Lynch v. Lynch et al

Full title: LYNCH v. LYNCH ET AL

Court: Supreme Court of South Carolina

Date published: Jun 9, 1931

161 S.C. 170 (S.C. 1931)

159 S.E. 26

Opinion

13169

June 9, 1931.

Before DENNIS, J., Florence, 1930. Affirmed.

Action by Willie S. Lynch, Jr., against W.S. Lynch, Essie B. Lynch and others. Decree for plaintiff and defendant E.B. Lynch appeals.

The decree of Judge Dennis is as follows:

Seeking a judicial construction of a deed executed by J. C. Lynch to W.S. Lynch, trustee, on March 12, 1929, for the recited consideration of $5.00, and an injunction restraining the sheriff of Florence County from selling any of the lands therein described under an execution issued on November 25, 1929, and levied on December 18, 1929, to satisfy several judgments recovered by Essie B. Lynch against W.S. Lynch at various times between January 6, 1927, and November 23, 1929, the plaintiff by his complaint alleges that, under the express terms of the deed, as soon as the property therein conveyed was levied on under an execution and advertised for sale to enforce a debt of W.S. Lynch, all interest of W.S. Lynch, either as trustee or otherwise, immediately determined, and the property thereupon became vested in fee simple in the plaintiff, Willie S. Lynch, Jr. This contention is based upon the following provision of the deed found immediately after the description of the property conveyed:

"And the above described land is to be held by W.S. Lynch, Trustee, for the use and benefit of himself and my grandson, Willie S. Lynch, Jr., to occupy or rent same, or should the said W.S. Lynch so desire, he may sell and dispose of same either at private or public sale and re-invest the funds derived from the sale thereof, subject to the same conditions, or should it become necessary in his opinion, he may use the funds derived therefrom, either from rents, sale or mortgage, for the use of himself and my said grandson, or solely for himself, but should the same be not disposed of at the time of the death of the said W.S. Lynch or should there be remaining any funds from the sale of the property hereinabove described, then it is to go to my said grandson, Willie S. Lynch, Jr., his heirs and assigns forever. And should any creditor undertake to enforce the collection of any debt of whatsoever nature against this property or any interest therein which W.S. Lynch acquires hereunder, then and in such case, the property shall immediately pass to my said grandson, Willie S. Lynch, Jr., his heirs and assigns.

"Together with all and singular rights, members, hereditaments and appurtenances to the said premises belonging or in anywise incident or appertaining.

"To have and to hold, all and singular the said premises before mentioned unto the said W.S. Lynch, Trustee, his successors, heirs and assigns, forever, subject to the terms and conditions hereinbefore set forth."

In order to prevent a sale before a final determination of the rights of the parties, after due notice to all defendants, plaintiff moved before me for an injunction staying further proceedings, looking to a sale of the property during the pendency of the action. None of the defendants either appeared or filed any return at the time appointed for the hearing of plaintiff's motion except the defendant Essie B. Lynch, who by way of return interposed a demurrer alleging that the complaint states no cause of action, in that a proper construction of the deed set forth in full in the complaint shows that it grants to W.S. Lynch absolute fee simple ownership of the property therein described, subject to levy and sale to enforce the payment of his debts.

Without objection, the demurrer was presented and argued on its merits, along with the motion of the plaintiff for an injunction pendente lite, and, since a proper disposition of the motion for injunction and the demurrer, the matters now presented for determination, will be so largely decisive of the case, the questions involved had been given most careful consideration.

Defendant first contends that the deed must be construed by the rules governing spendthrift trusts, and that, since the estate granted to W.S. Lynch, properly construed, should be held to be a fee simple, it is incapable of protection against the claims of creditors by means of a spendthrift trust.

