Case Name: CHARLES COSTON, Administrator, v. PORTLAND TRUST COMPANY et al.
Court: Oregon Supreme Court
Jurisdiction: Oregon
Decision Date: 1929-05-28
Citations: 131 Or. 71
Docket Number: 
Parties: CHARLES COSTON, Administrator, v. PORTLAND TRUST COMPANY et al.
Judges: Brown, J., did not participate in this opinion.
Reporter: Oregon Reports
Volume: 131
Pages: 71–108

Head Matter:
Submitted on briefs March 9;
modified May 28;
rehearing denied November 19, 1929
CHARLES COSTON, Administrator, v. PORTLAND TRUST COMPANY et al.
(278 Pac. 586; 282 Pac. 442)
For appellants there was a brief over the name of Mr. Jerry E. Bronaugh.
For respondent there was a brief over the name of Mr. Oren B. Bicharás.
For Portland Trust Company there was a brief over the name of Messrs. Crum, Murdoch & Dusenbery.
For intervenors there was a brief over the name of Mr. McDannel Brown.
Mr. Tom Garland in propria persona.

Opinion:
COSHOW, C. J.
It is established by the record that decedent left a large number of bills and the expenses of her last illness and burial. Said bills amount to $1,457.76. Other claims reported but not verified as prescribed by law amount to $3,750, and other claims known to plaintiff because of the public records amount to $4,100. It is claimed by defendants Mary Jane Herron and other alleged beneficiaries of said trust instrument that this indebtedness, except the record indebtedness and the claims reported but not verified, were incurred after the execution of the trust deed and for that reason cannot be collected from the proceeds of the property attempted to be conveyed thereby. The claims reported but not filed are claims owned by two of the beneficiaries of said alleged trust. The instrument creates what the learned author, Pomeroy, terms an express passive trust: Pomeroy's Equity (4 ed.), § 153, 374, 988, 989. A trustee of such a trust holds only the naked legal title. The estate of such a trust is liable for the debts of the trustor: 3d Pomeroy, (4 ed.), 2153, § 989, note 4. The trustor was the sole beneficiary of the trust during her life.
"Where one creates a trust, retaining the beneficial interest in himself, he cannot prevent his creditors from coming at the income by a provision against anticipation. Nor will a conveyance on secret trust for the grantor be good against creditors, prior or subsequent": 2d Perry on Trusts and Trustees, (6 ed.) 1335, § 815a, notes 3 and 4.
It must be borne in mind in this connection that the instrument creating the trust was never recorded; that the trustor held every indicia of ownership. There was no change of possession or management of the estate. Such a deed, whether absolute or in trust, is constructively fraudulent as to subsequent, as well as existing, creditors: § 9874, 10171, 10172, O. L.
Cases holding that actual intent to defraud must be proven in order to set aside or annul a voluntary conveyance, whether absolute or in trust, are cases where the conveyance is promptly recorded: Seed v. Jennings, 47 Or. 464 (83 P. 872); People's Bank v. Rostad, 86 Or. 695 (169 P. 347). Under these authorities we are of the opinion that the allegation in the complaint that said trust deed was fraudulent as to creditors is proven by the record. A different question would be presented if the trust deed had been placed of record promptly. The instrument itself prescribes that it shall not be put on record. The record contains a stipulation of the parties that said trust deed was not placed on record. It would be very unequitable to hold under those conditions that creditors of decedent could not collect their claims from her estate.
Both parties rely on Allen v. Hendrick, 104 Or. 202 (206 P. 733). The opinion in that case was written by Mr. Justice Harris and is characterized by his usual thoroughness. The trust was upheld because the trust property was delivered to the trustee and a present interest therein passed to the beneficiary. Both of those elements of interest are absent in the instant case.
The case of Kelley v. Snow, 185 Mass. 288 (70 N. E. 89), is also relied on by appellants. In this case the trust property was delivered. That case also involved personalty only. The case at bar involves realty only, the trust instrument was never recorded, possession of the land was never taken by the trustee. The difference in the two cases is material. In the instant case the trust instrument was valid between the trustor and trustee. It is invalid as to creditors. Withholding the trust instrument from recordation constituted a constructive fraud: 26 C. J. 1061, (§4) 3. Plaintiff's testatrix apparently recognized her lack of authority to execute deeds for her own benefit under the powers of attorney executed by her husband to enable her to sell and convey the property in order to liquidate their debts. Her husband, defendant Tom Garland, therefore later executed and delivered quitclaim deeds in favor of the trustee.
The learned circuit court held that the trust instrument passed no interest in the property to the beneficiaries other than trustor during the latter's life. We concur in this opinion. The quotation from the- trust deed, included in the statement herein, clearly discloses that the trustor was to receive.all the benefits of the trust estate during her life, and that she was to have the sole and exclusive management during the same period. The trustee was not authorized to exercise any power over the estate, except in case the trustor became incapacitated and under that condition the estate was to be managed for her sole and exclusive benefit; consequently there was no interest in the trustor's estate passed or vested in the other beneficiaries. The trust instrument amounted solely to a testamentary disposition of her property. Several years later she executed a will making the beneficiaries of the trust instrument the beneficiaries of her will. The beneficiaries of a will take the property subject to the debts of the testator.
The learned circuit court annulled and set aside the trust instrument in its entirety. That instrument was executed in behalf of defendant Tom Garland by decedent as his attorney in fact. But later defendant Tom Garland executed several quitclaim deeds. His testimony is to the effect that these deeds were executed for the purpose of protecting some of the beneficiaries of the trust instrument;, that the decedent and defendant Tom Garland were indebted to some of those beneficiaries and desired to protect them. The decree appealed from gives to defendant Tom Garland the benefit of his curtesy interest in the land described in the . trust deed. In . this we think the court below erred. It was a worthy act on the part of defendant to join his wife in protecting their creditors against loss. The execution of the deeds by defendant Tom Garland was voluntary, but his interest therein, so far as this case is. concerned, was a prospective curtesy. Whether or not that curtesy would ever become con- sum mate was uncertain. We think that defendant Tom Garland by those deeds waived his curtesy interest in the land described therein.
Mr. Oren Richards for plaintiff-respondent.
Messrs. Murdoch, Crum é Dusenbery for Portland Trust Co.
Mr. Tom Garland in propria persona.
Mr. Jerry E. Bronaugh for appellants.
Messrs. Ridgway, Johnson & Kendall for Trust Companies of Oregon.
Mr. McDannell Brown for intervenors-respondent.
The decree of the court below is affirmed in so far as it holds the trust instrument void as to creditors subsequent to as well as existing at the time said instrument was executed. It is modified in so far as it annuls the effect of the quitclaim deeds executed by defendant Tom Garland. A decree will be entered here accordingly. No party will recover costs or disbursements in this court. Modified.
Brown, J., did not participate in this opinion.
Rehearing denied November 19, 1929