author: Wanamaker, J.

text:
    The State of Ohio v. Lasecki.

      Criminal law—Evidence—General objection to part of answer properly overruled, when—Exception preserved, how—Exclamations after act admissible, when—Limitation of doctrine of res gestae determined, how—Application of doctrine of res gestae.

    1. Where the question put to a witness is competent, or not objected to by counsel, and the witness answers, a part of which answer is competent and a part incompetent, a general objection to the whole answer is properly overruled, even though there be some . objectionable matter in the answer. To save the objector’s rights he should clearly indicate the part of the answer to which he objects and move its exclusion. If the court overrules such motion, he should then save his exception.
    2. The exclamation of a boy four years of age that “the bums killed pa with a broomstick,” which was made from ten to thirty seconds after a fatal assault upon his father, made in the boy’s presence, is competent evidence to go to the jury as explanatory and illustrative of the manner and means by which the , father was assaulted. The utterance of the boy under such circumstances, made at the earliest opportunity to make an outcry in the presence and hearing of others, was the spontaneous and impulsive language of the situation, free from any subter- ... fuge, artifice or motive to fabricate. Its weight, however, is purely a question for the jury.
    3. The doctrine of res gestae, as applied to exclamations, should i have its limits determined, not by the strict meaning of the word “contemporaneous,” but rather by the causal, logical or psychological relation of such exclamations with the primary facts in controversy.
    4. This doctrine applies equally to participants, bystanders and persons incompetent to be witnesses.
    (No. 14280
    Decided February 24, 1914.)
    Error to the Court of Appeals of Cuyahoga county.

      On the evening of January 1, 1913, Mike Zacharias, in company with his little son, aged about four years, and certain other men, visited the saloon of his brother, William Zacharias, in Berea street, Berea.
    Across the street from William Zacharias’ saloon, another saloon was kept by a man by the name of Frank Niec. Between ten and eleven o’clock in the evening, the defendant, John Lasecki, accompanied by John Wisniewski and Ignatz Maslinski, left Niec’s place. Just before they left, Niec passed two clubs over the bar to them. Some few minutes later they returned to Niec’s place, without clubs, and went into a side room. At about this time Mike Zacharias was killed in the street not far distant from Niec’s place.
    Testimony was also offered tending to show that several others left Zacharias’ saloon with the deceased at about this time, including the deceased’s little son. The party left the saloon for the purpose of taking a car to Cleveland. As they walked towards the car Mike and his son were the last of the party. An altercation was heard between Mike and some other men not of his party. The sound of two or three blows, as if by a club, was heard by the men ahead of him. One or more of these men ran back and found the deceased lying on the ground and also saw some men running away. .As they came up to where Mike was lying, the boy, in a nervous and much frightened state of mind, said, “The bums killed pa with a broomstick.” The boy was then about twenty-five feet away from his father and out of the hearing of those who were fleeing from the scene of the attack.
    The above statement of facts is taken verbatim ' from the opinion of the court of appeals, and it is on this exclamation of the boy that the court of appeals reversed the judgment of conviction obtained in the common pleas court, and which judgment of reversal the state asks to have reversed in this court.

      Mr. Cyrus Looker, prosecuting attorney, and Mr. Samuel Doerfler and Mr. P. J. Mulligan, assistant prosecuting attorneys, for plaintiff in error,
    • Mr. Henry DuLaurence, for defendant in error.
   Wanamaker, J.

Was the exclamation of the boy competent testimony?

Both sides agree that this is the only question in the case, and that the testimony is competent only upon the theory that it is a part of the res gestae of the case.

The record discloses that the exclamation arose ■in the following manner:

“Q. You may tell if anything unusual happened there and what it was, anything out of the ordinary? A. We was walkiiig about one hundred and fifty feet from the car, maybe two hundred, I "couldn’t tell you, and I heard the hitting twice, like 'that (indicating), and think there was an argument started and the boy said that the bums had killed his papa with a broomstick. Objection. Objection overruled. Exception.”

It will be noted that there was no objection to the question, and that the objection is to the whole ■;a'nswer.

Now, manifestly, the major part of the answer is competent and responsive to. the question. If the .exclamation of the boy be incompetent, the objection of counsel should have been addressed to that exclamation, asking an order from the court to ex.clude it from the consideration of the jury. But that was not done. Where objection is made to the entire answer, part of which is competent and part incompetent, there is but one thing for the trial judge to do, that is to overrule the objection, and in this case there was no error on the part of the trial court.

But we are not disposed to decide a case of this importance upon the mere failure of counsel to properly save his rights, and shall consider the case on its merits, as if the objection and exception had (been properly made.

Was the exclamation a part of the res gestae f

Wharton’s definition of res gestae is as follows: “Those circumstancés which are the undesigned incidents of particular litigated acts, and are admissible where illustrative of such acts. These incidents may be separated from the act by lapse of time more or less appreciable. Their sole distinguishing feature is that they should be necessary incidents of the litigated act—necessary in this sense: ■that they are part of the immediate preparations for, or emanations from, such acts, and are not produced by the calculated policy of the actors. In ■other words, they must stand in immediate causal relation to the act—a relation not broken by individual wariness seeking to manufacture evidence for itself. Therefore declarations which are the immediate accompaniments of an act are admissible as part of the res gestae; remembering that immediateness is tested by closeness, not of time but by causal relation, o? just explained.” 7 Words and Phrases Judicially Defined, 6130.

Again, Wharton says res gestae are the facts which form the environment of a litigated issue.

Bishop, in his New Criminal Procedure (2 ed.), Section 1085, uses the following: “But it is difficult, perhaps impossible, to formulate an available rule as to what shall be deemed of the transaction, and what shall not. It appears safe to say that the subsidiary act neéd not transpire at the same instant with the main one, or always even on the same day; and, in reason, as well as in accordance with the current of the authorities, the time which divides the two is not the controlling consideration, though it may be taken into the account. Is it presumable that, distinctly and palpably, it influenced or was influenced by the main act, or proceeded from the same motive ? If so, it is admissible, otherwise not.”

Again, the same author, in Section 1086, uses this language: “The admissibility■ of particular acts being conceded, whatever of a nature explanatory thereof was during their performances said, whether by the doers or by the lookers-on, by the parties to the litigation, or by third persons, may, subject to some apparent or real qualifications, be given in evidence whenever the acts are. * * * In a general sense, the declarations from whatever source must, to be thus admissible, be contemporaneous with the act they would illustrate. We may have cases apparently requiring them to be strictly so. But it is, at least, the better doctrine that they are competent whenever near enough to the act either before or after it, to be probably prompted by the same motive, not an afterthought, and apparently to constitute of it a part; otherwise they are not competent.”

Professor Wigmore, in his excellent work on Evidence, Vol. 3, Sections 1745 to 1747, discusses this same question with large ability and logical analysis, showing the foundation of the principle in the doctrine of res gestae as applicable to exclamations and as constituting a striking exception to the hearsay rule.

In Section 1747 the author uses this language: “This general principle is based on the experience that, under certain external circumstances of physical shock, a stress of nervous excitement may be produced which stills the reflective faculties and removes their control, so that the utterance which then occurs is a spontaneous and sincere response to the actual sensations and perceptions already produced by the external shock. Since this utterance is made under the immediate and uncontrolled domination of the senses, and during the brief period when considerations of self-interest could not have been brought fully to bear by reasoned reflection, the utterance may be taken as particularly trustworthy (or, at least, as lacking the usual grounds of untrustworthiness), and thus as expressing the real tenor of the speaker’s belief as to. the facts just observed by him; and may therefore be received as testimony to those facts. The ordinary situation presenting these conditions is an affray or a railroad accident. But the principle itself is a broad one. , Its phrasings differ widely in different courts; but there is in the judicial opinion of to-day something of an approach to uniformity.”

The author cites a large number of cases in support of the doctrine.

It is impossible to reconcile the multitude of divers decisions by courts of last resort on the proper scope and limitations of the old phrase res gestae. Many of the states follow reverently and .rigidly the old English rule, that before any exclamation is admissible in evidence on the theory of res gestae, it must be contemporaneous in time with the principal fact in litigation. That is, just as soon as it appears that it is subsequent in time to the principal fact and merely narrative of it, such .exclamation is not a part of the res gestae and is, therefore, not admissible.

This old English rule had its birth in a strange combination of circumstances. First, the inhumanity and barbarity of the penalties provided by the .English law for criminal cases. A century ago two hundred crimes in England were punishable by death. Second, the prisoner had no rights in an English court of justice, save the right to be convicted. He was not competent as a witness in his .own behalf, nor indeed were any members of his family. He was not allowed the privilege of having his own counsel address the jury, and indeed, in earlier days, was not even allowed the privilege of counsel. He had no right of appeal, and many other prerogatives now enjoyed by the defendants were wholly unknown to the English law a century or more ago.

