Holmes, Trustee v. Hrobon , 93 Ohio App. 1 ( 1951 )

I cannot concur with my associates in the determination of the amount due the life tenant under the terms of the will. Under item V she is entitled to all the income from the Atlas business "after the payment of operating expenses and taxes and other charges." It is in the definition of the words, "other charges," that the difference arises. The majority opinion seems to place no significance on these words, and gives them the same interpretation as was given the term, "operating expenses." In case of ambiguity or uncertainty in any provision thereof the entire will will be considered, and, if consistent, each and all of the provisions thereof are to be given full effect. Words deliberately used in the will are presumed to have been placed there for a purpose and cannot arbitrarily be ignored. They must be given a meaning that will give effect to the intention of the testator if such intention can be ascertained and no rule of law violated. See 41 Ohio Jurisprudence, 605, Section 470, and cases there cited.

In 67 Corpus Juris Secundum, 531, it is said:

"The word ``other,' as defined by all dictionaries and lexicographers, has numerous and various meanings and various shades of meaning, depending on the context in which it is found. It is an adjective, and reference to dictionaries discloses many synonyms. It is a correlative and specifying word. While it is referred to as a word of addition, in its natural, usual, and normal use it indicates some thing or things in addition to, differing from, or both additional to, and differing from, the antecedent thing or things immediately in contemplation.

"It has been said that the word ``other' ordinarily means different from, different, different in nature or kind, different from that which has been specified; different or distinct from the one or ones mentioned or implied; different person or thing from the one in view or under consideration or just specified; not the same.

"The word ``other' also is defined as meaning additional or further; in addition to, and different from, those mentioned; not this or these. Another common use of the term ``other' is as meaning one of two or more of a class."

It has been suggested that the doctrine of ejusdem generis has application here, but this maxim will not be followed where the preceding description is exhaustive so that there can be no more of the same kind. National Surety Co. v. Morris, Gdn.,111 Ga. 307, 36 S.E. 690.

The term, "operating expenses," is exhaustive and includes in general terms all deductions that may be considered in arriving at the net income of the business. In permitting the deduction of "other charges" in addition to the net income, the intention of the testator must be inquired into. The record reveals that Clay Thomas was operating a successful business at the Atlas laundry and that he had no working capital. An examination of the appraisement sheet discloses that if all the other assets were liquidated and only the Atlas laundry retained there would be a net deficit of $26,659.62 with which to have begun the plant operation. In operating a plant under these conditions Clay Thomas knew that all purchases of new machinery would have to be paid out of income. The will was executed approximately 14 months before his death, and the codicil, only two days before. No substantial change in the financial picture could have occurred in such a short period of time. Being cognizant of the financial condition of his affairs, he most assuredly would not have requested the trustee to operate a business under such conditions that it would have been impossible to succeed. It must have been for the purpose of assuring the success of the business that he authorized the deduction of "other charges" in arriving at the amount due the life tenant. It might be said that he could have borrowed money to operate the plant, but would any sound financial institution loan money to an organization which was obligated to pay its net income to a life tenant? I think this method of operation would have been impossible of performance. It is therefore my conclusion that the finding of the referee on this particular question should be affirmed.

I must also dissent from the majority opinion in charging to corpus the amount paid for goodwill in the purchase of the new businesses. The record reveals that the net income in 1941, before the purchase of The 5c Towel Supply Company and the Bowden Towel Supply Company, was $21,892.64, and in 1943, the year following the purchase, it was $58,340.66. In other words, net income was increased almost three-fold after the purchase of these new businesses. The business still continued to expand thereafter. The net income for 1944 was $61,019.37; for 1945, $79,119.09; and for 1946, the final accounting period, $95,423.76. I am in accord with the majority opinion that the purchase of the new businesses under the facts presented has become a proper charge but think that it should be against income and not principal. I am aware of the fact that in many jurisdictions it has been held that where expenditures in administering a trust fund tend to benefit both income and principal, the payment of expenses should be apportioned equitably between the two. Stevens v. Melcher, 80 Hun., 514, 30 N. Y. S., 625; In re Vermilye, 100 Misc. 235,166 N.Y.S. 320; Matter of Kelsey, 89 Misc. 701, 153 N.Y.S. 1095; RhodeIsland Hospital Trust Co. v. Waterman, 23 R.I. 342,50 A. 389. But there is authority in Ohio for the proposition that, where permanent repairs are made to property for the purpose of conserving it and for the protection of income, the entire cost may be charged to income.

In the case of Frye, Trustee, v. Burk, 57 Ohio App. 99,12 N.E.2d 152, at page 111, the court said:

"It is the duty of the trustee to preserve and conserve the properties of the trust estate for the purpose of producing income to provide means to make the payments provided for in the will; and in the performance of this duty the trustee has the right and power to use the income from the whole of the trust estate in making permanent and expensive repairs to properties of the estate, subject, however, to the condition that he shall not abuse his discretion in this respect * * *."

It is my opinion that the purchases of the new businesses, which were made in the exercise of the sound discretion of the trustee as a good business man, were in the nature of a permanent repair to the Atlas business, made for the purpose of keeping the business on a profitable basis and also for increasing the income for the life tenant. Therefore, I think the referee was correct in his conclusion that these purchases should be charged to income.

I am in full accord with the majority opinion on all other questions presented.

(Decided July 12, 1951.) ON APPLICATION for rehearing.

Per Curiam. This cause is now submitted on application of the trustee for rehearing and for the right to introduce additional evidence by a banker and manufacturer bearing on the question of "depreciation and reserve," and for oral argument, and on the application of the legatees and remaindermen for rehearing and oral argument.

