Ghormley v. Smith

OPINION,

Mk. Justice Clank :

The conveyance of Henrietta T. Catherwood to the Philadelphia Trust etc'. Co., dated July 23, 1879, was of all her estate, of whatsoever character, real or personal, in trust, to collect the income thereof, and, after deducting expenses, etc., to pay the same, “ when and as received, and not by way of anticipation,” to the grantor herself, or to her appointee, for her life, whether she should remain sole or should marry. The said incomes were declared to be “ to and for her sole separate use and benefit, so that all and singular the said trust-estate, rents and income thereof, and every part thereof, shall be absolutely free from, and not subject or liable to, the debts, control, or engagements of any husband she may have, or marry, or to her own debts, control, or engagements ; and for the said rents or incomes, the receipts of the said party of the first part, whether covert or sole, in her own name, or the receipt of her appointee or appointees, shall be a good and valid discharge in law of said trustee.”

By the terms of the conveyance, the grantor, whether covert or discovert, reserved to herself a power of appointment by will to her children, or to the issue of deceased children, if any she had at her death, or, in default thereof, to whom she may see fit, subject, in either event, to the restriction that no gift to a surviving husband should exceed the net income of the trust-estate, during his life; in default of an appointment by will, then the estate to be conveyed to her children, and to the issue of deceased children, if any, absolutely in fee; or, leaving no children, or the issue of deceased children, to such person or persons, for sucb estates, as they would have been entitled to under the intestate laws, if the grantor had died intestate and seised thereof.

The deed was declared irrevocable ; and the trustees, immediately upon the execution and delivery thereof, entered into the possession, and assumed the duties of the trust. Soon afterwards the grantor, Henrietta T. Catherwood, became Henrietta C. Smith, by marriage with Edward A. Smith, and exercised a privilege reserved in the deed of withdrawing 15,000, for furnishing her house. She has now three children living.

The garnishees’ answers set forth that they have in their hands net income, under the deed of trust, due to Mrs. Smith, amounting to $561.52, and also certain income of property held in trust for Mrs. Smith under the will of her grandmother, Ann Catherwood, deceased. As to the latter, it was admitted that the provisions of the will protected it from attachment, and there was no contention whatever on that point. The court below entered judgment for the plaintiff for the full amount of his claim, out of the income in the garnishees’ hands under the deed of trust, and it is this judgment which is appealed from. The question presented for the consideration of the court is solely as to the liability of the income of the pro-, perty, held by the garnishees under the deed of trust, to attachment for the debts of Mrs. Smith.

It is contended, on part of the appellees, that it is against the public policy, as well as the statute of Elizabeth, which was declaratory only and was founded on public policy, that a person should settle his estate so that he may have the benefit of it during his life, and the disposal of it at his death, and yet not be liable to his creditors.

It is not pretended that the trust in question is sustainable as a trust for coverture, or for the separate use of the grantor, for she was then unmarried, and, although she was in a very short time afterwards married, it was not shown, nor is it alleged, that it was created in contemplation of that event. No such question arises, and it is not necessary for us to consider the effect of the deed, if the grantor at the time had in contemplation the marriage relation which was afterwards formed. The claim of the attaching creditor cannot be affected or impaired, unless the transaction is what is known as a “ spendthrift trust.”

