Cox v. Kinston Carolina Railroad & Lumber Co.

95 S.E. 623, 175 N.C. 299, 1918 N.C. LEXIS 62

• Court: Supreme Court of North Carolina
• Decided: April 3, 1918
• Status: Published

Opinion

WalKee, J.,

after stating -the case: Upon tbe questions submitted to tbe jury, tbe charge of tbe court was full and explicit. Tbe contentions were stated and proper instructions given in regard to them, and the-jury have found the facts against the defendant’s contention. But we need not longer dwell upon this feature of the case, for we are of opinion that the lease, under the admitted circumstances, could not continue-beyond the death of the trustee, or, at least, beyond the end of the current year in which he died. The principal if not the pivotal question presented by the record is: Did the trustee J. G-. Cox have the power to-make leases extending beyond the duration of the trust?

We understand the plaintiffs’ contention to be that he had no such power. Plaintiffs say it is manifest from reading the trust deed that the-power given to the trustee to lease was to rent for agricultural purposes, the language of the deed being: “The said J. Gr. Cox shall have the power to use said land in whatsoever manner he may deem best for the-interest of his said children, either by renting it out or using and cultivating it himself, and using the rents and profits to support his family and to educate his children.” This language, coupled with the fact that the only use to which the land had been subjected up to that and at that time, and for some years thereafter, was agricultural, would seem to indicate that the words “to rent” as used (noscitur a sociis) was intended as a renting for agricultural purposes. But if the power to rent as conferred in the deed is to be given a broader and more comprehensive construction, and means to rent for such purposes, agricultural or industrial, as will yield the largest revenue for the support of the family of the trustee and educate his children, then this power cannot be so used as to extend beyond the duration of the trust, and thus bind the cestui que trusts — those who are the manifest objects of the bounty of the trustor —for an indefinite period, and exclude them from the possession of the property clearly intended for their benefit. All of the children at that time — I July, 1901 — were 21 and over; all had finished school; all except possibly Mrs. Suggs were self-supporting or cared for by their husbands. Mrs. Oox, the wife of the trustee, was then 60 years of age— beyond, according to the law of nature, the child-bearing age. There was the possibility that she might die, that Mr. Cox might marry a woman within the child-bearing age, and that from such union other children might be born to him, upon which event the trust would open for their benefit on equal terms with the children then living.

The defendant’s reply that the very terms of the deed by which the trust was created and the condition of the donor’s family show that the lease was a reasonable one, and that the power was rightly exercised; and they rely upon other facts; but all these matters were submitted to the jury, as we think after a careful review of the .charge, and found against the defendants. We will, therefore, consider the case in another view of it, and one that we deem to be controlling. As a general rule, the power must be commensurate with the act done under it and claimed to be authorized, or, at, least, justified by it. The trustee cannot exercise more power than he has acquired, nor act beyond the limit of his power. There may be cases where the court will, under peculiar circumstances, extend the operation of the trustee’s act beyond the time when his trust, by the limitation of the instrument creating it, is at an end, and this is done sometimes, but generally in advance of the exercise of the power, as will appear hereafter.

The general doctrine is thus stated in 39 Cyc., 387-388: “Trustees possess general power to lease trust property on such terms, conditions, and rentals as are reasonable and customary for that class of property in the particular vicinity; provided the interests of remaindermen and those entitled to the property after the termination of the trust are not injured thereby, and provided ordinarily that the lease is not made after the termination of the trust, or made to continue after the termination of the trust, either directly or by means of renewals.”

It was held in Matter of McCaffrey, 50 Hun (N. Y.), 371, that “upon the termination of the trust, the power of the trustees is at an end; and they have no power to renew leases or in the lease executed by them to provide for'the renewal of leases.” In the McCaffrey case, supra, the property was conveyed to a trustee to rent or lease and pay one-third of the net rentals to one daughter, another to a second daughter and one-third to a third daughter, during their natural lives, then upon the death of any one of them to convey to her descendants in fee. One of the daughters died leaving issue, and the lessee contended for a renewal of the term. The Court held that “so far as Mrs. McCaffrey’s one-third was concerned the lease ceased to be valid.”

