A conveyance of specifically described real and personal estate
to a trustee on the trust that he shall sell the same and any and
all other property belonging to the grantor not exempt from
execution which by any oversight may have been omitted in the
foregoing list and apply the proceeds to the payment of the
grantor's debts passes all the estates and interest in property
which the grantor at the date held and could alien, or which were
then liable at law or in equity for the payment of his debts.
Whether an equitable interest in real estate is liable to be
appropriated by legal process to the payment of the debts of the
beneficiary is to be determined by the local law where the property
has its situs.
Nichols v.
Levy, 5 Wall. 433, cited and approved.
§ 49, c. 22 of the Chancery Practice Act of Illinois (Hurd's
Rev.Stat.Ill. 195), providing for creditors' bills of discovery and
to reach and apply equitable estates to the satisfaction of debts,
applies to all cases in which the creditor can obtain a lien only
by filing a bill in equity for that purpose.
MR. JUSTICE MATTHEWS delivered the opinion of the Court.
This is a bill in equity filed by the appellant as assignee in
bankruptcy of Charles U. Shreve to subject an equitable interest in
certain real estate, situated in Chicago, and its rents, issues,
and profits, alleged to be the property of the bankrupt and assets
belonging to his estate. The appeal was from a decree dismissing
the bill for want of equity.
The question to be determined arises upon these facts:
Thomas T. Shreve died at Louisville, Kentucky, his domicile,
November 5, 1869, leaving a last will, duly admitted to probate and
record in that state. By that will, after providing for certain
special devises, he directs his estate to be divided into five
equal parts, of which
Page 111 U. S. 543
he wills that one-fifth part be allotted to his son, Charles, U.
Shreve, "subject to such conditions and restrictions as hereinafter
named." The twelfth clause of the will is as follows:
"12. As soon after my death as it can be conveniently done, I
wish my executor hereinafter named, after first setting apart a
fund sufficient to pay the above-named special devises and
incidental expenses, to make out a full and complete list and
schedule of all my estate, of every character and description,
real, personal, and mixed, in the State of Kentucky and elsewhere,
and hand the same to the following-named persons, to-wit, James W.
Henning, A. C. Badger, and A. Harris, who or any two of whom I
desire to proceed to value it and divide it into five equal shares
upon the principles hereinbefore indicated. One-half of each share
(which half I wish to be income-paying real estate) I desire to be
set apart and conveyed to a trustee, to be held for the use and
benefit of each child during his or her life and then descend to
his or her heirs, without any power or right on the part of said
child to encumber said estate or anticipate the rents thereof, but
said trustee shall collect said rents and, after paying taxes,
insurance, and keeping the property in repair, pay the rent to the
child in person quarterly, or as the same may be collected
according to the terms of the lease; the other half of each share I
wish conveyed to each child in fee, to do with as he or she may
please."
"In placing these restrictions upon one-half of the estate I
give my children, I do not wish it understood that I distrust their
capacity to manage their own affairs, for I do not, but believe
one-half of a share that each will receive will afford ample means
to commence and conduct a respectable business, and as the other
half will give them a comfortable living in the event they should
be unfortunate in business or otherwise, and now having it in my
power, it is my pleasure, as I believe it to be my duty, to shield
and protect them against casualties and accidents as far as
possible."
The trustee for each child was to be appointed by the Louisville
Chancery Court, and after the division of the estate had been made
and the report thereof by the commissioners recorded,
Page 111 U. S. 544
the executor of the will was directed to make deliveries,
transfers, and conveyances according to the report and the
directions of the will. In pursuance of these directions, a
division of the estate was made and the share allotted to Charles
U. Shreve, embracing the premises described in the bill, was
conveyed by the executor by deed executed on June 25, 1870, to John
M. Shreve, appointed to be trustee for Charles U. Shreve, to be
held by him
"for the use and benefit of said Charles U. Shreve during his
life, and then to descend to his heirs, without any power or
authority of said Charles U. Shreve to encumber said estate or
anticipate the rents thereof, but said trustee shall collect said
rents, and after paying taxes, insurance, and keeping the property
in repair, pay the rent to the said Charles U. Shreve in person
quarterly, or as the same may be collected, according to the
leasing thereof, and with all other rights, duties, powers, and
restrictions as are conferred and imposed by the will of said
Thomas T. Shreve, deceased."
