Pew's Trust Estate, In re

• Citation: 411 Pa. 96,191 A.2d 399
• Parties: In re TRUST ESTATE of Mary C. PEW, Settlor. Appeal of Arthur E. PEW, Jr.
• Decision Date: 29 May 1963
• Court: United States State Supreme Court of Pennsylvania

Page 399

191 A.2d 399

411 Pa. 96

In re TRUST ESTATE of Mary C. PEW, Settlor.

Appeal of Arthur E. PEW, Jr.

Supreme Court of Pennsylvania.

May 29, 1963.

Paul Maloney, Philadelphia, for appellant.

M. Paul Smith, Norristown, for appellee.

Before BELL, C. J., and MUSMANNO, JONES, COHEN, EAGEN, O'BRIEN and ROBERTS, JJ.

BELL, Chief Justice.

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. ¹ 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 ² 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's 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's 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, 174 A.L.R. 220, and Liggett Co. v. Baldridge, 278 U.S. 105, 49 S.Ct. 57, 73 L.Ed. 204; and (4) because an award to principal would 'impair the obligation of the contract,' viz., the deed of trust, thus contravening Article I, Section 17, of the Constitution of Pennsylvania, P.S. and Article I, Section 10, Clause 1, of the Constitution of the United States, citing Cross Lake Shooting & Fishing Club v. Louisiana, 224 U.S. 632, 32 S.Ct. 577, 56 L.Ed. 924; see also Trustees of Dartmouth College v. Woodward, 17 U.S. 518, 4 L.Ed. 629, and Treigle v. Acme Homestead Ass'n., 297 U.S. 189, 56 S.Ct. 408, 80 L.Ed. 575, and Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 58 S.Ct. 443, 82 L.Ed. 685.

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's 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; Williard's Estate, 68 Pa. 327.

In Pew's Trust, 362 Pa. 468, 67 A.2d 129, 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 and a vested interest under the terms of the trust, not only in ordinary stock dividends, but also in the extraordinary stock dividends--and he was 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 (362 Pa. page 469, 67 A.2d page 130): '[T]he provisions of the Uniform Principal and Income Act of May 3, 1945, P.L. 416, 20 P.S. § 3471-3485, and the Principal and Income Act of July 3, 1947, P.L. 1283, 20 P.S. § 3470 et seq., are unconstitutional when applied retroactively to trusts created prior to their enactments.'

In Crawford's Estate, 362 Pa. 458, 67 A.2d 124, and in Steel's Estate, 377 Pa. 250, 103 A.2d 409, and in Jones' Estate, 377 Pa. 473, 105 A.2d 353, and in Warden's Trust, 382 Pa. 311, 115 A.2d 159, and, as recently as 1959, in Cunningham's Estate, 395 Pa. 1, 149 A.2d 72, the Court unantimously 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's Trust, 405 Pa. 61, 173 A.2d 86, supra, the Court specifically overruled Pew's Estate, Crawford's Estate and Warden's Estate, and impliedly overruled Steel's Estate, Jones' Estate and Cunningham's Estate. ³ In Catherwood's 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 (405 Pa. pages 68-69, 70, 72, 74-75 and 74-78, 173 A.2d pages 89-90, 92, 93): '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, sections 1 and 9 of the Pennsylvania Constitution, P.S., and the 14th Amendment to the U. S. Constitution. * * * On the same day Crawford was handed down by this Court, Pew's 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 Steel Estate, 377 Pa. 250, 103 A.2d 409; and in 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 the passage of the Act. * * * In Cunningham Estate, supra, * * * noting the unworkability of the Rule, we refused to extend its application to events other than those recognized as apportionable prior to the effective date of the 1945 Act, ⁴ 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 trust, constitutionally inhibited.

In Catherwood's 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, ⁵ 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 dividends, 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 ⁶ 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 of difficulties or glaring inconsistencies, nor unworkability'--which was the 'ratio...