In Re the Accounting of Wilkin

Vann, J. As we read the ninth clause of the will, the first sentence creates a trust and the second a power in trust. Since *109 the trust covers personal property only, it is. not so restricted as a trust of real estate, for it may embrace “ any purpose not unlawful, subject only to the law of perpetuity.” (Cochrane v. Schell, 140 N. Y. 516, 534; Gilman v. Reddington, 24 N. Y. 12; Gott v. Cook, 7 Paige, 521.) The trust has one purpose and the power another, and both involve the exercise of discretion by the trustee. The trust is to invest the sum in question and to pay it over, “ together with the increase thereof,” to Charles, or to his wife or children, “ at such time or times and in such manner as such executor may deem best for the interest of the said Charles.” There is the same right to pay over principal that there is to pay over income. Neither is to be paid unless the trustee deems it best for the interest of Charles, and the time and manner of paying either*, as well as the person to whom either is to be paid, whether to Charles or to his wife or to his children, are subject to the sound discretion of the trustee. There is no distinction between principal and interest, for the authority to pay the one is given by the same words which authorize the payment of the other. The object of the trust is “ the interest of the said Charles,” which is to be effected by the payment of principal, or interest, or both, but when, how, or within the limits named to whom, is intrusted to the judgment of the trustee. The power in trust is limited to the principal, and it could not be exercised until after the lapse of ten years from the death of the testator. It authorizes the trustee, after the expiration of that period, to divide the principal then left, if any, between the children of Charles in equal proportions, “ to whom, in that event,” as the testator finally says, he gives and bequeaths the same. The power contemplates that some part, or even the whole of the principal may be paid over pursuant to the trust before the time arrives when the power may be exercised, for the will speaks of the “ whole sum ” of the bequest “ then remaining, * * * if any part shall then remain.” The power is of narrower range than the trust, for it is limited to the children as beneficiaries, whereas the trust *110 extends to Charles and his wife as well as his children. The power does not subvert the trust or take its place after the lapse of ten years, but leaves it in full force. . Nothing can be done under the power that could not be done under the trust, and its purpose seems to he suggestive and confirmatory and as if added from abundance of caution. Aside from the mere investment of the fund, the trust could not be executed in any particular without the exercise of discretion, which is an essential and inseparable part of the trust. Whoever the trustee may be, he is powerless for all practical purposes, except as he uses his discretion. He cannot make the smallest payment, even of income, to relieve the necessities of Charles, unless he does it under the discretionary power given him by the trust, as distinguished from the power in trust. For ten years the provision for Charles and his family, and after ten years the provision for Charles and his wife, independent of their children, could be of no effect without the discretionary power in the trust itself. The entire purpose of the testator, as expressed in the ninth clause of his will, depends for fulfillment upon that feature of the trust. The decision of this controversy depends wholly upon the trust and in no respect on the power in trust, which was never exercised, as no division was made among the children to whom the power in trust is limited. By the terms of the bequest the legal title to the fund was in the trustee for the purposes of the trust, and in the disposition made by her she exercised no power or authority that was not an inherent part of the trust proper. A trustee with power to invest money and to pay over the increase is entitled to receive the income from the investment and thus takes the legal title and would even if the subject were real estate. (Real Property Law, §§ 77, 80.) In 1897 the ninth clause of the will was construed by a .decree of the Supreme Court, all persons interested being parties and no one appealing, in an action brought by Joseph Cunningham for the construction of the will in question. The court decided that “ the ninth clause of the said will is *111 valid and that it created a valid trust in favor of ” Charles, his wife and children, “ to continue during the life of Charles unless sooner terminated by the trustee in the manner specified ; ” that “ the executor and trustee has the right under the terms of the said will, in his discretion, to give to the defendant Charles E. Cunningham, or to his wife, the defendant Mary E. Cunningham, or to their said children, the whole of the said trust fund, or any part thereof, or of the income thereof, at such time or times, in such.sums and in such manner as the said trustee and executor may, in the exercise -of a sound discretion, deem best for the interests of the said Charles E. Cunningham.” The court, having thus construed the trust, next took up the power in trust and treated it as follows: “ That ten years having elapsed since the death of the said testator, the said executor and trustee has the power under the said will, if for any cause he deem it best so to do, to give the whole of the said trust fund and accumulations thereof to, and to distribute the same in equal shares among, the children of said Charles E. Cunningham living at the time of such distribution.” This decision stands as the law of the will in question and is binding upon courts as well as parties. We have followed it as far as it goes and have so amplified it as to cover other grounds not considered or presented for