Nat'l Val. Bank v. Hancock

• Decision Date: 23 January 1902
• Citation: 100 Va. 101,40 S.E. 611
• Parties: NATIONAL VAL. BANK v. HANCOCK.
• Court: Virginia Supreme Court

40 S.E. 611

100 Va. 101

NATIONAL VAL. BANK

v.HANCOCK.

Supreme Court of Appeals of Virginia.

Jan. 23, 1902.

PARENTS—DUTY TO SUPPORT CHILDREN—USE OF TRUST FUNDS — SUBSEQUENT REPAYMENT TO TRUST ESTATE—FRAUD TOWARDS CREDITORS—RIGHTS OF ASSIGNEE.

1. A creditor in a proper case may subject to the payment of his claim improvements made by his debtor on a third person's property.

2. The rule that a mere naked right to sue in equity to avoid a fraud is not assignable does not apply to a case where the right is merely incidental to a subsisting substantial property right which has been assigned, and in such case the assignee may maintain the action.

3. Where a trustee of infant children has. by the terms of the trust, a discretion as to the application of the fund to their maintenance, the court will not, at their father's instance, compel him to exercise it. the father being able to support them, nor will the court interfere with his discretion, if he sees fit to exercise it, and support the children out of such funds.

4. Where a debtor, acting as trustee for his minor children, has exercised the discretion imposed on him by the trust, and supported them out of the trust funds, he will not be permitted to restore the sums so expended to the trust estate on a plea that it is his personal duty to support his children, where by so doing he will evade the payment of his honest debts.

5. Where a will creates an express trust for the support of a wife and minor children, the trust funds must be so applied by the trustee, irrespective of the father's ability to support and educate them.

Appeal from circuit court of city of Lynchburg.

Bill by the National Valley Bank against James Hancock. Decree dismissing the bill, and complainant appeals. Reversed.

Harrison & Long, for appellant.

Wilson & Manson and Caskle & Coleman, for appellee.

KEITH, P. It appears from the bill that the National Valley Bank of Staunton on the 20th of December, 1894, discounted for the Traders' Bank of Lynchburg its note for $5,000, which, after being curtailed from time to time, was renewed on the 19th of December, 1896, for $3,150 at 60 days. Along with this note certain collaterals were delivered, from which there was realized the sum of $1,150.25. Those uncollected were returned to the Traders' Bank, and in place of them the Bank of Staunton received six notes as security for its debts. The collaterals thus received were three notes of Rucker, Clark & Co., dated August 23, 1894, payable 39 months after date to James Hancock, and indorsed by James Hancock and the Traders' Bank of Lynchburg, each for the sum of $225.20; two notes of P. V. Rucker, dated October 1, 1894, payable 3 years and 42 months, respectively, after date to Rucker, Clark & Co., and indorsed by Rucker, Clark & Co., James Hancock, and the Traders' Bank of Lynchburg, for $250; and one note of W. E. Clark, dated October 1, 1894, payable 39 months after date to Rucker, Clark & Co., and indorsed by Rucker, Clark & Co., James Hancock, and the Traders' Bank of Lynchburg, for $250.

The bill charges that after exhausting every means to collect the collaterals in the possession of the Bank of Staunton, there was a balance due by the Traders' Bank of Lynchburg of $1,999.75 of principal and $267.55 of interest as of February 24, 1899, which will be wholly lost unless it can realize on the notes indorsed by James Hancock.

It is charged that James Hancock holds title as trustee under the fifth clause of the will of his father, the late A. G. Hancock, to a valuable house and lot situated on Main street in the city of Lynchburg, called the "Traders' Bank Building, " now occupied by the National Bank of Lynchburg. The trust declared by the will of A. G. Hancock Is as follows:

"Item 5. I give and devise to my said son, James Hancock, as trustee for his wife and children, including those now born and all that may be born to him by his present or any future wife he may take, my storehouse and lot on Main street Lynchburg, on the west side, between Ninth and Tenth streets, now occupied by M. E. Doyle, which I value at $14,000, to be held in trust not subject to his debts or liabilities, for the support and maintenance of his present and any future wife he may take and all his children; the said trust to continue during the life of the said James Hancock, and if at his death he shall leave a wife surviving him, until her death. Upon his death, if no wife survive him, or if one do survive him, upon her death, the said property shall pass in fee simple absolute to all the children of the said James Hancock in equal shares; the descendants of any who now have died leaving descendants then surviving to take the hare of their deceased ancestor."

