On appeal from the Chancery Division of the Superior Court, whose opinion is reported in 17 N.J. Super. 523, certified by the Supreme Court on its own motion.
For modification -- Justices Heher, Jacobs and Brennan. For reversal -- Justices Oliphant and Burling. The opinion of the court was delivered by Heher, J. Burling, J. (dissenting). Oliphant, J., joins in this dissent.
We have here a testamentary interpretative problem involving Article 12 of the will of the deceased Bernard R. Armour, in terms following:
"I hereby give my brother, George L. Armour, the privilege and right at any time within one (1) year from the date of my death to purchase all the shares of stock of American Aniline Products, Inc. which I may own at the time of my death, at a purchase price equal to the book value of said shares of stock, such book value to be determined by an inventory taken and a balance sheet struck at the end of the fiscal year of said corporation during which my death shall occur, and such book value to be determined without including any valuation whatsoever for patents, good will or other intangible assets of the said corporation. I direct my executors and trustees to sell the said shares of stock to my said brother upon such terms as my executors and trustees may, in their sole discretion determine in the event that he should, within the period of one (1) year after my death, elect to purchase the same.
Subject to the foregoing provisions of this Article Twelfth, it is my wish that my executors and trustees should continue to hold intact, so long as in their discretion it shall seem practicable or advantageous, my interests in the following companies: Heyden Chemical Corporation, American Aniline Products, Inc., Charles Hellmuth, Inc. and the Siegle Color Division of Ansbacher-Siegle Corporation, or any successor corporations, but in expressing this wish I do not desire to hamper or restrict my executors and trustees, in the exercise of their absolute discretion, in selling or otherwise disposing of any such interests at such time upon such terms as they may deem proper." [11 NJ Page 264] The testator died December 1, 1949. The will was executed February 24, 1944. It was drafted by a lawyer who is one of the executors. The testator's brother, George L., was named as a co-executor. At the time of the execution of the will, the testator owned and had registered in his name on the company's books 99,334 shares of the common capital stock of American Aniline Products, Inc. On October 18, 1946 he acquired five additional shares of the company's stock, and thereafter his holdings of the stock totalled 99,339 shares until July 12, 1948, when he transferred 99,000 shares to Sterling Chemicals, Inc., a body corporate organized October 31, 1945, whose entire issue of capital stock was owned by the testator, then and at all times thereafter until his death. On April 1, 1949 Sterling Chemicals, Inc. was merged with The Ore & Chemical Corporation, another body corporate wholly owned by the testator, under the corporate name and style of Sterling Chemical & Ore Corporation, whose entire outstanding capital stock remained in the testator's ownership until his death. The 99,000 shares of Aniline which on July 12, 1948 had been transferred to Sterling Chemicals, Inc. were by formal transfer made October 17, 1949 registered in the name of Sterling Chemical & Ore Corporation. At the time of the testator's death there were 99,719 shares of Aniline outstanding, of which 339 shares were registered in the testator's name and 99,000 shares in the name of Sterling Chemical & Ore Corporation. The certificate for the 99,000 Aniline shares issued in the name of the latter corporation was found December 28, 1949, unendorsed, in the testator's New York office safe. Prior to the merger Sterling Chemicals, Inc. had no securities other than the 99,000 shares of Aniline and it had no safe deposit box. The testator was its president. From the time of the merger Sterling Chemical & Ore Corporation possessed in its own right securities other than the Aniline stock, and had a safe deposit box. The testator was treasurer of this corporation. These corporations were separate and distinct entities employed to serve
the testator's varied business interests. Sterling Chemicals, Inc. and its successor corporation had their own assets other than the Aniline stock now in controversy, and their own liabilities. The business interests of the successor corporation were extensive; it owned and operated a plant at Newark, New Jersey, comprising 10 acres of land and 25 buildings.
When the will was executed, the testator and his wife were separated. There were three infant daughters of the marriage; they are parties to this suit represented by their mother as their general guardian. The testator had three sisters and one brother, George. There was a close brotherly tie between the testator and George. George for many years had been executive vice-president of Aniline, and devoted to the corporation's interests and his brother's affairs; and the testator had determined on George's succession to his entire interest in Aniline as it then was, consisting of all but a few of the outstanding shares of the capital stock, at the price provided by the formula embodied in the will.
The Superior Court concluded that "through his ownership of all of the outstanding stock of Sterling Ore & Chemical Corporation," the testator's "ownership" of the 99,000 shares of Aniline stock "standing in the name of that company was as complete and effective as it was when the will was drawn," and that the cited clause of the will was operative upon these shares of stock as if registered in the testator's name at the time of his death; also, that the term "intangible assets" contained in the price formula was used by testator in its "ordinary legal sense" to exclude consideration of "bank deposits, accounts receivable and investments in securities" in determining the book value of the stock in the event of the exercise of the option to purchase.
