
    The New York Life Insurance and Trust Company, as Trustee of a Certain Trust Fund Made by John Jacob Astor, for the Benefit of Walter Langdon, Respondent, v. Walter A. Kane and De Lancey A. Kane, Executors, etc., of Walter Langdon, Deceased, and Others, Appellants; Matthew Wilks, as Executor, etc., of Eliza A. Wilks, Deceased, and Others, Respondents.
    
      Trust fund-—investment of accumulated income — to whom it belongs — duty of the trustee where a premium is paid on investments.
    
    A trustee under a deed of trust, securing to the beneficiary the income of certain ■ securities during his' life, empowering the trustee to reinvest the fund in United States bonds and certain other specified securities, with the consent of the beneficiary, and giving the latter the right to dispose of the corpus- of the fund on his death, received payment of the securities of which the trust fund originally consisted, and purchased, with the approval of the beneficiary, government bonds, amounting, with the large premiums thereon,- to about the principal of the trust. Subsequently the trustee purchased other government bonds from the accumulated income, and submitted to the beneficiary an account, which showed their purchase and that their cost had been transferred from the income and charged to the principal account; and received from him a reply “all.of which I accept.”
    
      Held, that such assent on the part of the beneficiary could not he construed as a gift by him to the remainderman of the surplus income thus invested, nor did it amount to a ratification of,' or acquiescence in, the act of the trustee in thus investing the income, sufficient to estop the beneficiary or his executors from claiming such income as his property.
    'The duty of a trustee, who has invested the principal of the trust fund in securities, bought at a premium, to protect the fund in the subsequent payment of the income therefrom to the beneficiary against any loss of principal at the •end of the term, considered. - ■'
    Appeal by the defendants, Walter A. Kane and De Lancey A. Kane, as executors, etc,, of Walter Langdon, deceased, and others, from a judgment of the Supreme Court in favor of the plaintiff, and of .the defendants. Matthew Wilks, as executor,- etc., of- Eliza A. Wilks, deceased, and others, entered in the office of the clerk of the -county of New York on the 1st day of September, 1896, upon the report of a referee.
    This is an action in equity brought to settle the plaintiff’s accounts ■as trustee and for final distribution of a trust fund created by the following deed of trust.:
    
      
      “ To all to whom these presents shall come, John Jacob Astor, of the city of New York, sends
    
      “ Greetings.— Whereas my grandson, Walter Langdon, is about to be married and I am desirous to. advance to his use in the manner hereinafter provided, for the comfortable maintenance of. himself and his family, a provision of one hundred and fifty thousand dollars in the public debt of the State of Ohio, to be not in addition to the provisions in his favor by way of legacy under my will and codicils, but in anticipation and satisfaction of the same, according to the amounts thereof and of this present disposition:
    “ Now these presents witness, that in consideration of my love and affection to my said grandson Walter Langdon and of the purpose above expressed, and in further consideration of one dollar, to me paid by John Jacob Astor, my grandson, James Gallatin and Franklin H. Delano, I have granted, bargained and sold and transferred, and do grant, bargain, sell and transfer, to them one hundred and fifty thousand dollars of the public debt of the State of Ohio (the certificates of which are herewith delivered and are endorsed on these presents), to have and to hold the said stock to them and the survivors and survivor of them and their successors, from time to time, in the trust, upon the trust following, that is to say, to receive the interest and income thereof from- time to time, and apply the same as received to the use of the said Walter Langdon for his life.; and it shall be lawful for them by a revocable power of attorney to authorize him to receive and apply the income of the said trust fund, so long as there shall be no attempt by any one to charge or encumber the same through any act of the said Walter Langdon or any proceedings against him at law, or in equity; on his death, to divide the same among his children and issue per stirpes ; but in case any of his said children or issue, entitled to such division, shall die under the age of twenty-one years, its share shall accrue to the shares of its brothers and sisters, and in default thereof to the next of kin of the said Walter Langdon;
    
