Tilghman v. Frazer

Markell, J., delivered the opinion of the Court. This is the fourth appeal, and our fifth opinion, in this case. Tilghman v. Frazer, 191 Md. 132 , 59 A. 2d 781 ; supplemental opinion, 191 Md. 153 , 62 A. 2d 596 ; Same v. Same, 197 Md. 478 , 79 A. 2d 535 ; Same v. Same, 198 Md. 250 , 81 A. 2d 627 . This fourth appeal is from an order, dated September 18, 1951, overruling exceptions and' finally ratifying (except two minor items not now material) a report (the fourth) , and an (administration and distribution) account of the auditor, filed February 27, 1951.

On the second appeal we. said, "In the lower court on April 19, 1949 an amended decree was filed pursuant to our opinions, whereby among other things, a new special auditor was appointed to state an administration account and a distribution account. * * * On September 3, 1949 the auditor filed a second preliminary report, in which he stated fully his opinion ⁶²³ and conclusions on the contentions of the respective parties, his reasons and the authorities deemed pertinent, and set out fully his computations, showing, as of June 10, 1949, a cash deficiency of $10,036.45, ‘reported at the amended figure of approximately the sum of $10,040’. To this report lengthy exceptions, in the nature of briefs with citation of authorities, were filed by both appellant and appellees. These exceptions were heard by the court and briefs filed. On August 21, 1950 the court filed a ‘memorandum’ expressing accord with the auditor’s views, but expressly refrained from final ratification of the auditor’s report, and instead filed an order requesting the auditor to file a third preliminary report, including computations only, showing the estimated amount of securities necessary to be sold the cash deficiency] as of September 1, 1950.

On October 27, 1950 the auditor filed his third preliminary report in which he showed with computations only, ‘the estimated amount of securities necessary to be sold as of September 1, 1950’ to be $9,964.91. * * * At the argument we were informed that the auditor has recently filed a fourth report, bringing his accounts nearer up to date, to which exceptions would be filed within the few days yet remaining for that purpose. If and when this report, or any modified accounts in lieu of it, are finally ratified, such an order of ratification will be a final decree or order in the nature of a final decree.” 79 A. 2d 536 -538. The “fourth report” there mentioned is the one now before us. We have found less difficulty in deciding the questions now before us than in finding what questions are before us.

The printed appendix to appellant’s brief contains much irrelevant matter, including old wives’ tales of twenty, thirty and forty years ago, which we sifted, the relevant from the irrelevant, the sufficient from the insufficient, in relation to claims of appellant which we decided on the first appeal. On the other hand neither the auditor’s fourth report, which contains his final computations, and ratification of which is now before ⁶²⁴ us, nor his second report, “in which he stated fully his opinion and conclusions on the contentions of the respective parties, his reasons and. the authorities deemed pertinent”, has been printed at all. Without printing papers to which the instant appeal directly relates, appellant in his briefs refers us to “facts” stated on specified pages in. his briefs (not papers printed in the. appendices) on the second and third appeals. The pages referred to in turn, or the instant briefs, or both,, refer to (a) “facts” stated in his brief on the first appeal, with an incorrect statement that these “facts” “are now before this court pursuant to Rule 13 * * * relating to appeals * * and (b) many pages of unprinted trans-scripts and describe (c) still more numerous papers in the lower court which apparently have never reached this court in any form.

Obviously these labyrinthine references to unprinted or non-existent papers in this court furnish us neither “facts” nor records on which to base judicial action. The court’s memorandum of August 21, 1950 (which is printed) covers much of the ground covered in the same way in the auditor’s second report. Appellant, not only in his briefs but in his exceptions, makes little or no distinction between facts and arguments. Though he complains copiously of what the auditor and the court have done, he seldom states specifically what they should have done and sometimes fails to indicate whether he asks that something complained of be undone at all.

Without the auditor’s computations before us, we could not review any details of the computations. It is, however, clear to what basic principles, underlying the computations, appellant objects. These basic principles we shall pass upon. We are not aware that appellant objects to any details of computation or other details of the report.

