Lamb v. Lehmann
| Decision Date | 01 April 1924 |
| Docket Number | 18172 |
| Citation | 110 Ohio St. 59,143 N.E. 276 |
| Parties | Lamb v. Lehmann, Trustee Et Al. |
| Court | Ohio Supreme Court |
Wills - Trusts - Corporate stock - Income for life and principal to remainderman - Cash, property or stock dividends distributed how - "Income" construed - Presumption that distribution of profits by corporation to govern.
1.Where a will gives to a trustee, in trust, certain shares of stock In a corporation, with power of sale and reinvestment, and Instructions to pay "the entire net Income thereof" to one person for life, with remainder to another, all cash or property dividends declared thereon shall be payable to the person holding the life estate, and all stock dividends so called, shall become a part of the corpus of the estate and be held by the trustee during the life of the life tenant, and be distributed at his death to the remainderman.
2.All cash or property dIvidends declared and paid upon stock dividends shall likewise be payable to the owner of the life estate during his life.
3.Where a will disposes of the net Income upon stock In a corporation, without defining the term "Income" or limiting Its meaning within or expanding it beyond that which would depend upon the regular action of the board of directors of such corporation, the testator will be presumed to have had in mind the lawful power and control of the corporation over the use and distribution of profits.
This cause originated in the court of common pleas of Hamilton county, Ohio, in which Carl Lehmann, as trustee under the will of Anna H. Ready, deceased, prayed the judgment of the court respecting the trust, the petition alleging that by the will of Mrs. Heady, in the residuary clause thereof, the testatrix bequeathed to Carl Lehmann, as trustee, in trust, all the remainder of her estate not specifically disposed of, giving the trustee wide latitude in the control, management, and investment thereof, and providing that after payment of all expenses of management of the trust estate he should "pay over to Mollie Lamb * * * the entire net income thereof for and during her lifetime," and at her death "convert the principal of said trust estate into cash, and after paying all costs expenses and charges incident thereto * * * pay the same to the Endowment Fund Association of the University of Cincinnati."
At the time of the death of testatrix, on March 16, 1917, she owned 250 shares of the common stock of the Richardson Company, of the par value of $100 each, which stock became a part of the trust fund. At that time there were outstanding 15,000 shares of the Richardson stock.
During the administration of the trust the business of the Richardson Company was very profitable, so that from time to time cash dividends were paid to the trustee upon such stock all of which were in turn paid to Mollie Lamb. In addition to the cash dividends, stock dividends were declared from time to time, whereby 204 additional shares of Richardson stock came into the possession of the trustee. At the several times when stock dividends were declared resolutions were adopted by the board of directors, which resolutions were art fully drawn, and the disbursements were not denominated stock dividends, but it was declared that there was an accumulated surplus, which it was desired to capitalize, and that common capital stock then held in the treasury should be issued forthwith pro rata to the holders of the common stock of the company, and be declared fully paid for at par by charging against surplus. It is considered, however, that the effect of those resolutions was to declare and pay stock dividends.
By the answer and the reply there was submitted for determination the question whether such stock dividends belonged to the life estate, to be paid to Mollie Lamb, or whether, on the other band, they belonged to the estate in remainder, to be retained by the trustee until the death of Mollie Lamb, and then turned over to the endowment fund of the University of Cincinnati in accordance with the further terms of the will.
The parties have stipulated the following:
There is still some controversy as to the true meaning of this stipulation, but this court will proceed upon the theory that the stipulation shows, not only that the cash dividends, which were paid to Mollie Lamb, but also the amount of all stock dividends paid since the death of the testatrix represented net earnings of the company after her death. The concrete question of law, therefore, is: Does a stock dividend distributed out of surplus earnings accumulated by the corporation after the death of the testatrix belong to the life estate, or does it, on the other hand, augment the corpus of the estate, and is therefore to be held for the estate in remainder?
The case was heard in the common pleas, and judgment was rendered in favor of the estate in remainder. It was thereupon appealed to the Court of Appeals, which court rendered the same judgment. Testimony was taken, not for the purpose of aiding the court in construing a latent ambiguity, but for the sole purpose of showing the condition of the Richardson Company, the period when the surplus was earned out of which the cash and stock dividends were paid, the soundness of the policy of the company in declaring and paying dividends by issuing stock from the treasury, thereby retaining the money in the treasury as capital for the expansion of the business and assurance against possible future losses, and the good faith of the board of directors in adopting such policy.
We are not able to find that any question is made by either party to this record as to the soundness of the company's policies, or the good faith of the board of directors. At the several times when stock dividends were declared, and certificates issued in payment thereof, the trustee of the Heady estate was the owner of less than 1 per cent. of the capital stock of the corporation. It is therefore impossible that the policy of the board of directors could have been influenced by any desire or purpose to affect the administration of this trust, or to confer any favor or advantage upon the estate in remainder. The answer of Mollie Lamb makes no such defense. It seems to be conceded, therefore, that no stockholder may justly complain of the action of the corporation in issuing stock and charging it against surplus rather than pay the surplus earnings to stockholders in cash. The determination of the legal question involved is therefore entirely clear from any complications of fact.
The Court of Appeals of the First Appellate District at the time of entering judgment certified the cause to this court for review and final determination because of conflict with a judgment heretofore pronounced on the same question by the Court of Appeals of the Sixth Appellate District.
Mr. John P. Campbell and Mr. Ed. P. Schorr, for Mollie Lamb. Mr. John J. Weitzel; Mr. Rufus B. Smith and Mr. Frank F. Dinsmore, for Endowment Fund Association. Mr. Carl Lehmann, in propria persona.
This was originally an application for the direction and judgment of the court as to the proper administration of the trust imposed by the will of Mrs. Heady, and for an interpretation of the trust provisions respecting 204 shares of so-called dividend stock which came into the possession of the trustee after the death of testatrix.
The rights of the respective claimants to that property are controlled and must be determined by the intent of the testatrix. Being the owner will full power of disposition she gave the "income" to Mrs. Lamb during her lifetime reserving the corpus to the university endowment. The case therefore turns upon the meaning of income, and a determination of whether the 204 shares are income or a part of the corpus of the estate.
Ordinarily no difficulty would be experienced in defining the word "income." If the corpus was a piece of real estate under a perpetual lease, with bond to secure the rent, and all taxes, expenses, repairs, improvements, and upkeep paid as a part of the rent, the cash rental would be the income which would be payable in its entirety to the life tenant. If not leased, and possession given to a life tenant, such life tenant would be liable, not only for expenses and repairs but also for such improvements as would be necessary to prevent waste, under penalty of damages and possible forfeiture. In such event income has a more complex and doubtful significance, but even so it remains measurably under the control, judgment, and discretion of the life tenant. If the property consists of a mercantile business, or a manufac- turing concern, it requires elaborate bookkeeping and accounting with allowance for depreciation and reserves to ascertain the true income. If the property is common capital stock in a corporation, all the foregoing matters must be considered by the corporate officials in ascertaining its net profits, and when that point has been reached there still remains one all-important step to be taken before the income of the stockholder is known. The corporation, through its managing board of directors, must consider and decide the question of corporate policy,...
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