      “ Provided, however, that if the said Walter Langdon shall leave a widow surviving, the income of one-third of such stocks (or of the said fund) shall be applied to her úse during her widowhood ;
    ' “ And provided fxorther, that it shall be lawful for the said Walter Langdon, notwithstanding the above-written ‘limitations, to. dispose of the capital of the said stock among his children and issue, in such shares and proportions, and' on such conditions, as ’ he may-in his full' and uncontrolled discretion, think fit, by will;
    
      “ Provided further, that fit shall be .lawful for the said trustees or their successors in the trust from, time to time to change. the investment of the said fund' in whole or in part, by selling or realizing the same and reinvesting the proceeds in the stock of the. United States or of the State of New York or of the city of New York, or in. bonds secured by mortgage of improved and productive real estate, but not without the consent of him, the said Walter Langdon, while he lives, or of his widow during her widowhood, if he shall leave a Widow surviving.
    
      '•‘■ Provided further, that in case from absence, resignation of the trust, inability to perform it or death, the number of the acting trustees for the time being, shall be reduced in number, it shall be lawful from time-to time for the said Walter Langdon, during his life, for his widow during her widowhood- if she shall survive, and for the other "trustees for the time being after the death .of- -the said Walter Langdon and the termination of.said widowhood, to substitute other persons as -trustees to -fill any -, such vacancies, and so. on from time to time as long .as the trust shall continue,”
    The trust fund originally consisted óf $150,000 invested in the public debt of the. State of .Ohio: This wras paid off at par in 1881. The. proceeds were then invested in government bonds. The trustee purchased with such proceeds bonds of the par. value of $130,:000 at 115-^, costing, with commissions) $149,906.25, leaving $93.75 of the capital uninvested. .Two other purchases of - bonds were ■ after-wards made, one of $2,650 par value and the other of $17,350 par Value, all purchased at a premium^,, and .using the income except $93.75. ' The amount of income so .used was $24,470.57. At the. death of Walter Langdon the bond’s were worth 114. They were sold in April,. 1896, at 108-f, realizing; $162,562.50,.." They are due January 1, 1907-.
    The judgment directs that the whole trust fund be distributed to the next of kin. The appellants contend that the last two purchases . of bonds represent income, and as such belong to the estate of Walter Langdon, deceased.. Statements, of the account were rendered periodically to Hr.' Langdon in his lifetime. ■ On one occasion he wrote a letter to the trustee, which, among other things, acknowledged receipt of the statement, and that he accepted it. The referee found that, by this letter, Mr. Langdon intended to assent to the application of the $24,470.57 to an increase of the capital; and from a judgment entered upon this decision this appeal is taken.
    
      Allison Butts, for "the appellants, the executors of Walter Langdon.
    
      Wolcott G. Lcme, for the appellants Kane and others.
    
      George G. Be Witt, for the respondent Langdon.
    
      JEgerton L. Winthrojp, Jr., for the respondent Carroll.
    
      Tompkins Molvlaine, for the respondent Townsend.
   O’Brien, J.:

The question to be determined on this appeal is that involved in the controversy between the defendants entitled by the terms of the trust deed to the principal of the trust estate, and the personal rej)resentatives and some of the legatees of Walter Langdon, who was entitled to the income, as to certain transfers from income to principal, and the charges against income of the amount of premiums paid for the government bonds upon the change of investment made during the trust term. It is urged that this question is to be resolved by some hard and fast rule, such as has been laid down by certain English authorities, which hold that no part of the income of a trust fund can be taken from a life tenant to make good to the remaindermen the premium-paid in making the investment, which rule, it is claimed, has been applied in two leading cases in the State of Massachusetts (Shaw v. Cordis, 143 Mass. 443; Hemenway v. Hemenway, 134 id. 446); or by the rule claimed to have been established by legal authorities in this State, that where, in the investment of the principal of a trust fund a premium is paid on the purchase of securities, such premium is in the nature of an advance from principal which the remaindermen are entitled to have repaid to the principal (People ex rel. Cornell v. Davenport, 30 Hun, 177; Farwell v. Tweddle, 10 Abb. N. C. 94); or by. what is spoken of .as the sinking, fund theory, according to which a trustee ' who buys bonds at a price above their par value-should' create a sinking fund by setting aside a part of the yearly interest on such bonds to offset their depreciation, in value caused by the approach of the day of maturity.

