Brandies v. Cochrane (112 U.S. 344)/Opinion of the Court

It is manifest that it is vital to the appellants' case that they should maintain and establish a judgment lien upon the estate of Robert Forsythe, in the premises in controversy, at the date of the recovery of the judgment in 1866; because the discharge in bankruptcy of Forsythe, in 1868, released him from all personal liability on account of the judgment, so that the subsequent levy of an execution in 1870 could have no effect except to enforce a lien subsisting at the time of the adjudication in bankruptcy. It is accordingly contended, on behalf of the complainants, that their judgment took effect at its rendition as a lien upon an equitable estate for life, reserved to Robert Forsythe by the terms of the deed of trust to Arthur, which was not and could not be displaced by the appointment by virtue of which the conveyance was made by Arthur, the trustee, to Corwith; that the power of appointment secured to Forsythe and wife operated to subject the entire estate, which could be disposed of under that power, and which was the fee-simple, to the claims of creditors reduced to judgment; and that Robert Forsythe had an equitable reversion in fee in the trust estate by reason of the failure of the ultimate limitations alleged to be void for remoteness, as they were to take effect, according to the terms of the trust, only after an indefinite failure of issue, which reversion in fee was subject to the lien of judgments against him.

The statute of Illinois in force at the time and governing the case was section 1, c. 57, Rev. St. 1845, which, after providing that judgments should be a lien on the real estate of the judgment debtor, provided as follows: 'The term 'real estate' in this section shall be construed to include all interest of the defendant or any person to his use, held or claimed by virtue of any deed, bond, covenant, or otherwise, for a conveyance, or as mortgagee or mortgagor of lands in fee, for life or for years.' Except so far as modified by this act the common law on the same subject was in force in Illinois by express adoption. Rev. St. 1845, p. 337, § 1.

In Spindle v. Shreve, 111 U.S. 542-547, S.C.. 4 SUP. CT. REP. 522, it was stated to be the law in Illinois that where the legal title to lands is in trustees, for the purpose of serving the requirements of an active trust, the judgment creditor had no lien and could acquire none at law, but could obtain one only by filing a bill in equity for that purpose, according to the provisions of section 49 of the chancery practice act of that state. Rev. St. 1845, p. 97. It was otherwise if the trust was merely passive, such as those described in the section defining real estate as subject to the lien of judgments, already quoted. Miller v. Davidson, 3 Gilman, 518; Baker v. Copenbarger, 15 Ill. 103; Thomas v. Eckard, 88 Ill. 593. The rule at common law and the corresponding jurisdiction of chancery as to equitable estates are fully explained in Morsell v. ''First Nat. Bank, 91 U.S. 357; Lessee of Smith v. McCann'', 24 How. 398; Freedman's Savings & Trust Co. v. Earle, 110 U.S. 710; S.C.. 4. SUP. CT. REP. 226.

In the present instance the trust was an active one, not merely passive. At no time during the life-time of his wife could Robert Forsythe call for, or compel from the trustee, a conveyance of the legal title. On the contrary, the trustee was required by the terms of the trust, subject to the power of appointment, to retain the legal title in himself, and to permit Mrs. Forsythe to use and occupy the property, and to enjoy and receive the rents and profits thereof during her life and to her own use; language which, if it cannot be properly construed to devote it to her separate use, all the more required the protection secured to her actual right by the legal title being vested in a trustee. The estate of Robert Forsythe, therefore, under the trust, whether for life or in fee, whether vested or contingent, was equitable merely, and of that nature which could not be subject to sale for payment of his debts except by the aid of a court of equity. In such cases no lien arises by operation of law from the judgment, but only on the filing of the bill.

