Egavian v. Egavian, 3-A

CourtUnited States State Supreme Court of Rhode Island
Citation232 A.2d 789,102 R.I. 740
Docket NumberNo. 3-A,3-A
PartiesEdward V. EGAVIAN et al., Executors and Trustees v. Almas EGAVIAN, Individually and as Guardian of the Person and Estate ofGregory K. Egavian, a Minor. ppeal.
Decision Date18 August 1967
Armstrong, Gibbons, Black & Lodge, William J. McGair, Providence, for complainants

KELLEHER, Justice.

This is a civil action 1 for the construction of the last will and testament of George V. Egavian, late of the city of Providence, brought by his two brothers who are designated therein as the executors and trustees. The deceased is survived by his widow, two married daughters and a son who is a minor-all of whom have been made parties to the action. All are represented by counsel and a guardian ad litem was appointed to represent the minor's interests. When this action was ready for the entry of a final judgment in the superior court, it was certified here pursuant to G.L.1956, § 9-24-28, as amended, for our determination.

From the record, it appears that the instant will was executed on August 8, 1962. The testator made certain devises and bequests and then created three testamentary trusts. It is the trust established by the fourth clause of this will which is before us for our consideration. It is set forth in the appendix.

By the terms thereof, the testator bequeathed 1,000 shares of common stock of the American Telephone and Telegraph Company (hereinafter referred to as A.T. & T.) to plaintiffs as trustees for the benefit of his wife. The trust directed the trustees to (a) pay the net income of the trust estate to the wife during her life; (b) make such payments from the trust principal to the wife as in their uncontrolled discretion they considered necessary for her maintenance, support or well-being; (c) transfer and pay over absolutely and in fee simple the entire principal free from any trust to any person or persons designated by the wife in the exercise of a general power of appointment given her in this instrument. This clause also provided that in the event the testator, at the time of his death, did not own 1,000 shares of A.T. & T. stock, the executors were directed to transfer to the trustees other securities or cash of an equivalent value of $100,000 to serve as the res of the fourth clause trust.

At the time the will was executed, the testator owned 1508 shares of A.T. & T. stock. Thereafter on April 15, 1964, A.T. & T. caused its common stock to split on a ratio of two shares for one. The market value of such stock subsequently declined by approximately 50 per cent. This stock split gave the testator a total of 3016 shares. On May 5, 1965, he died owning these shares, never having changed his will of August 8, 1962.

The two issues presented in the instant suit are: First. Whether the corpus of the fourth clause trust shall consist of the 1,000 shares of A.T. & T. stock as described in the will or, because of the stock split, shall it be composed of 2,000 shares of stock? Second. Since there is an absence in the fourth clause of any mandate or direction to the trustees as to the frequency with which the income from this trust is to be paid, to the trustees have the power to withhold revenue payable to the beneficiary for a period of time in excess of one year?

For reasons that follow, we hold that the corpus of the trust shall be 2,000 shares of A.T. & T. common stock and the trustees have no authority to withhold income which is payable to the beneficiary for a period of time in excess of one year.

I The Stock Split

It is urged on behalf of the widow that we construe the gift in the fourth clause as a specific bequest of 1,000 shares of stock. Accordingly, she would have us adhere to the general rule as it is expressed in In re Rees' Estate, 210 Or. 429, 311 P.2d 438, which states that a specific legatee is entitled to any increment in the number of shares of stock specifically bequeathed to him which may occur from a stock split. Contrarywise, it is contended by the children, who are residuary legatees, that the gift is a general or demonstrative and not a specific bequest. The rationale for this position can be found in McGuinness v. Bates, 345 Mass. 632, 189 N.E.2d 212, a case in which the court ruled that where there was a general bequest of stock, any addition thereto emanating from a stock split, fell into the residuary estate.

The identity of those to whom the surplus shares of a stock split should be awarded and whether the answer thereto turns on the character of the bequest are questions of first impression in this jurisdiction. Accordingly, we shall examine how other courts have treated this problem and with their decisions as a guide, we shall attempt to set forth a rule which appears to us most reasonable to be applied in the circumstances of a stock split.

