SEFTON v. SAN DIEGO TRUST SAVINGS BANK (1940)

This is an action in the nature of a creditor's bill to subject to the liens of two judgments the assets of four trusts in which Joseph W. Sefton, Jr., was either trustor or a beneficiary, or both. The San Diego Trust & Savings Bank was the trustee of each of the trusts. We will designate each by the number it bore on the books of the bank, namely, Trust No. 1, Trust No. 51, Trust No. 255 and Trust No. 256. It will also be necessary to consider Trust No. 93 in which Joseph W. Sefton, Jr., was trustor, the San Diego Trust & Savings Bank was trustee and Helen Thomas Sefton was beneficiary.

Plaintiff and Joseph W. Sefton, Jr., were married more than thirty years ago. An interlocutory decree of divorce was rendered in 1927 and a final decree in 1928. On January 26, 1928, before the entry of the final decree, the parties entered into a contract settling their property rights wherein Joseph W. Sefton, Jr., agreed to pay to plaintiff five hundred dollars per month during her lifetime, payments to terminate on her remarriage. Trust No. 93 was created to secure these payments to plaintiff.

Payments were made regularly under the contract until January 1, 1933. On November 18, 1932, plaintiff, in writing, agreed to a reduction of the payments to three hundred dollars per month for eighteen months, commencing in January, 1933. By another written contract dated August 30, 1934, she agreed to accept two hundred dollars per month for one year, commencing on September 1, 1934. Another written contract extended these provisions for a second year commencing on September 1, 1935. These reduced payments were made and accepted according to the terms of these contracts. Without written authorization Mr. Sefton continued making the payments of two hundred dollars per month for three or four months after September 1, 1936. Thereafter plaintiff brought suit against Mr. Sefton to recover the amount of the delinquent payments and on September 7, 1937, recovered judgment against him for $5,265.40. Execution was issued and returned unsatisfied. Supplemental proceedings were had and the only relief given plaintiff was permission to file an action in the nature of a creditor's bill to subject Mr. Sefton's assets to the lien of the judgment.

This action in the nature of a creditor's bill was filed on March 17, 1938. The foregoing facts were alleged. It was also alleged that the San Diego Trust & Savings Bank was indebted to Joseph W. Sefton, Jr., in an amount unknown to plaintiff; that it had in its possession property belonging to him consisting largely of stocks, bonds and promissory notes; that the bank denied any indebtedness to Joseph W. Sefton, Jr., and claimed an interest in the property it held by reason of the four trusts designated as Trusts No. 1, No. 51, No. 255 and No. 256. The terms and conditions and corpora of the four trusts were alleged very generally.

Near the close of the trial and on November 29, 1938, plaintiff, with leave of court, filed amendments and a supplement to her complaint. She alleged that on July 7, 1938, she had recovered a second judgment against Joseph W. Sefton, Jr., in the sum of $1542.21, which was wholly unpaid; that Joseph W. Sefton, Jr., had admitted under oath “that he is insolvent, and that he has no property or assets available for the payment of the judgment sought to be collected herein, or any part of the same”; that in the republication of Trust No. 1, on November 25, 1932, and in the formation of Trust No. 255, and in the administration of both trusts, Joseph W. Sefton, Jr., sought to hinder, delay and defraud plaintiff who was his creditor; that an assignment of the corpus of Trust No. 51 was made with the purpose and intent on the part of Joseph W. Sefton, Jr., Sefton Investment Company and San Diego Trust & Savings Bank to hinder, delay, cheat and defraud plaintiff and to prevent her from collecting her debts from Joseph W. Sefton, Jr.; that the assignment was made without any consideration; that he was not indebted to the Sefton Investment Company. The original complaint contained no allegations of fraud. Only the assignments of the corpus of Trust No. 51, not its creation, was attacked.

The Sefton Investment Company was a corporation organized by Joseph W. Sefton, Sr. He was the father of Joseph W. Sefton, Jr., and Lena Sefton Clark and the then husband of Harriet Sefton Campbell who remarried after his death. Its capital stock was divided into five thousand shares of the par value of one hundred dollars each and was owned by Joseph W. Sefton, Sr., up to the time of his death. We are not informed of their exact ownership immediately following his death and the distribution of his estate. The evidence indicates that in 1914, Harriet Sefton Campbell owned 1500 shares and Joseph W. Sefton, Jr., and Lena Sefton Clark owned one thousand shares each. At the time of the trial one thousand shares were in the corpus of Trust No. 51, 1500 shares were in the corpus of Trust No. 255, and 2500 shares were owned by Lena Sefton Clark.

We should briefly consider the nature of a creditor's bill and the circumstances under which it may be brought. It is an extraordinary proceeding in equity and can only be resorted to after a judgment creditor has exhausted all his legal remedies and has failed to collect his judgment or it is made to appear that legal remedies would be unavailing. Ordinarily execution must have been issued and must have been returned unsatisfied and the judgment creditor must have unsuccessfully invoked the power of the court through supplemental proceedings. In other words, it is ordinarily used only in a case where the judgment debtor has property which the judgment creditor cannot subject to the lien of his judgment by means of any ordinary remedy at law. 7 Cal.Jur. 788 et seq.; Herrlich v. Kaufmann, 99 Cal. 271, 33 P. 857, 37 Am.St.Rep. 50; Matteson, etc., Co. v. Conley, 144 Cal. 483, 77 P. 1042; Shafer v. Fisher, 85 Cal.App. 43, 258 P. 651; McCutcheon v. Superior Court, 134 Cal.App. 5, 24 P.2d 911; Smedberg v. Bevilockway, 7 Cal.App.2d 578, 46 P.2d 820.

