SPRING STREET CORPORATION v. WALSH CONNOR BARNESON

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District Court of Appeal, Second District, Division 2, California.

SPRING STREET CORPORATION v. WALSH, O'CONNOR & BARNESON et al.

Civ. 12414

Decided: April 23, 1940

Gibson, Dunn & Crutcher, by Norman S. Sterry, all of Los Angeles, for appellant. Llyod S. Ackerman, Philip S. Mathews, and Ackerman, Wayland & Mathews, all of San Francisco, for respondent.

The plaintiff has appealed from an order of the superior court directing the sheriff to release from the levy of a writ of attachment the interest of defendant H.J. Barneson in a trust known as the “Oakburn Trust”.

Respondent and his two brothers by trust indenture dated November 29, 1924, transferred to Bank of California National Association as trustee 3,885 shares of the capital stock of the Oakburn Company. According to the terms of the indenture, each trustor reserved the right to receive one-third of the income of the trust property during his lifetime and upon his death his share would go to certain other parties named. This indenture contained a spendthrift trust provision by which it was provided that the interest of each of the beneficiaries in the property would not be subject to any claim of a creditor.

Respondent was adjudicated bankrupt on June 8, 1933, and July 23, 1934, the trustee in bankruptcy sold to Harriet E. Barneson all of the right, title and interest of the trustee in bankruptcy in and to the property and income of the trust estate and sale was confirmed by court order. On October 29, 1935, Harriet E. Barneson executed a trust indenture by which she transferred to Bank of California National Association all the right, title and interest in and to the property and income of the trust estate which she had acquired by virtue of the sale to her by the trustee in bankruptcy. In this instrument she expressed the desire “to restore to said Harold J. Barneson all the right, title and interest which he heretofore had and enjoyed” under the trust indenture dated November 29, 1924. The trust indenture of October 29, 1935, contained a spendthrift provision as follows: “provided, however, and this indenture is expressly made subject to the condition, that said Harold J. Barneson and other beneficiaries of the trust created by this instrument and by said Trust Indenture, are, and each of them is, hereby restrained from disposing of or encumbering, in any manner, their respective interests, or any part thereof, in the trust hereby created, and in the property held subject to said trust and in the income thereof and in any part thereof, and the interest of said Harold J. Barneson and any other beneficiary of the property hereby transferred to said Trustee shall be held subject to the trusts hereby created, and the income thereof, while such property and income shall remain in the possession of the Trustee or in the possession of any successor thereof in the said trust, shall not be subject in any manner to any claim or claims of any creditors of said Harold J. Barneson and other such beneficiaries”.

Appellant commenced the present action on December 22, 1938, to recover a judgment for rent alleged to have accrued upon a lease of real property. A writ of attachment was issued and a copy of the writ with an attachment notice of garnishment was served upon the trustee bank. The sheriff's notice to the bank is as follows: “You will please take notice that all Moneys, Goods, Credits, Effects, Debts, due or owing and all right, title and interest in and to the benefits, assets, and all moneys held for or due or payable to Lionel T. Barneson and Harold J. Barneson, also known as H.J. Barneson, or either of them, or to John Barneson, in that particular trust formed on the 29th day of November, 1924, between Lionel T. Barneson, Harold J. Barneson, John Leslie Barneson, and others, as trustors and the Bank of California National Association, a national bank, trustee, which trust is also known as the Oakburn Trust, are attached by virtue of said writ and you are hereby notified not to pay over or transfer same to anyone but myself. You are hereby required to furnish me a statement, in accordance with Section No. 546, Sub. 4, 7, 6, (4 & 6) Code of Civil Procedure.” The bank withheld the income from the trust estate and respondent demanded of the sheriff that the attachment be released. Upon the failure of the sheriff to release the attachment respondent filed his motion in court for an order directing the sheriff to release the attachment, accompanied by an affidavit of respondent setting forth the facts above outlined.

