Oliver Estate

• Decision Date: 06 October 1890
• Parties: ESTATE OF GEORGE L. OLIVER, DECEASED.
• Court: Pennsylvania Supreme Court

136 Pa. 43

ESTATE OF GEORGE L. OLIVER, DECEASED.

Supreme Court of Pennsylvania.

Argued January 10, 1890.

Decided October 6, 1890.

Before STERRETT, GREEN, CLARK, WILLIAMS, McCOLLUM and MITCHELL, JJ.

APPEAL BY MERCHANTS' FUND ASS'N FROM THE ORPHANS' COURT OF PHILADELPHIA COUNTY.

No. 418 January Term 1889, Sup. Ct.; court below, No. 532 April Term 1887, O. C.

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Mr. James Bayard Henry and Mr. George Junkin, for the appellant:

1. All that the court said about "excitement," "speculation," "boom," "intrinsic value," and "bubble" bursting, is unwarranted by any evidence in the case. There is nothing to justify the suggestion that the land sold was not really worth the sum which it brought. If it was, it had the same intrinsic value at the death of Mr. Oliver, and there has been no gain, income or profit made or earned since his death. It may, for the purpose of the argument, be conceded that the land company was simply a partnership; the opinion of the court below is based upon this assumption. But there is no authority that declares an appreciation in the value of the assets of a partnership, as they existed at the death of one of the partners, to be income which is to go to a life-tenant.

2. Nor is there any case holding that the whole of a decedent's interest in a partnership is not a part of the principal of his estate. There are exceptional cases, such as Heighe v. Littig, 63 Md. 301 (52 Am. Rep. 510); Ibbotson v. Elam, L. R. 1 Eq. 1881; but, beyond all controversy, such an interest is ordinarily principal. In all the exceptional cases the partnerships were, by their terms, to be continued irrespective of the death of a partner. No such provision exists in the present case. The death of Mr. Oliver dissolved the partnership, and no new business could thereafter be transacted. All that could be done was to sell the remaining assets and divide the proceeds, and the trustees of the partnership attempted to do nothing more. No profit, in the proper sense of the term, could be made, and any advance received upon sales of assets, is capital, not income.

3. All the assets existing at the death of the partner were capital, irrespective of whether more or less than their supposed value should be realized upon their subsequent sale. The argument of the learned judge, to show that the $108,849 was earned since the death of the testator, is unsound and fallacious. The company did nothing to earn it. The discovery by others, while it was in a comatose state, of the existence of minerals in this land, cannot be called an earning by the company after his death. And the gains realized by this sale are not the same as ordinary partnership gains. This is a case out of the ordinary. The life-tenant is not entitled to any portion of the capital or assets of the partnership, or the proceeds thereof Kinmonth v. Brigham, 5 Allen 276; Lewin on Trusts, 304; Williams on Executors, 1393; Hill on Trustees, 591.

4. If the land company had been in active operation, buying and selling lands and paying dividends, at the date of the testator's death, it might be said that he intended such dividends to be considered as part of his estate, as in Reed v. Head, 88 Mass. 174, and Balch v. Hallet, 76 Mass. 402. But, in the circumstances of the present case, there can be no dividends, except dividends of capital. If the trustees of the company had undertaken to divide the land itself, the life-tenant would not have been given the fee in any portion of it, and yet the court has awarded her the proceeds of the sale of the fee. There is no magic in the words dividends, profits and income, and equity will disregard the form and grasp the substance of the transaction: Vinton's App., 99 Pa. 434; Eley's App., 103 Pa. 300; Earp's App., 28 Pa. 368; Moss's App., 83 Pa. 264.

5. There are gains of increment as well as gains of income or earnings: Bridge Co. v. Commonwealth, 117 Pa. 265. Income of a partnership association or corporation may be carried into capital account, and new stock, or its equivalent, may be issued therefor to the life-tenant; but increase in the value of assets belongs to the remainderman, especially when, as in this case, it arises from the discovery by strangers of unknown elements of value, and not from any efforts on the part of the management: Cook on Stocks and Stockholders, § 553; Perry on Trusts, § 545 and note; Hill on Trustees, 591; New England Trust Co. v. Eaton, 140 Mass. 532. The income or earnings which, under the Pennsylvania rule, belong to the life-tenant, must result from the employment of either capital or labor or both combined: Earp's App., 28 Pa. 368; Eley's App., 103 Pa. 300.