With these barbarous penalties and this outrageously unjust procedure it is little wonder that the humanity of the judge as well as his love of legal casuistry should resort to a strained and technical construction of the law to overcome its barbarity.

Now, while this was none the less judge-made law, its evils were much mitigated by the fact that it was' done in the name of justice and humanity. The judge’s love for justice was greater than his love for law. These were the circumstances and conditions of the English law that gave rise to the technical formalism and procedure in English criminal courts a century and more ago.

' Naturally no other county has had as great .an influence on our American courts as have our English brethren, because of our speaking a common language and having a common law as well as a multitude of varied and very common interests. This procedure was adopted in many of our states, though the English cruel and barbarous conditions as to penalties and procedure never prevailed in such states; but such is the force' of precedent that the English doctrine was faithfully followed by many of the courts of last resort, without the least justification for such superstrict interpretation of the rights of the accused or such over-refined distinctions as to both the substantive and adjective law of the state.

The second class of states practically Ignored the old English doctrine of contemporaneous character of facts or exclamation and considered chiefly the causal connection or logical relation that the secondary facts sustain to the primary facts in controversy.

Now, applying the doctrine or test of causation, it would be expected not infrequently that there would be an appreciable interval between cause and effect, between those things that have a logical relation, such as the commission of an act and an impulsive exclamation concerning the same.

That the natural language of a given situation or environment would not always be contemporaneous with the primary fact is quite obvious. But is it, therefore, any less a part or incident of the primary fact of the situation? The outcry of the injured party immediately after the assault should be as relevant as during the assault, because he may be bound and gagged or unconscious by reason of an assault, so that he could not make an outcry, which, if made during the assault, would be competent according to all authorities; but by reason of its being delayed ten or twenty seconds after the' assault it would not then be competent. This makes the relevancy or relation of the facts turn on a few paltry seconds of time rather than upon the natural and logical relation of the facts.

Now, when the exclamation is the combined result of the tragic circumstances of the situation making an awful and fearful impression upon the human mind, especially that of a child seeing its own father murderously assaulted, the child being overwhelmed with fear and grief because of the darkness of the night, the absence of a helping hand, grief of parental loss, with nobody to appeal to, all these combined placing the child under natural and extreme excitement, and then, after a few seconds, some one comes into his presence to help, what is more natural, indeed necessary, in such situation than just such an exclamation as we have in this case, ‘-The bums killed pa with a broomstick” ?

The language proceeds from impulse, from the natural and necessary impressions made by the acts of the parties in controversy, so that the human mind in its helplessness or despair, or its natural and necessary anxiety, acts under an impulse or a spontaneous influence that is a sort of echo or reaction from the general situation. The time limit recognized by those courts that fall under this second class which disregard the strict contemporary character, is placed at a point where there is no opportunity given for fabricating or manufacturing some statement or story according to one’s self-interest.

If the father had made some declaration during the assault all authorities agree that it would be competent, but if he had been unconscious or partially unconscious by reason of the severity of the assault, so that he was unable to make any exclamation until a minute or so afterward, would his exclamation be therefore incompetent? We think this is too much like hairsplitting.

But it is said the boy was not participating, that he was a mere bystander, and that therefore his ■ exclamations are not competent.

Under the old English rule this was true. But what reason could possibly exist for such a rule, excepting the bald protection of the defendant, it is difficult to understand. Ordinarily in other cases bystanders are presumed to be rather more impartial, more disinterested, than those who are the active participants, and the average mind would feel this fact should rather strengthen the probative force of the exclamation than weaken it.

Again, it is urged that the boy was not' old enough to be a witness, and therefore his exclamation should not be admitted. But exclamations are not admitted on the ground of the legal competency of the person making them, but because they are a part or reflection of the transaction. By the same token the growl of a dog or the neighing of a horse is also competent as res gestae. The exclamation in this case should be just as competent, yes more so, than the exclamation of a female person who has been assaulted in a case of rape, which the authorities all agree is allowed as a part of the natural and necessary language of a person who has been brutally assaulted, though the exclamation may be made even some days after the occurrence' of the criminal assault if there be a reasonable ex-! planation for the delay.

An interesting incident in the life of Lincoln will serve to illustrate these involuntary acts upon the part of children that are really only a reflection, a natural sequence to certain prior facts. His biographer, Holland, says: “At one time Abraham was obliged to take his grist upon the back of his father’s horse and go fifty miles to get it ground. The mill itself was very crude and driven by horse power. The customers were obliged to wait their turn without reference to their distance from home, and then use their own horse to propel the machinery. On one occasion Abraham having arrived at his turn fastened his mare to the lever and was following her closely upon her rounds. When urging her with a switch and ‘clucking’ to her in the usual way, he received a kick from her which prostrated him and made him insensible. With the first instant of returning consciousness he finished the ‘cluck.’ ” This was one of the most striking and convincing facts as to what Abraham' was doing when he became unconscious. What stronger proof that he was driving the horse could be given than this exclamation as soon as consciousness returned?

So, in the case at bar, the causal, logical and psychological relation of the whole situation as affecting the boy and his innocent, spontaneous, impulsive, natural and necessary outcry was exactly in keeping with all human experience and what all men recognize in everyday life as tending to prove certain facts. Why should not the same rules obtain in courts of justice to prove the same kind of facts? The rules of evidence are presumed to be based upon the credibility of human experience.

A most interesting case from Georgia, Grant v. State, 124 Ga., 757, is singularly analogous to the case at bar:

“4. Exception was taken to the refusal of the court to exclude the following testimony: ‘Mary’s [deceased’s] child said, “Huss [defendant], you have shot mama.” ’ The testimony quoted was that of Jake Colbert, a witness for the state, and it was objected to ‘on the ground that the solicitor-general, in opening the case to the jury, had stated that Mary Johnson’s [deceased’s] child, the one referred to by the witness Colbert, was too young to be a competent witness or to testify.’ And movant adds that this (the foregoing statement of the solicitor-general) ‘was true, and allowing Colbert to testify as to what the child said was in effect allowing the child to testify.’ We can not agree with counsel that permitting the witness to testify to the words of a little child, too young to be brought into court as a witness, was equivalent to permitting the child itself to testify. It appears from the evidence that the witness Colbert, at the sound of the shots which slew the deceased, ran immediately from an adjoining room into the one where the homicide was committed, and said twice to the defendant, ‘Have you shot Mary?’. The defendant made no answer, but the child, as the defendant silently left the room, uttered the words, ‘Huss, you have shot mama.’ These words, spoken by a little child immediately after the shocking occurrence, were clearly admissible as a part of the res gestae. No declaration could have been freer ‘from all suspicion of device or afterthought,’ and it was, in point of time, almost concurrent with the act to which it referred. It was the very deed itself speaking through the mouth of a babe.”

Jn another case the supreme court of Georgia, in Kirk v. State, 73 Ga., 620, held as follows: “Evidence that immediately after the deceased was shot, a person near by hallooed and asked him what was the matter, and who had shot him, to which he replied that the defendant had shot him, was admissible both as part of the res gestae and as corroborating the dying declarations of the deceased.”

The supreme court of Minnesota, in State v. Williams, 96 Minn., 351, held a statement, to the effect that the defendant shot the deceased and herself, made by a party other than the deceased, but who was mortally wounded at the time of the homicide, and made in close connection with the event and under circumstances precluding any suspicion of fabrication, was properly received in evidence.

The court in its decision uses this language: “It is the contention of the defendant that the statement in question was simply the narration of a past transaction and not so connected with the main fact, the shooting, as to illustrate its character. On the other hand, the state claims that the evidence was clearly admissible as a part of the res gestae. We are of the opinion that the evidence was properly received. The record shows that Mrs. Keller was one of the victims of the tragedy; that her statement or declaration to Mrs. Kline was made within a few minutes after the shooting took place. It was not mere self-serving, hearsay evidence; for the statement was a natural and instinctive declaration, made in close connection with the shooting and under circumstances precluding any suspicion- of fabrication.” The evidence was admitted as a part, of the res gestae.

In an unreported case of Collins v. Commonwealth, 24 Ky. L. Rep., 884, the following is held: “The exclamations of the wife and daughter of H. immediately succeeding the shooting were competent as a part of the res gestae

The supreme court of Illinois has held in 104 Ill., 248, Lander v. People, as follows: “The true test of the admissibility of such testimony is that the act, declaration or exclamation must be so intimately interwoven with the principal fact or event which it characterizes, as to be regarded a part of the transaction itself, and also to clearly negative any premeditation or purpose to manufacture testimony.”

Under this doctrine the court held no error was committed on the trial of one upon the charge of rape, where two witnesses were called who were near by and witnessed the perpetration of the offense and testified that they saw and readily recognized the accused near the scene of the transaction on the next day thereafter, and that one called the attention of the other to the accused, exclaiming “There goes the man!” and that the other replied, “Yes, there he goes.” The defendant objected to the witnesses repeating their, exclamations made at the time, but the court permitted the same.

