Blades v. Norfolk Southern Railway Co.

Seawell, J.

Tbe appeal raises no question whether the land described in the subsequently executed deed, marked “Exhibit B,” comes under the provisions of the purported trust under the deed designated “Exhibit A.” The question for our decision is whether the latter instrument creates a valid trust, empowering the grantees of the legal estate, as trustees, to convey the lands concerned with this controversy in fee. We are of the opinion that it does, and so hold.

The appellant presents the view that the persons to whom the legal title’has been committed in trust are the identical persons made beneficiaries and, therefore, as a matter of law the equitable interest is merged in the legal estate, with the result that the grantees in the trust instrument have, at most, a fee simple title to the lands. Defendant says that it is therefore justified in refusing to accept the deed tendered to it by plaintiffs, executed by them as trustees, without the joinder of their several wives to convey, or bar, dower.

Under conditions which greatly restrict the application of the doctrine, it may be broadly stated that the law will not uphold an attempted trust which makes no severance between the legal estate and the beneficial enjoyment and the equitable interests. 26 R. C. L., Trusts, S. 22. As it is more directly expressed, where the holder of the legal title and the cestui que trust are one and the same person, the result is a merger of the legal and equitable title, defeating the trust and ordinarily conferring a fee simple title upon the person holding the legal title and beneficial interest. It is essential, however, that the equitable interest of no other person shall intervene. It is also stated as a condition of merger that the legal and equitable estates must be coextensive and commen-surate; Lewin on Trusts (1939 Ed.), p. 12; or, as otherwise stated, the legal estate must be at least as extensive as the equitable. Odom v. Morgan, 177 N. C., 367, 369, 99 S. E., 195. Critical examination of the terms coextensive and commensurate, as will appear in our further discussion, will show that there must be implied a reference not only to the quantum of the estates, but the quality and nature of their tenure.

We find difficulties in the way of applying the doctrine in the instant case. Amongst them is the impossibility of judicially allocating and applying the individual equitable interest to the appropriate legal interest with which it is supposed to merge, where the trustees and the beneficiaries are plural and where the property is committed to the trustees *38collectively, as a bo.dy, to act in common for cestuis whose equitable interests are individual. And the merger, if it takes place at all, must come through the spontaneous action of the law without carpentry by the court.

In describing the nature of a trust, Lewin on Trusts (1939 Ed.), pp. 11-12, adopts Lord Cohe’s definition of a use — the term by which a trust in lands was formerly known: “A confidence reposed in some other, which is not issuing out of the land, but as a thing collateral, annexed in privity to the estate of the land, and to the person touching the land . . . for which cestui que trust has no remedy but by subpoena in Chancery.” Commenting on the significance of the words “reposed in some other,” it is said that because a man cannot issue a subpoena upon himself, he cannot hold in trust for himself; and, therefore, “if the legal and equitable interests happen to meet in the same person, the equitable is forever absorbed in the legal.” Ibid., p. 12.

Judge Henderson, in Butler v. Godley, 12 N. C., 94, said of this situation : “To me it is incomprehensible how a person can take to the use of or in the trust for himself; that he should be his own trustee; that he should have a right to call upon himself to perform the use or trust, and, if refused, enforce performance.”

This is quoted with approval by Judge Hoke in Odom v. Morgan, supra, with supporting citations.

Although law and equity are now administered in the same courts in our jurisdiction, and most others, the doctrine of merger is still based on this same condition- — -that a person as cestui trust cannot appeal to the court against himself as trustee where only his own rights are involved. In other words, it would be inconceivable that he should have the law upon himself to restrain himself from a civil injury committed in his capacity as trustee to which he consents as cestui.

Where the same person is both sole trustee and sole beneficiary, and the trust is passive, the force of the historical reason, still considered fundamental, can be readily seen. In its brief the defendant recognizes “that most of the cases deal with instances wherein a sole trustee is also the sole beneficiary” and recognizes that a different rule has been applied where the sole trustee is only one of several beneficiaries; but calls attention to the fact that in the instant case all the trustees are also all the beneficiaries. It is contended that this identity in personnel constitutes a complete analogy, rendering the case at bar indistinguishable from instances where a single trustee is also sole beneficiary.

This rule has not been generally accepted. While we do not mean to say that the doctrine of merger is confined strictly to cases where one person is the sole trustee as well as the sole beneficiary, and to passive trusts, we should think that where plurality exists as to the trustees and *39as to the beneficiaries in an active trust, instances in which merger might occur must indeed be infrequent, and our attention has not been called to any cases which would sustain that view as applied to the case at bar.

It is true that in this case the group named as trustees and the group named as cestuis are identical in personnel, but they are not so in comparable relationships. It cannot be said that any one of the beneficiaries has either sole or controlling determination with respect to his own equitable interest or that of any other in the exercise of any of the powers conferred by the trust instrument, or in the making of any decision in the administration of the trust. No cestui que trust as trustee has a free hand in dealing with his own equitable interest nor with that of any other. It is expressly required that action be unanimous; and the trust deed provides for complete authority to surviving trustees in case the panel is reduced in number by death. A distinct, but not unusual, type of “confidence” has been reposed — in the composite mind, will and conscience of the group to whom the trust has been committed.

