Donath v. Shaw

• Citation: 29 A.2d 555,132 N.J.Eq. 545
• Decision Date: 21 December 1942
• Docket Number: 139/449.
• Parties: DONATH et al. v. SHAW et al.
• Court: New Jersey Court of Chancery

29 A.2d 555

132 N.J.Eq. 545

DONATH et al.

v. SHAW et al.

139/449.

Court of Chancery of New Jersey.

Dec. 21, 1942.

Syllabus by the Court.

1. In construing a will, the intention of the testator as gathered from the language used therein is controlling unless contrary to law or public policy. The intention, if apparent, controls all presumptions and assumptions.

2. The rule that the nonexistence of the subject of a legacy at the date of the testator's death evidences its ademption is but a rule of evidence, rebuttable by other evidence indicating that ademption was not intended.

3. There is a close analogy between the ademption and lapse of legacies, and the same principles control questions touching the one and the other.

4. Where a testator bequeathed shares of his stock in Corporation "A" to the value of $25,000 to those persons who should be stockholders of that corporation at the time of his death, and later caused "A" to be dissolved and organized Corporation "B" to take over all the assets and continue the business of "A" and to assume its liabilities, there being no change in the personnel of the stockholders and officers or their proportionate stock interests, the business of "A" being continued by "B" without interruption, held, there was no ademption and no lapse of the legacy.

5. Under R.S. 14:13-1, N.J.S.A. 14:13-1, statutory dissolution of a corporation is accomplished upon the filing of the certificate of the consent of stockholders with the Secretary of State, but under R.S. 14:13-4, N.J.S.A. 14:13-4 the corporate entity is continued for the purpose of winding up its business and disposing of and conveying its assets.

Bill in chancery by Charles Donath and others against Florence Shaw, substituted administrator, c.t.a. of Joseph H. Shaw, deceased, and others, seeking the construction of the last will and testament and codicil thereto of Joseph H. Shaw, deceased.

Decree in accordance with opinion.

Morris Schechter, of Newark (Meyer E. Ruback, of Newark, of counsel), for complainants.

Samuel R. Blaine, of Newark (Isidor Kalisch, of Newark, of counsel), for defendants.

BERRY, Vice Chancellor.

By this bill the complainants seek the construction of the last will and testament and a codicil thereto of Joseph H. Shaw, who died on October 11, 1939, leaving a will dated June 26, 1926, and a codicil thereto dated September 29, 1926. By his will, testator devised the residue of his estate to Fidelity Union Trust Company, of Newark, as trustee under certain trusts therein mentioned, designed mainly for the support of his wife and minor child. By the codicil testator provided as follows:

"First: Before establishing the trust set up in paragraph 'Third' of my said will, I direct my executor to set aside shares of my stock in Phoenix Brass Foundry, Inc. to the value of twenty-five thousand dollars, as the same shall be appraised at the time of my death, and to assign, transfer and deliver said shares of stock to the then surviving stockholders of said Phoenix Brass Foundry, Inc. in the proportion in which they shall be holders of stock in said company, which stock in such proportion I do give and bequeath to them".

The complainants, forty in number, are those individuals who claim to have been the surviving stockholders of the Phoenix Brass Foundry, Inc., at the date of testator's death, with the exception of Florence Shaw, testator's widow, and Alfred R. Shaw, testator's son, who are made defendants to this suit. The prayer of the bill is that the will and codicil be construed and the complainants' rights thereunder determined, and that in the event that complainants are adjudged entitled to the legacy provided in the "First" clause of the codicil, distribution be ordered and directed amongst them, and that in the event that the defendants are held to have negligently and wilfully refused to carry out the terms of testator's will and codicil, complainants be reimbursed for losses thereby sustained.

The main defenses to this action are two in number; first, that the legacy provided by paragraph "First" of the codicil has been adeemed, because the stock in the Phoenix Brass Foundry, Inc., referred to in that paragraph, was nonexistent at the time of testator's death, the corporation having been voluntarily dissolved on or about December 31, 1928; and second, that the legacy therein provided has lapsed, the legatees therein named being nonexistent at the date of testator's death because of the dissolution of the Phoenix Brass Foundry, Inc., as above mentioned. It is claimed by the defendants that neither the subject of the legacy nor the legatees were in existence at the time of testator's death, hence either the defense of ademption or lapse must prevail.