However, any detail of the report not now before us will not be open on any future appeal, but is now finally decided by final ratification of the report without appeal as to such detail. ⁶²⁵ Appellant in his brief states ten questions as now before us. Practically all these questions are argumentative rhetorical statements of some phase of the one question really before us or of several other questions which we have heretofore decided, adversely to appellant, but which appellant seeks to raise in different form. It will not be necessary to discuss separately, or even mention, these ten so-called questions. The basic question now before us is whether, as between life tenant and remainderman, in the absence of indication of a contrary intent by the testator, income received, during the period of administration, from that part of the testator’s assets which eventually was sold and used to pay debts, administration expenses and legacies, goes to the life tenant as income or, together with the assets so sold and used, is part of the corpus.

This question was decided by this court, by holding that such income goes to corpus, fifty-eight years ago. Wethered v. Safe Deposit and Trust Co., (1894) 79 Md. 153 , 28 A. 812 ; followed in York v. Maryland Trust Co., (1926) 150 Md. 354 , 133 A. 128 , 46 A. L. R. 231. After considering appellant’s earnest, elaborate and unique contentions to the contrary, we find no reason for now undeciding this question and deciding it in a different way. In the Wethered case, and in the development of the law in other jurisdictions, this question was a corollary to the question when the income of the life tenant of a residue begins.

In the Wethered case this court held that when a testator gave all the residue of his estate, of every kind, in trust, to divide all the net income into five equal parts and to pay one part to each of five named persons for life, with remainder over, the life tenants are entitled to the whole net income from the residue from the death of the testator, and no portion of such income is liable for his debts or costs of administration, but they are payable out of corpus. The court said, “* * * according to most authorities, a bequest of the residue of the personal estate for life, with the remainder over, generally entitles the life tenant ⁶²⁶ to the income, commencing with the death of the testator ; certainly as between the life tenant and remainder-man. Of course, the income from all the personal estate is as liable-for the debts of the decedent as the principal, and must be so applied, if necessary; but when the estate is ample to pay all debts, expenses of administration and legacies, and there still remains a considerable residue, the income of which is, by the terms of the will, to be paid to life tenants, and then the corpus or principal to go to remainder-men, the above principles will apply, unless the testator has provided otherwise, or there be some peculiar circumstances which would change the general rule.” 79 Md. 158 , 28 A. 813 . See Miller on Construction of Wills, § 135.

After deciding this basic question, the court disposed of the question now before us as a necessary corollary. “Of course the income on so much of the principal as must be sold and used for the purposes herein stated, will not be payable to the life tenants as the residue of the estate is lessened to [by] the amount of the principal so used.” 79 Md. 163 , 28 A. 815 . The Wethered case was followed in the York case thirty-two years later, in which the court said, “We do not find in the testator’s will any expression of intention that the debts should be paid from income, but we do think there is an indication that the wife was only to receive the income from the residue of the estate, after the payment of the debts, and under these circumstances it is clear that the rules laid down in the Wethered case and the other authorities heretofore cited should apply, and these rules are: (1) that the debts and expenses are payable from the corpus and not from the income; and, (2) that where a life tenant is entitled to the income, such income, in the absence of a contrary intention expressed in the will, is confined to that received from the residue, and does not ordinarily include the income derived from that part of the principal used to pay debts, expenses and specific legacies. It accordingly follows that in this case the interest items should have- been charged ⁶²⁷ against the corpus of the estate, but it also follows that, since there was no contrary intention expressed in the will, the life tenant was not entitled to receive the dividends derived from the securities sold to pay the testator’s debts, and as these dividends exceeded the amount of interest charged against her, she has suffered no injury. As a matter of fact, she has been overpaid, but as all the appellees have asked that the account be affirmed, we are not disposed to disturb it.