consideration in the action in which the decree was made. The discussion, therefore, of what may be done under a power in trust, the execution of which is intrusted to two or more persons, is foreign to the subject in hand. The rule in that regard, either at common law or under the statute, does not now perplex us. Whether the new trustee, acting alone, could or could not exercise the discretion conferred by the power in trust upon herself and Mr. Dryer, is not before us, for there was no attempt to exercise that power. All that was done was done under the trust. The terms of the trust measure the authority of the trustee, so far as it has been exerted, and to the trust only must we look to see whether she exceeded that authority. As the trust is limited to per *112 sonal property, it is valid, for it does not violate the law against perpetuities or the policy of the law against immoral or other unlawful purposes. Its validity is in nowise dependent upon the rule governing trusts of real estate, which provides that a trust of realty that does not come within the four purposes for which such a trust may be created, is valid only as a power in trust, the trustee talcing no title.. (Real Property Law, § 79.) We, therefore, have a trust of personal property that can-, not be executed without the exercise of discretion. The testator, apparently anxious to avoid the effect of improvidence on the part -of one of his children, created á trust for his benefit, clothing the trustee with power to act according to circumstances and do what was best, in his sound judgment, for the interest -of that child. Discretion in paying over was uppermost in his mind, for there was no absolute direction to pay either principal or income in any amount, or in any manner, at any time or to any person. Discretion was of the essence of the trust, for without it the trust was barren and nothing could come from it. With it, an improvident son with a large family could be properly cared for and if the passing years brought good judgment and good conduct, which was evidently hoped for, that son could receive the inheritance intended for him the same as the other children of the testator. There was nothing, however, for any one, until the discretion of the trustee came into action, for discretion was requisite to the execution of the trust. Under these circumstances, to hold that the new trustee, selected by the testator,'could not exercise the inherent discretion given by the will, as a part of the trust, because the one named with her did not qualify, is to hold that the trust could not be executed at all. It would defeat the intention of the testator and abrogate the trust. The discretion belonged to the position of trustee and the trust would be paralyzed were it otherwise. The resignation of the old trustee and the renunciation of Mr. Dryer, which, as the testator is presumed to have known the law he must have had in con *113 templation as possible, were not intended by him to strangle the trust if those events should happen. Whatever the law may be in relation to the execution of a power in trust, no statute or controlling decision prevents the execution of a trust pure and simple, such as the one under consideration; by the only acting trustee out of several nominated by the testator. The discretion of the trustee was not absolute, but it was a sound discretion, to be exercised according to her best judgment and in the best of faith, which is always true of such authority, unless stated in terms to be otherwise. Discretion may excuse honest errors of judgment, but it never excuses bad faith, which violates the fundamental principle upon which every trust rests, for a trust implies confidence and confidence excludes bad faith. The practice of bad faith by a trustee is treason to the law of his existence. The respondents alleged in their answer “ that said Charles E. Cunningham was and is not a fit person to have the custody and control of the said trust fund and the proceeds thereof, and was not a fit person to have its custody and control at the time the alleged payments from said principal of said trust fund, or any one of them, were made by said • trustee; that the said Charles E. Cunningham is now and has been for more than twenty years an habitual drunkard, by reason whereof he is now and has been during that time incapacitated for properly transacting business or to have control of said fund, all of which facts were well known to said trustee; that in paying the principal of said trust fund to said Charles E. Cunningham said trustee acted in bad faith and with the knowledge on her part that he would waste and squander the same.” The issue thus tendered was not tried by the surrogate, who, on the objection of the trustee, excluded the evidence offered to sustain the allegations of the respondents in relation to her bad faith. The ruling of the surrogate was founded on the conclusion reached by the Appellate Division on the first appeal that in no event was the new trustee authorized to pay any part of the fund to Charles E. Cunningham. A new *114 trial is, therefore, necessary to determine the issue above referred to, and as it becomes necessary on account of the objection of the trustee, the fact will doubtless be given due consideration upon the final award of costs. We think that the trustee, as the executive officer of the trust, was authorized in her sound discretion to pay over the principal of the trust fund to Charles E. Cunningham ; that all payments by her made in good faith should be allowed, but that every payment made in bad faith should be disallowed and restitution required. The order of the Appellate Division and the decree of the surrogate should be reversed and a new trial granted, without costs of this appeal to either party. Cullen, Ch. J., Gray, Bartlett and Haight, JJ., concur; Werner, J., not voting ; O’Brien, J., absent. Order reversed, etc.