the judgment of the court of common pleas upon the ground that the court erred in sustaining the demurrer to the petition, and remanded the cause to the court of common pleas for further proceedings according to law, indicating that the net income from the estate should have been applied to the payment of the mortgages, and that the mortgage indebtedness at the date of the death of John Webb, Jr., should be ascertained. The Court of Appeals made the following statement in its opinion, as to the proceeding which should be taken in the court of common pleas:
"The mortgage indebtedness at the date of the death of John Webb, Jr., should be ascertained. The amount of interest paid on those mortgages from that date to the date of the death of John Benjamin Webb should be computed.
"The amounts paid annually by the trustee to the distributees should be taken, and added thereto should be interest at the same rate that was paid on the mortgages, provided that rate is the same or less than the legal rate of interest, and these annual payments with interest should be considered as having been paid on the mortgages. The date of distribution would be the date when the total of these annual payments, plus interest, equaled the amount of the mortgage indebtedness. The date, so determined, would fix the period of distribution, and the vesting of the title in the distributees.
"If the date so determined is prior to October 29, 1923, the day on which John Benjamin Webb died, the plaintiff would be entitled to the distributive share of her deceased husband. If the date on which the mortgages would have been paid is subsequent to October 29, 1923, she cannot have any share of the estate of John Webb, Jr."
The case comes into this court upon allowance of motion to certify the record.
Messrs. Pogue, Hoffheimer Pogue and Mr. W.W. Helmholz, for plaintiffs in error.
Messrs. Barnes, McKenna Halstead, Mr. T.M. Cowguill, and Mr. David Davis, for defendant in error.
As this case was heard upon demurrer, the well-pleaded facts must be taken to be true. These facts as alleged show that John Webb, Jr., the testator who executed the will under which the trust involved in this action was created, died upon August 22, 1904; that his widow, Mary Webb, died in 1914; that his son John B. Webb, one of the five beneficiaries under the trust, died upon October 29, 1923; that John B. Webb left a will which was duly probated, making his wife, Elizabeth Voight Webb, the defendant in error herein, his sole legatee and devisee; that under the will of John Webb, Jr., a large amount of real estate and personal property remains undisposed of by the trustee, and that the trustee, who is also a devisee and beneficiary, has been controlling and collecting the rents and profits of the estate for approximately twenty-two years, and has been dividing these rents and profits among herself and the four other residuary beneficiaries or their legal representatives, down to the death of John B. Webb, and since the death of John B. Webb has been paying the entire income of the estate to herself and the other residuary beneficiaries or their legal representatives, and has paid over no share of such income to the widow of John B. Webb.
It is difficult to find any distinction between the dispositive clause of the will construed in this action and the dispositive clause in the case of Richey, Ex'r., v. Johnson, 30 Ohio St. 288. In that case the testator said:
"I devise my executors or the survivors of them, after the decease of my said wife, shall sell said last-mentioned farm, either at public or private sale, and that the proceeds thereof be divided equally between my brothers and sisters and their heirs — the children of any that may be dead to have the shares of their deceased parents."
The court said, at page 296:
"These words, 'Any that may be dead,' import uncertainty in the mind of the testator."
And the court then goes on to state that under this dispositive provision the testator has directed that the share of any who would, if living, be entitled to a part of the fund, shall, in the event of the previous death of such contingent legatee, be paid to his or her heirs. "The gift itself, and not merely the time of payment, remained contingent, therefore, during the life of the widow. The persons entitled to the enjoyment of the fund could not be ascertained till her death."
It was held in the syllabus that as the fund could not be raised until the death of the widow, and was to be divided between persons then living, the interest of the legatees therein remained contingent until that time.
The will of John Webb, Jr., then, created contingent interests which were to vest at the time of distribution. If there were no other facts alleged in this petition than the creation of the contingent interests under the will and the fact that distribution has not yet been made, the demurrer to the petition would have to be sustained upon the ground that the contingent interest had not vested in John B. Webb at the time of his death. However, the petition also alleges the postponement of the time of distribution by the trustee, who is herself one of the beneficiaries under the trust, her failure to use the income from the real estate for the defraying of the mortgage debt, her distributing such income among the five children, up to the death of John B. Webb, and her failure since the death of John B. Webb to pay the proportionate one-fifth of such income to John B. Webb's wife and sole legal representative.
In item twelfth of the codicil to his will, John Webb, Jr., directed his said trustees "to use the remainder, if any, of the net income of my entire estate, real and personal, to pay off the mortgage indebtedness on my real estate. It is my desire that my entire real estate shall be clear of all incumbrance at as early a date as possible."
In item fourteenth of the codicil to the will, the testator directs the trustees to use the net income of the remainder of the real estate, after certain specific parcels of real estate are devised, in discharging and paying off all mortgages and obligations thereon, and all other claims against the same, and, when all claims against the real estate are paid, to sell the real estate to pay the legacies, and to pay the remainder of the entire proceeds of such real estate, and all money belonging to the estate in their hands, "to my five children, John B. Webb, Henry Storrs Webb, Hannah M. Biles, Mary Rebecca Sorin and Lydia P. Sims, and to the issue of any deceased child per stirpes."
