Opinion
No. 36835
Decided January 3, 1962.
Testamentary trust — Future interest alienable — Equitable interest in securities alienable — Shares of corporate stock — Uniform Stock Transfer Act — Applicable to transfer of legal title — Not applicable to transfer of equitable interest.
1. A future interest, whether contingent or executory, is alienable.
2. Equitable or beneficial ownership or interest in securities is alienable and may be conveyed.
3. The Ohio Uniform Stock Transfer Act applies to the transfer of legal title and does not apply to the transfer of equitable or beneficial ownership or interest.
APPEAL from the Court of Appeals for Pickaway County.
This cause involves the right to certain bank stock of the Second National Bank of Circleville, Ohio, owned by William Foresman at the time of his death.
William Foresman died testate in Pickaway County, Ohio, on February 12, 1921. His widow, Nannie W. Foresman, and his nephews, John P. Foresman and William B. Foresman, were the next of kin. Item 19 of his will, as probated in the Pickaway County Probate Court, created a testamentary trust. It stated:
"I give and bequeath to S. Turney Ruggles, Barton Walters and C. Ernest Salter, all my bank stock in Second National Bank, Circleville, Ohio, in trust, however, and direct that they shall pay the dividends accruing thereon to my wife as long as she lives and remains my widow; at the death or remarriage of my wife, said trust shall terminate and I give and bequeath said bank stock to my nephews John P. Foresman and William B. Foresman, share and share alike.
"I authorize and empower my said trustees, if for any reason they deem it expedient so to do, to convert said bank stock into money and to invest the funds arising from such sale as provided in item four hereof and the yearly income therefrom to be paid to my wife as aforesaid, and upon her death or remarriage, said trust to terminate and the fund to pass to the said John P. Foresman and William B. Foresman, share and share alike.
"It is my will and I order and direct that if either one of my said nephews shall have died prior to the death or remarriage of my wife, and leave no children of his blood him surviving, then the share of the one so dying shall pass to the living nephew or to his living children of his own blood."
Nephew, William B. Foresman, is still living. Nephew, John P. Foresman, died after his uncle, William Foresman, and before his aunt, Nannie W. Foresman. John P. Foresman left the defendants, Helen Louise Johnston and William Kurtz Foresman, as the surviving children of his blood.
The widow, Nannie W. Foresman, who never remarried, died on September 29, 1953, thus terminating the life estate in the trust created under item 19 of William Foresman's will. A problem arose with regard to distribution of legal title to the trust res.
Under the terms of the will, which provided for the termination of the trust, William Kurtz Foresman and Helen Louise Johnston would be entitled to conveyance of legal title to an undivided one-half interest in the trust res, provided they had not sold their interests. Similarly, William B. Foresman would be entitled to conveyance of legal title to the remaining undivided one-half interest in the trust res if he had not sold that interest.
However, on March 12, 1930, Helen Louise Foresman (Johnston) and William Kurtz Foresman, together with their father, John P. Foresman, and his wife, Clara K. Foresman, had entered into a trust agreement whereby they agreed to sell, transfer and assign their interest in and to the trust res in the trust created by item 19 of William Foresman's will.
At the same time, Helen Louise Johnston and William Kurtz Foresman, together with John P. Foresman and Clara K. Foresman, executed a bill of sale transferring for consideration their right, title and interest in the trust res in the trust created by item 19 of William Foresman's will. The bill of sale was in writing, signed by each of the above named, and each such signature was witnessed by two persons and notarized.
The interest transferred by this bill of sale passed by successive conveyances to the defendant, United Mercantile Agencies, Inc.
At the death of the life tenant, Nannie W. Foresman, United claimed an undivided one-half interest in the trust res by virtue of the aforementioned trust agreement, bill of sale and successive conveyances. William Kurtz Foresman and Helen Louise Johnston did not deny their participation. However, William Kurtz Foresman and Helen Louise Johnston still claimed title to an undivided one-half interest in such res under the terms of the will of William Foresman.
The interest of William B. Foresman in the remaining undivided one-half interest in the trust res was the subject of a bill of sale signed and executed by William B. Foresman on May 8, 1950. This bill of sale transferred for consideration all of William B. Foresman's right, title and interest in the trust res in the trust created by item 19 of William Foresman's will to United. William B. Foresman did not deny his participation in the bill of sale. However, William B. Foresman claimed title to an undivided one-half interest in the trust res of the trust created by item 19 of the will of William Foresman.
United claims, by virtue of the two bills of sale and successive assignments, the entire interest in the trust res.