The case of Hutchinson v. Hodnett, 115 Ga., 990, holds that while under a trust of real property for the purpose of raising income for the support, maintenance, and education of the beneficiaries, the trustee could, by implication of such a power, lease the premises, the power was not an unlimited one. The Court said as to the extent of such a power: “The lease cannot extend beyond the time the trusteeship is to last, and cannot in all cases extend even to the end of the trusteeship, the term of the lease being dependent upon the character of the property, the purposes of the trust, the custom of the place in reference to the management of like property and the conditions surrounding and the emergencies confronting the trustee in reference to the management of the property at the time the lease is extended.”

Another case of similar import is Bergengren v. Aldrich, 139 Mass., 259, where the Court said: “An undivided third of a parcel of land was devised to a trustee to hold during the life of A, and at A’s death to convey the same to the children of A. The will also empowered the trustee to sell and convey in fee simple, or for any less estate, any part or the whole of the land. During the life of A the trustee and the owners of the undivided third joined in a lease of a portion of the land for a term of nine years, and agreed that at the expiration of the term the lease might be extended for a further term of ten years. At the expiration of the first term A was living, and the lessee demanded a renewal of the lease; Held, on a bill in equity for specific performance of the agreement to renew the lease, brought after the death of A, that the trustee had no authority to bind the remaindermen, and the Court would not decree specific performance as to them.” It was agreed in that case that '“the lease may be extended, or renewed, for a further term of ten years,” .at a certain specified rent.

It was held generally in the case of In re Armory Board, 60 N. Y., 882, that trustees under a will have no authority to lease the property for a period which extends beyond the term of their trusts, and it seems that the following cases support that view: In re Opening of One Hundred and Tenth Street, 81 N. Y., 32; In re McCaffrey, supra; Gomez v. Gomez, 147 N. Y., 195; Newcomb v. Kittelas, 19 Barb., 608; Greason v. Kittelas, 17 N. Y., 491; In re Hubbell Trust (Iowa), 113 N. W., 512, 135 Iowa, 637; 14 Anno. Cases, 640; Ohio Oil Co. v. Daughetee, 240 Ill., 361; 88 N. E., 818.

In the Gomez case the Court said: “The trust created by the deed, being for the life of Mrs. Gomez, terminated with her death, and with her death the powers of the trutees were, as we have seen, at an end, except to turn over and convey the trust property as directed in the deed. They, therefore, had no power under the deed to thereafter renew leases, or in the leases executed by them to provide for the renewal of leases after her decease.”

In another case a trust was created by will to N. P. Daughetee and his successors forever, upon the following' terms: To pay the expenses of the trust and necessary repairs and taxes and to pay over the annual proceeds to the nephew of the testator for his life and remainder over to the heirs of his body, share and share alike, forever. The trustee made oil leases for five years and as much longer as gas and oil were found in paying quantities, and the Court held he had no such power. Ohio Oil Co. v. Daughetee, 240 Ill., 361. The Court, in the case of South End Warehouse Co. v. Lavery, 107 Pac. (Calif.), 1008, considered a lease by the trustee under the following declaration of trusts, “to apply as much of the principal and interest of such property as may be necessary or proper to the support, maintenance, and education of the daughter of ;he testator, suitable to her condition in life, until she shall have attained the age of twenty-one years, and thereafter to pay to her two-thirds of the net income of said trust quarterly only, as long as she shall live, and upon ber death to pay over and deliver the whole of said property to her descendants in accordance with the provisions of the statute of descents and distributions of the State of California.” The lease was executed on 2 February, 1904, for a term of five years from 1 June, 1904, with privilege of extension for three years at the same rental and with the privilege of a further extension for two years at a rent to be agreed on. On 11 February, 1904, the daughter died, leaving a will. The Court held that such trustees may not make a lease that will have force and effect after the termination of the trust, and consequently that the lease which they did make could not extend beyond the life of the daughter, although it was, of course, uncertain when she would die. It is also said in this case that in some of the cases which are apparently, but not really, to the contrary, it did not appear that the life beneficiaries had died, or that, in other words, the trust estate had terminated. In others of these cases, the opinions upon the question were obiter and not well considered, and in still others it was said that a lease by the trustees for a fixed time was not void ah initio, but would not extend beyond the life of the trust, as specified in the instrument creating it. In those cases where the questions was directly involved and decisions given upon it, it would appear that the courts have not disagreed as to the rule which should govern.