.That.no universal rule can be formulated, and. that each case' should be dealt, with as it. arises, we think, becomes evident, not alone from, the various views entertained in particular cases, but from a consideration of the elements that should be taken into account'with respect to each particular case, only a few of which need be mentioned. As in wills, so in the construction of trusts, the first thing.to be ascertained is the intention of the creator of the trust. When this is clear and explicit it-is the duty of the trustee to carry out such intention regardless of whether it may be., to the advantage of the ,'life tenant or -the remainderman.. Thus, if the trust instrument provides that a fixed sum or fund shall be invested •in United States bonds, then selling at a premium, and that the- ■ entire income arising therefrom shall be paid to the life tenant,, it is ■the duty of the trustee to purchase such securities,, paying therefor whatever premium is necessary, and without, diminution pa’y the entire income to the cestui que trust. Cases, however, arise where explicit directions are not given to the trustee, and where the.intent is not clearly expressed, and then the rule to be adopted must be one that will secure substantial- justice as between ■ the life tenant and ; the remaindermen. Here the primary. motive- of Hr. Astor was undoubted solicitude for. his grandson, the life tenant, Walter Lang-don, for whose benefit the trust was originally - intended, and to whom was given.the right -by will to apportion among his children: the corpus of the fund after his death. The deed of trust provided ' that the' investments to be made by the trustee should be with the consent and approval of Walter. Langdon, the life tenant, and it is to be inferred from the facts.appearing that it was' so. done, The deed of trust, while permitting an.' investment in United States securities, did not limit the trustee to such ait investment, but upon .. a change of investment allowed him to reinvest “in the stock of the United States or of the State of New York or of the city of New York, or in bonds secured by mortgage of improved, and productive1 real estate.” It was executed in 1847, and the reinvestment was made when the .Ohio bonds became due in 1881. At the latter date, the trustee with the assent of Langdon selected the highest form of security in which to invest; and if Langdon.were permitted to receive the whole income during life it was certain that as the United States bonds neared maturity they would become of less value, and the principal sum to that extent would be diminished. There is nothing in the language of the deed of trust which expressly authorized the trustee to impair the corpus of the fund for the benefit of the life tenant, and the trustee might well have questioned his right and hesitated to pay the large premium required to secure the government bonds to the injury of the remaindermen. "With the assent, however, of the life beneficiary, he might have, adopted either one of three courses: (1) The premiums might have been charged against the income at the. outset; or (2) the burden might have been divided and distributed over the years which would elapse before the maturity of' the bonds; or (3) he might have provided for the retention by him of sufficient of the income by way of security against any loss.

This last was apparently the course adopted, because we find that (with one exception, when part was drawn) all of the income was allowed to remain in the hands of the trustee and was invested by him and carried ■ along in the same account. The form of such account shows that when an investment of the accumulated income was made by the trustee lie charged it to principal; and thus the accounts were kept, presumably with the knowledge and assent of the life beneficiary. This method of bookkeeping, however, and a letter which appears in the record, wherein we find that Langdon upon receiving a statement of the account writes to the trustee, saying “ all of which I accept,” have been made the foundation for the conclusion reached by the learned, referee that Langdon thereby ■intended to assent to the application of his entire income to the increase of the capital of the trust fund so that upon his death it went to his next of kin who were entitled as remaindermen to the corpus of the fund.

Apart from the disputed question as to whether a portion of the income should go to make good the sum paid for premiums, it is conceded that the balance was the property of Langdon, to which he was ,at all times entitled,, unless upon some facts or principle of law he at some- time lost the right - to claim it. These, it is insisted ' are to be found in his assent to the application which it is said was made by the trustee of the income to. increase the principal of the trust fund, as sliowm by the expression, already referred to in his letter, by which in respect to a certain account sent him he said, “ all of which I .accept.” Such action we do not think operated as a. gift or. an estoppel, because the elements, to constitute either are. Wanting But it is-insisted that it acted by way of ratification which, whether revocable or not during Lángdon’is' lifetime, is conclusive upon .his ■ executors after his. death. This insistence is supported by an argument that the original action of the trustee being unauthorized, the assent of Langdon thereto effected a ratification which was binding : upon his executors.. ; • • •

