Sloan v. Birdsall — 34 N.Y. St. Rep. 804

Majority

p. 804

William J. Sloan, App’lt, v. John I. Birdsall, Estella B. Stoutenburgh, Ella A. Overstreet and William McDonald, as Trustee of the Estate of John I. Birdsall, Resp’ts.

(Supreme Court, General Term, Fourth Department,

Filed December 6, 1890.)

Headnote

1. Creditor’s action—Trust.

Defendant Birdsall conveyed his property in trust for the payment of his just debts, for his.support and the division of the balance of net income between his wife and daughter during the lives of himself and wife; the daughter to have one-third absolutely on arriving at twenty-one years, and another third on the death of either the grantor or his wife. Held, that the trust deed was void so far as it provided for the support of the grantor, but valid as-to the trusts for his wife and daughter; that its invalidity to that extent was not affected by the fact that the wife also conveyed her property on similar trusts.

2. Same—Income under invalid trust mAy be reached.

Where the property in the hands of trustees under an invalid trust consists of personal property which originally belonged to the grantor, and by the terms of the conveyance he is entitled to his support therefrom, the income may be reached by his creditors.

Appeal from a judgment, entered in Otsego county on the decision of a special term, dismissing the plaintiff’s complaint with costs.

J. B. Holmes, for app’lt; F. B. Gilbert, for resp’ts.

This was a . creditor’s action to set aside a trust deed made by the defendant Birdsall to the defendant McDonald and another as trustees. It was made on the 14th day of November, 1867, and conveyed all of the grantor’s property, both real and personal, in trust: 1. To sell so much as should be-

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necessary to pay all the just debts of the grantor; 2. To manage or sell the residue of the lands; 3. During the natural lives of the grantor and his wife, or the survivor of them, to dispose of the interest or the net proceeds of the real and personal property by first paying the grantor an amount sufficient to clothe, support and maintain him, and such other allowance as the trustees should in their discretion deem proper, and by dividing the remainder equally between the grantor’s wife and his daughter. When the daughter attained the age of twenty-one years one-third of the trust estate was to become hers absolutely, the other two-thirds to remain in the hands of the trustees, the income to be distributed as before stated during the lives of the grantor and his wife. On the death of either, another third of the estate was to become the absolute property of the daughter, and upon the death of both the grantor and his wife, the daughter was to have the whole estate.

On November 16,1867, the defendant Estella B. Stoutenburgh, who was then the wife of the defendant Birdsall, gave a deed to the same ‘trustees of all her property, both i;eal and personal, in trust for the same purposes as were specified in the deed made by the defendant Birdsall.

The defendant McDonald and his co-trustee accepted the trust under both deeds and proceeded and continued to execute the same until 1868, when they were relieved therefrom and new trustees were appointed by the supreme court. Subsequently the trustees thus appointed were in turn relieved, and the defendant McDonald was again appointed by that court as sole trustee to carry out the trust created by said deeds, so far as the same then remained unexecuted.

Before the last appointment of the defendant McDonald, in an action in the supreme court, a decree was duly made and entered adjudging that one-third of the trust funds in the hands of the trustees belonged absolutely to the daughter of the grantors; and that the trust was ended as to that one-third. ' It was also further adjudged therein that the trust was ended as to the defendant Estella B. Stoutenburgh, then Estella B. Clark, and certain specified property in the hands of the then trustees was directed to be delivered to the daughter of the grantors, and certain other of the property in their hands was directed to be delivered to the defendant Estella B. Stoutenburgh. The trust as to the defendant Birdsall was, however, continued, and the defendant McDonald was appointed as trust.ee to execute such trust; and said decree also provided that the said trustee should “pay to the defendant Birdsall for his board and clothing such sum as in his discretion may be necessary for that purpose, and at such time or times as he may deem proper, not exceeding in any one year the net income of said estate.”

The trust fund now in the hands of the defendant McDonald as such trustee consists of personal property of the value of between eight and nine thousand dollars, which was originally the personal property of the defendant Birdsall. The real purpose of'this action was 'to procure the application of that fund or the income thereof to the payment of the plaintiff’s judgment.

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The appellant claims that the deed given by the defendant Birdsall, at least as to the personal property thereby conveyed, was void as to subsequent as well as existing creditors, because it conveyed to the defendant McDonald and his co-trustee the grantor’s personal property in trust for his own use. It is declared by statute that, “ all deeds of gift or conveyances and all transfers or assignments, verbal or written, of goods, chattels or things in action, made in trust for the use of the person making the same, shall be void as against the creditors existing or subsequent of such person.” 2 E. S., 185, § 1.

The special term held that this statute did not render the transfer in- question void, even as to the personal property conveyed, for two reasons : First, because the trust fund was not created by the defendant Birdsall alone; second, because it was not for the use of the grantor alone. This conclusion was based upon the cases of Curtis v. Leavitt, 15 N. Y., 9 , and Shoemaker v. Hastings, 61 How., 79 .