Many more decisions under the same line might be cited and discussed, but the best-considered cases where the courts have gotten away from the old English rule prefer the test of causal connection, logical or psychological relation and association as the true and proper test of relevancy.

Underhill in his excellent work .on Criminal Evidence (2 ed.), Section 93, p. 174, uses this language : “These declarations must possess three characteristics: First, they must have been uttered contemporaneously with and grow out of the act upon which they have a bearing so as to be spontaneous and not narrative; second, they must qualify, illustrate, explain or unfold its character or significance, so as, third, to be connected with it in such a manner that the declaration and the act form a single and indivisible transaction.”

This doctrine would seem to disqualify the exclamation according to the author’s judgment. But just prior to this rule announcing the qualifications necessary to admit the evidence, he uses this language, Sec. 93, p. 173: “Usually statements made by third persons not produced as witnesses are objectionable as hearsay. But, it has been remarked, here the events speak for themselves, giving out their fullest meaning through the unprompted language of the participants. The spontaneous character of the language is assumed to preclude the probability of its premeditation or fabrication. Its utterance on the spur of the moment is regarded, with a good deal of reason, as a guarantee of its truth. These instinctive utterances are as much original evidence as are the events whence they emanate or of which they form an inseparable part. Their value as evidence does not depend in the slightest degree upon our confidence in the credibility of the declarant, or upon our knowledge of him as a man who habitually tells the truth. He is regarded merely as the channel through which the events describe themselves contemporaneously, or nearly so, with their occurrence.”

So that, taking all that Underhill says upon this subject, it is apparent tha.t he does not intend to give the word “contemporaneously” that strict construction required by the English rule, but the liberal construction, which he indicates by the language “or nearly so,” that is now recognized and applied by many of our American states.

To cite other authorities would be superfluous. We feel, however, that it is but just to say that the judgment of the court of appeals in this case finds abundant warrant in the former decisions of this court in analogous cases.

We believe, however, that the demands of justice, as well as the probative force and effect of such exclamations made where there is a maximum probability as to their truth and a minimum possibility of artifice or fabrication by reason of their being the natural, spontaneous and, sometimes, as in this case, the necessary language of a child, require that the old rule should be relaxed and liberalized so as to meet the naturalness and necessities of the case, as well as to put the jury and court in possession of all the facts, circumstances and environment immediately before and after the principal fact in controversy.

The state contended before the court of appeals that, if the admission of the boy’s exclamation was error, such error was not prejudicial, because, first, the word “bums” identified nobody, and second, there was other evidence tending to show that the fatal wound was made with a stick or a club. This contention of the state was overruled by the court of appeals, and in this respect the court was undoubtedly right. The exclamation of the boy under' the circumstances, that it was made in its relation to the transaction, being the sole eyewitness save- and except the defendant, speaking under great excitement and impulse, freed from opportunity or occasion to dissemble or fabricate—all these things undoubtedly gave the boy’s exclamation great weight with the court and jury. But the primary reason for such great weight was by reason of its causal connection, its logical relation to the facts in the case, and because it was the natural language of the whole situation speaking through the little boy. That relation made it competent, though it be not strictly contemporaneous.

We find no other error in the record of the court of appeals. The judgment of the court of appeals is reversed and the judgment of the court of common pleas is affirmed, and cause remanded to the court of common pleas for further proceedings according to law.

Judgment reversed

Nichols, C. J., Johnson, Donahue, Newman and Wilkin, JJ., concur.


source: Caselaw Access Project

author: ' Johnson, J.

license: Public Domain

text:
    Wilberding, Administrator, v. Miller et al.

      Wills—Trust funds—Increase in stock due to reorganization of company—Belongs to corpus of trust fund, when—Distributive share of assets belongs to trust fund, when—Lawful heirs ascertained, how—Declaration of testator of domicile determinative, when—Jurisdiction of probate court to determine application to probate, will.

    1. Where stock in a corporation was bequeathed to trustees to hold in trust, with power to sell and reinvest the proceeds, under direction to pay the entire het income to the wife of testator, during her life, and the company with the consent of all of its stockholders afterwards transferred to' a new company all of • its assets, including a large surplus which it had accumulated • in its business and had invested in its plant, machinery and other assets used in the business (much of which was done during the life of the testator), each stockholder receiving two shares in the new company for one in the old company, the entire stock received by the trustees, in the new company, belongs to the corpus of the trust fund.
    2. The distributive share of the assets of a corporation received by ■ trustees on the liquidation and dissolution of the company belongs to the trust fund, although the assets so distributed included a surplus which the company had accumulated from its earnings and had invested, used and held in the promotion of its business, acting in good faith and for the best interest of all concerned.
    3. In a will which devised one-half of an estate to the lawful heirs of the testator and one-half to the lawful heirs of his wife, after the death of his only son without issue, and which con- • tained specific provisions as to the disposition of the shares of his sister (if she should survive the testator) and of the sister and brother of his wife, the persons included in the designation “lawful heirs” to whom “my estate shall go” are to be ascertained as of the date of the death of the testator or his wife, respectively, per stirpes, the representatives of deceased brothers and sisters to take the share that would have gone to their ancestor if living, except where the will itself otherwise provides.
    4. While the declaration of a testator in his will as to his domicile is not conclusive, yet when there has been no material change in the situation with reference to it, between the execution of the will and the death of the testator, such declaration is evi- ' dence of high character, and will determine the question in the absence of more convincing proof to the contrary.
    5. The'probate court has full jurisdiction to adjudicate all questions 'arising in proceedings properly before it. On the hearing, of an application to' probate a will the court has jurisdiction to • ‘''fully and'finally determine all questions involved in the application; including that of the domicile of the testator. The judg- , ; ment of the court is protected by the same rules as to collateral attack as other judgments of courts of record.
    (No. 13982
    Decided February 24, 1914.)
    Error to the Circuit Court of Cuyahoga county.
    Henry C. Miller and Samuel C. D. Johns, testamentary trustees under the will of Nathan E. Chapman, brought a proceeding in the court of common pleas of Cuyahoga county under Section' 10857, General Code, praying the direction of the. court respecting the administration of their trust. By their petition they submitted certain, questions relative to the execution of the trust and the construction of the will. All persons interested or claiming any interest in the trust estate were made parties to- the proceeding, and the relations of the parties tp the ¡testator and to the trust estate were, fully set forth in the petition, together with a copy. of the-will.
    ., The third paragraph of the will is the one under,which, the questions involved in the. cáse arose and if is as follows:
    “Third: It is my will, that said, trustees shall hold all the real estate, securities and moneys, of. which I may die seized, with power to sell and convey, said real.estate, and to sell, dispose of or collect all of said securities, and to invest and re-invest the proceeds thereof, and after paying expenses, to pay the entire'net income from my said estate, to my wife, during her lifetime. And it is my will, that if it becomes necessary, in the judgment of said trustees, to use any part or all of the principal, of my estate for the support and care of my said wife, that the same shall be so used.
    “At the decease of my said wife, it is my will, that the entire net income from my said estate, shall be paid by said trustees, to my said son, Harry, during his natural lifetime, should he survive his mother. And should said trustees, or their successors deem it necessary, at any time, after the decease of my said wife, to use any portion of the principal of my said estate, for the support and maintenance of my said son, Harry, they are authorized to so use the same. And should my son die, leaving issue, then at his death, should he survive his mother, or at his mother’s death, should she survive him, said net income to be paid to the proper guardian of said issue, until it or they arrive at the age of twenty-one years, and to then become the absolute property of said issue. But, if my said son shall die, without living issue, then, after his death, if he survive his mother, or after his mother’s death, if she survive him, or after the death of his issue, should it or they die before arriving at the age of twenty-one years, it is my will, that all of my estate, shall go, one-half to my lawful heirs, and one-half to the lawful heirs of my wife, subject, however, to the following conditions:
    “Should my son’s wife survive both my son and my wife, then it is my will, that one-fourth of my said estate, shall still remain in trust, she to be paid by said trustees, the net income of said one-fourth, during the time that she remains the widow of my said son; and that the remaining three-fourths of my said estate be then and there divided between my heirs and the heirs of my wife, as aforesaid; provided, however, that if my sister, Mary E. Buck-land, should survive me, then it is my will, that the share that she would receive at law, should remain in trust, in the hands of my said trustees, she to receive the income therefrom during her lifetime, and at her death, said share to be paid to and vest in her daughter and the heirs of her daughter, Maria. It is my will, that no part of my estate shall ever go to my said sister’s son, George. And provided further, that the share that would go to Mary A. Solloway, sister of my wife, shall remain in trust during the lifetime of said Mary A. Solloway; she, during said time to receive the net income from said share, and at her death, it is my will, that said share should go to the other heirs of my said wife, excluding therefrom the children of the said Mary A. Solloway, it being my will that the said children of the said Mary A. Solloway shall inherit or receive no part of my estate. And provided, further, that the part of my estate which would go to Mitchell H. Miller, brother of my wife, shall be held in trust during the remainder of his lifetime, by said trustees, he to receive the net income therefrom, and at his decease, the same to go to his children. And it is my will, that in the event one-fourth of my estate, shall remain in trust for the benefit of the wife of my sai3 son, as above provided, then at her mar.riage or decease, as aforesaid, said one-fourth to be disposed of in the same manner provided above for said three-fourths.
    ' ‘T hereby provide, that in case either of said trustees above named, shall refuse to accept said trust, or for any cause whatever, at any time, they or either of them shall fail, or become incapacitated to act as such trustees, the probate court shall appoint a successor or successors to said trustees as provided for in Section 5986 of the Revised Statutes of Ohio. And it is my will, that said trustees shall réceive such compensation for their services, as shall be fixed from time to time, by the probate court of the county where this will is probated. '
    • “In testimony whereof, I have set my hand to this, my last will and testament, at Cleveland, Ohio, this 29th day'of May, in the year of our Lord one thousand eight hundred and ninety-one.
    “Nathan E. Chapman.”
    , The testator died January 13, 1893. The vvill was admitted to probate by the probate court of Cuyahoga county on February’ 13, 1893. Fannie E, Chapman, wife of the testator, survived him,and died March 10, 1908. He was also survived by. his son, Harry E. Chapman, who, at the time of the death of the testator, was married to Caroline S. Chapman. Harry E. Chapman, the son, died on the 17th of November, 1910, without “living issue,” survived by his wife, Caroline S. Chapman, who is . still living. The testator had four brothers and one sister, as follows: William Henry Chapman, who died August 18, 1895; Nelson C. Chapman, who died December 1, 1896; Dana B. Chapman, who died November 22, 1865; Charles W. Chapman, who died March 10, 1884, and Mary Elizabeth Buckland,- who died January 18, 1895. The brothers who died before the testator and the brothers and sisters who survived him and died afterwards each left living children or their representatives. Fannie E. Chapman, wife of the testator, had two brothers and three sisters, all of whom were living, at the time of the death of the testator and are represented in this proceeding. Mitchell H. Miller, the brother,-died March 17, 1905, leaving two sons and a daughter. Nathan E. Miller, son of Mitchell H. Miller, was born after the death of the testator and prior to the death of Harry E. Chapman. He was adopted by Harry E. Chapman in accordance with the laws of Ohio.
    The plaintiffs in their petition prayed the judgment of the court as to the construction of the will upon four matters. The only one of these as to which there is any contest or disagreement among the parties now is the first, to-wit: “Whether the interest and estate of the said heirs vested in them at the death of the testator, or whether the interest and estate of said heirs was contingent until the death of the said son of the testator in November,. 1910, and, it being determined whether said interest or estate in said heirs was vested or contingent at the time of the death of testator, whether the said heirs now take their inheritance per capita or per, stirpes