Though under what has been called the English rule, which was also the rule of the common law, followed in some of the American states, property cannot be withheld from subjection to the claims of creditors of the beneficial owner by the creation of a trust for his benefit, in the absence of some provision of defeasance, technically called "cessor," upon attempt of a creditor to subject the property to his debt, yet what is called the American rule has been adopted in most of the American states, apparently including South Carolina, and the validity of spendthrift trusts, either with or without a provision for a cessor, has been sustained, not out of any special anxiety of the law for the protection of the impecunious beneficiary, but rather to protect the donor's right of property and the right to choose the object of his bounty. There is an interesting discussion of the subject, with a review of the authorities, in the concurring opinion of Mr. Justice Cothran in the case of Spann v. Carson, 123 S.C. 371, 116 S.E., 427. See, also, Nichols v. Eaton, 91 U.S. 716, 23 L.Ed., 254; Sherman v. Havens et al., 94 Kan., 654, 146 P., 1030, Ann Cas., 1917-B, 394; Smith v. Towers, 69 Md., 77, 14 A., 497, 15 A., 92, 9 Am. St. Rep., 398, and note; Garland v. Garland, 87 Va., 758, 13 S.E., 478, 13 L.R.A., 212, 24 Am. St. Rep., 682, and note; Bland's Adm'r. v. Bland, 90 Ky., 400, 14 S.W. 423, 9 L.R.A., 599, 29 Am. St. Rep., 390, and note. It seems to be settled, however, that to be valid spendthrift trusts must successfully meet these requirements; the interest of the donee cannot exceed an equitable life estate in the income of the property, without title or right to the possession of the property itself; the legal title must be vested in a trustee, and the trust must be an active one.

Applying those tests, it is quite evident that the deed of J.C. Lynch does not create a spendthrift trust, nor do I think there was any effort to create one. The conveyance being to W.S. Lynch as trustee for himself and Willie S. Lynch, Jr., such beneficial interest as W.S. Lynch himself took was a legal estate, since no person can be both beneficiary and trustee for himself at the same time. Board of Directors v. Lowrance, 126 S.C. 89, 104, 119 S.E., 383, and the very first prerequisite is lacking, not to mention others equally obvious. Indeed, plaintiff expressly disclaims any attempt to create a spendthrift trust or any reliance upon such an interpretation of the deed.

Plaintiff relies, not upon the doctrine of spendthrift trusts, but upon the totally different and distinct doctrine of "cessor" or defeasance upon the happening of a specified contingency. Although a cessor is sometimes employed to terminate a spendthrift trust — indeed, under the English rule a cessor is necessary to give such a trust any validity — yet the two doctrines are wholly separate and distinct.

In the case of Van Osdell v. Champion, 89 Wis. 661, 62 N.W., 539, 540, 27 L.R.A., 773, 46 Am. St. Rep., 864, the distinction between spendthrift trusts and cessor is thus indicated: "The authorities are very generally agreed that property cannot be conveyed, devised, or bequeathed with a restriction against it, or any portion of it, going to assignees in bankruptcy or in any form to creditors, although a grant may be made which shall be determinable by way of cessor, or by limitation of the estate over to another upon the occurrence of a certain event; such as insolvency, bankruptcy, or the occurrence of any other act or event arising or growing out of the conduct or neglect of the grantee or devisee. The bounty of a grantor or testator may, however, be secured to another by means of a trust — a `spendthrift's,' as it is sometimes called; so that the periodical income of the estate cannot be anticipated by the cestui que trust, but may be paid to him from time to time, beyond the power of creditors to intercept or reach it."

In the case of Kessner v. Phillips, 189 Mo., 515, 88 S.W., 66, 68, 107 Am. St. Rep., 368, 3 Ann. Cas., 1005, it is said: "The English rule, which has been adopted in most of the states of this Union, is that it is against the policy of the law for the grant to be so limited that a donee shall have the possession and enjoyment of the property, but shall not have the power of alienation, or that the property shall not be liable for his debts. Under the English law it is competent to make the estate determinable, as upon the bankruptcy of the donee, in which event the estate is to revert to the donor, or to some person specified in the grant. In such case the creditor is deprived of the estate by the act which deprives the donee thereof. But where no such provision for the determination of the estate is contained in the grant the property will pass to the assignee in bankruptcy."

In the separate concurring opinion in Spann v. Carson, 123 S.C. 394, 116 S.E., 427, 435, in the course of a discussion of spendthrift trusts, it is said: "It is no reply to the conclusion I have arrived at to invoke the doctrine announced in Symmes v. Cauble, 85 S.C. 435, 67 S.E., 548, which has been technically referred to as the doctrine of `cessor'; that is a provision that, if the interest of the beneficiary should be attempted to be subjected to his debts, it should `cease' and vest in another. That arrangement is perfectly valid, but it does not follow that it is exclusive."