The trustee accepted the trust and entered into possession of
the property in execution of it.
On June 20, 1876 at Louisville, Charles U. Shreve conveyed to J.
M. Shreve "all the real, personal, and mixed property owned by said
party of the first part, not exempt from execution, and which is as
follows," being certain specifically described lots and tracts of
land, some in Cook County, Illinois, and some in Kentucky, and
certain personal property, to have and to hold on certain trusts,
viz., that the party of the second part shall
"immediately proceed, in such manner as to him shall seem best,
either by public or private sale or by instituting suit in the
Louisville Chancery Court, to sell and have sold all the foregoing
property, and any and all other property belonging to said first
party not exempt from execution which by any oversight may have
been omitted in the foregoing list,"
&c., for the payment of the debts of the grantor -- first,
all such as were specifically secured by liens on the property
conveyed; second, all unsecured debts equally, and any surplus to
return to the grantor,
"it being the object and intent of this conveyance to transfer
to said second party all the property belonging to said
Page 111 U. S. 545
first party not exempt from execution for the benefit of all the
creditors of said first party."
This deed did not describe any property held in trust for the
grantor under his father's will, of which that named in the bill is
a part, but the Court of Appeals of Kentucky, in
Knefier v.
Shreve, 78 Ky. 297, had before it the very question as to the
construction of this deed, and decided that all the estate and
interests in property which at its date the grantor held, which he
could alien, and which was liable at law or in equity for the
payment of his debts, passed by its terms, and in that decision we
concur. Such was the manifest intention of the grantor, and the
language of the deed to which we have referred is broad enough to
effect it. Subsequently, by appropriate judicial proceedings in
Kentucky, James Buchanan was substituted for John M. Shreve as
trustee under this assignment. Buchanan, on August 16, 1878, filed
a bill in equity in the Superior Court of Cook County, Illinois, to
enforce the trusts of this conveyance for the benefit of creditors,
claiming under it the right to subject for that purpose the estate
and interest of Charles U. Shreve, under the trusts of his father's
will, described in the bill in this case. That suit was pending
when the present was commenced. A decree was afterwards rendered
dismissing the bill of Buchanan for want of equity on general
demurrer. In the meantime, on August 31, 1878, Charles U. Shreve
filed his petition in bankruptcy in the District Court for Kentucky
and was adjudicated a bankrupt, the appellant being appointed his
assignee, to whom all the estate and effects of the bankrupt were
duly assigned according to the act of Congress.
The bill in this case was filed February 27, 1879, but, although
it asserts a contradictory title to that set up and insisted upon
by Buchanan, as trustee, under the conveyance to John M. Shreve for
the benefit of creditors, and although Buchanan himself is made a
party defendant, no notice is taken in the bill of his claim of
title. And yet it is too clear for argument that if the estate and
interests of the bankrupt, sought to be subjected in this suit,
were assignable and are liable to be taken at law or appropriated
in equity for the payment
Page 111 U. S. 546
of his debts, they passed by the previous deed of assignment and
are vested in Buchanan, for the conveyance under which he derives
title was made more than two years before the bankruptcy, and has
not on any ground been assailed as affected by the bankrupt law, so
that the foundation of the case asserted in the bill is entirely
taken away. It is shown that nothing of what is therein claimed
could pass to the assignee in bankruptcy, because it had already
passed to another. On the other hand, if nothing passed by the deed
under which Buchanan claims affecting the estate and interests in
controversy, it must have been because, under the law of Illinois,
which, of course, governs in respect to interests in real estate
situated in that state, those interests were not liable to be
appropriated to the payment of the debts of the beneficiary, and
were therefore not embraced in the description of the property
conveyed. That such questions are determinable only by the local
law where the property has its situs was expressly decided in
Nichols v.
Levy, 5 Wall. 433, and was also intimated in
Nichols v. Eaton, 91 U. S. 716,
91 U. S. 729.
The Bankruptcy Act, sec. 5045, Rev.Statutes, expressly adopts the
local law of the state as to such exemptions.
