Case Name: TOLLES v. WOOD
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1885-06
Citations: 16 Abb. N. Cas. 1
Docket Number: 
Parties: TOLLES v. WOOD.
Judges: 
Reporter: Abbott's New Cases
Volume: 16
Pages: 1–42

Head Matter:
TOLLES v. WOOD.
N. Y. Court of Appeals ;
June, 1885.
Creditor’s Action to reach surplus of trust fund.—Trust for PAYMENT OF INCOME; SURPLUS.—EVIDENCE, OPINIONS AS TO NECESSARIES.-WHAT ARE NECESSARIES FOR SUPPORT.
The rules as to a creditor’s right to reach surplus income of an inalienable trust fund held for the benefit of his debtor,—stated and applied.*
The creditor, by the commencement of an action in equity, acquires a lien on the accrued and unexpended surplus of income then in the hands of the trustees; and this lien is superior to the claim of the general creditors or assignee of the beneficiary.
The fact that the trustees after the commencement of- the action against them continue to apply such surplus in- payment of other creditors with the consent of the beneficiary, does not exonerate them from liability to the plaintiff.
It seems, that evidence of the amount and cost of the items going- to make up the expense of living to a person in the place and position of the beneficiary is the best if not the only competent proof by which to ascertain the surplus; and that the question what amount is requisite is not a proper subject for the opinions of witnesses.
It seems, that the expense of social courtesies and civilities in exchange for those received from associates and acquaintances are not to be included in the income protected by the statute.
* See note at the end of this case.
Appeal from a judgment.
Samuel Tolies, a judgment creditor of W. Stannard Wood, brought this action against said Wood indi vidually and as a trustee with and Edward Wood his co-defendant, and William Jay added as co-trustee by supplemental summons and complaint, under the will of Silas Wood. His complaint alleged that he had a judgment against the former for $970.60, on which execution had been returned unsatisfied; that the will gave a residue of real and personal estate to the defendants in trust to divide into several parts, and the income of one part pay to the defendant W. S. Wood, &c., but without anticipation; that under the will the defendant was of age, and had been for some yeárs entitled to and in receipt of about half the income of the fund, his half amounting to about $7.500 yearly; that he was unmarried, without dependents and lived in furnished lodgings ; and that his income under the will was sufficient to leave a large surplus after deducting a proper sum for his support and maintenance.
The principal defendant did not answer individually. The answer of himself and his co-trustees as trustees denied that the share of income was as large as alleged, and averred that it was inadequate for his support and maintenance in the position in life in which he has been educated and to which he belonged.
The details of the facts sufficiently appear in the opinion.
Flamen B. Candler, for the defendants, appellants.
I. This court will review and reverse the decision of a referee if such decision is against the undisputed evidence, or if there is a finding of any material fact without any evidence to support it (Sickles v. Flanagan, 79 N. Y. 224 ; Draper v. Stouvenel, 38 Id. 219 ; Fellows v. Northrup, 39 Id. 117; Mason v. Lord, 40 Id. 476 ; Potter v. Carpenter, 71 Id. 74; Beck v. Sheldon, 48 Id. 365).
II. There was no evidence to support the referee’s finding, that the sum of $1,500 per year, or $125 per month, from January 27, 1883, was a proper sum for proper support and maintenance, and that all income accniing above that sum was surplus, or, to support his finding, that there had accrued as said surplus since January 27, 1883, down to December 4, 1883, the sum of $2,784.86.
III. The allegation in the complaint, that the rent, income and profits yearly accruing to W. Stannard Wood, under the will of his father, was sufficient to leave a large surplus, after deducting therefrom a proper sum for his support and maintenance, was necessary and material, and without it the complaint would have been bad on demurrer ; and that allegation having been made and having been put at issue by the answer, the burden was on the plaintiff to prove affirmatively that it was true, and to show that there was such surplus; but this he failed to do. A judgment creditor’s action can only be maintained against a cestui que trust or his trustees, where there is a surplus beyond that necessary for the support of the person for whose benefit the trust is created. This fact must be pleaded, as that is the gravamen of the action. The absence of such allegation renders the pleading insufficient in law (Bramhall v. Ferris, 14 N. Y. 46, 47; Williams v. Thorn, 70 Id. 274). The fact must not only be well pleaded, but must be established on the trial (Williams v. Thorn, supra). The answer put at issue this allegation of the complaint, and there is no proof to sustain that allegation. It therefore followed that the complaint should have been dismissed upon the merits, and that the report of the referee finding that there was a surplus and also an accumulation of income, was not only unsupported by the evidence, but was in fact against the evidence to the contrary in the case (Bramhall v. Ferris, 14 N. Y. 46, 47). In Bramhall v. Ferris, 14 N. Y. 46, 47, the court, by Comstock, J., said: “ I have no hesitation, therefore, in saying that the fund which the plaintiffs are endeavoring to reach is held in trust and comes within the exception of the statute before referred to. It is consequently exempt from the claims of the creditors of Myron H. Ferris, unless the provision is larger than necessary for the support of himself and family. . . . But in this case there is no averment in the complaint, nor was there any proof or suggestion on the trial, that the provision made for Ferris, the judgment debtor, was any larger than the objects of the trusts strictly required.” In Williams v. Thorn, 70 N. Y. 274, Judge Rapallo said, referring to the above case of Bramhall v. Ferris, that case was disposed of on the “ ground that there was no allegation or proof that the income was larger than necessary for the support of the debtor and his family.” And Judge Rapallo further said: “My conclusion is, that as to the income of the real- estate, the surplus income, beyond what is necessary for the suitable support of the debtor and those depending upon him, in the manner in which they have been accustomed to live, is clearly applicable, under section 57, to the claims of his creditors. That as to the surplus income of the personal property it is likewise so applicable.” In determining what sum is necessary for the support of the cestui que trust, it is proper to take into consideration the station in life, and the manner in which he has been reared and educated, his habits, and the means he may have beyond the trust fund to aid in his support, and he is entitled to be supported in his accustomed manner of'living, and is not bound, so far as his creditors are concerned, to contribute to such support by his labor or otherwise (Moulton v. Carty, 6 Rob. 533).
IV. The principal of the estate created by the will and the beneficial interest of the defendant W. S. Wood in the income, to the extent of a fair and reasonable support and maintenance to him in the manner in which he has been accustomed to live, is exempt from the claims of the plaintiff in this action; and at most the plaintiff could only reach such surplus of the income, if any, as remain over and above such support and maintenance. And all the plaintiff asks in the body and also in the prayer of his complaint is to reach such surplus of income (Williams v. Thorn, supra). The right of a court to fix the amount necessary for the support of a party must depend upon the evidence adduced, and the burden was upon the plaintiff to affirmatively establish that a surplus of income in fact existed over and above the amount necessary for simh party’s maintenance. This has not been done. It is erroneous for a court or referee to find, in the absence of direct evidence, that $1,500 is sufficient when it is shown by competent evidence that $5,000 only was adequate.
Suppose the judgment debtor was in fact extravagant or improvident, is that evidence to show conclusively that $1,500 is sufficient, when it was shown that if $20,000 were allowed him he could use all of that sum? We submit not. The very fact that the judgment debtor was inclined to _ extravagance induced his father to place for him a fund in trust in order that he might continue to live in the manner to which he was accustomed to live in his father’s life-time.
The father creating the trust had a right to say what should be done with his money, and it. is not open to the creditor of the son to say that the father’s money shall be applied in violation of the father’s wishes expressed in his will within the limits of the statute. If creditors give credit to persons who have no estate and no property, the fault is entirely their own. So held in Jackson v. Prime (12 Weekly Dig. 113).
V. The referee could not take judicial notice of what amount was necessary for support.
VI. The exception to the exclusion of the question as to what amount was necessary was well taken ; and the question which gave rise to that exception was a proper one, and the witness was competent to testify on the subject, and his answer would have been material to the most important issue in the cause.
VII. There is no proof of a surplus of income.
Edgar A. Turrell, for plaintiff, respondent.
I. The finding of facts is conclusive in this court.
II. The action is properly brought (Williams v. Thorn, 70 N. Y. 270 ; Same v. Same, 81 Id. 381; Code Civ. Pro. §§ 1871-9). 1. Section 1879 of the Code has made no change in the law applicable to this case. The object of that section was to leave the law as it was before, by excepting trust funds only from the operation of the creditor’s bill provided for in the previous sections, but still subjecting the surplus income to the claims of creditors, as provided for in the Revised Statutes (1 R. 8. 730, § 57; 3 R. 8. [7th ed.] p. 2182, § 57; McEvoy v. Appleby, 27 Hun, 44; decided April, 1882). 2. Plaintiff can maintain the action alone. (Code Civ. Pro. § 1871 ; Edmeston v. Lyde, 1 Paige, 637-640; Wakeman v. Grover, 4 Id. 23; Freedman’s Savings & Trust Co. v. Earle, 110 U. S. 716). 3. Plaintiff acquired a lien upon all surplus accruing after January 27,1883, when service of the summons and complaint on the defendant debtor and surviving trustees was completed over and above what the court found to be a proper sum for the support and maintenance of the defendant debtor (Thorn v. Williams, supra).