The principles applicable to ratification and acquiescence are well stated in Adair v. Brimmer (74 N. Y. 539). ' And in' Cumberland Coal & Iron Co. v. Sherman (30 Barb. 575) it is said : “ 2. The confirmation must be a solemn and deliberate act — not, for instance, fished out from some .expressions iii a letter”,—that the court will watch it with the utmost strictness and will not allow it to stand but on the very clearest evidence; that -the cestui que trust must be honestly made acquainted with the material circumstances of the case — “ The confirming party must not be ignorant of the law / that is, he must be aware that the- transaction is of such a character that he could impeach it id a court o.f -equity.”

Acquiescence, .therefore, with full knowledge, of -all the 'facts implies active consent, and' is not to be spelled out from doubtful or ambiguous acts. We find, no evidence to' show, that Langdon thought that his' legal right to the accumulated income-in the hands of the trustee would be in ■ any way affected or impaired by the method adopted by the trustee in keeping the accounts, or that he ' knew .or understood that the trustee was making an illegal application of his money. Kór do we think the trustee was. making . such1 application, because, taking into consideration tlié acts and ■ conduct of the trustee and Langdon, the whole transactions are susceptible of a different and more reasonable -construction. Lang-don in liis lifetime had a perfect right, to allow the .income which belonged to him to accumulate and to remain in the hands of the trustee. lie had also the right to permit or direct the trustee to take his income and invest it, and there being no prohibition against such action, it was competent for the trustee to invest it in the very-same class of securities in which the trust fund was invested. Such conduct did not estop or prevent him at any time from asserting his ownership to the money which belonged to him and which he permitted the trustee to retain and invest. The trust deed provided that the investments were to be made with the approval of Lang-don. We have the fact that he knew the character of the investments, and it is a fair inference that, with such knowledge, he approved of them.

After the sale of the Ohio bonds, the investment in government bonds, for which a high premium was paid, shows that the trustee with Langdon’s approval selected the highest class of securities, and to provide against the possibility of any loss by reason of the payment of such premium, Langdon left in the hands of the trustee this accumulated income, which was invested and remained with the trustee. Beyond an amount sufficient to protect the trustee, Lang-don had the right to claim, and could at any time have claimed and withdrawn, such moneys or the securities into which they were converted. It is a fair presumption that the intention of leaving such income with the trustee was to prevent at all time the capital of the estate from being in any way diminished or depleted and to save harmless the trustee from any possible liability.

We do not think, therefore, that the facts. support the presumption indulged in by the learned referee, that Langdon transferred or assigned or gave his income to the trustee to be added to and made a part of the principal. Unless he had done so by some formal act or in some way by which he was estopped—- and none of the elements of a gift or estoppel are present — we fail to see why it would not have been entirely competent for Langdon at any time to withdraw his income accumulated over and above an amount sufficient to protect the trustee and-to leave the principal of the fund intact. If we take this latter view, which is the more natural and reasonable one, instead of assuming that he turned over or assigned his income to the trustee, then the letter, which is regarded as creating in some way a ratification, a "gift or an estoppel, is made clear and unambiguous. • If the trustee was investing the trust fund, and in connection therewith was' investing. Langdo.n’s surplus income in the same securities, nothing would' be more natural than that, upon receiving an account of investments made, in accordance with his views, Langd.on should have' written that. he accepted the account.. This would be but another way of saying that he approved of the character of • the investments and acquiesced in the correctness' of the figures contained in the account. But it was a strained and unreasonable view and .one unsustained by .authority to hold, because- a person allows his income to. accumulate -in the hands, of the. trustee of the fund out. of which the income arises, and because such income is invested in.the same securities as the principal and is carried by the trustee in the same account, and both the principal and the accumulated income thus invested are made the basis for a new fund- from which income is derivable, that it "will be assumed that the person owning the income so invested has turned it over to the principal fund; so as to deprive himself of- its ownership and thereafter to estop himself or -his executors after- his -death from claiming it as. his property, Giving to the letter all the'force that, may be claimed foi it, yet, when read in the light of the actual transaction, we think it would, be placing, as said, a strained construction upon it to hold that it operated -by way of assent or ratification as an assignment and transfer of all Langdon’s interest in money which was eonceded-ly his, or that it was evidence of an intention on his . part to divest himself of all. right, title, and interest, therein. It is clear that Langdon, during his. lifetime and subsequent to the writing of the letter, had the right to withdraw the income; and we think it equally clear that his ownership continued until’his death. The only effect of the transaction between. Lang-don and the trustee was to invest the trust fund in a way not -only safe but most agreeable to them, and, in order to make up any depreciation, to provide an additional fund more than' sufficient to offset any sums paid by way of premium, so that all question as to the trustee’s, liability, for depreciation in the .amount -of capital would he avoided.

