Court Opinion

ID: 5851057
Source: CourtListenerOpinion
Date Created: 2022-01-13 00:02:09.015081+00
Date Added: 2024-06-11T08:44:05.720127
License: Public Domain

Silverman, J. (concurring).
EPTL 11-2.1 (hereinafter the “Act”) is the New York version of the revised Uniform Principal and Income Act adopted by this State after study by the Temporary State Commission on the Modernization, Revision and Simplification of the Law of Estates (hereinafter the “Commission”).*
In the present case, the will did not say, either expressly or implicitly, whether any portion of the proceeds realized on liquidation of the corporations should be deemed income payable to the widow, or principal payable to the remaindermen. Thus we cannot say that “the terms of the trust instrument” answer the question. (EPTL 11-2.1, subd [a], par [1], cl [A].) In such circumstances, the Act requires that the allocation to income or principal or partly to each be made, “in the absence of any contrary terms of the trust instrument, in accordance with the provisions of this section” (EPTL 11-2.1, subd [a], par [1], cl [B]).
Unfortunately there is a question as to whether to apply subdivision (e) of the Act “Distributions of corporations or associations”, or subdivision (k) “Underproductive property”. Paragraph (6) of subdivision (e) provides in part: “(6) When a corporation or association is being wholly or partially liquidated, shares of stock and cash or other assets distributed to shareholders are principal, except that if the corporation or association indicates that some part of such distribution is a settlement of preferred or guaranteed dividends, that part of the distribution settling dividends accruing since the trustee became a shareholder is income.” Subdivision (k), the underproductive property subdivision, provides in part: “(1) Except as otherwise provided in this paragraph, a portion of the net proceeds of any transaction with respect to any part of principal which *310consists of property, other than securities listed on a national securities exchange or traded in over the counter, which has not produced an average net income of one per cent per annum of its inventory value for more than a year (including as income the value of any beneficial use of the property by the income beneficiary) shall be treated as delayed income to which the income beneficiary is entitled as provided in this paragraph.”
Applying paragraph (6) of subdivision (e) alone, it would be clear that the proceeds of liquidation of the closed corporation here involved constitute principal belonging to the remaindermen and not income payable to the widow. I do not think that subdivision (k), the underproductive property provision, is applicable to change this result for these reasons:
(a) Subdivision (e), “Distributions of corporations or associations”, is a completely self-contained provision for the allocation of principal and income with respect to corporate distributions. Specifically with respect to liquidating dividends the purpose of the new rule was “to remove the nightmare of apportionment of corporate distributions” (Second Report, at p 267). It provides explicitly and precisely, with respect to proceeds of corporate liquidation, what belongs to principal and what belongs to income. In adopting this subdivision from the Uniform Principal and Income Act, the Commission did not lose sight of the problem of liquidations of closely held corporations. The Commission’s study said: “It is believed that in the overwhelming majority of cases the rule above enunciated is sound. However, doubt has arisen as to the fairness of the rule, because of the New York cases previously discussed, in which it was found by the court that part of a distribution in liquidation represented earnings accrued since the acquisition of the stock by the trustee, which equitably belongs to income, and particularly with respect to liquidations or partial liquidations of closely held corporations. In the latter case, where those in control of the corporation are inimical to the income beneficiary, it would be possible for them to designate the entire distribution as a return of capital, thus depriving the income beneficiary of earnings accrued since the trustee’s acquisition of the stock. It is felt *311that such cases would involve fraud and might well be left to the courts to remedy, rather than to legislate for the unusual case.” (Second Report, at pp 267-268.)
The corporate distribution provision was considered first and separately by the Commission (cf. Second Report, Report No. 6.2B [“Stock Distributions”], at p 182 et seq.; Third Report, Appendix L, at p 410 et seq., and Report No. 6.3C, at p 421). In its later discussion of whether New York should adopt the revised Uniform Principal and Income Act, the Commission study said it was excluding any consideration of the problem involved in “corporate distributions which are the subject of a separate report.” (Third Report, at p 421.) Indeed the genesis of the whole Uniform Principal and Income Act was the problem of corporate distributions. “But while considering this particular aspect of the rights of principal and income the Commissioners felt it desirable to extend their proposals so as to set forth convenient and workable rules of administration applicable to all aspects of the subject with the result that the original act covered all areas of possible conflict between the two interests.” (Third Report, at p 421.)
