Nichols Assignee v. Eaton

APPEAL from the Circuit Court of the United States for the District of Rhode Island.

The controversy in this case arises on the construction and legal effect of certain clauses in the will of Mrs. Sarah B. Eaton. At the time of her death, and at the date of her will, she had three sons and a daughter; being herself a widow, and possessed of large means of her own. By her will, she devised her estate, real and personal, to three trustees, upon trusts to pay the rents, profits, dividends, interest, and income of the trust-property to her four children equally, for and during their natural lives, and, after their decease, in trust for such of their children as shall attain the age of twenty-one, or shall die under that age having lawful issue living; subject to the condition, that if any of her children should die without leaving any child who should survive the testatrix and attain the age of twenty-one years, or die under that age leaving lawful issue living at his or her decease, then, as to the share or respective shares, as well original as accruing, of such child or children respectively, upon the trusts declared in said will concerning the other share or respective shares. The will also contained a provision, that if her said sons respectively should alienate or dispose of the income to which they were entitled under the trusts of the will, or if, by reason of bankruptcy or insolvency, or any other means whatsoever, said income could no longer, be personally enjoyed by them respectively, but the same would become vested in or payable to some other person, then the trust expressed in said will concerning so much thereof as would so vest should immediately cease and determine. In that case, during the residue of the life of such son, that part of the income of the trust-fund was to be paid to the wife and children, or wife or child, as the case might be, of such son; and, in default of any objects of the last-mentioned trust, the income was to accumulate in augmentation of the principal fund.

There is another proviso, which, as it is the main ground of the present litigation, is here given verbatim, as follows:--

'Provided also, that in case at any future period circumstances should exist, which, in the opinion of my said trustees, shall justify or render expedient the placing at the disposal of my said children respectively any portion of my said real and personal estate, then it shall be lawful for my said trustees, in their discretion, but without its being in any manner obligatory upon them, to transfer absolutely to my said children respectively, for his or her own proper use and benefit, any portion not exceeding one-half of the trust-fund from whence his or her share of the income under the preceding trusts shall arise; and, immediately upon such transfer being made, the trusts hereinbefore declared concerning so much of the trust-fund as shall be so transferred shall absolutely cease and determine; and in case after the cessation of said income as to my said sons respectively, otherwise than by death, as hereinbefore provided for, it shall be lawful for my said trustees, in their discretion, but without its being obligatory upon them, to pay to or apply for the use of my said sons respectively, or for the use of such of my said sons and his wife and family, so much and such part of the income to which my said sons respectively would have been entitled under the preceding trusts in case the forfeiture hereinbefore provided for had not happened.'

The daughter died soon after the mother, without issue, and unmarried. Amasa M. Eaton, one of the sons of the testatrix, failed in business, and made a general assignment of all his property to Charles A. Nichols for the benefit of his creditors, in March, 1867; and in December, 1868, was, on his own petition, declared a bankrupt, and said Nichols was duly appointed his assignee in bankruptcy. Said Amasa was then, and during the pendency of this suit, unmarried, and without children. He, William M. Bailey, and George B. Ruggles (a son of testatrix by a former husband), were the executors and trustees of the will.

It will be seen at once, that whether regard be had to the assignment before bankruptcy, or to the effect of the adjudication of bankruptcy, and the appointment of Nichols as assignee in that proceeding, one of the conditions had occurred on which the will of Mrs. Eaton had declared that the devise of a part of the income of the trust-estates to Amasa M. Eaton should cease and determine; and, as he had no wife or children in whom it could vest, it became, by the alternative provision of the will, a fund to accumulate until his death, or until he should have a wife or child who could take under the trust.

But Nichols, the assignee, construing the whole of the will together, and especially the proviso above given verbatim, to disclose a purpose, under cover of a discretionary power, to secure to her son the right to receive to his own use the share of the income to which he was entitled before the bankruptcy, in the same manner afterwards as if that event had not occurred, brought this bill against the said executors and trustees to subject that income to administration by him as assignee in bankruptcy for the benefit of the creditors.

Upon a final hearing the Circuit Court dismissed the bill, and Nichols appealed to this court.

Mr. Horatio Rogers and Mr. C. S. Bradley for the appellant.

