65 A. 1056 | Conn. | 1907
The accepted rule in this jurisdiction, applicable to all save possibly a few exceptional situations such as are not here revealed, is that cash dividends are to be regarded as income passing to life tenants, while stock dividends are to be treated as capital enuring to the benefit of the remainderman. Smith v. Dana,
The declaration of a stock dividend involves the creation and issue of new shares of stock. The basis of the issue, in so far as payment into the corporation is not required of the recipient, is surplus assets, which thus become converted into strict capital with all which that implies. From the process there results an increase of both the number of outstanding shares and the amount of the corporate assets, which have had that peculiar dedication to the corporate uses which entitles them to the name of capital, strictly speaking. Smith v. Dana,
The underlying idea of a cash dividend, on the other *552
hand, is the distribution to shareholders, as the rewards of the corporate enterprise, of a portion of the profits or surplus assets of the corporation. Usually the assets thus divided are in the form of cash and the distribution a cash one. This, however, is not necessarily so, and there is no departure in principle or essence if the distributed assets chance to be in some other form of property. Leland v.Hayden,
The shares in contention here constituted no new issue. They had long been outstanding as paid up stock. They were not issued in consideration of a capitalization of surplus. Their distribution did not increase either the number of outstanding shares or the amount of corporate capital. When the distribution was complete, each stockholder owned a larger proportion of the corporate assets than before. The ratio of his ownership of shares to the total number had been increased. Surplus assets had been taken from the corporation and given to the shareowners. The corporate assets had thus become diminished and the shareholders' independent ownership increased. It is true that what was distributed was the shares of stock of the distributing corporation. But that was but an accident of the situation and an unimportant one. It was no more significant of the real character of the transaction than had it been the shares of some other corporation, or other property, or cash paid in in satisfaction of the original stockholder's debt in lieu of which the stock was obtained. The acquisition of this stock by the distributing corporation *553
was an incident of its business. As the result it became and was held as among its assets, and as such, and as helping to create a net surplus justifying a dividend, it was divided to the stockholders precisely as any other assets might have been. The distribution must therefore be treated as a cash and not as a stock dividend, as income, therefore, and not as capital. The fact that the stockholders and directors, in their votes authorizing and carrying into effect the distribution, misnamed it a stock dividend, cannot, of course, change its palpable character. Bulkeley v.Worthington Ecclesiastical Society,
The case of Leland v. Hayden,
The duty of division and distribution which devolved upon the trustee by virtue of the income character of the fund which is comprised of these shares, and the lack of other assets in his hands possessing the same character, entitles him to make such a conversion of shares into cash as will enable him to perform that duty justly.
The provisions of the will creating the trust in question provide for annual accountings by the trustee of the income received by him during the preceding annual period, an appropriation, from each annual net balance so ascertained, of the sum of $1,200 to the widow, and thereupon the distribution of any remainder of such balance to the testator's children, including the deceased Samuel as long as he should survive, in fixed proportions between them. It is provided that the first of these accountings and apportionments shall be made at the expiration of one year from the testator's death, and that the succeeding ones shall be had as soon after the end of each year thereafter as they conveniently could be. The purpose and intention of the testator to make each year a distinct financial period, to reduce the gross income for that period into a net balance by deducting therefrom the expenses incident to the management of the trust, to charge thereon as far as possible *554
the annuity to the widow as one de anno in annum, and to divide any remaining sum to the children as a fund then for the first time come into being, — is substantially as clear as was the somewhat similar intention of the testator in Comstock v. Comstock,
This construction of the will necessarily precludes any claim on behalf of Samuel's estate to any share of the interest next after his death to become due upon the Chicago, Milwaukee and St. Paul bonds, as well as of any income which came into the hands of the trustee after the last settlement on August 23d 1905, and prior to Samuel's decease.
The Superior Court is advised (1) that Catherine O'Donnell, as the executrix of the last will and testament of Samuel Sherwood Bissell, deceased, is entitled to receive from the plaintiff trustee one eight of the 228 shares of the capital stock of the Lounsbury Bissell Company set out in the complaint; (2) that to accomplish a just division and distribution of said shares among those entitled to receive them, the trustee is entitled to convert such a number of them into cash as will enable him to make such division and distribution; (3) that said Catherine O'Donnell, as such executrix, is not entitled to receive from said trustee any share of either any income which came into his hands after August 23d 1905, and prior to the death of Samuel Sherwood Bissell, or any interest which may have been paid after the death of said Samuel Sherwood Bissell upon any bonds held by said trust fund; and (4) to render judgment accordingly.
No costs in this court will be taxed in favor of either party.
In this opinion the other judges concurred.