That property may be withheld from the claims of creditors under the law of this state by means of a cessor is not open to question, and while in the case of a spendthrift trust, in order to save the property from the claims of creditors, the estate of the beneficiary must be equitable, yet, if a provision of defeasance or cessor is adopted, the estate may be either legal or equitable.

In the case of Heath v. Bishop, 4 Rich. Eq., 46, 55 Am. Dec., 654, the Court stated the law of the subject in this way: "A testator or donor may give property with a limitation or condition annexed, that it shall revert, or pass to some third person, on the bankruptcy or insolvency of the first taker, or on an attempt by a creditor to subject it to the payment of his debts; and such a limitation would be valid. Or in cases of trust, by the machinery of a shifting use, or a power of revocation, the estate might be made to pass away from the first taker, upon the same or any other contingencies within the period prescribed against perpetuities. It is obvious that such cases as these constitute no exception. For the very circumstances that cause the equitable estate of the debtor to be liable, cause it also to pass from him and cease to be his property. In the instances supposed, the insolvency of the debtor, or the attempt of the creditor to make the property liable, destroys the debtor's estate. When the creditor stretches forth his hand to grasp it, it eludes him and flits away like a shadow."

In the case of Symmes v. Cauble, 85 S.C. 435, 67 S.E., 548, 549, the estate of the beneficiary was equitable, but was limited "until some attempt be made to attach, levy upon or sell the interest of the said J.O. Cauble in the said trust estate * * * and upon said attempt being made for any of the purpose aforesaid, the interest of the said J. O. Cauble shall immediately cease and determine, and shall vest in the child or children of the said J.O. Cauble. * * *" Upon attempt to collect a judgment against J. O. Cauble out of the trust property, it was held that his estate determined and took effect in accordance with the limitation over.

In Jones v. Bellinger, 91 S.C. 1, 73 S.E., 1049; the estate conveyed was a legal life estate, with a proviso "that if at any time any creditor or creditors shall attempt to subject the life estate hereby conveyed to the payment of the debts of either of said life tenants, then and in that case the estate, right, title and interest shall immediately cease and determine, and all of his or her interest and estate herein shall pass and vest in the other life tenant of them living, and if dead, then the remainder shall vest immediately and absolutely in the remaindermen." There was a threat to enforce a debt against the interest of the surviving life tenant, and it was held that the estate of the life tenant immediately determined and the title vested in the remaindermen in fee simple, that "the creditor had the right to terminate his (the life tenant's) estate, and that was the extent of their power. They had no right to make the estate or any part of it their own."

Counsel for defendant contend that the principles announced in these cases are inapplicable for the reason, as they insist, that the estate granted to W.S. Lynch is a fee simple, and that the attempt to limit the estate over to Willie S. Lynch, Jr., is void, because it violates the rule that a fee cannot be limited after a fee in a common-law conveyance. While of the opinion that the estate granted to W.S. Lynch is not a fee, as later pointed out, still, if it be conceded that it is a fee, the attempted limitation over does not violate the rule invoked. If a fee, it is a defeasible fee with a limitation over by way of substitution upon the happening of the condition of defeasance, which is entirely permissible. "This is not a fee mounted upon a fee, but a fee to take effect in place of, or by substitution for, another which depended upon a contingency." Smith v. Clinkscales, 102 S.C. 227, 85 S.E., 1064, 1066. See, also, Davis v. Hodge, 102 S.C. 178, 86 S.E., 478; Wilson v. Poston, 129 S.C. 345, 123 S.E., 849; Drummond v. Drummond, 146 S.C. 194, 143 S.E., 818.