There is no reason why the law should reject such a trust either upon the theory of incompatability or that of merger; and such trusts have been sustained by the impressively greater weight of authority. Speaking directly to this situation, it is said in 1 Bogert, Trusts, sec. 129, p. 387:

“The argument that a duality of interest in one or more trustees should prevent the attempted creation of an express trust from being successful is extremely weak. In one of the worst possible cases, where there is absolute identity of personnel between trustees and cestuis, the obtaining of unbiased administration may be difficult and the court may consequently think it proper to appoint new trustees. But the trustees are capable of talcing, holding, and administering. The equitable gift is perfect. Defects in arrangements for execution of the trust should not be vital to the creation. If the trustee with a dual interest (an interest as trustee and also as beneficiary) is only one of several trustees, the trustees not interested as cestuis” — i.e., as to the particular individual equitable interest — “will serve as a check on the interested trustee and secure proper administration.”

Pertinent, also, is the paragraph under the same section on p. 383. See, to the same effect, Scott on Trusts, secs. 99-100, pp. 519-538. No such difficulty of unbiased administration is encountered in the case at bar, since the trustees are required to act unanimously.

And in Restatement of the Law, Trusts, pp. 269-270, sec. 99 (4), dealing with beneficiaries as trustees, it is said: “If there are several beneficiaries of a trust, the beneficiaries may be the trustees.” After *40explaining tbe merger wbicb tabes place when tbe sole trustee is also sole beneficiary, it is said:

“b. On tbe other band, there can be a trust where there are several beneficiaries who are also tbe trustees. In such a case each of tbe beneficiaries has an equitable interest wbicb is separate from tbe legal interest held by tbe whole group. As trustees they bold tbe legal title as joint tenants, and ordinarily they bold tbe beneficial interests as tenants in common.

Also, in sec. 115 (4), we find tbe converse statement: “If there are several trustees of a trust, tbe trustees may be tbe beneficiaries of tbe trust.”

Reaching tbe same conclusion by most convincing reasoning are many recent cases, some of wbicb we cite, and from wbicb we would like to quote if time and space did not forbid. Directly in point are: Morgan v. Murton (1942), 31 N. J. Eq., 48, 26 A. (2d), 45; Horlick v. Sidley (Wis., 1942), 3 N. W. (2d), 710; Sturgis v. Citizens Bank (Md.), 137 A., 378. There are cases contra, some of wbicb are discussed in Morgan v. Murton, supra, but they represent a minority view wbicb we do not find compelling or persuasive.

Few text writers deal with this subject without noting that tbe intention of tbe parties frequently prevents merger.

Where tbe sole trustee is likewise sole beneficiary, and especially in tbe case of a passive trust, there are more cogent reasons for merger wbicb override tbe intention. The trust under consideration is not a passive, dry or merely bolding trust, subject to transfer of tbe use to tbe legal title under tbe Statute of Uses, and more easily overthrown by tbe allied doctrine of merger. On tbe contrary, it is an active trust, with tbe usual features, containing power of sale, of investment and reinvestment, and of distribution — inviting a more liberal treatment in order to sustain tbe intent of tbe parties. There is no question here but that tbe settlers did not intend to give tbe grantees of tbe legal title, as trustees, any interest in tbe lands beyond that necessary to administer tbe trust and exercise tbe powers created for that purpose. Tbe deed limits them to that narrow dominion in totid&m verbis.

It is generally conceded that tbe attitude of tbe American courts toward tbe doctrine of merger is less rigorous than that wbicb obtains in England, and wbicb might in certain cases reflect tbe English view in Lewin’s great work on Trusts, although, even there, tbe question of intent is often controlling. Here tbe doctrine is disfavored. Tiffany and Bullard, The Law of Trusts and Trustees, pp. 813, 814, 815; Tiffany, Real Property, 2d Ed., sec. 34, p. 92. “Merger is not favored in equity.” Kent’s Commentaries, 14th Ed., pp. 102-103. “It is believed that tbe doctrine of merger is an elastic doctrine in equity, not one to be applied *41witb rigidity. Equity will not use merger if serious injustice would arise or intent be obviously frustrated.” 1 Bogert, Trusts, sec. 129, p. 383. Perry on Trusts, 7th Ed., sec. 347, p. 589; Odom v. Morgan, supra; Furniture Co. v. Potter, 188 N. C., 145, 124 S. E., 122; Morgan v. Murton, supra; Harris v. Harris, 205 Pa., 460, 55 A., 30.

Speaking to tbis point, in Johnson v. Muller, 149 Kan., 128, 86 P. (2d), 569, loc. cit. 574, where there was an identity between trustees and.beneficiaries, the Court said:

“We are of opinion that under the will the interests of the beneficiaries are not common to each other, that each trustee is to look after the interest of all beneficiaries, that each beneficiary is interested in what all of the trustees may do in the management and control of his estate, and there being specific provision for succession of trustees, that it may not be said that any beneficiary is trustee for himself alone. In so far as merger of the legal and equitable estates is concerned, we are of opinion the intention of the testator is too clear to permit it to be defeated or destroyed by application of the doctrine.” Scott on Trusts, sec. 995, pp. 533-534.

We understand that it is conceded by appellant that if the trust is valid, the respective wives of the grantees have no dower interest in the land, since in that case none of the cestuis que trusieni would hold an equitable estate of inheritance. G. S., 30-5 (C. S., 4100); Barnes v. Raper, 90 N. C., 189, 190; Alexander v. Fleming, 190 N. C., 815, 130 S. E., 867; Boyd v. Redd, 118 N. C., 680, 685, 24 S. E., 429.

Our conclusion is that the questioned instruments create a valid trust empowering the grantees to convey the real estate described in the tendered deed in fee, without the joinder of their respective wives; and that the said tendered deed, nothing else appearing except what we see upon this record, is sufficient to convey an unencumbered title in fee to the defendant. Under the stipulated agreement with reference to the judgment, the requirement that defendant accept the deed and pay the purchase price was proper. The judgment is

Affirmed.