On the contrary supposition, that the estate of Robert Forsythe, under the deed of trust to Arthur, was subject at law to the lien of the appellant's judgment, their title still must fail. Prior to the enactment of 1 & 2 Vict. c. 110, it was settled in England that at law a judgment against the party having a power of appointment, with the estate vested in him until and in default of appointment, was defeated by the subsequent execution of the power in favor of a mortgagee. Doe v. Jones, 10 Barn & C. 459; Tunstall v. Trappes, 3 Sim. 300. And it was held to be immaterial that the purchaser had notice of the judgment, (Eaton v. Sanxter, 6 Sim. 517;) or that a portion of the purchase money was set aside as an indemnity against it. Skeeles v. Shearly, 8 Sim. 153; S.C.. on appeal, 3 Mylne & C. 112. In this case Sir JOHN LEACH, the vice-chancellor, decided that the effect of the transmission of the estate by appointment was that the appointee takes it in the same manner as if it had been limited to him by the deed under which the appointer takes in default of appointment, and consequently free and disconnected from any interest that the appointer had in the tenements in default of appointment; that as the appointee is in no sense the assignee of the appointer, he cannot be affected by judgments which affect only the estate and interest of the appointer, and, that being so, the circumstance of his having notice of such judgments is immaterial. The statute of 1 & 2 Vict. c. 110, altered the law in this respect by making judgments an actual charge on the debtor's property, where he has at the time the judgment is entered up, or at any time afterwards, any disposing power over it which he might, without the assent of any other person, exercise for his own benefit, so that it would continue to bind the property, notwithstanding any appointment. 2 Sugd. Powers, (7th Lond. Ed.) 33; Burton, Real Prop. (8th Lond Ed.) 283; Hotham v. Somerville, 9 Beav. 63.

In Illinois the definition of that real estate which is made subject at law to the lien of judgments, was enlarged by the act of July 1, 1872, (Hurd's Rev. St. 1883, p. 676,) so as to include 'all legal and equitable rights and interests therein and thereto;' but the rights of the parties in this suit are not affected by it, and must be governed by the principles of the common law in force when they became fixed. It is, indeed, a rule well established in England, and recognized in this country, that where a person has a general power of appointment, either by deed or by will, and executes this power, the property appointed is deemed, in equity, part of his assets, and subject to the demands of his creditors in preference to the claims of his voluntary appointees or legatees. This rule is stated by Mr. Justice GRAY in Clapp v. Ingraham, 126 Mass. 200, to have had its origin, perhaps, in a decree of Lord SOMERS, affirmed by the house of lords, in a case in which the person executing the power had, in effect, reserved the power to himself in granting away the estate. Thompson v. Towne, Prec. Ch. 52; S.C.. 2 Vern. 319. But it was frequently afterwards applied to cases of the execution of a general power of appointment by will of property of which the donee had never any ownership or control during life. In re Harvery's Estate, L. R. 13 Ch. Div. 216. That doctrine, however, has no application in the present case for several reasons. The appellants did not seek such relief in equity as against the $w353 estate created by the exercise of the power of appointment by Robert Forsythe, but claimed a lien at law upon the antecedent estate, which that exercise of the power had displaced and defeated. At the time when that might have been done, their judgment had ceased to be a debt against him by reason of his discharge in bankruptcy, and the appointees, Corwith and Cochrane, were not volunteers, but purchasers for value.

It is further said, however, that the bankruptcy itself cut off the power of appointment in Forsythe. If so, it passed to the assignee in bankruptcy for the benefit of the estate and its general creditors, was exercised by the sale at which Wallace became the purchaser, and vested in him a complete title by virtue of the appointment, displacing and defeating the limitations under the original deed of trust to Arthur, and then passed to the appellees by virtue of the conveyance from Wallace to Scoville. But it was held in Jones v. Clifton, 101 U.S. 225, that such a power of appointment does not pass to an assignee in bankruptcy of the person in whom the power resides. The case of White v. McPheeters, 75 Mo. 286, cited and relied on by counsel for appellants, does not decide the only question involved here. That case arose under the Missouri statute, which appears to be borader than that of Illinois in its definition of real estate subject to seizure and sale on executions at law; and was, in fact, a proceeding in equity by a creditors' bill to subject the estate, which was subject to the power of appointment, and had been conveyed to a volunteer in pursuance thereof, to the satisfaction of judgments.

On the whole case, we are of opinion that the decree of the direct court was correct, and it is accordingly affirmed.