Deposit Guaranty National Bank v. Walter E. Heller & Co.

Tryon B. Allen inherited a large sum from his parents. In 1956 Tryon was adjudged mentally incompetent by a Kentucky court. Tryon often required inpatient psychiatric care for alcoholism and organic brain disease and had difficulty managing his affairs. In 1961 Tryon agreed to place his property in a trust if a court would adjudge him competent. The trustee was Deposit Guaranty National Bank (DGNB) (defendant). Under the trust agreement, the net income was to be paid to Tryon during his lifetime. Tryon could also request up to 25 percent of the principal of the trust estate from the trustee with the approval of an advisor. Upon Tryon’s death, the corpus was to be transferred to Tryon’s nephew, Arthur Allen. The trust agreement contained a spendthrift provision prohibiting Tryon from executing any notes against the trust corpus or income. The trust agreement was recorded as notice to any potential future creditors that the trust could not be used for payment of Tryon’s indebtedness. Nonetheless, Tryon applied for credit from Walter E. Heller & Co. (Heller) (plaintiff), citing the trust as his asset. Heller extended Tryon credit, and Tryon signed a promissory note for repayment. When Tryon failed to repay, Heller obtained a judgment against Tryon. After Tryon died, Heller filed suit against DGNB seeking to satisfy the judgment with trust assets. DGNB cited the trust agreement’s spendthrift provision, but the chancery court held that the spendthrift provision was invalid and found in favor of Heller. DGNB appealed.