Crescent City Motors, Ltd. v. Nalaielua

31 Haw. 418, 1930 Haw. LEXIS 35

• Court: Hawaii Supreme Court
• Decided: May 1, 1930
• Docket: No. 1943.
• Status: Published

Opinions

OPINION OE THE COURT BY

PERRY, C. J.

(Parsons, X, dissenting in part.)

This is a suit in equity, brought by a creditor to sub ject equitable assets of tlie debtor to the payment of a judgment. The parties filed before the trial court a statement of facts agreed upon by them. This showed that the complainant had duly recovered in a court of law having jurisdiction of the matter a judgment against the resyiondent Henry Nalaielua in the sum of $1361.50; that a writ of execution had been issued and returned unsatisfied; that the respondent has no property within the Territory of Hawaii which can be subjected to a levy of execution “unless the interest of said Henry Nalaielua in and to the property hereinafter referred to is subject either to a legal or equitable execution;” that the judgment is still wholly unsatisfied; that on January 21, 1921, Makualiine Kekahiko, the mother of Henry Nalaielua, Kaiu Moi and John T. Baker conveyed certain property to O. T. Ship-man as trustee by a certain trust instrument, a copy of which is attached to the stipulation; that ever since the execution of the deed of trust the trustee has been and still is in possession of the lands therein described and has been and still is collecting the rents and revenues derived therefrom “and is generally executing the trust” by the deed created; that Makualiine Kekahiko, Henry’s mother, died intestate on November 17, 1921, leaving surviving her as her sole heir her son Henry; “that ever since the date of the death of the said Makualiine Kekahiko” Henry “has been entitled' to receive from the said trustee one-third of the net income and revenues derived from the property described in said trust instrument;” that the annual net revenue derived from the property to which Henry became entitled upon the death of his mother is approximately $550.00; and that the value of one-tliird of the property conveyed in trust is approximately $9000.00.

Upon these stipulated facts the trial judge at the request of both parties reserved for the consideration of this court the following questions: “(1) What estate, if any, became vested in the said O. T. Shipman, trustee, upon the execution and delivery to him of the trust instrument above referred to? (2) What estate, if any, became vested in the said Henry Nalaielua upon the death of his mother as aforesaid? (3) Is the estate, if any, which became vested in the said Henry Nalaielua upon the death of his mother of such a nature as to give to a court of equity jurisdiction to order its sale for the satisfaction of the judgment hereinabove referred to under the stipulated facts in this case? (4) Is the complainant herein entitled to the relief prayed for in and by its bill of complaint?”

The trust upon which the conveyance is made is therein expressed as follows: “Upon trust to the said O. T. Shipman, for the use of the said parties of the first part, to lease, or rent the above described property, and to receive the rents, issues and profits thereof, including crops of cane, as the same now or hereafter shall become due and payable, deducting therefrom all sums of money paid on account of taxes, insurance, water, and sewer rates, interest, commissions, attorney’s fees, whether the same be for advice or for the instituting or defending any and all suits or actions at law or in equity, when such may be deemed necessary to be obtained, brought and defended, and all such other sums and expenses incurred as may be necessary or proper for the preservation, protection and management of the said property; to apply and to equally distribute and divide between, and to give to the use of the said parties of the first part, the overplus, if any, during the term of 20 years from the date hereof, and after said term of 20 years to convey the said property to the said parties of the first part or to'the survivors of them and to the heirs of each of all, if all or any of them should die before the expiration of the said term.”

Answering the first question, it is well settled that “trustees take exactly the estate which the purposes of the trust require.” Doe v. Considine, 6 Wall. 458. In Anew of the fact that the trustee is by this instrument required not only to manage the property, to receive its rents and profits, to pay the expenses and to distribute the net proceeds amongst those entitled thereto, but also to execute at a time stated a conveyance of the corpus of the property itself, he must be deemed to have the legal title to the property, the equitable title being in those AAdio are in the deed named as beneficiaries of the income and of the principal. The first question and the answer thereto do not appear to be of any particular importance in this case. No one is disputing the title or the powers of the trustee. The sole question is that betAveen a creditor and one of the supposed beneficiaries, as to Avhat interest, if any, that beneficiary has in the property and, secondly, as to whether it is reachable by a creditor by a bill in equity such as this.

As to the right to the income during the twenty-year period of the trust, no issue is presented. The first of the tAVO main questions raised is as to the nature and the extent of Henry’s interest, if any, in the principal of the property conveyed to the trustee. The grantors’ direction is, “after said term of 20 years to convey the said property to the said parties of the first part” (the three grantors) “or to the survivors of them and to the heirs of each of all, if all or any of them should die before the expiration of the said term.” In other Avords, the direction is that at the end of the twenty years the. trustee shall convey the property to the three grantors, if they are all living at that time, or if they are not all then living, then to such of them as are living and to the heirs of any one or more avIio do not suiwive until that date. And the sole question in this regard is Avhetlier by the word “heirs” the grantors meant those avIio under the Iuav would take from them at their deaths or those who under the law would take from them if they were to die at the end of the twenty years.

