Court Opinion

ID: 3846229
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:20:15.236791+00
Date Added: 2024-06-11T14:14:33.813045
License: Public Domain

As it is conceded that our two prior decisions in this estate established the law of the case (i.e., that this transaction was an exchange and not payment of deferred dividends), the single question for decision is whether the intact value required to be preserved is that fixed as of the date of theinception of the trust or that determined as of the date of themerger. The majority accept the latter date, whereas under all our prior cases the former date has been consistently applied.
This Court defined intact value in Waterhouse's Estate,308 Pa. 422, 162 A. 295, p. 427: "The value of a trust estate, where its income is paid to life tenants with remainder over,is determined as of the time the testator dies (emphasis supplied) and is called intact value. It is so named because that value is to be kept intact for remaindermen in the various subsequent distributions of income that might impair it. It was early stated that intact value includes par value of stock when par *Page 640 
has been paid, plus any accumulations at the date of death, but, prima facie, intact value is book value. Intact value may be increased by stock purchases, contributed surplus or any other capital increase not attributable to earnings, and it is subject to capital losses. The burden of lowering or raising an intact value thus established lies on the party asserting it."
In the footnotes the following cases are cited in support of this principle: Earp's Appeal, 28 Pa. 368; Baird's Estate,299 Pa. 39, 42, 148 A. 907; Dickinson's Estate, 285 Pa. 449, 453,132 A. 352; Packer's Estate (No. 1), 291 Pa. 194, 197,139 A. 867; Jones v. Integrity Trust Co., 292 Pa. 149, 140 A. 862. See also report to the same effect, by Mr. Justice JONES (when a practicing attorney acting as guardian and trustee ad litem) in Flinn's Estate, 320 Pa. 15, 181 A. 492, p. 17, adopted in the court below, and per curiam in this Court. A careful examination of the cases concerning the definition and method of ascertaining intact value makes it crystal clear that there can be but one intact value, viz.: the one existing at the dateof death.
The word value, as used in the expression "intact value" is measured in terms of money: Jones v. Integrity Trust Co.,292 Pa. 149, 152, 140 A. 862; Flinn's Estate, 320 Pa. 15, 25,181 A. 492; Neafie's Estate, 325 Pa. 561, 563, 191 A. 56.
At death, December 11, 1936, decedent possessed 778 shares of preferred stock, par $100, which was its intact value; he also owned 783 shares of common stock, par $100, with an intactvalue of $158.80 (see findings of fact, Judge MITCHELL in 349 Pa. (p. 53a) and Judge BOYLE in this appeal (p. 3a), which are not excepted to.
The trustee sold 300 shares of the 783 shares of common stock, leaving 483 shares of common still in the trust. (The distribution of these proceeds are not involved in this litigation). *Page 641 
 INTACT VALUE of old shares
778 shares of preferred stock at $100      $77,800.00
  483 shares of common stock at $158.80       76,700.40 ----------- $154,500.40
With the above stock in the trust, and with its intact value
(as of date of death) as above, the merger and exchange of stock took place as described in King Estate, 349 Pa. 27, 28,36 A.2d 504: "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 preferred stock, with accrued dividend arrearages, for one-half share of 5% cumulative preferred stock, Series A., one-half share of 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 distributions of corporate assets, and no sale of any of the new stock by the trustee."
(NOTE: In the merger there was no change in assets; theassets in the reorganization were identical and remained astheretofore; there was no new contribution of capital.)
 INTACT VALUE OF NEW STOCK
Intact value of old shares (as above) ...  $154,500.40
Intact value of new shares therefore was: *Page 642 
    389 shares Class A preferred at $100              $38,900
    389 shares Class B preferred at $100               38,900 ------ $77,800 1455 shares of new
common at $52.71 ............  76,700.40 --------- 154,500.40 ==========
(NOTE: 483 shares old common at $158.80, total $76,700.40, is equivalent, with identical assets, to 1455 new shares at $52.71, $76,700.40.)
The trustee sold 178 shares of preferred (intact value $100 per share), at $70 and 1000 shares of common (intact value $52.71) at $21.67, with the following result:
 INTACT VALUE
178 shares preferred at $100 ...............  $17,800
  1000 shares common at $52.71 .................   52,710 ------- $70,510
SALE PRICE
178 shares pfd. at $70 .....................  $12,460
1000 shares common at $21.67 .................   21,670 ------- 34,130 ---------  IMPAIRMENT OF INTACT VALUE ......................... $36,380 ============
As the loss above in the intact value, to wit, $36,380,exceeded the amount of the proceeds from the sale, all of thefund here accounted for should be awarded to principal, whichwas done by the court in banc below as we directed in our former decision. The decree of the court below should not be reversed or modified because the court in banc did precisely what this Court directed should be done. It is for this reason I dissent. *Page 643