411 Pa. 96 | Pa. | 1963
Lead Opinion
Opinion by
The basic question here involved is whether a 6% common stock dividend of Sun Oil Company stock is a part of the net income which was given by the settlor to the life tenant, or whether the stock should be awarded to principal.
Mary C. Pew, on June 2, 1932, executed an inter vivos deed of trust in which she created an irrevocable spendthrift trust for the benefit of her two grandsons, Arthur E. Pew, Jr., and Walter C. Pew, and their respective children, as therein specifically set forth. Under the terms of the trust one-half of the corpus was to be held to pay the net income to Arthur E. Pew, Jr., for life and on his death to pay the net income “in equal shares for the support, maintenance, and education” of his children until they respectively attain the age of 24.
The trust consisted originally of 40,000 shares of the common stock of the Sun Oil Company. The settlor directed the trustees to “set aside 20,000 shares
On December 8, 1961, the trustees of the Mary C. Pew Trust for Arthur E. Pew, Jr., et al., received from
Appellant contends he is entitled to this 6% stock dividend (1) under the principle of "res adjudicata," citing Wallace's Estate, 316 Pa. 148, 153, 174 A. 397, see also Downing v. Halle Bros. Co., 395 Pa. 402, 150 A. 2d 719; also Burke v. Pittsburgh Limestone Corp., 375 Pa. 390, 100 A. 2d 595; and (2) under the principle of "the law of the case," citing Brown Estate, 408 Pa. 214, 230, 231, 183 A. 2d 307, and Burke v. Pittsburgh Limestone Corp., supra; and (3) under "due process of law," citing Willcox v. Penn Mutual Life Insurance Company, 357 Pa. 581, 55 A. 2d 521, and Liggett Co. v. Baldridge, 278 U.S. 105; and (4) because an award to principal would "impair the obligation of the contract," viz., the deed of trust, thus contravening Article I, § 17, of the Constitution of Pennsylvania, and Article I, § 10, Clause 1, of the Constitution of the United States, citing Cross Lake Club v. Louisiana, 224 U.S. 632; see also Dartmouth College v. Woodward, 6 Wheaton 518, 17 U.S. 518, and Treigle v. Acme Homestead Assn., 297 U.S. 189, and Indiana ex rel. Anderson v. Brand, 303 U.S. 95.
Mr. J. Howard Pew, one of the trustees, testified at the audit that just before his mother, Mary C. Pew (the settlor) created the trust — and after she learned the wishes of her two grandchildren, Arthur E. Pew, Jr., and Walter C. Pew, — she told him that she wished
In Pew Trust, 362 Pa. 468, Mr. Justice ALLEN M. STEARNE, speaking for a unanimous Court, specifically held in an audit of an account in this very trust (1) that Arthur E. Pew, Jr., the life tenant had a vested interest under the terms of the trust, not only in ordinary stock dividends, but also in the extraordinary stock dividends — and he has been receiving all stock dividends (with one exception when the dividend was apportioned) since the inception of the trust until the present challenged dividend; and (2) that to apply the Principal and Income Act of 1947 to this trust which was created in 1932 would be unconstitutional! The Court pertinently said (page 469): "The provisions of the Uniform Principal and Income Act of May 3, 1945, P.L. 416, 20 P.S. § 3471, and the Principal and Income Act of July 3, 1947, P. L. 1283, 20 P.S. § 3470, are unconstitutional when applied retroactively to trusts created prior to their enactments."
In Crawford Estate, 362 Pa. 458, 67 A. 2d 124, and in Steele Estate, 377 Pa. 250, 103 A. 2d 409, and in Jones Estate, 377 Pa. 473, 105 A. 2d 353, and in Warden Trust, 382 Pa. 311, 115 A. 2d 159, and, as recently as 1959, in Cunningham Estate, 395 Pa. 1, 149 A. 2d 72, the Court unanimously reaffirmed the constitutional right of a life tenant in a trust created prior to the Principal and Income Act to both ordinary stock dividends and an apportionable part of extraordinary stock dividends.