In his written notice of motion respondent asked the trial court “* for an order determining that the entire right, title and interest of defendant H.J. Barneson in and to that certain trust known and designated as the ‘Oakburn Trust,’ which said trust was established, created and formed by an indenture in writing dated November 29, 1924, * is not subject to and is exempt from attachment, garnishment and all other process in said action, in whole and in part, and directing said sheriff of the city and county of San Francisco, state of California, to release such levy”. In the court's order granting respondent's motion it is provided: “The Motion of the defendant H.J. Barneson for an order determining that the entire right, title and interest of defendant H.J. Barneson in and to that certain trust known and designated as the ‘Oakburn Trust’, which said trust was established, created and formed by an indenture in writing dated November 29, 1924, * having come on this day regularly for hearing, * It Is Hereby Ordered that said motion of said defendant H.J. Barneson be, and the same is hereby granted and the Sheriff of the City and County of San Francisco, State of California, is hereby directed to release from the said levy of the said Writ of Attachment heretofore issued in the above entitled action any and all moneys, goods credits, effects or debts due or owing to, and all right, title, and interest in and to the benefits, assets and all moneys held by said The Bank of California, National Association, a trustee for said defendant H.J. Barneson, also known as Harold J. Barneson, in the said ‘Oakburn Trust’ *”

Respondent's motion was specifically directed at the Oakburn Trust of November 29, 1934, and was based upon the claim that this trust estate is exempt from attachment or garnishment. The court specifically directed the release of the interest of respondent in the Oakburn Trust. In this the court erred. Respondent was both trustor and beneficiary in the Oakburn Trust, in which he attempted to place the trust estate beyond the reach of his creditors and at the same time to reserve to himself the right to enjoy the income from the estate. For reasons of public policy the law does not permit him to bring about the result attempted by such means. McColgan v. Magee, Inc., 172 Cal. 182, 155 P. 995, Ann.Cas.1917D, 1050. The ruling of the court cannot be sustained on the theory that respondent's interest in the trust estate was transferred to the trustee in bankruptcy, for the motion was based upon the ground that the property is exempt from attachment or garnishment. If in fact all of respondent's interest passed to the trustee in bankruptcy the only conclusion to be reached is that nothing was attached or garnished. Manifestly a motion may not be granted to dissolve an attachment upon the ground that property is exempt from execution where no property has been affected by the process of the court.

If it be assumed that respondent's motion and the court's order were broad enough to cover the trust estate created by the trust indenture of October 29, 1935, executed by Harriet E. Barneson, nevertheless the ruling cannot be sustained. As heretofore shown, respondent cannot properly base his motion upon the indenture of November 29, 1924; and if he bases it upon the instrument of October 29, 1935, his rights are governed by the terms of the last mentioned instrument. Although Harriet E. Barneson provided in the instrument which she executed that respondent as beneficiary could not dispose of his interest in the trust estate, she did not provide that the corpus of the trust estate could not be subjected to the claims of creditors. The income only was exempted from creditors' claims.

During the course of the hearing in the court below appellant offered to prove that respondent did not need or require for his support or education all or any part of the funds constituting either the income or the corpus of the Oakburn Trust and that respondent had ample independent means and income sufficient for his support and education aside from any funds or income from the Oakburn Trust. This offer was properly rejected by the court. In making its offer of proof appellant relied upon section 859 of the Civil Code, wherein it is provided that the surplus of the rents and profits of a trust estate such as the one in question, “beyond the sum that may be necessary for the education and support of the person for whose benefit the trust is created, is liable to the claims of the creditors of such persons, in the same manner as personal property which cannot be reached by execution”. This section became effective with the enactment of the Civil Code in 1872. Before that time no part of the beneficiary's interest in the income of a spendthrift trust estate was in any manner subject to the claims of creditors. Seymour v. McAvoy, 121 Cal. 438, 53 P. 946. By section 859 that portion of the rents and profits of a spendthrift trust estate which is not necessary for the education and support of the beneficiary may be applied to the claims of the beneficiary's creditors; but the application must be made in the manner provided in the section. It is therein provided that the surplus is liable to the claims of creditors “in the same manner as personal property which cannot be reached by execution”. Section 859 created a new right and specified the manner in which the right can be enforced. In so doing it negatived the enforcement of liability to creditors in any other manner. The rule of expressio unius est exclusio alterius is applicable to the present situation. 23 Cal.Jur. 740, and cases cited.

