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Argument for Appellant.

In the light of the earlier English adjudications, the law on the subject is thus stated in Hill on Trustees, 386: “It is settled that any extraordinary bonus or addition to the usual annual income of stock or other property, which is settled in trust for one for life with remainder over, must be treated as capital and added to the principal fund. The trustees, therefore, will not be justified in paying over these unusual additions to the beneficial tenant for life, but they must invest them for the benefit of all parties.” But this statement is qualified in note 1 to the 4th American edition, and is disowned in Clarkson v. Clarkson, 18 Barb. 646, above cited, as well as in the later English cases, also above cited.

(6) The rule established in Massachusetts. If a fund held in trust to pay the income to one until his death, and then convey the capital to another, includes shares in the stock of a corporation, shares of additional stock distributed to the trustee as a lawful dividend thereon accrue as capital, although they represent the net earnings of the corporation. “ A trustee needs some plain principle to guide him; and the cestuis que trust ought not to be subjected to the expense of going behind the action of the directors and investigating the concerns of the corporation, especially if it is out of our jurisdiction. A simple rule is to regard cash dividends, however large, as income, and stock dividends, however made, as capital. The court (A.D. 1868] are of opinion that this rule is more in conformity with the legal and equitable rights of shareholders than any other that bas been suggested.” Minot v. Paine, 99 Mass. 101; S. C. 96 Am. Dec. 705.

This case has since been followed in Massachusetts. In 1869, it was followed in Daland v. Williams, 101 Mass. 571. In the same year, in Leland v. Hayden, 102 Mass. 542, the court said: “We must regard the principle as settled that stock dividends are to be regarded as principal, and cash dividends as income;" and, in 1872, in Rand v. Iubbell, 115 Mass. 461, it was held : “By the law of this Commonwealth, as declared by this court, a dividend made in new stock is ordinarily to be deemed capital.”

(c) The New York cases. In 1855, James J., delivering

Argument for Appellant.

the opinion of the court, after doubting the statement in Hill on Trustees, 386, above quoted, and citing the English cases,

said:

The 60 per

“I am not satisfied with these decisions, and there is no sound principle upon which they can be upheld.

“I am satisfied that these decisions will never be followed in this country, and will be repudiated, if they are not already, . in England.

The stock payment of 60 per cent made upon this investment was properly dividends, extraordinary in amounts, not in manner of payment, that being a matter of policy with the company. “Dividends, as used in the will, is unqualified. It includes, in its technical sense as well as in its ordinary and common acceptation, all distributions to corporators of the profits of the corporation, whether such distributions are large or small, or whether made at long or short intervals, and without any regard to the manner or place of their declaration or mode of payment. cent stock dividend, made December 30th, 1850, belonged to the tenants for life, and the trustees must be decreed to deliver over to them the said stock or its substitute and all income, dividend, or increase received thereon, or pay the value thereof.” Clarkson v. Clarkson, 18 Barb. 646. This was followed in Simpson v. Moore, 30 Barb. 637; In re Woodruff's Estate, Tucker, 58; In re Pollock, 3 Redfield, 100; Whitney v. Phanix, 4 Redfield, 180.

(d) The rule in Pennsylvania was laid down in Earp's Appeal, 28 Penn. St. 368. In Wiltbank's Appeal, 64 Penn. St. 256, that rule is defined as follows: "The principle established in that [Earp's] case is that the earnings or profits of stock made after death are income and not capital, even though in form of capital by the issue of new stock. Equity, seeking the substance of things, found that the new stock was but a product and was therefore income. Precisely so it is here, equity discovers the subject of controversy is a mere product, a right incidental to the stock, and is therefore income.” See also Moss's Appeal, 83 Penn. St. 264; Biddle's Appeal, 99 Penn. St. 278; and Vinton's Appeal, 99 Penn. St. 434.

(e) The rule in New Jersey. In Van Doren v. Olden, 19 N. J.

Argument for Appellant.

