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
Page 91 U. S. 717
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
Page 91 U. S. 718
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
Page 91 U. S. 719
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.
Page 91 U. S. 721
MR. JUSTICE MILLER, after stating the case, delivered the
opinion of the Court.
The claim of the assignee is founded on the proposition, ably
presented here by counsel, that a will which expresses a
purpose
Page 91 U. S. 722
to vest in a devisee either personal property or the income of
personal or real property and secure to him its enjoyment free from
liability for his debts is void on grounds of public policy, as
being in fraud of the rights of creditors, or, as expressed by Lord
Eldon in
Brandon v. Robinson, 18 Ves. 433, "If property is
given to a man for his life, the donor cannot take away the
incidents of a life estate."
There are two propositions to be considered as arising on the
face of this will as applicable to the facts stated: 1. does the
true construction of the will bring it within that class of cases,
the provisions of which on this point are void under the principle
above stated, and 2. pf so, is that principle to be the guide of a
court of the United States sitting in chancery?
Taking for our guide the cases decided in the English courts,
the doctrine of the case of
Brandon v. Robinson seems to
be pretty well established. It is equally well settled that a
devise of the income of property, to cease on the insolvency or
bankruptcy of the devisee is good, and that the limitation is
valid.
Demmill v. Bedford, 3 Ves. 149;
Brandon v.
Robinson, 18
id. 429;
Rockford v. Hackmen, 9
Hare; Lewin on Trusts, 80, ch. vii., sec. 2;
Tillinghast v.
Bradford, 5 R. I. 205.
If there had been no further provision in regard to the matter
in this will than that on the bankruptcy or insolvency of the
devisee, the trust as to him should cease and determine; or if
there had been a simple provision, that, in such event, that part
of the income of the estate should go to some specified person
other than the bankrupt, there would be no difficulty in the case.
But the first trust declared after the bankruptcy for this part of
the income is in favor of the wife, child, or children of such
bankrupt, and in such manner as said trustees in their discretion
shall think proper. If the bankrupt devisee had a wife or child
living to take under this branch of the will, there does not seem
to be any doubt that there would be nothing left which could go to
his assignee in bankruptcy. The cases on this point are well
considered in Lewin on Trusts, above cited, and the doctrine may be
stated that a direction that the trust to the first taker shall
cease on his bankruptcy, and shall then go to his wife or children,
is valid, and the entire interest passes to them; but that if the
devise be to
him
Page 91 U. S. 723
and his wife or children, or if he is in any way to receive a
vested interest, that interest, whatever it may be, may be
separated from those of his wife or children, and be paid over to
his assignee.
Page v. Way, 3 Beav. 20;
Perry v.
Roberts, 1 Myl. & K. 4;
Rippon v. Norton, 2 Beav.
63;
Lord v. Bunn, 2 You. & Coll.Ch. 98. Where,
however, the devise over is for the support of the bankrupt and his
family, in such manner as the trustees may think proper, the weight
of authority in England seems to be against the proposition that
anything is left to which the assignee can assert a valid claim.
Twopenny v. Peyton, 10 Sim. 487;
Godden v. Crowhurst,
id., 642.
In the case before us, the trustees are authorized, in the event
of the bankruptcy of one of the sons of testatrix without wife or
children (which is the condition of the trust as to Amasa M.
Eaton), to loan and reinvest that portion of the income of the
estate in augmentation of the principal sum or capital of the
estate until his decease or until he shall have wife or children
capable of receiving the trust of the testatrix forfeited by
him.
There does not seem thus far any intention to secure or revest
in the bankrupt any interest in the devise which he had forfeited,
and there can be no doubt that but for the subsequent clauses of
the will, there would be nothing in which the assignee could claim
an interest. But there are the provisions that the trustees may, at
their discretion, transfer at any time to either of the devisees
the half or any less proportion of the share of the fund itself
which said devisee would be entitled to if the whole fund were to
be equally distributed, and the further provision that, after the
cesser of income provided for in case of bankruptcy or other cause,
it shall be lawful but not obligatory on her said trustees to pay
to said bankrupt or insolvent son, or to apply for the use of his
family, such and so much of said income as said son would have been
entitled to in case the forfeiture had not happened.
