Petty v. Brooksanitarium

• Decision Date: 10 March 1910
• Citation: 110 Va. 815,67 S.E. 355
• Parties: PETTY v. MOORES BROOKSANITARIUM.
• Court: Virginia Supreme Court

67 S.E. 355

110 Va. 815

PETTY

v.MOORES BROOKSANITARIUM.

Supreme Court of Appeals of Virginia.

March 10, 1910.

Fraudulent Conveyances (§ 111^*)—Spendthrift Trusts—Beneficiary's Own Property.

An owner of property, though a spendthrift, cannot convey it in trust, he himself being the beneficiary, and exempt it from the payment of debts he may thereafter contract.

[Ed. Note.—For other cases, see Fraudulent Conveyances, Cent. Dig. §§ 361-363; Dec. Dig. § 111.*]

Appeal from Corporation Court of Lynchburg.

Suit by the Moores Brook Sanitarium against one Petty, Trustee. Decree for plaintiff, and defendant appeals. Affirmed.

J. T. Coleman and Leon Goodman, for appellant.

F. C. Moon and W. C. Carrington, for appellee.

HARRISON, J. On the 28th day of August, 1902, Harry S. Langhorne, an improvident young man, created a "spendthrift trust" for his own benefit by conveying a valuable estate possessed by him to a trustee upon the following trusts: To secure his then existing indebtedness and certain debts of his mother. After these debts had been satisfied, together with certain costs mentioned, the residue of the property conveyed, or its proceeds, was to be invested by the trustee to the best advantage, paying to the said Langhorne from time to time out of the accruing net interest and profits such sum as the trustee might, in his discretion, deem proper for the maintenance, support, and other necessities of the said Langhorne. In this connection, the deed provided that neither the trustee named nor any succeeding trustee should be compellable to pay to the said Langhorne any part of such interest or profits; provided, however, that if the trustee, or his successor as such, together with George W. Langhorne, father of the grantor, or the trustee acting solely after the death of the father, should judge that the grantor's habits and steadiness were such that it would be prudent to intrust him with the full management of the corpus of the property conveyed, or any part thereof, then the trusteewas directed to turn over the whole, or such part thereof as might be so deemed prudent, to the grantor. The deed further provided that, in the event of the death of Harry S. Langhorne without the principal or corpus of the property being turned over to him, that the trustee should pay the same, or such part thereof as might remain in his hands or under his control, together with any accumulated interest or profits, to such person or persons as the said Harry S. Langhorne might by last will and testament appoint; or, in default of such appointment, to the person or persons who would be entitled under the statute of descents and distributions as his heirs and distributees, but without being liable to any debt he might contract. The deed further provided that any successor to the trustee named should be appointed by the corporation court of the city of Lynchburg.

The debt asserted in the bill of complaint was contracted by Harry S. Langhorne after the deed of August 28, 1902, was executed and recorded. The decree appealed from annulled and set aside the deed as to this debt, holding that the property conveyed, after the satisfaction of the debts secured by the deed, was liable for debts of the grantor contracted since its execution.

The sole question presented by this appeal is, whether or not, after the execution of this deed, Harry S. Langhorne had any interest in the property conveyed which could be subjected by a creditor whose debt was contracted after the deed had been executed and recorded.

It is clear from the deed that, notwithstanding the broad and uncontrolled discretion lodged in the trustee, the purpose and expectation was that the grantor would thereafter be permitted to enjoy the benefits of the property thereby conveyed, while at the same time it would be shielded from liability for any future debts that he might contract. In all trusts there must be a cestui que trust, and it is manifest from the deed that Harry S. Langhorne was to have the sole beneficial use of the property conveyed, certainly during his life, with power to dispose of what remained at his death by will.

Unless the owner of property can convey it in trust and reserve to himself benefits directly, and at the same time exempt it from liability for his future debts, he cannot do so indirectly by conferring discretion on the trustee to withhold all benefits from him; for if this can be done, the owner need only select, as trustee, a near kinsman or tried friend, on whom he may rely for liberality, and thus indirectly accomplish what he cannot do directly. Menken v. Brinkley, 94 Tenn. 721, 31 S. W. 92;. Am. & Eng. Dec. in Eq. vol. 2, p. 619. The question to determine is, therefore, whether the owner of property, even though he be a spendthrift, may convey it in trust, he himself being the cestui que trust, and exempt it from the payment of debts he may thereafter contract.

The cases and text-writers are innumerable in which judges and authors have discussed with learning and ability the question whether one person can convey property in trust for the benefit of another, who is sui juris, and so limit and restrict it as to shield it from the debts of the beneficiary. In England, from which country we derive the principles of our jurisprudence, the courts have steadfastly adhered to the common-law rule that spendthrift trusts were invalid because repugnant to the ordinary rights of property and contrary to public policy. In this country a number of the states of the Union have...