Brearley Sch., Ltd. v. Ward

• Decision Date: 28 March 1911
• Parties: BREARLEY SCHOOL, Limited, v. WARD.
• Court: New York Court of Appeals Court of Appeals

201 N.Y. 358

94 N.E. 1001

BREARLEY SCHOOL, Limited,

v.WARD.

Court of Appeals of New York.

March 28, 1911.

Action by the Brearley School, Limited, against Beverley Ward. From an order of the Appellate Division (138 App. Div. 833,123 N. Y. Supp. 614), reversing a determination of the Appellate Term, which affirmed an order of the city court denying plaintiff's motion for an order directing the issuance of execution against the income of a trust fund due defendant, defendant appeals. Affirmed.

The Appellate Division has certified the following question to this court: ‘Can an execution under section 1391 of the Code of Civil Procedure, as amended by chapter 148 of the Laws of 1908, taking effect September 1, 1908, he lawfully issued against the income from a trust fund created by a will probated prior to the passage of the act in question?’

The nature of the proceeding and the facts, so far as material, are stated in the opinion.

See, also, 137 App. Div. 948,124 N. Y. Supp. 1110.

William G. Chittick, for appellant.

Grenville Clark, for respondent.

WILLARD BARTLETT, J.

In this action, which was brought in the the City Court of New York, the plaintiff on September 27, 1909, recovered judgment against the defendant for $727.63, upon which an execution was duly issued and returned unsatisfied. Thereupon the plaintiff on December 7, 1909, moved in the City Court for leave to issue an execution against 10 per cent. of the income derived by the judgment debtor from a testamentary trust established in his favor by the will of one Montagnie Ward, which was admitted to provate on the 6th day of December, 1879.

This application was based upon an amendment to section 1391 of the Code of Civil Procedure, which took effect on September 1, 1908. That section as then amended provides, among other things, that where a judgment has been recovered and an execution thereon has been returned unsatisfied, and where any wages, debts, earnings, salary, income from trust funds or profits are due and owing to the judgment debtor to the amount of $12 or more per week, the judgment creditor may apply to the court in which the judgment was recovered, and upon satisfactory proof of such facts the court must order an execution to issue against the wages, debt, earnings, salary, income from trust funds of profits of the judgment debtor. On presentation of the execution to the person from whom the wages, debts, earnings, salary, or income from trust funds or profits are due, such execution becomes a lien and remains a continuing levy to the amount specified therein, which shall not exceed 10 per cent. thereof until the execution and the expenses thereof are duly satisfied and paid. The appellant concedes that section 1391 as thus amended is applicable to the income from trusts which have come into being since the amendment, but contends that it cannot be applied to income from trusts previously created because if so applied it would be unconstitutional as impairing the obligation of a contract and as depriving the beneficiary of the trust of a vested right.

It is pertinent to inquire in the first place to what extent the income from trust funds was subject to the claims of creditors of the beneficiary of the trust on September 1, 1908, when the amendment to section 1391 of the Code of Civil Procedure took effect. The rights of such creditors as against the trust income were then prescribed by a provision of the real property law and certain sections of the Code of Civil Procedure . The real property law provides as follows: ‘Where a trust is created to receive the rents and profits of real property, and no valid direction for accumulation is given, the surplus of such rents and profits, beyond the sum necessary for the education and support of the beneficiary, shall be liable to the claims of his creditors in the same manner as other personal property, which cannot be reached by execution.’ Real Property Law (chapter 547, Laws 1896) § 78, formerly 1 Rev. St. p. 729, § 57; Real Property Law (chapter 52, Laws 1909 [Consol. Laws 1909, c. 50]) § 98. The Code of Civil Procedure, in chapter 15, tit. 4, art. 1, entitled ‘Judgment Creditor's Action,’ then provided and now provides for an action by a judgment creditor against a judgment debtor or other person to compel the discovery of any thing in action or other property belonging to the judgment debtor, and of any money, thing in action, or other property due to him or held in trust for him; but this provision was not and is not applicable to a case where the trust has been created by a person other than the judgment debtor. Code of Civil Procedure, §§ 1871, 1879. As the trust in the present case was created by a third party, it does not fall within the purview of section 1871 of the Code, so that when the amendment to section 1391 took effect on September 1, 1908, the provision of the real property law which has been quoted was the only statutory regulation of the subject which has any application to the facts in the present litigation. In the statutory revision of 1909, the consolidators have appended a note to section 98 of the real property law which is of some interest in this discussion. It is as follows: ‘The Code of Civil Procedure (§ 1391), as conceded, has put an end to a large ‘spendthrift trust’ in this state. * * * The effect of § 1391 of the Code is to permit certain creditors of beneficiaries of trusts created under the third subdivision of § 76 (§ 96 of present law) of the former real property law, to have execution on their judgments. So important a reform in our domestic law of trusts deserves to be called to the attention of lawyers and laymen reading the statute on uses and trusts and such a clause might be added, to this section. It ought not to be left obscurely contained in a long section of the Code of Civil Procedure.' Consol. Laws 1909 (Birdseye's Ed.) c. 50. In Laird v. Carton, 196 N. Y. 169, 89 N. E. 822,25 L. R. A. (N. S.) 189, we held that the amendment of 1908 to section 1391 of the Code of Civil Procedure applied to judgments for wages which had been rendered prior to the time when it took effect as well as to judgments subsequently obtained.