In Catherwood Trust the Court was vitally concerned with the apportionment of extraordinary stock dividends and the apportionment of proceeds of sales of stock. In that case the Court, we repeat, abolished in futuro the long established Pennsylvania Rule of Apportionment of extraordinary stock dividends and of proceeds of sales of stock. Never in Pennsylvania’s long history until 1945,
As further evidencing the intent of the entire Court in that case, the concurring and dissenting Opinion commenced as follows: “I enthusiastically agree with that part of the majority Opinion which holds that small stock dividends which do not exceed 6% in'that particular year belong to the life tenant and are not subject to apportionment.”
Appellant moreover vigorously argues that the following sentence in the Opinion of the Court in Cather-wood Trust constituted merely “dicta” and should not
Appellant is correct when he terms the aforesaid statement "dicta",
Appellant next contends that in any event he is entitled to the dividend under the proviso of Section' 2 of the Principal and Income Act of 1947. In considering this contention, we shall assume arguendo (as-does the appellant) that the dicta set forth in the footnote at the end of the majority opinion in Catherwood Trust is controlling. That footnote reads as follows: “This statement applies to all receipts, including stock distributions of six (6%) per cent or less.”
Turning now to the aforesaid “proviso”, it reads: “Provided, That the person establishing the principal may himself direct the manner of ascertainment of income and principal and the apportionment of receipts and expenses or grant discretion to the trustee or other person, to do so and. such, provision and direction, where not otherwise contrary to law, shall control, notwithstanding this act.”
The object and purpose of this proviso was undoubtedly to preserve to every settlor and every testator his basic centuries old right to determine to whom his property should go, and how—whether outright, or eon
It is still hornbook law that the pole star in every trust (and in every will) is the settlor's (or testator's) intent and that intent must prevail. It would certainly be unreasonable to construe the proviso as intending to destroy or effectually nullify what has always been considered the inherent basic fundamental right of every owner of property to dispose of his own property as he desires, so long as it is not unlawful: Stoffel's Estate, 295 Pa. 248, 145 A. 70; Borsch Estate, 362 Pa. 581, 67 A. 2d 119; Grote Trust, 390 Pa. 261, 135 A.2d 383; Brown Estate, 408 Pa. 214, 183 A. 2d 307. If, therefore, under the language of this 1932 deed of trust the settlor intended small stock dividends to be and go to her life tenant as part of income, her intent will be sustained and carried out, even though in this 1932 Trust Deed (and in all pre-1945 trusts) the gift of dividends (and similarly a gift of interest on bonds and on mortgages) or their ascertainment is not specifically spelled out or directed by the settlor.
In Walton Estate, 409 Pa. 225, 186 A. 2d 32, the Court aptly and relevantly said (page 231): "`"`No rule regarding wills is more settled than the great General Rule that the testator's intent, if it is not unlawful, must prevail'"': Collins Estate, 393 Pa. 519, 522, 143 A. 2d 45. We reiterate what by now is hornbook law: `"The testator's intention is the pole star in the construction of every will and that intention must be ascertained from the language and scheme of his entire will [together with the surrounding facts and circumstances]
In order to ascertain the actual intent of the settlor or testator, the Court must place itself in his armchair and consider not only the language and scheme of the instrument but also the facts and circumstances with which he was surrounded; and these surrounding facts and circumstances include the condition of his family, the natural objects of his bounty and the amount and character of his property: Woodward Estate, 407 Pa. 638, 640, 182 A. 2d 732; Britt Estate, 369 Pa. 450, 455, 87 A. 2d 243; Newlin Estate, 367 Pa. 527, 80 A. 2d 819. Of course Mrs. Pew's intent must be determined as of the date of the creation of the trust in 1932 and not in 1947, when the Legislature passed the above proviso. Fischer & Porter Co. v. Porter, 364 Pa. 495, 72 A. 2d 98; 54 Am. Jur. § 18, p. 36; 90 C.J.S., Trusts, § 162 (1955). As the Court aptly said in Schaad v. Hotel Easton Co., 369 Pa. 486, 87 A. 2d 227 (page 491), ". . . `no principle is more firmly established than that the laws which were in force at the time and place of the making of the contract enter into its obligation with the same effect as if expressly incorporated in its terms': Beaver County Building and Loan Association v. Winowich, 323 Pa. 483, 489, 187 A. 481, 484. . . ."