And in Illinois, the subject is regulated by a special statutory
provision. By § 49, c. 22 (Hurd's Rev.Stat.Illinois 195), of the
Chancery Practice Act of that state, providing for creditors' bills
of discovery, and to reach and apply equitable estates and
interests to the satisfaction of debts, property held in trust is
made subject to that proceeding, "except when such trust has, in
good faith, been created by, or the fund so held in trust has
proceeded from, some person other than the defendant himself." The
Tennessee statute, which was applied to the exoneration of the
interests sought to be appropriated in
Nichols v.
Levy, 5 Wall. 433, was substantially the same as
this, and both seem to be copies from that of New York, 2 Rev.Stat.
173, §§ 38, 39, although in the last-named state, as appears from
the decision of the Court of Appeals in
Williams v. Thorn,
70 N.Y. 270, and
McEvoy v. Appleby, 27 Hun. 44, another
statute, 1 R.S. 729, § 57, limits the exemption, in cases where
income is payable under such a trust, to the principal
Page 111 U. S. 547
fund itself, and the beneficial interest of the
cestui que
trust in the income only to the extent of a fair support of
the beneficiary out of the trust estate.
The statute of Illinois does not apply merely, as is argued, to
cases where a technical discovery is sought, but to all cases where
the creditor or his representative is obliged, by the nature of the
interest sought to be applied, to resort to a court of equity for
relief, as he must do in all cases where the legal title is in
trustees, for the purpose of serving the requirements of an active
trust, and where consequently the creditor has no lien, and can
acquire none at law, but obtains one only by filing a bill in
equity for that purpose. If the trust was merely passive, and
therefore executed by the law of its locality, in the
cestui
que trust, so as to be subject to the levy of executions at
law, and the present was such a case, then the bill would fail
because the remedy at law would be adequate and complete.
The case has been argued by counsel as if it depended upon or at
least involved the question whether, upon general principles of
equity jurisprudence, as administered in the courts of the United
States, the terms of the trust in favor of Charles U. Shreve, under
his father's will, exceeded the limits fixed for restraints upon
the alienation of property held for the beneficial use of the
cestui que trust and its exoneration from the liability to
be taken for payment of his debts.
It cannot be doubted that it is competent for testators and
grantors, by will or deed, to construct and establish trusts, both
of real and personal property, and of the rents, issues, profits,
and produce of the same, by appropriate limitations and powers to
trustees, which shall secure the application of such bounty to the
personal and family uses during the life of the beneficiary, so
that it shall not be subject to alienation, either by voluntary act
on his part, or
in invitum, by his creditors. The limits
within which such provisions may be made and administered, of
course, must be found in the law of that jurisdiction which is the
situs of the property, in case of real estate, and, in cases of
personalty, where the trust was created or is to be administered,
according to circumstances. And in determining
Page 111 U. S. 548
those limits, that law declares how far and by what forms and
modes the institution of property may be permitted to accommodate
itself to the will and convenience of individuals without prejudice
to public interest and policy; by what limitations and instruments
its usual incidents may be affected and altered, so as to
effectuate the intentions of parties; how far the dominion, implied
in the idea of property, may be extended so as to limit the future
dominion of those who succeed to its beneficial enjoyment.
It follows, therefore, that the judgment in each case must be
determined by the positive provisions of the law of the locality
which governs it and the particular terms of the instrument by
which the scheme is framed. And, applied to the circumstances of
the present case, the question would be merely whether, according
to the law of Illinois, the terms of the trust, established under
the will of Thomas T. Shreve, created an interest or estate in the
beneficiary which, not having been previously conveyed to another,
could be taken at law or in equity for payment of his debts, and
which therefore vested in his assignee in bankruptcy. That
question, as we have already shown, so far as required by the case,
is answered by the declaration that as nothing has been assigned to
the appellant except what had not been previously conveyed and
could lawfully be subjected to the payment of his debts, and as the
interest in question was either vested in Buchanan or could not be
so subjected, by reason of the positive provisions of the statute
of Illinois, to which we have referred, the appellant has shown no
right to the relief for which, in his bill, he prayed.
The decree of the circuit court is accordingly
Affirmed.