Case Name: King Estate
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1946-10-01
Citations: 355 Pa. 64
Docket Number: Appeal, No. 188
Parties: King Estate.
Judges: Before Maxey, C. J., Drew, Linn, Stern, Patterson, Stearns and Jones, JJ.
Reporter: Pennsylvania State Reports
Volume: 355
Pages: 64–78

Head Matter:
King Estate.
Argued November 30,1945; reargued March 25,1946.
Before Maxey, C. J., Drew, Linn, Stern, Patterson, Stearns and Jones, JJ.
Ella Graubart, with her Emanuel 8. Leopold, 8ehee-line & Leopold and Patterson, Crawford, Arensberg & Dunn, for appellant.
Howard Zaeharias, for appellee.
Thomas N. Griggs, with him William D. Evans and Griggs, Moreland & Blair, for Union Trust Company of Pittsburgh.
October 1, 1946:

Opinion:
Opinion by
Mr. Justice Allen M. Stearne,
For the second time this case is before us. In the first case, reported in 349 Pa. 27, 36 A. 2d 504, we refused an apportionment between life tenant and the remainderman, where the application was based solely upon a corporate merger and where the stock was still held as part of the trust. We decided that no apportionment should be made until (1) the increased value is distributed by a cash dividend (2) distributed as a stock dividend (3) a corporate liquidation and distribution of assets (4) sale of the stock.
Following our decision the trustee sold 89 shares of preferred stock, series A; 89 shares of preferred stock, series B, and 1000 shares of common stock, and thereafter filed its second and partial account. The court below ruled that there should be no apportionment until all of the stock received in the merger had been sold.
On appeal the life tenant repeated all her rejected arguments made in the former appeal respecting her right to apportionment of the stock held by the trustee as part of the trust. She made the additional contention that the provisions of the Uniform Principal and Income Act of May 3, 1945, P. L. 416 (No. 171), 20 PS, section 3471 et seq., were intended to apply retroactively. The effective date of this act was May 3, 1945. The decision of the court below was made on April 25,1945, eight days before the act became effective. Appellant also contended that there should be an apportionment of the proceeds of the stock which had been sold by the trustee.
Concerning apportionment of the stock still forming part of the trust, we see no reason to overrule what we have already decided in this case. It is not pretended that any such right existed prior to the merger. The exchange of stock, in the merger, was not in payment of defaulted accrued dividends on the preferred stock. The trustee exchanged common and preferred stock which had paid no dividends for a number of years, for new stock which has paid and is still paying dividends. We said in our previous decision, pages 28 and 29: "Each trust contained shares of common and preferred stock of a corporation. The preferred stock had arrearages for dividends undeclared. The corporation effected a recapitalization and merger with two of its wholly owned subsidiaries. The trustee exchanged each share of pre ferred stock, with accrued dividend arrearages, for one-half share of 5% cumulative preferred stock, Series A, one-half share 5% cumulative convertible preferred stock, Series B, and one and one-quarter shares of no-par common stock; each share of $100 par common stock was exchanged for one share of no-par common stock. The recapitalization and merger did not affect the capital nor increase or decrease the surplus. The assets and financial situation of the corporation remained unchanged. The trustee, owner of the stock, neither gained nor lost by the transaction. The same property interest was represented by the new certificates of stock that had been indicated by the old. There have been no stock dividends declared, no corporate dissolution, no distribution of corporate assets, and no sale of any of the new stock by the trustee." No sound reason is advanced why we should now overrule what we have decided in this case, and in the numerous cases stemming from Earp's Appeal, 28 Pa. 368. We need not repeat what we have already said in our decision.
It is urged that the provisions of the Uniform Principal and Income Act of 1945, supra, are retroactive. Under the Statutory Construction Act of May 28, 1937, P. L. 1019, art. IV, section 56, 46 PS, section 556, it is provided: "No law shall be construed to be retroactive unless clearly and manifestly so intended by the Legislature." See Painter v. Baltimore & O. R. R. Co., 339 Pa. 271, 13 A. 2d 396; Com. ex rel. Duff v. McCloskey, 353 Pa. 553, 559; Spanhard's Liquor License Case, 138 Pa. Superior Ct. 251, 10 A. 2d 899. There is nothing in the Uniform Principal and Income Act, supra, which remotely suggests that it clearly and manifestly expressed the intent of the legislature to have the act operate retroactively. Upon the contrary, Section 17 of the act states: ". . . That the provisions of this act shall not apply to receipts and expenses received or paid prior to the effective date of this act." We therefore will not examine its provisions and we decline to apply it retroactively.