The Court in the case of South End Warehouse Co. v. Lavery, supra, (citing Wier v. Barker, 104 App. Div. (N. Y.), 112) held it to be settled law that leases made by trustees were valid only for a period ending with the trust term, and added: “The argument so earnestly urged, that such a rule will greatly hamper trustees holding property for a term of uncertain duration in making advantageous leases of property, is more properly addressed to the wisdom of creating such trusts without expressly authorizing leases for such terms as may be deemed prudent by the creator of the trust. That such power may be expressly given is not denied.” See Tredwell v. Tredwell, 148 N. Y., Supp., 391.

In Cram v. Dietrich (In re Opening One Hundred and Tenth Street), 81 N. Y. Supp., 27, decided in 1903, the trust was for the life of the trustor’s widow and upon her death the trustees were required to convey the property to her children with authority to the trustees to lease other premises from year to year or for a term of years, and.they leased for twenty years the property in question, which was vacant and which the lessee improved. The Court said: “While we reach the conclusion that the trustee had no power to lease beyond the term of the trust estate for the widow, we are of opinion that such leases are valid while such trust estate endures. . . . Beyond such period the leases are void for the reason that they would cut down the estate devised, but for the duration of the life estate there was ample power to lease, and equity requires that the lessee should be protected in'the enjoyment of the property during that period.”

The case of Hubbell v. Hubbell, 154 N. W., 867, decided in 1915, and reaffirmed In re Hubbell's Trust, 135 Iowa, 637, was an application for the approval by the Court of a lease proposed to be made by a trustee.

The courts are not prone to moderate the rule we have stated, as it is so easy and feasible for trustees to apply to the court and obtain its consent to the execution of a proposed lease of questionable validity, or when he entertains any doubt as to the extent of his power under the trust. It was said in Upham v. Plankinton, 152 Wis., 272; 140 N. W., 5: “If a trustee is given free control of real property to produce revenue therefrom, and is not empowered to sell the property, he may execute the trust by creating leasehold estates therein of any reasonable 'duration which the testator might fairly have had in contemplation; and in such circumstances, with judicial advice, to wit, advice of the court, may create a leasehold estate extending beyond the termination of the trust.” There the tx-ust was to extend, in all probability, over a long but uncertain period of time. The jurisdiction of a court of equity to pass upon leases of trustees in advance of their execution and approve or disapprove them, was asserted in Marsh v. Reed, 184 Ill., 263, where the Court said: “A court of equity may enlarge the powers of a trustee under a will by extending the time limited by the testator for making leases of the property where exigencies have arisen which make an extension of time necessary to the carrying out of the testator’s wish that the income should provide support for his wife and children.” 28 A. & E. Enc., 1006, 1008; 2 Beach Trusts and Trustees, 1897 Ed., sec. 446; I Washb. Real Property (4 Ed.), sec. 307; Upham v. Plankinton, supra.

It will be seen from the foregoing examination of the cases that they may be divided into two classes: (1) Those where the trustee has attempted to execute the power of leasing without consulting the courts having jurisdiction; and (2) those cases where he has asked for the advice of the court, with all the beneficiaries and parties interested in the trust before it, upon the execution of the lease. The cases falling under the first class have, we think, unifox-mly held that a trustee has no power to execute a lease extending beyond the duration of the trust, and the reason given is that he has no power to prevent the beneficiaries of the trust from enjoying the estate as contemplated in the deed when the trust has terminated. In the second class of cases, it has been held that courts of equity have the power to enlarge the powers of the trustee as to the matter of leasing property embraced with the trust estate.

The present case is one of the exercise of power by the trustee himself without seeking the advice of the court or the approval of the beneficia ries of the trust, and these leases were accepted by the lessees without requiring the children of J. G. Cox, the beneficiaries of the trust, to execute them, or consent to them, although the deed of trust was of record and all the children of J. G. Cox then living were more than twenty-one years of age, and had finished their education. It is clear and settled by the authorities that a person dealing with a trustee must take notice of the-terms of the trust, its duration, and the ultimate remaindermen. It appears by the terms of this trust that leases should not endure beyond the life of the trustee, as it is provided in the instrument creating the power that there might be a division of the property when the youngest child was of age or at the death of the trustee, if that' was the earlier event. It is even more favorable to the plaintiffs than that, as the trustee could allot just and equal portions to his children severally as they arrived at full age or married; he might “use the land in any manner deemed best for the interest of his children, either by renting it out or using and cultivating it himself, and with the rents and profits support his family and educate his children.” He is also given a power of sale and reinvestment. Whether we should hold as a matter of law that this language confined his power to ordinary agricultural leases or not, it was evidently contemplated that he should not make leases for such long terms as might afterwards and at the close of the trust by his death, hamper or embarrass the remaindermen in the free use and enjoyment of the trustor’s bounty.