Arthur E. Pew, Jr., and settlor’s other grandson, Walter C. Pew, the life tenants, were undoubtedly the primary objects of the settlor’s bounty. Their grandmother, Mary C. Pew, the settlor, was the widow of J. N. Pew, who was the founder of the Sun Oil Company. Since 1926 the Sun Oil Company had paid a small yearly cash dividend of $1.00,
While very few lawyers knew or could unravel and very, very, very few laymen knew or had ever heard of Pennsylvania's equitable Rule of Apportionment of extraordinary stock dividends and of proceeds of sale
To summarize: We hold (1) that as to wills of persons dying before and inter vivos trusts created prior to the effective date of the Principal and' Income Act of 1945, a gift of income or net income included small stock dividends of 6% or less, unless the testator or settlor clearly expressed a contrary intent; and (2) it is especially clear that in the light of the facts and circumstances which surrounded Mrs. Pew at the time' she created the trust, she gave and intended to give to her grandson Arthur E. Pew, Jr., the life tenant of this
In view of our interpretation of this trust, it is unnecessary to decide or even to discuss the various other legal and constitutional contentions made by appellant or by appellee.
Decree reversed, case remanded to the Orphans’ Court with directions to enter a decree in conformity with this Opinion; costs to be paid out of the principal of the trust.
Upon attaining the age of 24, each of the children is given 20% “of their respective shares or portions of said fund, per stirpes, absolutely,” at age 28 an additional 30% of his respective share or portion “per stirpes, absolutely” and at age 32 the balance of the principal of his respective share or portion of the trust is given “per stirpes absolutely.”
The Arthur E. Pew, Jr., trust now holds 30,694 shares of said stock.
The writer of the present Opinion filed a vigorous dissenting (and concurring) Opinion in which Mr. Justice Musmanno joined.
(1)The distribution by the corporation of an extraordinary cash or stock dividend, or (2) the liquidation of the corporation, or (3) a sale of the stock by the trustees, or (4) the issuance of stock rights.
When a change or modification was made by the Legislature.
The footnote at the end of that Opinion reads (page 78) : “This statement applies to all receipts, including stock distributions of six (6%) per cent or less.”
More accurately “dictum”.
Italics throughout, ours.
With one exception.
Many of whom were often unknown to the testator or settlor. See Nirdlinger’s Estate, 327 Pa. 171, 173, supra; 331 Pa. 135, 138, supra.
Dissenting Opinion
Dissenting Opinion by
The majority opinion states the basic question on this appeal to be: “Whether a 6% per cent common stock dividend of Sun Oil Company stock is a part of the net income which was given by the settlor [of the trust] to the life tenant, or whether the stock should be awarded to principal.” As stated, this question omits any reference to certain stipulated facts the consideration of which is vital to a resolution of the question : (1) this six per cent stock dividend was received by the trustees from Sun Oil Company on December 8, 1961; (2) this dividend was payable on shares of Sun Oil Company in shares of stock of Sun Oil Company and such shares were of the same kind and rank as the shares upon which the dividend was paid.
The majority opinion reaches the conclusion that this particular 6% common stock dividend of the Sun Oil Company constitutes “net income” given by the settlor of this trust to the life tenant. In arriving at this conclusion, the majority opinion does so upon four premises: first, it holds that “[n]ever in Pennsylvania’s long history until 1945 [when a change or modification was made by the Legislature] had a life tenant’s right to ordinary cash and ordinary stock dividends been denied” and that “[in] all the history of Pennsylvania Rule of Apportionment this Court has never held that stock dividends, up to and including 6%, were apportionable, but on the contrary all such dividends were considered income.”; second,That it was not the intent of this Court in Catherioood to abolish the right of a life tenant to “ordinary stock dividends”, i.e., stock dividends which do not exceed six per cent in any one year; third, that if the statement in the footnote (p. 78) in Catherwood, reading as follows: “This statement [in all audits now pending' and henceforth, distributions shall be made under the provisions of the Principal' and Income Act of 1947] applies to all receipts, including stock distributions of sise (6%) per cent or less
