
    Brearley School, Limited, Appellant, v. Beverley Ward, Respondent.
    First Department,
    June 10, 1910.
    Execution, against trust funds — section 1391 of the Code of Civil procedure retroactive — constitutional law — said section when applied to antecedent trust does not impair vested right.
    The amendment to section 1391 of the Code of Civil Procedure authorizing an execution against the income of a judgment debtor derived from trust funds, is retroactive and not unconstitutional when applied to a trust created before the act. .
    There is no vested right to an exemption of prdperty from execution so that it may not be taken away by subsequent legislation, as the exemption is á mere gratuity from the State.
    McLaughlin, J., and Ingraham, P. J,, dissented, with opinion.
    Appeal by the plaintiff, Brearley School, Limited, from an order of the Appellate Term of the Supreme Court, entered* in the office of the clerk of the county of New York on the 10th day of March, 1910, affirming an order of the City Court of the city of New York, entered on the 5th day of January, 1910, which denied the plaintiff’s motion to issue an execution under section 1391 of the Code of Civil Procedure,
    
      Grenville Clark, for' the appellant.
    
      William G. Ghiüiek ['Louis W. JDinJcelsjpiel with him on the brief], for the respondent..
   Dowling, J. :

Plaintiff obtained a judgment'against the defendant in the City Court of the city of New York on September 17, 1909, for the sum of $727.63, which was duly docketed and the execution issued thereupon was returned unsatisfied. Having ascertained that defendant was in receipt of an income from a trust estate created under the last will and testament of Montagnie Ward, deceased (admitted to probate September' 6, 1879), plaintiff applied to the City Court on December '7, 1909, for ah order for a special execution against said income pursuant to the provisions of section 1391 of the Oode of Civil Procedure. It is not questioned that the application complied, in all respects, with the requirements of the section. It was denied upon, the grbund that the amendment of the section which went into effect on September 1, 1908 (Laws of 1908, chap. 148), and by .which a special execution against trust income, as well as against, wages, debts, earnings and salary, was authorized where a judgment for any causé had been recovered (thus extending the prior authority [Laws of 1903, chap. 461; Laws of 1906, chap. 175] for such an execution only in the case of a judgmerit for necessaries), did not apply to trusts created before the passage of the act. The Appellate Term (67. Misc. Rep. 163) held that the legislation was retroactive, and that as the section must be so construed and held to be applicable to income from trusts created prior to its enactment, it was unconstitutional. From this determination the present appeal is taken.

At the outset it may be said that the amendment of section 1391 doéSLnot'iÍnpá!Íf the value of a vested estate nor deprive any one of a véáiéd5 n|rht in property. It has reference to a change in the provisiBhs of law governing exemptions of property from levy and sale by-virtue of'an execution, which are found in chapter 13, title 2, article1 % of the Oode of Civil Procedure, sections 1389 to 1404a inclusive —'■ the last section being added by chapter 65 of the Laws of 1909. It is well settled that a statute of exemption from levy under an exe-. cution is not a contract between the State and the judgment debtor. Such an exemption is a gratuity, not a vested right, and it may be changed' as circumstances may' dictate. (Myers v. Moran, 113 App. Div. 427.) Of course, it could not be said that if a man purchased' a farm, and at the time it was exempt from execution by levy from creditors, the Legislature would have no right thereafter to remove or alter that exemption.” (Kittel v. Domeyer, 70 App. Div. 139.) As was said in the case of Harris v. Glenn (56 Ga. 94); “ Debtors have no Vested right not to pay their" debts. What they have and what they acquire the State may subject to legal process for the. satisfaction of creditors. If the State will furnish ■the process and allow it to run, nothing that debtors own is beyond its reach. * * * Exemption, of .property from levy and sale for the payment of debts is but a privilege for the time being — mere grace and favor, dependent on the will of the State. An exemption which exists by statute may be reduced or withdrawn by statute.” “ Statutory exemption of a debtor’s property from levy and sale for the payment of his debts is a mere privilege for the time being, dependent upon the will of the State, and not a vested right, and in the absence of constitutional restrictions the Legislature may modify or wholly repeal exemption laws, even as to existing property and debts. * * * Modification or repeal of an exemption law does not impair the obligation of any contract- as to creditors, but on the contrary it enlarges their remedy. ' And it is not objectionable as impairing the obligation of contracts as regards the debtor, for there - is no contract giving him an exemption.” (12 Am. & Eng. Ency. of Law [2d ed.J, 74.) The exemption from having his income from the trust estate reached by execution which the defendant has heretofore enjoyed is a favor granted by the State, for which neither he nor the testator gave any consideration, and which may be limited or removed by the State as freely as it was originally created.

