Nichols v. Eaton - 91 U.S. 716 (1875)
U.S. Supreme Court
Nichols v. Eaton, 91 U.S. 716 (1875)
Nichols v. Eaton
91 U.S. 716
1. A devise of the income from property, to cease on the insolvency or bankruptcy of the devisee, is good, and a limitation over to his wife and children upon the happening of such contingency is valid, and the entire interest passes to them, but if the devise be to him and his wife or children, or if he has in any way a vested interest thereunder, that interest, whatever it may be, may be separated from that of his wife or children, and paid over to his assignee in bankruptcy.
2. Where, upon certain trusts therein limited and declared, a devise of real and personal property to trustees directed them to pay the income arising therefrom to A., and provided, that if he should alienate or dispose of it, or should become bankrupt or insolvent, the trust expressed respecting it should thereupon cease and determine, and authorized them, in the event of such bankruptcy or alienation, to apply it to the support of the wife, child, or children, of A., and, if there were none, to loan or reinvest it in augmentation of the principal sum or capital of the estate until his decease, or until he should have a wife or children capable of receiving the trust forfeited by him; and also provided that the trustees might at any time, in their discretion, transfer to him any portion not exceeding one-half of the trust fund, and in case, after the cessation of income on account of any cause specified in the will other than death, it should be lawful for the trustees, in their discretion, but without its being obligatory upon them, to pay to or apply for the use of A. or that of his wife and family, the income to which he would have been entitled in case the forfeiture had not happened, held that the bankruptcy or insolvency of A. terminated all his legal vested right
in the estate and left nothing in him to which his creditors or his assignee in bankruptcy could assert a valid claim. Held further that a payment voluntarily made to A. after his bankruptcy by the trustees under the terms of the discretion reposed in them cannot be subjected to the control of his assignee.
3. No case is cited or known to the Court which goes so far as to hold that an absolute discretion in trustees -- a discretion which, by the express language of the will, they are under no obligation to exercise in favor of the bankrupt -- confers such an interest on the latter as can be successfully asserted in any court by him or his assignee in bankruptcy.
4. When trustees are in existence and capable of acting, a court of equity will not interfere to control them in the exercise of a discretion vested in them by the instrument under which they act.
5. While the will in question is considered valid in all its parts upon the extremest doctrine of the English Chancery Court, this Court does not wish it understood that it accepts the limitations which that court has placed upon the power of testamentary disposition of property by its owner, nor does it sanction the doctrine that the power of alienation is a necessary incident to a devisee's life estate in real property or that the rents and profits of real and the income and dividends of personal property cannot be given and granted by a testator to a person free from all liability for the debts of the latter.
6. If that doctrine be sustained at all, it must rest exclusively on the rights of creditors; but, in this country, all wills or other instruments creating such trust estates are recorded in public offices, where they may be inspected by everyone. The law in such cases imputes to all persons concerned notice of all the facts which they might know by inspection. When, therefore, it appears by the record of a will that the devisee holds either a life estate or the income, dividends, or rents of real or personal property payable to him alone, to the exclusion of the alienee or creditor, the latter knows that he has no right to look to that estate, or to such income, dividends, or rents, as a fund to which he can resort to enforce the payment of a claim against the devisee. In giving the latter credit, he is neither misled nor defrauded when the object of the testator is carried out by excluding him from any benefit of such a devise.
7. American cases cited and examined.
The controversy in this case arises on the construction and legal effect of certain clauses in the will of Mrs. Sarah B. Eaton. At the time of her death and at the date of her will, she had three sons and a daughter, being herself a widow and possessed of large means of her own. By her will, she devised her estate, real and personal, to three trustees upon trusts to pay the rents, profits, dividends, interest, and income of the trust property to her four children equally, for and during their natural lives, and after their decease in trust for such
of their children as shall attain the age of twenty-one or shall die under that age having lawful issue living, subject to the condition that if any of her children should die without leaving any child who should survive the testatrix and attain the age of twenty-one years or die under that age leaving lawful issue living at his or her decease, then as to the share or respective shares, as well original as accruing, of such child or children respectively, upon the trusts declared in said will concerning the other share or respective shares. The will also contained a provision that if her said sons respectively should alienate or dispose of the income to which they were entitled under the trusts of the will, or if, by reason of bankruptcy or insolvency, or any other means whatsoever, said income could no longer be personally enjoyed by them respectively, but the same would become vested in or payable to some other person, then the trust expressed in said will concerning so much thereof as would so vest should immediately cease and determine. In that case, during the residue of the life of such son, that part of the income of the trust fund was to be paid to the wife and children, or wife or child, as the case might be, of such son, and in default of any objects of the last-mentioned trust, the income was to accumulate in augmentation of the principal fund.
There is another proviso which, as it is the main ground of the present litigation, is here given verbatim, as follows:
"Provided also that in case at any future period circumstances should exist which, in the opinion of my said trustees, shall justify or render expedient the placing at the disposal of my said children respectively any portion of my said real and personal estate, then it shall be lawful for my said trustees, in their discretion but without its being in any manner obligatory upon them, to transfer absolutely to my said children respectively, for his or her own proper use and benefit any portion not exceeding one-half of the trust fund from whence his or her share of the income under the preceding trusts shall arise, and immediately upon such transfer's being made, the trusts hereinbefore declared concerning so much of the trust fund as shall be so transferred shall absolutely cease and determine, and in case after the cessation of said income as to my said sons respectively otherwise than by death, as hereinbefore
provided for, it shall be lawful for my said trustees, in their discretion but without its being obligatory upon them, to pay to or apply for the use of my said sons respectively or for the use of such of my said sons and his wife and family, so much and such part of the income to which my said sons respectively would have been entitled under the preceding trusts in case the forfeiture hereinbefore provided for had not happened."
The daughter died soon after the mother, without issue and unmarried. Amasa M. Eaton, one of the sons of the testatrix, failed in business and made a general assignment of all his property to Charles A. Nichols for the benefit of his creditors in March, 1867, and in December, 1868, was, on his own petition, declared a bankrupt, and said Nichols was duly appointed his assignee in bankruptcy. Said Amasa was then, and during the pendency of this suit, unmarried, and without children. He, William M. Bailey, and George B. Ruggles (a son of testatrix by a former husband), were the executors and trustees of the will.
It will be seen at once that whether regard be had to the assignment before bankruptcy or to the effect of the adjudication of bankruptcy and the appointment of Nichols as assignee in that proceeding, one of the conditions had occurred on which the will of Mrs. Eaton had declared that the devise of a part of the income of the trust estates to Amasa M. Eaton should cease and determine, and, as he had no wife or children in whom it could vest, it became, by the alternative provision of the will, a fund to accumulate until his death or until he should have a wife or child who could take under the trust.
But Nichols, the assignee, construing the whole of the will together, and especially the proviso above given verbatim, to disclose a purpose, under cover of a discretionary power, to secure to her son the right to receive to his own use the share of the income to which he was entitled before the bankruptcy, in the same manner afterwards as if that event had not occurred, brought this bill against the said executors and trustees to subject that income to administration by him as assignee in bankruptcy for the benefit of the creditors.
Upon a final hearing, the circuit court dismissed the bill, and Nichols appealed to this Court.