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MATTER ACCOUNTING CHEMICAL BANK NEW YORK TRUST COMPANY (07/02/69)

COURT OF APPEALS OF NEW YORK 1969.NY.42430 <http://www.versuslaw.com>; 250 N.E.2d 343; 25 N.Y.2d 163 decided: July 2, 1969. IN THE MATTER OF THE ACCOUNTING OF CHEMICAL BANK NEW YORK TRUST COMPANY, AS SURVIVING COTRUSTEE OF THE TRUST UNDER THE WILL OF CHANCE M. VOUGHT, DECEASED, RESPONDENT. HAROLD BROWN ET AL., APPELLANTS; CHEMICAL BANK NEW YORK TRUST COMPANY, AS SURVIVING COTRUSTEE, RESPONDENT; ALEXANDER HALPERN, AS EXECUTOR OF CHANCE M. VOUGHT, JR., DECEASED, ET AL., RESPONDENTS Matter of Vought, 30 A.D.2d 805, affirmed. Counsel Copal Mintz, Edmund W. Bokat and Leo Praeger for Harold Brown and others, appellants. Samuel M. Sacher, Bernard B. Jacobs, in person, and Philip J. Kassel for Bernard B. Jacobs, as special guardian for infants and another, appellants. Counsel Ralph Bernstein for Alexander Halpern, executor of Chance M. Vought, Jr., deceased, respondent. Counsel Edward Cherney for Delaware County National Bank, guardian for Craig Vought, an infant, respondent. Henry L. Ughetta II and James S. Brown, Jr. for Edith Haig Wilson, respondent. John R. Fernbach, as special guardian for Chance M. Vought, III, an infant, in person, and Jay D. Kramer for John R. Fernbach, respondent. Simon B. Gluck for Eugenie A. Vought, respondent. Frederick Siegmund, as special guardian for Gay Vought and another, infants, respondent in person. Mitchell M. Bailey for Chemical Bank New York Trust Company, respondent. Judges Burke, Scileppi, Bergan and Jasen concur with Judge Brietel; Chief Judge Fuld dissents and votes to reverse in a separate opinion. Author: Breitel


Matter of Vought, 30 A.D.2d 805, affirmed.

Judges Burke, Scileppi, Bergan and Jasen concur with Judge Brietel; Chief Judge Fuld dissents and votes to reverse in a separate opinion.

Author: Breitel

 The assignees of the remainder interest of Chance M. Vought, Jr. in a testamentary trust created by his father appeal from an order and decree holding the assignments void. The Surrogate's Court, New York County, adjudged that the one-half remainder interest in the trust created under the will of the father vested indefeasibly in Chance M. Vought, Jr. upon the testator's death; that the will validly prohibited assignment of the principal of the trust; and that, therefore, the purported assignments of the principal were void and unenforceable. The Appellate Division unanimously affirmed without opinion (30 A.D.2d 805), and granted leave to appeal on three certified questions.

The main issue on this appeal is the alienability of a vested principal remainder limited upon an entrusted life estate where the settlor has specified in the creating instrument that the interests of all beneficiaries shall be inalienable.

The testator had created, by his 1930 will, trusts for the benefit of his parents, his wife, and two sons. A life income trust in favor of his widow was provided with direction that on her death the principal should be paid over in equal shares to his two sons. One of the sons, Chance, the namesake of his father, predeceased his mother by a little over a year and a half. He left a widow and children surviving. Since the remainder was vested it would, unless previously alienated, become an asset of Chance's estate. But during his and his mother's lifetime Chance executed a number of assignments of his interest in the remainder, three aggregating $1,100,000 and a fourth for the balance. The trust corpus in which Chance's remainder interest would be one half was valued on the present accounting at $1,857,876.20.

The courts below held that the remainder was vested and that the assignments were void because, under the will creating the trust, the remainder was not assignable.