In our consideration of the problem posed by the split, we are still guided by our long-standing rule that we will read a will in its entirety and if the dispositive intent of the testator is ascertainable from within the four corners of the instrument or is discoverable in the light of the circumstances of its formulation, it shall be given effect. Industrial Nat'l Bank v. Austin, R.I., 219 A.2d 389; Jorge v. da Silva, R.I., 218 A.2d 661; Manufacturers Nat'l Bank v. McCoy, R.I., 212 A.2d 53. Long ago we stated that it was the duty of the judiciary 'regardless of the particular words or phrases found in the will' to interpret such an instrument as to give force to the testator's intention so far as it may be discovered from an analysis and examination of the whole will. Sherman v. Riley, 43 R.I. 202, 206, 110 A. 629, 631.

Each defendant herein takes the position that his respective right to the additional shares of stock caused by the stock split is dependent upon whether we construe the gift in the fourth clause as either a specific, general or demonstrative bequest. It is clear that a decided majority of courts in considering the effect upon a bequest of corporate stock by a change in the stock or the corporate structure, in many instances, makes an initial characterization of the bequest. We believe the underlying reason for this approach, in which an attempt is made to ascertain the intent of the testator, is due to the fact that many states, including Rhode Island, have incorporated the common-law rule that a will speaks and takes effect as if it were executed a moment before the testator's death, unless a contrary intention appears in the will. G.L.1956, § 33-6-6. Warner v. Baylor, 204 Va. 867, 134 S.E.2d 263.

As a result, many courts, in order to permit the legatee to receive the additional shares born of the split, have assiduously scoured a will and the circumstances attendant upon its execution in an effort to discern the necessary contrary intent before relief can be had from the restrictions of the common-law rule. In an obvious attempt to free themselves from the shackles of the common law, courts have evolved another rule of construction which, first announced in Thayer v. Paulding, 200 Mass. 98, 85 N.E. 868, and quoted approvingly in Gardner v. Viall, 36 R.I. 436 at page 444, 90 A. 760, 763, is stated as follows: "A very slight indication of an intention to give shares then in his ownership is sufficient to make the legacy specific * * *."

We are of the opinion that in cases of stock splits adherence to tenets of the common-law rule as embodied in our statute relating to the time from which a will speaks is unnecessary. The English statute, it has been said, '* * * relates to the effect and operation of the instrument, not to its construction.' 57 Am.Jur., Wills, § 1209, pp. 795, 796; Lee, etc. v. Foley, 224 Miss. 684, 80 So.2d 765, 61 A.L.R.2d 209.

While we believe that the distinctions drawn between the classification of bequests are necessary in those cases where ademption and abatement issues are present, such distinctions, in our opinion, are unnecessary and inappropriate in cases involving stock splits. In Clegg v. Lippold, Ohio Prob., 123 N.E.2d 549, and In re Parker's Estate, Dist. Ct. of App., Fla., 110 So.2d 498, cert. denied Fla. 114 So.2d 3, it was pointed out with clarity the fallacy of determining the entitlement of a legatee to the additional shares brought on by a stock split on the basis of the classification of the bequest. The rulings of these two cases are, in our opinion, more attuned to the commercial realities of today's stock market and the modern sophistication of corporate financing and, what is most important, the stockholder's rights which these securities represent. The Florida court in In re Parker's Estate, supra, at 503 and 504, summarizes these observations as follows:

'* * * A share of corporate stock entitles the shareholder to an undivided share of profits of the corporation which may be declared from time to time in the form of dividends, and also to a share in the assets of the corporation on liquidation. These rights may from time to time be altered by action of the board of directors alone, or in certain cases by other actions which must be approved by a vote of the shareholders. Corporate law provides, through these possibilities, needed flexibility in financing so that the management and shareholders may deal with varying business conditions and turns in corporate fortune. In the world of today, it seems more logical to assume that, in the absence of language to the contrary, a testatory, in making a gift of a given number of shares of stock in a corporation, intends that the legatee be entitled to the future profits of the corporation in the same fractional share as the testator received at the time of the execution of the will * * *.'

It is readily apparent from an understanding of the basic elementary principles of corporate security law that a change in the number of shares of stock...

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    ...number of units without disturbing the stockholder's original proportional participating interest in the corporation.' Egavian v. Egavian, 102 R.I. 740, 746, 232 A.2d 789, 793 (1967). Thus, for example, in a situation where a testator executes a will leaving 100 shares of a certain [364 Mas......
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