      By the cross-petitions filed in the cause by the defendants the principal and most important question we have to consider was brought into the case, to-wit, whether a large amount of money, which was received by the trustees upon the distribution of the assets of The Latrobe Steel Company, in which company the trustees as such held stock, belongs to the life tenants under the will or to the remaindermen. As to the first question the court below directed that a division should be made among the brothers and sisters of the testator and the' brothers and sisters of his wife, who were living at his or her death respectively, per stirpes, the representatives of deceased brothers and sisters taking the share that would have gone to their deceased ancestors, if living, except where the will prescribes that such share shall not go to specified persons. As to the second question, the court ordered the trustees to distribute the entire amount received by them on the stock of The Latrobe Steel Company, upon its liquidation,. in accordance with the terms of the will, as a part of the trust estate belonging' to the remaindermen. Further facts are stated in the opinion.
    Error is prosecuted here to reverse the judgments of the courts below by the parties adversely affected thereby.

      Messrs. Higley & Maurer; Messrs. White, Johnson & Cannon; Messrs. Tolies, Hogsett, Ginn & Morley and Mr. Bishop H. Schriber, for plaintiff in error.

      Messrs. Stearns, Chamberlain & Royon; Messrs. McArthur & Dunnebache; Messrs. Hoyt, Dustin, Kelley, McKeehan & Andrezvs; Messrs. Westenhaver, Boyd, Rudolph & Brooks; Messrs. Higley & Maurer; Messrs. Henderson, Quail & Siddall and Mr. James W. Stewart, for defendants in error.
   ' Johnson, J.

We first meet the question as to how distribution shall be made among the remaindermen.

The will provides that on the death of the son “without living issue, then * * * it is my will, that all my estate shall go, one-half to my lawful heirs, and one-half to the lawful heirs of my wife, subject to the following conditions,” etc.

It is insisted that the “lawful heirs” are to be ascertained on the happening of the contingency upon which the distribution was to take place; that is to say, upon the death of Harry E. Chapman, the son and life tenant. This is the contention of the children of William H. Chapman. The other heirs of the testator contend that the persons entitled to take are to be ascertained as of the date of the testator’s death. It is of course conceded by all that the intention of the testator must prevail, and that it must be found in the language of the will itself where that is possible.

Counsel opposing the judgment of the circuit court have cited many Ohio cases in support of their contention, and particularly insist that the case of Barr v. Denney, 79 Ohio St., 358, is decisive of the matter. In that case the testator devised and bequeathed the whole of his estate, real and personal, to his wife during her natural life, except certain amounts to equalize gifts among his children. And then without any express or implied legacy, except as is contained in his direction to the executor to convert his personalty and distribute, made the following dispositive clause: “After the' death of my wife I desire that the whole of my property, both real and personal, be sold by my executor and after expenses are paid to distribute equally to my legal heirs.” It was held that “the rule that a bequest in the form of a direction to pay, or to pay and divide at a future period vests immediately, if the payment be postponed for the convenience of the fund or estate, or merely to let in some other interest, docs not apply. Linton v. Laycock, 33 Ohio St., 128, distinguished. Richey, Exr., v. Johnson, 30 Ohio St., 288; Sinton v. Boyd, 19 Ohio St., 30, and Hamilton v. Rodgers, 38 Ohio St., 242, approved and followed.” The third paragraph of the syllabus is: “In such casé the direction to the executor to pay or to distribute to the testator’s ‘legal heirs’ confers a contingent interest, which does not vest until the period of distribution;' and the direction ‘to distribute equally to my legal heirs’ is equivalent to a direction to make distribution in accordance with the statutes providing for descent and distribution.”

Barr, the testator, had children, but it will be observed that he made no devise of the remainder to the children by name or as a class. The court say at page 367: “He makes no gift over, either by remainder or executory devise; but looking to the future, he says, ‘After the death of my wife'I desire that the whole of my property, both real and personal, be sold by my executor and after expenses are paid to distribute equally to my legal heirs.' There is nothing further in the will to explain or qualify this clause.” At page 368,. the court sayi “Hence the most natural interpretation'of this will is that the testator bequeathed nothing after the expiration of the life estate and contented himself with the expression of his desire that the property should all be converted into personalty and then distributed, equally among those who might then be his lawful heirs.”