The distinction seems clear between transfer tax cases, where by subsequent legislation it was sought to tax estates aúd rights which had theretofore vested, as in Matter of Pell (171 N. Y. 48) and the casé at bar. In the former instance a- part of the property was taken directly from the peréon taxed and applied to a public and general use; in the latter no part of the income sought to be reached by execution is divested tp a general use, but the debtor is compelled to use a portion of his funds in installments to satisfy a just debt which he has contracted, and which he would he compelled to. pay at once in full were it not that the State has given him as to that fund an immunity from the seizure under execution which it deems wise to limit and retrench. There never was any contract between the debtor and the State that the original immunity from levy would be preserved, as there never was any contract between the testator and the State that existing laws at the time of his decease should remain unchanged so far as affected the interests of those for whom he created a trust. The legislation by which the exemption of wages and trust income from levy under an execution was first abridged to the extent of ten per cent when a judgment for necessaries had been recovered, and then similarly abridged in the case of any judgment, was purely remedial in its nature. As was said in Laird v. Carton (196 N. Y. 172) in reference to this very section: “ The amendment to section 1891, like the whole section as it stood before the amendment, relates to proceedings in a lawsuit, i. e., the execution or final process; hence it is a statute dealing with a legal remedy. It applies to all cases which have reached the intermediate stage between judgment and execution. As has been pointed out the phraseology of the amendment does not require us to construe it as applicable, only to future judgments. It matters not that when the judgment was recovered -.an execution could not issue- thereon against wages,- earnings or salary; it is enough that such an execution has subsequently been authorized. The statutory authorization for its issuance does not impair the obligation of any contract or affect any vested right; it merely furnished the judgment creditor with, a broader and more effective remedy than the law gave him before. To this there is no constitutional objection. Such an application of the statute is not só much retroactive as active upon an existing condition of things, to wit, existing judgments which are yet to be enforced by execution.” (See, also, Myers v. Moran, 113 App. Div. 427; Morse v. Goold, 11 N. Y. 281.)

It follows, therefore, that the order of the City Court and the determination, of the Appellate Term must be reversed, with costs to appellapt in all"the courts, and the application for leave to issue a special execution granted, with ten dollars costs.

• Clarke, and Scott, JJ., concurred; Ingraham, P. J., and McLaughlin, J., dissented.

McLaughlin, J.

(dissenting):

On the 30th .of June, 1879, Montagnie Ward died, leaving a last will and testament, "which was admitted to probate on the sixth of-September of that year. He left him surviving four children, of whom the respondent is one.. By. the will the testator gave all his property to .his executors and trustees in'trust to convert into money, and then, after setting apart certain sums, directed that the residue be divided into as many shares as he should have children him surviving, one share to be separately invested for each child and the-income derived therefrom paid to such child during the term of his natural life, and after his death the principal to be paid "to his. law-ful issue, or in default of such issue to his heirs at law. The executors and trustees, following the direction contained in the will, set apart and invested a certain sum for the respondent, and since that time the income therefrom has been paid to him. On the 17th of September, 1909, the appellant recovered a judgment against the respondent in the City Court of the city of New York for the sum of $727.63, and execution was'issued thereon to the sheriff of the county of New York and by him returned wholly unsatisfied. Thereafter the appellant applied, under section 1391 of the Code of Civil Procedure, for an order that an execution issue against the income from the trust funds now due or hereafter to become due,” and directing the trustees to pay on account of the execution ten per cent thereof. The motion was denied and an appeal taken to the Appellate Term, where the same was affirmed, and from its determination an appeal was taken to this court.

The section of the Code referred to (§ 1391) provides that under certain conditions an execution may be issued to. the extent of ten per cent against the wages, debts, earnings, salary ” and income from trust funds” due and owing to the judgment debtor, or thereafter to become due and owing to him,-provided the same amount to twelve dollars or more per week, and that such execution, when issued and duly presented, becomes a lien and continuing levy until it and the expenses thereof are fully paid or until the execution is modified as therein prescribed. This section in its amended form took effect on the 1st of September, 1908 (Laws of 1908, chap. 148), and it is settled that an execution may issue against wages,” although the judgment upon which the execution is issued was rendered before the enactment of such amendment.. (Laird v. Carton,, 196 N. Y. 169.) This court has determined in at least three cases that a judgment creditor cannot obtain an execution and levy upon the income derived from a trust estate created prior to the time the amendment became a law (Demuth v. Kemp, 130 App. Div. 546; King v. Irving, 103 id. 420; Sloane v. Tiffany, Id. 540), and the same view has been taken by the Second Department (Rings v. Mortimer, 116 id. 722). The reason assigned, as appears from the opinions in some of the cases, why such levy could not be made, was that the statute did not have a retroactive effect, and, if so, it was unconstitutional, While the Court of Appeals held, in the Laird case, that the view of this court as to the retroactive effect of the amendment was erroneous, it- in no way passed upon the-ether question, viz., as to whether the statute1 would be cpnstithtional if it applied to the" income from a trust fund .created prior to the: time it took effect. It seems to me, therefore, that the orderly method of procedure, as well, as respect for our own decisions,, requires the affirmance of the order appealed from, but inasmuch as a majority of the court think otherwise, I desire to- briefly state why, in my opinion, this statute,, if it be held to apply to the income derived from a trust fund, created prior to its enactment, is not a valid exercise of legislative power.

