Matter of Final Accounting of Gerry

Ruger, Ch. J. The matter here in controversy arises be tween the representatives of the life estate, and certain remaindermen, with reference to the proper distribution between them, of an increase in the amount of the trust fund, discoverable upon a sale of the securities in which it was invested, after the life estate terminated. The fund was created in the year 1828 under the will of Peter P. Goelet, devising to his executors as trustees the sum of $50,000, to invest “ in funded stock of the United States, or of the State of Hew York, or in good bonds and mortgages on real estate,” with directions to pay “ the annual interest, income and dividends thereof” to his daughter, Jean B. Goelet, dnr *448 ing her life, and upon her death, leaving no issue, to divide the “ principal or capital sum aforesaid ” “ among my other children in equal proportions.” A codicil to said will, made in the same year, increased the said fund by an additional sum of $20,000, which, upon the death of said Jean B. Goelet without issue, was also directed to be paid to her surviving brothers and sisters, or to their respective representatives. During the existence of this trust, which extended for fifty-four years to the death of Jean B. Goelet in 1882, the annual interest collectible upon the sum invested, was duly paid to her by its trustees. It does not appear affirmatively in the case in what securities the capital sum was originally invested or when any investment or conversion of them occurred; but the evidence shows that in 1880 it was represented in unequal proportions by United States bonds, bonds of the cities of Mew York and Brooklyn, bonds and mortgages on real estate, and the sum of $3,424.95 in cash. The cash seems to have been the result of an increase in the value of some securities paid, exchanged or converted by the trustee prior to 1880. In April, 1880, an order was made by the Supreme Court in a proceeding instituted by Robert Goelet and Ogden Goelet, who, with Elbridge T. Gerry, had succeeded to the said trusteeship under the, will of Peter Goelet, who died in 1879, to ascertain the amount of said fund, the securities in which it was invested, and to obtain their discharge from the duties and obligations of said trusteeship, upon the delivery of said trust funds to their associate, Mr. Gerry. Jean B. Goelet and Mr. Gerry were both parties to this proceeding, and acquiesced in the order of the court appointing Mr. Gerry sole trustee, and defining the securities and capital of the trust fund as it then existed. It may fairly be assumed from the evidence that this fund has always been kept invested in securities, upon which there was a fixed rate of interest, payable annually, determinable by the provisions of the security ; and that it has never been possible for the trustee to receive or secure therefrom any extra dividends, or any greater annual income, than that pro *449 ducible, by fixed rates of interest. A sale of these securities by the trustee after the death of the life-tenant resulted in a surplus of nearly $23,000 over the amount of the original investment, and this sum is claimed respectively by the representatives of the life-tenants, and by the remaindermen. The primary rule for the determination of questions arising upon the construction of wills, is the ascertainment of the intent of the testator, from a consideration of its provisions. In the case in hand the will provides specifically for the interest which the legatee for life was to take in the fund, and it is limited to the “ annual interest, income and dividends thereof.” All beyond this must, from necessity, have been intended to go to the remaindermen, for- there are no other persons who could lawfully take it. This case is not analogous to, and presents none of the questions or embarrassments attending the division of gain or profits, arising upon investments in trade, or the stock of corporate business enterpi'ises, and which are usually represented by dividends, either regular or extra, payable in cash, stock or scrip, or remaining undivided in the hands of the corporation. The authorities in such cases are very numerous and show that it is often a matter of great difficulty to distinguish witli precision, between those gains constituting an accretion to the fund and those which legitimately may be termed the earnings of the investment, properly distributable by way of dividends to the stockholders of the corporation. In this case, however, the investment is directed to be made in securities bearing a fixed rate of interest which can neither be increased by the prosperity, nor diminished by the misfortunes of the debtors, and are eventually to be satisfied by the repayment of the principal sum of the obligation. At the time of the conversion of this fund by the trustee he held in his hands obligations which, upon their face, called for the repayment to him of the sum of $70,000 only, and the purchasers from him received obligations which, at maturity, were redeemable by the obligors at that sum. The cause occasioning the increase in question, seems to have been a deprecia^ *450 tian in the rate of interest effected bv natural causes, and which gave an increased value to securities bearing the higher ratesjrf former times. TMs_constitnted in no sense a profit upon the investment, but was an accretion to._the.fund itself arising from natural causes, and was liable to be altogether lost by the approximation of the securities to the period of their maturity. The benefit derivable from this condition was en joyed annually by the beneficiaries of the fund in the increased value of