Bryan v. Knickerbacker

1 Barb. Ch. 409

Opinion

The Chancellor.

The technical objection made by the counsel for the appellants, that the judgment of one of the complainants was less than $100, cannot be sustained. That question was examined by this court in the case of Sizer and others v. Miller, (9 Paige’s Rep. 605;) and the objection was decided to be invalid.

The vice chancellor has not, by the decree, in terms declared the trust created in this case void, as to the personal estate conveyed to the trustee. But he has done so in effect, by declaring that the judgments of the complainants, for debts created subsequent to the execution of the trust deed, were a. charge upon such personal property, as well as upon the income thereof and upon the rents of the real estate; in which income and rents the judgment debtor was interested, to a certain extent, at the time of filing the bill in this cause, by the express provisions of the trust. It therefore becomes necessary to examine the question respecting the validity of the trust as to the capital of the personal property, conveyed by the trust- deed, as well as to determine the rights of the respondents in relation to the rents and income of the real and personal estate conveyed in trust.

. The trust having been created previous to the revised statutes, its validity or invalidity does not depend upon their provisions; but upon the law of this state as it existed previous to the first of January, 1830. It is not alleged, in the complainant’s bill, that the object of creating this trust was to defraud the creditors of the grantor in the deed ; nor is it any where stated that he owed any debt whatever at the time of the creation of the trust. The simple question presented, then, as to the validity of the trust, so far as relates to that part of the capital of the trust fund which consisted of personal property at that time is, whether, as the law then was, a person not in debt had the right to give such property to a trustee, for the sole use and benefit of those who should be the next of kin of the donor at the time of his death. ■ It is true, this limitation in remainder is, and must remain, contingent during the life of the donor; for it cannot be determined until his death who will be his next of kin, and entitled to the property according to the'terms of the trust. But it is every day’s practice to limit such contingent remainders in personal property and chattels real, through the medium of a trustee. And such limitations are valid, provided the absolute ownership of the property is not suspended beyond the period allowed by law. (Lewin on Trusts, 142.) This part of the trust, therefore, is valid, not only as to the grantor in the trust deéd but as to all persons claiming under him by title subsequent. And as he could not in any way have defeated his trust by any act of his own, it is difficult to conceive how his creditors, whose debts have been contracted subsequent to the creation of this trust, can be entitled to satisfaction out of the capital of the personal estate; in-which their judgment debtor has no interest. The part of the decree of the vice chancellor which declares that the complainants are entitled to have their judgments and costs satisfied out of the capital of the personal estate in the hands of the trustee, is erroneous and must be reversed.

Previous to the revised statutes, a trust for the accumulation of the rents of real estate, or of the income of personal property, might be created, to continue for the same length of time that the power of alienation, or the absolute ownership of such property, might legally be suspended. And the accumulated fund might be limited to any person or class of persons who should be in esse at the termination of such trust. (Thelluson v. Woodford, 4 Ves. 227; 11 Idem, 112, S. C.; Rand, on Perp. 197.) There does not, therefore, appear to be any objection to the validity of the trust to receive the rents and income of the property during the life of the party creating such trust, and to apply so much of the rents and income as may be reasonable and proper to the support of himself and his family for the same period; and to accumulate the residue, in the meantime, for the use and benefit of those who may be his next of ldn at his death. It is true, such a trust for accumulating the rents and income of property could not now he created. For by the provisions of the revised statutes, a valid trust for the accumulation of the rents and profits of real estate, or the interest or income of personal property, can only be created for the benefit of a minor or minors who is or are in existence when the accumulation is to commence ; and the accumulation must cease with the termination of such minority. (1 R. S. 726, § 37, 33. Idem, 773, § 3, 4.) But these provisions of the revised statutes cannot affect the validity of a trust of accumulation which had been created long before those statutes went into effect.

The trust for the accumulation of the rents and income, for the benefit of the next of kin, being a valid trust, in the present case, the only interest which N. V. Knickerbacker, the judgment debtor, had in the trust estate, was his right to a reasonable allowance for his support out of the rents and income thereof during his natural lifey The part of the decree of the vice chancellor, therefore, which declares that the complainants are entitled to have their judgments and costs satisfied and paid out of the rénts and income of the trust estate generally, is erroneous ; and it must be reversed so far as respects that portion of the rents and income which, by the provisions of the conveyance creating the trust, are directed to be accumulated for the benefit of the next of kin.