Various so-called rules of construction have been resorted to by courts in the effort to ascertain the intention of testators as expressed in their wills and of grantors as expressed in their deeds. One of them, for example, is that when a devise or grant is given to “heirs” of the testator or grantor prima facie that is to be taken to mean those who would be the heirs at the death of the testator or grantor as the case may be, unless it is apparent from the instrument that those were intended who should be the heirs at some later period of distribution. This rule was doubtless evolved out of the very meaning of the word “heirs.” Ordinarily that word means those who under the law would take the property of a decedent at his death, but the word is susceptible of the meaning, and it has often been so construed by courts, that those are intended to take who would be the heirs at a later named period of distribution if the testator or grantor had lived to that time. Another rule of construction, one which Avas adopted and applied in the case of Auld v. Andrade, 31 Haw. 1, is that “Avhen under the proAdsions of a Avill a gift to a class is postponed, either to a particular time or pending the termination of a preceding estate, as a rule those members of the class, and those only, take AAdio are in existence at the arrival of the time for distribution, as at the death of the life tenant, unless the particular language used confines the gift to those in existence at the testator’s death or avIio are in existence at the date of the will.” Each of these rules, like all other rules of construction, is to be applied only AAdien it serves to aid in the carrying out of the intention of the testator. When its application would serve merely to frustrate that intention, the rule is not to be applied. In the case at bar the grantors have said in unambiguous language that the conveyance of the corpus is not to take place until the end of the twenty-year period there named and that it is to take place at that particular time. The trustee, when that day arrives, will be confronted with the question, to whom is it my duty to convey now ? If and in so far as the original grantors shall then be living that duty wall be obvious. It will be to convey to each of them thus surviving one-third of the corpus. If one of them shall not survive, to whom shall he convey? The answer expressed in the deed is, “to the heirs of the non-survivor.” This Ave understand to mean the persons who at that time will be the heirs of the decedent. It certainly Avas not intended by tlie decedent grantor that the conveyance at the end of the tAventy years should be to the heirs of his heir, for the statement is, quite to the contrary, that it must be to the heirs of the grantor. Let us take the facts as they have thus far developed. Makualiine Kekaliiko, one of the grantors, has died, leaving as the one Avho was the sole heir at the time of her death her son Henry. Whether Henry has children does not appear. If he shall die before the end of the tiventy years Avitliout having had issue and leaving only a AvidoAV Avliom he married after his mother’s death, in other Avords, leaving a AvidoAV Avho Avas a total stranger to the mother, that Avidow being under the circumstances then existing Henry’s sole heir, is it to be supposed that by the terms of this deed the mother meant to say that at the end of the tAventy years her one-third interest Avas to go to this perfect stranger avIio Avas Henry’s heir? In our opinion she has said Avith sufficient clearness that she meant that it should go to her oavii heirs, not Henry’s heirs, — that is, to those who at the end of the tAventy years would be her heirs.

Henry’s interest at present is a contingent remainder Avhicli will become vested if he survives the tAventy-year period but which will disappear if he does not survive that period. See for example Carter v. Davis, 18 Haw. 439.

Is this equitable, contingent remainder reachable upon this creditor’s bill in satisfaction of Henry’s judgment debt to the creditor? “Any beneficial interest of a debtor in real or personal property which cannot be reached by regular process of law and is not expressly exempted by statute may be reached by a creditors’ bill and subjected to the payment or satisfaction of the debt; and only such property may be so reached.” 15 C. J. 1401. To the same effect is 5 Enc. PI. & Pr. 447, 448. “At common law merely equitable interests in lands were not liable to be taken and sold on execution. They were considered only as creatures of equity and were only to be reached by resorting to a court of equity.” 11 A. & E. Enc. L. 632. To the same effect are: 23 C. J. 340, 341; Lessee of Smith v. McC ann, 24 How. 398, 404, 405; Lenox, v. Notrebe, 15 Fed. Cs. (No. 8246c) 319, 321; Sawyer v. Morte, 21 Fed. Cs. (No. 12,401) 567; and Doheny v. Atl. Dynamite Co., 41 W. Va. 1, 5. Hawaii has no statute modifying this rule of the common laAv.

