United States Trust Co. of New York v. Heye

• Decision Date: 08 October 1918
• Citation: 224 N.Y. 242,120 N.E. 645
• Parties: UNITED STATES TRUST CO. OF NEW YORK v. HEYE et al.
• Court: New York Court of Appeals Court of Appeals

224 N.Y. 242

120 N.E. 645

UNITED STATES TRUST CO. OF NEW YORK

v.HEYE et al.

Court of Appeals of New York.

Oct. 8, 1918.

Cross-Appeals from Supreme Court, Appellate Division, First Department.

Action by the United States Trust Company of New York, as trustee under the will of Charles F. G. Heye, deceased, against George C. Heye and others. Cross-appeals from a judgment of the Appellate Division (181 App. Div. 544,168 N. Y. Supp. 1051), modifying and affirming a judgment of the Special Term, entered upon the report of a referee, settling the accounts of the trustee. Affirmed as modified.Stewart & Shearer, of New York City(George L. Shearer, of New York City, of counsel), for plaintiff.

F. Kingsbury Curtis and Hugo Kohlman, both of New York, City, for defendants life beneficiaries and executors.

John Willett, of New York City, for defendants Heye infants.

Eugene D. Alexander, of New York City, for defendants Clemens infants.

A. Perry Osborn, Stephen P. Anderton, John A. Garver, Frederick Geller, Edward H. Blanc, James F. Horan, Egerton L. Winthrop, Jr., Cyrus C. Turner, Jr., and William W. Ladd, all of New York City, Richard V. Lindabury, of Newark, N. J., and Frank L. Hall, Ernest P. Hoes, and Charles Angulo, all of New York City, for interveners.

CRANE, J.

This action was brought by the United States Trust Company of New York, as trustee under the will of Charles F. G. Heye, deceased, for the purpose of obtaining a judicial settlement of its accounts as trustee from the commencement of its administration on May 10, 1899, to the present time, and for the purpose of obtaining the instruction of the court as to the disposition to be made of the securities distributed to it by the Standard Oil Company (New Jersey) on or about December 1, 1911, and of the extraordinary dividends and stock subscription rights declared and offered by former subsidiary companies of the Standard Oil Company.

Charles F. G. Heye died February 8, 1899. His will divided his residuary estate into three equal shares, and created three separate trusts for the benefit, respectively, of his wife, Marie Antoninette Heye, his daughter, Marie Heye Clemens, and his son George Gustav Heye. The United States Trust Company of New York was appointed trustee, and directed to pay and apply ‘the net income, rents, issues and profits' of one part to the use of the wife for life, the principal to go to such persons as she might appoint by will, and, in default of appointment, to his children; the net income of another part was to be applied to the use of his daughter during her life, the principal upon her death to go to her issue; and the income of the third part was to be applied to the use of the son until he arrived at a certain age when the principal, excepting $100,000 reserved in trust, was to be paid over to him. At the time of his death, Charles F. G. Heye owned and possessed certificates for certain shares of the capital stock of 20 corporations which had previously constituted the Standard Oil Trust, created by agreement in 1882. This trust had been dissolved. Omitting the fractions, the number of shares owned in the various companies was as follows: Anglo-American Oil Company, Limited, 98; the Atlantic Refining Company, 190; the Buckeye Pipe Line Company, 760; Eureka Pipe Line Company, 190; Forest Oil Company, 209; Indiana Pipe Line Company, 76; National Transit Company, 1,936; New York Transit Company, 190; Northern Pipe Line Company, 38; the Northwestern Ohio Natural Gas Company, 124; the Ohio Oil Company, 304; the Solar Refining Company, 19; Southern Pipe Line Company, 190; South Penn Oil Company, 95; Standard Oil Company (Indiana), 38; Standard Oil Company (Kentucky), 38; Standard Oil Company (New Jersey), 380; Standard Oil Company of New York, 266; Standard Oil Company (Ohio), 133; Union Tank Line Company, 133. The certificates for these shares were delivered by the executrix of the will to the trustee on May 10, 1899.

