Equity Jurisdiction, To reach and apply equitable assets. Trust, Construction of instrument creating trust.
By the provisions of an agreement in compromise of a controversy concerning a will, approved by a decree of the Supreme Judicial Court, a trust of the residue of the estate was established, and it was provided that the net income of that residue should be divided equally among the children of the testator, payment to be made semiannually during the life of each, and "in the event that any child shall die at a time intermediate between said payments, said trustees shall pay to the legal representatives of such child a proportionate part of said income," and that upon the death of any of such children, a proportional share of the principal should be paid "to the executor or executors of such deceased child to be disposed of as provided in his or her will, or, if such child shall die intestate, to his or her legal representatives to pass or be distributed under the statutes of descent and distribution then in force in this Commonwealth." In the will the testator expressed his intention that "each of said children, his or her executors or legal representatives, may eventually receive an equal share of my estate not given or devised to others than said children." One of the children was adjudicated a bankrupt more than four months after having made certain assignments of his interests in such trust for the benefit of creditors, in the first of which he covenanted and agreed to execute a will by which his interest should be "devised and bequeathed . . . to the protection of all his creditors." At the time of the adjudication there were outstanding against his interest as beneficiary under the trust attachments more than four months old. His trustee in bankruptcy brought a suit in equity to reach and apply his interests in the trust. Upon demurrer by the bankrupt, it was held, that
(1) The bankrupt had an equitable life interest and an equitable interest in remainder under the trust which, subject to the provisions of the compromise agreement and to the prior rights of the assignees and the attaching creditors, under G.L.c. 214, § 3, cl. 7, could be reached and applied to the payment of the bankrupt's debts by this suit in equity by the trustee in bankruptcy;
(2) The question, whether the plaintiff could call for a termination of the trust, especially without the consent of the bankrupt, was not raised by the demurrer to the bill;
(3) The right of the plaintiff under the provisions of the national bankruptcy act to take possession of and to sell all the property of the bankrupt did not preclude him from maintaining this suit in the State court to obtain possession of the bankrupt's interest in property in the possession of the trustees under the will;
(4) The assignees and the attaching creditors, having liens prior in date to the plaintiff's rights as trustee in bankruptcy, were necessary parties;
(5) The bill raised no question as to the administration of the estate in the bankruptcy court;
(6) An accounting by the trustees asked for by the bill was merely incidental to the relief sought and was not an infringement upon the jurisdiction of the Probate Court as to accounting by the trustees;
(7) Irrespective of the exercise by the bankrupt of the power of appointment, the plaintiff could reach and apply certain interests of the bankrupt in the trust fund;
(8) In determining whether the bill was demurrable, it was not necessary to decide the issues raised by an alleged ground in the demurrer, "The trustee in bankruptcy cannot exercise the power of appointment — that being a personal privilege, and not a property right. If the power of appointment is not exercised, then the principal of the trust fund vests in such person or persons as may be the heirs at law of [the bankrupt] . . . as of the date of his death, and those persons cannot be determined in his lifetime;"
(9) The effect of the bankrupt's covenant in the first assignment for the benefit of creditors, to execute a will by which his interest should "be devised and bequeathed . . . to the protection of all his creditors," was not before the court upon the demurrer.
De COURCY, J.
This bill in equity, by the trustee in bankruptcy of Benjamin P. Cheney, against said Cheney and the trustees under the will of Benjamin P. Cheney, senior, is brought mainly for the purpose of obtaining possession of the interest of the bankrupt in the trust estate, for the payment of his debts. All other beneficiaries and parties interested in the trust and all prior assignees and attaching creditors of the bankrupt are joined as defendants. The single justice overruled the demurrer of the defendant Cheney and reported to the full court the questions raised by the demurrer.
