Smith v. Towers

Robixsox, J.,

delivered the opinion of the Court.

The testator devised certain real estate to his friend John R. Fountain in trust to collect the rents and profits, and to pay the same to his son Robert, “into Ms oicn hands, and not into another, whether claiming by his authority ar otherwise,” and apon his death to convey said real estate, to such children of his son Robert as may be living at the time of his death.

Upon the construction of this clause of the testator’s will two questions arise: First, did the testator mean to give the income of the property to his son to the exclusion of his creditors, and secondly, if so are the terms and provisions of the will effectual to carry out this intention. There can be no difficulty whatever as *84 to the first point. He not only gives the legal estate-to the trustee, but he directs in express terms that he shall pay the income into the hands of his son and not into the hands of any other person, whether claiming-by his authority, or in any other capacity. Here then, is an express provision, that the income shall be paid to his son, and an express prohibition against paying it to any other person. If the income in the hands of' the trustee is liable to the claims of creditors, the trustee it is plain could not carry out the trust. So construing this will as we do, and it is not we think susceptible of any other construction, the testator-meant beyond all question that the income should be paid into the hands of his son, to the the exclusion of all other persons, whether claiming as alienees or as creditors. •

The next point, is one of more than ordinary importance, and has not heretofore been decided by this Court. A great deal may be said on both sides, and the question is not free of difficulty. In England the decisions are all one way, and it is well settled there, that the devise of an equitable estate or interest for life to any person, other than a married' woman, carries with it, as a necessary incident to such estate or interest, the right of alienation by the cestui que trust, and is liable for the payment of his debts, and no provision by way of inhibition or otherwise, which does not operate as a cesser or limitation over of the estate, can protect it against the claims of creditors. Brandon vs. Robinson, 18 Ves., 429; Rochford vs. Hackman, 9 Hare, 480; Graves vs. Dolphin, 1 Sim., 66; Green vs. Spicer, 1 Russ. & Myl., 395; Younghusband vs. Gisborne, 1 Collyer, 400.

In this country, however, the decisions are conflicting, and the Supreme Court of the United States, and the Supreme Courts of other States, have, after full consideration of the English cases, held, that the power of *85 alienation is not a necessary incident to an equitable estate for life, and that the owner of property may, in the free exercise of his bounty, so dispose of it as to secure its enjoyment to his beneficiary, without making it alienable by him, or liable in any manner for his debts, and that such an intention when clearly expressed by the founder of the trust, must be respected by the Courts. The Supreme Court after reviewing the English decisions, in an able opinion by Justice Miller, say:

“But the doctrine, that the owner of property in the free exercise of his will in disposing of it, cannot so dispose of it, but that the object of his bounty, who parts with nothing in return, must hold it subject to the debts due his creditors, though that may soon •deprive him of all the benefit sought to be conferred by the testator’s affection or generosity, is one which we are not prepared to announce as the doctrine of this Court. * * * blor do we see any reason, in the recognized nature and tenure of property and its transfer by will, why a testator who gives, -without any pecuniary return, who gets nothing of property value from the donee, may not attach to that gift, the incident of continued use, of uninterrupted benefit of the gift, during the life of the donee.” Nichols, Assignee vs. Eaton, et al., 91 U. S., 725, 727.

And in the still later case of Broadway National Bank vs. Adams, 133 Mass., 170, argued in June, 1881, and re-argued in March, 1882, the Court unanimously held, that property may be conveyed in trust, with the provision that the income shall not be alienated by the beneficiary by anticipation, or be subject to be taken by his creditors in advance of its payment to him, although there is no cesser or limitation over of the estate in such an event. Mortox, C. J., says: “We are not able to see that it would violate any *86 principles 'of sound public policy to permit a testator to give to the object of his bounty such a qualified interest in the income of a trust fund, and thus provide against the improvidence or misfortune of the beneficiary. * * * * Under our system, creditors may reach all the property of the debtor not exempt by law, but they cannot enlarge the gift of the founder of a. trust, and take more than he has given.”

