Wenzel v. Powder

The questions presented by the record now before us arise on a demurrer to a bill in equity which was filed by the appellant against the appellees, in the Circuit Court of Baltimore City. The demurrer was sustained and the bill was dismissed and from the decree so passed the pending appeal was taken. The facts, which it is necessary to state, are all set forth in the bill and are, of course, not disputed. It appears that by a deed dated March 25th, 1881, duly executed and recorded, one Moses Hindes Powder conveyed all his property to himself as trustee, in trust to, for and upon the following uses, trusts and purposes, namely: "In trust so that the said Moses Hindes Powder, trustee herein named, shall and will receive take and collect all the rents, issues, income profits and interest of said property hereby conveyed, and from all investments or changes of investments of the same, made or to be made, as hereinafter provided for, and apply the same to the support and maintenance of the said Moses Hindes Powder, and his wife and children, during the lives of the said Moses Hindes Powder and his wife and after the death of both of them, the principal of said estate and all increase thereof to become the absolute property of their children share and share alike, the children of any deceased child to take only their parent's share, that is, that share thereof to which, if living, the parent would be entitled." In the year 1883, the Safe Deposit and Trust Company was substituted as trustee in the place of Moses Powder, and in October, 1894, the latter died.

In March, 1899, Algeria V. Powder, the widow of the settlor, conveyed all her interest under the deed of trust to one Sarah A. Danskin, and in May following the latter transferred the same interest to Beryl D. Powder and Margaret D. White, the only children of the settlor. During the years 1899 and 1900 the plaintiff, Charles G. Wentzel, who is the appellant here, furnished the widow and two daughters, who all lived together, with groceries and provisions, and for the sums due therefor he took the promissory notes of the two daughters and their mother. After parting with her interest in the trust property by the deed above alluded to Mrs. Powder applied for the benefit of the bankrupt law and was discharged from the payment of her debts. The appellant brought suit upon some of the promissory notes. Mrs. Powder pleaded her discharge and Beryl D. Powder, one of the daughters, pleaded infancy, but judgment was obtained against Mrs. White, the other daughter.

The pending bill was then filed, first, to have the trust declared at an end and to subject the property covered by the deed to the payment of the judgment; or, as alternative relief, to have Mrs. White's share of the income impounded and applied in satisfaction of the judgment. The appellees resist the granting of the relief sought, first, because the trust has not terminated; and, secondly, because the trust created by the deed of 1881 is a spendthrift trust, and the income is therefore beyond the reach of the creditors of the cestui que trustent. We will consider these two propositions in their inverse order.

Is the trust created by the deed a spendthrift trust? The terms of the deed must furnish an answer to this inquiry. It will be observed that there are no words used in the deed to indicate an intention on the part of the settlor to make the income inalienable, unless the direction to the trustee to "apply the same to the support and maintenance of the said Moses Hindes Powder, and his wife and children during the lives of the said Moses Hindes Powder and his wife" can be interpreted as being sufficient to accomplish that result. Clearly, as respects the settlor himself neither the words above quoted nor any others could have protected the income from attachment and condemnation at the suit of his creditors. Warner et al. v. Rice,66 Md. 436. And so it comes down to this: do the words "support andmaintenance," the settlor being now dead, preclude the income from being alienated during the lifetime of the widow? Whenever an individual has an interest in property, which he may alien or assign, that interest, whether it be legal or equitable, is liable for the payment of his debts. "It is wholly against the policy of the law to allow property, whether legal or equitable, to be fettered by restraints upon alienation, and generally whenever property is subject to alienation by the owner it is subject to his debts." Warner et al. v. Rice Knell,66 Md. 440. We all know that in England it is well settled that the devise of an equitable estate or interest for life to any person, other than to a married woman, carries with it, as a necessary incident, the right of alienation by the cestui que trust, and that it is liable for the payment of his debts, and no provision by way of inhibition, which does not operate as a cessor or limitation over of the estate, can protect it against the claims of creditors. Smith Son v. Towers,69 Md. 84. But in this country the Supreme Court of the United States, the Courts of last resort in some of the States and this Court, have, after full consideration, determined that the power of alienation is not a necessary incident to an equitable estate for life, and that the owner of the property may so dispose of it as to secure its enjoyment by the beneficiary, without making it alienable by him, or liable for his debts. Smith v. Towers,supra; Reid v. Safe Dep. Trust Co., 86 Md. 467;Cherbonnier v. Bussey, 92 Md. 421. The principle which lies at the root of the doctrine, applied for the first time in Maryland, in the case of Smith v. Towers, is, that the founder of a trust being the absolute owner of the property disposed of, and having the right to prescribe the terms on which his bounty shall be enjoyed, may provide in direct terms that his property shall go to his beneficiary to the exclusion of the latter's alienees and creditors; because such a restriction is not repugnant to the estate or interest granted, nor is it such a restraint on the right of alienation as the law, for reasons of public policy, forbids.

Before proceeding to analyze the language used in the instruments with which this Court dealt in the cases heretofore decided, it will not be amiss to state, in the words of the Supreme Judicial Court of Massachusetts, the general principle applicable to the pending and similar inquiries. In Slattery v.Wilson, 151 Mass. 268; s.c., 7 L.R.A. 395, it is said: "When the whole income or a definite sum is given to the beneficiary for his support, the whole belongs to him, and is to be applied by him at his discretion, and the expression of the purpose for which it is given is not deemed to be the expression of an intention that the right to secure it shall not be inalienable, but when the right given is for a support out of a fund which is given to another, the right is in its nature inalienable, and the intention of the donor that it shall not be alienated is presumed."