The facts giving rise to this controversy, other than those stated above, are as follows: At the date of testator's will and also at the date of the codicil thereto, the testator was the president and controlling stockholder of Phoenix Brass Foundry, Inc., which had been incorporated in New Jersey in 1920 with an authorized capital stock of $100,000 divided into 1,000 shares of common stock of the par value of $100 each. Of this stock, the testator owned, at the date of his will and at the date of the codicil thereto, 366 shares. The business of that corporation was the manufacturing of brass fittings for the wholesale plumbing trade and its business expanded until 1928, when its assets were appraised at $601,630. For the purpose of providing finances for further expansion of the business, the management then determined to issue 6 1/2% convertible gold bonds to the amount of $300,000 to be secured by a first mortgage on the corporate assets. The underwriters of this proposed bond issue felt that the capital structure of the company would not warrant an issue of bonds in that amount, and suggested that that structure be remodeled and that stock in a sum equal to the appraised value of the company's assets be issued. There was some discussion between the company's management and the underwriters as to whether or not this should be accomplished by an amendment of the charter or by a reorganization through the incorporation of a new company to take over the assets of Phoenix Brass Foundry, Inc. The underwriters advised that the company's name be changed to Phoenix Brass Fittings Corporation, as more accurately describing the business of the company. Upon advice of counsel, it was decided to organize a new corporation under the name of Phoenix Brass Fittings Corporation, and to transfer all of the assets of the old company to the new company, and this was accordingly done. Phoenix Brass Foundry, Inc., was dissolved pursuant to statutory proceedings and a certificate of dissolution filed in the office of the Secretary of State on December 31, 1928. The Phoenix Brass Fittings Corporation was thereafter duly incorporated, the certificate of incorporation being filed in the office of the Clerk of Essex County on January 2, 1929, and in the office of the Secretary of State on January 5, 1929. Under date of January 2, 1929, an agreement was entered into between the old and the new companies which provided for the acquisition by the new company of the entire business and assets of the old company, including plant, real estate, good will, trademarks, patterns, machinery, cash in bank and accounts receivable, the taking over of said business as a going concern, and the assumption by the new company of all the liabilities, contracts and engagements of the old. The contract provided for an immediate closing and for the surrender by the stockholders of the old company of all of their stock, the cancellation thereof, and the issuance to them in lieu thereof of stock of the new company in the proportion of sixteen shares of common stock of the new company for one share of common stock of the old company surrendered, and one share of preferred stock of the new company for each share of preferred stock of the old company surrendered. A deed and bill of sale were accordingly executed and delivered by the officers of the old company on January 2, 1929, by which all of the assets of the old company were transferred to the new. When this transaction and transfer of the assets and the business of the old company to the new was completed, all of the stockholders of the new company were the identical persons who had been stockholders of the old company. There were no new stockholders. The Board of Directors of the new company consisted of the identical persons who had previously been directors of the old company; the officers of the new company were the same persons who had been like officers of the old company. There was no change in executive, sales or factory personnel. There was no change in the bookkeeping system; the ledgers, journals, and all other books constituting the integrated accounting system of the old company were taken over bodily by the new company and continued in use. There was no change in location of the business or plant, nor in the character of its business. There was no change in the substance of the enterprise, but merely in its form. After the conversion the economic participating interest of each shareholder in the corporate assets of the new company was precisely the same as it had been in the old. The testator received 5,856 shares of common stock of the new company in exchange for the 366 shares of stock of the old company which he surrendered. Subsequently, and before his death, he acquired 423 additional shares of the common stock and 16 1/2 shares of the preferred stock of the new company, so that, on the date of his death, he owned 6,279 shares of common stock and 16 1/2 shares of preferred stock of the Phoenix Brass Fittings Corporation. The evidence conclusively shows that the Phoenix Brass Fittings Corporation was the successor to, and for all practical purposes, the continuing entity previously known as the Phoenix Brass...