Robert v. Mercantile Trust Co.

• Decision Date: 30 December 1929
• Docket Number: No. 28075.,28075.
• Citation: 23 S.W.2d 32
• Parties: DOUGLAS W. ROBERT ET AL. v. MERCANTILE TRUST COMPANY, Trustee under Will of EDWARD S. ROBERT, ET AL., Appellants.
• Court: Missouri Supreme Court

23 S.W.2d 32

DOUGLAS W. ROBERT ET AL. v. MERCANTILE TRUST COMPANY, Trustee under Will of EDWARD S. ROBERT, ET AL., Appellants.

No. 28075.

Supreme Court of Missouri, Division One.

December 30, 1929.

Appeal from Circuit Court of City of St. Louis. — Hon. Anthony F. Ittner, Judge.

REVERSED AND REMANDED (with directions).

Paul Bakewell, Jr., for appellants.

(1) The receipt by the trustee of the 532 shares of no-par-value stock was in pursuance of a contract of exchange. Said stock was neither issued nor received as a stock dividend and was not, in fact or legal effect, a stock dividend. In this State only directors of a corporation can declare a stock dividend. 23 C.J. 181; Martin v. Mill Co., 49 Mo. App. 23; Whitman v. Gas Co., 129 Atl. 22, 148 Md. 90; Milligan v. Gro. Co., 207 Mo. App. 484; Stockard on Missouri Corporation Law, sec. 156; Laws 1923, p. 362. (2) Under a will bequeathing "income" of a trust estate to life tenants, and providing for a distribution of the corpus of the estate to remaindermen, the increase in value of the original assets of the estate, when evidenced by new or different securities obtained on a sale or exchange of the original securities, is not to be considered as "income" distributable to the life-tenants, but is a part of the principal or corpus of the estate, and should remain in the hands of the trustee to be administered as such, and finally distributed to the remaindermen, in accordance with the terms of the will. Hayes v. Trust Co., 317 Mo. 1043, 298 S.W. 91; Eisner v. Macomber, 252 U.S. 189; Nirdlinger's Estate, 8 Pa. D. & C. 595; Leech's Estate, 4 Pa. D. & C. 1; Kembles' Estate, 201 Pa. 523; Stewart v. Phelps, 71 App. Div. 91, 75 N.Y. Supp. 529, 173 N.Y. 621; Boardman v. Mansfield, 79 Conn. 634, 12 L.R.A. (N.S.) 793, 118 Am. St. 178; Carpenter v. Perkins, 83 Conn. 11, 74 Atl. 1062; Parker v. Johnson, 37 N.J. Eq. 366; Outcalt v. Appleby, 36 N.J. Eq. 73; Matter of Gerry, 103 N.Y. 445; Thayer v. Burr, 201 N.Y. 155, 94 N.E. 604; Graham's Estate, 198 Pa. 216, 47 Atl. 1108; Neel's Estate, 207 Pa. 446, 56 Atl. 950; Lauman v. Foster, 157 Iowa, 275, 135 N.W. 14, 50 L.R.A. (N.S.) 531; Slocum v. Ames, 19 R.I. 401, 36 Atl. 1127; Jordan v. Jordan, 192 Mass. 337, 78 N.E. 459; Mercer v. Buchanan, 132 Fed. 508; Notes in 13 A.L.R. 1004 and L.R.A. 1915 C, 846. (3) Even if the 532 shares of no-par-value stock received, along with 133 shares of preferred stock, by the trustee, in exchange for the original shares of par-value stock, in the same corporation, are to be considered as a stock dividend, nevertheless, under the terms of the will, merely bequeathing "net income" to the life-tenants, said stock cannot be considered as "net income," and hence, is not distributable to the life-tenants, but must remain in the estate as a part of the corpus thereof. Hayes v. Trust Co., 317 Mo. 1045.

Douglas W. Robert for respondents.

