Co. v. Bank of British North America,76 Tesene v. Iowa State Bank," and Blanton v. First National Bank,78 but escaped in Taylor v. Astor National Bank 79 and Corn Exchange Bank v. Manhattan Savings Institution.80 Of course a bank which has notice of the trust character of a deposit has no lien or right of set-off for a personal indebtedness of the trustee.81 LIABILITY OF TRUST ESTATE In Jessup v. Smith 82 some of the beneficiaries of a trust began a proceeding to remove a trustee, who retained the plaintiff as his counsel, telling him that he, the trustee, was poor and unable to pay counsel fees and that the plaintiff would have to look to the estate for payment. The application to remove the trustee was denied. The plaintiff then brought an action, joining as defendants all persons interested in the estate and praying that the value of his services be declared a charge upon the trust estate. The lower court dismissed the complaint on the ground that the services were not beneficial to the estate. The Court of Appeals reversed the judgment, holding that since by the contract the plaintiff was to look to the estate he was entitled to payment out of the estate. The decision seems sound.83 In Strong v. Dutcher 84 one of the cestuis que trust retained the plaintiff, an attorney, to prevent the trustee from wasting the estate. The plaintiff agreed to look to the trust fund for compensation. It was held that the estate was liable, on the ground that the cestui que trust would have had a lien on the estate for expenses incurred in its preservation and that she could transfer the lien to the plaintiff. The decision seems sound. 85 76 [1919] A. C. 658. 78 136 Ark. 441, 206 S. W. 745 (1918). 79 105 Misc. 386, 174 N. Y. Supp. 279 (1918). 77 173 N. W. (Iowa) 918 (1919). 80 105 Misc. 615, 173 N. Y. Supp. 799 (1919). This case seems to go too far. See 19 COL. L. REV. 72. See cases cited CAS. TRUSTS, 739. 81 Pratt v. Commercial Trust Co., 105 Misc. 324, 174 N. Y. Supp. 88 (1918). 82 223 N. Y. 203, 119 N. E. 403 (1918); Cas. Trusts, 766. 83 See CAS. TRUSTS, 769, note. 84 186 App. Div. 307, 174 N. Y. Supp. 352 (1919); 19 COL. L. REV. 159 (1919). 85 There have been several recent cases dealing with the question of taxes payable in respect of trust estates, which have been discussed by Professor Beale in the pages of this REVIEW. 32 HARV. L. REV. 619–623; 33 ibid. 7, 8. See also Williams v. Singer, [1919] 2 K. B. 108. And see CAS. TRUSTS, 743-748. BY CAL. LAWS, 1919. c. 237, INVESTMENTS In determining what investments should be made, the trustee should in general be governed by express directions in the trust instrument. In extraordinary cases, however, when unforeseen emergencies have arisen making it impossible or clearly unwise to follow those directions, a departure from them may be justified. In Matter of London 86 a will directed trustees to invest in railroad bonds. It was held that they were justified in investing in United States bonds of the first Liberty Loan issue. It may well be questioned whether the emergency was such as to justify the departure from the terms of the will. Certainly the trustees ran a great risk in not first obtaining the permission of the court to make the unauthorized investment. Even where the trust instrument provides that the trustee shall not be limited by the "rules governing investments by executors or trustees," and that "in the matter of investment his discretion shall be absolute and uncontrolled," it is nevertheless a breach of trust for the trustee to lend to himself. It was so held in Carrier v. Carrier 87 CAPITAL AND INCOME In dealing with the rights of life tenants and remaindermen to extraordinary dividends, it appears that the tendency of the courts is more and more toward the acceptance of the Pennsylvania rule of apportionment, rather than the Massachusetts rule which holds all cash dividends income and all stock dividends capital. In Rhode Island Hospital Trust Company v. Peckham,88 the Supreme Court of Rhode Island held that extraordinary cash dividends declared out of assets earned before the creation of the trust are to be treated as capital. In Re Duffill's Estate 89 it was held by the Supreme Court of California that stock dividends declared out of it is provided that the trustee of stock shall not be liable for assessments if the stock is registered in his name as trustee or if the corporation has notice of the trust and of the identity of the cestuis que trust, but that the cestuis que trust shall be liable in such case. Cf. Lewis v. Switz, 74 Fed. (C. C. Neb.) 381 (1896); Cas. Trusts, 741. 