Appeal, No. 23, Jan. T., 1963, from decree of Orphans' Court of Montgomery County, No. 50940, in re trust estate of Mary C. Pew, settlor. Decree reversed.
Paul Maloney, with him Peter Hearn, Franklin C. Hutchinson, and Pepper, Hamilton & Scheetz, for appellant.
M. Paul Smith, with him Richard L. Grossman, and Smith, Cahall & Aker, for appellee.
Before Bell, C.j., Musmanno, Jones, Cohen, Eagen, O'brien and Roberts, JJ.
OPINION BY MR. CHIEF JUSTICE BELL
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.*fn1 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*fn2 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 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 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, and Liggett Co. v. Baldridge, 278 U.S. 105; and (4) because an award to principal would "impair the obligation of the contract," viz., the deed of trust, thus contravening Article I, § 17, of the Constitution of Pennsylvania, and Article I, § 10, Clause 1, of the Constitution of the United States, citing Cross Lake Club v. Louisiana, 224 U.S. 632; see also Dartmouth College v. Woodward, 6 Wheaton 518, 17 U.S. 518, and Treigle v. Acme Homestead Assn., 297 U.S. 189, and Indiana ex rel. Anderson v. Brand, 303 U.S. 95.
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 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; Willard's Estate, 68 Pa. 327.
In Pew Trust, 362 Pa. 468, Mr. Justice ALLEN M. STEARNE, speaking for a unanimous Court, specifically held in an audit of an account in this very trust (1) the Arthur E. Pew, Jr., the life tenant had a vested interest under the terms of the trust, not only in ordinary stock dividends, but also in the extraordinary stock dividends - and he has 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 (page 469): "The provisions of the Uniform Principal and Income Act of May 3, 1945, P.L. 416, 20 P.S. § 3471, and the Principal and Income Act of July 3, 1947, P.L. 1283, 20 P.S. § 3470, are unconstitutional when applied retroactively to trusts created prior to their enactments."
In Crawford Estate, 362 Pa. 458, 67 A.2d 124, and in Steele Estate, 377 Pa. 250, 103 A.2d 409, and in Jones Estate, 377 Pa. 473, 105 A.2d 353, and in Warden Trust, 382 Pa. 311, 115 A.2d 159, and, as recently as 1959, in Cunningham Estate, 395 Pa. 1, 149 A.2d 72, the Court unanimously 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 Trust, 405 Pa., supra, the Court specifically overruled Pew Trust, Crawford Estate and Warden Trust, and impliedly overruled Steele Estate, Jones Estate and Cunningham Estate.*fn3 In Catherwood 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 (pages 68-69, 70, 74-75 and 77): "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, §§ 1 and 9 of the Pennsylvania Constitution and the 14th Amendment to the U.S. Constitution. ... On the same day Crawford was handed down by this Court, Pew 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 Steele Estate, 377 Pa. 250, 103 A.2d 409; 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 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,*fn3 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 trusts, constitutionally inhibited.
In Catherwood 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,*fn4 had a life tenant's right to ordinary cash and ordinary stock dividends ...