III. The only incumbrance that can be placed upon the debtor’s income, after deducting a proper sum for his support and maintenance, is by a creditor’s action like the pending one. There is no allegation in the answer or evidence oí any other such action now pending. 1. The will provides that the income should not be anticipated; and this means that the debtor cannot sell, assign, pledge or in any way incumber it. It was also inalienable as a matter oí law (1 R. S. 730, §§ 57, 63 ; p. 773, § 2; 3 R. S. [7 ed.] p. 2182, §§ 57, 63 ; p. 2257, § 2 ; Hone v. Van Schaick, 7 Paige, 221; Clute v. Bool, 8 Id. 83 ; Scott v. Nevius, 6 Duer, 672; Jackson v. Bertine, 3 N. Y. Monthly L. Bul. 27; Williams v. Thorn, supra). This prohibition of the will and the law against anticipation deprived the defendant debtor of the power of disposing of the income before it became due and payable (L’Amoureux v. Van Rensselaer, 1 Barb. Ch. 34 ; Gott v. Cook, 7 Paige, 521). If he had that power, the creditor by action could take the whole of it (Hallett v. Thompson, 5 Paige, 583 ; Graff v. Bonnett, 31 N. Y 12; Degraw v. Classon, 11 Paige, 137; Hawley v. James, 16 Wend. 260). The payments to Center were made upon the voluntary order of the defendant debtor, given at the time of payment, and after the income had accrued. These payments did not go towards his support and maintenance, but for interest upon an indebtedness. The understanding between the defendant debtor and trustees for the payment of the interest and insurance premiums was void as an agreement for future payments, so as to create a lien upon any subsequent income. It was an anticipation which the will forbade. The most that the defendant debtor could do was to apply the income to such payments after it had accrued (Gott v. Cook, supra). The loan itself was contrary to the provisions of the will, as It was. only another mode of allowing the beneficiary to anticipate the income of $27,000 of the estate- by having the use of that sum while it was or should have been earning income for the estate (Havens v. Healy, 15 Barb. 301).. The defendant debtor made default in this action ; and it then proceeded as a contest with the trustees as opposing creditors, seeking to protect themselves and the other creditor Center. As between the defendant debtor and the trustees acting in violation of the will, and a creditor acting under the will and the law, the latter will be favored, and illegal agreements to his prejudice will be disregarded. The foundation of the debt is immaterial, all debts standing upon the same footing (Sillick v. Mason, 2 Barb. Ch. 83). 3. The plaintiff acquired a lien by this action upon all the surplus above defendant debtor’s necessary and proper support, which might accrue after January 37, 1883 (Williams v. Thorn, supra). The defendant debtor had no power to dispose of this surplus before it accrued (Gott v. Cook, supra). And the defendant debtor and trustees could not dispose of it after it had accrued (Williams v. Thorn, supra; Edmeston v. Lyde, supra).
IV. Opinion evidence of what is a proper sum for support is not admissible. It is the province of the court itself to determine, from the best evidence and from the facts of the case, what is a proper sum to allow for the defendant debtor’s support. 1. The opinions of witnesses based upon the facts would not be those of experts, but only the mere judgments of ordinary people upon the every-day facts and experiences of life. In such situations it is the duty of the jury, and, in equity cases, of the court, to form its own opinions and to draw its own conclusions (Ferguson v. Hubbell, 20 W. Dig. 386, court of appeals, decided Dec. 16,1884). 3. The figures of the application of the defendant debtor’s income for four years last past, and the fact that he has no one except himself to support, are the best evidence in the nature of the case, and should be controlling with the court (Bryan v. Knickerboecker, 1 Barb. Ch. 426). A further examina tion of similar cases likewise shows that the court itself should determine this amount from the facts of the case, and not from the opinions of witnesses (Genet v. Beekman, 45 Barb. 382; Sillick v. Mason, 2 Barb. Ch. 79 ; Moulton v. De Ma Carty, 6 Robt. 533 ; Paige v. Hazard, 5 Hill, 603 ; Morehouse v. Mathews, 2 N. Y. 514 ; McGregor v. Brown, 10 Id. 114, 119 ; Teall v. Barton, 40 Barb. 137, 143).

Opinion:
Ruger, Ch. J.
No serious dispute arose on the argument over the main question of law involved in the controversy, and the following propositions may therefore be assumed as established for all the purposes of this discussion:
1st. When a trust has been created by one person for the benefit of another, which provides for the payment of the income of the trust fund to the beneficiary, a judgment creditor of the beneficiary is entitled to maintain an action in equity to reach and recover the surplus income beyond what is necessary for the suitable support and maintenance of the cestui que trust and those dependent upon him (Code Civ. Pro. § 1871-9 ; Williams v. Thorn, 70 N. Y. 270; Graff v. Bonnett, 31 N. Y. 9 ; Craig v. Hone, 2 Edw. Ch. 570).
2d. This rule applies as well when the income is derivable from a trust of personal property as that from real estate (Hallett v. Thompson, 5 Paige, 583 ; Williams v. Thorn, supra; § 57, art. 2, title 2, chap. 1, part 2, R. S. 2182).
3d. The disposition of such an income cannot be anticipated by the cestui que trust or incumbered by any contract entered into by him providing for its pledge, transfer or alienation previous to its accumulation (§ 63, R. S. 2182; Graff v. Bonnett, supra; Scott v. Nevius, 6 Duer, 672).
4th. The creditor of such a beneficiary acquires a lien upon the accrued and unexpended surplus income or that subsequently arising from such fund, superior to the claims of the general creditors or assignee of the cestui que trust by the commencement of an action in equity to reach and appropriate it to the satisfaction of his judgment (Williams v. Thorn, supra). The trust fund in this case consisted of both real and personal property, and the will creating it expressly provided that the cestui que trust should have no power to anticipate the rents, income or profits thereof.
The cestui que trust, although served with process in the action, suffered default so far as he was individually concerned, but is defending as one of the trustees of the fund from which the income in dispute is derived.
The following facts, among others, were found by the referee upon the trial, and, so far as they are supported by the evidence, must be regarded as conclusively established in the consideration of this appeal:
That Silas Wood died prior .to the year 1852, leaving a last will and testament whereby he devised certain real and personal property to his executors in trust to pay the rents, income and profits thereof to his son Wilmer S. for his use, but without any power of anticipation on his part; that the defendants are now the trustees of the said fund, the said Wilmer S. Wood having been duly appointed as such on the death of one of the original trustees on March 21, 1863 ; that said Wilmer S. Wood for a long time previous to the trial had been entitled to and in receipt of said income ; and that the complaint in this action was served on said Wilmer S. Wood on the 27th day of January, 1883 ; that the net income of said fund accruing to the said Wilmer S. Wood between the said January 27, and the date of said report, December 4, thereafter, was $4,159.86, and the amount paid personally to said beneficiary betweeñ said dates was $1,375 ; that during the same time the trustees paid by • the direction of the cestui que trust $1,099.80 as interest upon the debt owing by him to one Robert Center, and the further sum of $708.82 for premiums upon life insurance policies held by said trustees upon the life of said Wilmer S. as security for an indebtedness of $27,000 owing by him to the trust fund, and they retained the further sum of $810 as interest upon said debt; that during the years 1880, 1881 and 1882, the average net income accruing to said Wilmer S. from the trust estate was $4,833.01, and the average yearly payments to him on account thereof were $1,286.33, the balance of such income having been expended by the trustees annually in the payment of interest upon the debts before mentioned, and premiums upon said life insurance policies ; that the said Wilmer S. Wood is forty-three years of age, an unmarried man, and has no children or other person dependent upon him for support, and is a person of education and refinement, and of good social position ; that he is a gentleman of leisure, inclined to extravagance and unaccustomed to earn his own living; that he has no other means or income except that derivable from the trust fund; that he is a member of the Union and other clubs in New York, and associates with gentlemen of wealth and leisure; that he keeps no horses cfr valet, and lodges in furnished rooms in Forty-fifth street, residing there for six months, and with his sister at New-burgh for the remainder of the year; that his father was a merchant in New York, and of good social position, and all his relatives are persons of education and refinement, and of more or less wealth ; that it was the intention of the trustees, in limiting the annual payments to said cestui que trust in the years 1880, 1881 and 1882, to confine his expenditures for support and maintenance to the sums advanced, and without supposing that they thereby derogated from the standing and position in society which the defendant Wilmer S. had always sustained ; that in view of the facts above stated, the sum of $1,500 annually is a proper sum for the proper support and maintenance of the said cestui que trust, and the income over that sum is surplus. The recovery of a judgment by the plaint-; iff against the said Wilmer S. Wood on March 4, 1881, for $970.60 damages and costs, and the due issue and return of an execution thereon unsatisfied. The referee directed a judgment, among other provisions requiring the defendants to pay to plaintiff so much of the sum of $2,784.86 as might be necessary to satisfy his judgment; holding that such sum was unexpended surplus arising out of said income after the commencement of this action. This judgment was affirmed upon appeal to the general term, and from that affirmance the defendants have appealed to this court.