And then again in Rife vs. Geyer, 59 Penn., 393,, Judge Shabswoou speaking for the Court says: “ That a benefactor has the power of thus restricting the enjoyment of his bounty through the medium of a trust during the life of the beneficiary is now the .unquestionable law of this State.” In Shankland’s Appeal, 11 Wright, 113, the point was expressly decided, and it-was there held that a trust to collect and receive rents- and pay over the same to a son of the testatrix for and during the tenn of his natural life, without being subject to his debts and liabilities was an active one, and that the legal estate was vested in the trustee, and no act of the cestui que trust could deprive him of it, or allow him to interfere with the collection of the income, and no creditor could touch the income or any interest which the cestui que trust had in it.

In Vermont, Connecticut and Kentuckjr, the highest-Courts have held that the income of property may be devised in trust for the benefit of the cestui que trust for life to the exclusion of the claims of his creditors. Ex’rs of White vs. White, 30 Vert., 338; Leavitt vs. Beirne, 21 Conn., 1; Pope’s Ex’rs vs. Elliott, 8 B. Mon., 56.

In other States, however, and it may be said in the-majority of the States where the question has arisen, the English rule has been adopted without qualification. Tillinghast vs. Bradford, 5 R. I., 205; Pick, vs. Pitchford, 1 Dev. & Batt. Eq., 480; Heath vs. Bishop, 4- *87 Rich. Eq., 46; Bailie vs. McWhorter, 56 Ga., 183; Rugely and Harrison vs. Robinson, 10 Ala., 702.

In this State there is no decision to govern us, and with conflicting decisions in other Courts entitled to the highest consideration, the question is one after all to be determined by us on principle. The English decisions rest on two grounds, first, that the right of alienation is a necessary incident to an equitable estate for life,.and any restraint upon this right is against the policy of the law which favors the ready alienation of property; and secondly, that public policy forbids that one should have the right .to enjoy the income of property, to the exclusion of his creditors. Now the right to sell and dispose of property, is a necessary incident of course to the absolute ownership of such property. You cannot give to one a fee simple interest, and then say he shall not sell or dispose of it, because the right to alien it, is a legal and necessary incident to the estate granted, and to impose such a condition would be repugnant to the nature and tenure of the estate itself. And besides the best interests of the public require that there should be a ready transmission of property. But the reasons on which the rulé is founded do not apply to the transfer of property in trust. Where by the terms of the trust, the legal estate is vested in a trustee he takes the legal titlwith the necessary incidents attached to it, and among such incidents is the right to alien it. The cestui que trust takes the equitable estate with the right to the accrued income, and when this has been paid to him, the absolute right to dispose of it. So neither the principal, nor the income can be said to be inalienable. And besides, the policy of the law is not against all restraints on the absolute right to dispose of it. You may give one an estate for life, with a provision that the estate shall go over to a third person upon aliena *88 tion voluntary or involuntary, by the life tenant. You cannot give property to be held in perpetuity, but you may give one an estate for life, with a limitation over to lives in being, and twenty-one years thereafter. And so by the English rule you may give an equitable estate for life, with a limitation over or a cesser to a third person, should the life tenant attempt to alien it. Now in all these instances, there is a restraint to a greater or less degree on the right of alienation. The law does not therefore forbid all and any restraints on the right to dispose of it, but only such restraints as may be deemed against the best interests of the community. And the gift of an equitable right to the income from property for the life of the beneficiary, to the exclusion of his alienee, is not, in our opinion, repugnant to the estate or interest granted, nor is it such a restraint on the right of alienation as the law for reasons of public policy forbids.

