On certified appeal to the Appellate Division from the Chancery Division of the Superior Court.
For affirmance -- Chief Justice Weintraub, and Justices Heher, Burling, Jacobs, Francis and Proctor. For reversal -- None. The opinion of the court was delivered by Proctor, J.
This is an appeal by Theodora Fera Hargrett, the life beneficiary of a trust created by the will of her father, Henry Fera, from the dismissal of her counterclaim in an action instituted by the trustee wherein court approval of the sale of certain trust stock was obtained. In her counterclaim she sought to have that portion of the proceeds of the sale of the stock, constituting the major asset of the trust, which represented undistributed earnings of the corporation accumulated since the inception of the trust, paid to her as income under the terms of her father's will. Both the trustee and the remainderman opposed the counterclaim, maintaining that the entire proceeds of the sale constituted corpus. There is no substantial controversy as to the facts.
Henry Fera died testate in New Jersey in 1932. He was survived by his only child, Theodora Fera Hargrett, the appellant herein, and four brothers and five sisters. Except for articles of a personal nature the entire estate was left in trust. The Fidelity Union Trust Company and Walter Fera were named executors and trustees. In 1943 Walter Fera died and the Fidelity Union Trust Company continued as the sole surviving trustee. The relevant provisions of the will are as follows:
"THIRD: All the rest, residue and remainder of my estate, both real and personal, wheresoever situate, and of whatsoever constituted, I give, devise and bequeath to my executors hereinafter named, as trustees, in trust, nevertheless for the following uses and purposes; viz:
(a) To invest and reinvest the same from time to time and collect the income therefrom.
(b) During the lifetime of my sister, Ella Fera, and so long as she shall be unmarried, to pay to her the sum of Six hundred dollars ($600.00) annually in equal monthly installments.
(c) During the lifetime of my sister, Ada Jones, and so long as she shall remain unmarried, to pay to her the sum of six hundred dollars ($600.00) annually in equal monthly installments.
(d) During the minority of my daughter, Theodora C. Fera, to pay to her legally appointed guardian, the sum of Three thousand dollars ($3,000.00) per annum, in equal monthly installments, which amount shall be used by said guardian for the education and comfortable support of my said daughter.
(e) Upon my said daughter attaining the age of twenty-one years, to pay to her during her lifetime in equal quarterly payments, the whole of the net income of my estate, subject only to the annuities, provided for my two sisters in sub-divisions (b) and (c) hereof."
The will was executed in 1928 when the appellant was seventeen years of age. When the will was probated in 1932 she was of age and thus entitled to the "whole of the net income" of the estate, subject to the annuities given the testator's two sisters. The rights of the sisters are not involved on this appeal. Appellant now is married and has one son, age 16, who is the remainderman under the will. As remainderman he is a defendant herein and is represented by a guardian ad litem.
Among the assets of the estate were 1,199 shares of the capital stock of A.W. Faber, Inc., whose corporate name is now A.W. Faber-Castell Pencil Company Incorporated (hereinafter referred to as Faber). These shares constituted one share less than 30% of the total outstanding capital stock of the company, which consisted of 4,000 shares having a par value of $100 per share. At the inception of the trust, these shares were carried by the trustee at the value of $126,350.62, or $105.38 per share. The balance of the trust assets were valued at $131,546.91.
Since the creation of the trust, the appellant has received all of the dividends declared by Faber on the stock. From 1932 to 1956 the total net earnings of the company amounted to $1,239,416, of which $771,000 was distributed by way
of dividends. Thus, while distributing approximately 62% of its earnings, the corporation has withheld and accumulated approximately 38% of its earnings.
Following an application by the trustee, the Chancery Division, on March 8, 1957, entered a judgment approving an agreement by the trustee to sell 599 shares of the Faber stock for $153,793.25, or $256.75 per share. Both the appellant and the guardian ad litem for the remainderman approved the sale. However, in that proceeding, the appellant interposed a counterclaim seeking judgment that the trustee be directed to pay her, as income beneficiary, to quote from her brief, "so much of the profit of the shares of stock sold as would represent a proper proportion of the net earnings of Faber during the life tenancy withheld from distribution and accumulated as earned surplus, including that portion of the surplus account which was transferred to ...