Opinion
December 23, 1907.
L.A. Gould, for the appellants.
Howard Taylor [ William B. Anderson and William Williams with him on the brief], for the respondent.
A purchase of the trust property by a trustee of himself, or at his own sale, or even at a judicial sale, is voidable at the mere election of the beneficiary, within a reasonable time, without regard to its fairness ( Davoue v. Fanning, 2 Johns. Ch. 252; Jackson v. Walsh, 14 Johns. 407; Conger v. Ring, 11 Barb. 356); but a gift or sale of the trust property by a beneficiary to his trustee does not come under this rule. It is not voidable at the election of the beneficiary, but may only be set aside by a court of equity at the suit of the beneficiary for fraud, undue influence or unfairness. The only distinction between such a suit and a similar one not by beneficiary against trustee is that the burden of proof is on the trustee to show that the transaction was free and fair ( Nesbit v. Lockman, 34 N.Y. 167; Graves v. Waterman, 63 id. 657; Barnard v. Gantz, 140 id. 249; Pickslay v. Starr, 149 id. 432).
The learned trial judge found as a fact that Mary, the beneficiary, knew that the instrument she executed — viz., the deed of transfer or gift by her to her brother John — purported to assign to him her remaining interest in the residuary of the estate of her brother William; John being at the time an executor of the said estate, and also her agent by power of attorney to collect and invest her share thereof. There is no finding by the learned trial judge of any affirmative act of fraud or undue influence by John upon Mary, and there could be none on the evidence. The judgment rests on a finding of fact that he "failed to disclose, and thereby concealed from her, material facts bearing upon the nature and value of the property" she transferred to him. This finding is erroneous. The evidence is to the contrary. Although the burden of proof be regarded as on the defendants (of which something remains to be said because of the delay in bringing this suit), some leniency therein was meet after a lapse of twenty-four years from the making of the gift and the commencement of the suit, during which time the transaction was never questioned by Mary, who lived for seventeen years after it, or by any one during her life or afterwards, and all of the several persons who had any knowledge of the transaction, save one (her sister Sarah) had died, and the written evidence concerning it had frittered away. But the evidence produced, although made up of odds and ends got together with difficulty after the lapse of a generation, was ample, without invoking such leniency, to show that the gift was free and voluntary; that the intention to make it arose and matured in the mind of the beneficiary without any suggestion from the trustee; that he did not conceal from her the amount of her share of the estate, but discovered the same to her; and that she made the gift with full knowledge that it was large, and of the approximate amount of it.
In her letter of June 12th, 1879, to her said brother John, she expresses a gathering if not an already gathered intention of giving to him the remainder of her share. "If there should be anything more after this to come to me I should like you to keep it out there and invest it for yourself or the children", she writes. In this letter she acknowledges receipt of $12,000 (her specific legacy of that amount) which had already been sent to her, and encloses three receipts of herself and her two sisters signed in advance for $25,000 more for each out of the residuary. The learned trial judge overlooked this fact, and says that she then only knew of the $12,000, and thought that it was substantially all that she was to get. But if her letter suggests any lack of knowledge by her, we have in the letter which her said brother wrote to her and her two sisters after the receipt of it, viz., on July 5th, 1879, and accompanying the drafts for $25,000, absolute proof that he had no thought of taking advantage thereof; no thought of deceiving her by concealing from her the substantial magnitude of the amount of her share remaining. He writes concerning the mortgages of the estate, and says that the share of each of them therefrom will be $30,000, not $20,000 as the learned trial judge inadvertently says. This alone disclosed to the sisters the substantialness of their remaining shares It completely disposes of the claim which prevailed below, that when Mary made the deed of transfer or gift of her remaining share to her said brother about one year later, viz., on August 9th, 1880, she thought that she had already received substantially the whole of her share in the two payments to her of $12,000 and $25,000, and that only a comparatively unsubstantial amount remained. It is true that when all of the assets had been entirely marshalled and liquidated a year and a half later still, the remaining amount for each was shown to be $44,000; but the essential thing is that the sisters, the same as the two other residuary legatees, viz., the brother James and cousin Herbert, were informed, by means of the said letter, if in no other way, before the making of the said deed of transfer, that they still had a very large amount, comparatively, coming to them. Probably no one knew what would be the full amount when everything was liquidated, including odds and ends and interest, but they all knew from this letter, at least, without regard to any growth of their knowledge on the subject during the year between the writing of the letter and the making of the deed of transfer, that it would not be trifling or small, but substantial — in fact, very large, compared with the amount already received; that out of one class of assets alone $30,000 would be realized for each. It is impossible to say that while the sisters would make the gift (for the other two did the same as Mary) knowing it to be $30,000, they would not if they knew it to be more.
