WACHOVIA BANK AND TRUST COMPANY, Trustee, and the Alexander Children's Center, a Charitable Corporation
v.
JOHN THOMASSON CONSTRUCTION CO., Inc., a Corporation.
No. 11.
Supreme Court of North Carolina.
July 11, 1969.*362 James O. Cobb, Charlotte, for defendant appellant.
*363 Helms, Mulliss & Johnston, by E. Osborne Ayscue, Jr., Charlotte, for plaintiff appellees.
R. HUNT PARKER, Chief Justice.
This appeal presents two questions for decision: (1) Is the restriction on alienation in the deed creating the charitable trust valid? (2) May the court, in the exercise of its equitable jurisdiction, authorize a sale of the real property in said trust under the facts and circumstances shown by the record? We will consider these questions in their numerical order.
It is well settled in this jurisdiction that the rule against perpetuity does not apply to charitable trusts, and such trusts may continue indefinitely. American Trust Co. v. Williamson, 228 N.C. 458, 46 S.E.2d 104; Penick v. Bank of Wadesboro, 218 N.C. 686, 12 S.E.2d 253; G.S. § 36-21. Nevertheless, whether the restriction in the Garsed deed was void as being a restraint upon alienation presents a more serious question. The general rule in North Carolina as to private trusts is that a restraint on alienation is against public policy and void. Douglass v. Stevens, 214 N.C. 688, 200 S.E. 366; Williams v. Sealy, 201 N.C. 372, 160 S.E. 452; American Trust Co. v. Nicholson, 162 N.C. 257, 78 S.E. 152. However, we find little authority in North Carolina on the question of whether an absolute restraint on alienation in a gift to a charitable trust is void.
The Court of Appeals in holding that the restraint in the Garsed deed was void relied solely on the case of Hass v. Hass, 195 N.C. 734, 143 S.E. 541. In that case the Court, in construing a devise by will, stated:
"The second sentence in Item 2 of said will, to wit, `It is my will that my real estate be not sold, but that the rents and profits for ninety-nine years be paid to the authorities aforesaid for the blind children as aforesaid,' if construed as an attempt to restrain the alienation of the real estate, devised in fee to the defendant, the State School for the Blind and Deaf, is of no legal effect and is void in law. Latimer v. Waddell, 119 N.C. 370, 26 S.E. 122. These words may be construed as merely expressing the wish of the testatrix, without any intention on her part to affect the title to or estate in the land devised in fee simple to defendant the State School for the Blind and Deaf, for the use and benefit of the indigent children of the State, born blind, of the Caucasian race. Springs v. Springs, 182 N.C. 484, 109 S.E. 839; Carter v. Strickland, 165 N.C. 69, 80 S.E. 961. But however these words may be construed, there was no error in the judgment that said words have no legal effect with respect to the title to said real estate devised to defendant the State School for the Blind and Deaf. The said defendant holds title to the land described in the complaint in fee simple as trustee for the indigent children of the State, born blind, of the Caucasian race. This is a charitable trust, and is valid. Ladies' Benevolent Society v. Orrel, 195 N.C. 405, 142 S.E. 493. Pub[lic] Laws 1925, c. 264."
An analysis of the cases cited in Hass v. Hass, supra, reveals that the decision in both Springs v. Springs, 182 N.C. 484, 109 S.E. 839, and Carter v. Strickland, 165 N.C. 69, 80 S.E. 961, is based on the proposition that the words used are precatory words, merely expressing the wish of the donor rather than words of absolute restraint on alienation. Further, the case of Latimer v. Waddell, 119 N.C. 370, 26 S.E. 122, referred to a private trust and thus is not applicable to the question here posed. We therefore conclude that the result in the Hass case turned on the fact that the attempted restraint was precatorya mere wish.
In Brooks v. Duckworth, 234 N.C. 549, 67 S.E.2d 752, the Court seemingly recognizes that charitable trusts are exceptions to the rule that a restraint on alienation is void. There the Court, considering a charitable trust in which the trustees were prohibited *364 from mortgaging or disposing of the trust property, said:
"* * * This provision clearly limited the right of the trustees in relation thereto, but would not prevent a court of equity from using its power, in a proper case, to modify the terms of the trust to the extent necessary to prevent the failure of the trust and to effectuate the primary purpose of the trustor. Henshaw v. Flenniken, 183 Tenn. 232, 191 S.W.2d 541, 168 A.L.R. 1010, 1022 note." (Emphasis ours.)
