Shelley v. Shelley

• Decision Date: 20 July 1960
• Citation: 223 Or. 328,354 P.2d 282,91 A.L.R.2d 250
• Parties: , 91 A.L.R.2d 250 Betty Joyce SHELLEY, Respondent, v. Grant R. SHELLEY, Defendant, The United States National Bank of Portland (Oregon), a national banking association, Interpleading Defendant-Appellant, Patricia C. Shelley, United Adjusters, Inc., N. J. Campf, dba National Credit Bureau, Interpleaded Defendants-Respondents.
• Court: Oregon Supreme Court

Page 282

354 P.2d 282

223 Or. 328, 91 A.L.R.2d 250

Betty Joyce SHELLEY, Respondent, v. Grant R. SHELLEY, Defendant The United States National Bank of Portland (Oregon), a national banking association, Interpleading Defendant-Appellant Patricia C. Shelley, United Adjusters, Inc., N. J. Campf dba National Credit Bureau, Interpleaded Defendants-Respondents.

Supreme Court of Oregon, Department 2.

Argued and Submitted June 14, 1960.

Decided July 20, 1960.

Wilber Henderson, Portland, for appellant.

Harlow F. Lenon, Portland, for plaintiff-respondent. On the brief were Lenon & Willner and John M. Winkler, Portland.

Zanley F. Galton, Portland, for defendant-respondent Patricia Shelley. On the brief were Goldstein, Galton, Galton & Popick, Portland.

Before McALLISTER, C. J., and SLOAN, O'CONNELL, GOODWIN and MILLARD, Justices.

O'CONNELL, Justice.

This is an appeal from a decree of the circuit court for Multnomah county establishing the rights of the parties to the income and corpus of a trust of which the defendant, the United States National Bank of Portland (Oregon) is trustee.

The assignments of error are directed at the trial court's interpretation of the trust. The trust involved in this suit was created by Hugh T. Shelley. The pertinent parts of the trust are as follows:

'Ninth: All of the rest, residue, and remainder of my said estate, * * * I give, devise, and bequeath to the United States National Bank of Portland (Oregon), in trust, * * * upon the following trusts:

* * *

* * *

'(2) I direct that, all income derived from my trust estate be paid to my wife, Gertrude R. Shelley, as long as she lives, said income to be paid to her at intervals of not less than three (3) months apart;

* * *

* * *

'(4) If my said wife, Gertrude R. Shelley, shall predecease me, and my said son is then alive, or upon my wife's death after my death and my son being alive, it is my desire, and I direct, that, the United States National Bank of Portland (Oregon), as trustee, shall continue this estate in trust and pay all income derived therefrom to my son, Grant R. Shelley, as long as he lives, said income to be paid to him at intervals not less than three (3) months apart; Provided, Further, That when my son, Grant R. Shelley, arrives at the age of thirty (30) years, my trustee may then, or at any time thereafter, and from time to time, distribute to said son absolutely and as his own all or any part of the principal of said trust fund that it may then or from time to time thereafter deem him capable of successfully investing without the restraints of this trust; Provided, However, That such disbursements of principal of said trust so made to my son after he attains the age of thirty (30) years shall be first approved in writing by either one of my brothers-in-law, that is: Dr. Frank L. Ralston, now of Walla Walla, Washington, or Russell C. Ralston, now of Palo Alto, California, if either of them is then living, but if neither of them is then living, then my trustee is authorized to make said disbursements of principal to my son in the exercise of its sole and absolute judgment and discretion; Provided, Further, That, said trust shall continue as to all or any part of the undistributed portion of the principal thereof to and until the death of my said son.

'(5) I further direct and authorize my trustee, from time to time (but only upon the written approval of my said wife if she be then living, otherwise in the exercise of my trustee's sole discretion) to make disbursements for the use and benefit of my son, Grant R. Shelley, or his children, in case of any emergency arising whereby unusual and extraordinary expenses are necessary for the proper support and care of my said son, or said children.

'(6) If the said Grant R. Shelley shall die, and leave surviving him children, it is my desire that, if my wife be then dead, or upon the death of my wife if she should survive said son, my trustee shall continue said trust for the benefit of said children of my son, Grant R. Shelley, and shall make periodic payments for their benefit at intervals of not less than three (3) months apart, and shall hold said estate in trust to and until the youngest child of Grant R. Shelley shall attain the age of twenty one (21) years; thereupon, said trust shall terminate, and said estate shall be distributed to the children of my son, share and share alike; If any of said children die before the youngest attains the age of twenty-one (21) years, said distributable estate shall be distributed to the surviving children, share and share alike, or, if there be only one child, to said child.