The validity of this construction constitutes the subject matter of the appeal.
The insistence is that by its very terms the option "to purchase all the shares of stock" of Aniline "which I may own at the time of my death" embraces only "the 339 shares which testator concededly owned at the time of his death and not the 99,000 shares then owned by Sterling Chemical & Ore Corporation."
The rationale of the argument is that the primary and natural significance of the words of the testamentary disposition, considered in the light of the context, is not inclusive of the shares which at the time of the testator's death were "owned by a corporation of which he was the sole stockholder," but only such shares as the testator then "owned, individually," and the surrounding circumstances do not warrant the broader construction.
There can be no doubt that this testamentary provision was designed to give the testator's brother George the option of buying, on the stated terms, practically the whole of the proprietorship in Aniline, represented by the shares of the corporate capital stock then registered in the testator's name. This in manifest recognition of George's devoted and fruitful service in the management of the large affairs and interests which were Aniline's, coupled with brotherly affection and concern for his continued well being.
It is equally clear that the testator did not have in mind, at the time of the making of the will, the curtailment before his death of his stockholdings in Aniline so as radically to modify the beneficial interest thus provided for George. The testamentary plan involves the continuance intact of Aniline and the other corporate enterprises controlled by the testator. It is established that the primary if not the sole aim of the transfer of the Aniline stock to the testator's wholly-owned corporation was the reduction of his tax liability, without thought or purpose of annulling in any wise the testamentary disposition thus made for the benefit of George. [11 NJ Page 267] The net income of Aniline had increased from approximately $430,000 in 1946 to $1,000,000 plus in 1947. The testator was then in the top income brackets, and he was apprehensive of income tax difficulties which later materialized. His tax indebtedness at the time of his death extended back to 1946. There was a deficiency assessment for 1946 of almost $42,000. Aniline's dividends in that year were $50,000. For the year 1947 there was a balance due for taxes of $185,000, plus a deficiency and an additional tax amounting to $28,500. The testator's Aniline dividends for that year were almost $100,000. In January 1948 he received a dividend from Aniline of nearly $250,000, and he knew that more would be forthcoming. He presented his problem to counsel, and the result was the transfer of the stock now in issue. Before the plan was consummated the Federal Treasury Department voiced the opinion that the transfer would be tax-free. There was testimony from counsel and officers of Sterling and Aniline that the stock was transferred solely to minimize the testator's income taxes. The testator offered no other reason. He, it was proved by the same witnesses, exercised full dominion and control of Sterling. A week after the transfer of the Aniline stock, a dividend of $1 per share was declared; and like dividends were provided in October and December 1948, aggregating $300,000, which under the stock transfer went into the treasury of the transferee corporation. Even without these dividends, the testator's personal income tax for 1948 was $500,000. To avert the apprehended danger of Sterling Chemicals, Inc. being considered "a personal holding company," it is said, that corporate body was consolidated with The Ore & Chemical Corporation, another wholly-owned corporation, to form Sterling Chemical & Ore Corporation, then and until his demise wholly owned by the testator. The testator was the directing genius of the corporation thus formed; his was the sole superintendency, largely without formal directorial authority, such as derives from ownership of the entire beneficial interest in the corporate property. It is fairly
deducible from the proofs that the testator retained in his personal possession the certificates for the Aniline stock while registered in the name of his wholly-owned corporation, before and after the merger. On his death the certificate for the shares was found in his personal safe, together with the certificates for shares of Aniline registered in his individual name and his stockholdings in other chemical companies.
Thus, it is established that the transfer of the Aniline stock was designed to minimize income taxes. So much seems to be conceded, or at least is not seriously disputed. But it is urged that the testator by this process also had in view the provision of means and facilities for acquiring an interest in another chemical corporation and the formulae and operating assets of other companies. We do not find ground for believing that this latter was a moving consideration; but even though there was this additional motivation, the dominant purpose was the avoidance of taxes by what was deemed to be a lawful measure, and, at all events, that circumstance would not be material, as we shall see.
The basic question is the essential quality and meaning of the testamentary disposition, assessed in relation to the surrounding circumstances. The appellant guardian insists that the word "own" signifies "individual ownership, as distinguished from something different such as a beneficial interest, or such as corporate ownership"; and thus she would make the restricted technical legal sense of the term alone the determinative of the testator's intention. By this construction, undue emphasis would be laid upon the strict letter of the phrase "own at the time of my death." Indeed, it is urged that this language is "entirely clear," and so there is "no room for construction," and the judge "should not have considered evidence of surrounding circumstances."