In the former case a trust deed was given to secure certain bonds that were issued by the North American Trust & Banking Company. The deed provided that the trustees named therein should, after selling or collecting the property transferred, pay the bonds issued by that company, and after the payment of such bonds and all costs and charges, the trustees should hold the bonds and mortgages assigned in trust for said Trust & Banking Company and dispose of them as it should direct. In that case the court held that the trusts created by that deed were not void under the statute on the ground that it was a conveyance in trust for the use of the grantor, it being the opinion of the court that the statute applied only to conveyances, etc., primarily for the use of the grantor, and not to instruments for other and. active purposes, where the reservations to the grantor were incidental and partial (page 295). This was all tMt was decided in that case. While there are certain expressions in the opinions delivered therein which, when not read in connection with the remainder of the opinion, might seem to uphold a somewhat different doctrine, yet, when the whole of the opinions on that branch of the case are read together they show quite clearly that the decision of the court was a fair epitome of the opinions delivered.

In the Shoemaker case a father sold two of his sons his farm and personal property, for which they agreed to pay a specified sum by paying the liens thereon and certain debts of the father, and also agreed to give him a mortgage for $1,000 and pay his two minor children $150 each when they became of age. In that case the court held that the transfer was intended as an actual alienation of the property and did not fall within the condemnation of the statute.

The doctrine which may be fairly deduced from these cases is that a transfer does not come within the provisions of this statute where the use or interest reserved to the grantor is merely incidental and partial, and is to vest or result after the execution of some active and lawful purpose for which it was primarily made, as is illustrated in‘the case of a chattel mortgage, assignment or

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pledge, as security for the payment of a debt, and the like. Neither of those cases was like the case at bar, and in both the principle that a creditor could enforce his debts against any use or interest reserved by the grantor was expressly recognized.

In the case of McLean v. Button, 19 Barb., 450 , it was held that a transfer of personal -property,‘the consideration of which was the future support of the grantor, his wife and children, was within the statute and void as to the subsequent creditors. In Young v. Heermans, 66 N. Y., 381 , where a transfer was in trust for the use of the grantor during his life, and for the payment of his debts after his death, it was held to be void under the statute. In Wilson v. Robertson, 21 N. Y., 594 , where an assignment appropriated the property of an insolvent firm to the payment of the individual debts of one of the parties, it was suggested by the court that it was void as a trust for the benefit of the assignors or one of them. See, also, Kingsland v. Tompkins, 5 W. Dig., 378.

An examination of this statute and of the authorities bearing upon it, leads us to the conclusion that where the primary object, or one of the primary objects, of a conveyance is to transfer the property of the grantor to trustees in trust for his own support and maintenance, it is within the statute and void as to creditors so far as that particular trust is concerned, although it contains other trusts which are valid. We are of the opinion that the trust deed given by the defendant Birdsall was valid as between the parties, and as to all of the world except his creditors, and that it was also valid as to his creditors, so far as the trusts for the benefit of his wife and daughter were concerned. The trusts that were valid did not fail because the instrument creating them also contained one that became invalid when the superior rights of creditors were involved. Curtis v. Leavitt, 15 N. Y., 124 ; Scott v. Gutherie, 25 How., 514 ; Rome Ex. Bk. v. Eames, 4 Abb. Ct. App. Dec., 95 . But we are also of the opinion that so far as it provided for the support of the grantor, the trust deed was within the statute and void as to his subsequent creditors, as well as existing ones.

The fact that at or about the time of the execution of this trust deed by the defendant Birdsall his wife made a similar trust deed for the same purposes and trusts, or that the trust deed by the grantor contained other trusts which were valid, does not relieve the conveyance by the defendant Birdsall from the operation of this statute. The doctrine that this statute can be rendered nugatory or ineffectual, either by procuring another to join with the grantor in creating a trust which is within its condemnation, or by joining valid trusts with those that are declared to be void as to creditors, cannot, we think, be sustained.

As the appeal book shows that the property now in the hands of the trustee is personal property which originally belonged to the defendant Birdsall, and that, by the terms of the conveyance, he is entitled to his support from the income thereof, it foil uvs that the income can be reached by his creditors. Section 1873 of the Code of Civil Procedure provides that the final judgment in a judgment creditor's action must direct and provide for the satis

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faction of the sum due the plaintiff out of any money, thing in action or other personal property belonging to or due the judgment debtor, or held in trust for him, which is discovered in the action.

The complaint was sufficient to justify the court in awarding the relief to which the plaintiff was entitled. “ Under our present system of practice, a plaintiff is not to be turned out of court, when an answer has been interposed, because he has ju’ayed for too much or too little, or for wrong relief.” Murtha v. Curley, 90 N. Y., 377 . We think the court erred in dismissing the plaintiff’s complaint, and that the judgment should be reversed.

Judgment reversed, and a new trial ordered, with costs to abide the event.

Hardin, P. J., and Merwin, J., concur.