Hartwell v. Mobile Towing & Wrecking Co. , 212 Ala. 313 ( 1924 )

The suit may be considered a bill by a judgment creditor to subject equitable assets of the debtor to the payment of the judgment.

In Alabama, the law subjects all the debtor's property, legal or equitable, other than the homestead and limited exemptions of personalty, to the payment of his debts.

It is a part of our public policy that one shall not enjoy the benefits of the ownership of property without its burdens. Even property coming by gift or devise in trust, so limited that the continued beneficial enjoyment is assured to the cestui que trust, is subject to his debts. Any restriction in the instrument creating the trust, designed to defeat the claims of creditors against such property, is void.

"There cannot be a legal or equitable right in or to property, or to its rents, income, or profits, not so blended with the rights of others as to be incapable of separation and identification, that may not, by some appropriate remedy, in law or in equity, according to the nature of the case, be condemned to the satisfaction of debts. 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. 13; Jones v. Reese, 65 Ala. 134; Smith v. Moore, 37 Ala. 327; Robertson Pettibone v. Johnston, 36 Ala. 197; Rugely Harrison v. Robinson, 10 Ala. 702.

On the other hand, the laws of Alabama fully recognize the right of the owner of property to dispose of it by will, to select the objects of his bounty, and to impose such conditions upon the bequest as he may elect, so long as they are not violative of the law, or public policy of the state.

This right of the testator to dispose of his own and the right of the creditor in the property of the debtor present the question before us for solution. Admittedly, under the law of Alabama, if the condition declaring that neither the income nor principal of the trust should be subject to the debts of Harry T. Hartwell stood alone, it would be void as against public policy. The will further declares that, "if any claim is made or step taken to subject any money under this trust to the payment of such debts, * * * then this trust shall terminate at once," and then follows a limitation over passing the entire trust fund to the testator's niece. The limitation over, upon the conditions stated, presents the real question at issue. In none of our cases above cited was there a conditional estate, with limitation over, as here.

It seems in some states a testator may, by the intervention of a trustee, secure to the cestui que trust the beneficial use of the trust fund free from his debts, without a limitation over. Where, as in Alabama, this cannot be, the rule prevails that the testator may create a trust for beneficial use of the object of his bounty so long as he may personally enjoy the fruits of the gift, with condition that when it cannot be so enjoyed it shall pass to another of his selection. Accordingly, it is held in such cases that a limitation over in case of bankruptcy, insolvency, seizure under execution or attachment, or other proceeding against the res to subject it to payment of debt, is valid. This rule, and the ground on which it is rested, is well stated in Bramhall v. Ferris, 14 N.Y. 41, 67 Am. Dec. 113, as follows:

"It may and should be conceded that if the bequest to Myron H. Ferris had been given to him absolutely for life, with no provision for its earlier termination, and no limitation over in the event specified, any attempt of the testator to make the interest of the beneficiary inalienable, or to withdraw it from the claims of creditors, would have been nugatory. Such an attempt would be clearly repugnant to the estate in fact devised or bequeathed, and would be ineffectual for that reason, as well as upon the policy of the law: Blackstone Bank v. Davis, 21 Pick. 42; Hallett v. Thompson, 5 Paige, 583; Graves v. Dolphin, 1 Sim. 66; Brandon v. Robinson, 18 Ves. 429. This doctrine, however, and the cases on which it rests, do not deprive a testator of the power to declare effectually that the bequest shall cease on the happening of an event which would subject it to the claims of creditors, and then to give it a different direction. 'There is,' said Lord Eldon, in Brandon v. Robinson, supra, 'an obvious distinction between a disposition to a man until he becomes a bankrupt, and then over, and an attempt to give him property and to prevent his creditors from obtaining any interest in it, although it is his.' See, also, Shee v. Hale, 13 Pa. 404; Lewes v. Lewes, 6 Sim. 304; and Graves v. Dolphin, supra. This distinction is one of substance, and we think the principle on which it depends will sustain the will of the testator in the present case. If a testator may provide that his bounty bestowed upon one person shall cease and go to another on the occurrence of bankruptcy, I can see no reason why he may not do so in the event of an execution returned unsatisfied, followed by a creditors' suit and judgment therein. * * *

"He was under no obligation, legal or moral, to give his property so that the creditors of Myron could take it from him or his family. His moral duty and his duty to the state were greater to save Myron and his family from want or from being a burden on the public than to devote his property to pay his son's creditors. There is therefore no public policy which should frustrate the testator's intention."