By providing that the surplus is liable to the claims of creditors in the same manner as personal property which cannot be reached by execution the legislature evidently intended that the ordinary process of the court such as a writ of attachment cannot be invoked; otherwise there would be no occasion for the specific reference to personal property which cannot be reached by execution. The legislature doubtless intended that the proceedings supplementary to execution (Code Civ.Proc., sec. 714–721) can be used to enforce creditors' claims to the surplus. In Pacific Bank v. Robinson, 57 Cal. 520, 522, 40 Am.Rep. 120, it was held that “if there be property which cannot be reached by execution, and which the judgment debtor refuses to apply to the satisfaction of the judgment, he may be compelled, upon examination, in proceedings supplementary to execution, to deliver it in satisfaction of the judgment”. Section 859 of the Civil Code was taken substantially from a statute of the state of New York which had been in force many years. In Dittmar v. Boni, 60 App.Div. 94, 69 N.Y.S. 708, 711, a case involving that statute, the court in considering the words “in the same manner as other personal property, which cannot be reached by execution”, Rev.St.N.Y., 1829, pt. 2 c. 1, tit. 2, § 57, held that property which could not be reached by execution at law could be reached only “where a judgment has been recovered against a debtor, and an execution thereon has been issued and returned wholly or partly unsatisfied”. The court further held that until the execution had been returned the court was without jurisdiction to grant any relief whatever.

The order is reversed.

I concur in the judgment. However, I am not in accord with that portion of the opinion which holds that the court properly rejected the offer of proof of the necessities of the respondent. That offer was made for the purpose of proving the extent of the surplus of the assets over and above the needs of respondent. Sec. 859 of the Civ.Code. In the cases of the creation of such a trust any sum beyond that which “may be necessary for the education and support of” the beneficiary is liable to the claims of the creditors of such beneficiary in the same manner as personal property which cannot be reached by execution. The holding of the majority opinion on this point appears to be based upon the rule which excludes all others when one is mentioned. But the language of the section is that the surplus “is liable to the claims” of such creditors “in the same manner” as personal property which cannot be reached by execution. This could not mean that the surplus is not subject to garnishment.

What is intended by the section is that before the exact amount of the surplus can be ascertained, it is necessary to have a “supplemental proceeding” by means of which a judicial determination can be derived as to the exact amount of the surplus over and above the needs for support and education. If it had been the intention of the court to deny the motion to discharge the attachment on other grounds, it would then have been the duty of the court to hold a hearing on a supplemental proceeding, later to be invoked by the plaintiff in order to determine the amount of surplus remaining after reaching a determination as to the needs of the respondent.

The respondent, recognizing the virtue of said code section, averred in his affidavit that all of the income payable under the trust “is necessarily for the maintenance and support of affiant”. This was a conclusion and the plaintiff was entitled to have the truth of it ascertained by evidential facts. If “said surplus” in such a trust is available to the creditors of the beneficiary, no good reason appears why the creditors should not be entitled to a lien upon it before it shall have been dissipated. Under section 540 of the Code of Civil Procedure, a writ of attachment may be levied upon all the property of defendant not exempt from execution. It is true that sections 690.1 to 690.24 specify the particular properties that are exempt from execution. But in view of the language of section 540, there is no reason why the legislature under some other provision of the law cannot exempt other properties as in the case of property in custodia legis. Dickerman v. Ahern, 93 Cal.App. 166, 269 P. 180; Franchises, 15 Cal.Jur. 1020; Interests in Partnership, sec. 2419 Civ.Code. If the creditor be denied such lien, to that extent the exemptions of such beneficiary are extended in such an amount as the “surplus” of the trust may be diverted before an order can be made to subject it to execution after a supplemental proceeding. In view of the fact that a spend-thrift trust is created for the benefit of one whose talent for spending exceeds his talent for earning, this extraordinary privilege granted him by the law should not be multiplied by a too narrow construction of said section 859 in the cases of valid trusts.

WOOD, Justice.

I concur: McCOMB, J.

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