206 Mass. 126 | Mass. | 1910
The only question raised by the appeal in this case is whether a certain dividend, made by the Delaware, Lackawanna and Western Railroad Company upon shares held by the plaintiffs as trustees under the will of Augustus Hemenway, is to be treated by them as income going to the life tenants, or as capital going to the remaindermen. At the time of this dividend the railroad company, in conducting its business, had accumulated a large surplus, amounting to more than $84,000,000, most of which was invested in stocks and bonds of subsidiary companies, and a part in cash. The vote of the directors declaring this dividend was in part as follows: “ Resolved, That an extra dividend of fifty (50) per cent be hereby declared, payable on July 20th, 1909, to stockholders of record at the close of business on July 1st.” This was the only part of the vote that referred directly to this subject. There followed in the same vote a declaration of a stock dividend of fifteen per cent payable in capital stock of the company, with a statement of the reasons for making the stock dividend.
-In the notice sent to stockholders there was a statement that a decision of the Supreme Court of the United States had de
But the dividend of fifty per cent was an absolute cash dividend, made in the usual form. While the stockholders had an option to take stock in a new company, they were not obliged to do so. The new corporation had no legal connection with the old one. There was a plan to make mutually profitable contracts between the two corporations, but neither had any control of the other in its corporate capacity. While the very great surplus held by the railroad company was legally capital as between life tenant and remainderman until it was divided, it was in fact the earnings of the original capital, and there was good reason why it, or a large part of it, should be divided and treated as income. When the corporation elected to divide it it became income, and the fact that the stockholders might use one half of it, if they chose, to pay for a subscription which they were invited to make to the capital stock of a new corporation, did not change its character. We do not think the facts warrant a finding that the making of the dividend payable in cash was intended by the directors to be a mere form, to cover up that which was really a stock dividend of the corporation. The case is governed by the decisions in Minot v. Paine, 99 Mass. 101, Davis v. Jackson, 152 Mass. 58, Lyman v. Pratt, 183 Mass. 58, Hyde v. Holmes, 198 Mass. 287, and Hemenway v. Hemenway, 181 Mass. 406, 411.
Decree affirmed.