The contention that the rule above announced by this court is of controlling force on the question we have here, would be persuasive if Mr. Chapman had1 not indicated, by the language he used in the same' item, the class which he intended to be included in the designation “lawful heirs.” The provision is “If my said son shall die, without living issue, then, after his death, if he survive his mother * * * it is my will, that all of my estate shall go, one-half to my lawful heirs, and one-half to the lawful heirs of my wife.” It is apparent that the term “lawful heirs” is not used in a strictly technical sense, because in such a sense it would include only his widow and son, and yet these are excluded from the class “lawful heirs” to whom the estate shall go on the happening of the contingency—the death of the son without issue. In Jones v. Lloyd, 33 Ohio St., 572, it was held that where a testator had made provision for hi* wife and that in the event of her claiming dower the balance of certain personal property should be shared equally among “my heirs'/’''the word “heirs” would be construed as meaning next of kin to the exclusion of the wife, although in case of his intestacy she would have taken it all. ' The will of Mr.' Chapman then contains the following significant provision: “That if imy- sister, Mary E. Buckland should survive mb', then it is my will, that, the share that she would rer beive' ai .law, should remain in trust, in the hands of my said trustees, she to receive the income there-r frdm.¡-during her lifetime, and at her death,'. said sháreíto .'bé paid to and vest in her. daughter and the heirs of her daughter, Maria. It is my will, that no. part of my estate shall ever go to my said .sister’s son,.-.George. And provided, fifrther, that the share that would go. to .Mary A. Solloway, sister of my wife, shall remain in trust during the lifetime of said- Ma'ry. A. Solloway; she, during said time to receive' the net .income from said share,' and at her death,. it¡ is: my'-.will, -that, said' share, should go to the'-' other -heirs of. my said wife,' -excluding 'therefrom, the .children of the said Mary A. Solloway,- it being my will: that. the said children Of the said Mary A.. Solloway shall inherit or-receive no part of¡imy estate. And. provided,- further, that the part' of-my estate which, would go to Mitchell H. ,'Miilér, brother, pf 'hiy wife,, .shall be held in trust-.during the remainder of his lifetime, by said trustees,'he to • receive.: the.'net ¡income therefrom, and at his decease, the samé to go to his children.” Taking these provisions together, it is clear that the testator has, by-his own language,' indicated :the meaning which he¡ intended .the.words, “lawful heirs”.should have. He specifically refers tó his sister and the. sister of his.wife as being among those who áre entitled- to a share, and makes specific provision as to the; control, custody and final disposition - of those shares. As-conclusive of the fact that he did not intend the words “heirs at law” as used by-him- in his;i Will to have the same significance as the term “lawful heirs” used in Barr v. Denney, supra, he' did-flot leave the shares of the ladies referred 'to, tó gó: according to the statutes of descent and distribution, but specifically provided hów they should go/' The controlling clause of-the item is itself'-'dispositive, “that all of my estate' shall go,” etc.' ■ The terfii “heirs at law,” as -found in -this will,, must Té'-construed in connection with the other language and provisions touching the sáme subject-matter.' The flexible meaning generally- ascribed to the term- and the impossibility: of giving it a rigid -application Tó every context is well illustrated here.' It'cannot be'said here as the-cóúrt said in Barr v. Denney, supra, “There is nothing further in the" will'to fix-plain or qualify this clause.”

The testator-intended that the “lawful heirk” to whom “all of my estate shall go” wefe hi's brothers and sisters and th.e brothers and sisters of his wife and their representatives who were living át his or her death respectively. We, therefore,-hold that these shall take'as remaindermen per stirpes, the representatives of deceased brothers and sisters Té táke the share that would have gone - to their de1 ceased ancestor, except in the instances in which the third item itself provides that such shares shall . go or” not go to certain specified persons. i :'

The most interesting and important phase of the controversy, is involved in the last question made by the pleadings. The Latrobe Steel Works was a Pennsylvania corporation organized in 1888 with a paid-up capital of $600,000. It, and the successor .company into which it was later merged, shared in the remarkable success which has attended the steel industries of the country.

The testator, Mr. Chapman, at his death in January, 1893, owned and held 250 shares, par value $25,000, of the stock. His entire estate, including this stock, was valued when turned over to the trustees at $110,648.63. In September prior to his death the corporation had a surplus of $187,387.16.

In the fall of 1895, by the consent of all of the stockholders, this company sold all of its assets, including its plant, to a new company, which was named The Latrobe Steel Company, for $1,200,000 of its capital stock. The stockholders of the old company received two shares in the hew company for each share held by them. The trustees received $50,000 stock in the new company and gave up the $25,000 held by them in the old company. At this time the old company had, as shown by its books, a surplus of $868,022.18. This was invested in real estate, machinery, tools and other assets, there being. in cash only $6,831.19.

. ■; By a reduction of some of the assets this surplus ,was reduced to $600,000, and this, with the original capital, made up the $1,200,000 turned over to the new company for its stock.

The authorized capital stock of the new company was $1,500,000. The extra $300,000 of stock was subsequently sold for cash, which in 1898 was used to purchase the capital stock of The Latrobe Steel, & Coupler Company, a Chicago company engaged in the same business. As stated, the business was prosperous, and for a period of about ten years dividends were paid, which for a number of years were ten per cent, semi-annually. These dividends were paid as received by the trustees to Mrs. Chapman, the widow. . ,.

In the fall of 1905 the company sold its entire plant at Latrobe for $4,300,000 cash. This sale did not include book accounts, the raw and manufactured material on hand, the cash nor the holdings in the coupler works.

The assets thus sold had a book value, as shown by a statement offered in evidence, of $1,039,944.55, There was, therefore, a bonus or profit in this sale of about $3,260,000.

The company determined-to go out of business and was thereafter principally engaged in the process of liquidation. The Chicago concern was subsequently sold and all of the assets converted into money, leaving for distribution, after payment of debts, the sum of $8,549,250. As the trustees held $50,000, or one-thirtieth, of the stock, they received that proportion of the above sum, viz., $284,975,

When the final distribution was made there was a large sum on hand in cash, in an account carried as contingent capital.

It is referred to in the testimony as a war fund and was created by the company to meet the emergencies of price cutting or warfare on the part of competitors,

The president of the company testified as to its creation and condition from time to time. ’He.says: “When we started our works our competitors cut th¿ price to prevent us from getting ahead. I cut it in'two to the bottom of the ladder first, and I kept it;'there for three years. One company was busted, anbther'was $890,000 in .debt, the.other company went out' of general outside business, and we worked all the time.”

' The evidence fairly shows that this fund was created and built up from time to time and used-to fortify the credit and aggressive ability of the company;tb extend its' business and effectively contribute to its strength and progress. It was as much part of the cápital of the company as the plant, the machinery, the good will or any other element which assisted in the success attained.

No one would contend that it is not in the power óf a'córpóration to create a fund with which to be sure of sufficient working.capital at all-times and to5 safeguard its operations'against emergencies of every ' kind, including competition or general - depression in1 the business world. In truth, it may be S'áid no bne! would deny that it is the duty of those Controlling such an enterprise to do these things when' able to do so.

; In'the absence of bad faith or an unreasonable éxe’r'éise' -bf this" discretion. by a company, courts ought not to and would not intervene to control or change the course adopted. An arbitrary disregard of’the rights of stockholders to dividends or other ■improper- treatment of the assets of the company , would be relieved against. It is not claimed that any stockholder in this case complained, but all apt ■pear to have approvéd and éncouraged the course ■adopted. • t ...j

i We think the contingent fund is in this cabe, subí ■ject to the same-rule as the rest of, thefncreasie. of the company’s assets.. If the life annuitantsure. en* titled to it they are entitled to the rést of the, fund which they claim. .■■>:. ■ • ¡\

i'- The-.'trustees regarded and treated'the-¡sum ref ceived1 on distribution, $284,975, as part ; of. the corpus or capital of the trust estate. ,v Theybdid; not pay it Over to the life annuitant as. income;.; bufe held it for the remaindermen. ■ :!

The life annuitants while they .lived.;, made; no claim to the fund,, but affirmatively consented; that it should be held as part of thetrust estate. . ;.¡. ■ ' -0. i After the death of .the widow her estate' was set" tied and no claim was made on behalf, of her .estate

■ 'The son haying died without issue, the claim.¡i? now asserted on behalf of his adopted; son* that a large part of the 250 shares’ of additional stock and of the sura received in liquidation should be; ,treated as income belonging to the life tenants.. The.widow having died intestate,' if she was the Owner, of, any part- of the fund held by the trustees, it-of/course passed to her son and through him to his adopted ■son. , ;■ ... ",c ,;■

On-behalf of the.life tenants it is¿ contended that the domicile of the testator, at the time-, of. his, death .was in Pennsylvania and that the-question as:.tq the .distribution of the fund should, be.-determined,).by the laW of that state. Oh the other»hand;dtus-in!sistéd that, as a matter, of fact, the' domicile, of. the testator at the time of his death was in Cuyahoga county, Ohio, and it is urged that as the will was probated in Cuyahoga county as an original probate, the judgment of the court admitting the will to probate in that county cannot be attacked in this proceeding. A direct issue was made between the parties on this question. Considerable evidence was offered by each side in support of its view, and the court of appeals found under the evidence in the case that the domicile of the testator at the time of his death was in the state of Ohio. This court will not inquire as to the correctness of the decision of the court below on the weight of the evidence. It is, however, insisted that sufficient undisputed facts were shown to establish the residence in Pennsylvania. Concerning this, it appears that Mr. Chapman between 1870 and 1882 resided much of the time in Cleveland. At the time of his death, in January, 1893, he had been for some years in Philadelphia. Much was shown in support of the claim that he was a resident there. When he died he was brought to Cleveland for burial. During the time that he was in Philadelphia he does not seem to have established any home there, but with the exception of some short absence in California he and his wife roomed at the home of a physician. It is not shown that he ever voted in Philadelphia. He and his wife made frequent visits to friends and relatives in Cleveland, and he frequently stated his purpose to return to Ohio when he had gathered sufficient estate to take care of himself and wife. His investments and bank accounts were under the control of H. C. Miller from time to time in Cleveland. In May, 1891, while in Cleveland he made and executed the will in question in this case. It will be noted that in this instrument he describes himself as “Nathan E. Chapman of the city of Cleveland, county of Cuyahoga and state of Ohio,” and in the last clause of the will he provides that in case either of the trustees should refuse to accept the trust, or fail to act as such trustees, the probate court shall appoint a successor or successors, as provided for in Section 5986 of the Revised Statutes of Ohio. It is hard to avoid the impression that great weight should be given to this declaration and direction. It is true that such a recital or direction in a will or deed is, by the weight of authority, not regarded as conclusive on the question of domicile. But when there has been no change in the situation of the testator with reference to that matter between the time of the execution of the will and his death, such as to show that he really intended to establish his residence or habitation elsewhere, these declarations and provisions are evidence of high character and might well be held to establish the domicile in the absence of more convincing proof to the contrary. Ennis v. Smith, 14 How. (55 U. S.), 44; Ward v. Oxford, 8 Pick., 476.