It is well settled in this state, since Barnett’s App., 46 Pa. 392, although before that a contrary doctrine prevailed, that where an active trust is created to give effect to a well-defined and lawful purpose of a donor or devisor, with respect to the party to be benefited thereby, the trust will be sustained, whether the cestui que trust be sui juris or not. It is as well settled in Pennsylvania, that it is a lawful purpose, upon part of a father, to protect his bounty to a spendthrift son, both principal and interest, not only against his son’s improvidence, but also against his creditors: Fisher v. Taylor, 2 R. 33; Brown v. Williamson, 36 Pa. 338; Rife v. Geyer, 59 Pa. 395; Overman’s App., 88 Pa. 276 ; Eberly’s App., 110 Pa. 95; Peoples S. Bank v. Denig, 131 Pa. 241; and in Ashhurst’s App., 77 Pa. 464, it is said that a spendthrift trust may be created as well for a woman as for a man. But it has never been held by this court that a person sui juris could settle his entire estate upon himself, free from liability for debts. Indeed, the very contrary has been ruled in Mackason’s App., 42 Pa. 330. In that case, the trustees were to hold the estate of the settlor, free and clear of his debts; to pay the net income, without anticipation, during his life to himself; after his death to his appointee by will, and, in default of an appointment, to his heirs; and it was held that property so settled was assets in the hands of the trustees for the payment of debts, whether contracted prior or subsequent to the execution of the deed of trust, and that the devisees or appointees under the will of the settlor were postponed to his creditors. After stating the facts, this court, in the opinion filed, says :

“ This statement brings us to the simple inquiry, can the owner of property so dispose of it for his own use, benefit, and support as to put it beyond the reach of liability for his future debts, he being and continuing sui juris, and there appearing to be no reason therefor, excepting to withdraw it from such liability and thus retain the temporal ownership with its incidents? This would be a startling proposition to affirm. It would revolutionize the credit system entirely, destroy all faith in the apparent ownership of property, and repeal all our statutes and decisions against frauds.”

The cases are not precisely similar, but in both it is clear that the design of the deed was to limit the property so that the grantor should enjoy it for life, with power to dispose of it at death, and yet that it should not be subject to the grantor’s debts. The power of disposition at death is, in this case, subject to some restriction; but, as this restriction is self-imposed in the deed, it is difficult to see how any distinction can be drawn which will affect the general principle involved. In both cases, not only the purpose, but the only purpose, was that the grantor should enjoy the property, and that it should not be subject to the grantor’s debts. The difference most strongly urged is that the grantor in Mackason’s Appeal was a man, whilst here the grantor is an unmarried woman; but we think no principle or present policy of the law requires any distinction, in this respect, between the sexes. It may be that, if the rights of creditors had not intervened, the trust would be deemed irrevocable, and would be upheld even as against the grantor herself, but as against creditors, either prior or subsequent, the terms of the trust would not avail. In Ashhurst’s App., 77 Pa. 464, a trust was created by Virginia Eyre, an unmarried woman; the incomes of her estate payable to herself as the beneficiary for life but not by way of anticipation, free from the debts, engagements, and liabilities of any husband she might have, and at her death the corpus of the estate to her appointee by will, with an ultimate disposition, in default of an appointment, to the persons entitled under the intestate law, as if the said Virginia had died intestate seised thereof. A bill was filed by the grantor herself, setting forth the terms of the trust, her subsequent marriage, and the death of her husband, averring that the trust was no longer active, and praying for a re-conveyance. . It was held, however, that, as the rights of creditors were not brought in question, the trust was irrevocable, that the grantor was not entitled to a reconveyance, but that the trust must be continued.

But the policy of the law will not permit property to be so limited as to remain in the grantor for life, free from the incidents of property, and not subject to his debts: 4 Kent Com., 311. To this extent the rule of the English cases, which is, of course, much broader, prohibiting altogether the creation of a spendthrift trust, (Brandon v. Robinson, 18 Ves. 429; Adams Eq., *42) seems to have been retained in Pennsylvania: Mackason’s Appeal, supra. But, whilst in the recognition of spendthrift trusts we have departed from the English rule, there is no case, in Pennsylvania, which goes to the extent of recognizing a spendthrift trust, in which the grantor is himself the sole beneficiary for life, with power to dispose of the trust property at death, yet neither the income nor the corpus of the estate subject to his debts.

The policy of our law is otherwise, and in Mackason’s Appeal it has been plainly so declared.

The judgment is affirmed.