Lillian W. Moore, the sole surviving trustee under the will of William Foresman and holder of legal title to the trust res, brought an action in the Probate Court of Pickaway County, denominated "petition for construction of will," asking the court's direction in the distribution, inter alia, of the res of the trust created by item 19 of William Foresman's will.
The trust res at all times has consisted of 80 shares of stock of the Second National Bank of Circleville, Ohio, evidenced by certificate No. 49 (14 shares) and certificate No. 4 (66 shares). Although given the power to sell such stock by converting it into money and to reinvest the proceeds, the trustee has not exercised this power. The certificates have at all times remained and still do remain in the custody and possession of the trustee.
The Probate Court rendered a judgment in favor of Helen Louise Johnston and William Kurts Foresman as to the undivided one-half interest in the trust res bequeathed under item 19 of the will, holding that there had not been a valid assignment to United. The court also found that the assignment of the other undivided one-half interest in the trust res from William B. Foresman to United was invalid but construed the transaction as a contract to convey. The court directed the trustee to convey an undivided one-half interest in the 80 shares of the stock to William B. Foresman and further ordered William B. Foresman to convey such undivided one-half interest in the stock to United. United appealed from that part of the judgment awarding an undivided one-half interest (represented by 40 shares of stock) to Helen Louise Johnston and William Kurtz Foresman. William B. Foresman appealed from that part of the judgment requiring him to convey an undivided one-half interest (represented by 40 shares of stock) to United.
On appeal, the Court of Appeals in part reversed and in part affirmed the Probate Court's decision. The court directed that 40 shares of the above-described stock be distributed to William B. Foresman, and that 40 shares be distributed to William Kurtz Foresman and helen Louise Johnston. The claim of United to an interest in any part of the trust res was denied.
The Court of Appeals found that the certificates of stock have always been and still are in the possession of the trustee under the will. From this fact, the court concluded that no valid assignment existed because there was a failure to meet the requirements of the Uniform Stock Transfer Act in that no delivery of the certificates had ever been made to United.
The cause is before this court upon the allowance of a motion to certify the record.
Mr. Ray W. Davis, for Lillian W. Moore, trustee.
Messrs. DeVennish Hague, Mr. Thomas W. Munger and Mr. George C. Hanna, for appellees.
Messrs. Vorys, Sater, Seymour Pease, Mr. Herbert R. Brown, Mr. John C. Elam and Messrs. Brown, Ardery, Todd Dudley, for appellant.
The appellees have filed a motion to dismiss this appeal for want of prosecution upon the ground that the appellant is in violation of certain rules of practice of this court in that the appellant failed to attach to its brief a two-page "supplemental opinion" which corrected a mistake in the basic opinion of the Probate Court (this was later filed prior to oral argument, with copies to all counsel of record) and failed to include record references in the assignment of errors.
The court finds no serious breach of the rules of this court and further finds that no party has been prejudiced by the alleged rule violations.
The motion to dismiss this appeal for want of prosecution is hereby overruled.
The appellees contend that this appeal should be dismissed on the ground that the Court of Appeals abused its discretion in vacating its initial judgment not within term. This court decided this question in favor of the appellant, upon the allowance of the motion to certify in this case.
The appellees contend that, so far as Helen Louise Johnston and William Kurtz Foresman are concerned, the appellant has shifted from a claim of legal title to the stock to a claim of equitable title, that the assignment of errors to the Court of Appeals differs from the assignment of errors presented to this court, and that the question of equitable title was not before the Court of Appeals and, therefore, can not be brought before this court.
A careful reading of the petition of the trustee filed in the Probate Court for the construction of the Foresman will makes it clear that the theory of this cause has not been change since its beginning. The trustee recognizes that legal title exists in the trustee and seeks direction from the court as to whom such legal title should now be transferred under the terms of the will. This requires a determination of the equitable ownership of the corpus, as the equitable owner would be entitled to conveyance of the legal title held by the trustee. The only question then before the Probate Court and the Court of Appeals was: Who, as equitable owner of the trust res, is now entitled to a conveyance of the legal title to that property?
The question which is raised by the judgment of the Court of Appeals is whether the Uniform Stock Transfer Act is applicable to the transfer of the equitable or beneficial ownership or interest in the 80 shares of bank stock which formed the res of this trust.
The answer to this question is found in the Uniform Stock Transfer Act itself. Section 1705.04, Revised Code, provides as follows:
"Title to a certificate and to the shares represented thereby can be transferred only by * * *."