After the death of the testator Mrs. Chapman made application in the probate court of Cuyahoga county for the probate of the will and stated therein that the testator was late of Cuyahoga county, Ohio. At the end of this application she states her .residence to be Cleveland, Ohio.

Section 10604, General Code, provides that upon the death of any inhabitant of this state letters tes? tamentary shall be granted by the probate court of the county in which he was an inhabitant or resident at the time he died. One of the jurisdictional facts, therefore, which the court was required to pass on in the consideration of the application was whether the testator was an inhabitant of Ohio— Section 10520, General Code, provides for a contest of the jurisdiction of the probate court to entertain an application to probate, and Section 10521, General Code, for the review of the decision on error.

The probate courts of Ohio are vested with full' power to fully and finally adjudicate all questions arising in matters properly before them. They are courts of record in the fullest sense. They belong to the class whose records import absolute verity, that are competent to decide on their own jurisdiction, and to exercise it to final judgment, without setting forth the facts and evidence on which it is rendered. Shroyer, Gdn., v. Richmond, 16 Ohio St., 455; The C., S. & C. Rd. Co. v. Village of Belle Centre, 48 Ohio St., 273; Crawford, Admr., v. Ziegler, 84 Ohio St., 224.

It is insisted that the adjudication in this case" was not necessarily conclusive because provision is made in the Code for the admission to probate by ancillary proceedings of the wills of persons who” are not residents of Ohio. But this was not an' ancillary proceeding. This will was admitted to probate as that of . a deceased inhabitant of Ohio. The adjudication of the court on the application • made cannot be questioned in a collateral action by any person who invokes such jurisdiction or by those claiming under such person. From these conclusions it follows that the distribution of the fund in the hands of the trustees must be in accordance with the rules of law declared or to be established m Ohio.

Whether the life tenant or the remaindermen shall be entitled to a stock dividend declared out of earnings accumulated during a term of years and used by a company in the improvement of its property and business, is a question that has not been determined by this court. Nor has the rule that shall be followed, as between the life tenant and remaindermen, in the distribution of the proceeds of the assets of a corporation on its final dissolution.

The question has been frequently before the courts of England and some of the states of this country. Three principal rules have been considered. They have been referred to as the English, the Pennsylvania and the Massachusetts rules, respectively. In the subsequent consideration of them in the jurisdictions where first declared, each of them has been modified or changed to a greater or lesser extent.

Under the English doctrine, as originally stated at a very early day, all ordinary dividends go to the life tenant and all unusual dividends that are payable in cash or in stock belong to the corpus of the fund and not to annuitant. This rule which was followed in the earlier cases has been materially modified in the later ones. Dividends of cash are now held to belong to the life tenant, and stock dividends to the remainderman, subject to an examination of the facts. And the circumstances in each case control in the application of the rule.

In Bouch v. Sproule, L. R., 12 App. Cas., 385, the board of directors created a fund out of the earnings which they reserved for contingencies of the business and issued a bonus or stock dividend to shareholders. The court held that the directors having exercised their judgment in good faith by adding these earnings to the capital, the life tenant was not entitled to them. The court quote with approval the following from the opinion of the lower court: “'When a testator or settlor directs or permits the subject of his disposition to remain as shares or stock in a company which has the power either of distributing its profits as dividend or of converting them into capital, and thé company validly exercises this power, such exercise of its power is binding on all persons interested under the testator or settlor in the shares, and consequently what is paid by the company as dividend goes to the tenant for life, and what is paid by the company to the shareholder as capital, or appropriated as an increase of the capital stock in the concern, enures to the benefit of all who are interested in the capital.”

The Pennsylvania rule as announced in Earp's Appeal, 28 Pa., 368, is that ordinary dividends on stock held in trust belong to the person entitled to the income of the trust fund, but that extraordinary dividends should be apportioned between the life-estate man and the remainderman in accordance with the amount thereof accumulated before and after the creation of the trust.

In Smith’s Estate, 140 Pa., 344, the rule stated in Ear p’s Appeal is restated as follows: “When the stock of a corporation is by the will of a decedent given in trust, the income thereof for the use of a beneficiary for life, with remainder over, the surplus profits, which have accumulated in the lifetime of the testator but which are not divided until after his death, belong to the corpus of his estate; whilst the dividends of earnings made after his death are income, and are payable to the life tenant, no matter whether the dividend be in cash, or scrip, or stock.”

The Massachusetts doctrine, was stated in Minot v. Paine, 99 Mass. 101, as follows: “A simple rule is, to regard cash dividends, however large, as income, and stock dividends, however made, as capital,” The Massachusetts courts have consistently followed this holding, but in some of the cases have inquired into and determined the question whether a stock dividend was in effect a distribution of cash and, therefore, to be treated the same as a cash dividend.

In Minot v. Paine, supra, it is said: “It is obvious that, if the directors had made no stock dividend, but had invested the income in permanent improvements, making no increase of the number of shares, the improvements would have been capital, belonging to the legatees in remainder. So, if they had thus invested it, and, instead of increasing the number of shares, had increased their par value, the shares would have been mere capital, and not income, as to the shareholders, though increased in ¡value by the application of the net income of the ¡road to that purpose. So, when they increase the number of shares, each share of all the stock in the corporation is in its nature capital. The new shares táke ■ their place among the old ones; and each- of the old shares thereby becomes a less proportion of the whole stock than it was before, and is entitled : to a less proportion of dividends declared than it was -before-. It may be that dividends are less per cent, than they would otherwise have been, and in such- case the old stock -is diminished in value, and the interest of- the remainderman is injuriously affected. But, on the other hand, the effect may be, ■by increasing the business of the road, tó increase .the dividends' and the -market value of the old stock. But neither courts nor -trustees can investigate such matters with accuracy; and in many cases no investigation can be made.” Practicálly the same question here involved was under consideration by the United States supreme court in Gibbons v. Mahon, 136 U. S., 549. The question was whether .-new shares of stock in the Washington Gas Light Company were to be treated as dividends, to the whole or part of which- the plaintiff was entitled under the will, or were to be treated as an increase of the capital of the trust fund, and -the plaintiff therefore entitled to receive only the income thereof.

Mr. Justice Gray in announcing the decision says: “The distinction between the title of a corporation, and the interest of its members or stockholders, in the property of the corporation, is familiar and well settled. The ownership of that property is in the ..corporation, .and not in the holders of shares of its stock.. The interest of each stockholder consists in the right to' a proportionate part of the profits whenever dividends are declared by the corporation, during its existence under its charter, and tó a like proportion of the property remaining, upon the termination or dissolution of the corporation, after payment of its debts. Van Allen v. Assessors, 3 Wall., 573, 584; Delaware Railroad Tax, 18 Wall., 206, 230; Tennessee v. Whitworth, 117 U. S., 129, 136; New Orleans v. Houston, 119 U. S., 265, 277;

“Money earned by a corporation remains the property of the corporation, and does not become the property of the.stockholders, unless and until it is. distributed among them by the corporation. The corporation may treat it and deal with it either as profits of its business, or as an addition to its capital. ’ •. Acting in good faith and for the best interests of all concerned, the corporation may'distribute its earnings át once to the stockholders as income;.or it may reserve part of the earnings of a prosperous year to make up for a possible lack of profits in future years; or it may retain portions of its eatnin'gs and allow them to accumulate, and then invest them in its own works and plant, so as to secure find increase the permanent value of its property.”

Judge Gray further says, at page 559: “In ascertaining the rights of sucia persons, the intention of the testator, so far as manifested by him, must of course control; but when he has given no special direction upon the question as to what shall be considered principal and what income, he must be presumed to have had in view the lawful power of the corporation over the use and apportionment of its earnin'gs, and to have intended tlaat the determina-^ tion of that question should depend upon the regular action of the corporation with regard to all its shares.”

As already stated, this question has been considered in many of the courts in this couiitry and in England, Rarely has a question arisen that has been so troublesome or has resulted in greater difference in views. It would be impossible to reconcile the decisions of the different courts. It is everywhere conceded that the conclusions reached have not conformed to any fixed rule, but have generally come within one of the three rules we have heretofore stated. It would be unprofitable and would extend this opinion to great lengths to attempt to analyze the adjudications.