As to AAdiether a contingent remainder is alienable, descendible, devisable' and reachable by a creditors’ bill in equity the authorities are in conflict. Upon principle, Ave are of the opinion that it is alienable by voluntary conveyance of the owner. In the case at bar Henry’s contingent remainder is not a mere possibility such as that of an heir expectant, the realization of AAdiose hopes depends entirely upon the disposition or the whim of his ancestor. Henry’s is a possibility coupled with an interest. His mother having died, it is definitely known that she left him as her sole surviving child and heir and that he Avill be her sole heir at the termination of the twenty-year period, provided only he is still living at that time. He has today a right and an interest Avliich cannot be taken away from liim by others and which can be lost only by his failure to survive to the day named. Such an interest is property and has some value which increases as the termination of the twenty-year period approaches. “According to the better considered decisions, contingent remainders are alienable whenever the remainderman is in being.” 21 C. J. 999; and n. 67a. “On reason, therefore, in any case where the remainderman is not ascertained, but where there, is a person in existence in whom the remainder would immediately vest on the present happening of the contingency or the present determination of the particular estate, such person has a possibility coupled with an interest which he may transfer to another, subject, of course, to the same contingency by which it is affected in his hands. And this view is amply supported by authority as well as reason.” 24 A. & E. Enc. L., 406. “The laAV of this state no longer rests in doubt regarding the right and poAver of contingent remaindermen to sell and convey their interest in real estate. This court has uniformly held that contingent remainders are alienable the same as are other estates.” Summet v. Realty Co., 208 Mo. 501, 514. See. also Grayson v. Tyler’s Administratrix, 80 Ky. 358. While Henry’s contingent interest is not. descendible, or devisable because his death before the end of the period destroys his right to the land and because if he survives to the end of the period his interest becomes a vested remainder and the law relating to contingent remainders is no longer applicable, yet contingent remainders have been held to be. descendible and devisable when by the terms of their creation they are not dependent upon survivorship to a stated time. “The rule is well settled that a .contingent remainder of inheritance is transmissible. to the heirs of the person to whom it is limited, if .such person dies before the contingency happens, unless the remainder is so limited as to depend on the life of the remainderman.” 24 A. & E. Enc. L. 408.

If Henry’s interest is alienable by liim, as we think it is, it certainly should be seizable by a court of equity in satisfaction of the claims of creditors. To deny a creditor’s petition for this relief would be to permit the respondent to sell immediately thereafter his interest by voluntary conveyance and to pocket the proceeds in defiance of the claims of his creditors and of the court. While his contingent interest is not of as great salable value today as it will be shortly before the end of the twenty-year period, that alone will not justify refusal of relief, for justice is due not only to the debtor but also to the creditor. The small value, if it is small, of the contingent interest, should have been thought of before the debt now sued on was incurred by the purchase of an automobile or other commodity. Nevertheless, any sale by order of the court of equity must be subject to the approval of the court; and approval should, as is customary, be withheld if the price realized is purely nominal or otherwise inadequate.

That property may be transferred by will or by deed upon such terms as to keep it beyond the reach of creditors of the donee may for the purposes of this opinion be assumed to be true. The intention, however, to transfer it with limitations of that nature must be indicated by the language of the instrument effectuating the transfer. It is not to be presumed from the mere fact of the devise or the conveyance. In one sense, perhaps, it is the intention of every testator and grantor to pass the property to the beneficiary or the grantee named in the instrument and not to his creditors; but i't does not follow that whenever property is devised or conveyed it is beyond the reach of creditors of the devisee or grantee. The ordinary rule, on tlie contrary, is that the property of the beneficiary, in the absence of sufficiently expressed limitations, is not only alienable by him, but may be levied upon by courts in satisfaction of his debts. In the language of the trust deed under consideration in the case at bar we can discover no indication whatever of an intent to place or to maintain the property beyond the reach of creditors. It is not a spendthrift trust and may well have been executed for the sole reason that the co-grantors, tenants in common, Avere unable to manage the property amicably.

I). E. Metzger (also on the briefs) for complainant. II. Irwin (also on the briefs) for the trustee. G. S. Garlsmith and G. IT7. Garlsmith (also on the briefs) amici curiae.

The remedy at laAV by process of garnishment cannot be said to be adequate. From the statement of agreed facts it appears that Henry’s share of the income amounts to $550 per annum. Under chapter 163, R. L. 1925, as amended by Act 262, L. 1925, only twenty-five per cent of this annuity, or $137.50 per annum, could be sequestered by garnishee process in favor of the creditor. The annual interest on the judgment, eight per cent of $1361, is $108.88. An order of garnishment, kept alive for the remaining eleven years of the trust period, would not satisfy as much as one-fourth of the principal of the debt plus accrued interest.

No reason is apparent for the appointment of a receiver. The appointment of a commissioner Avill suffice in order to reach, first, such income as may be due to the respondent and, second, his interest in the corpus of the trust.