The income here sought to be reached is derived from a trust. futid. The trust was created and the fund set apart in 1879. It was a trust which the statutes authorized to be created, hence was then a legal one, and has since so remained. When Mr. Montagnie Ward made his will the State, in effect, said to him, sneaking through the statutes.: If yon will give a portion of. your property to ■ A, in trust, and he will agree to invest the same and pay the income derived .therefrom to your son, the statutes under which you are permitted to thus give it Will-' be sufficient to compel A to keep his-agreement.” Mr. Montagnie Ward having given the property, and the trustees having accepted itj the Legislature coidd not thereafter destroy the trust in Whole or in part, because to do so Would violate that provision of the Federal Constitution (Art. 1, § 10', subd. 1) which prohibits the State from impairing the validity of a Contract. (Humphrey v. Pegues,. 16 Wall. 244.) While the arrangement under which the property was given by the testator and received by the trustees may not, in a strict or technical sense, have amounted to a contract, nevertheless it Was so in spirit. It-is fairly to be inferred that Mr, Montagnie Ward Would not have given his property to the trustees except upon the implied understanding that they would .voluntarily carry out his wishes, and, if not, they would be compelled to do so by the laws of the State. But if the statute in question be valid, then this; contract, agreement or understanding — whatever it may be called— may be entirély destroyed, by the fiat of the Legislature. If it can compel the trusteesto pay ten per cent of theincome to the sheriff it can compel thé payment of one hundred per cent to him or any other person. - This I do not believe it. has the power to do.

In People ex rel. Cooper Union v. Wells (180 N. Y. 537) it was held that certain property of Cooper Union was not subject to taxation because the act under which it was incorporated contained a provision to that effect; that Peter Cooper, in pursuance of that provision, had conveyed certain property to the corporation, and by ■ his will provided for its endowment; and that after his death the trustees under his will executed his purpose by transferring property in endowment thereof. The basis of that decision, as stated by the Court of Appeals in People ex rel. Roosevelt Hospital v. Raymond (194 N. Y. 198), was as declared. by Justice Bischoee at Special Term that the exemption was not a spontaneous concession, but was a direct condition to attach to the gift.

Again, if the act in question be given the effect contended for in the prevailing opinion, it is unconstitutional because it deprives one of his property without due process of law. (N. Y. Const, art. 1, § 6.) The title to the trust fund- set apart for the defendant and the income derived therefrom, until paid to him, are lodged in the trustees. It is true they hold the trust funds and the income derived therefrom until paid to him for a specific purpose. That was the condition of the gift. Their right to act as trustees at all depends upon their performing these conditions with fidelity. They have no right to pay the income to any person other than to the one whom the testator designated. If they can be directed to pay ten per cent of the income to the sheriff, then it necessarily follows that the Legislature could direct it all should’ be paid to him. The effect of such a statute would be to deprive one of property without due process of law. (Muhlker v. Harlem R. R. Co., 197 U. S. 544; Livingston v. Livingston, 74 App. Div. 261; affd., 173 N. Y. 377.) In the Muhlker casé it was held that after the court of last resort in a State had determined, that a certain thing’was property, the1 owner could not be deprived of it’without compensation. In the Livingston case it was held that chapter 742 of the Laws of 1900, which amended section 1759 of the Code of Civil Procedure by authorizing the court^ at any time after- the entry of a final judgment of divorce in favor of a wife, to annul,(vary or modify the provisions of the judgment with' respect to the payment of alimony, was unconstitutional in so far as it applied to a judgment entered prior to the time the amendment took effect.

The act in question is unconstitutional because it deprives the defendant of a beneficial interest in property without due process of law. As soon as the trust estate was created the defendant bécame entitled to the income derived therefrom. This was a fixed, settled and vested interest— a property right which the Legislature could not take from him and of which he could be deprived only by due process of law- The right to the payment of alimony under a judgment recovered prior to. the passage of a statute, is no greater or more secure than the right to the payment of income derived from a trust fund. If the right is vested in one case, it must also be vested' in the other, and if one is beyond legislative attack, then it seems .to me the other is. .To hold that, the statute applies to trusts created prior -to September 1, 1908, is to diminish-the income to the extent of ten percent which the testator intended for his son, and if this can be legally done, then the Legislature has the power, as we have; already seen, to-deprive the son .of' the whole sum. (Metcalfe v. Union Trust Co., 181. N. Y. 39.)

At the -time the trust in question was created, the Revised Statutes permitted, to a certain extent, income from trust funds to be reached by. creditors (Williams v. Thorn, 70 N. Y. 270; Tolles v. Wood, 99 id. 616), and to this provision the trust, as created by the testator, was at all times subject. The income cannot be reached in any other way until it has actually been paid to the defendant.

The case of Kittel v. Domeyer (175 N. Y. 205) is not- in point, nor does the principle there laid-down have any application to the question here presented: ■

The order appealed from, therefore, should be affirmed.

Ingraham, P. J., concurred.

Determination and order reversed,, with costs to appellant in all courts, and application granted, with ten dollars costs.  