The rule we have announced- would also seem to be supported by reason, because if the life tenant is to receive the income from the gross estate while the corpus bears all the debts and expenses, it can readily be perceived that pending the settlement of the estate the corpus might become seriously impaired. For instance, in the present case, if it had taken four or five years to dispose of the assets at advantageous prices, and during this time the interest charges on the million dollar debt had been charged against the corpus, while the entire income went to the life tenant, the principal would have been depleted to the extent of two or three hundred thousand dollars, and in an extreme case the whole estate might be absorbed. On the other hand, under the rule we have applied the life tenant gets the income from the residue of the estate from the time of the testator’s death. That is all the life tenant is entitled to after the estate has been settled, and in the absence of a contrary direction in the will, we are unaware of any sufficient reason why she should receive more while the estate is being administered.” York v. Maryland Trust Co., supra, 150 Md. 368 -369, 133 A. 133 .

In Merryman v. Long, 49 Md. 540, 546 , the court said, “Apart from any question of the payment of debts and expenses of administration, the widow would no doubt be entitled, under the will, to receive the income from the property from the time of the testator’s death. Angerstein v. Martin, 1 Turner & Russell, 232; Hewitt v. Morris, Ib. 241; Terreire v. Bulmer, 2 Sim. 18; Sargent v. Sargent, 103 Mass. 299 ; Evans v. Iglehart, 6 ⁶²⁸ G. & J. 193”, but nevertheless held that the income of the estate for the first year was assets in the hands of the executor and the application of it to the payment of debts and expenses, in order to save, the corpus of the estate, was equitable, in accordance with the due and proper course of administration, and for the interest of the testator’s widow, the life tenant. The court said, referring to the widow, “She had no right to insist that the corpus of the estate should be sold to pay the debts, when the executor had in hand money sufficient for that purpose, collected from the rents of the leasehold property.” 49 Md. 547 . In the Wethered case, Merryman v. Long was distinguished in part because “the property consisted chiefly of improved leasehold estate”, which for some reason seems to have been regarded as a particularly safe trust investment.

In no case since Merryman v. Long has this court held that income from a residue (over and above income from that part of the testator’s assets sold to pay debts and expenses) should be used to pay debts and expenses and not (directly or indirectly by sale of property) paid to the life tenant. From the Wethered case in Maryland, and from a much earlier date in England, the rights of life tenants in respect of income have been enhanced. In Proctor v. American Security and Trust Co., 69 App. D. C. 70, 98 F. 2d 599, 600-601 , the Court of Appeals of the District of Columbia, in its opinion by Judge Vinson (now Chief Justice of the United States) said, “In the long ago, the life beneficiary of a residuary trust received no income during the administration of the estate. After payment of costs of administration, debts and legacies, the residue • was transferred to the trustee.

Income produced thereafter was paid to the life beneficiary. The reason for such rule, as generally expressed, was that during the period of administration the residue had not been ascertained. All monies earned upon the 'property of the testator during the administration of the estate, not having been disposéd of by will, were a proper part-of the residue. Life beneficiaries suffered hardships. ⁶²⁹ Delay in the administration occurred through proper cause, or through inaction or non-action of the executor.

It was then argued that the life beneficiary of a residuary trust was closer to the heart of the testator than the remainderman, as such life beneficiary had been named first to benefit from the residuary trust. And it was successfully contended that such life beneficiary should have the income from the clear residue from the date of testator’s death. It is now the accepted rule that, in the absence of controlling language in a will, the life beneficiary is entitled to the income of the clear residue, as afterwards ascertained, to be computed from the death of testator.” In Sitwell v. Bernard, (1801) 6 Ves. 520, a testator directed that the residue of his personal estate be invested in real estates, on specified trusts for life, with remainder over, and the income of the residue accumulate and be so invested. The Lord Chancellor (Lord Eldon) held that as the will expressly directed accumulation but did not name the period of it or specify the beginning of the life tenant’s income, the will should be construed as entitling the life tenant to income after one year, the usual period for administration.

More than twenty years later, this case was distinguished by Lord Eldon in holding that the life tenant ordinarily is entitled to the income, from so much of the personalty as is not necessary to be applied to the payment of debts and legacies, from the death of the testator. Angerstein v. Martin, (1823) Turner & Russell 233; Hewitt v. Morris, (1823) Turner & Russell, 241. Long since the Wethered case — largely since the York case — a conflict in the authorities has developed. In the greater number of jurisdictions the law is in accord with Maryland law, but a few jurisdictions have adopted a so-called “Massachusetts rule”, which is at variance with the “general”, or Maryland, or former New York, or “English” rule.