Ho question was raised on the argument by the appellant as to the correctness of any of the findings of fact or law except that relating to the sum adjudged annually as a proper amount for the support of the cestui que trust, and the conclusion therefrom that all above that sum was surplus applicable to the payment of the claims of creditors. With reference to this finding it is now urged that there was no evidence to sustain it.
Ho question was raised on the trial as to the sufficiency of the plaintiff's evidence to sustain the action, and so far as appears from the record this question was made for the first time on the argument in this court. A request was, however, made to the referee to find that the whole of the income was necessary for the suitable support and maintenance of the cestui que trust in the manner in which he has been accustomed to live, and, assuming that the appellants could properly raise the question argued upon a refusal to find as requested, we are of the opinion that the finding of the referee is amply sustained by the testimony.
The evidence showed that for the period of three years prior to the commencement of this action a sum considerably less than SI,500 per annum had been agreed upon between the beneficiary and the trustees, of whom he was one, as an adequate amount for his maintenance and support in the manner that his habits and position in society required.
The circumstances also tended to show that this arrangement was intended to be continued indefinitely, inasmuch as the fixed charges thereby settled upon the income could only be relieved by payment of the debts upon which they accrued, and that, under the circumstances, was impracticable.
The arrangement thus made amounted to a practical determination by the parties most interested in the question as to how much of the income they regarded as surplus, and furnishes strong, if not controlling, evidence as against those parties upon the question of fact in dispute (Bryan v. Knickerbocker, 1 Barb. Ch. 427).
Evidence was also given by the defendants as to the amount and costs of the various items going to make up the expenses of living in New York to a gentleman in the position of Mr. Wood, and the referee could, from such evidence, by rejecting such expenses as he deemed fanciful, unnecessary or extravagant, arrive at a reasonable and just conclusion as to the necessary cost of such living; and, indeed, we think that such evidence, aside from proof as to the actual cost of living to a party, is the best, if not the only competent, proof to be given on the subject.
In Sillick v. Mason (2 Barb. Ch. 79) the chancellor determined the amount necessary to be expended for the support of a gentleman and his wife in New York upon his own judgment and contrary to the opinion of the vice chancellor and the witnesses who gave opinions in the case.
Upon the trial, the defendant excepted to the exclusion by the court of an answer to the following question put to a witness called by him : " What, in your judgment, would be a proper sum for the proper support and maintenance of Mr. Wilmer S. Wood in the manner and life in which he has been in the habit of living, and associating with the friends whom he does associate with, so far as you know, in your judgment ?"
This exception is now claimed to have been well taken by the appellant. The witness was shown to be a single gentleman, living in New York, and" a member of the clubs and social circle to which Mr. Wood belonged, and acquainted with him and his associates and his general manner of living. If the question was properly framed and opinions upon such a subject were competent as evidence upon the issue, the witness was undoubtedly qualified to express one. There seems to us, however, to be several reasons why this exception is untenable. The evidence called for' by the question was not as to a fact, but related to a mere matter of opinion, and was also cumulative. In both of these cases, the extent to which such evidence should be allowed is held to be in the discretion of the trial court, and an appellate tribunal will not interfere with the exercise of such discretion unless there has been a clear abuse of it, shown by the exclusion of the evidence (Sizer v. Burt, 4 Den. 426; Anthony v. Smith, 4 Bosw. 503).
No witnesses on the subject had been examined by the plaintiff, and two witnesses had already been allowed to testify without objection as to the amount they considered necessary to support Mr. Wood in the manner in which he was entitled to live under all of the circumstances, and had stated that $5,000 annually would not be too large a sum for that purpose. Several witnesses had been allowed to state in detail the expenses which a gentleman living in New York in the manner that Mr. Wood did would probably incur, and mentioned among those expenses the payment of club dues and expenses, the cost of clothing and food, the expense of giving dinner, opera and theater parties in return for civilities extended to him by his associates, and traveling expenses for summer recreation and pleasure, and aggregated a sum amounting to $3,000 and upwards a year for what were termed by them necessary expenses. It will thus be seen that the evidence was quite sufficient to enable the referee and the court to determine the amount necessary to support and maintain the cestui que trust in a proper and suitable manner, without the aid of any opinions on the subject.
But we think the question was objectionable in form as well as substance. The statute requires such an inquiry to be confined to the surplus of the income beyond the "sum that may be necessary for the education and support" of the cestui que trust (§ 57, 3d vol. 7th ed. R. S. 2182).
Judge Woodruff, in Scott v. Nevins (6 Duer, 676), said the amount liable to be sequestrated for the payment of creditors was what remained after deducting a sufficient sum to suitably support and maintain " the judgment debtor, taking into view his condition in life, his health, and the condition of his family, if any he has."
In Sillick v. Mason (2 Barb. Ch. 79) the chancellor said, "the interest of the cestui que trust in such a trust as this, beyond what may be necessary for the support of himself and family, may be reached by a creditor's bill and applied to the payment of his debts." The case showed that the beneficiary had lived in his father's family, uneducated to any business, and entertaining the idea that a fortune would be provided for him, and had a wife whom he supported. The chan cellor said: " Two thousand dollars would enable them to live respectably in New York according to their condition in life, even if the defendant should not think proper to do anything for his own support; and they should not upon a fair construction of the statute on this subject be permitted to indulge in extravagant expenditures while the defendant's creditors remained unpaid."
The question in this case was objectionable in assuming that the manner of life in which Mr. Wood had been in the habit of living was one of the conditions upon which the amount necessary for his support was to be predicated. His manner of life had been shown by his cousin and co-trustee and defendant as recklessly extravagant and profuse, and the evidence of all of his witnesses shows that a large part of his annual expenses were incurred in repaying his supposed obligations for social courtesies and civilities extended to him by his associates and acquaintances. However pleasant and agreeable it may be for individuals to incur and repay such obligations, the law is concerned only with real obligations and necessary expenditures, and cannot properly estimate or determine the amount, which according to social requirements an individual should lavish or expend in voluntary entertainments in repayment of conventional obligations. Doubtless the court may take into account to a certain extent the differences existing in the education, habits and condition of individuals, with a view of ascertaining their respective necessities and wants, in order to determine the amount which may be necessary to supply them ; but even in that case I apprehend it cannot go beyond the sum needed to discharge real obligations and pay proper and reasonable expenses for necessary support. The evidence sought by the question objected to, furnished no information upon the issue tried by the court. Neither the man ner in which the party has been accustomed to live or the style in which his associates and acquaintances expect him to live, furnishes a just criterion for determining the amount necessary to furnish a suitable support for the cestui que trust.
We think also, within the rules laid down in Ferguson v. Hubbell (97 N. Y. 507), that the evidence was incompetent. It was there said by Judge Earle : It is not sufficient to warrant the introduction of expert evidence that the witness may know more of the subject of inquiry, and may better comprehend and appreciate it than the jury; but to warrant its introduction the subject of the inquiry must be one relating to some trade, profession, science or art in which persons instructed therein, by study or experience, may be supposed to have more skill and knowledge than jurors of average intelligence may be presumed generally to have." . . . " Where the facts can be placed before a jury, and they are of such a nature that persons generally are just as competent to form, opinions in reference to them and draw inferences from them as witnesses, then there is no occasion to resort to expert or opinion evidence."
It seems to us that the question in issue here was one peculiarly proper for the determination of a court or jury, after hearing evidence as to the character, circumstances and condition of the party, and the price and value of articles required to furnish suitable food, clothing, shelter and other necessaries adapted to the condition in life of the person whose support is the subject of inquiry.
Expert evidence on such a subject would be peculiarly unreliable, owing to the wide diversity of opinion existing among different individuals of various degrees of education, intelligence and refinement, and possessing discordant habits and views of life as to what might be regarded as a proper sum for the support of an individual. The subject is one of which every individual has had more or less experience and knowledge, and is neither adapted to nor requires the opinion of persons in special classes of life to elucidate or explain.
