Mann-Vynne v. Equitable Trust Co.

Laughlin, J.: The plaintiff contends that the provisions of the deed of trust directing the application of the rents toward the payment of the mortgage and note and interest thereon constitute an attempted accumulation of the rents and profits of real property in violation of the provisions of section 61, subdivision 1, of the Real Property Law (as amd. by Laws of 1915, chap. 670). The defendant concedes that the provisions directing the application of income toward the payment of an incumbrance on the trust property is void; but it has been authoritatively held that the prohibition of the statute applies, as the statute plainly provides, to all accumulations of rents and profits excepting those expressly allowed, and there is no statute allowing such accumulation either to pay an incumbrance on the trust property or to pay any other indebtedness or interest thereon. (Hascall v. King, 162 N. Y. 134; Herzig v. Herzig, 140 App. Div. 514.) The other provisions of the deed of trust, if they stood alone, could be sustained as an authorized trust for the receipt and payment of rents and profits of real property for the benefit of the plaintiff and her father, who were then living. (Real Prop. Law, § 96, subd. 3, supra.) The learned counsel for the trustee contends that since the other provisions of the deed of trust are valid, the invalid provisions may be deleted and the trust upheld the same as if the invalid provisions had not been incorporated therein. It may be so decided to sustain a trust where the primary direction for the application of rents and profits is authorized and the invalid provisions relate only to the use of the surplus rents and profits, and also where the only effect of eliminating the invalid provisions will be to give the beneficiaries of the trust the entire net income from the beginning, and this result will be consistent in all other respects with the plain intent of the testator or settlor. (Pray v. Hegeman, 92 N. Y. 508; Appell v. Appell, 177 App. Div. 570; affd., 221 N. Y. 602.) The facts of this case, I think, bring it within another rule to the effect that where the invalid provisions relate to the first distribution of surplus rents and profits and do not constitute a fixed or definite proportion thereof and are inseparably connected with the scheme and plan of the trust then the entire trust is void. (Herzig v. Herzig, supra; Graham v. Ackerly, 120 App. Div. 430; Dresser v. Travis, 39 Misc. Rep. 358; affd., 87 App. Div. 632.) In Hascall v. King (supra) the trustee was first required to pay a fixed annuity from rents and profits and then the surplus income was directed to be applied toward the-payment of mortgages, and the trust for the annuitant was sustained. Here, however, the unlawful direction for an accumulation [152] precedes the authorized provisions, and, moreover, the trustee was vested with broad discretion to withhold from the rents and profits as they accrued such amount as it deemed necessary for the discharge of the indebtedness, which had not accrued. The validity of the trust as a whole is to be decided as of the time it was created, and it is perfectly plain that the void provisions could not be eliminated without altering the purpose of the settlor. She was personally hable for the payment of the note and the indebtedness secured by the mortgage, and she intended that those obligations should be paid in the manner provided by the application of the rents and profits of the trust property and that she and her father or the survivor of them should only receive such part of the surplus income as the trustee might deem it proper to apply to their use without jeopardizing the ultimate discharge of these obligations as contemplated. I see no theory on which the court would be warranted in holding that the deed of trust shows that the plaintiff intended that if the discharge of these obligations as directed was not authorized, the entire net income should be divided between her and her father and should go to her father for fife in the event that he should survive her leaving her bond and note charges against her remaining estate. If I am right in these views the entire trust was void, and under our decision in Herzig v. Herzig (supra) the plaintiff is entitled to have the trust deed declared void and canceled of record, and it becomes unnecessary to consider the other point with respect to whether the plaintiff would be entitled to a reconveyance on the theory that owing to the death of her father and to the fact that she has a power of appointment with respect to the remainder, her fife estate and the fee have become merged, which would involve the decision of a point of law not free from doubt. (See Doctor v. Hughes, 225 N. Y. 305; Smith v. Terry, 38 App. Div. 394; affd., 166 N. Y. 632.) It follows that the plaintiff is entitled to judgment declaring the deed of trust void and canceling it of record, but without costs. Clarke, P. J., Dowling, Page and Merrell, JJ., concur. Judgment ordered for plaintiff, without costs. Settle order on notice.