It is strongly argued that these provisions are designed to
evade the policy of the law already mentioned; that the discretion
vested in the trustees is equivalent to a direction, and that it
was well known it would be exercised in favor of the bankrupt.
The two cases of
Twopenny v. Peyton and
Godden v.
Crowhurst,
Page 91 U. S. 724
above cited from 10 Sim., seem to be in conflict with this
doctrine, while the cases cited in appellant's brief go no farther
than to hold that when there is a right to support or maintenance
in the bankrupt or the bankrupt and his family, a right which he
could enforce, then such interest, if it can be ascertained, goes
to the assignee.
No case is cited, none is known to us, which goes so far as to
hold that an absolute discretion in the trustee -- a discretion
which, by the express language of the will, he is under no
obligation to exercise in favor of the bankrupt -- confers such an
interest on the latter, that he or his assignee in bankruptcy can
successfully assert it in a court of equity or any other court.
As a proposition, then, unsupported by any adjudged case, it
does not commend itself to our judgment on principle. Conceding to
its fullest extent the doctrine of the English courts, their
decisions are all founded on the proposition that there is
somewhere in the instrument which creates the trust a substantial
right, a right which the appropriate court would enforce, left in
the bankrupt after his insolvency and after the cesser of the
original and more absolute interest conferred by the earlier
clauses of the will. This constitutes the dividing line in the
cases which are apparently in conflict. Applying this test to the
will before us, it falls short, in our opinion, of conferring any
such right on the bankrupt. Neither of the clauses of the provisos
contain anything more than a grant to the trustees of the purest
discretion to exercise their power in favor of testatrix's sons. It
would be a sufficient answer to any attempt on the part of the son
in any court to enforce the exercise of that discretion in his
favor, that the testatrix has in express terms said that such
exercise of this discretion is not "in any manner obligatory upon
them" -- words repeated in both these clauses. To compel them to
pay any of this income to a son after bankruptcy or to his assignee
is to make a will for the testatrix which she never made, and to do
it by a decree of a court is to substitute the discretion of the
chancellor for the discretion of the trustees, in whom alone she
reposed it. 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
Page 91 U. S. 725
under which they act. Hill on Trustees 486; Lewin on Trusts 538;
Boss v. Goodsall, 1 Younge Collier 617;
Maddison v.
Andrew, 1 Ves.Sr. 60. And certainly they would not do so in
violation of the wishes of the testator.
But while we have thus attempted to show that Mrs. Eaton's will
is valid in all its parts upon the extremest doctrine of the
English Chancery Court, we do not wish to have it understood that
we accept the limitations which that court has placed upon the
power of testamentary disposition of property by its owner. We do
not see, as implied in the remark of Lord Eldon, that the power of
alienation is a necessary incident to a life estate in real
property or that the rents and profits of real property and the
interest and dividends of personal property may not be enjoyed by
an individual without liability for his debts being attached as a
necessary incident to such enjoyment. This doctrine is one which
the English Chancery Court has engrafted upon the common law for
the benefit of creditors, and is comparatively of modern origin. We
concede that there are limitations which public policy or general
statutes impose upon all dispositions of property, such as those
designed to prevent perpetuities and accumulations of real estate
in corporations and ecclesiastical bodies. We also admit that there
is a just and sound policy peculiarly appropriate to the
jurisdiction of courts of equity to protect creditors against
frauds upon their rights, whether they be actual or constructive
frauds. 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 benefits 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.
If the doctrine is to be sustained at all, it must rest
exclusively on the rights in creditors. Whatever may be the extent
of those rights in England, the policy of the states of this Union,
as expressed both by their statutes and the decisions of their
courts, has not been carried so far in that direction.