No person can by achieving a certain position in society secure to himself a protection from the claims of his creditors which is denied to others who are less favored in a social point of view. The opinions of experts are admitted " upon the supposition that the question involves matters which lie beyond the scope of the observation, knowledge and experience of men in general, and that consequently the jury could not be presumed competent to arrive at a proper determination by the unaided exercise of their judgments" (De Witt v. Barley, 8 N. Y. 376).
Few subjects exist where knowledge and information concerning them are so universal and general as those pertaining to the cost and expense of living; and where all are so competent to form an opinion with respect to them, such questions must not only form the nature of the subject, but also, from the requirements of law, be left to the judgment and experience of the tribunal before whom they are tried (McGregor v. Brown, 10 N. Y. 114; Genet v. Beekman, 45 Barb. 382). Thus, opinions of witnesses as to the amount of damages sustained by a party have been held inadmissible (Morehouse v. Matthews, 2 N. Y. 514; Norman v. Wells, 17 Wend. 161; Simons v. Monier, 29 Barb. 419).
Questions as to what are necessaries for an infant or married woman cannot be proved by the opinions of witnesses (Johnson v. Lines, 6 Watts & S.80). In an action against a father for clothing furnished to his infant children, the opinion of witnesses as to its being necessary were held inadmissible (Poock v. Miller, 1 Hilt. 108). So, too, opinions that a husband did not furnish Ids wife and family a suitable home to live in were held inadmissible in an action by him against another for the seduction of his wife (Dallas v. Sellers, 17 Ind. 479).
The case of Merritt v. Seaman (6 N. Y. 168) seems to be decisive of the question presented by this exception. The claim was for an offset for necessaries furnished to a nephew of the plaintiff's testator under an agreement by him, when his nephew entered the defendant's service as a clerk, that they should allow him the customary compensation, and if anything more was needed for his support he would pay it himself. A list of articles furnished by the defendants to the nephew was presented to the witness, and he was asked whether those items were proper for a young man so situated. The evidence was admitted under objection, and for that reason the judgment was reversed on appeal. The head-note of this case (Johnson v. Lines, supra) states that " what are necessaries is a mixed question of law and fact," and therefore the opinion of a witness as to what was a proper expenditure is not admissible.
We are also of the opinion that the judgment of the court below should be sustained upon the ground that there was an accumulated surplus in the hands of the defendants at the time of the rendition of the j udgment which had accrued during the pendency of the action, and was applicable to the payment of the plaintiff's judgment and was sufficient to discharge the same. The expenditure of that sum by them for the purposes, and under the circumstances found by the referee, was a violation of the rights secured by the plaintiff by the commencement of this action, and was unauthorized by any power vested in them. This sum was inalienable by the cestui que trust, and actual experiment had demonstrated that it was not needed for his support during the period of its accumulation. The amount of this accumulation would seem to be more than sufficient to discharge the obligations of the plaintiff, and if this should prove to be so would render the provision in the decree for a further application of surplus income unnecessary.
Note on the Rights of a Creditor to reach a Trust for THE DEBTOR'S BENEFIT.
I. The right of the Creditor.
This subject is of an increasing importance, and either its difficulties or their explanation are not appreciated by recent writers on the law of Trusts and of Fraudulent Conveyances. The reader who seeks a clear understanding of the very complex principles regulating the right of a creditor to have his judgment satisfied out of a fund claimed to be held in trust for the benefit of his debtor, will be repaid by attention to the manner in which this subject has been contested in this country, and the coarse of legislation in which our complex statutes affecting it have come into existence.
After it had been well settled in accordance with English law, that a creditor with judgment, and execution issued thereon, who found himself met by the existence of a fraudulent transfer of assets on which he might otherwise have freely levied, could file a bill in chancery, in aid of his execution, to have the fraudulent obstruction set aside, the question arose whether, if a creditor showed that the debtor had no leviable property, but that he had property of other kinds, such as rights in action, contracts, corporate stock, &c., chancery ought to entertain a bill to compel him to apply such assets to the satisfaction of the judgment.
The courts of New York, in 1822, after a notable contest, determined this question in favor of the creditor; and this appears to be'in accordance with equity and the general welfare. Hadden v. Spader, 20 Johns. 554; aff'g 5 Johns. Oh. 280.
. We think the judgment should be affirmed.
Earl, J., concurs. Rapallo, Andrews and Miller, JJ., concur on last ground. Danforth and Finch, JJ., dissent.
The right of the creditor thus recognized has, of course, been constantly contested, and, in other jurisdictions than Hew York, with varying results. In some States, the Hew York rule has not been followed, the courts holding, with reactionary decisions in England, that chancery could not aid the creditor except as to assets which were in their nature leviable.1
The conclusion of the majority of the court in Hadden v. Spader, was, with.an exception designed to protect the principal of trust funds, embodied in the Revised Statutes.
The division of those statutes containing provisions regulating the court of chancery prescribed that :—
" Whenever an execution against the property of a defendant shall have been issued on a judgment at law, and shall have been returned unsatisfied in whole or in part, the party suing out such execution may file a bill in chancery against such defendant, and any other person, to compel the discovery of any property or thing in action belonging to the defendant, and of any property, money or thing in action due to him or held in trust for him ; and to prevent the transfer of any such property money or thing in action, or the payment or delivery thereof to the defendant, except where such trust has been created by, or the fund so held in trust has proceeded from some person other than the defendant himself " 2 R. S. 173, § 38. Same stat. 6 ed. vol. 3, p. 190.
1 Hadden v. Spader is not included in the extensive collection of noted cases, published under the name of American Decisions, but the adverse case of Donovan v. Finn (1 Hopk. 59), is (14 Am. Dec. 531), with a note characterizing it as a leading case, and inclining to the view that the weight of American authority is against the doctrine of allowing creditors to reach non-leviable assets generally.
If we judge the weight of authority by the number of cases in the books, perhaps this estimate is correct. If we understand by the weight of authority the preponderance of present judicial opinion as now in actual operation, and to a considerable extent embodied in reported cases, I think it correct to say that the weight of authority is in favor of the doctrine (except, perhaps, in those jurisdictions where the free use of attachment as a provisional remedy has made the question one of very little importance). See Ager v. Murray, 105 U. S. (15 Otto) 126; Lord v. Brete Hart, 118 Mass. 271; Carver v. Peck, 131 Id. 291; Matthews v. Green, 19 Fed. Rep. 649; Carter v. Hampton, 77 Va. 631; Fink v. Patterson, 21 Fed. Rep. 602, an extreme case, see comments on it in 19 Am. L. Rev. 293, 427; Gray v. Boardman, 60 Iowa, 205; Beam v. Bennett, 51 Mich. 148; Donnell v. Portland & O. &c. R. R. Co., 73 Me. 567; Arzbacher v. Mayer, 53 Wisc. 380; S. C., 10 Northw. Rep. 440.
In some of these jurisdictions, as, now, in New York, the rule is confirmed by statute.
" The court shall have power to compel such discovery, and to prevent such transfer, payment, or delivery, and to decree satisfaction of the sum remaining due on such judgment out of any personal property, money or things in action belonging to the defendant, or held in trust for him, with the exception above stated, which shall be discovered by the proceedings in chancery, whether the same were originally liable to be taken in execution at law or not." Id. § 39.
In passing, it should be observed, in relation to the provision as to discovery, that discovery was, in its old form, abolished by the Code of Procedure, examination before trial being substituted. But on the completion of the Code of Civil Procedure in 1880, the above § 38 and 39, were reenacted, and including the right of discovery ; but the provision was revised in this and other respects, and presented in the form given below, pp. 34, 35.
Another provision of the Revised Statutes carried out the doctrine of Hadden v. Spader, by prescribing how a creditor could reach his débtor's interest under an executory contract for the purchase of land (1 R. S. 744, § 5 ; revived in Code Civ. Pro. § 1874.) But this it is not necessary to the present purpose to notice further here.
The portions of the Revised Statutes that regulate property and trusts, were molded to correspond with those regulating the court of chancery, in this way :
Trusts in personal property, created by the debtor himself for his own benefit, were declared void by the provisions known as the statute of frauds, in the following language :
"All deeds of gift, all conveyances, and all transfers or assignments, verbal or written, of goods, chattels, or things in action, made in trust for the use of the person making the same, shall be void as against the creditors existing or subsequent, of such person." 2 R. S. 135, § 1. Same stat. 7 ed. vol. 3, p. 2327.
In respect to real property trusts, there is no parallel provision, but the same effect is produced as to all transfers calculated to defraud creditors, by the following provision of the next division of the statute of frauds.
" Every conveyance or assignment, in writing or otherwise, of any estate or interest in lands, or in goods or things in action, or of any rents or profits issuing therefrom, and every charge upon lands, goods or things in action, or upon the rents or profits thereof, made with the intent to hinder, delay or defraud creditors or other persons of their lawful suits, damages, forfeitures, debts or demands, and every bond or other evidence of debt given, suit commenced, decree or judgment suffered, with the like intent, as against the persons so hindered, delayed or defrauded, shall be void." 2 R. S. 137, § 1. Same stat. 7 ed. vol. 3, p. 2329.
