Pew Trust

191 A.2d 399, 411 Pa. 96, 1963 Pa. LEXIS 482

Opinions

Opinion by

Mr. Chief Justice Bell,

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.

Footnotes

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* The other one-half of the corpus is held for the benefit of Walter C. Pew and his children upon exactly the same terms. This latter trust is not presently before the Court.

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** of the common stock of said Sun Oil Company” for Arthur E. Pew, Jr., and his children as aforesaid, and 20,000 shares for Walter C. Pew, and his children as aforesaid. Common Stock of the Sun Oil Company was and still is the sole asset of each trust.

On December 8, 1961, the trustees of the Mary C. Pew Trust for Arthur E. Pew, Jr., et al., received from the Sun Oil Company a stock dividend of 6% or 1,841.64 shares of the common stock of Sun Oil Company. Arthur E. Pew, Jr., the life tenant, claimed that he was entitled to this stock dividend as part of the income of the Trust. The guardian ad litem for various minor children and issue and all unascertained persons, claimed the dividend was a part of the principal of the trust. The life tenant appealed from the final Order (or Decree) of the Orphans’ Court which, relying upon Catherwood Trust, 405 Pa. 61, 173 A. 2d 86, awarded the shares to principal.

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 Arthur and Walter to receive all stock dividends from this Trust; and that this was her intent when she created the trust. We agree with the decision and the Opinion of the Auditing Judge that this testimony was inadmissible. Cf. Beisgen Estate, 387 Pa. 425, 430, 431, 432, 128 A. 2d 52; Penrose's Estate, 317 Pa. 444, 176 A. 738; Dembinski's Estate, 316 Pa. 61, 173 A. 314; Willard's Estate, 68 Pa. 327.

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.

However, in Catherwood Trust, 405 Pa., supra, the Court specifically overruled Pew Trust, Crawford Estate and Warden Trust, and impliedly overruled Steele Estate, Jones Estate and Cunningham Estate.* In Catherwood Trust the Court further declared to be "constitutional" what, in the prior decisions above mentioned, this Court had repeatedly held to be unconstitutional. The Court said (pages 68-69, 70, 74-75 and 77): "This Court held that the decisional law embodied in the Pennsylvania Rule established in the life tenant a vested property right and that the provisions of the 1945 Act providing for its retroactive application to trusts created prior to the Act were constitutionally inhibited by Article I, §§ 1 and 9 of the Pennsylvania Constitution and the 14th Amendment to the U.S. Constitution. . . . On the same day Crawford was handed down by this Court, Pew Trust, 362 Pa. 468, 67 A. 2d 129, was decided. In Pew, relying on Crawford, we held that the retroactive provisions of both the 1945 and 1947 Acts were unconstitutional when applied retroactively to trusts created prior to their passage. References to our holdings in Crawford and Pew were later made in and affirmed in Steele Estate, 377 Pa. 250, 103 A. 2d 409; Jones Estate, 377 Pa. 473, 105 A. 2d 353. Finally, in Warden Trust, 382 Pa. 311, 115 A. 2d 159 we decided that a life tenant had a vested property right in extraordinary dividends declared on stock acquired after the effective date of the 1947 Act and that such Act could not be constitutionally applied to stock acquired by trusts created prior to the Act even though the acquisition of such stock took place after passage of the Act.. . . In Cunningham Estate, supra, . . . noting the unworkability of the Rule, we refused to extend its appli cation to events other than those recognized as apportionable prior to the effective date of the 1945 Act,* and we therein stated: `Present day economic conditions, particularly in the corporate field, present a drastic contrast to the economic conditions in existence at the inception of and during the formative years of the Rule, and corporate practices plus multiplication and extension of taxes has made the application of the Rule even more difficult and often unworkable. The complexities, the uncertainties, and the difficulties which are inherent in the application and administration of the Rule have too often in these modern times created confusion, injustices and glaring inconsistencies. . . . The purpose and aim of the Rule was commendable: It sought, and was generally acknowledged to have achieved, an equitable adjustment of the rights of both life tenants and remainderman . . . ." The Court then abolished in futuro the Court-made Rule of Apportionment and held that it was not, even as to prior trusts, constitutionally inhibited.

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,* had a life tenant’s right to ordinary cash and ordinary stock dividends been denied.** In all the history of Pennsylvania Rule of Apportionment this Court has never held that stock divi dends, up to and including 6%, were apportionable, but on the contrary all such dividends were considered income. Catherwood recognized and confirmed this historical fact. We believe it was not the intent of the Court in the Catherwood decision—but if it was, the dicta in a footnote* to that effect is hereby overruled—to abolish the right of a life tenant to ordinary stock dividends or ordinary cash dividends in pre-1945 trusts, neither of which had ever been subject to the Pennsylvania Equitable Rule of Apportionment or had ever caused “confusion or complexities or uncertainties or difficulties or glaring inconsistencies, nor unworkability”—which was the “rationale” given for the abolition of the Pennsylvania Rule of Apportionment and which, we repeat, had never been applicable to ordinary dividends. On the contrary the Court was unanimous in affirmatively holding that stock distributions of 6 % or less belonged to the life tenant. For example, the majority Opinion said (pages 77 and 78) : “If a total stoclc 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 stoclc of the distributing corporation should be treated as income

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 be followed, and for this and several other reasons it is not'applicable to this Trust, viz., “In all audits now pending and henceforth, distributions shall be made under the provisions of the Principal and Income Act of 1947.”