We are not in accord, however, with the ruling of the learned court below that no apportionment may be had until all the stock is sold or distributed. On the contrary, upon the sale or distribution of any of the stock,- the time is appropriate for an apportionment respecting that stock or its proceeds. Nothing which we said in our prior decision is susceptible of, or intended to have, any other meaning. We said in that case, page 29: "There is probably no more difficult and intricate branch of the law than the application of what is termed the Pennsylvania, or American, Rule of Apportionment. The principle of equitable apportionment was early established (see Earp's Appeal, 28 Pa. 368), and its development and refinements are ably discussed by former Chief Justice Kephart in Nirdlinger's Estate, 290 Pa. 457,139 A. 200, and in Waterhouse's Estate, 308 Pa. 422, 162 A. 295. There is a host of other cases, which need not be cited, dealing with various applications of the principle. In general, it is the rule that on distribution a life tenant is entitled to receive accumulated profits and earnings, except where necessary to preserve the 'intact value' of principal. Where there is a stock or cash dividend, a corporate liquidation, a sale or distribution in kind, the life tenant is entitled to such accumulated profits and earnings. It is wholly immaterial in what form such accumulations appear."
Prima facie, intact value is the corporate book value and this standard remains fixed unless it can be established that the elements making up the book value are not true values. Ordinarily the courts will accept the company's manner and method of charging items as correct when it is done in good faith. The value of assets carried at a nominal value is the subject of proof: Baird's Estate, 299 Pa. 39, 148 A. 907; Flinn's Estate, 320 Pa. 15, 181 A. 492, Neafie's Estate, 325 Pa. 561, 191 A. 56. See also: Waterhouse's Estate. 308 Pa. 422, 162 A. 295. Intact value is determined as of the time the testator dies, and is so named because that value is to be kept intact for remaindermen. Intact value includes the par value of the stock, plus any accumulation of income earned before the death of the testator: Waterhouse's Estate, supra; Flinn's Estate, supra.
Nothing appears in any reported case which requires withholding apportionment until all of the stock has been sold and distributed, in order to ascertain and preserve intact value of all the stock. This would be contrary to the very essence of the reason behind the doctrine of apportionment. It is the life tenant's right to receive accumulated profits and earnings no matter in what form they may appear. But he is only entitled to receive them on a stock or cash dividend, a corporate liquidation, or a sale or distribution in kind, and then only to the extent that the intact value of principal is not impaired. Each individual share of stock possesses an intact value. Upon a sale or distribution of a portion of corporate stock held in a trust, the life tenant is entitled to receive his share of the accumulated profits and earnings upon that portion of the stock which may be sold or distributed.
No formula can be prescribed to fix with mathematical accuracy the amount due a life tenant upon an apportionment. Bemaindermen are not entitled to an enhancement in value which is occasioned or reflected by such accumulations, and which would have passed to the life tenant had they been distributed. It is the application of the rule which is so frequently difficult. But difficulty in application is no reason for discarding a just and equitable rule. The intact value of the shares as of the date of the death of testator must first be ascertained. It must then be determined what, if any, accumulated profits and income existed as of the date of the merger. An ascertainment is necessary as to how accu mulations of profits and income, if any, affected or were reflected in the value of the stock received in the exchange or merger. On the sale or distribution of any portion of the exchanged stock, the life tenant is entitled to receive whatever income was thus accumulated and withheld from him, less .any amount necessary to preserve the intact value of the principal. This problem is largely in the mathematical, accounting or actuarial field, which should be brought to judicial aid in determining the correct figures in the apportionment.
The decree of the court below is affirmed in part and reversed in part and the record remitted to make an apportionment of the proceeds of the stock which has been sold, in accordance with this opinion. Costs to be paid out of the corpus.