As long as the trustee lived, he was willing to confide in his judgment and leave the interests of his family in his keeping, but at his death, there being no substitution of a trustee and no prolongation of the trust, he plainly intended that the property should pass unencumbered to those who had been designated to take it, when that time had arrived, and whose judgment, discretion and management was substituted for that of the trustee. The lease made by the trustee must be considered as one for the full period of twenty years, as by its terms it could last for so long a time, if proper notices were given before the expiration of each of the four periods of five years. He was without power to revoke or annul it within twenty years, if the other parties complied with its terms and conditions. The defendants took the lease with notice, in law, that it would end when the trustee died.

It is not necessary to discuss the question whether it was a reasonable lease in itself, ancf without regard to the fact whether or not his death would terminate it. The learned judge submitted that question to the jury upon the evidence and a proper charge, and it was answered against the defendants; I>ut it was immaterial, as we have only held, and are only required to hold in this case, that the lease ended when the trustee died, and the plaintiffs have not asked for any rents or damages except those accruing since said event. This also disposes of the first eighteen exceptions, which are germane only to the reasonableness of the leases. We may add, in this connection, that in view of the admitted facts and circumstances in the case, the law would, perhaps, regard this as an unreasonable lease, though we are not called upon to decide as to the ground. We do not think the judge expressed, any opinion on the matters embraced within the first seventeen exceptions, as he merely endeavored to place before the jury the relevant evidence upon which their opinion as to the reasonableness of the lease was asked.

The mere fact that defendants improved the property for their own benefit and to promote the better enjoyment of it for their contemplated purposes created no estoppel, as the defendants have reaped all the benefit resulting from the improvements, and when they are removed under the terms of the lease and the order of the court permitting the removal, there will be no enhancement of the value of the property, and the plaintiffs will not have gained any inequitable advantage even if the contention of the defendants be correct that plaintiffs should have given notice of the intention to end the lease at the death of the trustee. "Why should plaintiffs give notice that the lease would be terminated by the death of the trustee when, under the law, it is presumed that the defendants were as well advised of it as the plaintiffs ? But it is sufficient to say that the doctrine of equitable estoppel does not apply, as no material harm will result to the defendants and, besides, there has been no misconduct on the part of the plaintiffs and no misleading of the defendants to their prejudice. Boddie v. Bond, 154 N. C., 359; S. c., 158 N. C., 204; Patterson v. Franklin, 168 N. C., 75, 78. The plaintiffs have simply availed themselves of their legal right; they could not foresee that the trustee would die before the twenty years had passed.

Nor do we think that the receipt of rent by the plaintiffs, or one of them, for the remainder of the current year in which the trustee died, estopped them or amounted to a ratification of the unauthorized act of the trust, in making the lease to continue after the termination of the trust, either directly or by means of renewals. It is not a question of estoppel but of ratification, and the latter does not take place without a knowledge of the facts.

We have held in Wise v. Texas Co., 166 N. C., 610, that a ratification of an unauthorized act or transaction is not valid and binding unless it proceeds upon a full knowledge of the material facfs relative thereto. “We, therefore, find it,” said the Court, “to be of the very essence of ratification, as of an election, 'that it be done advisedly, with full knowledge of the party’s rights,” citing, among other authorities, Baldwin v. Burrows, 47 N. J., 199, 211, and also Thorndike v. Godfrey, 3 Me., at p. 432, where it is said: “We can never consider consent and ratification as implied in those cases where there is no knowledge of the facts to which it is said consent and ratification extend. This would be an effect without a canse.” And 1 Clark and Skyles on Agency (1905), sec. 106, says: “No doctrine is better settled, both upon principle and authority, than this: that the ratification of an act of an agent previously unauthorized must, in order to bind the principal, be with full knowledge of all the material facts. If the material facts be either suppressed or unknown, the ratification is treated as invalid, because founded on mistake or fraud.” See, also, Owings v. Hull, 9 Peters (U. S.), 607 (9 L. Ed., 246); Mechem on Agency (1889), sec. 129; Reinhardt on Agency (1902), sec. 340; Town of Ansonia v. Cooper, 64 Conn., 536, 544; 23 Am. & Eng. Enc. (2 Ed.), 889; Marsh v. Fulton County, 10 Wall. (U. S.), 676; Norton v. Shelby County, 118 U. S., 451.