In our study of this rather involved case we have found it convenient to consider each of the several trusts separately. No one trust was, in its inception, dependent on any of the others. The validity of each trust depends to a certain extent on the manner and method of its creation. We will therefore consider each trust separately.

Trust No. 93.

This trust had its origin in a contract between plaintiff and Joseph W. Sefton, Jr., and a declaration of trust in which Joseph W. Sefton, Jr., was trustor, the San Diego Trust & Savings Bank, trustee, and Helen Thomas Sefton beneficiary, with Joseph W. Sefton, Jr., a contingent beneficiary. Both documents were dated January 26, 1928, and must be considered together as parts of one transaction.

The contract provided for the division of the property of plaintiff and Joseph W. Sefton, Jr., and for the support of plaintiff. Joseph W. Sefton, Jr., agreed to pay her five hundred dollars per month during her lifetime or until she remarried. It provided for the creation of a trust to secure these payments by Mr. Sefton depositing one hundred thirty-five shares of stock in trust in the San Diego Trust & Savings Bank. This stock was given the value of sixty thousand dollars at that time. It also made provision that Joseph W. Sefton, Jr., should, in his will, make provision for the conveyance from his estate into the trust of additional property having a net cash value of sixty thousand dollars. It was also provided that the payments of five hundred dollars per month should be and remain a charge against the estate of Joseph W. Sefton, Jr., “until said additional property is or has been transferred to said San Diego Trust & Savings Bank”. The contract also contained the following: “It is further agreed that the payments herein agreed to be made by said party of the second part (Mr. Sefton) are legal obligations of indebtedness of said party of the second part to said party of the first part (Mrs. Sefton), and that if he shall fail to make any of said payments at the time and in the amounts as herein provided, and notwithstanding any other right or rights the party of the first part may have to enforce said payments, she shall have in addition thereto the right to collect said payments, or any part thereof, by legal or equitable action from any earnings and property of the party of the second part, including the property which is herein declared to be the separate property of said party of the second part.”

The declaration of trust was duly drawn and executed and the one hundred thirty-five shares of stock were deposited with the trustee. It contained the following: “In the event the said Helen Thomas Sefton shall serve notice in writing upon the said San Diego Trust & Savings Bank that the said Joseph W. Sefton, Jr., has failed to make any payment due to the said Helen Thomas Sefton under the terms of the said property settlement, which written notice shall be accompanied by a statement that the said Helen Thomas Sefton remains unmarried to any person other than the said Joseph W. Sefton, Jr., then the said San Diego Trust & Savings Bank shall thereafter pay to the said Helen Thomas Sefton the sum of Five Hundred Dollars ($500.00) per month, from the entire net income of the entire trust property, if sufficient, and otherwise the deficiency in net income shall be made up from the principal of the trust property, at the option of the said Helen Thomas Sefton, commencing with the date of the service of said written notice upon the said San Diego Trust & Savings Bank, and continuing thereafter until the said Helen Thomas Sefton shall die or remarry, or the said Joseph W. Sefton, Jr., shall have resumed payments to the said Helen Thomas Sefton of the amounts in said property settlement agreement stipulated to be paid to her *.”

The stipulation of the parties concerning additional evidence taken and to be considered by this court discloses that on March 17, 1938, the date this action was filed, there were one hundred seventy-two shares of the bank stock in this trust; that this stock had a market value of forty dollars a share, or a total value of $6880.00, available to plaintiff to pay her original judgment. The stipulation also discloses that the trustee, on request of plaintiff under the right given her, had sold a total of sixty shares of the stock for $2,400 and paid the money to plaintiff so that on June 22, 1940, there remained in the trust one hundred twelve shares of the stock having a market value of $4,480. At that time there was pending a request made by plaintiff to sell an additional fifteen shares of the stock so that there would remain in the trust only ninety-seven shares having a total value of $3,880.

These facts might have presented an interesting question to the trial judge on the original right to maintain this action. However, as many of them are developed here, (some of them post date the judgment in point of time) as they were not considered by the trial judge and as the trust fund has now been so reduced that it could only pay a portion of plaintiff's judgments, we do not regard it wise or equitable to consider it further nor to permit it to influence the final decision of this case.

Trust No. 1.

This trust had its origin in a gift of one thousand dollars made in 1919 by Harriet Sefton Campbell to Thomas W. Sefton. It was deposited in the San Diego Trust & Savings Bank in an account designated as the J.W. Sefton, Jr., trustee for Thomas Sefton.

This account was still in existence at the time of trial and had a small credit balance. It was used throughout the years as the depositary for other donations made to Thomas W. Sefton, of interest and dividends on stocks and bonds which formed part of the corpus of the formal trust which was later established, and of the money received from the sale of securities belonging to the trust. Withdrawals were made largely to purchase additional securities for the trust and to recompense Joseph W. Sefton, Jr., for money expended by him in paying some of the expenses of Thomas' education which expenses were chargeable against the trust under the terms of the formal declaration of trust.