In 1895 Benjamin P. Cheney, father of the bankrupt, died testate. While an appeal was pending from the decree of the Probate Court allowing the will, a compromise agreement was executed. A single justice of this court on March 27, 1896, found the agreement to be "just and reasonable" and ordered a decree confirming it. That decree has not been reversed. The ninth paragraph of the agreement of compromise provided that the net income of the residue of the estate should be divided equally among the children of the testator, payment to be made semiannually during the life of each, and "in the event that any child shall die at a time intermediate between said payments, said trustees shall pay to the legal representatives of such child a proportionate part of said income." It further provided for the payment of a proportional share of the principal, upon the death of any child, "to the executor or executors of such deceased child to be disposed of as provided in his or her will, or, if such child shall die intestate, to his or her legal representative to pass or be distributed under the statutes of descent and distribution then in force in this Commonwealth."
It is alleged in the bill that prior to his bankruptcy the defendant Cheney made certain assignments of his right to receive income; that the annual net income accruing from the interest of said bankrupt at present amounts to about $32,000; and that there are also outstanding attachments of his interest in the trust estate, made more than four months previous to the filing of the petition in bankruptcy. In the case of Woodard v. Snow, 233 Mass. 267, where the validity of one of these assignments was in question, it was held that Cheney had "a vested assignable expectant interest in the income," and that "The right of Cheney and the right of the assignee to receive the income of the trust fund was a present, equitable right of ownership which ripened into an ordinary property right when the income, accumulated in the hands of the trustee, became payable under the terms of the trust." It follows that the income, held and to be received by the trustees of the trusts created under said will and agreement of compromise for the benefit of the defendant Cheney, — subject to the rights of said assignees and attaching creditors, — can be reached in equity and applied to the payment of his debts.
Under the agreement of compromise the defendant has an absolute right to dispose by will of the trust estate held for his benefit during life. If he should die intestate, this fund will go to his "legal representatives." From similar language used elsewhere in the will and agreement, and from the expressed intention of the testator that "each of said children, his or her executors or legal representatives, may eventually receive an equal share of my estate not given or devised to others than said children," presumably this fund will be treated as general assets of his estate if he should fail to make a will. See Sargent v. Sargent, 168 Mass. 420. In any event, he has the right to receive the whole income, and has also the absolute jus disponendi of the principal. The vested equitable remainder, as well as the equitable life estate, can be reached in equity under R. L. c. 159, § 3, cl. 7 (see now G.L.c. 214, § 3, cl. 7), and applied to the payment of his debts. Sparhawk v. Cloon, 125 Mass. 263. Daniels v. Eldredge, 125 Mass. 356. Alexander v. McPeck, 189 Mass. 34. See Shattuck v. Burrage, 229 Mass. 448. And his interest can be reached by his trustee in bankruptcy. U.S. St. 1898, c. 541, § 47a. Clarke v. Fay, 205 Mass. 228, 236.
Considering now the specific grounds of the defendant Cheney's demurrer: The first and fifth are disposed of by what has been said. As to the second and tenth: the question whether the plaintiff can call for a termination of the trust, especially without the consent of the defendant, is not before us at this time. See Young v. Snow, 167 Mass. 287, 289; Sears v. Choate, 146 Mass. 395. The right of the trustee in bankruptcy to sell all the property of the bankrupt does not preclude him from coming into this court to obtain possession of the bankrupt's interests now in the possession of the defendant trustees. This is sufficient answer to the third and fourth. The sixth, seventh and eighth are answered by the fact that these are necessary parties, as their rights are involved in the suit. The ninth is directed to the administration of the bankrupt's estate, a subject not raised by the plaintiff's bill. The accounting referred to in the twelfth ground is merely incidental to the relief prayed for. The eleventh raises issues that need not now be determined in considering whether the bill is demurrable. Irrespective of the exercise of the power of appointment the plaintiff can reach and apply certain interests of the bankrupt in the trust fund. We may add that the effect of the defendant's covenant in his agreement of April 10, 1914, with Woodard and others, to execute a will by which his interest should be "devised and bequeathed . . . to the protection of all his creditors," is not now before us.
The decree overruling the demurrer of the defendant Cheney is to be affirmed.
Ordered accordingly.