In this case, it was proper for the judge, if the unauthorized act of the trustee could be ratified — which may be admitted for the sake of the argument — to submit the question to the jury, as he did, whether there was a ratification — that is, an adoption of the act of the trustee with knowledge of the facts — so that an intention to ratify it could be reasonably inferred from the facts; and on this question there was at least evidence to -support the verdict against ratification, as there was some which tended strongly to show that the rent was received by only one of the defendants to the end of the current year, and that the intention was to apportion the rent for that year between the trustee and the defendants according to the time which elapsed before the trustee’s death and that which remained after his death, the rent being payable quarterly during each year of the lease, which division of the rents would seen! to have been made in accordance with Revisal, sec.1988, which provides: “In all cases where rents, rent charges, annuities, pensions, dividends, or any other payments of any description are made payable at fixed periods to successive owners under any instrument or by any will, and where the right of any owner to receive payment is terminable by a death or other uncertain event, and where such right shall so terminate during a period in which a payment is growing due, the payment becoming due next after such terminating event, shall be apportioned among the successive owners according to the parts of such periods elapsing before and after the terminating event.”

Whether the case falls strictly within the terms of that statute we need not say, as it is clear that the parties acted upon the same principle of apportionment, not intending the act of one of them to have any greater effect. Such an apportionment has been held to be proper under statutes of a like kind when the trust is for the life of one person with remainder to another and the life tenant dies. 2 Perry on Trusts (5 Ed.), sec. 556; Price v. Pickett, 21 Ala., 741.

There is a class of cases where it seems to be held that the mere receipt of rent upon a lease originally void is not a ratification or continuance of the lease, as in James v. Jenkins, Buller’s Nisi Prius, p. 96, where it was said that acceptance of rent by a tenant in tail on coming into possession is not a confirmation of the lease made by a tenant for life, which is absolutely void at his death.

And in Robson v. Flight, 6 De Gex J. and Smith (1865), 608 (46 Eng. Reprint, 1054), it was held: “Whether a trust may be performed or a trust power exercised by the heirs at law, which is obligatory on the trustees of the will, depends on the question whether in the exercise any thing has to be supplied by the judgment, knowledge, and discretion of the person acting in the exercise of such trust or power. A power to lease may be a trust power in the sense of its being the duty of the trustee to avail himself of it under proper circumstances; but it is to be exercised by a person selected for the purpose, and not by the individual on whom, by reason of intestacy, the law casts the estate. Acceptance by an adult beneficiary after attaining majority of rent accruing under an invalid lease is not a confirmation of the lease or a bar to relief by having the lease set aside.”

The case of Doe v. Butcher, Douglas (5 Ed.), 50 (99 Eng. Reprint, 36), held that a lease void against a remainderman cannot be set up by his acceptance of rent after his interest vests in possession. Lord Mansfield, after taking the case under an advisari, stated that “there did not appear to have been any intention either to confirm the old lease or to grant a new one. Both the lessor of the plaintiff and the defendant had proceeded under a mistake, and had supposed the original lease to be good.” Doe v. Archer, 1 B. & P., 531, was decided the same way, and also Goodright, Lessee, v. Humphreys, cited in the valuable note to Doe v. Butcher, in 99 Eng. Reprint, 36, where other like cases will be found. Lord Mansfield also said, in Jenkins on the demise of Yate v. Church, 2 Cowper’s Reports, 482, where a tenant for life made a lease for twenty-one years and died before the expiration of the term, and the remainder-men permitted the lessee to keep the possession for five years, receiving-rent regularly during that time: “This is a void lease and not voidable only. But if it were merely voidable, the acceptance of rent alone, unaccompanied with any other circumstances, is not a sufficient confirmation. It cannot be a confirmation unless done with a knowledge of the title at the time; or unless the remainderman lies by and suffers the tenant to lay out his money in improvements, in confidence of continuing tenant. But here it is a void lease; and in general a void lease is incapable of confirmation.” We do not cite these cases for the purpose of deciding the question raised in them, but to show that the mere acceptance of rent, nothing else appearing, is not always sufficient to show ratification.