[1] It seems equally clear that this amendment, so far as it relates to the income from trust funds, was intended to apply to then existing trusts as well as to trusts which should thereafter be established. The argument in behalf of the appellant is that, if this intent of the Legislature is carried into effect, it will render the amendment unconstitutional for the reasons which have been stated. It is also argued in the dissenting opinion in the Appellate Division that, if the amendment in question be regarded as operative upon existing trusts, it is unconstitutional because it deprives one of his property without due process of law. This view is based on the proposition that, as soon as the trust estate was created, the beneficiary became entitled to the whole of the income derived therefrom, and the Legislature could not take away from him any part thereof.

[2] The mere fact that a statute is retrospective or retroactive is not a conclusive objection to its validity under the federal Constitution. ‘It is not all retrospective laws, however,’ says Mr. Justice Miller, ‘that are forbidden by this clause [article I, § 10] of the Constitution, but only such as impair the obligation of a contract. Ex post facto laws are also forbidden in the same clause, but that term is only applied to criminal laws and procedure, and has no reference to contracts. There is a large class of retrospective legislation which is constitutional, not inconsistent with the principles above laid down and some time necessary and proper relating to rights not dependent upon contract or affecting the individual by increasing his liability to a criminal prosecution.’ Miller on the Constitution of the United States, 536; Satterlee v. Matthewson, 2 Pet. 380, 7 L. Ed .458. The theory of the dissenting opinion below is that the beneficiary of a trust fund created by a third party whose income therefrom is wholly exempt from execution at the time of the creation of the trust has a constitutional right which prohibits the Legislature from making any part of such income applicable to the payment of his debts; in other words, that he has a constitutional right that the law thus exempting trust incomes from the claims of his creditors shall never he changed so as to affect him. This theory is only tenable upon the assumption that the state has entered into a contract with the cestui que trust to that effect. Certainly there is no such contract between the creator of the trust and the trustee or the beneficiary. The creator of the trust has simply appropriated a portion of his property to the use of the beneficiary. The trustee merely undertakes to pay over the income as directed, provided the law of the land permits him to do so. He enters into no engagement to withhold the trust income from the creditors of the beneficiary who may have a lawful claim against the same. If there is any contract in the case, therefore, protected by the constitutional provision, it must be an implied agreement by the state that the law shall not be changed in the respect indicated.

The provisions of law which afford protection to the beneficiaries of trusts are practically simply statutes of exemption. The Revised Statutes (now the real property law) by providing that the surplus income of real estate should be liable in equity for the claims of the creditors of the beneficiary provided by necessary implication that all of the income which was necessary for the education and support of the person for whose benefit the trust was created should be exempt from liability for his debts. This rule of the Revised Statutes implying a like exemption was extended by judicial construction to trusts of personal as well as trusts of real estate. Williams v. Thorn, 70 N. Y. 270....