the income derivable therefrom. Had the life-tenant lived to the maturity of the bonds she would have received in annual iu7 terest the entire difference, if any existing at any time prior thereto, between the face and market value of the securities. The theory of the will did not contemplate any traffic in securities by the trustee, but a permanent investment in interest-bearing obligations, subject to be sold or exchanged only when the exigencies of the trust required it to be done. It is quite clear that the life-tenant could not have compelled the trustee to sell or convert securities lawfully purchased and held, upon the ground that their market value had appreciated in his hands, any more than he could have compelled her, to make good any depreciation in the value of such securities. Their acquisition and retention was one of the objects contemplated by the will of the testator, and was essential to execute his design, and a proceeding to compel their sale would plainly have been contrary to his intent in creating the trust. If the will had required the trustees to invest in real estate, the rents, income and profits of which were made payable to the life-tenant with remainder over, it cannot be questioned but that any increase of the value of the land from natural causes would have been an áceretion to the capital, and inured to the benefit of the remaindermen (Perry on Trusts, § 545, p. 486 ; Cogswell v. Cogswell, 2 Edw. Ch. 231, 240), and we can see no difference in principle between this case and the one supposed. The question here presented was up in the eases of ‘Townsend v. U. S. Trust Co. (3 Redf. 222), and Whitney v. Pharis (4 id. 180), before the surrogate of New York, and it was there *451 held that an enhancement of the value of United States bonds held in trust went to the remaindermen, and not to the legatee for life. These decisions accord with our views. The cases cited by the learned counsel for the appellant may all be classified as cases where the terms of the trust authorized investments in the stock of private corporations or trading enterprises whose profits are largely affected by the vicissitudes of business and trade, and the disposition of whose gains and profits is largely, if not ivholly, left to the discretion of the managers of the enterprise. In such casés it was plainly the intention of the settlor that the life-tenant should have the advantage of any extraordinary profits realized from the investment. As we before said, these cases are not analogous. The circumstance that the trustee in this case at some time invested a portion of the funds, in unauthorized securities, would not seem to have effected any change in the respective rights of the life-tenant and remaindermen in the corjyus of the trust. When the fact came to them knowledge in 1SS0 they each and all seem to have acquiesced in and approved the action of the trustee in making the investment, and it cannot now be objected on the part of either of them, that any interest of theirs was thereby varied or changed. It was optional with those parties at that time, by taking appropriate proceedings for that purpose, to have required the defaulting trustee to invest the fund in the securities specified in the will, or made compensation in some other form for the damages, if any, occasioned by his wrongful act; but it was also competent for them to ratify and approve the action of the trustee by accepting the securities held by him as representing the trust fund, and this we think was determined by the proceedings taken to release Robert and Ogden Goelet from the duties of trustees under the will. The action of the trustee in making the investments in question was sagacious and inured to the benefit of all the parties concerned, and they should not, after long acquiescence in such dealing, be allowed to obtain an advantage by questioning its legality. But, further than this, we think the securities in which the *452 funds were actually invested by the trustee until changed by some proceedings taken for that purpose, so far as the beneficiaries were concerned, represented the trust fund, and their earnings, income and increase would, as between the several parties interested therein, be subject to the same rules of division and distribution as though it had been invested and kept on interest, in accordance with the terms of the will. The remaindermen could not thereby be deprived of a ■ natural accretion to the fund, however invested, or the life-tenant become entitled to an increase which, if the fund had been lawfully invested, would not have accrued to her. Indeed, in prosecuting this proceeding the representatives of the life-tenant have ratified the acts of the trustee in making the investment in question by treating the unauthorized securities as the corpus of the fund and claiming their increased valne as income earned by the employment of the capital. In other words, while claiming the advantage to be derived from the unauthorized act of the trustee, they insist that such act was the efficient cause of transferring what was otherwise an accretion to the fund, going to the remaindermen, into profits accruing to the life-tenant. The life-tenant was not the sole party interested in the determination of this question, and inasmuch as she, during her life-time, and the remaindermen, also, acquiesced in and approved the conduct of the trustee m making the investment, her representatives should not now be allowed to acquire an advantage by denying the lawfulness of his proceeding. The judgment of the court below should be affirmed, without costs to either party. All concur. Judgment affirmed.