It was beld in Galewski v. Appelbaum, 65 N. Y. Supp., 694: “Tbe lease purporting to be made by tbe landlord’s grantor to tbe tenant' was clearly invalid, in tbat it was not subscribed by tbe lessor, nor was -there any evidence tbat tbe person wbo signed it in ber bebalf was ber lawfully authorized agent. Nor is there any evidence tbat she ever ratified it. She certainly did not expressly ratify it, and there is no 'evi•dence tbat she ever saw it or knew of its terms. Tbe fact tbat 'it was recorded and that she accepted rent under it raises no implication of ratification. It does not appear tbat she knew of its recording or knew -that it purported to lease tbe premises for more than a year. At tbe -time tbe landlord acquired tbe property, therefore, tbe tenant was bold-ing under an invalid lease.” See 24 Cyc., 912, and notes; Carlton v. Williams, 71 Cal., 89.

Tbe case of Tyson v. Chestnut, 118 Ala., 387, is more like ours, and at p. 403, tbe Court said: “It is manifest upon these facts tbat they did not intend by receiving tbe note about to mature and accepting payment of it from tbe plaintiff to ratify tbe lease to him and to .accept attornment by him under its terms; and this is further shown by tbe fact tbat they proceeded promptly to notify him tbat bis possessory right bad terminated, to demand possession of him, and be failing to yield upon such •demand, to bring their action of unlawful detainer against him. "We .are not at all inclined to bold them to a ratification and adoption of tbe lease upon tbe fact of their receiving and collecting tbe note for tbe rent •of tbe year which was about spent at tbe time, and in tbe face of their -obvious intention to tbe contrary.”

These cases all show tbat there was sufficient reason for leaving this •case with tbe jury to decide tbe question of fact whether there was a rati-fication, or whether the defendants acted under a misapprehension of the .facts, or at least, without full knowledge of them, and tbe rent was received only to tbe end of tbe current year. The discussion as to the payment of rent and ratification applies to tbe lease of 1907, and not to the lease of 1911 for fifteen years, as nothing was paid under that lease after -the trustee’s death. This but shows, though, that tbe rent was intended to be paid only to the end of the current year, 1 July, 1914, to 1 July, 1915.

As to tbe dower interest, it may be said that this being a lease by a trustee under a power, it was not necessary for the widow to have executed the lease with ber husband, as it could not endure beyond his life, as we have beld, and she bad no interest which vested in possession until his ■death. It was evidently intended that she should join in tbe lease for the purpose of removing any cloud from it and to release any possible interest or claim she might have during its continuance, if the dower .happened to be assigned out of this land; or to protect defendants against the dower, if by any means the lease was validly extended beyond tbe testator’s death. Besides, it does not appear that the dower-interest to which she is entitled and which should be allotted, of course, according to Revisal, sec. 3084, would cover any part of the land in dispute, but on the contrary, it rather appears that the dwelling and its* appurtenances are not on any part of said land. We know of no law which would compel her, in defendants’ favor, to have her dower allotted, in this land instead of that which is described in the statute. The widow and defendants, it may be added, certainly did not intend that the latter-should have the dower in the land after the expiration of the lease, though they may have mistakenly supposed that it would extend beyond, the trustee’s death. We. should not allow so uncertain and remote an interest, if a real interest at all, to defeat the plaintiffs’ clear, substantial, and indisputable right. This contention, therefore, cannot be sustained.

It would serve no good purpose to consider all of the exceptions in. detail. We believe that what we have already said embraces all of them,, as those specially treated are the prominent and controlling ones, and, as we find that they cannot be sustained, the fate of the others must be-the same.

We have carefully examined the case in all its phases, and have discovered no error which should induce us to change the result.

No error.