Section 1705.01, Revised Code, defines the words, title and transfer, as used in Section 1705.04, Revised Code, as follows:
"`Transfer' means transfer of legal title.
"`Title' means legal title and does not include a merely equitable or beneficial ownership or interest."
This language makes it unmistakedly clear that the Uniform Stock Transfer Act applies to the transfer of legal title and does not apply to the transfer of the equitable or beneficial ownership or interest.
The appellees, Helen Louise Johnston and William Kurtz Foresman, contend that their conveyances are not binding against them, since the interest they attempted to convey was inalienable as a contingent remainder. No such argument can be made with respect to the interest conveyed in 1950 by William B. Foresman to the appellant, since Section 2131.04, Revised Code, enacted in 1932, expressly makes estates of all kinds alienable in Ohio.
A future interest, whether contingent or executory, is alienable. This was the rule in Ohio even prior to the enactment of Section 2131.04, Revised Code, in 1932. Lessee of Thompson v. Hoop (1856), 6 Ohio St. 480; Needles, Exr., v. Needles (1857), 7 Ohio St. 432; Thomas v. Trustees (1904), 70 Ohio St. 92.
The text writers have endorsed such a rule, particularly where the future interest is in personalty preceded by an interest in trust, as here. Simes Smith, Law of Future Interests, 167, Section 1857; 2 Scott on Trusts (2 Ed.), 986, Section 132; Bogert on Trusts and Trustees, Section 188; Restatement of the Law of Trusts (2d), (Rev. Ed.), 1959, Sections 132 and 129. See W.B. Saunders Co. v. Galbraith (1931), 40 Ohio App. 155, 159.
The principle regarding the transferability of equitable property interest was recognized by this court in Lozier v. Lozier (1919), 99 Ohio St. 254, 257. See, also, First National Bank of Cincinnati, Exr., v. Tenney (1956), 165 Ohio St. 513; Cleveland Trust Co., Trustee, v. White (1938), 134 Ohio St. 1.
Equitable or beneficial ownership and interest in securities is alienable and may be conveyed. See Stuart v. Sargent (1933), 283 Mass. 536, 186 N.E. 649; Martindell v. Fiduciary Counsel, Inc. (1943), 133 N.J.E., 408, 30 A.2d 281; Equitable Trust Co., Exr. v. Gallagher (1949), 31 Del. Ch. 88, 67 A.2d 50, affirmed, 32 Del. Ch. 401, 77 A.2d 548; Whitney v. Nolan (1937), 296 Mass. 419, 6 N.E.2d 386; Orpheum Building Co. v. Anglim (1942), 127 F.2d 478, 481. This rule has been announced also in Ohio in Andrews v. Watson (1887), 12 C.D., 686 and 692, affirmed without opinion in 51 Ohio St. 619, where the Circuit Court held, in the fifth paragraph of the headnotes:
"The legal title to stock must be transferred on the books or by assignment of certificate, although the equitable title may be otherwise transferred."
The appellees had an equitable or beneficial ownership or interest in the 80 shares of bank stock of the Second National Bank of Circleville under the terms of the will of William Foresman. Under the law, such interests are transferable. The language of each of the conveyances by the appellees makes it clear that they intended to and did transfer their equitable interest, the language of each conveyance being in part that the conveyance was of "their right, title and interest in the bank stock * * * arising under item 19 of the will of William Foresman." Such bill of sale contains additional language which destroys the appellees' arguments that these instruments only conveyed appellees' nonexistent legal title to the stock, the legal title being in the trustee. Each instrument provides: "And the vendors and assignors do further by these presents sell, transfer, assign and set over unto said * * * [United Mercantile Agencies] any and all interest which they now have or which may hereafter accrue unto them in and to any stocks, bonds, securities, funds or investments into which said bank stock may be converted by the trustees in item 19 of said will * * *."
The only interest these appellees had in the trust res of bank stock was equitable. This was transferable and they transferred it.
Under the law, the Uniform Stock Transfer Act has no application to such a transfer. Upon termination of the trust, the trustee, under the terms of item 19 of the will of William Foresman, must convey legal title to the trust res to the equitable owner, the appellant.
Judgment reversed.
ZIMMERMAN, acting C.J., GRIFFITH, TAFT, MATTHIAS and BELL, JJ., concur.
ZIMMERMAN, J., sitting in the place and stead of WEYGANDT, C.J.
GRIFFITH, J., of the Seventh Appellate District, sitting by designation in the place and stead of ZIMMERMAN, J.