Testator’s Children and Company Challenge Validity of Will Provision Directing Children to Keep the Testator’s Wife on the Company’s Payroll for the Remainder of Her Life
In re Estate of Kenneth C. Haugh, 2024 WL 4664488 (Pa. Super. Nov. 4, 2024)
This matter came before the Superior Court on appeal from the Orphans’ Court granting declaratory judgment in favor of Deborah Haugh, wife of testator Kenneth Haugh, after she died in October 2022. The primary issues decided on appeal were whether language within the testator’s Will directing Deborah to remain on the payroll of H&H Castings Inc. was precatory and ambiguous, and whether a shareholder, even if the sole shareholder, could require the company to disburse corporate property after her death. In sum, the appellate court found the Orphans’ Court erred when it enforced the precatory language regarding Deborah’s payroll status and reversed the order.
Testator served as President of H&H Castings, Inc. (the “Company”), and owned 82% of the Company’s shares. In November 2016, the testator executed a Will with a provision disposing of his shares as follows:
(B) I give to my children, ELIZABETH LYNNE HAUGH, ABBY M. MEISSNER, TISHA M. O’DONNELL, and [L.C.], my grandchild from my deceased daughter, Amy M. Haugh, per stirpes and in equal shares, my stock in H&H Castings, Inc.[,] and my fifty percent (50%) interest in the property and holdings of Water Street Investment. I direct that my wife, DEBORAH A. HAUGH[,] remain on the payroll of H&H Castings, Inc.[,] for the remainder of her life.
Although multiple claims were brought, the appellate court found that “all the remaining claims, at base, challenge the enforceability of the clause directing Deborah to remain on the payroll.” Id. at *5. Citing Miller v. Stubbs, 90 A. 1132 (Pa. 1914), the court found that “[w]hile expressions of a desire or wish of a testator as to a specific disposition of his property, standing by themselves alone, may establish a valid bequest or devise, this is not the rule when such expressions are used after the testator has made an absolute disposition of his property. After an absolute bequest or devise has been made, no precatory words of the testator to his legatee or devisee can defeat the estate previously granted.”
Id. at *6 (emphasis in original).
The appellate court determined that the testator used words which may ordinarily be read as a command, but nevertheless, “those words followed a clause in which the Testator disposed of his stock in the Company absolutely, without condition.” Id. The Superior Court determined that if the testator wanted to condition the bequest of stock on Deborah’s payroll status, he could have done so. In sum, the appellate court considered the gift of stock as absolute and thus found that the words requiring Deborah to remain on the Company payroll were precatory and unenforceable.
Next, the Superior Court addressed whether the testator could control corporate property after his death. In doing such, the appellate court relied on the Supreme Court of Pennsylvania’s decision that found the estate, as a holder of stock, owns only capital stock, which is a species of property distinct from the corporate property, and as a result the estate cannot manage and control the corporate property, but rather is representative of a right to participate in profits only. Id. at *16 (citing In re Goetz’s Estate, 85 A. 65, 66-67 (Pa. 1912). The appellate court found the power to control corporate property to exist within the scope of the president of the Company, but when the testator died he ceased to be president and could only pass that which he owned, i.e., “his shares of stock in the Company.” Id. at *16-17.
Additionally, there was a question of justiciability of the appeal since Deborah passed away during the litigation. The Orphans’ Court opined that since Deborah’s life estate ended with her death, there was no dispute as to the enforcement of the payroll provision. However, the Superior Court determined this was incorrect because if the provision regarding payments to Deborah was found unenforceable, then the Company would be entitled to relief from Deborah’s estate.