The questions involved in this case were orally argued to the court and fully presented in extensive briefs before the opinion of this court was written. Additional briefs were filed on the instant applications. No new questions are raised, and we do not believe oral argument is necessary in assisting the court to reach a determination of the matters presented on the applications.

The trustee requests the introduction of additional evidence to be given by a banker and a manufacturer bearing on the question of "depreciation and reserve." The purpose of such evidence would be to present more forcibly to the court the financial difficulty which the trustee may encounter in conducting the trust under the will as it has been construed by this court in its former opinion. This same contention was strongly urged in oral argument and briefs and was considered by this court. The will has been construed by this court from its four corners in order to ascertain the intention of the testator.

The trustee has contended that the will should be construed so as to give him as full and absolute control over the trust as if it were a business operated by a sole proprietor. With this contention the court does not agree, as stated in the former opinion. The testator may have had good and valid reasons for not giving carte blanche authority to the trustee. Most trusts are operated by trustees under limited powers, and this trust can be so operated. Should the trustee experience any financial difficulty in operating the trust, collaboration with the parties in interest, the life tenant and the remaindermen, will be necessary to the end that the trust may be profitably and efficiently operated for the best interest of all concerned.

This trust is conducted under the will of the testator and under the direction and control of the Probate Court. Inasmuch as there are contingent remaindermen whose interests must be protected, it is suggested that the proper procedure to follow when loans are to be made is to file appropriate applications in the Probate Court and give notice to all interested parties. The Probate Courts are constantly called upon to assist in solving such difficulties which arise in the operation of a trust. It may become necessary and it may be for the best interest of the life tenant that she assist in the creation of a cash reserve, or that she make personal loans to the trustee in order to assure a high level of operation and an ever-increasing income. We need not elaborate further on this matter as we are not required to state here the most acceptable method of financing the continued operation of the trust. We have every reason to believe that the trustee and the Probate Court will receive the co-operation of the life tenant and the remaindermen in the continued operation of the trust.

After re-examination of the former opinion of this court, and considering again the various contentions raised by counsel for the trustee, the legatees, and remaindermen, we are prompted to modify the former opinion in two particulars.

The first matter relates to "float." In our former opinion we stated that upon the termination of the trust an adjustment would be required between the life tenant and remaindermen with respect to the valuation of float and that no adjustment would be required during the continuation of the trust. We adopted the formula used by the Ohio Department of Taxation, and the court instructed the trustee to set up the books and apply this formula so that at each accounting period the rights of the life tenant and remaindermen would be reflected in regard to material not in inventory but in use. As pointed out by counsel for the trustee, this order, if carried out, would create a tax problem. Inasmuch as the rights of the life tenant and remaindermen are to be adjusted only at the termination of the trust, this court is now of the opinion that their respective rights in float need not be reflected by an accounting at the end of each accounting period, but only at the termination of the trust. Furthermore, we conclude that the formula adopted by the Ohio Department of Taxation, Intangible Tax Division, is just and fair under certain circumstances, and unjust and unfair under other circumstances, depending on whether the valuation of material not in use at the end of the accounting period is greater or less than the inventory of material not in use at the beginning of the accounting period and the comparative valuation between the inventory of the material not in use and the valuation of float at the end of the accounting period. Furthermore, other and different formulas may be in use at the termination of the trust, the date of which is uncertain. For this reason we modify our former opinion by not requiring the application of this formula. It is sufficient for this court to find that if the inventory of material not in use at the termination of the trust has a greater value than the inventory of material not in use at the beginning of the trust, such excess valuation will represent income, and that if at the termination of the trust the value of float is greater than the value of float at the beginning of the trust, such excess valuation will represent income. We prescribe no formula to be used in determining such valuation as we do not deem it necessary to make such an order under the issues presented.

The other modification relates to the finding of the amount due the life tenant, if any, after an accounting is made in conformity with the court's judgment. The court will impress a trust on the assets of the trust for any amount found due the life tenant.

The application for oral argument is overruled; the application for the right to introduce additional evidence is overruled; and the application for reconsideration of the court's opinion is sustained in part and overruled in part.

Judgment accordingly.

HORNBECK, P. J., and WISEMAN, J., concur.

MILLER, J., concurs in the modification but dissents from the order overruling the application for a rehearing.

(Decided December 26, 1951.) ON APPLICATION for separate findings of fact and conclusions of law.

Per Curiam. There is now submitted an application of the trustee for separate findings of fact and conclusions of law.

The application for separate findings will be sustained. The findings of fact and conclusions of law which would be incorporated in a separate findings are set forth in the opinion of the court, dated April 16, 1951, and supplemental opinion, dated July 12, 1951. While the court did not intend these opinions to be separate findings of fact and conclusions of law, the drafting of such findings would simply be a repetition of much of the material contained in these two opinions. For this reason the court instructs counsel to prepare an entry journalizing the two opinions as the court's separate findings of fact and conclusions of law, which the court adopts as such.

The journal entry should reserve for further consideration the question as to the amount due the life tenant, for the reason that the amount due cannot be determined until a proper accounting has been had pursuant to proper principles of law.

An entry may be drawn accordingly.

Judgment accordingly.

HORNBECK, P. J., and WISEMAN, J., concur.

(Decided January 14, 1952.) ON APPLICATION for reconsideration.

Per Curiam. We now have before us an application for a reconsideration of the court's order that the court's opinion and supplemental opinion be filed as a separate findings of fact and conclusions of law. The application is hereby denied.

Application denied.

HORNBECK, P. J., and WISEMAN, J., concur.