The corporate distributions sections were separately enacted as section 17-a of the Personal Property Law (L 1963, ch 1005). The remainder of the Uniform Principal and Income Act was not enacted in New York until 1965 as article 2-A of the Personal Property Law (L 1965, ch 336). The statutory scheme for distributions of corporations or associations became section 27-e of the Personal Property Law and then for the first time the rest of the Uniform Principal and Income Act, including the underproductive property section (§ 27-k), was enacted.
(b) It is clear that under the revised Uniform Principal and Income Act, and all the Commission’s recommendations relating to thé adoption of versions of that Act in New York (until the final form of the Estates, Powers and Trusts Law), distributions on corporate liquidation were to be governed entirely by subdivision (e) “Distributions of corporations or associations”, and not subdivision (k) or its predecessors relating to underproductive or unproductive property. For all the earlier versions of the underproduc*312tive property or unproductive property section of the Principal and Income Act applied only to a portion of the net proceeds of “sale”. That is the provision of section 12 of the revised Uniform Principal and Income Act. It was the provision recommended by the Commission in the adoption of its version of the Uniform Principal and Income Act (Third Report, at p 417, referring to Personal Property Law, § 27-k). That is how the Legislature adopted the underproductive property provision as section 27-k of the Personal Property Law (L 1965, ch 336).
(c) When, however, the Uniform Principal and Income Act as embodied in sections 27-a through 27-q of the Personal Property Law was recast somewhat to become part of the Estates, Powers and Trusts Law, in the phrase as it now appears “any transaction” was substituted for “sale”. Whatever that change may have meant, I do not think it was intended as a modification of the separate self-contained provisions with respect to corporate distributions. In its report recommending the adoption of the Estates, Powers and Trusts Law, the Commission stated the “highlights of the new law on an article by article basis”. (Fifth Report, at p 46.) When it came to EPTL article 11, it listed the changes from the Principal and Income Act (Personal Property Law, §§ 27-a — 27-q). (Fifth Report, at p 58.) Nowhere does it even mention this change. The revisers’ notes, after listing changes from sections 27-a through 27-q of the Personal Property Law without mentioning this change, say: “Changes in form are for clarification, and are keyed to the drafting pattern of the new law.” (Revisers’ Notes, McKinney’s Cons Laws of NY, Book 17B, EPTL 11-2.1, at p 136.)
In his discussion of the Principal and Income Act embodied in the Estates, Powers and Trusts Law, Samuel Hoffman, one of the research counsel of the Commission, says that “[t]his section re-enacts, as revised, sections 27-a-q of the Personal Property Law”. (Practice Commentary, McKinney’s Cons Laws of NY, Book 17B, EPTL 11-2.1, at p 126.) And with respect to the underproductive property section, that “[t]his paragraph follows the rules for unproductive property embodied in section 12 of the revised Uniform Principal and Income Act.” (Id,, at p *313134.) As I have indicated, both the Personal Property Law provisions and the revised Uniform Principal and Income Act section as to underproductive or unproductive property applied only to “sales”.
If the Commission had meant to make so drastic a substantive change as to have the underproductive property section override the corporate distributions section, the Commission would surely have mentioned that change.
(d) As between the corporate distributions subdivision (subd [e]), and the underproductive property subdivision (subd [k]), subdivision (e) should apply to distributions on corporate liquidation under the usual rule that as between two statutes, the more specific statute should override the more general one. Surely the provision of paragraph (6) of subdivision (e) “[w]hen a corporation * * * is being wholly or partially liquidated” is much more specific than the provision of subdivision (k) “any transaction”. And in the liquidation provision, there is explicit provision as to what portion of the net proceeds constitutes principal and what portion constitutes income. That provision is different from the allocation between principal and income in the under-productive property subdivision. They cannot both be applied. And the corporate liquidation subdivision at least surely applies.
For these reasons I agree that the proceeds of liquidation of these closely held corporations belong to the persons entitled to the principal.
I would add that while we are concerned with “convenient and workable rules” (Third Report, at p 421) for allocation of income and principal, Justice Bloom’s analysis demonstrates that there is no injustice to the widow in the result reached.
Carro, J. P., Fein and Milonas, JJ., concur with Bloom, J., Silverman, J., concurs in an opinion.
Orders, Surrogate’s Court, New York County, each entered on June 30, 1981, reversed, on the law and the facts, and the objection of Birgit Bengston Grove seeking equitable apportionment dismissed, with $75 costs and disburse*314ments to all parties filing briefs, payable out of the trust estate.

 When used hereafter “Second Report,” “Third Report” and “Fifth Report” refer to the reports of the commission (or studies therein), respectively Legislative Document (1963), No. 19, Report No. 6.2B; Legislative Document (1964), No. 19, Report No. 6.3C; and Legislative Document (1966), No. 19.