But it appears that the amount which the trustee, in the exercise of the discretion vested in him by the trust deed, has hitherto considered a reasonable allowance for the support of N. Y. Knickerbacker, as a single man, has been $900 per annum; exclusive of some extra allowances occasionally made to him for the payment of debts. It is evident, therefore, that if .this interest of the judgment debtor, in the rents and income of the trust property, could be reached by the complainants on a creditor’s bill, the amount or value of such allowance for a single yeai, after they had obtained a lien thereon in the hands of the trustee, by the commencement of this suit, would be sufficient to pay their judgments with interest and costs. And as a year and a half had elapsed between the commencement of this suit and the decree of the vice chancellor, there was no necessity for resorting to that part of the trust property, and of the rents or income thereof, which was limited to the next of kin, to enable the complainants to obtain satisfaction of their debts and costs. Even if the amount of the annual allowance of ¡$900, which had accrued subsequent to the filing of the bill, had not been sufficient at that time, the decree could have directed satisfaction to be made, for any deficiency, out of the portion of the income to which the judgment debtor should thereafter be entitled, from time to time, under the provision of the trust deed for his personal support. For the interest of a cestui que trust in therents or income of trust property, under a trust of this kind, created previous to the revised statutes, was not inalienable by the cestui que trust. It would, therefore, pass to. an assignee in bankruptcy, or by virtue of an assignment under the insolvent acts. And if so, it could also be reached by a creditor’s bill, in anticipation, although the rents or income had not in fact accrued at the time of filing such bill. The case is otherwise as to the interest of the judgment debtor in such a trust created since the revised statutes. For as the interest of the cestui que trust is inalienable by him before the rent or income of the trust fund has actually accrued, the surplus, which the statute has specially authorized the judgment creditor to reach in that case, cannot be reached by such creditor by anticipation. (Clute v. Bool, 8 Paige's Rep. 83.)

It only remains to be considered whether the interest which the judgment debtor really has, in the rents and income of the trust property in this case, can be reached and appropriated to the payment of his debts. The fund out of which the provision for the support of the judgment debtor is derived, in this case, proceeded from him, or was created by himself. No question therefore arises, under the exceptions in the sections of the revised statutes relative to creditor’s bills. (2 R.S. 174, §§41, 42.) But the question is whether his right to a reasonable allowance out of the rents and income of the trust property, is one which he could himself have enforced, either at law or in equity. It is insisted by the counsel for the appellants, that the judgment debtor has no vested interest whatever in this trust; and that if the trustee should refuse to apply any of the rents or income of the trust property to his support, he would be entirely without remedy. Such, however, cannot be a correct view of the law upon this subject. It is true the trustee, by the terms of the trust, has a very extended discretionary power as to the amount which is to be applied for the support of the ceslui que trust. But the amount of the allowance which the trustee is bound to make does not depend upon the exercise of an arbitrary discretion, without reference to the situation of the cestui que trust and the amount of the property, or fund, Out of which the allowance for his support is to be made. In other words, he is bound to make such an allowance as he honestly and conscientiously does deem discreet and reasonable, and not such as he shall merely say is reasonable. In this case, the trustee had been in the habit, for about fourteen years previous to the filing of the complainants’ bill, of allowing the cestui que trust $900 annually for his support. And if, without any diminution of the income of the trust fund, or change in the circumstances or habits of the defendant, or other apparent cause, the trustee had cut down the allowance to half that amount, no one could well suppose the trustee actually thought that allowance was discreet and reasonable. In such a case this court might come to the conclusion that it was an arbitrary and unconscientious exercise of power without right, amounting to a breach of trust, and might proceed to remove him from the trust; or might refer it to a master to inquire and report what was a reasonable allowance for the support of the cestui que trust, under the circumstances of the case, and direct the payment accordingly.

In the case of Green v. Spicer, (1 Russ. Myl. Rep. 395,) the trustees were, by the will, directed to receive the rents and profits of the trust estate, and to apply the same to the support and benefit of the testator’s son, during his life, in such manner as they might deem proper; such application to be at the entire discretion of the trustees. And the will further directed, that the son should not have the power to sell, mortgage or anticipate such rents and profits in any way. But the son being after-wards discharged under the insolvent act, Sir John Leach decided that the whole rents and profits should go to the assignee of the insolvent. A similar decision was made by the same distinguished equity judge, in the case of Piercy v. Roberts, (1 Myl. & Keene's Rep. 4.) There the trustees had an unlimited discretion to apply the trust fund for the use of the son of the testator, in larger or smaller portions, at such time or times, immediate or remote, and in such way or manner, as they in their judgment and discretion should think best. And in case of his death before the whole fund had been applied to his use, it was directed to sink into the residue of the testator’s estate, and to be disposed of in the particular manner directed by the will. But the son, for whose use the fund was created, having been discharged under the insolvent act before the whole trust fund had been paid to him,, the question arose whether the residue thereof should remain in the hands of the trustees, to be thereafter applied to his benefit, at their discretion, or should pass to the assignee of the insolvent. And the court held that the discretion of the trustees was determined by the insolvency, and that the fund passed by the assignment. The distinction between that case and the one now under consideration is, that in the first it was evidently intended that the whole trust fund should go for the benefit of the son at the discretion of fhe trustees, without reference to the question whether it might, or might not, be necessary for his'sirpptort; while, in the last, the trustee has no right to devote any more of the income of the trust property to the support of the person who created the trust than he may deem reasonable for that purpose. And as to the surplus of such income, there is an absolute limitation of the same to the next of kin; except so much of that, surplus as should be necessary for the support of his family, if he should marry and have a family. As the judgment debtor himself has no beneficial interest in such surplus, the complain'ants are not entitled to have it applied to the satisfaction of their debt.