Page 91 U. S. 726
It is believed that every state in the Union has passed statutes
by which a part of the property of the debtor is exempt from
seizure on execution or other process of the courts -- in short, is
not by law liable to the payment of his debts. This exemption
varies in its extent and nature in the different states. In some it
extends only to the merest implements of household necessity; in
others it includes the library of the professional man, however
extensive, and the tools of the mechanic; and in many it embraces
the homestead in which the family resides. This has come to be
considered in this country as a wise, as it certainly may be called
a settled, policy in all the states. To property so exempted the
creditor has no right to look, and does not look, as a means of
payment when his debt is created, and while this Court has steadily
held, under the constitutional provision against impairing the
obligations of contracts by state laws, that such exemption laws,
when first enacted, were invalid as to debts then in existence, it
has always held that, as to contracts made thereafter, the
exemptions were valid.
This distinction is well founded in the sound and unanswerable
reason that the creditor is neither defrauded nor injured by the
application of the law to his case, as he knows, when he parts with
the consideration of his debt, that the property so exempt can
never be made liable to its payment. Nothing is withdrawn from this
liability which was ever subject to it or to which he had a right
to look for its discharge in payment. The analogy of this principle
to the devise of the income from real and personal property for
life seems perfect. In this country, all wills or other instruments
creating such trust estates are recorded in public offices, where
they may be inspected by everyone, and the law in such cases
imputes notice to all persons concerned of all the facts which they
might know by the inspection. When, therefore, it appears by the
record of a will that the devisee holds this life estate or 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 in creating a debt with such person, he had no right to
look to that income as a means of discharging it. 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.
Page 91 U. S. 727
Nor do we see any reason in the recognized nature and tenure of
property and its transfer by will why a testator who gives, 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. Why a parent, or one who loves another and
wishes to use his own property in securing the object of his
affection, as far as property can do it, from the ills of life, the
vicissitudes of fortune, and even his own improvidence, or
incapacity for self-protection, should not be permitted to do so is
not readily perceived.
These views are well supported by adjudged cases in the state
courts of the highest character.
In the case of
Fisher v. Taylor, 2 Rawle, 33, a
testator had directed his executors to purchase a tract of land,
and take the title in their name in trust for his son, who was to
have the rents, issues, and profits of it during his life, free
from liability for any debts then or thereafter contracted by him.
The Supreme Court of Pennsylvania held that this life estate was
not liable to execution for the debts of the son. "A man," said the
court,
"may undoubtedly dispose of his land so as to secure to the
object of his bounty, and to him exclusively, the annual profits.
The mode in which he accomplishes such a purpose is by creating a
trust estate, explicitly designating the uses and defining the
powers of the trustees. . . . Nor is such a provision contrary to
the policy of the law or to any act of assembly. Creditors cannot
complain because they are bound to know the foundation on which
they extend their credit."
In the subsequent case of
Holdship v. Patterson, 7
Watts 547, where the friends of a man made contributions by a
written agreement to the support of himself and family, the court
held that the installments which they had promised to pay could not
be diverted by his creditors to the payment of his debts, and
Gibson, C.J., remarked that
"the fruit of their bounty could not have been turned from its
object by the defendant's creditors had it been applicable by the
terms of the trust to his personal maintenance, for a benefactor
may certainly provide for the maintenance of a friend, without
exposing his bounty to the debts or imprudence of the beneficiary.
"
Page 91 U. S. 728
In the same court, as late as 1864, it was held that a devise to
a son of the rents and profits of an estate during his natural
life, without being subject to his debts and liabilities, is a
valid trust, and, the estate being vested in trustees, the son
could not alienate.
Shankland's Appeal, 47 Penn.St.
113.
The same proposition is either expressly or impliedly asserted
by that court in the cases of
Ashurst v. Given, 5 W. &
S. 323;
Brown v. Williamson, 36 Penn.St. 338;
Still v.
Spear, 45
id. 168.