In the Proctor case the court, by Judge Vinson, said, “It is fair to say that there are two irreconcilable rules which have grown up in this country ⁶³⁰ in respect to the point involved. There is the general rule, supported by the decided weight of authority in this country, and, likewise, the English cases, that the earnings upon testator’s property, derived during the course of administration, used to pay costs of administration, debts and legacies, if not disposed of by the express terms of the will, are added to the residuary trust as part of its corpus. Then there is the so-called Massachusetts rule, which crystallized in 1929 [Old Colony Trust Co. v. Smith, 266 Mass. 500 , 165 N. E. 657 ], which holds that the earnings upon testator’s property used to pay costs of administration, debts and legacies derived during the course of administration, if not disposed of by the express terms of the will, are distributable to the life beneficiaries as income. The general rule finds support in the courts of New York, Maryland, Connecticut, Kentucky, New Hampshire, Delaware-, New Jersey and the English cases.

The Massachusetts rule is -followed in the courts of Rhode Island and North Carolina.” Proctor v. American Security & Trust Co., supra, 601-602. In New York the former rule was changed by statute. Laws of 1931, c. 706, Personal Property Law, sec. 17-b, McK. Consol.

Laws, c. 41. In Maryland the Act of 1949, ch. 672, Code, Art. 93, sec. 372, apparently modeled after the New York statute, is applicable only to testators who die after the passage of the act. Appellant says the Act of 1949 substitutes the Massachusetts rule for the Wethered case. As to the. construction or operation of the Act of 1949 we express no opinion. - The merit of the Massachusetts rule is simplicity, i.e., it can be applied, without the use of arithmetical — or algebraical — formulas in more or less complicated computations.

The defects of the rule are that it (1) is unsound in principle in distributing, as income of the residue,, income from property ■ that never was part of the residue, and (2) consequently is unsound in practice in giving the life tenant more income for the initial year or.years than for subsequent years. When admin ⁶³¹ istration of an estate is promptly completed the defects of the rule are often mitigated by the circumstance that the difference between the results of the two rules is small. In the instant case the results of the defects of the rule are magnified by the inordinate delay in administering the estate. This court has not had occasion to express in a formula the principle established and applied in the Wethered and York cases.

In the instant case the auditor followed the formula stated in Section 234, comment g, of the Restatement of Trusts: “g. Income on property used in paying legacies, debts and expenses. To the extent to which the income received by the executor during the period of administration is derived from property which is subsequently used in paying legacies and discharging debts and expenses of administration, and has not been applied to the payment of interest on such legacies, debts and expenses, the trustee is entitled to receive the same, but it should be added to principal and not paid to the beneficiary entitled to income. A proper method of determining the extent to which legacies, debts and expenses of administration should be paid out of principal is by ascertaining the amount which with interest thereon at the rate of return received by the executor upon the whole estate from the death of the testator to the dates of payment would equal the amounts paid.

This amount is charged to principal and the balance of the amount paid is charged to income. Illustration: 3. A bequeathes $30,000 to B and all the residue of his property to C in trust to pay the income to D for life and on D’s death to pay the principal to E. The value of A’s estate at his death is $100,000. During the year after his death the income received by his executor is $5,000.

At the expiration of the year the executor pays the legacy of $30,000 to B and pays $10,000 in discharging A’s debts and the expenses of administration. Of the $40,000 so paid, $38,095.23 (the sum which with interest at five per cent for one year would equal $40,000) is charged to principal, and $1,904.77 is charged ⁶³² to income. D is entitled to receive as income for the first year after A’s death $3,095.23; the remainder of the estate amounting to $61,904.77 is principal of the trust estate.” Professor Scott points out that, in jurisdictions which have not adopted the Massachusetts rule, more than one formula has been used in apportioning income during administration. After stating the rule stated by Judge Vinson in the Proctor case as the “general rule” [swpra], he says, “This method of allocation is the method which was followed in New York until