Trusts in land created by a person for his own benefit, as well as those created by others, are subject also to the following provisions of the statute of uses and trusts, which inure to the protection of creditors.
" Every person who, by virtue of any grant, assignment or devise, now is, or hereafter shall be entitled to the actual possession of lands, and the receipt of the rents and profits thereof, in law or in equity, shall be deemed to have a legal estate therein, of the same quality and duration, and subject to the same conditions as his beneficial interest." 1 R. S. 727, § 47. Same stat. Id. 7 ed. vol. 3, p. 2180.
And if a disposition of lands made not to the person in whom the right to the possession and profits is intended to be vested, but to one or more persons in trust for each other, it vests no estate or interest,.legal or equitable, in the trustee. 1 R. S. 728, § 49. Same stat. Id. 7. ed., vol. 3, g. 2180.
These provisions are, however, all in some sense limited by the power allowed by the same statute to create express trusts, noticed below.1
It follows from these provisions that if a person procures lands to be acquired and held by another expressly in trust for him (the former), in such a way that if the trust were valid he would, notwithstanding the nominal title of the trustee, be entitled to the possession and the profits, the trust is void, and the creditor having execution against him can enforce it against the land itself.
Another indirect way in which it is often sought to create a trust without indicating on the record the beneficiary,—viz : by the equity doctrine raising a resulting trust in favor of one who paid the consideration on a conveyance to a third person, —was met by the Revised Statutes, by a provision which has been adopted in many other States, to the following effect:
" Where a grant for a valuable consideration shall be made to one person, and the consideration therefor shall be paid by another, no use or trust shall result in favor of the person by whom such payment shall be made ; but the title shall vest in the person named as the alienee in such conveyance, subject only to the provisions of the next section." 1 M. 8. 728, § 51. Same stat. Id. 7 ed. vol. 3, p. 2182.
1 Bryan v. Knickerbacker (Supm. Ct. 1846, on appeal from chancery, 1 Barb. Ch. 409). Creditor's bill against the grantor in a deed creating a trust for his own benefit, the grantor and trustee being made defendants. The trust was of all the grantor's property, real and personal, to apply from time to time so much of the rents and income, for the use and support of the grantor and for his family, if he should have one, as the trustees deemed reasonable, and to invest and accumulate the residue of rents and income for his heirs, and on the grantor's death, to distribute the fund amongst his heirs and next of kin. Held, that the trust having been created before the Bevised Statutes, (1) it was valid in favor of the heirs and next of kin, although they might not be in existence. (2) It was not protected as being inalienable, and as the creator of the trust had a beneficial interest in the fund, and the trustee could not exercise an arbitrary discretion, the creditor could reach that part of the income of the trust property-which belonged to the debtor which had been in or come into the hands of the trustees since the commencement of the action.
So, a woman about to marry cannot settle her property in trust to pay the income to her, with a provision against her alienating the income by anticipation, so that it shall be beyond the reach of her creditors. Jackson v. Von Zedlitz, 136 Mass. 342.
" Every such conveyance shall be presumed fraudulent as against the creditors, at that time, of the person paying the consideration ; and where a fraudulent intent is not disproved, a trust shall result in favor of such creditors, to the extent that may be necessary to satisfy their just demands." Id. § 52.
By the next section are excepted cases where the alienee took the conveyance in his own name, without the knowledge of the payer of the consideration, as well as where the consideration was money applied in violation of a trust.1
It should also be noticed in this connection that " where the grantor in any conveyance shall reserve to himself for his own benefit, an absolute power of revocation, such grantor shall still be deemed the absolute owner of the estate conveyed, so far as the rights of creditors and purchasers are concerned." 1 M. 8. 733, § 86. Same stat. 7 ed. vol. 3, p. 2190.
From these provisions it will be seen that not only nonleviable assets generally, but also assets held in a trust created by or proceeding from the person who is debtor in the execution may be reached.
Trusts created by other persons are the subject of the following provisions :
It is declared by the provisions of the Revised Statutes as to trusts in lands, that express trusts may be created (1) To sell lands for the benefit of creditors. (2) To sell, mortgage, or lease lands for the benefit of legatees, or for the purpose of satisfying any charge thereon. (3) To receive the rents and profits of lands, and apply them to the use of any person, during the life of such person or for any shorter term, subject, &c. . (4) To receive the rents and profits of lands, and to accumulate the same for the purposes, and within the limits, &c. The statute provides that " every express trust, valid as such in its creation, except as herein otherwise provided, shall vest the whole estate in the trustees in law and in equity, subject only to the execution of the trust. The persons for whose benefit the trust is created shall take no estate or interest in the lands, but may enforce the performance of the trust in equity." 1 R. S. 729, § 60. Same stat. 7 ed. vol. 3, p. 2182.
1 As to the exceptions from the obligations of a resulting trust, see Higgins «. Higgins, 14 Abb. W. 0. 13, 18, and note.
"No person beneficially interested in a trust for the receipt of the rents and profits of lands, can assign or in any manner dispose of such interest; but the rights and interest of every person for whose benefit a trust for the payment of a sum in gross is created, are assignable." Id. § 63.
" Where a trust is created to receive the rents and profits of lands, and no valid direction for accumulation is given the surplus of such rents and profits, beyond the sum that may be necessary for the education and support of the person for whose benefit.the trust is created, shall be liable, in equity, to the claims of the creditors of such person, in the same manner as other personal property which cannot be reached by execution at law." Id. § 57.
These provisions were part of a system by which it was proposed to prune down trusts to limits within which it was thought that neither the beneficiary nor his creditors should interfere ; and within those limits to vest the entire title legal and equitable, in the trustee, subject only to the supervision of chancery to see that the trust was faithfully performed.
If a suitable statement of the very different rules necessary to define valid trusts in personal property had been made in the Revised Statutes, it is not unlikely that this scheme of provisions would have been more harmoniously construed, and consistently applied by the courts ; but the immense growth of personal property as compared with real property, and the great number of mixed estates, where the income of both real and personal are inextricably commingled, has led to a confusion of opinion which the revisers did not probably anticipate, and the development of a body of rules relating to the equit able interest of beneficiaries that were not contemplated by the revisers.
In the earlier decades of administering these provisions, it was apparently thought that while trusts in personalty beyond the limits here fixed were not forbidden, yet the inalienability, and the protection of income from creditors prescribed by these provisions, must be extended by analogy to personalty held in trust. And if it was suggested in opposition that the real protection of income from creditors was afforded by the provisions first above noticed, defining the power of chancery as not extending to a trust created by some person other than the debtor, the answer was made that as the statute of trusts had abolished that protection so far as concerns surplus of income, as well as ignored it in respect to pecuniary legacies and annuities charged on land ; the court might, by analogy, ignore it in respect to surplus income of personalty held in trust, without any valid direction to accumulate. Some recent opinions incline rather to the idea that trusts in personal property are wholly free from these provisions ; but if this be sound, the logical conclusion would be that a creditor's action would not reach even surplus income, because it is only these provisions that make an exception to the restraint on creditor's actions, reaching trusts proceeding from a third person. Moreover, the mixed funds that are so common would make such a rule very difficult of administration.
The general understanding of the law I take to be that while the prohibition on unenumerated express trusts does not apply to personal property, the provisions intended to maintain the integrity of valid trusts are to be applied by the courts by analogy, so far as in their nature applicable, to trusts of personalty and trusts of mixed or of converted funds.
(See also Benkard v. Hutton, 92 N. Y. 295.)
The result is that the principal of a fund, real, personal, or mixed, held in a third person's trust for the benefit of the debtor, cannot be reached in the trustee's hands1 unless his interest in the principal is alienable by him, and then it is that interest, not necessarily the fund itself, that is to be reached.
1 A father devised property to executors to sell and invest proceeds, and give the income to his son for life, and the principal on his death to his heirs at law. Held, that creditors could not reach anything, except only the income, in excess of the sum needed for support of the son and his family. Bramhall v. Ferris, 14 N. T. 41.
Jackson v. Prime, 12 Weekly Dig. 113, is a trivial case to the same effect.
Campbell v. Foster, 35 N. Y. 361, rightly understood, precludes reaching the principal of the fund; but not surplus income, in a proper action and with averments of surplus. Miller v. Miller, 1 Abb. N. C. 30.
No portion of the principal can be reached till the relation of trustee and cestui que trust has ceased and the property has been delivered to the debtor. Parker v. Harrison, 42 Super. Ct. (J. & S.) 150.