But this letter does not stand alone. The tenor of all of the letters and acts of the trustee is so uniformly one of frankness and honesty that it would falsify a finding of fact that he cheated his sisters by concealing from them knowledge of the substantial amount of their shares. Why should he conceal it? He never asked them to give him their remaining shares. He lived three thousand miles away from them, and they voluntarily, and without a suggestion from him, wrote to him that they gave him such shares. And when we bear in mind that their brother James and cousin Herbert, who lived near them, and with whom they were on terms of intimacy and affection, and with whom they advised about the estate, received their shares in full by payments made from time to time after the said deed of transfer was made, we would be taxing credulity beyond what it could bear to believe that they never told the amounts they received to the sisters. Were they in a conspiracy of silence and concealment with their trustee to cheat the sisters? It is to be presumed that family matters in which all the members of the family are taking part, and consulting together about, are known to them all. The trustee should not be disgraced after his death by adjudging that a family arrangement which has gone unquestioned for a generation was procured by him by a breach of trust by him to his sisters, without the most careful consideration if not hesitation.
But it is said that it is not proved that Mary ever saw the said letter or was informed of its contents. The three sisters were living together in affection and concord at Southampton, England, in the home of the one of them who was married, Mrs. Billett. The letter is addressed "My dear sisters", and in it the writer says he encloses the three drafts of $25,000, one for each. The envelope was addressed to Mrs. Billett. The learned trial judge says there is no evidence that she "transmitted" the letter to Mary, overlooking that the sisters were all living together, and that it was not until after Mary was married that she went to live at Reading with her husband. Mrs. Billett is still alive out of all of the six residuary legatees, several executors, the lawyers of the executors and others, the U.S. Consul who took the acknowledgments to the deeds of gift, powers of attorney and other papers; and testifies that she showed the letter to her two sisters. She says that it was usual for the brother to write to them all by one letter, and that the one who received it would show it to the others. But in addition to this we have the conclusive fact that Mary and her two sisters, and the brother James and cousin Herbert (the other two residuary legatees in England, who had also received a similar letter and drafts for the same amount), had a family meeting at Mrs. Billett's house on the receipt of the letter, and discussed the information and advice contained in it. They also went to the bank together — the three sisters and the brother — and invested their money as advised to do in the letter; and they executed and returned to their brother the powers of attorney by each of them to him which he enclosed with the said letter to them for execution to enable him as he wrote to thereafter deal with the estate without being obliged to get new papers from them every time he had to act for them. To hold in the face of all this that there is no evidence, or that it is not proved, that Mary had knowledge of the contents of the said letter, is to set at naught evidence which according to every day life, and what we all know of the common relations of family life, is conclusively to the contrary. It was found below that Mary did not read the letter or know of its contents. There is no more reason to say that of her than of the others, and that would be conceded folly. If Sarah (Mrs. Billett) had not testified that the letter was shown to Mary, the fact would be obvious from the other facts. And there is no reason to doubt her evidence. That it is not contradicted by direct evidence, nor by any inferences from evidence, and is not surprising or suspicious, nor improbable, but inherently probable, requires that it should not be disregarded ( Hull v. Littauer, 162 N.Y. 569).
And the giving of the powers of attorney of itself meant that they all knew that what remained of the estate was considerable. They were not given merely to deal with a remaining trifle after the estate had been substantially administered and divided.
It is said that it is incredible that Mary would have made the deed of gift if she had known that there was a substantial amount still to come to her. And yet her two sisters did the same thing without suggestion or request from their brother and trustee, but wholly on their own initiative, as their letters to their brother three thousand miles away show, and as Mary in all probability, and according to the testimony of Mrs. Billett and her letter of July 24th, 1879, knew. While their preference toward their brother may seem extraordinary, it must be remembered that in England, growing out of the rule of primogeniture, the family tie and family pride is very strong, and the notion of a family head possessing the bulk of the family property is the general and controlling one. The three sisters were fairly educated, intelligent and prudent, as their letters show, and at the time Mary executed the deed of gift she was 39 years old. That she was then engaged to be married and was married within four months thereafter, does not annul the fact that she did execute the paper.
