Court Opinion

ID: 7009715
Source: CourtListenerOpinion
Date Created: 2022-07-24 04:02:10.151892+00
Date Added: 2024-06-11T16:10:10.900115
License: Public Domain

McCOEMICK, J., dissents. I must respectfully dissent to the conclusion reached in the majority opinion. As pointed out therein, the facts are not disputed; the only question before this court is an interpretation of the trust agreement to determine whether or not the transfer of the 25 percent interest in the F. L. Klein Noodle Company, a partnership, constituted an increase in the trust corpus or was merely an investment of the income, and that no increase in the trust corpus resulted therefrom. As pointed out in the majority opinion, immediately following the death of Alec Klein in January 1940, the partnership interests in the business were as follows: estate of Alec, 50%; Lottie Klein, 25%; Bertram, 25%. Six months after Alec’s death, Lottie and Bertram each entered into a contract with Alec’s estate, which contract provided that each would purchase a one-quarter interest in the business; the consideration for each one-quarter interest to be paid over a period of time was $90,000. Subsequently, on November 1, 1941, Lottie Klein established the trust known as Trust No. 2, to which she assigned a 5% interest in the company. The trust agreement provided that the trustor, Lottie Klein, desired to create a trust in and to an undivided 1/20 share and interest which she now owns in the F. L. Klein Noodle Company, a partnership. It is further set out that the purpose of the trust was to establish independent incomes and estates for members of her immediate family, and that the trustees are to have and hold the said property together with any additional property “of any kind, nature or description whatsoever, which may from time to time be added to this trust by the trustor or acquired by the trustees in accordance with the terms and provisions hereof . . .” Paragraph 1 of the agreement provides that: “The Trustees shall hold and manage the Trust Estate and shall, insofar as possible, and consistent with the terms and provisions hereof, invest and reinvest all funds from time to time available for investment or reinvestment in income-producing bonds, stocks, mortgages and other securities, investments and properties as the Trustees, in the exercise of their uncontrolled discretion, shall deem proper and for the best interests of the Trust Estate, . . The trustees are given a very broad power to deal with the trust estate and particularly with that portion of the trust estate which is an interest in the F. L. Klein Noodle Company, and they are authorized to agree that it be changed from a general partnership to a limited partnership, or that it be made a corporation, or any other legal combination which they may in their discretion desire. It is worthy of note that there is no right given to the trustees to sell any interest in the F. L. Klein Noodle Company. . Paragraph 2 is the crucial clause in the contract, and it is mentioned in the majority opinion; however, since it is not completely set out, we believe it would be advisable to repeat it here. It provides the following: “The Trustees shall have the right to acquire, from time to time, by gift or purchase, additional undivided shares and interests in the real estate, business and good will of F. L. Klein Noodle Company, not Inc., a partnership, said share and interests so to be acquired to be held and managed by the Trustees as part of the Trust Estate and subject to all and any of the provisions hereof in like maimer as if the said shares and interests had been placed in this trust by the Trustor, and for this purpose, shall have the right to mortgage, pledge or otherwise hypothecate the principal of the Trust Estate or any accumulated income thereof not available in cash, or both. Anything hereinelsewhere to the contrary notwithstanding, the Trustees shall in no event make any distribution to any beneficiary or beneficiaries of the Trust Estate until and unless all and any of the obligations of the Trust Estate relative to the acquisition of any further share and interest in F. L. Klein Noodle Company, not Inc., a partnership, shall have been fully satisfied; and, in the event of any such acquisition, the Trustees shall not invest or reinvest the net cash income of the Trust Estate but shall hold and retain the same in cash or in bank funds and expend the same only for the purpose of satisfying all and any of the obligations of the Trust Estate relative to any such acquisition of further shares and interests. The Trustees shall be released of all and any liability or obligation to the Trust Estate and the beneficiaries thereof, or either, as to the acquisition of any such further shares and interests and shall have no responsibility whatsoever in and with regard thereto excepting only for action taken on non-action suffered wilfully and in bad faith.” Paragraph 3 of the trust agreement, which is touched on rather lightly in the