The jurisdiction of the court of chancery in reaching property of a judgment debtor does not extend to trust property where the trust has been created by some person other than the debtor. Where a sum was left to executors in trust to pay the income and such part of the principal as the cestui que trust should wish, to her, and she requested the trustees to invest the fund in a farm,—Held, that such farm could not be reached by a creditor of the cestui que trust. Lippincott v. Evens, 35 N. J. Eq. 553.
An estate was devised in trust for the use of testator's sons, with liberty to the trustee to convey it to them, and with directions to the trustee to control its use and enjoyment, in such manner as to prevent its being squandered. A codicil expressly stated it to be the wish of the testator that the estate should not be subjected to the satisfaction of unjust judgments that he was under neither legal or moral obligation to provide for, and that it should not be subject to the control of his sons or their creditors, real or imaginary. Held, that the creditors of the sons could not attach the estate. Staub v. Williams, 5 Lea (Tenn.) 458.
The New York decisions that the principal and income necessary for support cannot be reached, but surplus can be, are approved under a similar statute in Wisconsin in Arzbacher v. Mayer, 10 Northw. Rep. 440, 445; S. C., 53 Wisc. 380.
Under a devise and bequest "in trust for the use, benefit, and behoof" of the testator's son, then unmarried, "for and during his natural life; the rents and profits to be discreetly used for his genteel and comfortable support and maintenance, also for any family he may hereafter have;" with a further direction for the investment of the surplus profits, and an inhibition of any liability for debts; the interests of the son and of his wife in the rents and profits during his life are capable of separation from the interests of their children, and may be subjected to their debts. Jones v. Reese, 65 Ala. 134.
The income cannot he reached so far as it is necessary for education or support, or both,1 nor so far as it is covered by a valid direction to accumulate for the sole benefit of a minor beneficiary.2
Surplus of the income of real or personal property, accrued and in the hands of the trustees, over and above what is necessary for the education or support, or both, of the debtor and those dependent upon him, can be reached; and where there is such surplus, provision may be made in the decree for similar future surplus ; but an action purely in anticipation of a future surplus is premature.1
1 This is so, whether the trustees are directed by the terms of the trust to apply the fund or directed to pay the fund over to the beneficiary or cestui que trust; and the power of the court to determine a reasonable allowance for the cestui que trust while the fund is in the hands of the trustees is equally operative in either case. Supm. Ct., 1882, McEvoy v. Appleby, 27 Hun, 44.
Keeping house and supporting an old family servant of the testator, held, not to show that the income for support, including that purpose, was too much. Genet v. Beekman, 45 Barb. 382.
As to the considerations to be weighed in fixing the amount, see beside the case in the text; Moulton v. De ma Carty, 6 Robt. 533, and cases cited; Hann v. Van Voorhis, 1 Month. L. Bul. 66.
But surplus, even, it seems, is not protected against an action to enforce judgment for alimony and maintenance of the debtor's children. Miller v. Miller, 1 Abb. N. C. 30, Barrett, J.
In Stewart v. McMartin, 5 Barb. 438, a creditor's bill, it was Held, that the protection does not cease when the annuity or needed income becomes payable, but that it could not be reached by creditors either by anticipation or after accrual, whether it remains in the hands of the trustees or has been received by the cestui que trust. It is only the surplus ascertained to be not wanted and which has not been applied, that is liable in equity under the statute.
But although income cannot be reached as the property of the debtor needing it for support, yet after he has applied it to that purpose by assigning it to one who has supported him in consideration thereof, it may be reached as the property of the assignee. McEwen v. Brewster, 19 Hun, 337; overruling 17 Id. 223.
2 Pray v. Hegeman, 27 Hun, 603, reversed in 92 N. Y. 508, because the direction was not for the sole benefit of a minor beneficiary.
1 Williams v. Thorn, 70 N. Y. 270; further decision in 81 Id. 381; Parker v. Harrison, 42 Super. Ct. (J. & S.) 150; Miller v. Miller, 1 Abb. N. C. 30; (correcting Hann v. Van Voorhis, 15 Abb. Pr. N. S. 79; Hann v. Van Voorhis, 5 Hun, 425; and Miller v. Miller, 7 Hun, 208, which misconstrued Campbell v. Foster, 35 N. Y. 361).
A trust of personalty, so far as respects the rights of judgment creditors, is subject to the same rules as trusts of rents and profits of real property. Wetmore v. Truslow, 51 N. Y. 338.
The sound cases beside Williams v. Thorne, above, are as follows:
Clute v. Bool, 8 Paige, 82. Creditor's bill to reach defendant's interest in an annuity given by the will of his father, the sum being fixed. Held, that conceding, in deference to 16 Wend. 118, 165, 262, that an annuity is not " sums in gross," but income, it cannot be reached by anticipation, and the bill, having been filed immediately after testator's death, could not be sustained.
Degraw v. Clason, 11 Paige, 136. Creditor's bill. Held, that an annuity given by testator to his widow in lieu of dower, though charged upon the real and personal estate, the estate being devised absolutely subject to the charge, is not held in trust within the statute and may be reached by creditors.
Rider v. Mason, 4 Sandf. Ch. 351. Creditor's bills to reach a portion of a semi-annual annuity, payable to defendant under his father's will, out of a fund of real and personal estate. Held, that the surplus could be reached.
Craig v. Hone, 2 Edw. 375. Petition of the judgment debtor in a creditor's suit, after injunction, showing that he had no means of support except from the income of real and personal property under his father's will. Held, that as his share was more than enough to pay all his debts, the court might allow him to receive a sum which would leave more than enough in the executors' hands to satisfy all his creditors.
Sillick v. Mason, 2 Barb. Ch. 79. Creditor's bill to reach defendant's interest in a semi-annual annuity of a fixed sum, out of the income of real and personal' estate, under his father's will. Held, that all beyond what was necessary for the support of himself and family might be reached by a creditor's bill.
Stewart v. McMartin, 5 Barb. 438. Held, that an annuity payable out of rents and profits or income of trust property, was protected, it being all necessary for support.
Graff v. Bonnett, 31 N. Y. 9. Action by receiver appointed in supplementary proceedings to reach income on a sum of money directed by the debtor's father's will to be invested and the interest paid to him for life. Held, that upon the weight of authority the interest of the beneficiary must be regarded as inalienable, although the property was personal, as well as if it were real property, so as to be inalienable under the statute; hence nothing but surplus could be reached; and the existence of that could not be inferred when not alleged, even if an action by a receiver in supplementary proceedings were the proper remedy.
Campell v. Foster, 35 N. Y. 361. Action by receiver appointed in supplementary proceedings to reach income of trust fund alleged to be more than sufficient for support and education. The trust was of personal property (p. 370). Held, that the action could not be maintained, six judges agreeing that "the fund could not be reached." The opinion, per Weight, J., is to the effect that (1) whether a receiver appointed in supplementary proceedings can maintain any creditor's suit is an open question; (2) no creditor's bill can be maintained to reach non-leviable assets, except in a case within the statute (2 R. S. 173, § 38, 39), and that excludes a trust created by a third person; (3) even if the statute did not prevent reaching a trust to pay the income of personalty, the beneficiary's interest is, according to 31 N. 7. 9, inalienable as much as if it were real property; (4) it was not material to inquire if surplus could be reached, because there was no allegation that there was a surplus.
In Nichols v. Baton, 91 W. S. (1 Otto) 716, the case of Campbell v. Foster, 35 N. 7. 361, was regarded as an authority in favor of the right of the owner of property to give it such protection as he may choose, without its being subject to the debts of those upon whom he intends to confer his bounty.
See also the following cases:
A devise to K., in trust for G., of real estate, with the direction that the rents and profits be paid to the cestui que trust exclusively, and particularly expressing the intention of the testatrix that the devise is not to inure in any manner for the use and benefit of the creditors of the cestui que trust, confers no title to the land on the ces tui que Vrust, but only a vested life estate in the rents and profits, which cannot be reached by creditors' bill, although the devise direct payment to the beneficiary or his written order. Easterly v. Keney, 36 Conn. 18.
Our view of the subject would not be complete without adverting to another indirect way of conveying to the use or benefit of another than the grantee—viz., by conferring a power of appointment. In reference to this, the statute of powers provides that " every special and beneficial power [a special power being one which designates the appointee or class for appointments, or authorizes appointment of a less estate than a fee, and a beneficial power being one which gives no other person than the grantee an interest in its execution] is liable in equity to the claims of creditors, in the same manner as any other interests that cannot be reached by an execution at law, and the execution of the power may be decreed for the benefit of the creditors entitled." 1 R. S. 734, § 93. Same stat. 7 ed. vol. 3, p. 2190.
In such a case, the rents and profits, if accrued, and in the hands of the trustee, would be liable to foreign attachment by creditors oí the cestui que trust, notwithstanding the expressed intention of the testatrix that the devise shall- not inure in any way to their use and benefit. Ib.