The principles of the law do not permit a debtor to have the use and enjoyment of wealth to the exclusion of any rights of his creditors; and hence in the law of trusts, peculiarly and solely within the cognizance of courts of equity, contrivances for the enjoyment of property by a debtor, and for withholding it from his creditors, are against conscience, and void. Tillinghast v. Bradford, 5 R. I. 212; Brandon v. Robinson, 18 Ves. 429; Tud. Lead. Cas. (2d ed.) 862; Piercy v. Roberts, 1 M. & K. 4; Kearsley v. Woodcock, 3 Hare, 185; Wallace v. Anderson, 16 Beav. 533; Sharp v. Casserat, 20 id. 470; Carr v. Living, 28 id. 644; Watson's Comp. of Eq., vol. ii. 1149; Graves v. Dolphin, 1 Sim. 66; Green v. Spicer, 1 R. & My. 395; Younghusband v. Gisborne, 1 Coll. 400; Roper on Leg. (4th ed.) 794.

Confessedly no decided case has sustained the validity of a discretion in trustees to give to a bankrupt the entire equitable estate which he had prior to his bankruptcy. The doctrine of chancery plainly is, that attempts, through the so-called discretion of trustees, to secure that result, have ever been considered as fraudulent devices to continue the property in him after the law has taken away his capacity to retain it. Consequently, what remains unapplied belongs to the assignee. Green v. Spicer, 1 R. & Myl. 395; Piercy v. Roberts, 1 Myl. & Kee. 4; Snowden v. Dales, 6 Sim. 524; Rippon v. Norton, 2 Beav. 63; Kearsley v. Woodcock, 3 Hare, 185; Lord v. Bunn, 2 You. & Coll. 98; Davidson v. Chalmers, 33 Beav. 653.

Mr. Abraham Payne and Mr. Samuel Currey for the appellees.

It is clear that the assignee in bankruptcy can take only what was vested in the debtor at the date of filing his petition. 1 Benedict D. C. 407; In re Patterson, 6 Int. Rev. Rec. 157; Carleton v. Leighton, 3 Meriv. 667; Mitchell v. Winslow, 2 Story's C. C. 630; 1 Jarm. on Wills, 816; Hall v. Gill, 10 Gill & J. 325; In re Barret, 2 N. B. 165; Brown v. Heathcote, 1 Atk. 162; Mitford v. Mitford, 9 Ves. 100.

The question then is, whether, under the will of Mrs. Eaton, her son Amasa had, at the date of filing his petition in bankruptey, any vested interest in her estate which could pass to his assignee. There is no question, that, until his bankruptcy, he had an absolute right to one-fourth of the income of the trust-estate until the death of his sister, and after that time to one-third of such income, so long as he did not attempt to alienate or dispose of it. Upon the occurrence of either of these events, the will provides that the trust in his favor shall immediately cease and determine, and that thereafter the income should be devoted to other trusts.

Such provisions for the cesser of income upon alienation or upon the bankruptcy of the cestui que trust are unquestionably valid. Tillinghast v. Bradford, 5 R. I. 205; Dommett v. Bedford, 3 Ves. 149; Brandon v. Robinson, 18 id. 429; Joel v. Mills, 3 K. & J. 458; Rochford v. Hackman, 9 Hare, 475; Cooper v. Wyatt et als., 5 Madd. Ch. 297; 2 Story Eq., sect. 974; Rockford v. Hardeman, 10 Eng. L. & Eq. 67.

The powers under which the trustees must act in making payments are merely discretionary. They are expressly declared not to be imperative; and this is the distinction laid down in the books between them and trusts. 'Powers,' says Wilmot, C. J., 'are never imperative: they leave the acts to be done at the will of the party to whom they are given. Trusts are always imperative, and are obligatory upon the conscience of the party intrusted.' Attorney-General v. Downing, Wilm. 23. It is settled that the court will never exercise a mere discretionary power, either in the lifetime of the trustees, or upon their death, or refusal to act. Hill on Trustees, 486. Nor will it interfere to control the trustees acting bona fide in the exercise of their discretion. Id. 489; Lewin on Trusts, 538; Maddison v. Andrew, 1 Ves. 60; Boss v. Godsell, 1 Yo. & Col. 617.

Payments made by the trustees to Eaton in the exercise of these powers would be in the nature of after-acquired property, to which his assignee has no title. Any thing they may choose to give is as much a free gift as though it came from the bounty of an entire stranger.

MR. JUSTICE MILLER, after stating the case, delivered the opinion of the court.