The supreme court of Delaware in Bryan v. Aiken, 86 Atl. Rep., 674, in an able opinion reversing the decision of a lower court, recently adopted the Pennsylvania rule.

The courts of New York, with various modifica? tions, have followed the same rule, and in the re? cent case In re Osborne, 209 N. Y., 450, decided December 3, 1913, the court of appeals of New York reviews the decisions in that state on the question, arriving at the same conclusion, with the exception that under the circumstances of that case the court: directed that there should be an apportionment in such a way as to preserve the integrity of the trust: fund; and surplus earnings before the creation of the trust or purchase of the stock are to be treated as á part of the capital of the trust fund. This modification was not concurred in by Judge Gray, who had formerly announced the rule in its more rigid form.

There is presented in this case a phase of the question which is different from that in most of the cases referred to in that the final distribution to the trustees was made in liquidation of The Latrobe Steel Company after it determined to go out of business. A number of courts have taken the view that this is a different matter from the disposition of earnings and dividends declared by corporations in active business and while they are going concerns. Among them are Second Universalist Church of Stamford v. Colgrove, 74 Conn., 79; Curtis, Trustee, v. Osborn, 79 Conn., 555; Bulkeley, Exr., v. The Worthington Ecclesiastical Society, 78 Conn., 526; Brownell, Trustee, v. Anthony, 189 Mass., 442.

In Bulkeley v. Worthington, which was a case of liquidation, the court say: “Judged by this test the votes of the directors, pursuant to which the cash in question was paid to Raymond, were in no true sense declarations of cash dividends within the meaning and intent of the rule. They were not passed by the directors in the exercise of their discretionary powers in determining what of the corporate assets representing surplus should be separated and withdrawn from that body of them to be retained for future corporate use, and, thus separated, go out to shareowners as income freed from all claim of the corporation thereon. There was no purpose on the part of the directors to make a division of profits, as such, among the owners of shares which were to continue to exist. The company was engaged in liquidating its business and distributing all its assets to its stockholders. The end sought was the return to the owners of stock of all that the company owned, and it's distribution to them in" exchange or substitution for the shares which thereafter were to cease to exist. The directors were called upon to exercise no discretion. They had but' a'single duty, and that was to distribute everything in their hands, and they performed that duty as to cash and stocks in like manner.”

1 In spite of the irreconcilable differences in the’ conclusions arrived at there are a few general propositions as to which there is substantial agreement, among them, that there should be no arbitrary* rigid rule which would prevent the court from looking into the facts and circumstances of each case to determine the rights of the parties according to justice and,equity; that the earnings of a corporation are and remain' its property until it distributes them among the stockholders; that when acting in good faith and for the best interests of all' concerned, the corporation may reserve the earnings óf a prosperous year to make up for a possible lack' of profits in future years, or it may retain portions of its earnings and invest them’ from time to time in the improvement and extension of its plant and in general betterments, and thus increase the value’ of its permanent property and assets; that the intention of the testator, to be derived from the language employed in the creation of the trust and from the relation of the parties to each other and to the circumstances of the case, must control. It is also a reasonable view. that’when no special direction is given in the’ will creating the trust ás to what shall be ’ considered principal "and what income, the testator will be presumed to have had in mind the legal authority of the corporation to treat- its assets as above stated, and to have contemplated that the income would only come from the order of the company itself acting ■in good faith.

In the case we have here, the testator, in his will, after the clause providing for the appointment of the trustees and the provision that they should hold all of his estate in trust, with power to sell and corivey- the real estate, and to sell, dispose of and collect all of the securities and invest and reinvest ■the proceeds thereof, and, “after paying expenses, ■to pay the entire net income from my said estate, to my wife, during her lifetime,” provides “if it becomes necessary, in the judgment of said trustees, to use any part or all of the principal, of my estate for the support and care of my said wife, the same shall be so used.”

•Two things manifest by these provisions ¡are: First, his desire to provide for the support and care of his wife, even if it took a portion or . all of the principal,, and, second, to give the trustees full power with reference to the investment and reinvestment of the. estate itself. ■’ So far as the steel enterprise was concerned-there were, as already stated, two material changes while the estate was in heir possession—one when the steel works were merged in the steel company in-1895,- and another when the latter company dissolved and .distributed its assets among its stockholders in 1905 and 1906. Was the $25,000 additional stock which-the .trustees received in the .stock of. the new company distributable to the widow as net income within the meaning of the will ? We think not. At the death of the testator himself the old company already had a surplus of $187,387.16. At the time of the merger into the new company the old company had a book surplus of over $800,000, practically all of which was invested in the real estate, machinery, tools and other assets, there being in cash only $6,800. It must have been in the contemplation of the testator when he made his first, investment in the stock of the company, as well as when he made his will, that the company would strive to increase its business and extend its operations in every usual and ordinary way. He must have had in mind that the company would exercise its right to use its resources in that behalf as it had done during his life. He contemplated that the company would incur the ordinary risks and hazards of similar enterprises. He was a director until a short time before his death and must have participated in the adoption of its policy.

The legislation and the adjudications of the courts of the country, have responded to a wholesome public sentiment in throwing around the assets of corporations every safeguard, and in preventing the encroachments of greedy organizations, in restraint of trade or in building up monopolies, but there has been no decision, legislation or sentiment against the growth of legitimate corporate enterprises to assist in the development of the resources of the nation.

It is doubtless true that if the company had not increased its plant, machinery, operating capital and resources, offensive and defensive, it could not have remained a formidable factor in the business, and would not have been able to pay the life tenant the large dividends which she received for many years on the principal of the fund as left by the testator. The 20 per cent, annually which she received for a number of years on the $50,000 stock was equivalent to 40 per cent, annually on the stock the testator owned at his death. It cannot be said under this state of facts that the increase of the corporate assets and property was done at the expense of the tenant for life for the sole benefit of the remaindermen as was suggested by the supreme court of Delaware in Bryan v. Aiken, supra, in reference to the situation in that case. Here the life tenant got the benefit of the increased earning power which resulted from the growth and extension of the corporation and its business. Every step forward which it took helped the life tenant and increased her dividend. The testator intended that the trustees should have the right to allow the investment to remain in the stock, and that the annuitant and the remaindermen should thereby take all the risks and enjoy all the benefits in their several capacities which he would have taken and enjoyed if he had lived himself and had united in his own holding such risks and such privileges. Suppose it to be conceded that the remaindermen are not entitled to any of the increase of the value of the stock and that this must go to the life tenant as income, then the remaindermen were not interested at all in leaving the investment in the business subject to the risks and hazards of a company involved' in the fierce competition necessarily encountered in the business in which this company was. It is well known that its competitors were among the most powerful organizations in the. co'üntry. . Therefore, under such' a state of facts and law the remaindermen might well havfe insisted that the stock be sold after the death of the testator for the $25,000, or such súm as it might bring in the market, and the proceeds be invested in-accordance with the statutes of Ohio for the investment of trust estates.

'. In súch case the interest on. the investment which the life tenant would receive would be very small,but'the remaindermen would be sure of the princi-'' pal of the fünd whén they should succeed to- it. By running the risks of the business they would gét.no more in case of the company’s success and Would lose all in case of its failure. For another reason we cannot approve the view that the additional stock1 in the new company was the receipt by the-trustees of “income” to which the widow was ''entitled as- life annuitant. Such additional stock car-' tied- with it an interest not alone in-all of the permanent improvements and exteiisions of the plant, the good will and other assets, all of which were capitalized by the act of the company, with the consent of all stockholders, but such ádditional stock had an ■interest in the preexisting capital of the old company, all'of which was turned over to the new company:- W'e think it clear this'was not the intention of the testator. He intended that the trusteés should have the poWer to sell the stock if they deemed that best or to hold it in case they considered that to be best. . He must have' hoped the business would be successful and the. company continually, .pay out comfortable incomes which, the widow and son would enjoy. So far as the fund distributed on the dissolution of the company is concerned, there was no distribution of income, dividend- or profit; It was simply dividing up the entire assets of the corporation after the payment of its debts among those who owned, the assets of the corporation, to^ wit, the stockholders. . On this aspect of the case we think the authorities hereinbefore referred to' establish the proposition stated and that it is founded on -and sustained by sound reasoning; -'It would be practically impossible to' trace, back all of the final assets to their source and determine . sup? posed equities between life tenant and-remainder-men. Who shall say even in this day óf expert ac-„ countants where the dividing line is unless an.- arbitrary line is fixed ? Trustees would either be conL peljed to assume the risk of a proper segregation or constantly apply to courts for direction.

In 1905 the company passed $300,000 to the-contingent fund and;$62,521.05 to profit and loss; There is no reason shown on the statement if or this; It was in line with the policy of -the company when active, but-ias.the company had theretofore determined to soon cease operations and did so in a year or so thereafter; these sums should, so far as the portions thereof received by the trustees are concerned; be treated as income.