It is further insisted, based upon the assumption that the grant to W.S. Lynch is a fee, that there cannot be a cessor when the first taker is given a fee, but only when he receives a life estate at most. Although the estates held to be defeated in the cases of Symmes v. Cauble, 85 S.C. 435, 67 S.E., 548, and Jones v. Bellinger, 91 S.C. 1, 73 S.E., 1049, were life estates, yet there was no indication by the Court in either case that a cessor cannot be operative beyond a life estate, nor after some investigation of the authorities generally have I found any such limitation upon the rule. Indeed, the logical result of holding that a cessor cannot extend beyond a life estate would seem to be that there cannot be a grant of a fee defeasible at all, which, of course, will not be contended. I can conceive of no sound or logical reason why any admittedly valid condition of defeasance, such, for example, as leaving no issue at the time of death, as in Smith v. Clinkscales, 102 S.C. 227, 85 S.E., 1064, is not equally as inconsistent with, and as much in derogation of, a previously granted fee, as a defeasance upon the attempt of a creditor to subject the property to the payment of his debt.

But it is insisted that, if the property conveyed by the deed in this case is not subject to the debt of W. S. Lynch, it is equivalent to a conveyance with a complete exemption of the property conveyed from the debts of the grantee, and that it would also be a restraint upon the grantee's power of alienation, which cannot be accomplished because repugnant to the absolute and uncontrolled ownership and right of disposition inherent in a fee-simple estate. It, of course, will not be disputed that a conveyance with a mere proviso to the effect that the property conveyed shall not be liable for the debts of the grantee is void, for the reason that the continued enjoyment of property is not compatible with its nonliability for the debts of the owner; he cannot enjoy his property while holding off his creditors. But in a case like this he does not continue to enjoy his property while refusing to satisfy his creditor; to the contrary, he has absolutely lost his property because of his failure to satisfy his creditor. It may well be questioned if this deed contains any restraint upon alienation at all, since W.S. Lynch is given very broad powers of alienation, only restrained by the limitation that an attempt by a creditor of W.S. Lynch to subject the property to the payment of the debt will defeat his estate and result in the substitution of another as the holder of the title without further limitations or restrictions; yet, if the limitation in this deed operates as a restraint upon alienation, it is not an absolute and complete restraint for all purposes, as in the cases of Porter v. Couch, 141 U.S. 296, 11 S.Ct., 1005, 35 L.Ed., 721, and Kessner v. Phillips, 189 Mo., 515, 88 S.W. 66, 107 Am. St. Rep., 368, 3 Ann. Cas., 1005, cited by defendant, but only a partial restraint for a particular purpose, which appears to be permissible. In the case of Cowell v. Colorado Springs Co., 100 U.S. 55, 57, 25 L.Ed., 547, it was said: "But the answer is, that the owner of property has a right to dispose of it with a limited restriction on its use, however much the restriction may affect the value or the nature of the estate. Repugnant conditions are those which tend to the utter subversion of the estate, such as prohibit entirely the alienation or use of the property. Conditions which prohibit its alienation to particular persons or for a limited period or its subjection to particular uses, are not subversive of the estate; they do not destroy or limit its alienable or inheritable character. Sheppard's Touchstone, 129, 131."

An interesting discussion of the subject and the authorities on both sides of the question will be found in the cases of Koehler et al. v. Rowland et al., 275 Mo., 573, 205 S.W. 217, 9 A.L.R., 107, and Los Angeles Investment Co. v. Gary, 181 Cal., 680, 186 P., 596, 9 A.L. R., 115, and note at page 120. The weight of authority clearly supports the view that a limited restraint upon alienation for a particular purpose is not repugnant to the grant of a fee-simple estate.

Aside from these considerations, however, I am of the opinion that the grant to W.S. Lynch is not a fee, but only an estate for his life, or until some creditor seeks to subject it to a debt, with a power of sale and disposition, and that nothing passes under the clause conferring the power, unless it is exercised.

It is very clearly expressed in the premises of the deed that no estate of W.S. Lynch is to endure beyond his life, and that at his death the property will not descend to his heirs, and since the apparent enlargement of the estate by the use of words of inheritance in the habendum is coupled with the words, "subject to the terms and conditions hereinbefore set forth," the enlargement of the estate in the habendum must yield to the limitation in the premises. Smith v. Clinkscales, 102 S.C. 227, 242, 243, 85 S.E., 1064.