There is, however, no way in which the creditors of the cestui que trust can reach such rents and profits before they accrue or come into the hands of the trustee, lb.
A testatrix gave real and personal property to a trustee for the life of her daughter A., remainder to the children of A. living at her death. The trustee was directed so to use and direct the farm and other property as to make it most advantageous to the interest ana support of A., and her children during her life. A.'s husband died leaving five children, and she ran into debt. Judgments were recovered against her, and she was discharged as an insolvent debtor. Her creditors filed a bill to subject her interest in the property to the debts. Held, that A. and her children were not entitled to have an equal share of the trust property, or of its proceeds, set apart for the use of each, but that the property was to be held by the trustee, ana the annual products thereof applied to their support, according to the necessities of each; and that the creditors would only be entitled to A.'s ratable portion of any surplus of the annual proceeds of the trust, after providing for the support of herself and family; and as no such surplus was alleged or shown to exist, the bill was properly dismissed; but decree stated opinion that if any surplus should exist, the plaintiffs might file a new bill to subject it. Nickell v. Handley, 10 Gratt. (Va.) 336.
The execution in whole or in part of any trust power may be decreed in equity for the benefit of the creditors or assignees of any person entitled as one of the objects of the trust to compel its execution, when the interest of the objects of such trust is assignable. 1 R. S. 735, § 103. Same stat. 7 ed. vol. 3, p. 2191.1
For the most recent discussion of the validity of trusts framed to exclude the creditors of the beneficiary from all remedy, see further, Nichols v. Eaton, 91 U. S. (1 Otto) 716 ; Spindle v. Shrieve, U. S. Circ. N. D. Ill., Weekly Jur. Dec. 23, 1880, p. 679 ; cited in 6 South. L. Rev. N. S. 970 ; Hall v. Williams, 120 Mass. 344 ; Gray on Restr. of Aliena.2
II. The mode of remedy.
In this state of the law as to the rights of creditors, that part of the Code of Civil Procedure, revising the statute as to creditor's bills and supplementary proceedings, was adopted in 1880.
1 As to powers and appointments, see also, Rogers v. Ludlow, 3 Sandf. Ch. 104; Clapp v. Ingraham, 126 Mass. 200; Gilman v. Bell, 99 Ill. 144; Knowles v. Dodge, Wash. L. Rep. Apr. 13, 1881, p. 227.
2 If, notwithstanding the statute, the beneficiary has the absolute power of transferring his interest or right, a creditor can reach it; because it is against public policy to hold that assignable property is exempt. Arzbacher v. Mayer, 53 Wisc. 380; S. C., 10 Northw. Rep. 440, 445.
It is violative of public policy, and in fraud of the rights of creditors, to create a well-defined beneficial interest, legal or equitable, in property real or personal, or in its rents, income, or profits, which can be enjoyed by an insolvent debtor, free from liability for the payment of debts. Taylor v. Harwell, 65 Ala. 1. Compare Jones v. Reese, Id. 134; see 30 N. J. L. 42, and note.
An absolute, unqualified discretion to withhold or to appropriate rents, income, or profits to the support of a beneficiary, it may be, can be conferred on a trustee; and it may be that, when it is conferred, neither the cesl/ui, nor a creditor asserting his rights can invoke the interference of a court of equity to direct or control it. Ib..
These provisions may be advantageously compared with the former law in this form.
2 Revised Statutes, 173, § 38.
" Whenever an execution against the property of a defendant shall have been issued on a judgment at law, and shall have been returned unsatisfied in whole or in part, the party suing out such execution may file a bill in chancery against such defendant, and any other person, to compel the discovery of any property or thing in action, belonging to the defendant, and of any property, money or thing in action, due to him, or held in trust for him ; and to prevent the transfer of any such property, money or thing in action, or the payment or delivery thereof, to the defendant, except where such trust has been created by, or the fund so held in trust has proceeded from, some person other than the defendant himself."
2 Revised Statutes, 174, § 39.
" The court shall have power to compel such discovery and to prevent such transfer, payment or delivery, and to decree satisfaction of the sum remaining due on such judgment, out of any personal property, money or things in action, belonging to the defendant, or held in trust for him, with the exception above stated, which shall be discovered by the proceedings in chancery, whether the same were originally liable to be taken in execution at law or not."
Code Civ. Pro. § 1871, first sentence. ,
" Where an execution, | against the property of a judgment debtor, issued out of a court of record, as prescribed in the next section, has been returned wholly or partly unsatisfied, the judgment creditor may maintain an action against the judgment debtor, and any other person, to compel the discovery of any thing in action, or other property belonging to the judgment debtor, and of any money, thing in action, or other property due to him, or held in trust for him; to prevent the transfer thereof, or the payment or delivery thereof, to him, or to any other person ; and to procure satisfaction of the plaintiff's demand, as prescribed in the next section but one."
Code Civ. Pro. § 1873.
"The final judgment in the action must direct and provide for the satisfaction of the sum due to the plaintiff, out of any money, thing in action, or other personal property, belonging to, or due to the judgment debtor, or held in trust for him, which is dis covered in the action ; whether the same might or might not have been originally taken, by virtue of an execution."
[§§ 1876 and 1877 provide for injunction and receiver.] Code Civ. Pro. § 1878.
66 A discovery may be compelled in an action, brought as prescribed in this article, by directing the person, required to make it, to appear before the court, or a referee appointed by it, and to be examined under oath, concerning the matters pertaining to. the discovery. But this section does not affect the right of the plaintiff, to cause the deposition of a defendant to be taken, as prescribed in article first of title third of chapter ninth of this act."
[The reference here is to the provisions as to taking depositions within the State, under which examinations before trial are had. § 870, &e.]
Supplementary Proceedings.
These may be taken on an affidavit that the debtor " has property which he unjustly refuses to apply toward the satisfaction of the judgment" (Code Civ. Pro. § 2436), or " That any person or corporation has personal property of the judgment debtor, exceeding $10 in value, or is indebted to him in a sum exceeding $10 " (Id. § 2441).
At any time after order for examination, the judge may make an order " appointing a receiver of the property of the judgment debtor " (Id. § 2464).
" The property of the judgment debtor is vested in a receiver who has duly qualified, from the time of filing the order," &c., &c. (Id. § 2468.
[It will be seen that this language is not very appropriate to reaching a trust fund in the hands of a trustee.]
Code Civ. JPro. § 2463.
"This article [as to supplementary proceedings] does not apply, where the judgment debtor is a corporation created by or under the laws of the State, or a foreign corporation specified in section 1812 of this act [a section allowing receiverships of certain foreign corporations]. Nor does it authorize the seizure of, or other interference with, any property, which is expressly exempt by law from levy and sale by virtue of an execution ; or any money, thing in action, or other property, held in trust for a judg ment debtor, where the trust has been created by, or the fund so held in trust has proceeded from, a person, other than the judgment debtor ; or the earnings of the judgment debtor for his personal services, rendered within sixty days, next-, before the institution of the special proceeding; where it is made to appear, by his oath or otherwise, that those earnings are necessary for the use of a family, wholly or partly supported by his labor."
Code Civ. Pro. § 1879.
" This article [as to creditor's actions] does not apply to a case, where the judgment debtor is a corporation created by or under the laws of the State. Nor does it authorize the discovery or seizure oí, or other interference with, any property, which is expressly exempted by law from levy and sale, by virtue of an execution ; or any money, thing in action, or other property, held in trust for a judgment debtor, where the trust has been created by, or the fund so held in trust has proceeded from, a person other than the judgment debtor ; or the earnings of the judgment debtor for his personal services, rendered within sixty days next before the commencement of the action, where it is made to appear, by his oath or otherwise, that those earnings are necessary for the use of a family, wholly or partly supported by his labor.
A receiver in supplementary proceedings it will be seen acquires " the property " of the judgment debtor ; and by the act of 1858, c. 314, he, when appointed, has primarily a right, exclusive of creditors, to bring an action to avoid a fraudulent transfer made by the debtor.
But he has not power to enforce the statutory trust for creditors which arises on a conveyance to another for a consideration p>aid by the debtor, nor according to the majority of decisions or dicta, that which arises on a surplus of income beyond what is necessary for education and support.1
1 Underwood v. Sutcliffe, 77 N. Y. 58. This case accords with the doctrine that the subject of a fraudulent transfer is no longer in equity, any more than at law, " the property " of the debtor, and therefore a receiver of only his property can reach it; but it does not seem to give full weight to the act of 1858, which authorizes a receiver to set aside acts in fraud of creditors; for conveyances which raise a resulting trust for creditors are declared fraudulent as against them.