The formal declaration of Trust No. 1 was executed on January 25, 1923, and the property held in trust for Thomas, except the cash in the bank account, was transferred into this trust. The original declaration of trust was lost and it was republished under date of November 25, 1932, in language as closely resembling the original as the memory of those familiar with it permitted. Thomas W. Sefton was the original primary and principal beneficiary under this trust. Amendments to the declaration of trust have been made so that now Thomas W. Sefton and Minna Gombel Sefton, the present wife of Joseph W. Sefton, Jr., with various other secondary and contingent beneficiaries not necessary to detail here, are the present beneficiaries.

According to her evidence, plaintiff knew of the creation of this trust and originally approved it. She testified that she supposed that its corpus would be limited to about the sum of ten thousand dollars and that she did not anticipate its value would reach its present very considerable proportions.

The trial court found “that the said trust was made in good faith by the defendant Joseph W. Sefton, Jr.; he has not placed any of the said properties therein with intent to hinder, delay, or defraud the plaintiff, and the plaintiff has no equitable lien upon any of said properties for the payment of her said judgments”. The judgment followed this finding.

Plaintiff has appealed from this portion of the judgment. Her principal ground of attack and the only one necessary to consider is lack of evidentiary support for the quoted finding.

There are only two arguments made under this contention which are necessary for us to consider. The first is based on plaintiff's exhibit Number Thirteen which details the securities belonging to the trust, and the second concerns management of the trust by Joseph W. Sefton, Jr.

The exhibit in question gives the date on which each security then held by the trust came into its corpus. With two exceptions each security was placed in the trust in the years 1932 to 1938 inclusive. From this it is urged that Joseph W. Sefton, Jr., must have placed these securities in the trust, on the several dates set forth, for the purpose of defrauding plaintiff by preventing her from collecting her monthly allowance from him.

There is no evidence in the record supporting this argument. All of the evidence is to the contrary.

The exhibit merely purports to show the securities in the trust on November 26, 1938, with the date upon which each particular security there listed came into the trust. No effort was made to show the source from which any security came. The only evidence in the record shows that for several years the income of the trust was accumulated and invested in securities; that when any security so advanced in price that a substantial profit could be made from its sale, it was sold and new securities purchased; that considerable profits were made by these dealings in securities. The inference is strong that each security listed, with two exceptions, which we will hereafter notice, and one one thousand dollar bond of the United States of Brazil acquired in 1923, were purchased with money accumulated in this manner. There is no evidence establishing that any of the securities listed ever belonged to Joseph W. Sefton, Jr., or were purchased with his private funds, though this may be true as to some of the securities originally placed in the trust.

Plaintiff argues that the management of the trust funds by Joseph W. Sefton, Jr., demonstrates that he personally owned the property in the trust and only used the trust as a cover for his operations. It is true that he did largely assume the management of the trust funds. He was president of the San Diego Trust & Savings Bank. He, rather than the trust department of the bank, determined when securities should be sold and when and what others should be purchased. The declaration of trust gave Mr. Sefton this power. The profits from these transactions went into the trust. They did not go to Sefton. If there was any mismanagement of the trust funds, which is not disclosed in the evidence, Mr. Sefton may be made to account to the beneficiaries but not to Helen Thomas Sefton. As she had no interest in the trust nor in any of the securities it owned, she is not the proper party to complain. She was not injured by such mismanagement, if any.

Plaintiff points to the fact that Mr. Sefton personally paid the expenses of the education of Thomas and later repaid himself over eleven thousand dollars out of the trust funds. He gave the trust two promissory notes to reimburse it for the money he thus withdrew. One is dated January 1, 1937, is for $10,380.87, and is payable on demand. The other is dated January 1, 1938, is for $1,600 and is payable on demand. The amount of the school expenses paid by Mr. Sefton was $11,968.56. He testified that he desired to pay for the education of Thomas but that financial difficulties made it necessary for him to be reimbursed for the money he had so expended; that he expected to repay the trust the money so withdrawn and had given his notes to carry out that purpose.

The declaration of trust contained the following: “It is a further provision of this trust that any part or all of the income derived from this trust property or any part or all of the principal thereof may be used by the said Trustor (Joseph W. Sefton, Jr.) for the support, education and general well being of the said Thomas W. Sefton, the beneficiary hereunder.”

Under this provision it is clear that the bills incurred for the education of Thomas could have been paid out of the trust as they were incurred. If there is any question of Mr. Sefton's right to reimburse himself for these expenses after he had paid them it cannot be raised by plaintiff who is not a party in interest and has no interest whatsoever in the trust or in any of its assets. The trial court so found and there is no substantial evidence to the contrary.

Trust No. 51.

Trust No. 51 was created by a declaration of trust dated January 11, 1926, with Joseph W. Sefton, Jr., as trustor, San Diego Trust & Savings Bank as trustee, and Joseph W. Sefton, Jr., as beneficiary. The corpus of the trust is one thousand shares of the capital stock of the Sefton Investment Company.