In the case of
Leavitt v. Bierne, 21 Conn., Waite, J.,
in delivering the opinion of the court, says,
"We think it in the power of a parent to place property in the
hands of trustees for the benefit of a son and his wife and
children, with full power in them to manage and apply it at their
discretion, without any power in the son to interfere in that
management, or in the disposition of it until it has actually been
paid over to him by the trustees,"
and he proceeds to argue in favor of the existence of this
power, from the vicious habits or intemperate character of the son,
and the right of the father to provide against these
misfortunes.
In the case of
Nickell v. Handly, 10 Gratt. 336, the
court thus expressed its view on the general question, though not
perhaps strictly necessary to the judgment in that case:
"There is nothing in the nature or law of property which would
prevent the testatrix, when about to die, from appropriating her
property to the support of her poor and helpless relatives,
according to the different conditions and wants of such relatives;
nothing to prevent her from charging her property with the expense
of food, raiment, and shelter for such relatives. There is nothing
in law or reason which should prevent her from appointing an agent
or trustee to administer her bounty."
In the case of
Pope's Executors v. Elliott & Co., 8
Ben.Monr. 56, the testator had directed his executors to pay for
the support of Robert Pope the sum of $25 per month. Robert Pope
having been in the Rocky Mountains until the sum of $225 of these
monthly payments had accumulated in the hands of the executors, his
creditors filed a bill in chancery, accompanied by an attachment,
to subject this fund to the payment of their debt.
Page 91 U. S. 729
The Court of Appeals of Kentucky said that it was the manifest
intent of the testator to secure to Robert the means of support
during his life to the extent of $25 per month, or $300 per year,
and that this intent cannot be thwarted either by Robert himself by
assignment or alienation, or by his creditors seizing it for his
debts, unless the provision is contrary to law or public policy.
After an examination of the statutes of Kentucky and the general
principles of equity jurisprudence on this subject, they held that
neither of these were invaded by the provision of the will.
The last case we shall refer to specially is that of
Campbell v. Foster, 35 N.Y. Court of Appeals 361.
In that case, it was held, after elaborate consideration, that
the interest of a beneficiary in a trust fund, created by a person
other than the debtor, cannot be reached by a creditor's bill, and,
while the argument is largely based upon the special provision of
the statute regulating the jurisdiction of the court in that class
of cases, the result is placed with equal force of argument on the
general doctrines of the Court of Chancery, and the right of the
owner of property to give it such direction as he may choose
without its being subject to the debts of those upon whom he
intends to confer his bounty.
We are not called upon in this connection to say how far we
would feel bound, in a case originating in a state where the
doctrine of the English courts had been adopted so as to become a
rule of property, if such a proposition could be predicated of a
rule like this. Nor has the time which the pressure of business in
this Court authorizes us to devote to this case permitted any
further examination into the decisions of the state courts. We have
indicated our views in this matter rather to forestall the
inference that we recognize the doctrine relied on by appellants,
and not much controverted by opposing counsel, than because we have
felt it necessary to decide it, though the judgment of the court
may rest equally well on either of the propositions which we have
discussed. We think the decree of the court below may be
satisfactorily affirmed on both of them.
Other objections have been urged by counsel, such as that the
bankrupt is himself one of the trustees of the will, and
Page 91 U. S. 730
will exercise his discretion favorably to himself. But there are
two other trustees, and it requires their joint action to confer on
him the benefits of this trust. It is said that one of them is
mentally incompetent to act, but this is not established by the
testimony. It is said also that since his bankruptcy, the
defendant, Amasa, has actually received $25,000 of this fund; and
that should go to the assignee, as it shows conclusively that the
objections to the validity of the will were well founded.
But the conclusive answer to all these objections is that by the
will of decedent -- a will which, as we have shown, she had a
lawful right to make -- the insolvency of her son terminated all
his legal vested right in her estate, and left nothing in him which
could go to his creditors, or to his assignees in bankruptcy, or to
his prior assignee, and that what may have come to him after his
bankruptcy through the voluntary action of the trustees, under the
terms of the discretion reposed in them is his lawfully, and cannot
now be subjected to the control of his assignee.
Decree affirmed.