6. In this case, the fund was realized by a sale of part of the 600 acres of land of which the testator owned an undivided share. The proceeds of such a sale cannot go to the life-tenant: Cairns v. Chaubert, 9 Paige 160; Paris v. Paris, 10 Ves. 185; Howe v. Dartmouth, 7 Ves. 151; Hill on Trustees, 591; Perry on Trusts, § 545; Lewin on Trusts, ^*305; Cook on Stocks and Stockholders, § 554; Williams on Executors, 1393; Vinton's App., 99 Pa. 434; Heard v. Eldredge, 109 Mass. 258; Gifford v. Thompson, 115 Mass. 478; Van Doren v. Olden, 19 N. J. 117. The life-tenant would not lose by any depreciation in the value of the principal, and neither can she gain an advantage by its appreciation, no matter how speculative and unreal the advance may be: Hubley's Est., 16 Phila. 327, affirmed by Supreme Court in January, 1884; Vinton's App., supra; New England Trust Co. v. Eaton, 140 Mass. 552; In re Gerry, 103 N. Y. 445; Cairns v. Chaubert, supra; Hill on Trustees, 591.

Mr. Richard C. Dale and Mr. Henry C. Olmsted, for the appellee:

1. The appellant's argument rests upon the proposition that the testator was the owner of an undivided portion of the land sold. The fallacy in the reasoning by which that proposition is sought to be supported, is that it overlooks the well-established distinction between ordinary partnerships and unincorporated joint-stock associations, with shares transferable at the pleasure of the shareholder. Such an association is not dissolved by the death of a shareholder: Lindley on Partnership, 244. The forty acres were owned, not by individuals, but by a company, organized for the purpose of buying and selling lands for profit. The legal title was vested in the trustees of the company; the equitable title was in the association as a unit, the individual shareholders having no estate, legal or equitable, in the lands as such, their interests being solely in the proceeds of the lands when divided as profits, with a right to the return of the capital invested, upon liquidation: Kramer v. Arthurs, 7 Pa. 165.

2. There is no real distinction between incorporated and unincorporated associations in this respect: Andrews v. Schott, 10 Pa. 50; Morrow v. Brenizer, 2 R. 188; Allison v. Wilson, 13 S. & R. 330; Meily v. Wood, 71 Pa. 488; Zell's App., 126 Pa. 329. This case stands before the court in the same light as if the company had dealt in, and had sold, copper instead of land. It should require very clear affirmative evidence showing fraud in the declaration of this dividend as profits by the trustees, to overcome the effect of their action and justify the court in treating it as a division of capital in the guise of profits. There is not a scintilla of such evidence. It is argued, however, that the profit was earned in the testator's lifetime because the land was then owned by the company. But the profit on such a transaction is made when the sale takes place. Moreover, at the testator's death there was no reason to believe that the land was worth its cost, and all the increase in their market value has come since.

3. It is undisputed that the company retains money and land far in excess of its capital, and on the undisputed facts, under a well-settled line of authorities, the life-tenant is entitled to the dividend, as a profit accruing during her ownership: Earp's App., 28 Pa. 368; Wiltbank's App., 64 Pa. 256; Thomson's Est., 11 W. N. 482; Phil. Trust Co.'s App., 24 W. N. 137 (1 Mona. 230); Bridge Co. v. Commonwealth, 117 Pa. 265; Barclay v. Wainewright, 14 Ves. 66; Browne v. Collins, L. R. 12 Eq. 586; Hyatt v. Allen, 56 N. Y. 553 (15 Am. Rep. 449); Perry on Trusts, §§ 544, 545; Reed v. Head, 6 Allen 174; Harvard College v. Amory, 9 Pick. 446; Balch v. Hallet, 10 Gray 402; Van Doren v. Olden, 19 N. J. Eq. 176; Lord v. Brooks, 52 N. H. 72. In Moss's App., 83 Pa. 264, and Biddle's App., 99 Pa. 278, the transaction was substantially an increase of capital stock, without an increase of capital, producing a consequent impairment of the value of the original shares, and the stock dividends were held to be capital for that reason. Vinton's App., 99 Pa. 434, is distinguishable from the present case, as substantially the entire capital was there distributed.

OPINION, MR. JUSTICE WILLIAMS:

The contest in this case is between the life-tenant and the remainderman, and the question is whether the fund in the hands of the trustees is income or principal. It appears that George L. Oliver was one of the persons who organized the Metalline Land Company of Lake Superior, and that he remained a member of the company until his death in 1886. This company was organized on the joint-stock plan, with a capital divided into twenty thousand shares having a nominal or face value of five dollars each. At the time of his death Oliver held five thousand five hundred and eighty-two shares. By his will he made some specific gifts, and placed the residue of his large estate in the hands of trustees with directions to pay the net income derived therefrom to his daughter, during her life, and the principal, after her decease, to the Merchants'...