The threshold question is whether the will by its terms bars alienation of principal. The pertinent portion of article Seventh reads: "the principal shall not be assignable, nor can the income or principal of said Trust funds become attached by garnishment or other legal proceedings while in the hands of the Trustees, except to the extent permitted by law." As found by the Surrogate and Appellate Division, the language evidences an intent by the testator that the principal be inalienable. The assignees' argument, namely, that the clause "except to the extent permitted by law" means that the principal is fully alienable because the law so permits, would render the "inalienability" provision meaningless, for so read it permits alienation as much as if the testator had specified alienability rather than its opposite. Given the settlor's manifest intention, the more difficult question involves the legal effect of the inalienability clause. The assignees, or their representatives, urge that the attempted restraint on alienation was itself illegal and, therefore, void, and consequently that the assignments, regardless of the testator's intention, are fully effective. They argue that at common law all life and remainder interests, equitable as well as legal, were alienable, and incapable of being rendered inalienable by the settlor, and that by virtue of statute alone are personal income trusts inalienable. They emphasize that the statute is explicit in providing that any beneficial interest is assignable except as provided in the statute, and that a restraint on alienation by the settlor of the trust is not included as one of the exceptions.

The precise question of whether a settlor has the power to make inalienable a principal remainder limited on an entrusted life estate is one of first impression. In this State, although there are many precedents which offer close analogies, they yield no conclusive or authoritative holding or doctrine. It is evident, however, that the prevailing weight of decisional authority in the Nation, based more or less on common-law principles, would sustain the restraint on alienation of a remainder limited on an equitable life interest, if so provided by the creator of the trust. Moreover, in policy, there are no persuasive modern reasons, and aside from conceptual and historical grounds for nullifying attempts at restraining alienation on transfers in fee absolute, no compelling legal ground why the creator's wishes must be ignored during the measured period involved. Consequently, it is concluded that the determinations of the Surrogate and the Appellate Division should be affirmed.

The testator died in 1930 and left a will executed that year. The trust in question provided that the testator's widow should be the life beneficiary of the income to be paid and applied to and for her use and benefit, and on her death the principal to be paid free of the trust in equal shares to testator's two sons, Chance and Peter. The widow died in 1965, and Chance, as noted earlier, died before his mother in 1964. From October, 1959 to August, 1960 Chance executed the assignments which purported to transfer entirely the remainder interest for prices undisclosed, but undoubtedly at a considerable discount.

Despite some 120 years of case law and a continuous succession of statutes commencing in 1828, there can be found no plain statutory prohibition of the creation of an inalienable equitable interest in the principal of a trust, nor any judicial holding rendering invalid such a provision for inalienability.

The earliest judicial decisions, all decided after passage of the legislative enactments, but dealing with trusts created before the enactments became effective, applied or referred to the "English" or "common law" rule. That rule, as developed in cases construing instruments made after 1775, New York's reception date (see N. Y. Const., art. I, ยง 14) made ineffective attempts to create inalienable trust interests. The cases actually involved only income trusts but were resolved on doctrine applicable also to remainders of principal (see, e.g., Brandon v. Robinson, 18 Ves. 429 [1811]; Green v. Spicer, 1 Russ. & M. 395 [1830]; Snowdon v. Dales, 6 Sim. 524 [1834]).

The citation by the New York courts of the English post-reception decisions demonstrates the lack of indigenous law on the subject. Even if the English cases be deemed declarative of English law existing, but not applied, prior to New York's reception date, they cannot be seriously considered as establishing in New York any substantial body of law, determinative of the rights and interests of a testator and his legatee either before the American Revolution, or as embodied in an instrument created in 1930.

Stripped of the English authorities, the leading case construing a trust created prior to the enactment of the statutes falls far short of establishing a comprehensive common-law treatment of alienability. Chancellor Walworth in Bryan v. Knickerbacker (1 Barb. Ch. 409 [1846]) held that a judgment creditor could reach the income interest of the beneficiary of a self-settled trust. Other references to the law prior to the statute rely on dictum rather than on the holding in the Knickerbocker case, and they, too, are decided on narrower grounds than their general language concerning inalienability might indicate. Thus, for example, Havens v. Healy (15 Barb. 296 [Cayuga Gen. Term, 1853]) held that a beneficiary's receiver in bankruptcy could reach portions of a trust to be paid the beneficiary in installments during the beneficiary's life. The trust contained no restricting language.

The status of inalienability clauses contained in trust instruments, for whatever reason, was never developed judicially by direct decisional holdings. Instead, there is only discussion of the general schemes of property law from which by a purely deductive process one may argue, as do appellants, that inalienability except for life income trusts is proscribed. The failure to confront the issue directly was undoubtedly due to the fact that from the earliest times the inalienability of income trusts was covered by statutes and ...


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