Under date of November 23, 1933, Joseph W. Sefton, Jr., assigned all his right, title and interest in this trust to the Sefton Investment Company to secure it against loss by reason of its having loaned him eight hundred shares of Class A common stock of Containers Corporation of America. This stock was used by Sefton to secure his promissory note in the principal sum of $10,000.

Under date of January 22, 1934, Joseph W. Sefton, Jr., assigned all his right, title and interest in trust No. 51 to the Sefton Investment Company to secure his indebtedness, present and future, to that company. The trial court found on undisputed evidence that his indebtedness, exclusive of the loan on the stock, was $68,250.66.

Under date of October 5, 1935, an amendment to trust No. 51 was executed to carry out the purpose of the two assignments just referred to. It was also provided in this amendment that on the death of Joseph W. Sefton, Jr., the corpus of the trust should be delivered to the Sefton Investment Company out of which it should satisfy the obligations just mentioned and deliver the overplus, if any, into trust No. 1.

It should be observed that this trust was created prior to the divorce and prior to the time Mr. Sefton assumed any obligation to pay plaintiff anything and had no contractual obligation to her other than that growing out of the marriage relation. The creation of the trust, according to plaintiff's testimony, was discussed by Mr. Sefton with his then attorney while Mr. and Mrs. Sefton were living together. The property placed in the trust was the separate property of Mr. Sefton. With certain exceptions, not appearing in evidence here, Mr. Sefton had the legal right to deal with his own separate property as he saw fit. There is a complete lack of any evidence even suggesting that placing this property in the trust in 1926 rendered Mr. Sefton bankrupt or was an act of bankruptcy. Under the evidence he had a perfect right to place his own separate property in trust for his own benefit if he so desired. The legality of the creation of the trust is not attacked either in the pleadings nor in the findings.

The trial court found in so many words that “the defendant Joseph W. Sefton, Jr., is indebted to the defendant Sefton Investment Company in the amount of $68,250.66, together with four per cent interest per annum on the original indebtedness”. The undisputed evidence supports this finding, except, perhaps, as to some accrued interest which may be included in the amount. Therefore, the fact of the indebtedness in the amount specified must be considered as established. It may not be questioned here. The loan of the Containers Corporation of America stock by the Sefton Investment to Joseph W. Sefton, Jr., and its use by him as collateral to secure his note in the sum of $10,000 was also found on undisputed evidence and is also a fact established in the case. Under these findings the good faith of the parties to these transactions, that is the creation of the trust and the assignment of its corpus to secure against loss by reason of the loan of the stock, cannot be questioned here. The only question that can be raised is the validity of the assignment to secure the loan of $68,250.66

The trial court found “That the defendant bank holds in the said ‘Trust No. 51’ the following properties, to wit: 1000 shares of the capital stock of the defendant Sefton Investment Company * That the defendant bank has no interest in the said property but claims that it holds the same subject only *” to trust No. 51. It was also found: “That at the time of the creation of the said trust the defendant Joseph W. Sefton, Jr., was the sole owner of the said stock, and, so far as the claims of the plaintiff herein are concerned, he ever since has been, and is now, the sole owner thereof, subject only to the lien of the defendant Sefton Investment Company thereon to secure the return to it of 800 shares of Class A Common Stock of Containers Corporation of America, or their equivalent in value, according to the terms of the assignment of the property in said trust hereinafter described, which said 800 shares of stock were by the defendant Joseph W. Sefton pledged to the First National Trust & Savings Bank of San Diego, California, to secure the payment of his note to said bank in the sum of $10,000.00.”

The findings contain a copy of the assignment of November 23, 1933, whereby Sefton assigned his interest in trust No. 51 to the Sefton Investment Company to secure it against loss by reason of the loan of the eight hundred shares of stock of the Containers Corporation of America which was found to be a legal and valid assignment creating a lien superior to the lien of plaintiff's judgment.

The findings also set forth in full the assignment of January 22, 1934, whereby Joseph W. Sefton, Jr., assigned all his right, title and interest in trust No. 51 to the Sefton Investment Company to secure the loans it had made to Sefton. The trial court found that this assignment was void as against plaintiff as being made for the purpose of “hindering, delaying and defrauding plaintiff”.

In this connection it should be noted that Sefton made all the payments due plaintiff up to September 1, 1936. It was found “that on the 10th day of September, 1936, said defendant defaulted in the making of said payments”. Therefore, it is a fact that cannot be challenged here that on the date of the second assignment (January 22, 1934) he was not in default in any of his payments to plaintiff.

It is a significant fact that there is no direct finding that this trust was invalid for any reason at the time of its creation. Further there is no evidence to support such a finding had one been made. There is nothing to suggest any legal obstacle to the creation of this trust in 1926. The property placed in the trust was the separate property of Mr. Sefton. Certainly plaintiff was not his creditor at that time. He was the owner, subject to a life estate in his mother, of another 1500 shares of the capital stock of the Sefton Investment Company which had a very substantial value. There is nothing to indicate that on January 11, 1926, he had any substantial indebtedness other than to the Sefton Investment Company.

