Case ID: ad_36/html/0090-01.html
Source: Caselaw Access Project
Author: {"author": "O’Brien, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John P. Everett, Appellant, v. William K. Peyton, Individually, and Edward P. Schell and Others, Individually and as Testamentary Guardians of Mabel R. Sherman, and as Executors of and Trustees under the Last Will and Testament and Codicils thereto of Josephine L. Peyton, Deceased, Respondents.
    
      Creditor’s action — a trust fund created under an agreement by which the debtor withdraws his objection to the probate of a will.— it rests upon his relinquishment of a personal property right and not upon the will.
    
    The husband of a testatrix having filed objections to the probate of a codicil to his wife’s will, by which the testatrix revoked certain provisions made in the will for his benefit, an agreement was entered into as the result of negotiations for a settlement, under which, in consideration of his withdrawing his-opposition to the probate, the sum of §100,000 was set aside out of the estate of the testatrix to be invested by the executors, and the income thereof was to be paid to him for a period of five years.
    In an action brought by a judgment .creditor of the husband to reach the income . of the fund so set aside,
    
      Held, that the substance of the transaction being an agreement to pay a certain - sum of money.in consideration of the husband relinquishing his right to contest the will, the fact that the fund out of which the payment was to be made was designated as a trust fund did not change the character of the ownership of the income arising from it;
    That the testatrix having created no such trust for her husband, the trust was one due to the sale of a" personal right of the husband, and that the: income arising therefrom was the individual property of the husband and subject to-the claims of his creditors;
    That the executors held the fund in question merely as agents or bailees to carry out the agreement of compromise.
    Appeal by‘the plaintiff, John P. Everett, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 11th day of November, 1898, denying the plaintiff’s motion for an injunction pendente lite.
    
    This action is in the nature of a judgment creditor’s suit, The plaintiff seeks to obtain the income from a certain fund held for the benefit of defendant William K. Peyton by the defendants Schell and others, in order to apply, that income upon a judgment against defendant Peyton; and the- injunction sought is to restrain the payment of the income to Peyton during the pendency of this action, the plaintiffs theory being that the said fund is subject to the claims-of existing creditors. The motion for the injunction was based on a verified complaint, a demurrer thereto interposed by defendant. Peyton, and an affidavit of plaintiffs attorney as to the necessity of granting the injunction.
    It appears that in October, 1893, the plaintiffs assignor recovered a judgment against William K. Peyton for $31,204.94, which was-duly assigned to plaintiff. Execution thereon was returned wholly unsatisfied. On November Y, 1894, Peyton’s wife, Josephine L.. Peyton, died leaving a large estate, and by will and codicils made-certain provisions as to him. By a later codicil she revoked all the earlier provisions for his benefit.
    Upon these instruments being propounded for probate, objections-were filed by William Peyton to this last codicil. Then, after negotiations were had with him for a settlement which resulted in an agreement between him and the trustees of the will whereby $100,000 out of the funds of the estate were to be set aside to-remain in the hands of the trustees, and to be by them invested and the income thereof paid to William Peyton for a period of five years Or until his earlier death, Peyton releasing all claims against the-estate, the will was probated, the compromise being approved by the surrogate.
    The trustees thereupon out of the estate of Josephine L. Peyton,, in their hands as such executors, invested the sum of $100,000, and Peyton has since received the income therefrom, and the executors-are about to make another semi-annual payment to him. The complaint alleges that the agreement referred to was made to hinder and defraud the plaintiff by creating a pretended trust which should be beyond the reach of creditors, was made in violation of the» statutes, and is, therefore, void as to existing creditors.
    The motion was denied, and from the order entered thereon this-appeal is taken.
    
      James MacGregor Smith, for the appellant.
    
      W. C. Beecher, for the respondents.
   O’Brien, J.:

The questions on this appeal are narrowed down to a consideration as to whether the income arising from the investment of the $100,000 set apart and which it is agreed shall be annually paid to William 3L Peyton, results from a trust created by the will of his wife, or results from an agreement between him and the trustees the consideration for which moved entirely from him. In the former case the plaintiff could only proceed in equity to reach the surplus of the income, over and above the defendant’s needs. ( Wetmore v. Wetmore, 149 N. Y. 520, 529.) If the latter is true, then the moneys payable under the agreement belong to the defendant, and, regardless of the form, can be reached by creditors.

It is admitted by the demurrer that the trust provisions in favor of the defendant created by the will and codicils of the wife were finally revoked so that the effect of a probate of the instruments, in the absence of a contest, would be to deprive the defendant of any participation in his wife’s estate. He, however, filed objections to the probate, and as a consequence the agreement was reached by which a fund was set apart,, the income of which was payable to the defendant for five years. The consideration for such an agreement, which was the withdrawal of the objections to the probate, moved ■entirely from the defendant.

The fact that a sum was ■specified to be set apart as a trust fund does not change the nature of the transaction. It is clear that the wife never made such a trust in terms for five years, and it is equally clear that her trustees had not the power to create a trust for her, though we concede to them the right, with the approval of the surrogate, to enter into a compromise with the defendant and to use the ■estate of their testatrix to carry it out. It appears that in doing the latter they resorted to the form of a trust, no doubt for convenience in making the payments, or may be in the hope that in this way the moneys to be paid could be placed beyond the reach of creditors.

The substance or basis of the transaction was an agreement to pay to the defendant a certain sum of money annually in consideration of his withdrawing his opposition to the probate of the will. Had the agreement been to pay him $5,000 a year for five years no question would arise but that the moneys were the defendant’s, and could be reached by his creditors. What he did was to relinquish a right to contest the will in consideration of certain sums to be paid to him, The fact that tlie fund out of which the payments were to be made was designated as a trust fund does not change the charactér of the ownership to the income arising from it. Mrs. Peyton created no such trust for her husband, and the trust "here in form created was one due, in fact, to the sale of a personal right, and the income arising therefrom belonged to the defendant and can be reached by creditors.

The appellant rightly contends that the fund in question is merely held by the executors as agents or bailees to carry out the agreement of compromise. The will and codicils which were admitted to probate gave the judgment debtor nothing, and all that he received is the price of his withdrawal of opposition- to the probate. This was a personal right existing in his favor, which he could not convert into a trust beyond the reach of his creditors. The provision in his favor in the will, which had been revoked by the "later codicils, consisted partly of the income of a trust fund and partly of real property absolutely devised. His right to contest its revocation was a-personal property right, and the form adopted by the parties of creating a nominal trust, similar to that provided for by the will, does not make it in fact or law a trust created by the testatrix for his benefit. Although, doubtless, the counsel for the judgment debtor who negotiated the settlement had in view the creation of such a fund as the judgment debtor' could enjoy without molestation from his existing creditors, the law will not aid him in that effort. This fund was not" created by the testatrix, nor did it proceed from her. ' It was a payment to the judgment debtor of- his price for the relinquishment of an existing legal right; the consideration for such relinquishment was his individual property, and is subject to the claims of his creditors.

We think .the order appealed from should be reversed, with ten dollars costs and disbursements, and the motion, granted, with ten dollars costs to abide the event. .

Van Brunt, P. J., Barrett, Rumsey and McLaughlin, JJ., concurred.

• Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs to abide event.