86 104 Misc. 372, 171 N. Y. Supp. 981 (1918); 32 HARV. L. REV. 181 (1918); Cas. TRUSTS, 791. 87 226 N. Y. 114, 712, 123 N. E. 135 (1919). 88 107 Atl. (R. I.) 209 (1919); 68 U. of Pa. L. Rev. 85 (1919). 89 183 Pac. (Cal.) 337 (1919). income earned during the life of the trust are to be treated as income. On the other hand, the Supreme Judicial Court of Maine in Harris v. Moses,90 and the Supreme Court of Appeals of West Virginia in Security Trust Co. v. Rammelsburg 91 (two judges dissenting), following the Massachusetts rule, have held that stock dividends are capital although declared out of income earned during the life of a trust. In Massachusetts an extraordinary cash dividend was held to be income, although stockholders were given the right to apply it in subscribing for new stock at less than its market value, and although the trustees did so apply it.92 In the case just referred to, it was also held that a dividend payable in stock of a subsidiary company is to be treated as income, although in jurisdictions following the Pennsylvania rule such dividends are apportioned like all other dividends.93 BUSINESS TRUSTS The Massachusetts device of creating a trust for the carrying on of a business is rapidly growing in popularity. Express provisions for the creation of business trusts were adopted in Oklahoma by a recent statute 94 allowing such trusts to be created by a recorded instrument, limiting the life of the trust to twenty-one years or the lives of the beneficiaries, and providing that the trust estate shall be liable to third persons for acts of the trustees when acting as such, but that no personal liability shall attach to the 90 104 Atl. (Me.) 703 (1918). 91 97 S. E. (W. Va.) 122 (1918). 92 Smith v. Cotting, 231 Mass. 42, 120 N. E. 177 (1918). The "rights” were held to be capital. For other recent decisions as to stock subscription "rights," see Baker v. Thompson, 181 App. Div. 469, 168 N. Y. Supp. 871, affirmed 224 N. Y. N. E. 858 (1918) (capital); Re Thompson's Estate, 262 Pa. 278, 105 Atl. 273 (1918) (apportionable). See 18 COL. L. REV. 496 (1918). 592, 120 Krug v. Mercantile Tr. & Deposit Co., 104 Atl. (Md.) 414 (1918); U. S. Trust Co. v. Heye, 224 N. Y. 242, 120 N. E. 645 (1918); Matter of Megrue, 224 N. Y. 284, 120 N. E. 651 (1918). For recent decisions allowing apportionment of dividends on liquidation, see Re McKeown's Est., 263 Pa. 78, 106 Atl. 189 (1919); R. I. Hosp. T. Co. v. Bradley, 103 Atl. (R. I.) 486 (1918). For recent decisions as to what is income under the federal Income Tax Acts, see Towne v. Eisner, 245 U. S. 418 (1918) (stock dividends not taxable under act of 1913); Lynch v. Hornby, 247 U. S. 339 (1918) (cash dividends out of earnings accruing prior to 1913 held taxable); Peabody v. Eisner, 247 U. S. 347 (1918) (distribution of shares of subsidiary companies held taxable). 94 OKLA. LAWS, 1919, c. 16. trustees or the beneficiaries for such acts. In Crocker v. Malley 95 it was held that such a trust is not taxable as an association under the federal Income Tax Act of 1913. In Sleeper v. Park 96 it was held that the trustees were all liable as partners for the negligence of one of the trustees which resulted in an injury to the plaintiff, a third party. If the direction and control of the details of the business are retained by the beneficiaries, then they also may be held personally liable as partners.97 TERMINATION OF TRUSTS The doctrine of Claflin v. Claflin 98 has been accepted in Connecticut by the Supreme Court of Errors in the recent case of De Ladson v. Crawford.99 In that case a testator left property to a trustee with a direction to pay the income to his niece for ten years and at the end of that period to pay her the principal. No one except the niece was given any beneficial interest in the property. The court held that the provision for postponement of enjoyment was valid, and that the niece could not insist on a termination of the trust before the expiration of the ten-year period.100 The court was not impressed by the English decisions to the opposite effect, nor by Professor Gray's arguments. 