Although at the time of his death the testator did not hold the legal title to the stock, the beneficial enjoyment of the shares was his throughout, and the full beneficial interest
was within his complete and exclusive dominion and control, and at his absolute disposal as his own property, in virtue of his ownership of almost all the outstanding stock of the holding corporation, subject to the rights of third persons as against that corporation; and so until the end he undoubtedly considered himself the "owner" of the shares in the common, ordinary sense of the term, and the shares as within the testamentary provision in question. While the appellant guardian consistently in this view denies the applicability of the doctrine of ademption, the acceptance of the construction tendered by her would in effect annul the testamentary option as it was conceived by the testator at the time of the execution of the will. It would give to the transfer of the stock a character and incidence plainly at variance with the object the testator then had in view.
If it be said that the purpose to be served by the transfer suggests a complete divestiture of title, and it would not be effective as a tax-saving device unless that were so, it is nonetheless the fact that the testator's ownership of the subject matter remained unaltered in essence though changed in form. Whatever its status for tax purposes, the transfer in substance constituted a retention of the beneficial interest in the property and its use and enjoyment through the corporate device as distinguished from the conventional trust relation; and it is the substance of the transaction that determines its relevance and legal consequences on this inquiry as to the testamentary intention.
The evidence of the motivation for the transfer of the Aniline stock was admissible, not necessarily as indicative in itself of the testatorial intention at the time of the making of the will, but rather to prove the continuance of the ownership which the testator had in view when he made the will.
An instrument executed animo testandi becomes effective at the death of the testator. The testatorial intention is that which finds expression in the will itself, read and evaluated in relation to the attendant circumstances.
In re Goldfaden, 7 N.J. 450 (1951); In re Fox, 4 N.J. 587 (1950); In re Fisler, 133 N.J. Eq. 421 (E. & A. 1943); Griscom v. Evens, 40 N.J.L. 402 (Sup. Ct. 1878), affirmed 42 N.J.L. 579 (E. & A. 1880). And needless to say, in the very nature of the inquiry the relevant circumstances are such only as exist when the will is made, and are known to the testator. Although a will is for some purposes regarded as speaking from the death, the rule is not applicable to its construction. Gray v. Hattersley, 50 N.J. Eq. 206 (Ch. 1892); Henderson v. Henderson, 77 N.J. Eq. 317 (Ch. 1910).
Here, the testator was at the time of his death the owner of the subject matter within the intendment of the testamentary option. The transfer of the shares did not constitute a loss of the ownership contemplated by the operative terms of the option, but merely a change in the mode and manner by which the testator exercised dominion over the subject property. While the legal title did not reside in the testator at the time of his death, the substantive ownership was his. He had full control of the corporation in which the legal title reposed, and the sole ultimate beneficial ownership of the corporate property as the holder of all but a few shares of the outstanding corporate capital stock; and the testatorial intention will be effectuated through the control thus exercisable by the executor as the testator's successor in interest. Latorraca v. Latorraca, 132 N.J. Eq. 40 (Ch. 1942), affirmed 133 N.J. Eq. 298 (E. & A. 1943); Fidelity Union Trust Co. v. Roest, 113 N.J. Eq. 368 (Ch. 1933). To hold otherwise would be to attribute to the transfer of the shares a quality and legal consequence plainly not within the contemplation of the testator, and do violence to his intention. The principle of ademption has no application. It is not a case of extinction of the subject matter of a testamentary disposition, or an implied revocation of the provision by a change of circumstances, which latter does not constitute ademption, strictly.
It is urged that, even so, the judge erroneously interpreted and applied the testamentary purchase-price formula of book value determined by an inventory and balance sheet "without including any valuation whatsoever for patents, good will or other intangible assets."
The judge conceived that the "difference of opinion" among the parties as to the meaning of the words "'intangible assets' as used by the testator strongly suggests the existence of a latent ambiguity," and "to resolve that ambiguity" he admitted extrinsic evidence in the form of a declaration of intention and understanding said to have been made by the testator, and then read the phrase as inclusive of "cash in banks and on hand" amounting to $1,003,320.97; accounts receivable aggregating $377,542.01; securities, including investments in securities of wholly-owned subsidiary companies, totalling $188,025; and good will in the sum of $188,526.22 -- all this according to Aniline's unconsolidated balance sheet of December 31, 1949. The balance sheet did not include patents among the company's assets; for aught that appears, there were none.
It is elementary principle in the construction of wills that the controlling consideration is the effect of the words as actually written rather than the actual intention of the testator independently of the written words. The question is not what the testator actually intended, or what he was minded to say, but rather the meaning of the terms chosen to state the testamentary purpose; and all the rules of construction and permissible extrinsic evidence are in aid of the fulfillment of the intention reasonably comprehended in the words, and are governed accordingly; their operative force is confined by the basic statutory requirement that a testamentary disposition be in writing and attested by ...