This will bears date April 17, 1888, and was recorded in the clerk's office of the corporation court of Lynchburg on June 6, 1888. Those interested in the foregoing clause are Alice Hancock, wife of James Hancock, and certain infant children.

The bill states that the building at present on the lot was "erected during the year 1895 by the said James Hancock, and paid for by him with his individual funds, at which time Hancock was indebted as aforesaid on the notes held by your orator herewith filed; and your orator is advised that the said Hancock being thus indebted, could not lawfully divert his own estate to the improvement of the trust estate as aforesaid, and leave his indebtedness to your orator unpaid and unprovided for; that the money expended by Hancock out of his individual estate in improving the trust estate being voluntary, and without consideration, was in fraud of the rights of your orator, and that the estate can, in favor of your orator, be charged with the value of said improvements."

James Hancock, in his answer, denies that the present indebtedness of the Traders' Bank to the complainant, or that any part thereof, existed in 1895, and claims that only one of the respondent's notes ever came into the complainant's hands as collateral for the original debt. The answer denies the allegation that James Hancock expended money out of his individual estate in improving the trust property held under the will of his father, or that it was made in fraud of complainant's rights. His account of the transaction is that when the property was devised by his father it was valued at $14,000, with a storehouse which was rented out up to January 1, 1895; that during this period respondent had a good income from his own property and business, which was that of a leaf tobacco dealer; that he was able to maintain and did maintain his wife and children from his own means, and, as the storehouse was old and getting into bad condition, he determined to tear it down, and erect a bank building on the trust property; that respondent owed the trust fund the sum of $002.30, with interest from November 5, 1888, and rents received from the trust property from 1888 to 1895, amounting to the sum of $5,765; that he erected the building under a contract with the Traders' Bank to rent It at an annual sum of $1,750; that it cost $9,100; and that since January 1, 1895, and prior to the institution of this suit he had collected from the rents of said property the sum of $6,391.66, had paid the city taxes, amounting to $408.90, and state taxes, amounting to $109.08, so that the balance due respondent from the trust fund had been paid back to him in full.

Upon the issues thus made and the proof In support of them, the judge of the circuit court, "being of opinion that the allegation of the bill that the moneys expended by the defendant James Hancock, trustee, in improving the trust property, was of his individual estate, and voluntary, and without consideration, is not sustained, but, to the contrary, the evidence shows that the moneys belonging to the children and the rents received from the trust property by said trustee constituted a valuable consideration for the expenditures made, " dismissed the bill.

The case is before us upon an appeal from this decree.

There can be no doubt of the right of a creditor in a proper case to subject improve-merits made by his debtor on the property of another. This subject was recently considered by this court in Association v. Reed, 96 Va. 345, 31 S. E. 514, where the court, speaking through Judge Harrison, said: "D. V. Reed, having created the debts due to the appellants, could not thereafter lawfully divert his estate to the payment of purchase money due from his wife on her separate real estate, or to the cost of improving said real estate, leaving his own debts unpaid, and without the means of payment. It is well settled that improvements put upon the wife's separate realty by the husband in fraud of creditors can be followed by the creditors on the premises where they are put, and the realty can, in favor of the creditors, be charged with the value of such improvements. It would be contrary to the plainest principles of right and justice to permit an insolvent husband to divert his means, and invest it in improving his wife's separate estate, which is not liable to his debts, and thus defeat the demands of his creditors."

Appellee insists, however, that, inasmuch as the notes with which it is now sought to charge the trust property were assigned to the Bank of Staunton after the erection of the building, appellant would have no right to attack the transaction, even though it were conceded that Hancock had improved the trust property with his own funds, in-voking foi his protection the principle that "an assignment of a bare right to file a bill in equity for a fraud committed upon the assignor will be held void as contrary to public policy and as savoring of the character of maintenance."

It is true that a mere naked right to sue in equity to avoid a fraud is not assignable, but, as stated in 2 Am. & Eng. Enc. Law (2d Ed.) pp. 1024, 1025, this rule applies only to a case where the assignment does not carry anything which has itself a...