And then as to the other ground, that it is against the policy of the law to permit one to hold' and enjoy an estate or interest in property for life, whether legal or equitable, to the exclusion of his creditors. Now common honesty requires, of course, that -every one should pay his debts, and the policy of the law for centuries has been to subject the property of a debtor of every kind which he holds in his own right, to the payment of his debts. He has as owner of such property the right to dispose of it as he pleases, and his interest is, therefore, liable for the payment of his debts. But a cestui que trust does not,hold the estate or interest in his own right; he has but an equitable and qualified right to the property or to its income, to be held and enjoyed by the beneficiary on certain terms and conditions prescribed by the founder of the trust. The legal title is in the trustee, and the cestui que trust derives his title to the income through the instrument by which *89 the trust is created. The donor or devisor, as the absolute owner of the property, has the right to prescribe the terms on which his bounty shall be enjoyed, unless such terms be repugnant to the law. And it is no answer to say that the gift of an equitable right to income to the exclusion of creditors is against the policy of the law. This is begging the question. Why is it against the policy of the law? what sound principle does it violate? The creditors of the beneficiary have no right to complain, because the founder of the trust did not give his bounty to them. And if so, what grounds have they to complain because he has seen proper to give it in trust to be received by the trustee and to be paid to another, and not to be liable while in the hands of the trustee to the creditors of the cestui gue trust.- All deeds and wills and other instruments by which such trusts are created, are required by law to be recorded in the public offices, and creditors have notice of the terms and conditions on which the beneficiary is entitled to the income of the property. They know that the founder of the trust has declared that this income shall be paid to the object of his bounty to the exclusion of creditors, and if under such circumstances they see proper to give credit to one who has but an equitable and qualified right to the enjoyment of property, they do so with their eyes open. It cannot be said that credit was given upon such a qualified right to the enjoyment of the income of property, or that creditors have been deceived or mislead; and if the beneficiary is dishonest enough not to apply the income when received by him to the payment of his debts, creditors have no right to complain because they cannot subject it in the hands of the trustee to the payment of their claims, against the express terms of the trust. The hardship to them is one that will surely bring about its own remedy, for the dishonest *90 beneficiary it is plain would- soon be without credit. And then, as to the rights of. creditors, these may be defeated even according to the English decisions, by providing that in the event of the recovery of a judgment against the cestui que trust, or upon his insolvency, his interest in the property shall cease, and shall go to another. Now what advantage to the creditor is the cesser or limitation over? What he wants is the money due to him, and this is not paid by depriving the beneficiary of the property.. But it may be said, that sooner than lose his interest in the propert3, self-interest, if no .higher consideration, will prompt him -to pay his debts. There is force in this, but with the best intentions any one may by the chances and hazards incident to every pursuit in life, be unable to pay his debts, and in that event by depriving one of his property by limitation over to a third person, you may deprive him of She very means by which he might in the future repair his fortune. So it does not seem to us there is.any substantial advantage to the creditor, in thus permitting the founder of the trust to do that indirectly, which we think he can do directly. And then again, by the English rule the rights of creditors ma3'- be excluded by providing that the income may be paid or not to the beneficiary at the option of the trustee. To impose a requirement, so harsh in itself, upon the bounty of a donor or devisor who may desire to provide for the certain support of the object of his bounty is not Avarranted, it seems to us, by any principle of justice or sound public policy. And a rule of law which requires this to be done, and one Avhich may be evaded by carefully draAvn terms and provisions, is hardly worth preserving. Upon principle, therefore, we are of opinion, that the founder of a trust may pror vide in direct terms that his property shall go to his beneficiary to the exclusion of his alienees, and to the *91 exclusion, of his creditors. This being so, the rents and profits in the hands of the trustee, and which the testator in the will before us directs shall be paid into the hands of his son, Robert, and “not into the hands of another, whether claiming by his authority or otherwise,” cannot, in our opinion, be reached by his creditors by any process, either at law or in equity, before such rents and profits are paid to him.

(Decided 12th June, 1888.)

Judgment affirmed.