Since the holdings of this Court on this question are meager and somewhat nebulous, we turn to other jurisdictions for enlightenment.
The general rule is that a condition against alienation in a gift for a charitable trust is not invalid or void. Alexander v. House, 133 Conn. 725, 54 A.2d 510; Dickenson v. City of Anna, 310 Ill. 222, 141 N.E. 754, 30 A.L.R. 587; Stubblefield v. Peoples Bank of Bloomington, 406 Ill. 374, 94 N.E.2d 127; Catholic Bishop of Chicago v. Murr, 3 Ill. 2d 107, 120 N.E.2d 4; Sisters of Mercy of Cedar Rapids v. Lightner, 223 Iowa 1049, 274 N.W. 86; Smart v. Town of Durham, 77 N.H. 56, 86 A. 821; Mills v. Davison, 54 N.J.Eq. 659, 35 A. 1072; Ohio Society for Crippled Children and Adults v. McElroy, 175 Ohio St. 49, 191 N.E.2d 543, 100 A.L.R. 2d 1202; Henshaw v. Flenniken, 183 Tenn. 232, 191 S.W.2d 541, 168 A.L.R. 1010; City of Philadelphia v. Girard, 45 Pa. 9; 15 Am.Jur. 2d, Charities, Sec. 22. See also Anno: 100 A.L.R. 2d 1208; Quinn v. Peoples Trust and Savings Co., 223 Ind. 317, 60 N.E.2d 281, 157 A.L.R. 885.
Since North Carolina recognizes that a donor may create a perpetual charitable trust, it would seem strange to deviate from the general rule so as to prevent the donor from restraining sale of the corpus of such trust. Furthermore, it appears that North Carolina has tacitly recognized the right of a donor to restrain alienation of property in charitable trusts when it recognizes the right of the court, in its equitable jurisdiction, to order the sale of trust property under certain conditions, even when the trust forbids the trustee to mortgage or sell.
We conclude that the Court of Appeals erred in holding that the trustee took title in fee simple absolute upon the death of the life tenant without restraint or restriction on the power of alienability. We hold that the trustee took subject to the restrictions on alienation contained in the trust instrument. This, however, does not alter the end result which is controlled by the answer to the second question presented.
The Court of Appeals in considering the second question for decision stated:
"`* * * (C)ourts of equity have jurisdiction to order, and in proper cases do order, the alienation of property devised for charitable uses. * * * The power is not infrequently exercised where conditions change and circumstances arise which make the alienation of the property, in whole or in part, necessary or beneficial to the administration of the charity. * * * (C)ourts of equity have long exercised the jurisdiction to sell property devised for charitable uses, where, on account of changed conditions, the charity would fail or its usefulness would be materially impaired without a sale.' Holton v. Elliott, 193 N.C. 708, 138 S.E. 3."
We agree with this statement.
There is plenary authority in this jurisdiction to the effect that courts in the exercise of their equitable jurisdiction may modify the terms of a charitable trust when it appears that some exigency, contingency, or emergency not anticipated by the trustor has arisen requiring a disregard of a specific provision of the trust in order to preserve the trust estate or protect the cestuis. In order to accomplish the ultimate purpose or intent of the trustor, the court may order real property sold and reinvested in other property when a change *365 in circumstances makes such sale necessary to accomplish the purposes of the trust, even though the trust forbids the trustees to mortgage or sell the property. Wachovia Bank & Trust Co. v. Johnston, 269 N.C. 701, 153 S.E.2d 449; Cocke v. Duke University, 260 N.C. 1, 131 S.E.2d 909; Keesler v. North Carolina National Bank, 256 N.C. 12, 122 S.E.2d 807; Trustees of Rex Hospital v. Board of Comrs. of Wake County, 239 N.C. 312, 79 S.E.2d 892; Brooks v. Duckworth, supra; Trustees of Watts Hospital v. Board of Comrs. of Durham, 231 N.C. 604, 58 S.E.2d 696; Moses H. Cone Memorial Hospital v. Cone, 231 N.C. 292, 56 S.E.2d 709; Johnson v. Wagner, 219 N.C. 235, 13 S.E.2d 419; Penick v. Bank, supra; Grace Church v. Ange, 161 N.C. 314, 77 S.E. 239; Bogert, Trusts and Trustees, 2d Ed. § 392, p. 214.
