King v. Shelton
36 App. D.C. 1
D.C. Cir.
1910
Check Treatment
Mr. Justice Van Orsdel

delivered the opinion of the Court.

The sole question presented is whether the trust sought to be created by the testator is one in restraint of alienation. The English rule in undoubtedly to the effect that where the testator devises property to a trustee to' accumulate the income for a stated period, and then turn over the legacy, together with the income, to a legatee, the legatee may stop the accumulation as an illegal restraint upon his power of alienation. In other words, it is held that a testator cannot devise the fee, legal or equitable, to property, and withhold from the legatee the power to alienate it. This doctrine of the English courts is founded primarily upon the principle that any trust created in restraint of alienation is against the rule of perpetuities, and for the further and principal reason that creditors of the legatee should be permitted to subject the legacy to the payment of his debts.

The English rule has been followed in some of the States, and repudiated in others. Many of the States, however, have statutes which permit the legatee to terminate the accumulation at any time after he reaches the age of twenty-one years. The Supreme Court in Nichols v. Eaton, 91 U. S. 716, 23 L. ed. 254, seems to have departed from the English rule, to the extent of upholding the power of the testator, to create such a trust when it does not come within the rule of perpetuities. The court while reserving the right to announce a different rule in a case arising in a State where the English rule has been adopted and followed, clearly establishes principles for the guidance of the Federal courts, which are binding on, the courts of this District. In that case there was a device to pay a son of the testator the income of certain property during his lifetime, with the provision, however, that, if he should alienate or dispose of the income to which he was entitled under the trusts of the will, or *5if, by reason of bankruptcy or insolvency, or any other means whatsoever, the income could no longer be personally enjoyed by him, but would become vested in or payable to some other person, then the trust, or so much thereof as would so vest, should immediately cease and determine; and in that event, during the residue of the life of such son, that portion of the income of the trust fund should be paid to the wife and children 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. The son remained single, and became a bankrupt; and the assignee in bankruptcy sought to have the income turned over to him as part of the bankrupt’s estate for the benefit of his creditors.

The court in holding that the testator had the power to so provide for an accumulation of the income, even to the prejudice of the rights of the creditors of the legatee, said: “But, while we have thus attempted to show that Mrs. Eaton’s will is valid in all its parts upon the extremest doctrine of the English chancery court, we do not wish to have it understood that we accept the limitations which that court has placed upon the power of testamentary disposition of property by its owner. We do not see, as implied in the remark of Lord Eldon, that the power of alienation is a necessary incident to a life estate in real property, or that the rents and profits of real property and the interest and dividends of personal property may not be enjoyed by an individual without liability for his debts being attached, as a necessary incident to such enjoyment. This doctrine is one which the English chancery court has ingrafted \ipon the common law for the benefit of creditors, and is comparatively of modern origin. We concede that there are limitations which public policy or general statutes impose upon all dispositions of property, such as those designed to prevent perpetuities and accumulations of real estate in corporations and ecclesiastical bodies. We also admit that there is a just and sound policy peculiarly appropriate to the jurisdiction of courts of equity to protect creditors against frauds upon their rights, whether they be actual or constructive frauds. But the doctrine that the owner of property, in the free exercise of his will *6in disposing of it cannot so dispose of it but that tbe object of his bounty, who parts with nothing in return, must hold it subject to the debts due his creditors, though that may soon deprive him of all the benefits sought to be conferred by the testator’s affection or generosity, is one which we are not prepared to announce as the doctrine of this court. If the doctrine is to be sustained at all, it must rest exclusively on the rights of creditors. Whatever may be the extent of those rights in England, the policy of the States of this Union, as expressed both by their statutes and the decisions of their courts, has not been carried so far in that direction.”

If a testator can provide a contingency whereby a life estate can cease during the life of a beneficiary, to the prejudice of the creditors of such beneficiary, and be allowed to accumulate, it is not clear why a testator may not provide that a legacy may accumulate for a given period within-the rule of perpetuities, and then be transferred to the object of his bounty. Especially is the reason for vesting such power in the testator irresistible where, as in the present case, the appellees are distant relatives, with no claim whatever upon the bounty of the testatrix, and where no rights of creditors intervene. We are unable to understand why the broad equitable principles announced in Nichols v. Eaton, supra, should not be applied to the present case.

The learned justice in the court below in his ojnnion sought to distinguish the present case from one where the beneficiary has a limited estate with remainder over. He said: “There can be no question but what the testatrix might have provided by her .will that these legatees should take a legacy of $25,,000 each, with its accumulation, payable when the youngest was twenty-five years of age if they should be then living, otherwise to be paid to other parties, and in that event the title would not have been vested until that time, but would have been contingent on their survival. But where the legacy is vested and the trust is to accumulate the fund until a definite time, though not beyond the time allowed by the rule against perpetuities, the legatee when he becomes of age may take the fund at his election, thus destroying the trust for accumulation.” The in*7come of a fixed legacy during the life of the life tenant for the express purpose of the bequest, is as absolutely vested as a fixed legacy devised to a legatee to be turned over to him at a given date. While the rights of the legatees absolutely vest on the death of the testator, we can perceive no sound reason why the (estator, acting within the limitations of the rnle against perpetuities, may not provide as a condition of the gift that it shall be transferred to the beneficiary at a future date.

In Rhoads v. Rhoads, 43 Ill. 239, the court considering a devise similar to the one here in question, said: “We are at a loss to perceive, if a testator can select the objects of his bounty, why he cannot also prescribe the time and mode in which that bounty shall be enjoyed; provided, always, in so doing, be contravenes no well-recognized and admitted principle of public policy, or stubborn rule of right. Erom the earliest times courts of justice have set themselves against such a disposition of property by will as would have the effect to tie up the land and capital of the country, obstructing thereby the free and active circulation of property, checking the improvement of the land and rendering its acquisition difficult, and in short, to every disposition of it savoring of a perpetuity, which the law abhors. Yet, notwithstanding this, it has never been denied, so far as we are advised, that an executory limitation of a life or any number of lives in being, and twenty-one years afterward, is valid. Can it be doubted that a testator with a family of children, some of them grown, married, and settled in life, and others of them infants, may devise his estate to executors with power to sell and convert it into money to be put at interest, and so remain until the youngest child, then not one day old, shall arrive at full age, and then the fund to be divided equally among all the children ? In such case, which is but an ordinary limitation in strict settlement, no court would hold -that it was void for remoteness, yet the time of enjoyment by the beneficiaries is more remote than that fixed by this will.”

None of the reasons for the English custom prevail in this country. As to the legatee, he has no such claim upon the bounty of the testator as will require a court in equity and good *8conscience to subvert the will of the testator and turn a legacy over to perhaps a profligate or wasteful legatee when such a contingency has been wisely provided against in the will. The legacy is a gift, and no good reason is apparent why a testator acting within the bounds of public policy may not impose any reasonable limitation upon the enjoyment of the gift which his judgment may dictate. As to the creditors, the will is a matter of record, notice to all persons of its terms and conditions, and whoever elects to extend credit to a suspended legatee does so at his risk, and cannot be heard to complain.

The decree is reversed, with costs, and the court is directed to enter an order vacating the decree and dismissing the bill.

Reversed.

An application of the appellees for an appeal to the Supreme Court of the United States was allowed November 4, 1910.