It is also said that Mary's letter to her said brother of December 10th, 1880, proposing to pay for the draft of her marriage settlement which he had drawn at her request and sent to her, shows that she could not have been aware that she had only four months before made him a gift of such great magnitude. But we find the other two sisters, who had made the same gift to him, uniting with their brother James and cousin Herbert in proposing to pay their brother the expense of the powers of attorney they had executed before the American Consul. English formality and punctiliousness required that they should make the suggestion of payment, however well they knew it would not be entertained. We must not judge their conduct by what would be improbable elsewhere.
The payment by the trustee to the sisters of the one-sixth share of each in the fund of $10,000 set apart by the will with the executors in trust for uncle John Billett, for him to receive the income of it for life, and then be divided by the trustees among the residuary legatees, which trust terminated in 1884, was not inconsistent with the fact of the gifts by the sisters. The deed of gift was in terms confined to the residuary estate, to such moneys and property as the executors had collected or should collect or have for the residuary, whereas the trust fund was set apart and was a separate fund out of the residuary fund and could never go back into it and thus return to the hands of the executors as such. It is true that the executors were the trustees, but nevertheless they did not hold the fund as executors. If (to illustrate) the executors had all died, the fund would not have gone to an administrator with the will annexed, but to a trustee appointed by the court, and by the terms of the trust he would not on the death of the beneficiary pay the fund to the administrator to go into the residuary, but would himself divide it among and pay it to the residuary legatees. It was not a part of the residuary estate, and the executors, as such, could never get it back, but had to divide and distribute it as trustees under the trust clause of the will.
It would be easy to make too much of the letter of John to the sisters, or one of them, that they need not take any notice of the citation to the executors' accounting, as he would attend to it. This, though a thing not to be encouraged, is often done with no wrong intention; and where there is a dishonest intention it is not done so directly and openly.
There are three rules of law which govern the case in the aspects in which it stands on the facts.
1. If the beneficiary was substantially informed of the magnitude of the gift she was making, her deed of transfer must stand; for it was found below that she knew of the purport of the instrument, and there were no undue influence or affirmative statements or acts of fraud. The cases on this head have already been cited. A voluntary transfer or gift is as much protected by law as is a transfer or contract for a full consideration ( Pickslay v. Starr, 149 N.Y. 432).
2. She was bound to promptly claim a rescission of her deed of transfer, and if necessary begin a suit to rescind it, on learning at any time substantially of the amounts paid to other residuary legatees, if she claimed to have made it by reason of a concealment of facts by the trustee; and a failure to do so ratified it ( Masson v. Bovet, 1 Den. 69; Cobb v. Hatfield, 46 N.Y. 533; Strong v. Strong, 102 id. 69). This rule applies between trustee and beneficiary; but where a trustee purchases the trust property of himself, or at his own sale, there may be no requirement of such prompt objection by the beneficiary, for the trustee may be presumed to have made the purchase in the interest of the beneficiary, which cannot be so when the beneficiary makes the sale to him; but even in the latter case delay ratifies the transaction ( Adair v. Brimmer, 74 N.Y. 539; Harrington v. Erie County Savings Bank, 101 id. 257; Kahn v. Chapin, 152 id. 305).
3. After the lapse of a considerable time the rule putting the burden of proof on the trustee does not apply without some evidence on the plaintiff's side at the outset showing ignorance of the facts by the beneficiary when he made the gift or sale. To quote from a case of highest authority, "The plaintiff is not entitled to a strict application of the equitable rule, which she might have invoked if she had moved with some degree of diligence to set aside the agreement and release, and to demand an accounting. An acquiescence for sixteen years requires some explanation. If it was due to an ignorance of the facts for which the executors were responsible, it should have been shown" ( Geyer v. Snyder, 140 N.Y. 394). The delay in the present case was seventeen years during the beneficiary's life and seven years after her death. There was no evidence on the plaintiff's side in explanation or excuse of the failure to rescind the deed of gift and bring a suit for that purpose, and the burden of proof was therefore not on the defendants, although the case was decided and has been reviewed in this opinion, on the theory that it was.
The judgment should be reversed on both the law and the facts.
WOODWARD, RICH and MILLER, JJ., concurred; HIRSCHBERG, P.J., not voting.
Interlocutory judgment reversed on the law and the facts and new trial granted, costs to abide the final award of costs.