(1) The intention of the testator, that his near blood relations should have and enjoy all the fruits of his estate, is clearly shown by the will in this case. It is easily distinguished from the provisions of the will in the Hayes case. The classification of the beneficiaries is totally different. Lane v. Garrison, 293 Mo. 530; West v. Bailey, 196 Mo. 517; Noe v. Kern, 93 Mo. 367; Thomas v. Gregg, 78 Md. 549; In re Stokes's Estate, 240 Pa. St. 288; Lang v. Lang, 54 N.J. Eq. 603; Hite v. Hite, 93 Ky. 257; Thomp. Constr. Wills, sec. 570; Sec. 555, R.S. 1919. (a) The relationship of beneficiaries will be considered. Schee v. Boon, 295 Mo. 212; Cox v. Jones, 229 Mo. 52; Tapley v. Douglass, 113 Me. 392; Hoffner v. Custer, 237 Ill. 64; Wardner v. Baptist Board, 232 Ill. 606; 1 Page on Wills, sec. 810. (b) In case of doubt the beneficiary nearest in kinship is favored. Reinders v. Koppelman, 94 Mo. 338; Baker v. Baker, 152 Ill. App. 620; Turner's Estate, 5 Pa. Dist. Ct. 285; Russell v. Furness, 145 N.Y. Supp. 402; In Re Hoyt, 160 N.Y. 607; Thomp. Constr. Wills, secs. 66, 67. (c) The first taker is the first object of the testator's bounty. Fidelity Trust Co. v. Bobloski, 228 Pa. St. 52; King v. Frick, 135 Pa. St. 575; Rewalt v. Ulrich, 23 Pa. St. 388; McFarland's Appeal, 37 Pa. St. 300; Wilson v. McKeehan, 53 Pa. St. 79; 28 R.C.L. 219-230; 2 Schouler on Wills (6 Ed.) sec. 886; Thomp. Constr. Wills, sec. 71. (d) Income is that which is earned from an investment. Gray v. Hemenway, 212 Mass. 239, 223 Mass. 293; Thayer v. Burr, 134 App. Div. 889, 201 N.Y. 155; Thorn v. DeBreteuil, 86 App. Div. 405; People v. Davenport, 30 Hun, 177; U.S. Trust Co. v. Heye, 224 N.Y. 253. (2) Even the courts which follow the Minot decision apologize for it and admit that it is inequitable. It is opposed to the statutes of Missouri. Sec. 555, R.S. 1919; Tebow v. Daugherty, 205 Mo. 315; Tisdale v. Prather, 210 Mo. 402; Whitelaw v. Rodney, 212 Mo. 540; D'Ooge v. Leeds, 176 Mass. 558; Lyman v. Pratt, 183 Mass. 61; Boardman v. Boardman, 78 Conn. 451; Smith v. Dana, 77 Conn. 543. And those courts which refuse to follow it have criticised it severely as one which works injustice and bungling. Kalbach v. Clark, 133 Iowa, 220; Simpson v. Millsaps, 80 Miss. 277; In re Vinton's Appeal, 99 Pa. St. 44; McLouth v. Hunt, 154 N.Y. 179; Soehnlein v. Soehnlein, 146 Wis. 330; Foard v. Trust Co., 122 Md. 476; In re Sherman's Trust, 190 Iowa, 1385. (3) This case is also to be distinguished from the Hayes case for the reason that the stock dividend in that case was stock of a foreign corporation, while the stock in the case at bar was of a Missouri corporation and the statutes make such stock "personal property." R.S. 1919, Secs. 9743, 1744, 1623; Koelling v. Bank, 237 S.W. 176; Banta v. Hubbell, 167 Mo. App. 38; Jellenik v. Huron Copper Co., 177 U.S. 1. All decisions agree that "property" dividends go to the life tenant, hence with the Missouri statutes governing, stock in Missouri corporations being personal property, it must go to the life tenant. Cases cited under Point 10; Gray v. Hemenway, 212 Mass. 239, 223 Mass. 293; Lamb v. Lehman, 110 Ohio St. 59; Security Trust Co. v. Rammelburg, 82 W. Va. 701; Boardman v. Boardman, 79 Conn. 634; Humphrey v. Lang, 169 N.C. 660; Minot v. Paine, 99 Mass. 101. (4) The chief reason for the Massachusetts rule, that to adopt any other would involve the courts in elaborate accounting of the corporate affairs, not being present here, the rule is not applicable. When the reason for a rule disappears, the