Indeed, I do not understand that defendant questions the ostensible purpose to grant no more than a life estate, but it is contended that, since such broad powers of sale of the property and disposition of the proceeds were granted to W.S. Lynch, it was inconsistent with anything other than unconditional fee-simple ownership, and to sustain this proposition defendant relies upon the case of Bank of Charleston v. Dowling, 52 S.C. 345, 29 S.E., 788, 805. In that case a wife devised all of her property to her husband in trust, but with unlimited powers in relation to the execution of the trust, or its non-execution, to be "managed, controlled, exchanged, sold, or otherwise disposed of at and by the discretion of the said Elijah H. Dowling, and without accountability therefor." Apparently the construction of the will was not necessary to the decision of the case, since it had already been determined that the transfers by which the wife had acquired the property were a fraud upon her husband's creditors, and could not stand, but, in order to further fortify its conclusion, the Court held that in any event the husband acquired absolute title to the property by the unrestricted control given him under the will; the extent of these powers being thus stated by the Court: "There is no provision, as is usual, if not universal, in such cases, that the proceeds of the property, if sold, or that any property for which it may be exchanged, shall be held subject to any trust; but he may sell it without accountability for the proceeds; he may exchange it for other property, for which he cannot be called upon to account; indeed, he may give it away, if he chooses, for he is invested with power not only to sell or exchange the property, but may, in his discretion, otherwise dispose of it, and cannot be called to account for so doing. In fact, he is invested with every right and power which the absolute owner can have, for he has absolute power to manage and control the property, and absolute power to sell, exchange, or otherwise dispose of it, `without accountability therefor'; and an absolute owner can have nothing more."

It is apparent that the extent of the powers of this case are not so extensive as those granted in the case of Bank of Charleston v. Dowling, supra. In case of a sale or disposition of the property, W.S. Lynch is directed to reinvest the funds subject to the same conditions, but with the power, "should it become necessary in his opinion," to "use the funds * * * for the use of himself and my said grandson, or solely for himself," and it is this authority to use the funds for himself which defendant says creates a fee simple. It will be observed, however, that this power cannot be exercised at his mere whim, without accountability therefor, but it is expressly limited by the necessity of the primary purpose of the grant, which without doubt was to provide a support for W.S. Lynch during his life. This could not mean what he arbitrarily deemed a necessity, but the alleged necessity would have to have some reasonable basis. Thompson v. Ins. Co., 63 S.C. 290, 41 S.E., 464; Furman v. A.C. Tuxbury Land Timber Co., 112 S.C. 71, 99 S.E., 111. Discretion vested in a trustee must be honestly and faithfully exercised, and it is not so unrestricted as to be beyond the power of judicial inquiry. 39 Cyc., 348-350, 352. A plainly arbitrary, unreasonable, or fraudulent exercise of the powers granted to W.S. Lynch would unquestionably have been restrained at the instance of Willie S. Lynch, Jr. It cannot be said here as in Bank of Charleston v. Dowling, supra, that the trustee by the terms of the grant is expressly made unaccountable to anybody for any of his acts.

The law seems well settled that a grant of a life estate with power of disposition of the property does not enlarge the life estate into a fee. In the case of Hardy v. Mayhew, 158 Cal., 95, 110 P., 113, 139 Am. St. Rep., 73, and the extensive note at page 82, will be found an exhaustive discussion of this question. The cases of Sires v. Sires, 43 S.C. 266, 21 S.E., 115, and Dye v. Beaver Creek Church, 48 S.C. 444, 26 S.E., 717, 59 Am. St. Rep., 724, are also to the same effect. See, also, the circuit decree in Bank of Charleston v. Dowling, supra, 52 S.C. 349, 29 S.E., 788. The power to dispose of the property not having been exercised while the estate of W.S. Lynch continued to exist, it is now no longer existent, and the limitation over takes effect just as if the power had not been conferred. Dye v. Beaver Creek Church, 48 S.C. 444, 26 S.E., 717, 59 Am. St. Rep., 724.

From a careful consideration of the terms of the deed and the purposes of the grant as disclosed by its terms, I find that the estate granted to W.S. Lynch was a life estate with a power of disposition; subject to defeasance, however, upon a creditor of W.S. Lynch undertaking to enforce the collection of his demand against the property conveyed.