Our conclusion, therefore, is that,, in accordance with the intend ' tion of the life, tenant .and trustee, and in accordance with''a rule that works substantial justice, so much of such accumulated income as is needed to keep intact the fund of $150,000 should be applicable for that purpose, and that beyond that amount it should be held to be, as it was, the property of Langdon, which upon liis death belonged to his executors.

The judgment should be accordingly modified by directing payment to the executors of Langdon, less commissions to the plaintiff, of the amount in excess of $150,000, with costs to the appellants.

Williams and Parker, JJ., concurred.

Ingraham, J. (concurring):

I concur with Mr. Justice O’Brien in the conclusion at which he has arrived. Under the deed of trust, there was transferred to the trustee $150,000 of the public debt of the State of Ohio. The income of the securities thus constituting the corpus of the trust was undoubtedly payable to Walter Langdon so long as the trust fund remained invested therein. These specific securities constituted the trust fund, and the trust deed having directed that the interest and income thereof should be paid to Mr. Langdon, the market value of such securities became entirely immate'rial. What Mr. Langdon was entitled to receive was the income realized from such specific securities which constituted the trust fund. When, however, the amount due upon those securities was paid, the trustee received the sum of $150,000, and that'sum of money then constituted the corpus of the trust. Mr. Langdon was entitled to receive the net income, not of any specific securities in which a trust fund had become invested, but the income received from that fund of $150,000. To realize such income, the trustees were required to invest the fund in one of four classes of securities — in the stock of. the United States, the stock of the State of New York or of the city of New York, or in bonds secured by mortgage on real estate. Upon the investment of that fund in securities of the character mentioned, Mr. Langdon was entitled to receive the income of the fund thus invested. He was not entitled to receive the principal, or any part of the principal, but the income only. That was the income upon the trust fund, viz., $150,000. When it became necessary to invest that trust fund in the securities directed by the trust deed, if such securities were at a premium, which premium would decrease as the securities approached maturity, it is quite clear that the payment of the whole of the interest received by the trustee upon such securities could not be made to the beneficiary without paying him, upon each payment'of'.the, interest receivéd, a portion .of the principal. In the case of United States bonds, leaving out of • view the fluctuation in price,, which would depend, upon ¡the credit of the government,, and the fluctuation in the rate of interest at which money could he . invested, it is apparent that, each payment of interest upon such bonds would represent a certain percentage paid for interest upon the investments and -also a certain percentage paid on account of the principal, viz., -the amount of premium which had been paid for the bonds.' If United States bonds, payable January 1, Í90J, were purchased in the year 1885 at twenty-two and seven-eighths per cent premium, in 1907 these bonds would be paid ¡off at par; consequently, if the total interest received for the bonds was paid to- the beneficiary,-when the bonds became due, the amount of the trust -;fund would be depleted by the amount of premium that had been paid, To obviate this result, some 'arrangement would be necessary . by which the amount, paid on -account of the principal, each year should be' retained by the trustee, so- that when the bonds came to-be paid,, he would have an amount -in his hands .sufficient to> make up the trust fund to its full amount, viz., $150,000 ; and that result could only be arrived at by his retaining a sufficient - amount of the interest received to accomplish it.