Assuming the validity of this trust in its inception, as we must, we have the following situation resulting from its creation: The San Diego Trust & Savings Bank became the owner of the legal title to the 1000 shares of stock which formed the corpus of the trust with Joseph W. Sefton, Jr., the equitable owner of the beneficial interest therein. Nichols v. Emery, 109 Cal. 323, 41 P. 1089, 50 Am.St.Rep. 43. It should follow that the findings “that the defendant bank has no interest in said property” forming the corpus of the trust and that “Joseph W. Sefton, Jr., was the sole owner of said stock and * he ever since has been and now is the sole owner thereof” are contrary to the evidence in the case. The trial court should have found that the declaration of trust vested the legal title to the stock in the trustee with the equitable beneficial interest vested in Joseph W. Sefton, Jr. Whether or not the stock could be sold to satisfy plaintiff's judgment is another question.

We are unable to reconcile the findings to the effect that the assignment of November 23, 1933, from Joseph W. Sefton, Jr., to the Sefton Investment Company, to secure the corporation against loss by reason of the loan of the Containers Corporation of America stock, was valid and created a lawful lien on the corpus of the trust, with the finding to the effect that the assignment of January 22, 1934, between the same parties to secure Sefton's indebtedness to the corporation, was void as to creditors. The same evidence applies to both transactions. Either both were valid or both were void.

The only evidence pointing to any fraud in these transactions is contained in two letters written by Joseph W. Sefton, Jr., to Lena Sefton Clark.

The first of these two letters bears date of November 24, 1936, and contains the following:

“When Helen Thomas Sefton and I separated, a property agreement was signed and a trust created for her benefit to guarantee to her the faithful performance of the contract, which was a part of the property settlement. Into this trust was put such San Diego Trust & Savings Bank stock as I then owned, amounting at this time, to 250 shares. Under the property settlement agreement, she had the privilege of calling upon this trust for her payments or conserving the trust and suing me. She has chosen to allow the trust to remain and to sue me directly on the theory that her payments should come from me outside of the trust and that the trust should be used only in case I am found unable to make payments.

“Knowing this situation, and as I told you several times, for the protection of the stockholders of the Sefton Investment Company, I put 1000 shares of Sefton Investment Company stock which I owned outright, into a trust for myself and then as there was some doubt as to whether this trust would hold, should it be attacked under the property settlement agreement above referred to, I assigned my interest in the trust and in the corpus of the trust to the Sefton Investment Company, to secure anything I might owe that company.”

In weighing the effect of this letter it should be borne in mind that this trust was created on January 11, 1926, almost two years before Mr. Sefton created his obligation to pay plaintiff a monthly allowance.

The second letter is dated December 11, 1936, and contains the following: “Kaufman showed me your recent letter relative to Bank loans and I told him I would answer that part pertaining to the loan at the 1st National Bank—San Diego—secured by 800 shares of Container ‘A’—This is my personal note for $10,000—When you were here I think I mentioned to you, tho I may be mistaken, the fact that my Sefton Investment stock is subject to attachment by Helen Sefton in case of my death due to the agreement I entered into with her at the time of our separation.—It was my thought that S.I. Co. stock in her hands might prove embarrassing and costly to the other stockholders of the Co. and it would therefore be wise to tie my stock up as much as possible so that the Co could take it for any debts to it—to this end I have assigned all the S.I. Co. stock (1000 shares) that I control to the Co. as security for my debts to the Co.—as I could not do this without securing my note at the 1st Nat. I borrowed 800 shares of Container from the Co. for that purpose.—As the 1000 shares of S.I. Co. stock should be worth over $200,000 it would seem that the other stockholders of the Co are protected.”

As the complaint did not allege, and as the trial court did not find any fraud in the creation of the trust, and as the trial court did find that the assignment of the corpus of the trust to secure the Sefton Investment Company against loss by reason of its loan of eight hundred shares of stock to Joseph W. Sefton, Jr., was a valid transaction free from any fraud, the portions of the letters relating to those events must be disregarded. The findings show that the implications in the letters concerning those two transactions were rejected by the trial judge and were regarded by him as untrue and overcome by other evidence before him. We can only consider the statements in the letters concerning the second assignment to secure the indebtedness of $68,250.66, which were accepted by the trial judge.

There are two questions necessary for consideration in connection with this trust and the second assignment. First: Does the fact that the trustor placed his own property in trust for his own benefit (which trust was lawful at the time of its creation) place the corpus of the trust beyond the reach of his subsequent creditors, or can one of those creditors reach that property itself as distinguished from Sefton's beneficial interest under the trust, by execution or in an action of this kind to satisfy a judgment against the trustor and beneficiary obtained years after the creation of the trust? Second: Can the trustor and beneficiary under such a trust lawfully prefer one of his creditors at the expense of another creditor by assigning to the first creditor his interest in such trust where it appears that such preference was intentionally given to delay the second creditor in subjecting the interest of her debtor in the trust property to the satisfaction of her judgment?

In considering the first question it should be pointed out that this is not a spend-thrift trust; that the creation of this trust did not render the trustor insolvent nor execution proof.

