23 Haw. 651 | Haw. | 1917
OPINION OP THE JUSTICES BY
This is a submission upon agreed facts in which it is made to appear that Annie Garvie, now Annie Garvie Evans, on January 8, 1909, being the owner of certain real estate and certain personal property, including twenty-eight shares of the capital stock of the Oahu Railway and Land Company and eighty-five shares of the capital stock of the Oahu Sugar Company, Limited, conveyed and transferred the same to the Bishop Trust Company, Limited, upon trust (subject to certain terms and conditions not material here) to hold and manage the same and to collect the income thereof and to pay the net annual income to her, the said Annie Garvie, until James Garvie, her son, shall attain the age of twenty-one years, and then to convey and deliver to the said James Garvie one-half of the property and to hold the remaining half in trust for the said Annie Garvie absolutely; that James Garvie is now of the age of sixteen years; that on July 1, 1912, the Oahu Railway and Land Company increased its capital stock from $4,000,000 to $5,000,000 by the issue of new shares to its stockholders as a' stock dividend, whereby the trustee received seven additional shares of said stock; that on January 8, 1909, the railway company had a credit of undivided earnings in its profit and loss account of $432,800.60; that on July 1, 1912, and immediately before the declaration of the stock dividend, the amount of undivided earnings of said company was $783,436.36; also that at the time of the declaration of said stock dividend, and as an incident thereto, the valuation of the fee simple land of said company was increased, on the books of said company, in the amount of $255,515.75,
On behalf of Mrs. Evans it is contended that she is entitled to all of the shares of the railway company's stock less only such proportion thereof as was represented by the
In Carter v. Crehore, 12 Haw. 309, upon a careful examination of the several theories respecting the disposition of extraordinary dividends of corporations where the respective interests of life tenants and remaindermen are opposed, it was held that- a stock dividend representing earnings which had accumulated after the creation of the trust should be regarded, up to the par value of the new stock; as income payable to the life tenant and that the balance representing the right to take the new stock at par, or the depreciation in the value of the old stock, should be held by the trustees as part of the corpus of the estate. We regard so much of the law on the subject as was applied in that case as settled in this jurisdiction. The further question is now presented in this case as to whether, where it is shown that the surplus income which has been appropriated by the corporation as against the new issue of shares, was earned partly before and partly after the institution of the trust should go entirely to the life tenant or be apportioned between the life tenant and the remainderman.
“The Pennsylvania rule holds, with the later English rule, that earnings are not income to the shareholder until so appropriated by the corporation, but does not go to the extent of that rule in holding that such appropriation when made is conclusive as between the life tenant and remain-derman or that the testator must have intended that the mere way in which the corporation appropriated earnings, should determine whether they-should go to the life tenant or remainderman; and holds on the other hand, with the early English rule, that the testator must have regarded the accumulations of earnings at the time of his. death as capital to be held for the remainderman, but does not go*656 to the extent of that rule in holding that it is impracticable to ascertain what was earned before and what after his death. Accordingly the Pennsylvania rule when an extraordinary dividend is declared,, whether in cash or stock, apportions it, giving to the life tenant what was earned during the life tenancy and holding for the remainderman what was earned before the life tenancy began.” 12 Haw: 319.
“The three courts which follow the rule of apportionment have found great difficulty in applying it and a different method of ascertaining how the apportionment should be made has been adopted by each. This rule is open to grave objections, both theoretical and practical, but we need not express an opinion as to whether they are more weighty than the objections made to the rule of non-apportionment, for in the present case it appears that the profits out of which the dividend was declared were earned during the life tenancy, and therefore whether the rule of apportionment or that of non-apportionment should be followed the dividend so far as it represented earnings would all go to the life tenants.” Id. 320.
Nevertheless the opinion in that case shows that where a. stock dividend represents partly a natural increase in the value of the corporation’s property and partly accumulated profits an apportionment becomes necessary. And it was held in that case that an apportionment was required to prevent a depreciation of the corpus by reason of the shares being at a premium after the declaration of the stock dividend. 12 Haw. 326. That the troublesomeness of the subject of the distribution of extraordinary dividends upon corporate stock held in trust, which was noted in Carter v. Crehore, has not abated is shown by the notes in 12 Ann. Cas. 650, 23 id. 1218, 35 id. 311, 12 L. R. A. N. S. 768, and 50 id. 510.
At bottom it is a matter of determining the intention of the creator of the trust. In the trust instrument in hand extraordinary dividends are not mentioned, but it is ' a natural inference that it was the intention that the integrity of the corpus should be preserved for the benefit of
“Notwithstanding the difficulty in many cases of apportioning dividends, it is wiser and better to leave an apportionment to courts of equity, in preference to adhering to a rule that depends more upon its simplicity and convenience of enforcement than upon justice and right.' The distinction between ordinary and extraordinary dividends is necessary to make a workable rule and at the same time preserve the integrity of the trust fund. The integrity of the trust fund and rights of the life beneficiary under the trust should each be considered, determined and preserved by a court of equity.” And held that “Extraordinary dividends, payable from the accumulated earnings of the company, whether payable in cash or stock, belong to the life beneficiary, unless they entrench in whole or in part upon the capital of- the trust fund as received from the testator or maker of the trust or invested in the stock, in which case such extraordinary dividends should be returned to the trust fund or apportioned between the trust fund and the life beneficiary in such a way as to preserve the integrity of the trust fund.” 209 N. Y. 477.
We hold that the dividends should be apportioned in accordance with the foregoing views. Of the seven shares of the Oahu Railway and Land Company stock, Mrs. Evans is entitled to receive as income 1.805 shares as representing the proportion which the amount of earnings appropriated to capital accruing after January 8, 1909, ($350,635.76) bears to the total dividend ($1,000,000) as affected by the premium on the stock in the market ($36) immediately after the declaration of the dividend. Of the thirty-three shares of the Oahu Sugar Company stock, Mrs.-Evans is entitled to receive as income 12.08 shares as representing the proportion which the amount of earnings appropriated to capital accruing after January 8, 1909, ($760,000) bears to the. total dividend ($1,400,000) as affected by the premium on the stock in the market ($9.50) immediately after the declaration of the dividend. The remaining shares, 5.195 of the Oahu Railway and Land Company and 20.92 of the Oahu Sugar Company, will be held by the trustee as belonging to the corpus of the trust estate.
A judgment in favor of Mrs. Evans against the trustee in accordance with this opinion may be entered.