Welsh v. Campbell

• Decision Date: 23 June 1955
• Docket Number: NO. 2991.,2991.
• Citation: 41 Haw. 106
• Parties: RICHARD D. WELSH v. ALICE KAMOKILA CAMPBELL, AND JAMES L. COKE, ALAN S. DAVIS AND FREDERICK OHRT, TRUSTEES UNDER THE WILL AND OF THE ESTATE OF JAMES CAMPBELL, DECEASED.
• Court: Hawaii Supreme Court

41 Haw. 106

RICHARD D. WELSH

v.ALICE KAMOKILA CAMPBELL, AND JAMES L. COKE, ALAN S. DAVIS AND FREDERICK OHRT, TRUSTEES UNDER THE WILL AND OF THE ESTATE OF JAMES CAMPBELL, DECEASED.

NO. 2991.

Supreme Court of the Territory of Hawai‘i.

Argued March 30, 1955.

Decided June 23, 1955.

RESERVED QUESTION FROM CIRCUIT COURT FIRST CIRCUIT, HON. H. R. HEWITT, JUDGE.

Syllabus by the Court

Common law is the unwritten law based on judicial decisions applying the principles of justice, reason and common sense. It consists of principles and not set rules and admits of different applications under different conditions. It is not arrived at by slavishly following current English decisions but is declared by the highest court of each State and may vary in the several States and Territories. The courts of Hawaii have and do declare the common law of Hawaii just as do the courts of the several States.

In the broad sense common law includes equity whose rules, where there are no provisions in the written law, are arrived at by applying the same principles of justice, reason and common sense.

A spendthrift trust is valid in the Territory of Hawaii.

F. D. Padgett ( Robertson, Castle & Anthony with him on the briefs), for garnishees-appellants.

R. D. Welsh ( B. Kanbara with him on the brief), for plaintiff-appellee.

TOWSE, C. J., STAINBACK AND RICE, JJ.

OPINION OF THE COURT BY STAINBACK, J.

Plaintiff filed an action in assumpsit against the defendant, joining the trustees of the Estate of James Campbell as garnishees. The trustees filed their disclosure and moved for an order discharging them by reason of the spendthrift trust provisions of the will of James Campbell. The defendant filed no answer and an order of default was entered against her. On plaintiff's motion the circuit court reserved to this court for determination the question raised by the motion of the trustees to discharge them by reason of the spendthrift trust.

There is no dispute that James Campbell intended to place the income from his trust estate beyond the reach of creditors of the beneficiaries. The sole question is whether this provision is contrary to law or public policy.

A trust may be defined as the right, enforceable solely in equity, to the beneficial enjoyment of property the legal title to which is vested in another.

A spendthrift trust is defined as one created to provide a fund for a beneficiary and at the same time secure it against his improvidence or incapacity. It is an active trust with provisions against alienation of the fund or property by the voluntary act of the beneficiary or through legal process by creditors.

The modern trust had its counterpart in a device in the early days of the Roman Empire where the legal rule was that a testator could not direct the devolution of his property beyond the first taker who was held to receive an absolute fee in the subject matter of the gift. If a testator desired that a second person should receive a benefit from his property he was obliged to place his confidence or trust in the good faith of the primary beneficiary who, however, could not be held legally accountable though the third person might have a moral claim upon him. The Emperor Augustus directed that the consuls use their power to enforce these moral rights, “and these powers later devolved upon a special officer known as fidei commisarius.” (In re Coutts' Will, 249 N. Y. Supp. 788; 4 Kent Comm. 290; Perry, Trusts, 6th ed., § 2.)

This device under the doctrine of “uses” was apparently first introduced into England by the clergy for the purpose of evading the statutes of mortmain. However, there were so many abuses of the system of uses that finally the Statute of Uses (27 Henry VIII c) was enacted to make the owner of the use the owner at law as well as in equity. As is well known, this statute did not accomplish what was intended and courts of equity enforced a use upon a use under the name of a trust so that a trust was a use not executed by the statute, or what a use had been before the statute.

As the early restraints on alienability, particularly of lands, were gradually being removed, the system of restraints on alienation grew up under trusts and statute.

In the earliest days of feudal times no transfer of lands could be made without the license of the overlord. (1 Pollock and Maitland, History of English Law, 310-330.) Then by estates tail (arising after the Statute of De Donis 1285) lands were limited to the descendents in such a way that the family would be perpetuated and no individual could dispose of the entailed lands. However, the reaction to this situation found expression in the courts in Taltarum's Case, Y. B. 12 Ed. IV 19, whereby a tenant in tail could bar the interests of his descendents.