Because of concessions of those defendants who have appealed from this portion of the judgment, our problem on this phase of the case is rendered quite simple. They concede that under the authority of McColgan v. Walter McGee, Inc., 172 Cal. 182, 155 P. 995, Ann.Cas.1917D, 1050, and other similar cases “the property of this trust is subject to the liens or rights of the creditors of the trustor”. We accept this concession and consequent judgment rendered under it for the purpose of this case only as it amounts to a consent to this particular portion of the judgment by the appealing defendants. This must not be considered as a statement of a general rule of law to be broadly applied in other cases.

In considering the question of preference of one creditor over another, we must again point out that the preference was not an act of bankruptcy and did not render the debtor insolvent; that besides the property involved in the preference he had other property of very considerable value; that the Sefton Investment Company was a bona fide creditor of Joseph W. Sefton, Jr., in the amount which we have already set forth. In the appraisement of the estate of Harriet Sefton Campbell, the 1500 shares of the Sefton Investment Company stock which formed the corpus of Trust No. 255 was given an appraised value of $366,465.

Section 3432 of the Civil Code permits a debtor to prefer one creditor over another. A pre-existing debt is sufficient consideration to support a transfer of property and when such a transfer is made to one creditor ordinarily it can not be attacked by another even though the transfer rendered the debtor insolvent. Bradley v. Butchart, 217 Cal. 731, 20 P.2d 693.

In the case of Hibernia Savings & Loan Ass'n v. Belcher, 4 Cal.2d 268, 48 P.2d 681, 683, the plaintiff creditor attacked an assignment made by its debtor to the defendant Belcher. In holding that the debtor may prefer one creditor over another the Supreme Court there said: “While the Ellis Estate Company may have been insolvent in the sense that it could not pay its debts as they fell due, section 3432, Civil Code, provides that ‘a debtor may pay one creditor in preference to another, or may give to one creditor security for the payment of his demand in preference to another.’ Such preferences may be set aside in a bankruptcy proceeding in the manner prescribed by the statutes relating to such proceedings, but they are not subject to attack in an action such as that prosecuted by plaintiff herein.”

In Ferguson v. Larson, 139 Cal.App. 133, 33 P.2d 1061, 1062, it was said: “The statutory right of a debtor to prefer one creditor to another is based upon the principle that in the absence of fraud the owner of property may do with it as he pleases (Heath v. Wilson, 139 Cal. 362, 73 P. 182), nor does the fact that such preference hinders or delays other creditors in the collection of their claims render it void, nor the fact that the preferred creditor had knowledge that such consequence would follow the preference. 12 Cal.Jur. 1010, 1011; In the Matter of Muller and Kennedy, 118 Cal. 432, 50 P. 660; Priest v. Brown, 100 Cal. 626, 35 P. 323.”

One rule by which fraud in cases of this kind is to be measured is thus stated in Kemp v. Lynch, 8 Cal.2d 457, 65 P.2d 1316, 1318: “However, if a transfer while appearing to be a lawful preference is made with actual fraudulent intent that it shall not pay the creditor or give him further security, but with the understanding that it shall be a mere simulated transfer, the grantor retaining the full beneficial interest, such fraudulent intent will vitiate the transfer. McGee v. Allen [7 Cal.2d 468], 60 P.2d 1026; Hanscome–James–Winship v. Ainger, 71 Cal.App. 735, 742, 236 P. 325; Roberts v. Burr, 135 Cal. 156, 67 P. 46; 12 Cal.Jur. 1012, 991.”

Here no one may question that Joseph W. Sefton, Jr., was actually indebted to the Sefton Investment Company in large amounts. All the evidence is to the effect that the assignments to that company were given and received to actually secure those debts. There is no evidence indicating that the assignee did not intend to hold and retain the benefits resulting to it from the assignments. There is nothing to suggest that either of them was a “simulated transfer” or that it was intended that Joseph W. Sefton, Jr., retain the full beneficial interest in the property transferred free from the liens created by the assignments. It is also clear from the letters from which we have quoted that the second assignment was given with full knowledge that it would hinder and delay plaintiff in the collection of her judgment by creating a prior lien on the trust or on its corpus. That a preference may hinder or delay one creditor and favor another is one of the necessary results of all preferences especially where the debtor is insolvent. The statute in permitting preferences contemplates such a result.

It is argued that Joseph W. Sefton, Jr., through the trusts, has an interest in the Sefton Investment Company and will profit from the preferences. This is not entirely true. Under a proper judgment the stock in the trust will be sold subject to the liens of the Sefton Investment Company. The liens will be satisfied from the proceeds of the sale and the amount of the debts secured by the liens will be paid into the treasury of the creditor company thereby substituting among its assets cash for the debts, but not increasing its net assets. If any benefit accrues from this change in the assets it will go to the purchaser of the stock at execution sale and not to Joseph W. Sefton, Jr.

Plaintiff argues at length that the Sefton Investment Company is but the alter ego of Joseph W. Sefton, Jr., and that the preference was in reality made to himself.

It is true that a corporation may be the alter ego of one or two of its stockholders who own all of its stock. To establish the alter ego doctrine it must be shown that the stockholders, disregarded of the entity of the corporation, made it a mere conduit for the transaction of their own private business and that the separate individualities of the corporation and its stockholders in fact ceased to exist. Hollywood Cleaning, etc., Co. v. Hollywood Laundry Service, 217 Cal. 124, 17 P.2d 709; Davis v. Perry, 120 Cal.App. 670, 8 P.2d 514; Estate of Greenwald, 19 Cal.App.2d 291, 65 P.2d 70.