In the deed now under consideration there are no terms to denote an intention or purpose to impose a restraint on the alienation of the income other than the words we have pointed out; namely that the trustee should apply the income to the "support and maintenance" of the cestui que trustent, during the lives of the settlor and his wife. Starting with the case ofSmith v. Towers, the words which were there held to create a spendthrift trust were these: The testator devised certain real estate to a trustee in trust to collect the rents and profits, and to pay the same to his son, Robert, "into his own hands andnot into another, whether claiming by his authority orotherwise," and upon his death to convey the real estate to the children of the cestui que trust. The difference between the phraseology of that will and the deed before us is obvious at a glance and we need not pause to comment on it. In Md. GrangeAgency v. Lee, 72 Md. 161, a testatrix devised all her property, real and personal, to her sons, in trust for the support, maintenance and education of their respective families, to be held by them, and the rents and profits thereof, and she declared that no part of the land should be made liable, in any event, for their debts and contracts; and it was held that the crops growing thereon were likewise exempted from liability. InReid v. Safe Dep. Trust Co., 86 Md. 464, it appeared that the testator devised and bequeathed to trustees all his property "in trust, to hold and manage the same and collect, c., and to pay the net proceeds from time to time to my wife, Louisa Presbury, for the term of her natural life and especially so that the same shall not be liable for the debts or contracts of any future husband, or in any manner subject to his control, or tobe taken in execution or attachment or otherwise howsoever, and so that she shall not pledge or anticipate said property or said net proceeds of income, or any part thereof." It was said by the Court "These terms are too explicit and clear to be misunderstood," and it was held that the income in the hands of the trustee was not subject to attachment for a debt due by thecestui que trust. In Brown v. Macgill, 87 Md. 161, this state of facts existed: Before her marriage a woman conveyed her property to a trustee to collect the rents, c., and to pay the net income to her and "into her own hands and not to another, whether claiming by her authority or otherwise, for her sole and separate use and upon her separate receipts without power of anticipation." After her marriage she became indebted to the plaintiff and charged her separate estate with the payment thereof, and it was held that the trustee under the deed should be required to pay the debt due to the plaintiff, out of the income of the estate in his hands because she could not place her property beyond the reach of her own creditors. InJacksou Square Ass. v. Bartlett, 95 Md. 661, the language of the will, in which a testatrix bequeathed property to a trustee with direction to pay the income to her son, was, "as it shall accrue and not by way of anticipation to my said son for the support of himself and his family, the receipt of my said son to be a sufficient acquittance to my said trustee therefor, but my will is that my said son shall have no power to charge, encumber or anticipate the said income;" and it was held that a spendthrift trust was created and that the interest of thecestui que trust in the income was not liable to attachment by his creditors.

The case at bar is in no respect analogous to those where a spendthrift trust has been sustained. There is no provision in the deed attempting to place a restraint on the alienation of the income and there is no prohibition against that income being seized by creditors of the beneficiaries. In point of fact one of the cestui que trustent has actually conveyed away her interest in the income to the others. The two daughters are consequently the only beneficiaries entitled to the income. The declaration that the trustee is to apply the income for their maintenance and support is simply the declaration of a general trust for their benefit. And the record shows that the parties have uniformly acted upon that theory. The trustee has never expended the income for the support and maintenance of the beneficiaries. The trustee has merely paid over to one of the beneficiaries at stated periods the income as it accrued and the party thus receiving it expended it. The debt which the appellant seeks to recover was contracted by the beneficiaries for food, and therefore for articles used in their support and maintenance; and if the interest to accrue on the trust fund is applied to the payment of that debt it will be applied to the support and maintenance of the cestui que trust. Here the whole income is given to the beneficiaries for their support. The thing given is not a mere right to a support out of a fund; in which event the amount bestowed would be indefinite, and would be in its nature inalienable and beyond the reach of creditors; but the thing given is the whole income without any arbitrary discretion being lodged in the trustee as to its application. Where trustees have an arbitrary power of applying such part of an income as they see fit to the support of acestui que trust, and for no other purpose, it was held that nothing passed to the assignees of the beneficiary. 1 Perry onTrusts, sec. 386B, citing Twopenny v. Peyton, 10 Sim. 487;Re Sanderson's Trust, 3 K. J. 497; Lord v. Bun, 2 Yeates C. 98; Holmes v. Penny, 3 K. J. 90. In the same section the author continues, "but if the power is not arbitrary, but is imperative on the trustees to pay over the income for the support of the cestui que trust and another person or persons, the assignees are entitled to take a part upon the insolvency of one, or the whole in the event of the death of the others," citingRippon v. Norton, 2 Beav. 63; Wallace v. Anderson, 16 Beav. 533; Percy v. Roberts, 1 Myl. K. 4.

The case at bar does not fall within the principles applied in any of the decisions heretofore rendered by this Court in sustaining a spendthrift trust, and to bring it within the former rulings on this subject the doctrine imposing a restraint on the alienation of an equitable life estate would have to be expanded and stretched much farther than it has hitherto been carried. As the deed gives the whole income for the support and maintenance of the beneficiaries, the whole belongs to them, and the statement of the purpose for which it has been given cannot be deemed an expression of an intention that it shall not be alienable.

Secondly. We do not consider that the trust has terminated. There is a contingent limitation over to the children of the daughters who may come into being during the life of the widow of the settlor, should either of the daughters die leaving issue during the life of the widow.

The conclusion we have reached is that the share of Mrs. White in the income is liable for the payment of the judgment recovered against her. As this view differs from the one reached by the Circuit Court the decree dismissing the bill will be reversed and the cause will be remanded.

Decree reversed with costs above and below and causeremanded.

(Decided November 30th, 1904.)