In the first place, I agree that this Court in its application, for approximately one hundred years, of the Rule never held that the declaration of ordinary common stock dividends, not exceeding 6% in any .one year, constituted an apportionable event. In Catherwood, (pp. 77, 78), we expressly stated: “While we have never held that ordinary small stock dividends should be considered as income payable to the life tenant, we have not held to the contrary; our prior decisions dealt with stock dividends, extraordinary in nature. If a total stock distribution for the current year is payable at the rate of 6% or less of the corporation’s outstanding shares before such distributions were made such distribution in stock of the distributing corporation should be treated as income.” The majority opinion, correctly states that, under the Rule, ordinary small stock dividends, not exceeding 6% in any one year, were not apportionable and were deemed income payable to the life tenant, and, therefore, I agree with its first- premise. From such premise, however, it. cannot be argued that this stock dividend shall be deemed income because prior to the payment of such dividend this Court in Catherwood abolished prospectively the Rule and declared that thereafter the distribution of stock dividends should be governed by the provisions of the act. While the majority opinion correctly states the manner of distribution of such stock dividends under the Rule, such statement in nowise controls the manner of distribution thereof after the Rule has teen
The second premise of the majority is that it was not the intent of this Court in Catherwood to ..abolish the rights of life tenants to “ordinary small dividends”: The majority would affirm, with the one exception noted hereafter, the ruling in Catherwood and yet exclude from the impact of Catherwood ordinary stock. dividends, not exceeding 6% in any one year. Such a posh tion is untenable. Catherwood abolished the Rule as to dll stock dividends, large or small, ordinary or extraordinary, and made applicable thereafter the provisions of the Act to all distributions of all stock dividends and Catherwood drew no distinction between, the classes and types of stock dividends to the distribution of which thereafter the provisions of the Act would be applicable. In abolishing what had become an unworkable rule of apportionment, Catherwood subjected thereafter the distribution of all stock dividends to the mandate of the Act rather than to' a court-made rule of apportionment. In its second premise, the majority opinion misconceives the intent of this Court expressed in Gathenoood and Avould differentiate between classes of stock dividends when no such differentiation was either made or intended to be made. If the majority of this Court want to overrule Catherwood, such is its privilege. My concern is that, if Catherwood is to be overruled, such overruling should be accomplished expressly and not in the manner implicit in the second premise of the majority opinion.
An examination- of the third premise of the majority opinion leads inevitably to the conclusion that the majority of this Court would now overrule'at least the statement made in the footnote in Catherwood. The majority of this Court now find, in effect, that this
Subsection (1) of Section 5 of the Act provides: “All dividends on shares of a corporation, forming a part of the principal, which arc pagable in the shares of the corporation itself of the same kind and rank as the shares on which such dividend is paid shall be deemed principal.
The stock dividend in the case at bar is a dividend on shares and clearly payable in shares of the Sun Oil Company and “of the same kind and rank as the shares on which such dividend is paid.” The Principal and Income Act, supra, draws no distinction between small or large, ordinary or extraordinary, stock dividends of such type and character; on the contrary,
I fully believe that it would be most salutary if ordinary small stock dividends, not. exceeding 6% in any one year, and payable in shares of the corporation itself of the same rank and kind as the shares upon which the dividend is declared were. deemed income payable to the life tenant. However, such a result can only be accomplished through the legislative process by an amendment of subsection (1), Section 5, of the statute.
To hold, as the majority of this Court would now do, that the statements in the footnote in Catherwood should be overruled and that these ordinary small stock dividends, not exceeding 6%, be held not subject to the provisions of the statute constitutes a complete change and alteration of the clear unequivocal language of the statute, a change which this Court completely lacks the power to accomplish. Catherwood requires the application Of the Act to the distribution of all stock dividends, including the type of stock dividends herein considered, and the provisions of the Act clearly provide that such dividends be deemed principal and not income. I repeat, two alternatives face this Court in order to logically support' its conclusion: either to overrule Catherwood or to change and alter, by judicial fiat, the clear language of the statute and neither alternative will I accept.
In support of this contention, the majority opinion takes two positions: (a) by the enunciation of a completely new rule to effect that, as to all inter vivos trusts created prior to the Act, a gift of “income” or “net income” in a trust must be interpreted to include ordinary stock dividends, not exceeding 6% in any one year, and that such dividends must be deemed income payable to the life tenant, unless the settlor expressed in the trust a contrary intent; (b) in view of the factual circumstances presented in the case at bar, the settlor by the employment of the term “net income” in the gift to the life tenants evidenced an intent that such term include ordinary stock dividends, not exceeding 6% in any one year, of the Sun Oil Company.