While all of the stock in the Sefton Investment Company is owned by Mrs. Clark and the trusts created by Mr. Sefton, which we will assume is Sefton himself, there is no unity of interest and purpose shown between these stockholders. The argument is conclusively answered by evidence received in this court at the request of plaintiff consisting of a contract dated in June, 1940, executed by Mrs. Clark, Mr. Sefton and the San Diego Trust & Savings Bank. The contract recites that such serious differences have arisen over the affairs and management of the Sefton Investment Company that it is deemed necessary to liquidate it and either sell or divide its assets. This should be sufficient answer to the argument that the corporation is but the alter ego of its stockholders.

Under the record before us we have reached the conclusion that the findings of fact and conclusions of law must be modified so that the assignment of January 22, 1934, by Joseph W. Sefton, Jr., to the Sefton Investment Company of all his right, title and interest in trust No. 51 to secure his indebtedness to that company in the sum of $68,250.66 be established as lawful and creating a valid lien on the 1000 shares of the Sefton Investment Company stock composing the corpus of trust No. 51 and subjecting plaintiff's lien on that stock to the prior liens created by the assignment of November 23, 1933, and the assignment of January 22, 1934.

Trust No. 255.

This trust was created by a declaration of trust dated December 6, 1932, with Harriet Sefton Campbell as trustor, San Diego Trust & Savings Bank as trustee, and Harriet Sefton Campbell and Joseph W. Sefton, Jr., and grandchildren of Mrs. Campbell, including Thomas W. Sefton, as beneficiaries. Attached to the declaration of trust is a writing signed by Mrs. Campbell certifying that the 1500 shares of stock in the Sefton Investment Company constituting its corpus “is my own separate property”. Another certificate signed by J.W. Sefton, Jr., recites “that although the above described stock stands in my name and is endorsed by me, I have no right, title or interest in or to same, having held the stock purely as a nominee for my mother, Mrs. Erskine J. Campbell”.

On March 2, 1936, J.W. Sefton, Jr., and Mrs. Campbell made affidavits concerning ownership of this stock. Both affidavits were to the effect that the certificates we have just referred to were not complete, accurate or exact statements of the facts; that the facts were that on October 22, 1914, Mrs. Campbell gave the stock and delivered the certificate to Joseph W. Sefton, Jr., reserving to herself a life estate therein and “so long as she lived, the income therefrom”. Mrs. Campbell's affidavit contained the following: “I knew at that time as I do now, that the actual ownership of said stock reposed in my son, the said J.W. Sefton, Jr., subject to my life estate.”

The trial court found that at the time of executing the trust on December 6, 1932, Joseph W. Sefton, Jr., was the owner of the 1500 shares of stock in the Sefton Investment Company subject only to the life estate therein of Harriet Sefton Campbell. As this finding is supported by substantial evidence it is final and conclusive here.

It was also found that Mrs. Campbell died on June 4, 1936, and that “Joseph W. Sefton, Jr., is now, and ever since the death of his said mother has been, the sole owner of the property in the said trust”; that no other defendant has any right, title or interest therein; that plaintiff has an equitable lien on the stock for the payment of her judgments with interest thereon. The trial court ordered the stock sold under execution to pay the judgments.

It is clear that Mrs. Campbell could convey to another only the interest she owned in the property which she placed in trust. She could not convey a greater interest than the one she owned. As she owned only a life estate in the stock she could only convey to the trustee, and place in trust, the legal title to that life estate. That life estate terminated at the time of her death. It follows that as the trustee only held title to her life estate, its estate terminated on her death and the trust itself then terminated and Joseph W. Sefton, Jr., became the owner of the entire estate in the stock free from the trust.

Upon argument of this case, principally on suggestion of this court, the question was raised as to whether or not a purported amendment of the declaration of trust made by Joseph W. Sefton, Jr., on July 30, 1936, had the effect of establishing a new trust in the terms of the old as amended by the purported amendment. On further study we have reached the conclusion that it had no such effect and that the trust ended with the death of Mrs. Campbell.

The original trust had as its beneficiaries, Mrs. Campbell during her lifetime, Joseph W. Sefton, Jr., during his lifetime, and, after his death, Franklin Webster Wakefield, Joseph Sefton Wakefield, Dallas Clark, Henry Clark and Thomas W. Sefton.

It clearly appears that Mrs. Campbell created a spendthrift trust. Each beneficiary was prohibited from selling, transferring, pledging, mortgaging, hypothecating or alienating any part of a beneficial interest in the trust. The trust was made irrevocable but provided that Joseph W. Sefton, Jr., might be substituted as trustor and might terminate the trust and receive the corpus after the death of Mrs. Campbell.

The amendment in itself is not sufficient to create a trust without incorporating into it the provisions of the original declaration of trust. It substituted Joseph W. Sefton, Jr., as trustor, but did not name any beneficiary to receive the income during his lifetime so we must look to the original declaration of trust to find a named present beneficiary. The amendment provided that the corpus of the trust be paid into trust No. 1 on the death of Joseph W. Sefton, Jr.

