Union & New Haven Trust Co. v. Sherwood
| Decision Date | 25 October 1929 |
| Citation | 110 Conn. 150,147 A. 562 |
| Parties | UNION & NEW HAVEN TRUST CO. v. SHERWOOD ET AL. |
| Court | Connecticut Supreme Court |
Case Reserved from Superior Court, New Haven County; John Rufus Booth, Judge.
Action by the Union & New Haven Trust Company, trustee, against S Wakeman Sherwood and others, to determine whether certain shares of stock of the Lackawanna Securities Company in its hands under a deed of trust represent income or capital brought to the superior court, and reserved by that court on admitted allegations of substituted complaint for advice. Questions answered.
Maltida M. Sherwood of Fairfield died October 3, 1915 leaving a will dated December 7, 1914. She left surviving her two sons, S. Wakeman Sherwood and Richard, and a grandson, Thomas T. W. Sherwood, the son of S. Wakeman Sherwood. Prior to the decease of Richard the mother of Thomas obtained a divorce from S. Wakeman Sherwood, and was awarded the custody of the son, and later married Lowell M. Clucas. Francis T. Clucas, the mother of Thomas, was subsequent to her divorce appointed guardian of Thomas by the probate court for the district of Fairfield. The testatrix bequeathed in trust to the plaintiff trust company for the benefit of her son Richard during his life a one-quarter part of the residue of her property, and disposed of the remainder in clause (b) of the eleventh article of her will, which is quoted in the footnote. [1] She also bequeathed to the Trust Company a one-quarter part of the residue for the benefit of her grandson Thomas during his life, with the power of disposal by will of such of the one-quarter with its accumulations as remained at his decease.
The other one-half of the residue the testatrix bequeathed to this trustee, for the benefit of her son Wakeman for his life, and upon his decease bequeathed a part of the income to the widow of Wakeman as long as she remained such and the balance of the net income to the children of Wakeman as a class for a period (this requires construction), and with provision for the disposition of the remainder (this also requires construction). The construction of neither of these provisions is essential to the questions involved in this appeal.
The other provisions of the will contained specific bequests or devises which are of no importance to the present appeal, with the exception of the twelfth article, which reads:
Richard Sherwood died on May 23, 1919, leaving no children, and the trust created for his benefit in article 11(b) terminated. At his death he was survived by his brother Wakeman and nephew Thomas, son of Wakeman. Upon the termination of the trust, claim was made to the trustee, in behalf of Thomas and his guardian, that Thomas was entitled to one-half of the principal of the trust fund of which Richard had had the life use, and that Wakeman was only entitled to the other one-half, and in behalf of Wakeman that he was entitled to the entire principal of this trust fund.
Each of the parties was represented by competent counsel, and, after negotiations, the parties entered into the agreement known as Exhibit A, by the terms of which S. Wakeman Sherwood was to receive during his life the income from the trust fund created by section (b) of article eleventh, and Thomas was to receive a vested remainder interest therein subject only to this life use. S. Wakeman Sherwood was willing to enter into this agreement irrespective of what his own legal rights to the fund might be, because he wished to make provision for his son and assure to him the principal of the fund. This settlement was deemed for the best interest of Thomas because it protected the principal of the fund against being dissipated by Wakeman, and assured to him the entire remainder interest. The trustee, with the advice of counsel, consented to the request of the parties that it assent to this compromise and settlement, provided the guardian of Thomas should obtain from the probate court for the district of Fairfield authority to enter upon this settlement, and provided the guardian individually would in writing agree to save the trust company harmless from any loss or expense it might suffer or incur by reason of its consent to this compromise and settlement. The probate court duly authorized the guardian to enter into this settlement, and the guardian individually entered into the indemnity agreement. The court of probate also duly authorized the trustee to enter into the compromise and settlement. All of the parties have always been and now are satisfied with it, and do not desire to raise any question as to its validity or as to the power or capacity of any of the parties to enter into it. The trustee accepted the trust created by Exhibit A, received the property and securities conveyed to it, and is now acting as such trustee.
Among the securities thus conveyed were 67 shares of the Delaware, Lackawanna & Western Railroad Company of the par value of $50, and the appraisal value on June 19, 1919, of $12,730. On July 21, 1921, the railroad company declared a 100 per cent. stock dividend payable in its capital stock. The railroad company began the acquisition of its coal properties about 1853, and some were acquired even prior to the construction of any portion of its railroad lines. The greater part were acquired between 1865 and 1873, and more than $10,000,000 was paid for these, either in capital stock of the railroad or from the proceeds of its stock. Between 1853 and September 1, 1921, the railroad company expended approximately $42,000,000 on its coal properties and coal mining activities; this entire sum having been taken out of its surplus earnings. Between 1853 and 1907 the railroad company charged off on its books by way of depletion the entire cost of its coal properties, and these did not appear as assets on its books, except for a small amount acquired since 1907. The railroad company, by reason of the acts of Congress and the decisions of the Supreme Court of the United States, deemed it necessary that it segregate its coal properties. In pursuance of this decision, it acquired the charter of the Glen Alden Coal Company; shortly thereafter the railroad company and the coal company entered into an agreement by which the railroad company conveyed to the coal company all of its coal properties for $60,000,000, in consideration of the delivery to the railroad company of $60,000,000 of first mortgage bonds of the coal company secured by a purchasemoney mortgage upon all of its coal properties, and the giving to the stockholders of the railroad company the privilege of subscribing for the stock of the coal company at $5 a share in the proportion of one share of its stock for each share of the railroad company stock held by them.
This agreement was carried out by these companies. Until this time, about September 1, 1921, the railroad company had owned and operated both its coal mines and lines of railroad. Substantially all of its coal properties were acquired by the railroad company prior to July 7, 1919, the date of the creation of the trust, Exhibit A, and their value was then substantially the same as at the date of their conveyance to the coal company. The plaintiff as trustee subscribed for its quota of stock in the coal company at $5 a share, and sold the same July 23, 1921, at $34 a share, receiving therefor $2,270.62, which it credited to principal, and in July, 1922, sent to S. Wakeman Sherwood a copy of its annual account as trustee showing that this had been done. On August 25, 1927, the railroad company, in pursuance of a plan of reorganization, caused to be organized the Lackawanna Securities Company, and transferred to it $58,500,000 of the bonds of Glen Alden Company--$1,500,000 of these bonds having matured and been paid --in consideration that the stock of the Securities Company should be issued pro rata to the stockholders of the Railroad Company, on the basis of one share of its stock for each two shares of the railroad company. This transaction was carried out, and the plaintiff as trustee about September 6, 1927, received 67 shares of the capital stock of the securities company. Substantially the only assets of the securities company are the Glen Alden Company bonds and the accrued interest thereon at the time of their transfer to it. The entire capital stock of the securities company was issued to the stockholders of the railroad company, and no further shares have been issued. The 67 shares of the securities company were sold in April, 1928, by the plaintiff, as trustee, for $3,438.44; and substantially this sum is so invested as to be the equivalent of cash.
The questions submitted for the advice of this court are:
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