Eq. 176; S. C. 97 Am. Dec. 650 ; Chancellor Zabriskie, after citing Earp's Appeal, Clarkson v. Clarkson and Simpson v. Moore, said : “ The principle upon which these cases are decided I hold to be the correct one, by which I must be guided in preference to the early English decisions. That principle is that where trust funds, of which the income, interest or profits are given to one person for life, and the principal bequeathed over upon the death of the life tenant, are invested either by the trustees, or at the death of the testator, in stock or shares of an incorporated company, the value of which consists in part of an accumulated surplus or undivided earnings laid up by the company, as is frequently the case, such additional value is part of the capital; that this, as well as the par value of the shares, must be kept intact for the benefit of the remainderman; but the earnings on such capital, as well as upon the par value of the shares, belong to the life tenant; and when an extra dividend is declared out of the earnings or profits of the company such extra dividend belongs to the life tenant, unless part of it was earnings carried to account of accumulated profits or surplus earnings at the death of the testator, or at the time of the investment, if made since his death, in which case so much must be considered as part of the capital.” This ruling was followed in Ashurst v. Field, 26 N. J. Eq. 1.

(f) The decisions in New Hampshire. A testator gave to his son the income of two shares in a corporation during his life, the shares, on his decease, to go to the testator's heirs. $500 had been paid in on each share constituting the original estate, but by increase in the value of the property of the corporation, the shares were, at the time of the making of the will, of the value of about $1500 each, and it appeared that the testator so valued them in making the bequest. The corporation having made regular dividends of income up to a certain date, after the decease of the testator, at that time voted to sell its property and divide the proceeds, which was done; lleld, in 1846, that the dividends received by the executor after this vote were to be regarded as dividends of the capital, substituted for the shares, and that the son was entitled to the income which should be derived from the sums so received, the

Argument for Appellant.

principal, on his decease, belonging to the heirs.

Wheeler v. Perry, 18 N. II. 307. See also Lord v. Brooks, 52 N. H. 72; Peirce v. Burroughs, 58 N. H. 302.

In no other of the United States has the question been considered, except, in 1881, in Georgia, where it is governed by the code of that State. See Millen v. Guerrard, 67 Georgia, 284.

An examination of the authorities above cited shows on how unsound a basis the rule in England and Massachusetts rests. The intention of the corporation making the dividend seems to be given paramount consideration in those jurisdictions.

This “intention of the corporation” and the simplicity claimed for the rule of Minot v. Paine are the supports, and the only supports of the English and Massachusetts rule. The New Hampshire court emphatically and, as I submit, most properly denies to corporations the right to make or change the wills of their stockholders, and the Pennsylvania court does not scruple at characterizing the “simple rule” of Massachusetts as “bungling.” If simplicity of the rule to guide trustees be alone sufficient to support a principle, what simpler rule can there be than to give the life tenant all dividends, whether in cash or in stock?

The true rule is that laid down in Bates v. Mackinley: No matter when a dividend was earned or how long the profits to be distributed have been accumulating, the person entitled to the dividends at the time of declaration should have all dividends from profits or earnings without regard to their form. This is a “simple rule for the guidance of trustees;” it avoids all difficulties as to accounting; preserves the integrity of corporate action; makes no disturbance of corporate management; and, recognizing all individual interests, assures the harmonious continuance of corporate existence and the unembarrassed exercise of corporate functions: results attainable on no other principle, and to which all other considerations should, within due limits, be subordinated so long as corporations hold their place as accredited instruments of industrial and commercial enterprise not inconsistent with individual

Opinion of the Court.

interest. The clear reasoning in Lord v. Brooks logically leads to this position and in its thoroughness refutes all arguments to the contrary.

Mr. J. Hubley Ashton for appellee.

MR. JUSTICE Gray, after stating the case as above, delivered the opinion of the court.

The question presented by the claims made in the bill and answer, and by the arguments of counsel, is whether the two hundred and eighty new shares of stock in the Washington Gaslight Company are to be treated as dividends, to the whole or part of the principal of which the plaintiff is entitled under the will, or are to be treated as an increase of the capital of the trust fund, and the plaintiff therefore entitled to receive only the income thereof.

The court below held that the new shares must be treated as capital, the income only of which was payable to the plaintiff. She contends that the new shares are in the nature of a dividend, to the whole of which she is entitled, or, if that position should not be maintained, that so much of the new shares as represents earnings made by the corporation since the death of the testatrix should be held to be income payable to her. Upon full consideration of the case, on reason and authority, this court is of opinion that the decision below is correct.

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 to 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

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