In the instant case the undisputed evidence shows that because of changed conditions not anticipated by the trustor, the trust property has become unproductive and that because of such changes a sale of the property for reinvestment would preserve the trust and accomplish its ultimate purpose. Thus, the Court of Appeals correctly held under the facts of this case that the trial court, in the exercise of its equitable jurisdiction, could authorize and direct a sale of the trust property in order to accomplish the purposes of the trust even though the trust instrument forbids such sale.
Modified and affirmed.
BOBBITT, Justice (concurring in result).
Disposition of this appeal does not require that we decide whether the provision that "the party of the second part (the Trustee) shall have no power to sell or convey the same (trust property) either with or without the consent of the Alexander Home," is valid or void. Hence, I would treat the holding by Judge Hasty, and the affirmance thereof by the Court of Appeals, as unnecessary to decision and leave this question open for consideration and decision in a case where the answer thereto will be determinative.
Since the rule against perpetuities does not apply to charitable trusts, no question is presented as to the duration of the trust. The question here relates to the validity of the judgment authorizing a sale of the subject property free from the trust. The evidence fully supports Judge Hasty's findings to the effect that retention of the property by the trustee will defeat rather than effectuate the purposes of the trust. Under these circumstances, a court of equity may order a sale even where the trustor expressly provides that the trust property is to be used only for a specified purpose. Brooks v. Duckworth, 234 N.C. 549, 67 S.E.2d 752. Hence, Judge Hasty's judgment should be affirmed.
As to whether the purported absolute restraint on alienation should be considered valid or void, I find no authoritative decision in this jurisdiction. In my opinion, neither Hass v. Hass, 195 N.C. 734, 143 S.E. 541, nor Brooks v. Duckworth, supra, is controlling.
In Hass, the remainder in fee in 125 acres of land in Catawba County was devised to the State School for the Blind and Deaf at Raleigh, N.C. The opinion of Connor, J., contains the statement that this provision, "if construed as an attempt to restrain the alienation of the real estate devised in fee to the defendant the State School for the Blind and Deaf, is of no legal effect, and is void in law." However, the action did not relate in any way to a sale of any part of the trust property by the State School for the Blind and Deaf. The judgment simply adjudged that the State School for the Blind and Deaf held title to the land as trustee for the indigent children of the State, born blind, of the Caucasian race, and that the plaintiffs, who were heirs of Mary E. Hass, had no right, interest or title in and to any of the property of which the testatrix died seized and possessed.
*366 In Brooks, described real estate was devised to the Board of Trustees of Haywood Street Baptist Mission "to be used as a Baptist Mission, for the purpose of holding religious meetings on week-days and Sundays as the trustees may determine, and is to be established in memory of O. D. Revell and his wife Caroline E. Revell." The will provided that "said Board of Trustees cannot mortgage or dispose of said property." Manifestly, this purported absolute restraint on alienation was made to effectuate testator's intention that this specific property be used solely for the stated purposes and not otherwise. Under these circumstances, it was held that the trust could be modified by a court of equity in a factual situation where such modification is necessary to prevent the failure of the trust and to effectuate the primary purpose of the trustor.
Decisions in other jurisdictions contain statements to the effect that the rule that a restraint on alienation is against public policy and void applies to private trusts but not to charitable trusts. Ordinarily, the statement is made without analysis of the sufficiency of underlying reasons. If and when the question is necessary to decision, my present view is that the following distinction should be drawn.
Unless the testator specifically restricts the use of the devised property as in Brooks, such devised property is simply a general asset of the trust estate and is available to provide income or gains to accomplish elsewhere the objects of the charity. In such case, it seems to me that all reasons for holding restraints on alienation void as against public policy in respect of private trusts apply with equal force. No sale can be made unless authorized by the court in a duly constituted proceeding. However, the court's inquiry would be to determine simply whether the proposed sale is advantageous to the trust estate. On the other hand, if the testator specifically restricts the use of the devised property to a precise and limited purpose as in Brooks, the court, prerequisite to ordering a sale of the property, would have to determine that such sale was necessary to prevent the failure of the trust and to effectuate the general purpose of the testator.
In the present case, the Garsed deed was made in 1930. It contains no provisions whatever that the conveyed land was to be used as a site for the Alexander Home. Rather, the provisions indicate clearly that the trustee was to manage the property so as to produce an income for the Alexander Home. As investment property, it seems to me that a purported absolute restraint on alienation should be adjudged void as against public policy. In such a situation, there is no reason why the trustor should be permitted to impose an obstacle upon the sale and conveyance of the property if such sale and conveyance should be deemed appropriate and to the best interest of the trust estate.
SHARP, J., joins in this opinion.