* * *

* * *

'(8) Each beneficiary hereunder is hereby restrained from alienating, anticipating, encumbering, or in any manner assigning his or her interest or estate, either in principal or income, and is without power so to do, nor shall such interest or estate be subject to his or her liabilities or obligations nor to judgment or other legal process, bankruptcy proceedings or claims of creditors or others.'

The principal question on appeal is whether the income and corpus of the Shelley trust can be reached by Grant Shelley's former wives and his children.

Grant Shelley was first married to defendant, Patricia C. Shelley. Two children were born of this marriage. Patricia divorced Grant in 1951. The decree required Grant to pay support money for the children; the decree did not call for the payment of alimony. Thereafter, Grant married the plaintiff, Betty Shelley. Two children were born of this marriage. The plaintiff obtained a divorce from Grant in August, 1958. The decree in this latter suit required the payment of both alimony and a designated monthly amount for the support of the children of that marriage.

Some time after his marriage to the plaintiff, Grant disappeared and his whereabouts was not known at the time of this suit. The defendant bank, as trustee, invested the trust assets in securities which are now held by it, together with undisbursed income from the trust estate. The plaintiff obtained an injunction restraining the defendant trustee from disbursing any of the trust assets. Patricia Shelley brought a garnishment proceeding against the trustee, by which she sought to subject the trust to the claim for support money provided for in the 1951 decree of divorce. The defendants, United Adjusters, Inc., and N. J. Campf, obtained judgments against Grant and sought, through garnishment, to reach the trust assets. The latter defendants have not appealed and consequently we are not concerned with their interest in the trust.

The defendant bank finally brought a bill of interpleader tendering to the court for disbursement all of the funds held in trust, praying for an order establishing the respective rights of the interpleaded parties to the trust assets.

The trial court entered a decree subjecting the accrued income of the trust to the existing claims of the plaintiff and Patricia Shelley; subjecting future income of the trust to the periodic obligations subsequently accruing by the terms of the decrees in the divorce proceedings brought by plaintiff and Patricia Shelley; and further providing that in the event that the trust income was insufficient to satisfy such claims, the corpus of the trust was subject to invasion.

We shall first consider that part of the decree which subjects the income of the trust to the claims of plaintiff and of defendant, Patricia Shelley. The trust places no conditions upon the right of Grant Shelley to receive the trust income during his lifetime. Therefore, plaintiff and Patricia Shelley may reach such income unless the spendthrift provision of the trust precludes them from doing so.

The validity of spendthrift trusts has been established by our former cases. Stein v. United States National Bank, 1941, 165 Or. 518, 108 P.2d 1016; Mattison v. Mattison, 1909, 53 Or. 254, 100 P. 4, 133 Am.St.Rep. 829. The question on this appeal is whether the spendthrift provision will be given effect to bar the claims of the beneficiary's children for support and the plaintiff's claim for alimony.

In Cogswell v. Cogswell et al., 1946, 178 Or. 417, 167 P.2d 324, 335, we held that the spendthrift provision of a trust is not effective against the claims of the beneficiary's former wife for alimony and for support of the beneficiary's child. In that case the court adopted the rule stated in 1 Restatement, Trusts, § 157, which reads in part as follows:

' § 157. Particular Classes of Claimants.

'Although a trust is a spendthrift trust or trust for support, the interest of the beneficiary can be reached in satisfaction of an enforceable claim against the beneficiary,

'(a) by the wife or child of the beneficiary for support, or by the wife for alimony;'

The defendant bank concedes that the Cogswell case is controlling in the case at bar, but asks us to overrule it on the ground that it is inconsistent with our own cases recognizing the testator's privilege to dispose of his property as he pleases and, further, that it is inconsistent with various Oregon statutes expressing the same policy of free alienation. If we should accept the premise urged by the defendant bank, that a testator has an inviolable right to dispose of his property as he pleases subject only to legislative restriction, the conclusion is inevitable that the testator may create in a beneficiary an interest free from all claims, including those for support and alimony.

But the premise is not sound. The privilege of disposing of property is not absolute; it is hedged with various restrictions where there are policy considerations warranting the limitation. Seidenberg v. Seidenberg, 1955, 96 U.S.App.D.C. 245, 225 F.2d 545, commented upon in 10 S.W.L.J. 228 (1956); England v. England, 1922, 223 Ill.App. 549; Safe Deposit & Trust Co. of Baltimore v. Robertson, 1949, 192 Md. 653, 65 A.2d 292; In re Stewart's Estate, 1939, 334 Pa. 356, 5 A.2d 910; In re...