The complaint alleges that the income of the trust estate is much greater than is necessary for the support of the defendant, Butterfield, and those dependent upon him, and prays that the surplus may be applied to the payment of the plaintiff's judgment.
Proof was given on the trial to the effect that the gross rental value of the real estate was about $4,000 per annum, and that the income of the personal property was $600 per annum, out of which taxes and insurance' were to be deducted. Some of the real estate was occupied by the defendant, Butterfield, and some was not let.
The judge, however, did not pass upon the question whether there was any surplus, but decided, 1st. That the plaintiff was entitled to have the amount fixed, which should be a reasonable allowance for the support and maintenance of the debtor and those dependent upon him with the right to the debtor to apply for a modification, if his circumstances should thereafter change. 2d. That the surplus over and above such allowance, whether accrued or hereafter to accrue, should be paid to the plaintiff, or a receiver to be appointed, until the debt of the plaintiff and his costs should be paid. 3d. That the plaintiff had the right to have ascertained what amount, if any, of accrued income belonging to the debtor was in a certain undivided fund referred to in the complaint, and that such surplus, if any, should vest in said receiver, and be applicable on said debt when collected by him; and 4th. That a referee should be appointed to ascertain and report what amount would be the reasonable allowance above referred to, and also as to the above surplus, and that on the coming in of his report a final decree be made.
The defendants excepted to this decision, and made a motion, under § 268 of the Code, for a new trial on a case and exceptions. This motion was denied at General Term, and from that order the defendants appeal to this court.
By I R. S. 729, § 57, it is provided that "where a trust is created to receive the rents and profits of lands, and no valid direction for accumulation is given, the surplus of such rents and profits beyond the sum that may be necessary for the education and support of the person for whose benefit the trust is created, shall be liable in equity to the claims of the creditors of such person in the same manner as other personal property which cannot be reached by an execution at law." 1
This provision is very plain, and there can be no question that the surplus income of the real estate, if there be any such surplus, is liable to be reached in some form by the creditors of the beneficiary. Most of the cases on the subject expressly hold this section equally applicable to a trust to receive and pay over the income of personal property, and no point is made on this appeal based upon any distinction between the two sources of the income in question.
1 See § 78, N. Y R. P. L. - En.
The right of a creditor to maintain an action of this description in cases of trusts of personal, as well as real estate, has been recognized since an early period after the adoption of the Revised Statutes. In Hallett v. Thompson, 5 Paige, 586, it is observed by the Chancellor that as a general rule it is contrary to sound policy to permit a person to have the ownership of property for his own purposes and to be able at the same time to keep it from his creditors. That the Revised Statutes have made one exception to this rule to the extent of a provision for education and necessary maintenance merely, but that in that case the beneficial owner is himself deprived of the power of aliening or encumbering the property or his interest in the rents and profits as cestui que trust, and the surplus income, beyond what is necessary for his support, is in equity subject to the claims of his creditors. And that by the analogy which courts of justice have always endeavored to preserve between estates or interests in land, or the income thereof, and similar interests in personal property, the right of a judgment creditor to reach the surplus rents and profits of land, beyond what is necessary for the support and maintenance of the debtor and his family, entitles him to maintain a creditor's bill which will reach a similar interest of the debtor in the surplus income of personal property held by another for his use and benefit; but not that part of the income which may be necessary for the support of the judgment debtor.
The right to maintain such an action as the present was also sustained by V. - C. Sandford in Rider v. Mason, 4 Sandf. Chy. Rep. 351, where § 57 of I R. S. 729, is applied indiscriminately to the income of real and personal property, and in Sillick v. Mason, 2 Barb. Ch. Rep. 79, wherein the chancellor made a decree allowing the defendant to receive out of the income of a trust fund, accrued and to accrue, a specific sum fixed by the chancellor as sufficient for his support, and directing the surplus to be retained for the benefit of the creditor.
In Bramhall v. Ferris, 14 N. Y. 41, the remedy of the creditor to reach such a surplus by bill in equity, was also conceded, though that case was disposed of on the grounds that there was no allegation or proof that the income was larger than necessary for the support of the debtor and his family, and also that there was a provision in the will that the interest of the cestui que trust should cease on the recovery by creditors of a judgment to reach it, which provision was held to be valid. The same right is also conceded in Scott v. Nevius, 6 Duer, 672, and in Graff v. Bonnett, 31 N. Y. 9.
It is contended, however, that the case of Campbell V. Foster, 35 N. Y. 361, is an authority for the position that no part of the interest of the cestui que trust in such income can be reached, and it is true that Wright, J., in that case, stated it to be his individual opinion that it could not. His argument is, that §§ 38 and 39 of 2 R. S. 173, except from operation of creditors' bills funds held in trust for the debtor, when the trust proceeds from a third person.1 That § 63 of I R. S. 730, which provides that no person beneficially interested in a trust for the receipt of the rents and profits of lands, can assign or in any manner dispose of such interest, renders the interest of the beneficiary in a trust to receive and apply the income of personal estate inalienable, and therefore it cannot pass to creditors.2 But he says it is not necessary to pursue the inquiry, whether the surplus can be reached; that his own opinion is that it cannot, but he says, "let that pass and let it be conceded that if there be any surplus, it may be taken. It has been held, and correctly, that such surplus is not ascertainable in supplementary proceedings to discover and appropriate the debtor's property, but only in a suit where the issue is directly made on the amount necessary for the debtor's support. If there were an accumulation in the hands of the trustee, it might possibly have been reached under § 294. But a receiver in supplementary proceedings cannot maintain a suit to reach so much of the income of a trust fund as is not required for the suitable support of the debtor."