rule itself disappears. Thatcher v. Thatcher, 117 Me. 331; Coggs v. Bernard, 2 Ld. Raymond, 911; Coke, First Institute, sec. 80; D'Ooge v. Leeds, 176 Mass. 558. (5) The case at bar is to be distinguished from the case of Hayes v. Trust Co., 298 S.W. 91, in that the stock distributed or divided was of a different class of stock than originally held by the trustee. Marr v. United States, 268 U.S. 536. (6) When a question and the consequence that must follow a ruling are grave, this court will not hesitate to examine again the reasoning upon which the decision is based, or to overrule it, where it is satisfied manifest injustice has been done by it. Smith v. Ohio, M.F.I. Co., 6 S.W. (2d) 920; Mongold v. Bacon, 237 Mo. 496; Gannon v. Pauk, 200 Mo. 75; Bealey v. Smith, 158 Mo. 515; Bank v. Douglas, 146 Mo. 42; Kelly v. Thuey, 143 Mo. 422; Wilson v. Beckwith, 140 Mo. 359; Rutledge v. Railway, 123 Mo. 121. (7) The rule in Minot's case and the decisions following it, including the Hayes case, subordinate the question of the rights of the life tenants and remaindermen, to an exaggerated consideration of the effect of stock dividends upon the corporation and the trustee. The real intent and purpose of the testator is obscured and lost sight of in such discussions. 2 Thomp. Corp. (3 Ed.) sec. 2222; Trust Co. v. Peckham, 42 R.I. 365; Pritchitt v. Trust Co., 96 Tenn. 472; Simpson v. Millsaps, 80 Miss. 239; McLouth v. Hunt, 154 N.Y. 179; Soehnlein v. Soehnlein, 144 Wis. 330; Earp's Appeal, 28 Pa. St. 368; Estate of Duffill, 180 Cal. 748; Hite v. Hite, 93 Ky. 257; Kalbach v. Clark, 133 Iowa, 213; D'Ooge v. Leeds, 176 Mass. 558; In re Sherman's Trust, 190 Iowa, 1385. (8) No matter in what form, a distribution of the earnings of a corporation is "income." Holbrook v. Holbrook, 74 N.H. 201; Wiltbank's Appeal, 64 Pa. St. 256; Moss' Appeal, 83 Pa. St. 264; Heaton's Estate, 89 Vt. 550; McLouth v. Hunt, 152 N.Y. 179; Riggs v. Cragg, 26 Hun, 89; Lowry v. Farmers Co., 172 N.Y. 137; Soehnlein v. Soehnlein, 146 Wis. 330; Thayer v. Burr, 134 App. Div. (N.Y.) 889, 201 N.Y. 155; Earp's Appeal, 28 Pa. St. 568; Cox v. Gaulbert, 148 Ky. 407; 7 Thomp. Corp. (3 Ed.) sec. 5264; Smith v. Hooper, 95 Md. 16; Rose v. Barclay, 191 Pa. St. 594; Sexton v. Percival, 189 Iowa, 586; Matter of Schaefer, 178 N.Y. App. 122, 222 N.Y. 533. (9) The Massachusetts rule is followed unqualifiedly by only three jurisdictions (Illinois, Ohio and Maine) and not twelve, as stated in the opinion in the Hayes case. Three give qualified assent or the decisions are conflicting. They are United States courts, Massachusetts and West Virginia. Marr v. United States, 268 U.S. 536; Trust Co. v. Rammelburg, 82 W. Va. 705; Tax Comrs. v. Pulnam, 227 Mass. 522; Lanning v. Tax Comrs., 247 Mass. 496; Talbot v. Milliken, 221 Mass. 367; Coolidge v. Grant, 251 Mass. 352. Three are controlled by state statutes. They are Georgia, Connecticut and the later New York decisions. Georgia Civil Cole (1910) sec. 3667; Genl. Stat. Conn., 1902, sec. 377; 1918, sec. 5041; Laws New York 1926, vol. 1, p. 939; Vol. 2, p. 1563. Such statutes have no extraterritorial force, Stanley v. Ry. Co., 100 Mo. 435; State Bank v. Dougherty, 197 Mo. 182; State v. Oldham, 200 Mo. 190; Steele v. Reid, 284 Mo. 269. Two have not passed upon the point at all. They are North Carolina and Virginia. Trust Co. v. Mason, 152 N.C. 660; Humphrey v. Lang, 169 N.C. 601; Kaufman v. Woolen Mills, 93 Va. 673. Two are diametrically opposed to it and criticise it. They are Rhode Island and New York (b...