We must assume under the pleadings that these directions of the will have been completely ignored for some twenty-two years by Hannah M. Biles, the trustee.
As a general rule, a trustee's authority over the trust property is defined and limited by the instrument creating the trust, and he should be strictly guided by its provisions, and should pursue his power strictly. Atkinson v. Beckett, 34 W. Va. 584, 12 S.E. 717; Baldridge v. Walton, 1 Mo., 520. It is even held that although the will gives the broadest and fullest discretion to executors and trustees, such discretion cannot be exercised to frustrate the testator's manifest intent. In re Hall's Estate, 127 Misc. Rep., 238, 216 N.Y. S., 598.
In Plummer v. Brown, 315 Mo., 627, 287 S.W. 316, a decision of the Supreme Court of Missouri handed down in 1926, it was held that the discretion given testamentary trustees to make payments to beneficiaries, when in their judgment the condition of the estate permits, must be reasonably exercised in good faith, and to further the testator's dominant purpose as disclosed by the will.
If in the instant case the income of the real estate prior to the death of John B. Webb was sufficient to have discharged the mortgages, and would have made distribution possible under the will, then as a matter of fact the estate should have vested before the death of John B. Webb. The trustee could not ignore the will, and by her unauthorized act determine when the contingent estate should vest in the beneficiaries. It is the direction of the testator which determines the time of vesting, and the testator directed in unqualified terms that, while the title should vest at the time of distribution, distribution should be seasonably made, because he directed that distribution should follow upon the paying off of the incumbrances at the earliest possible moment. John B. Webb therefore was entitled to participate in the proceeds of this real estate within a reasonable time after distribution could as a matter of fact have been made, and the widow, who is his sole beneficiary under his will, has the same equitable right as John B. Webb.
This is an action in equity for distribution by the trustee of the trust estate. 10 Ruling Case Law, 349, Section 99. The question therefore arises whether in this action equity will regard that as being done which should have been done, and will hold that the time of distribution, and hence the time of vesting, accrued at a reasonable time after it was possible to perform the acts enjoined under the will, even though these acts were not performed.
Equity will regard and treat him in whose favor an act should have been performed as clothed with the same interest and entitled to the same rights as if the act actually had been performed. Johnson v. Palmer, 117 Me. 226, 107 A. 291.
As stated in 1 Pomeroy's Equity Jurisprudence (4th Ed.), 675, Section 364, equity regards and treats that as done which in good conscience ought to be done. Pomeroy states that textwriters have correctly looked upon this maxim "as the very foundation of all distinctively equitable property rights."
The doctrine is most often enforced with regard to equitable conversion. Bouslough v. Bouslough, 306 Ill. 24, 137 N.E. 517; Citizens' Nat. Bank of Albuquerque v. First Nat. Bank of Albuquerque, 29 N.M. 273, 222 P. 935.
While we have been unable to find any case exactly parallel to this in which the maxim has been applied, decisions are not wanting in which the failure by a trustee to perform some act is held not to have defeated an equitable right. Thus in Temple v. City of Coleman (Tex.Civ.App.), 245 S.W. 264, we have a case where a trustee whose duty it was to probate a will failed to do so. Certain gratuitous grantees from the trustee in an action were urging their claims partly upon the ground of the failure of the trustee to probate the will. It was held that equity regards that as done which ought to be done, and the fact that the will was not probated was held not to affect the validity of the trust.
In Farmers' Loan Trust Co. v. Pierson, 130 Misc. Rep., 110, 222 N.Y. S., 532, which was a case where the testator had bequeathed all of the shares of a corporation to certain trustees who elected themselves directors, it was held that the trustees could not take the bequest and decline to pass necessary by-laws to carry out the directions of the will, limiting their power to sell the property of the corporation, and that in default of such action by the trustees equity would consider done what ought to be done, and would act as though the necessary bylaws had been passed. To the same effect is Reigel v. Wood, 110 Okl., 279, 229 P. 556.
In Copeland v. Warren, 214 Ala. 150, 107 So. 94, it was held in a suit to reform conveyances of land that equity treats as done that which should have been done to carry into effect the intention of the parties, and will give effect to a transaction by fixing the status and right of the parties as if a conveyance had been executed on the date that it should have been executed.
In this instance, since the testator made his intention as to the payment of the mortgages so plain, and hence emphasized his direction for the early vesting of the estate, we hold that the maxim applies.
No motion to make more definite and certain was interposed to this petition. In the absence of such a motion, the petition, although awkwardly drawn and loosely framed, is good against a general demurrer, and the Court of Appeals was correct in remanding the case to the court of common pleas for further proceedings and the taking of testimony with regard to the amount of income which could, during the past twenty-two years, have been devoted to the raising of the mortgages. Judgment of the Court of Appeals affirmed.
Judgment affirmed.
MARSHALL, C.J., DAY, KINKADE, ROBINSON, JONES and MATTHIAS, JJ., concur.