To counteract this the landowners developed a new device known as the strict settlement, but this was defeated when the courts invented the rule of perpetuities which rendered it impossible for one to make his property inalienable beyond the time of life or lives in being and 21 years thereafter.

Again, as the early English rule of common law that land could not be subjected to execution by creditors in satisfaction of their claims was abolished, in lieu thereof there grew up (particularly in America) homestead exemptions, insurance, tools of one's trade and other statutory exemptions from execution by creditors.

In more modern times the doctrine of married women's equitable estates and discretionary and spendthrift trusts acted as restrictions over alienation but the various statutes enlarging the rights of married women have rendered unnecessary the creation of women's equitable estates. Finally, the legislatures in some States have enacted statutes providing for the legality of spendthrift trusts and in some cases limiting the amount of income that may be received free from the claim of creditors and certain types of claims such as alimony, torts, etc.

Thus the struggle between attempted restraints upon alienation for the preservation of family fortunes and the doctrine that he who has the beneficial rights of property should have the responsibilities and liabilities of the owners thereof continues. By a strange quirk the decisions in England, home of the aristocrats and landed gentry, have departed more and more from the doctrine of protecting the family fortune while America, home of democracy and rugged individualism, has gone further and further toward the preservation of family fortunes.

While the great weight of authority in America upholds the validity of spendthrift trusts, there are some States where the contrary is held.

“Although there is some dissent from this view, the validity of spendthrift trusts, at least those protective of the income of trust estates against the creditors or grantees of the beneficiary, is upheld by the great weight of authority in this country * * *. The tendency has been away from the minority view denying the validity of such trusts and toward the adoption, either by statute or judicial decision, of the view upholding their validity. * * *” (54 Am. Jur., Trusts, § 152, pp. 126, 127.) (See also 1 Restatement, Trusts, § 152; Griswold, Spendthrift Trusts, § 58; 1 Scott, Trusts,§ 152.)

The reasoning of those upholding and those declaring spendthrift trusts invalid range all the way from the Pennsylvania cases -- one of which makes the sweeping assertion that “Whoever has the right to give, has the right to dispose of the same as he pleases. Cujus est dare ejus est disponere, is the maxim which governs in such case.” (Ashhurst v. Given, 5 W. & S. 323, 330); and another which states “It is always to be remembered that consideration for the beneficiary does not even in the remotest way enter into the policy of the law; it has regard solely to the rights of the donor.” (Morgan's Estate, 223 Pa. 228, 230, 72 Atl. 498, 499) -- to the statement of Fairman in “Mr. Justice Miller and the Supreme Court,” (pp. 321-323) that a spendthrift trust is a “contrivance for the protection of wastrels.”

Griswold, in his book Spendthrift Trusts, has reviewed most exhaustively the decisions and status of spendthrift trusts in all jurisdictions. While he has criticised very severely what he calls the confusion and ignorance that gave rise to the growth of such trusts in the last eighty years, in the second edition he repeats the statement in the preface of the first edition that “A large proportion of all trusts today are spendthrift trusts.” He recognizes that since Nichols v. Eaton, 91 U. S. 716, 23 L. Ed. 254, decided in 1875, there has been a trend in most jurisdictions in the United States favorable to the validity of spendthrift trusts, which trend has been the result partly of judicial decision and partly of statutes.

In his book on spendthrift trusts Griswold points out that the doctrine holding spendthrift trusts valid was first announced in Nichols v. Eaton, 91 U. S. 716, 23 L. Ed. 254, decided in 1875. Griswold sets forth that the “dictum” in Nichols v. Eaton arose because of a confusion arising from the lack of equity courts, and any lack of equity powers in the law courts, in Pennsylvania in the early part of the nineteenth century. He also attributes the growth of spendthrift trusts to the influence of statements made by Perry, Trusts.

As showing the growth of spendthrift trusts subsequent to the case of Nichols v. Eaton, supra, Griswold quotes from Perry's work on Trusts from the first edition (1872) as follows: “Trusts cannot be created with a proviso, that the equitable estate, or interest of the cestui que trust, shall not be alienated or charged with his debts.” The second edition (1874) states: “If an absolute equitable interest is given to a cestui que trust, no restraints upon alienation can be imposed. But a trust may be so created that no interest vests in the cestui que trust; consequently, such interest cannot be alienated, as where property is given to trustees to be applied in...