Strikingly similar language is employed in Hill v. McRae,27 Ala. 182. See, also, Shelton v. King, 229 U.S. 90,33 S. Ct. 686, 57 L. Ed. 1089; Nichols v. Eaton, 91 U.S. 716,23 L. Ed. 254; Mebane v. Mebane, 39 N.C. 131, 44 Am. Dec. 102; City of Louisville v. Cooke, 135 Ky. 261, 122 S.W. 144, 135 Am. St. Rep. 457; Bottom v. Fultz, 124 Ky. 302, 98 S.W. 1037; Bull v. Kentucky National Bank, 90 Ky. 452, 14 S.W. 425, 12 L.R.A. 37; In re Luscombe's Will, 109 Wis. 186, 85 N.W. 341; Thornton v. Stanley, 55 Ohio St. 199, 45 N.E. 318; Sears v. Choate,146 Mass. 395, 15 N.E. 786, 4 Am. St. Rep. 320; Brandon v. Robinson, 13 Ves. Jr. 429; 40 Cyc. 1707; 39 Cyc. 240.

Wills should be construed so as to uphold the disposition of his property made by the testator, if they can be so construed, consistently with sound policy.

The more we consider the case before us, the more we are impressed with the justice of the rule announced in the foregoing authorities.

Reading the entire section of the will of Guy J. Hartwell, it may be paraphrased thus:

"While I have heretofore, by advances of large sums of money and valuable property, made liberal provision for my brother, Harry, still he is my brother. I want to give him something, if he can get the benefit of it. I do not feel my estate should go to pay his debts, and am determined it shall not go to that purpose. I cannot give him any absolute title, nor unconditional use, else I will subject it to his debts. So I will make a bequest in trust for his use, to be held by the grace of his creditors. When they express their dissent by proceeding against the bequest, I claim the right to determine the next object of my bounty, and declare it shall go to my niece."

What wrong is done Harry's creditors? There was no wrong in Guy's interest in his brother. Neither laws nor morals aim at severing the ties of blood, nor silencing the call of affection. There was no wrong in withholding his estate from the creditors of another. They had no claim thereon in law or morals. Existing creditors did not properly contract on the faith of payment from the estate of another. Future creditors contract with notice of the conditions.

Public policy is aimed at a condition or system by which estates may be so limited that the debtor may have the continued use of property, while his creditors go unsatisfied; that the debtor remain full-handed, while his creditor is turned away empty.

No such conditions accompany this bequest. So far as the beneficiary is concerned, the creditors hold the whiphand. The aid given by the bequest enables the debtor to devote more of his income and energy to the payment of his debts. The condition attached warns him to keep out of debt or keep his creditors satisfied he is doing what he can for them. He holds at their will and by their grace. We think Guy J. Hartwell was within his rights in declaring that upon the event named in the will this fund should become the property of his niece.

It is suggested in argument that the interest of Harry T. Hartwell in the trust estate was assignable; that by assignment he could pass title to an innocent purchaser, and so get the full benefit of the bequest. We cannot see how he can pass to another a higher right than is vested in him.

The fund is held in trust; the legal title is in the trustee. If assignable, the purchaser of his equity would take with full notice, and subject to all the conditions imposed by the will. We think the case unlike that presented in Riordan v. Schlicher, 146 Ala. 615, 41 So. 842, and Rugely Harrison v. Robinson, 10 Ala. 721.

Reversed and remanded.

ANDERSON, C. J., and SOMERVILLE and THOMAS, JJ., concur.