The same distinction exists between this case and that of Snowden v. Dales, (G Sim.' Rep. 524,) which came before the vice chancellor of England two years' after the decision of the master of the rolls in Piercy v. Robert's. There the sum of £800 was conveyed to trustees in trust, during the life of J. D. H.y or during such part thereof as they should think proper,'and at their will and pleasure but not otherwise, or at such times and in such sums as they should judge proper and expedient, to pay the interest of the £800 into his hands, or to apply the same, if they should see fit, in procuring for him diet, lodging, clothing, and other necessaries; but so that he should not have any right or demand in or to such interest, other than such as they, in their uncontrolled discretion should think proper and expedient, and so that none of his creditors should have any lien or claim thereon in any event. There was also a limitation over of the interest to his widow, after his decease, if he should marry and leave one; and an ultimate limitation over of the principal of the £800, and the savings and accumulations of interest, if any, to others•, after the death of both'. And yet it was decided, in that case, that upon the bankruptcy of J. D. H., the whole of the interest of the £800, during his life, passed to his assignees. The ground upon which that decision was placed by the court was, that although it was evidently the intention of the person creating the trust to exclude the assignees in bankruptcy, there was nothing in the deed which amounted to a direction to the trustees to withhold the payment of the interest, and to accumulate it during the life of J. D. H. for the benefit of the ultimate remaindermen, if they in their discretion should think proper to do so. But I confess I should have come to a different conclusion upon the question of construction. I should have held that the trustees had an absolute and arbitrary discretion on that subject; and that the assignees in bankruptcy were only entitled to so much of the interest of the trust fund as the trustees should not, in their discretion, think proper to retain and accumulate for the benefit of the ultimate remaindermen. This erroneous construction of the terms of the grant does not, however, impair the principle of the decision, that where a cestui que trust has a beneficial interest in a fund, for his support and maintenance, under a valid trust-created previous to the adoption of the revised statutes, such interest will pass to his assignees in bankruptcy, or under our insolvent acts, or by his own voluntary assignment to a third person. And consequently, it may be reached upon a creditor’s bill; especially when the fund so held in trust has proceeded from himself and not from a third person. The conclusion at which I have arrived, therefore, is, that the provision for the support of the judgment debtor, for life, out of the income of the trust property, created a beneficial interest which can be reached by this suit.

It was erroneous, in this case, to charge the costs upon the trustee personally; as he was litigating in good faith, for the protection of the trust fund, and could not safely have paid the judgments of the complainants otherwise than under the protection of a decree of the court. For although he was the next of kin, and the presumptive heir at law of his son, at the time of the commencement of this suit, the chances are against his surviving his son; so that his representatives will probably have to account to the children of the son, or to some other persons, as the next of kin, for the income of the trust fund beyond what is necessary and reasonable for the support of the son and his family, if he should have a family. Nor was it proper, in this case, to authorize the appointment of a receiver, to take the trust property out of the hands of the trustee, who was not alleged to be irresponsible; the property being held by the trustee for the benefit of those who will ultimately be entitled to the capital of the fund and to the accumulated income thereof. (See Dick v. Pitchford, 1 Dev. & Bat. Eq. Rep. 480.) All that the complainants were entitled to claim, was the payment of their debt and costs out of that part of the income of the trust property which properly belonged to their judgment debtor. And as the trustee had no right to pay that over to him. for his support, after the complainants obtained an equitable lien thereon by the commencement of this suit, the fund in the hands of the trustee at the time of the decree was probably sufficient, and will be paid without the necessity of further expense in taking the account thereof. The proper decree, therefore, would have been to direct the debts of the complainants, as ascertained by such decree, with the interest thereon, and their costs, to be paid by the trustee out of that part of the income of the trust property. And also to direct that if it was not paid within a limited time, the complainants be at liberty to go before a master, upon a reference, to inquire and report the amount of such income which had come to the hands of the trustee, or which might have been received by him with ordinary diligence; and which was applicable to the payment of such debts, interest and costs; with a direction that the trustee pay the amount so reported, or so much as was necessary for the purpose, upon the coming in and confirmation of the master’s report; and if the whole amount should not thus be paid, that the complainants be at liberty to apply, from time to time, for further directions, periodically, as future rents and income which were applicable to that purpose should be received by the trustee.

The decree appealed from must be modified accordingly. And to the costs of the complainants in the court below, there must be added their taxable costs upon this appeal; to be paid out of the income of the trust fund. The trustee must be authorized by the decree to retain his costs, in the court below and upon this appeal, out of any part of the income of the trust property in his hands.