In Locke v. Mabbett, 3 Abb. Ct. App. Dec. 68, it was held that income of real and personal property held in trust for a debtor, and for his benefit, arising out of a fund proceeding from a third person, designed to secure to the debtor personally a support, cannot be reached or taken by a judgment creditor, by means of an order in supplementary proceedings requiring the trustee and the beneficiary to apply the surplus to the payment of 'plaintiff's judgment. The' remedy is by an action, which it seems may be brought by a receiver in supplementary proceedings, but whether such receiver could receive any income of the trust fund created by a third person and intended for the debtor's support, query f lb.
Manning v. Evans, 19 Hun, 500, was an appeal from an order in supplementary proceedings requiring assignment to receiver. The debtor's father devised real property to trustees in trust to give him the free and unrestrained use and possession for life, and the debtor was in possession. Held, that an assignment to the receiver in supplementary proceedings could be required; but as to real estate, it was unnecessary, the statute being sufficient, and, if the will gave a beneficial interest in the nature of a trust in rents and profits, the remedy should be by creditor's action, not by supplementary proceedings.
Scott v. Nevius, 6 Duer, 672. Application in supplementary proceedings to authorize a receiver to sell the debtor's interest under the trust of real and personal property, created by his brother's will to pay him income for life. Held, that although a surplus in such a case would be liable to the creditors; and, if already accumulated, might doubtless be reached in supplementary proceedings, yet it not appearing that there was or would be any surplus, the proper remedy was by an action in which the executor would be a party, so that it might be determined what portion of the income could be sequestrated.
It is conceded in Genet v. Foster, 18 How. Pr. 50, 56, that an admitted surplus in the hands of a trustee may be reached in supplementary proceedings.
In Morgan v. Von Kohnstamm, 9 Daly, 355, it was held that an injunction restraining trustees under a will directing them to apply the income of a fund to the use of another, during life, from making any disposition of the trust property, should not be granted in supplementary proceedings against the cestui que trust, since the surplus over what is necessary to the judgment debtor's support is all that can be reached to satisfy the judgment, and that can be done only by an equitable action, to which the judgment debtor and the trustees are made parties.
III. Mode of reaching surplus
For a form of complaint by a judgment creditor, see Abb. Supp. to Forms, p. 515.
For one by creditor for alimony and maintenance, see Miller v. Miller, 1 Abb. N. C. 30.
It is worth noticing, however, that where a receiver in supplementary proceedings brings an action to reach assets, making the judgment creditors parties, they can set up their rights by an answer which will present the same question as they might by a creditor's bill. Hardenburgh v. Blair, 30 N. J. Mq. 645, 656; Gode Oiv. Pro. % 521.
That supplementary proceedings may reach a trust, see Hexter y, Clifford, 5 Ool. 168.
When the bill shows presumptively that there is or should be a surplus, the injunction may go without qualification, or may be qualified only by limiting it to all beyond a specified portion, leaving it to either party to apply as to the amount of support until it can be ascertained in the proper mode.1
A receiver should not be appointed to take the fund out of the hands of a trustee holding it for the benefit of those interested in remainder, if there is no allegation of his being irresponsible.2
The rule laid down in Williams v. Thorn, 70 AT. 71 270, 6< that a provision may be made in th& judgment in a creditor's action, determining what will be a reasonable allowance for the cestui que trust, and directing the application toward the payment of the judgment of any future surplus until the same is fully paid," has not been changed by Code Civ. Pro, 88 1879 and 2463.3
' Bider y. Mason, 4 Sandf. Oh. 351. j
3 Bryan ». Knickerbacker, 1 Barb. Gh. 409, 431,
5 McBvoy v. Appleby, 27 Sun, 44.
In Bryan v. Knickerbacker, 1 Barb. Gh. 409, 431, above cited, where the trust was created by the debtor, it was held that a proper - decree should 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,,th?.t; 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.
In a proper case of misapplication, or a disregard of the lien acquired by plaintiff by commencing his action against the trustees, they may be adjudged personally liable, as in the case in the text.
But they should not be charged with costs personally merely because they have an interest in the income in remainder.1
IV. Mode of enforcing resulting trust.
The trust which results for creditors under 1 R. S. 728, § 52 (above), cannot be enforced by a sale of the land on execution and an ejectment brought by the purchaser. The statute creates a trust in favor of the creditor, which must be enforced in equity by him or his successor in interest.2
The remedy is not by a judgment creditor's action under 2 Revised Statutes, 174 (above cited), but by equitable action to subject the lands to the payment of his debt, on establishing the relation of trustee and cestui que trust under the statute of " uses and trusts."3
Such relief, however, may be granted under a complaint framed to reach the supposed interest of the debtor.4
The statute itself does not effect the lien, but a lien must be got either by judgment or by commencement of a creditor's action, &o., and if the judgment is discharged in bankruptcy before this is done, the creditor's remedy fails.5
1 Bryan v. Knickerbacker, 1 Barb. Ch. 409, 431.
2 Garfield v. Hatmaker, 15 N. Y. 475.
Otherwise in Massachusetts and New Hampshire, where a creditor may sell the land on execution against the one who paid the consideration. 1 Perry on Trusts, 160, § 142, citing Foster v. Duraul, 2 Gray, 538; Hutchins v. Heyward, 50 N. H. 591.
3 Donovan v. Sheridan, 37 Super. Ct. (J. & S.) 256; Spicer v. Ayres, 2 Supm. Ct. (T. & C.) 626.
4 Donovan v. Sheridan (above).
5 Ocean Natl. Bank v. Olcott, 46 N. Y. 12.
The trust created by this statute is not for the benefit of subsequent creditors.1
In the absence of proof that there are other creditors, a single creditor can maintain an action to enforce it.2
A creditor at large cannot maintain this action before his debt has been established by judgment, and he has exhausted bis legal remedies,3 even though the debtor is dead, and died insolvent.4
The trust may be enforced against the successors in interest of the trustee or transferee, except, of course, so far as they may show themselves bona fide purchasers without notice.1
1 Brewster v. Power, 10 Paige, 562; Lormore V. Campbell, 60 Barb. 62.
2 Hiler v. Hetterick, 5 Daly, 33. And it seems that a creditor may sue on his own behalf irrespective of whether there are others, lb.
3 Estes v. Wilcox, 67 N. Y. 264. The reason assigned is that defenses to the creditor's demand, if any there be, should be litigated before requiring third persons to litigate the question of the trust.
It is not practicable to reconcile this decision with the reasoning in McCartney v. Bostwick, 32 N. Y. 53, except by restricting the latter case to allowing foreign judgment and execution to be enough.
That was an action by one who had recovered judgment in another State, and had execution returned unsatisfied, there, to reach real property in this State, which his debtor had paid the consideration for and procured to be conveyed to his wife, and which, by her, had been conveyed to the co-defendant. It was alleged that the debtor was a non-resident and insolvent, and had no property in this State. Held, that conceding the creditor must, in such a case, have exhausted bis legal remedy, it was enough, in the absence of the person and property of the debtor here, to show that he had exhausted it in the jurisdiction of the debtor's residence and property, especially as the statute created a pure trust and did not make the right dependent on the rules applicable to creditors' bills.
In Jones v. Green, 1 Wall. 330, plaintiS thought to reach real property the debtor had purchased and caused to be conveyed to one of the defendants upon a secret trust for the debtor, and it was held that execution was necessary; and its issue not having been proved, the bill must be dismissed.
Estes v. Wilcox, 67 N. Y. 264, also overrules Sweeny v. Sheridan, 37 Super. Ct. (J. & S.) 587, holding return of execution unsatisfied.
4 Estes v. Wilcox, supra.
The judgment should not vacate the conveyance, and appoint a receiver of the whole, if not necessary for the payment of the judgment, but the recovery should foe limited.2
The grantee, if he has disposed of the property, may be held to account for profits to the amount of the creditor's judgment.3
This remedy of creditors passes to a receiver, assignee for benefit of creditors, or other trustee .for the creditors of the debtor, or, on the debtor's death, to his executor or administrator, by virtue of the act of 1858, c. 314;4 and according to the view of some cases would do so independent of that statute. So that if there is such a custodian of the assets, he alone should sue, and can do so without any judgment having been recovered. It is only when he does not that the creditor can, and in such case the recovery will be for the benefit of creditors, under the assignment, will or receivership, not merely for that of the plaintiff.
1 Chillingworth v. Freeman, 67 Barb. 379.
2 Henderson v. Brooks, 3 Supm. Ct. (T. & C.) 445.
3 Popfinger v. Yutte, 49 Super. Ct. (J. & S.) 312; S. P., Gillett v. Bate, 10 Abb. N. C. 88; S. C., 86 N. Y. 87.
4 It seems that a resulting trust, may after the death of the testator be enforced by his executor or administrator for the benefit of creditors under the act of 1858. Henderson v. Brooks, 3 Supm. Ct. (T. & C.) 445.