Mrs. Chapman and her son, -the life annuitants, executed a paper in which it is stated that they severally ratify, adopt, fully approve and confirm all matters connected with said administration and trusteeship, and “find said detailed statement a true and accurate statement of all the assets comprising said trust estate, * * * said Mrs. F. M. Chapman further acknowledging receipt by her in full to date of the entire income from said trust estate.”

It is claimed by the trustees and the remainder-men that this was acquiesced in by Mrs. Chapman during her life and by the son and that all persons claiming under them are now estopped from asserting the interest which they now claim. To this it is replied that the relations of the trustees to Mrs. Chapman and her son were those of trust and confidence; that in the nature of the case they relied upon the counsel and advice of the trustees with reference to this matter and every other matter connected with the trust; that, therefore, the paper referred to cannot be regarded as binding upon the life annuitants in the sense that ít would be if the parties had been dealing at arms’ length. There is much force in this contention, but in the view we have taken of the legal status of the fund itself it is not necessary that we should determine the effect of the paper in question.

The judgment below will be modified as above indicated and as modified will be affirmed.

Judgment modified.

Nichols, C. J., Donahue, Newman and Wilkin, JJ., concur. Wanamaker, J., dissents.


author: Siiaucic, J

text:
    Naughton v. The Morford-Wood Company.

      Equity—Specific performance of contract—Will be denied, when.

    Relief by specific performance being within the discretion of the court to be exercised in accordance with the established doctrines and principles of equity, it will be denied when the conduct of the party seeking it has been violative of the reasonable and known expectations of his adversary and the purpose for which it is sought is oppressive and inequitable
    (No. 13729
    Decided March 3, 1914.)
    Error to the Circuit Court of Franklin county.
    March 18, 1911, The Morford-Wood Company brought suit in the court of common pleas to enjoin Naughton from bringing an action in forcibly entry and detainer to recover possession of real estate in the city of Columbus owned by him, it claiming the right of possession under a lease executed by him March 19, 1906, containing stipulations with reference to renewal thereof, and further suing for the specific performance of said obligation to execute a renewal of said lease.
    The record to be reviewed was made in the circuit court to which the cause was appealed after judgment in the court of common pleas.
    From the evidence adduced upon appropriate issues joined, the circuit court made a finding of facts of which the following are deemed material:
    On July 24, 1905, Naughton, who had then been for forty years engaged in the business of selling dry goods and notions on High street in the city of Columbus, entered into an agreement with C. E. Johns-ten and W. F. Morford for the incorporation of The Naughton-Johnston Dry Goods Company, each of them taking $5,000 of its stock, and-that by March, 1906, Naughton should reduce his stock of goods to $15,000 in value and sell it to the corporation and lease to it the storeroom which he then owned and occupied, the lease to be for five years at an annual rental of $4,000, Naughton to turn over the good will of his business to the corporation and to be an officer of the company and take an active management in its business at an annual salary stipulated. The parties on March 14, 1906, incorporated the company according to the agreement, the purpose for which the corporation was formed being manufacturing and buying, selling and dealing in dry goods, notions, ready-made goods and general merchandise at wholesale and retail; also acquiring by lease or purchase such property, both real and personal, as may be deemed necessary or convenient for the aforesaid purposes, and doing such other things and business as may be necessary, convenient or incident to the mam business of such corporation.
    Upon the incorporation of the company the three persons named each subscribed $5,000 to its capital' stock and an inventory of Ñaughton’s stock of merchandise was taken and $5,000 of it was turned into the company at the invoice price in payment of' his stock subscription. Johnston purchased from Naughton $5,000 additional of his stock of merchandise and that was turned in in payment of his subscription. Morford paid his subscription in merchandise also purchased from Naughton. ■ ■ ■

      On March 18, 1906, Naughton executed and delivered to the corporation a lease for a term of, five years at an annual rental of $4,000, the lease containing a covenant that “The Naught on-Johnston Company shall have the privilege and option to renew this lease for a further term of five years from the end of the term herein granted upon the same terms and conditions as are contained in this leasej except that the yearly rental shall not exceed the sum of four thousand five hundred ($4,500) dollars per year, payable in equal monthly installments,” provided “that said The Naughton-Johnston Company shall notify the said lessor or his heirs or assigns at least 60 days before the termination of this lease of the desire of the said company to renew the term, for a further term of five years.” And thereupon the company entered into possession. •
    Naughton shortly thereafter became dissatisfied with conditions and his health was not good and he desired to retire and thereupon sold his stock at par to. Johnston and Morford in equal amounts,1 and thereafter ceased his connection with the company-About the same time Johnston sold his holdings to Charles F. Wood, whereby Morford and Wood became the sole owners of the stock of the corporation, with ’ the exception of a few shares conveyed to members of their families to qualify them as directors.
    On May 21, 1906, Naughton made a sale of the furniture and fixtures to Wood and Morford.
    , In July, 1906, the stockholders of The NaughtomJohnston Company took the necessary steps to change the name of the company to The MorfordWood Company. ;
    In April, 1910, the company removed its remaining stock of merchandise out of the premises to a smaller storeroom on High street in the northern part of the city and sublet the south half of the storeroom for other purposes, since which time it has not occupied said premises or any part thereof.
    The company has entered into a written lease conditioned upon the legal right so to do,, subletting the south one-half of the storeroom at an annual rent of $3,900 for a corset store and other liks purposes. It sublet by monthly tenancy the north half of the storeroom for restaurant purposes at a monthly rental of $300. The use of the north storeroom operated to increase the fire hazard, whereby the defendant has been and is compelled to pay an increased rate of fire insurance upon the entire building in which it is situated, which im creased rate plaintiff company refused to pay.
    On January 5, 1911, Naughton received through the mail from The Morford-Wood Company the following notice: “Dear Sir: We desire to renew our lease Nos. 120-124 South High street for a further term of five years from March 19, to March' 18, 1916, as per agreement. Would like to see you and fix up this lease at once.”
    On March 15, 1911, the plaintiff company served a further notice and demand upon the defendant more specifically reciting a desire and election for an extension of the lease and naming the rent which it was willing to pay at $4,500 per annum.

      Upon these facts the circuit court rendered judgment in favor of the company that Naughton execute a renewal of the lease for the said term,of five years.
    To reverse that judgment this petition m .error is prosecuted.

      Mr. Thomas E. Powell and Mr. George B. Okey, for plaintiff in error. •

      Mr. J. F. Rogers and Mr. T. J. Keating, for defendant in error. ■
   Siiaucic, J

Omitting the consideration.of questions not material to a determination of the case, there appear in the foregoing statement, ample grounds for refusing the equitable relief which was awarded to the defendant in error by the judgment under review. To whatever extent its conduct may have been within its legal rights, it is clear that it has ceased to use the premises for the purpose of carrying on the previously established business of the owner under the name agreed upon, that it has ■changed the character of the building by constructing a partition through its entire length, that by subletting it has devoted one-half of the premises to a use wholly different from that to which it had been devoted by the owner himself and whose continuance was within the contemplation of the parties at the time of making the original contract. In making these changes it has added to the fire hazard of the building, thus laying upon the owner the burden of paying larger premiums for the insurance against fire. Having acted in this manner with reference to the subject of the contract, and having wholly abandoned the premises as a place to carry on the sale of merchandise for which alone it was incorporated, and in which the lessor was specially interested, it proposes to use the premises only as the subject of lease and re-lease, and it asks a court of equity to aid in enforcing a construction of the original contract which would secure to it during an extended term of five years $15,000 more than it pays to the owner. There are many definitions of equity, but none of them suggests that the mission of the system is to augment the rigors and asperities of the law. To the contrary their mitigation is conspicuous among its objects.

Relief by specific performance has always been regarded as discretionary. This does not mean that the relief may be awarded or denied according to a chancellor’s whims but from considerations of justice and fair dealing, and that the relief will often be denied because of unfairness and injustice much less grave than would be required to set aside an executed contract. Two requirements are indispensable to the relief: The conduct of the plaintiff with reference to the transaction must have been honorable and fair, and the relief must be sought for a purpose that is just and equitable. In Seymour v. Delancey, 6 Johns. Ch., 222, Chancellor Kent has discussed the subject with clearness and authority, and illustrated it with numerous cases decided by the masters of equity. Later and pertinent cases are Chicago, Burlington & Quincy R. R. Co. v. Reno, 113 Ill., 39; O’Brien v. Pintz, 48 Md., 562; Kimberley v. Jennings, 6 Sim., 339. From these considerations and from these authorities it is entirely clear that neither the conduct of the plaintiffs with reference to the subject of the contract nor the purpose for which it asks a decree of specific performance can be reconciled with the principles of equity.

Judgment reversed and original petition dismissed.

Johnson, Donahue, Newman and Wilkin, JJ., concur.