But, whatever may be a proper construction of the deed, and whatever technical name we apply to the estate granted W.S. Lynch, the case of Forrest v. Jennings, 107 S.C. 117, 92 S.E., 189, seems to me to be conclusive against the right of a creditor of W.S. Lynch to subject this property to the payment of his debt. That case involved an effort by creditors of one W.L. Parkman, deceased, to subject to his debts property received by him under the will of his wife. The relevant portions of the will are set out in the opinion of the Court, and in construing its effect the Court said: "The second and third clauses of the will are consistent. Under the will he could use and enjoy it or sell it. Under the will he was given the use of the property with power to dispose of it during his life. Failure to sell or dispose of it while he was alive and exercise the power to do so during his life could not defeat the provisions of the will as to where it would go after his death. Then the property went under the terms of the will to the party named therein, and is in no way liable for the debts contracted by the husband in his lifetime. His failure to use the power conferred upon him by the will during his lifetime cannot be extended to pay his debts out of the estate after his death."

I also think the recent case of Blakely v. Blakely, 155 S.C. 123, 152 S.E., 24, tends strongly to support the conclusion reached. In that case the ninth item of the will of Wm. J. Fleming left certain property to his wife for the support of herself and her nephew, with broad discretion as to the management of the property, and with full power of disposition according to her best judgment, and in further explanation of her rights and powers the testator used the following strong language: "It is my express desire, will and wish that my said wife in the management of my estate shall not be held accountable to any one. I also give her, my said wife, full power and authority to dispose of such of my estate as may come into her possession and charge under this item of my will by will or otherwise, according to her best judgment. It is my purpose and intention by this paragraph of my will to confer upon my beloved wife full power and authority to do as she pleases with my said estate as may come into her hands or charge hereunder." The will then provided that whatever was left after death of his wife should go to certain designated beneficiaries. It was contended that Mrs. Fleming took a fee, and therefore had a right to convert the property into building up a personal estate of her own. The Circuit Judge held that she did not take a fee, that she took no interest other than the right to proper maintenance out of the property in accordance with her own ideas, and that she had no right to convert the property into building up an estate of her own so as to defeat the limitations over. The decree was affirmed on appeal, and the Supreme Court said: "We have made a careful study of the record in the case, and are satisfied with and approve the conclusions expressed by the Circuit Judge in his well-considered decree — with this explanation: We do not consider the capacity in which Mrs. Bettie Fleming held the estate passing into her hands, whether as trustee or otherwise, material; it is clear that she was given under the ninth item of the will its mere management for her proper support during her lifetime, with full power of disposition; and as she failed to exercise the powers granted, the estate remaining at her death passed under the will as decreed by the Court below. Under the construction given, item ten is preserved in accordance with the manifest intention of the testator."

Upon a careful consideration of the case and of all positions taken by counsel, I am of the opinion that the demurrer should be overruled and the injunction applied for granted.

It is therefore ordered that the demurrer of the defendant Essie B. Lynch be, and hereby is, overruled, with leave to answer the complaint at any time within twenty days after notice of the filing of this order.

It is further ordered that the defendants Essie B. Lynch and Thomas S. Burch, as sheriff of Florence County, be, and hereby are, enjoined and restrained during the pendency of this action, or until the further order of the Court, from levying upon, advertising, or selling the lands described in the complaint in this action, or from interfering with or asserting any right or claim against said lands or attempting to enforce out of said lands the collection of any judgment, decree, demand, or claim against W.S. Lynch.

It is further ordered that the plaintiff within ten days from the filing of this order enter into an undertaking, with sufficient surety, to be approved by the clerk of this Court, conditioned to pay to the parties enjoined such damages, not exceeding the sum of $500.00, as they may sustain by reason of this injunction, if the Court shall finally decide that the plaintiff was not entitled thereto.

Messrs. Willcox Hardee, for appellant.

Messrs. A.F. Woods and D. Gordon Baker, for respondent.

June 9, 1931. The opinion of the Court was delivered by

MR. JUSTICE STABLER.

This Court is satisfied with the conclusions of Judge Dennis and the reasoning on which they rest, and the Circuit decree, appealed from, is affirmed.

MR. CHIEF JUSTICE BLEASE and MESSRS. JUSTICES COTHRAN, CARTER and BONHAM concur.