If we read the original declaration of trust and the amendment together as we must to find a sufficient declaration of trust, we find the following as to the named beneficiaries: Joseph W. Sefton, Jr., is to receive the income from the trust during his lifetime; after his death the five grandchildren are to receive one hundred dollars each until reaching the age of twenty-eight years and then to receive a proportionate share of the corpus; on the death of Mr. Sefton the corpus of the trust is to be delivered into the corpus of trust No. 1. These provisions naming beneficiaries are flatly conflicting.

Section 2221 of the Civil Code provides that in an express trust the beneficiaries must be designated with reasonable certainty. This was not done if the two instruments be considered as a single declaration of trust. We must consider them together as the later instrument is not in itself a sufficient declaration of trust to create a trust. We believe these conflicting provisions as to beneficiaries clearly indicate that Mr. Sefton did not intend to establish a new trust by the document he signed on July 30, 1936, but merely intended to amend the original declaration of trust signed by his mother.

It follows that Joseph W. Sefton, Jr., was and is the sole owner of the 1,500 shares of the capital stock of the Sefton Investment Company which formerly formed the corpus of trust No. 255; that such stock is subject to the liens of plaintiff's judgments; that sufficient of that stock may be sold under execution to satisfy those judgments together with interest thereon.

Trust No. 256.

Trust No. 256 was created by a declaration of trust dated December 6, 1932, with Harriet Sefton Campbell as trustor, the San Diego Trust & Savings Bank as trustee, and Mrs. Campbell, during her lifetime, and after her death Joseph W. Sefton, Jr., and Lena Sefton Clark, as joint tenants with right of survivorship, as next immediate beneficiaries. After the death of Mr. Sefton and Mrs. Clark, the children of Mrs. Clark, together with Thomas W. Sefton, are made beneficiaries with provisions for succession in case of the death of any or all of them. The corpus of the trust was 1,000 shares of the capital stock of the San Diego Trust & Savings Bank, then owned by Mrs. Campbell as her separate property. There is an amendment to the declaration of trust, dated August 17, 1934, which was cancelled by a second amendment of April 8, 1936, which restored all the terms and conditions of the original declaration of trust.

The legal situation presented by this evidence is as follows: The trust was legally created by Mrs. Campbell. Only the beneficial interest of Joseph W. Sefton, Jr., in that trust as created and as it existed could be subjected to the payment of plaintiff's judgments against him. The San Diego Trust & Savings Bank held the legal title to the shares of stock subject to the trust imposed upon it. Of course Mrs. Campbell held the primary beneficial interest in the stock under the trust. At her death this beneficial interest terminated and then Joseph W. Sefton, Jr., and Lena Sefton Clark, as joint tenants with the right of survivorship, became the primary beneficiaries, with Mrs. Campbell's grandchildren and others the ultimate beneficiaries. These beneficial interests were in each and every share of the stock.

The parties now agree that after the creation of the trust there was a change in the capital structure of the bank so that the corpus of the trust was reduced to five hundred shares.

Mr. Sefton's beneficial interest in the trust constituted property that was subject to execution and sale, but it is only this interest that can be levied upon and sold. The trust itself, being lawful in its creation, cannot be destroyed by the sale nor can any part of its corpus be sold.

If we understand the judgment correctly this is what it purports to accomplish. With this explanation, the portion of the judgment affecting this trust needs no modification and may be affirmed.

It is ordered that:

The portion of the judgment which affects and treats with trust No. 1 be affirmed.

The portion of the judgment which affects and treats with trust No. 51, trust No. 255, and trust No. 256, is reversed with the following instructions to the trial court:

(a) Modify the findings of fact and conclusions of law treating with trust No. 51 in accordance with the views herein expressed so that the Sefton Investment Company, in addition to its lien securing it against loss by reason of its having loaned 800 shares of stock of Containers Corporation of America to Joseph W. Sefton, Jr., will have a lien on the 1,000 shares of stock forming the corpus of trust No. 51 securing its loan to Joseph W. Sefton, Jr., in the sum of $68,250.66 both to be prior and superior to the liens of plaintiff's judgments.

(b) Modify and re-enter the portion of the judgment treating with the lien upon and sale of defendant's interest in the corpus of trust No. 51 so that the liens of plaintiff's judgments and the sale be subject to the two liens of the Sefton Investment Company created by the assignments of Joseph W. Sefton, Jr., to it dated November 23, 1933, and January 22, 1934, respectively.

(c) Re-enter the present restraining order concerned with the dealing with the corpus of trust No. 51.

(d) Re-enter the portion of the judgment dealing and treating with the 1500 shares of stock formerly forming the corpus of Trust No. 255 and with the corpus of Trust No. 256 and the income of $250 from that trust, including the restraining orders, in their present form.

(e) Add to the judgment as re-entered the following: “Any defendant may satisfy this judgment by paying in full, with accrued interest, the two judgments of plaintiff against Joseph W. Sefton, Jr., upon which this action is based.”

Plaintiff will recover her costs of appeal from Joseph W. Sefton, Jr., and the San Diego Trust & Savings Bank.

The petition for rehearing is denied.

MARKS, Justice.

We concur: BARNARD, P.J.; GRIFFIN, J.