In that year, the Standard Oil Company (New Jersey) increased its capital stock from 100,000 shares, of the par value of $10,000,000, to 1,100,000 shares, of the par value of $110,000,000, for the purpose of taking over and absorbing the other Standard Oil concerns. Accordingly, the plaintiff, on August 11, 1899, surrendered to the Standard Oil Company (New Jersey) all the above-mentioned certificates of stock in the 20 companies and received in return 3,700 shares of the common stock of said company, which it divided among the three trusts named. At this time the Standard Oil Company also owned or controlled other subsidiary companies, and thereafter acquired more, so that in December of 1911 it owned and controlled all or a majority of the stock of 33 companies engaged in the oil business. While the individuality of each of the corporations was maintained and its business transactions kept separate and distinct, yet the Standard Oil Company (New Jersey) and its various subsidiary corporations constituted but one business, all the funds being employed and utilized for the furtherance and development of the organization. The business of producing, refining, and distributing oil was carried on by the Standard Oil Company (New Jersey) through these various corporations.

In an action brought by the United States government against the Standard Oil Company and its subsidiary companies, it was decreed, in 1911, by the United States Circuit Court (Eastern District of Missouri) that the business as conducted by the defendants was an unlawful combination and a conspiracy in restraint of trade, and the Standard Oil Company (New Jersey) was restrained from exercising any control over, or voting the stocks of, the various companies held by it, defendants to the suit. The decree, however, expressly provided that the defendants ‘are not prohibited by this decree from distributing ratably to the shareholders of the principal company the shares to which they are equitably entitled in the stocks of the defendant corporations that are parties to the combination.’ The directors of the Standard Oil Company thereupon determined to distribute ratably to the stockholders the shares of stock of each of the corporations owned by the New Jersey company, and a resolution was passed, on July 20, 1911, to carry out this purpose. On December 1, [224 N.Y. 251]1911, all the stocks were thus distributed, except the stock of the Anglo-American Oil Company which was distributed on January 20, 1912.

The plaintiff, as trustee, under this distribution received back certificates of stock in seventeen of the companies whose stock had been turned over to the Standard Oil Company (New Jersey) in 1899; the Forest Oil Company, one of the remaining two corporations, having been absorbed by the South Penn Oil Company in 1902, and the stock of the Northwestern Ohio Natural Gas Company not being distributed. The companies owned by the Standard Oil Company of New Jersey in 1899 and prior to the testator's death were the following: Borne Scrymser Company; Chesebrough Manufacturing Company; Continental Oil Company; Galena Signal Oil Company (representing the consolidation of Galena Oil Company and Signal Oil Company); Standard Oil Company (Kansas); Swan & Finch Company; Vacuum Oil Company; Waters-Pierce Oil Company. Three new companies were formed, whose stocks were acquired by the Standard Oil Company (New Jersey) subsequent to 1899. They were: The Colonial Oil Company; Standard Oil Company (California); Standard Oil Company (Nebraska). The stock of three companies was acquired by the Standard Oil Company (New Jersey) subsequent to December of 1899 from its subsidiary company, the National Transit Company. The Standard Oil Company owned the National Transit Company. These three companies were: The Southwestern Penn Pipe Line Company; Washington Oil Company; Crescent Pipe Line Company. The stock of two companies was distributed in December, 1911, by the National Transit Company pursuant to a request resolution of its owner, the Standard Oil Company (New Jersey). These were: Cumberland Pipe Line Company; Prairie Oil & Gas Company.

The plaintiff, as trustee, received its proportion of stock in these 16 companies upon the distribution by the Standard Oil Company (New Jersey), making in all 33 different stocks received by it. This distribution by the Standard Oil Company (New Jersey) of the above stocks took place without any reduction or recall of its own capital stock, so that the plaintiff, after distribution, had both the stock of the New Jersey company issued to it in 1899 and these shares of the subsidiary companies returned or distributed. The amount of the distribution was charged on the books of the company to reserve profits account. Upon the accounting of the United States Trust Company of New York, as trustee under the will of Charles F. G. Heye, the life beneficiaries have insisted that the entire distribution of stock made by the Standard Oil Company (New Jersey) in December of 1911 and January of 1912 belonged to them, as representing a distribution of profits, leaving the corpus of the trust of the same value as at the time of its creation. Much emphasis has been placed upon the fact that the book value of the stock of the Standard Oil Company of New Jersey on December 31, 1899, was $202.32 per share; that before the distribution of December 1, 1911, accumulated earnings had brought this value up to $566.67; and that after this distribution the book value was $281.72 per share.

The idea prevailing with these claimants seems to have been that the value of the principal at the time of the creation of the trust determines the rights of the life beneficiaries and the remaindermen; that, so long as the principal is in no way depleted or lessened all the subsequent increase in value must be categoried as income, whether distributed as such or not. Matter of Osborne, 209 N. Y. 450, 477,103 N. E. 723, 823,50 L. R. A. (N. S.) 510, Ann. Cas. 1915A, 298...