We are now dealing with .the case of’ a sum of money in the hands of the trustee which he was bound, to invest, and to pay the -income from that sum of money or trust fund to the beneficiaries. . In this , case such investment - was made, but instead of investing, the trust fund,, viz., $150,000, in such United States -bonds, receiving the interest from such bonds and retaining a sum sufficient to- make good the impairment of the,capital of the trust, upon the payment of the bonds at maturity, the trustee, with- the. assent of the beneficiary, took.the money of the beneficiary and invested'it with the trust fund, thereby securing a'larger amount- of United States bonds' than the trust fund alone.'.would furnish. It is clear that,the result of this proceeding would be that the amount of bonds held by the trustee would include a certain amount of bonds -belonging to the trust fund,, -and in addition thereto am amount-belonging to the beneficiary. " As the income was received by-the trustee it would have been entirely justified in -paying over to the beneficiary the total amount received, because it had of the United States bonds sufficient in amount to repay to the trust fund any amount in excess of the trust fund which it had paid to the beneficiary, and upon the final termination of the trust, if the trust continued until the time when the bonds should be paid, then the trustee would have the sum of $150,000 of the trust fund; but if the trust ended before that time, then the account could be settled by the trustee realizing by a sale of the bonds sufficient to make the trust fund good, and the balance would belong to the beneficiary as accrued interest, to which he was entitled Whatever form the arrangement between the trustee and the beneficiary took, it was the duty of the trustee to see that the trust fund remained intact, at least so far as any payment to the beneficiary was concerned that would reduce it below the amount at which the fund itself stood. I think there is nothing in this record to justify an assumption that either of the parties understood at the time that they were doing any more than this when the investment was made. The account, as it was sent to Mr. Langdon, showed a purchase by the trustees of $17,350 United States four per cent bonds, which, with the bonds previously purchased and held by the trustee, make an aggregate of $150,000 United States four per cent bonds at par. The account also showed that there had been transferred from what was called the income account to the principal account about $20,000, and that it was by virtue of- this transfer or, in other words, by an appropriation of money which belonged to Mr. Langdon, that these bonds had been purchased. It was that account that Mr. Langdon .accepted. There was nothing in this acceptance of the account to indicate an intention -on the part of Mr. Langdon to increase the trust fund by this amount; and I do not agree with the referee in his conclusion that such an acceptance of the account was in effect a gift by Mr. Langdon to this trustee of this sum of about $20,000, by which this trust fund was to be increased to that amount. It was a simple approval by him of the investment by the trustee of his money in United States bonds to be held by the trustee for him. After this transaction Mr. Lang-don allowed the interest upon this trust fund to accumulate with the trustees, except that it appears that on May 8, 1888, he received $17,100 in cash ; the balance of such income, excluding that invested in. United States' bonds, amounting to upwards of $48,000, having-been paid to'bis éxecutors. after his death. There is nothing except.. the mere entry transferring this $20,000 from income to principal,, that would indicate any intention- to treat these bonds in any differ-,' ent way from- -that of the other income of the trust fund which was. allowed to remain in the hands of the trustee, and Mr. Langdon’s. acceptance of an account which showed such -investment, was certainly insufficient to do more than estop-him- from objecting'to such, investment as an improvident one or not justified under the circumstances. There is no evidence to show that these bonds materially ' appreciated or depreciated between the time they were purchased- - and the-time of. Mr. Langdon’s death, except so far as their value, decreased because of the approach- of the period when they would be paid off at par, nor does it appéar that there was any increase or decrease of the principal of the trust fund by reason of an advance or decline of the -securities in which it was invested, arid upon the sale of these securities for distribution the'trustee should retain tire-trust fund, viz., $150,000, to be distributed under the trust deed,, and the balance .belongs to the. personal .representatives of .Mr. Langdon. .•

The judgment should be modified accordingly, and as modified,, affirmed. • ■ . -

Van Brunt, P. J., and Parker, J., concurred.

Judgment modified by directing payment to the' executors of Langdon of the amount in excess of $150,000, -less commissions to-the plaintiff, with costs to the appellants, and.as modified, affirmed-  