Appellant is correct when he terms the aforesaid statement "dicta",* but so far as concerns the Pennsylvania Rule of Equitable Apportionment of extraordinary dividends and proceeds of sale of stock which the majority therein abolished, it is as controlling as if it were an indispensable part and parcel of the precise decision of the Court on the actual issues in Catherwood Trust. Dictum which is contained in an Opinion and not in a footnote, is sometimes as strong and controlling as a decision on the merits; indeed, Opinions containing dicta are sometimes more carefully and thoroughly considered than some Opinions which are restricted solely to the merits, and others which are "Per Curiam". There are many outstanding examples of the decisive effect of dicta. Probably the leading case in all the legal history of Pennsylvania is Commonwealth v. Drum, 58 Pa. 9 — yet few realize that the Court's Opinion in Commonwealth v. Drum was purely dicta. Nirdlinger's Estate, 290 Pa. 457, 139 A. 200, and Waterhouse's Estate, 308 Pa. 422, 162 A. 295, are other striking examples where the Court wisely set up, by dicta, clear guideposts which were intended to be followed and were followed by this Court for very many years. It follows from what has been said, that the aforesaid dictum in Catherwood Trust discontinuing in futuro the apportionment of extraordinary stock dividends and of the proceeds of sale of stock is now controlling law. However, we repeat, that dictum referred to and must be confined to an apportionment of proceeds of sale of stock and of extraordinary stock dividends — it had no reference or application to ordinary stock dividends. General expressions in an opinion must be considered in the light of and cannot be dissevered from the facts of that case; what is actually decided and controlling is the law applicable to the particular facts of that particular case and while all other statements and conclusions therein are entitled to great consideration they are not controlling. Weyerhaeuser v. Hoyt, 219 U.S. 381, 394; Cohens v. Virginia, 6 Wheat. 264, 399; Schuetz's Estate, 315 Pa. 105, 109, 172 A. 865; Welsch v. Pittsburgh Terminal Coal Corp., 303 Pa. 405, 408, 154 A. 716; Erie City's Appeal, 297 Pa. 260, 266, 147 A. 58; Hill v. Houpt, 292 Pa. 339, 342, 141 A. 159.

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 ditionally, or in trust, i.e., what he wanted to go to his life tenant as income and what to his remainderman as principal. In order to ascertain the settlor’s meaning and intent, we must therefore interpret the language and intent of this proviso (which was never intended to negate the settlor’s or testator’s wishes and intent) in its application to trusts (and wills) created (a) prior to and (b) subsequent to July 3, 1947.

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] . . . . Kelsey Estate, 393 Pa. 513, 143 A. 2d 42; Britt Estate, 369 Pa. 450, 87 A. 2d 243; Sowers Estate, 383 Pa. 566, 119 A. 2d 60; Cannistra Estate, 384 Pa. 605, 121 A. 2d 157." Saunders Estate, 393 Pa. 527, 529, 143 A. 2d 367. . . .': Woodward Estate, 407 Pa. 638, 640, 182 A. 2d 732." This same principle is equally applicable to trusts, both inter vivos and testamentary. Inter vivos trusts: Scholler Trust, 403 Pa. 97, 169 A.2d 554; Wolters Estate, 359 Pa. 520, 59 A. 2d 147; testamentary trusts: Walton Estate, 409 Pa., supra; Althouse Estate, 404 Pa. 412, 172 A. 2d 146; Woodward Estate, supra; Britt Estate, supra; Newlin Estate, 367 Pa. 527, 80 A. 2d 819.

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. . . ."

We must therefore construe the 1947 proviso in its application to this 1932 trust in the light of her language which in 1932 had a clear meaning to laymen, lawyers and Judges alike. To require a settlor (or a testator) who created a trust many (15) years before the Act of 1947 (or any similar Act was passed) "to expressly spell out his directions as to what was and was not `income' and thus express his intent in the identical language used or required by a later Act" would obviously be unreasonable and absurd, and we cannot impute such an intent to the legislature. See Brown Estate, 408 Pa. 214, 227, 183 A. 2d 307; Saunders Estate, 393 Pa. 527, 143 A. 2d 367. Although no example is needed to illustrate what is so obvious, neither a legislature nor a Court could provide that in prior wills and trusts, the words "net income" shall not include interest on bonds, or on mortgages, or any stock dividend unless the testator or settlor specifically and expressly included them in his gift of "net income."

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,* and since 1913 small (6% or less) stock dividends in many years in varying percentages. Every stockholder and especially every Peto stockholder knew that that was the well known, established and ordained policy of the Sun Oil Company.

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 of stock, every lawyer and every layman (testator and settlor alike) and every cestui que trust knew that small stock dividends had for over 100 years always been considered to belong to the life tenants who were (almost always) the primary objects of the settlor's bounty and not to great grandchildren* or unknown or unborn remaindermen. Indeed, if Mrs. Pew had wished and intended all stock dividends (including those which represented earnings) to be a part of principal, such a provision and intent would have been illegal in 1932 as in violation of the then rule against accumulations: See Warden Trust, 382 Pa. 311, 115 A. 2d 159; Cannistra Estate, 384 Pa. 605, 121 A. 2d 157; Act of April 18, 1853, P.L. 503. The following wise aphorism expressed the thought of all — life tenants who were the primary objects of testator's or settlor's bounty should not be forced to starve in order that future remaindermen* might feast. For many stockholders and certainly 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.

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 trust, the small stock dividends of 6% or less, as well as the cash dividends which were paid annually, or as often as possible, to the owners of the common stock of the Sun Oil Company.

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.”

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The Arthur E. Pew, Jr., trust now holds 30,694 shares of said stock.

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The writer of the present Opinion filed a vigorous dissenting (and concurring) Opinion in which Mr. Justice Musmanno joined.

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(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.

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When a change or modification was made by the Legislature.

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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.”

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More accurately “dictum”.

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Italics throughout, ours.

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With one exception.

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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.