majority opinion, provides: “Excepting only as hereinelsewhere in paragraph (2) hereof provided, the Trustees may, in the exercise of their uncontrolled discretion, during the lifetime of the Trustor, do any of the following or any possible combination thereof: Accumulate and invest and reinvest all and any of the net income of the Trust Estate, or pay said net income quarter-annually or oftener, but not by way of anticipation, to Bertram A. Klein, or partially accumulate and invest and reinvest and partially pay and distribute said net income quarter-annually or oftener, but not by way of anticipation, to Bertram A. Klein, or pay and distribute accumulated income or the proceeds and avails thereof, or both, partially or wholly, to Bertram A. Klein. . . .” Paragraph 2, read together with paragraph 3, gives the trustees the right to invest in the F. L. Klein Noodle Company, and if any meaning is to be given to paragraph 2, it must be that those interests shall be held and managed by the trustees as a part of the trust estate. Reading paragraph 2 in connection with the introductory paragraph, which we have previously quoted, it must be interpreted that the interests in the Klein Noodle Company which are to be acquired are to be acquired as trust res. That is further stressed by the fact that in paragraph 3 the provision with reference to investments is separated and set apart from the rights given in paragraph 2 of the agreement. There is no question that under paragraphs 1 and 3 of the agreement the trustees have the right to invest and reinvest the net income of the trust estate, but in paragraph 3 a red flag is raised, indicating that the only acquisition of additional interests in the F. L. Klein Noodle Company can be made under the provisions of paragraph 2. A reasonable interpretation of those provisions would be that the only investment which can be made in the F. L. Klein Noodle Company, a partnership, must be as a part of the trust res. In fact, it would seem to be an extraordinary construction to hold that the trustees had the right to invest the accumulated income in the F. L. Klein Noodle Company, particularly, when we consider that in paragraph 4 of the agreement it is provided that the trustees may invest and reinvest the net income of the trust estate, or pay it quarter-annually to the then living heirs at law of the trustor, and the further controlling provision in that clause which makes it mandatory upon the trustees to distribute all accumulated income within 10 years. The purpose of the trust was to retain the integrity of the F. L. Klein Noodle Company. On December 15, 1942, Bertram Klein had assigned to the trust his interest to purchase a 25% interest in the business from Alec’s estate. Payment was made by utilizing the trust share of partnership earnings from 1948 and 1944 and also from a loan to the trust by the business. The debt to Alec’s estate thus was satisfied in 1944, and the repayment of the loan was completed in 1952. In 1957, the business was sold to the Sunshine Biscuit Company, and the trust received its pro rata portion of the proceeds. Shortly thereafter Bertram Klein demanded that $90,000 be distributed to him as accumulated income. The trustees disagreed as to whether the money represented accumulated income or trust corpus, and therefore, no distribution was made. It would seem apparent that it was the intention of Bertram Klein that the trust, rather than he, should pay for the 25% partnership interest with the pro rata earnings, since the income tax to the trust on the aforesaid earnings would be substantially less than if Bertram paid the tax thereon. It may have been Bertram’s intention that after all the payments were made by the trust, this partnership interest would then be payable to Bertram, the income beneficiary of the trust. However, it is not the intention of the beneficiary which is controlling, but it is the intention of the settlor as determined from the trust document. In this case it would seem to be very clear — as the master found and as the trial court decreed — that the $90,000 which was paid for the 25% interest in the partnership must be considered as trust res. The majority opinion devotes a great deal of time to arguing that to so hold would deprive Bertram Klein of the $90,000 income. Most of the discussion in that portion of the opinion is argumentum ad hominem. The fact that Bertram did not understand the contract at the time he entered into the agreement is of no avail; nor can this court consider the fact that he may have made a poor bargain. It is not the duty of this court to reform a contract which, in the opinion of the writer of this dissent, is clear and definite. The other question before this court is the time when, under the terms of the trust, the heirs at law of Lottie Klein were to be determined. The opinion of the majority is that they were to be ascertained as of the date of Lottie Klein’s death. With this determination the writer of this dissent is in accord.