101 In a dictum the court expressed the view that the provision for postponement would be valid against an assignee of the beneficiary as well as against the beneficiary herself. This is probably right, for otherwise the restraint would be a mere form.102 HARVARD LAW SCHOOL. Austin W. Scott. 95 249 U. S. 223 (1919); 33 HARV. L. REV. 118 (1919); 28 YALE L. J. 690 (1919). 232 Mass. 292, 122 N. E. 315 (1919). 96 97 Horgan v. Morgan, 233 Mass. 381, 124 N. E. 32 (1919). See CAS. TRUSTS, 774, note. In Cunningham v. Bright, 228 Mass. 385, 117 N. E. 909 (1917), 29 YALE L. J. 97 (1919), it was said that when the trustee of a business trust acquires the whole beneficial interest, the trust ends by merger. In Kimball v. Whitney, 233 Mass. 321, 123 N. E. 665 (1919), it was held that it was not necessarily improper in Massachusetts for a trustee to invest in preferred shares of a business trust, although the trust in question amounted to a partnership. 98 149 Mass. 19, 20 N. E. 454 (1889); CAS. TRUSTs, 828. 99 106 Atl. (Conn.) 326 (1919). 100 In Odom v. Morgan, 177 N. C. 367, 99 S. E. 195 (1919), an attempt to postpone enjoyment of the corpus for ten years was unsuccessful because the testator devised the legal estate to the beneficiary. See 33 HARV. L. Rev. 324. 101 GRAY, RULE AGAINST PERPETUITIES, 3 ed., § 120. HARVARD LAW REVIEW Published monthly, during the Academic Year, by Harvard Law Students SUBSCRIPTION PRICE, $3.00 PER ANNUM. 50 CENTS PER NUMBER Editorial Board CLOYD LAPORTE, President ROLLA D. CAMPBELL WILLIAM E. MCCURDY MARINE RISK AND WAR RISK. The exigencies of submarine warfare have made it difficult, in many cases, to decide whether the loss of a vessel should be borne by the marine or by the war insurer. War risks are themselves but a subdivision of the more general class of marine risks, but it early became customary for the marine underwriter specifically to except from his policy any liability for war losses, by a warranty "warranted free of capture and seizure and all consequences of hostilities and warlike operations"- generally known as the f. c. s. clause. The next step was for the shipowner to insure 1 The earliest English policies of marine insurance enumerate many perils of war among those the insurers undertake to bear. Magens gives a policy dated in London in 1744: "Touching the Adventures and Perils which we the Assurers are contented to bear, and take upon us in this Voyage, they are, of the Seas, Men of War, Fire, Enemies, Pirates, Rovers, Thieves, Jettizons, Letters of Mart and Countermart, Surprizals, Takings at Sea, Arrests, Restraints and Detainments of all Kings, Princes and People of what Nation, Condition or Quality soever, Barretry of the Master and Mariners and of all other Perils, Losses or Misfortunes that have come or shall come to the Hurt, Detriment or Damage of the said ship . . ." I MAGENS ON INSURANCE (London, 1755), 552. This form of policy has remained the standard to the present day. See 1 ARNOULD, MARINE INSURANCE, 9 ed., § 10. The British Marine Insurance Act, 1906 (6 EDW. VII, c. 41), specifically includes war perils in the definition of maritime perils. "Maritime perils' means the perils consequent on, or incidental to, the navigation of the sea, that is to say perils of the seas, fire, war perils... 6 EDW. VII, c. 41, § 3 (2) (c). A policy against the "risks contained in all regular policies of insurance" covers loss by capture. Levy v. Merrill, 4 Me. 180 (1826). A general policy without warranty covers war risks. Barnewall v. Church, I Caines (N. Y.), 217 (1803); Hodgson v. Marine Ins. Co., 5 Cranch (U. S.) 100 (1809). 2 See 2 ARNOULD, MARINE INS., 9 ed., § 903. |