An examination of the provisions of Section 2 of the Act and the actual factual situation herein presented reveals the complete unsoundness of both these positions. To adopt the first position of the majority
To adopt the second position taken by the majority opinion requires the substitution in Section 2 of the intent of the settlor for the statutorily required direction by the settlor or the grant of discretion to the trustee or other person to make an ascertainment of income and principal. Such a result can only be accomplished by an amendment of Section 2 and any judicial attempt to effect such a change, as the majority now suggests, would not be a construction, but a complete alteration, of the statutory language.
I could agree with the majority opinion that, under the instant factual situation, the life tenants were the principal objects of settlor’s bounty,
It is further interesting to note that, in the years from 1932 up to and including 1961, the Sun Oil Company paid 14 yearly stock dividends in excess of 6% and only 9 stock dividends of 6% or less. Would the majority hold that the settlor intended all of these stock dividends to be considered “net income” payable to the life tenants or only such stock dividends of 6% or less. There is not a scintilla of evidence on this record upon which to sustain the finding of an intent on the part of the settlor to have stock dividends of 6% or less included within “net income”; on the contrary, the record would more likely, if at all, sustain a finding of intent, based on the past stock dividend history of the Company, that the settlor intended to include in “net income” all stock dividends of the Company regardless of the amount.
I submit that the dilemma in which the majority of this Court finds itself is occasioned by its refusal either to follow the ruling in Oatherwood or to reverse Oatherwood. To escape from this dilemma, a formula is invented by which, it is hoped, the ruling in Oatherwood can be circumvented.. The result is that the conclusion of the .majority constitutes a clear violation of the language of the Act, for which neither factually or legally a justifiable basis exists.
I would affirm the decree.
The trustees “received 1841.64 shares of Sun Oil Company common stock, as a result of a six per cent stock dividend declared on the 30,694 shares held by [the trustees] in principal.” Fact (1) in Stipulation of Counsel.
Act of July 3, 1947, P. L. 1283, 20 PS §3470.1 et seq.
Emphasis supplied.
Emphasis supplied.
The majority opinion states, inter alia: “. . . for many stockholders of Sun Oil Company stock,—who received only $1.00 a share cash dividends, while shareholders in other large corporations received annually $5.00 or $6.00 or $9.00 a share—these small stock dividends were their bread and butter.” In Pew Trust, 398 Pa. 523, 158 A. 2d 522, we outlined the situation in which the present life tenant found himself during the period of 21 years from 1933 to 1954, and stated: “Prom 1933 through 1954 the [Sun Oil Company’s] total earnings with respect to the shares held by this trust were $1,720,326. The cash dividends ($507,049) and the market value of the stock dividends ($2,111,220) received by the [life tenant] totalled $2,618,268, or $897,942 more than the Company earned
Exhibit A attached to the Stipulation of Counsel.
Furthermore, by the result reached, the majority of this Court avoid determining the principal questions raised on this appeal, i.e., whether the application of the ruling in Oatherwood to this trust violates the due process clause of the 14th Amendment of the U. S. Constitution, the impairment of contract clause of Article I, §10, Clause 1 of the U. S. Constitution and Article I, §17 of the Pennsylvania Constitution and the “law of the case” set forth in Pew Trust, 362 Pa. 468, 67 A. 2d 129.
Dissenting Opinion
Dissenting Opinion by
I. agree with Justice Jones and Judge Taxis of the court below, that the settlor did not “direct” the apportionment between principal and income so as to bring this trust within the proviso clause of section 2 of the Principal and Income Act.
I likewise-agree that our decision in Catherwood with respect to the retroactive application of the Act to ordinary stock dividends is entitled to as much weight as our decision with regard to extraordinary stock dividends—a determination which the majority apparently accepts. Moreover, no reason is advanced by the majority why our decision in Catherwood that ordinary stock dividends are subject to the Principal and Income Act should now be overruled.
I would go further, however, and hold that the retroactive application of the Act to ordinary stock dividends does not violate due process or constitute an impairment- of the obligation of contracts, as contended by appellant. . As we held in Catherwood, “[t]here is ho vested property right in a court-made rule of apportionment.” [405 Pa. at 77]. Instead of undermining the Act of 1947 and our decision, in Catherwood, as the majority does, I would give appellant the opportunity to question the constitutionality of Catherwood before the United States Supreme Court—the obvious purpose of this litigation.
Accordingly, I dissent.