66 A. 124 | N.H. | 1907
The petitioner is the trustee under a will and asks to be instructed as to the disposition to be made of certain trust funds. By the fifteenth clause of the will, the testatrix provided that forty-six shares of the capital stock of the Keene National Bank and thirty shares of the Park National Bank should be held in trust, and that the trustee should pay the income thereof as it became due to the testatrix's nephew during his life. The trustee was not to dispose of any of the stocks comprising the trust fund, nor make any new investment from the proceeds of stock sold, without the written consent of the life tenant. It was further provided that in case any of the stocks were disposed of before the decease of the testatrix, an amount equal to the proceeds should be invested by the trustee, with the written consent of the life tenant, and placed with the remainder of the original trust fund. Upon the termination of the life estate there was a provision disposing of the property to remaindermen. The testatrix died in 1900. February 14, 1905, the directors of the Keene National Bank declared a special dividend of one hundred per cent, and on the same day its stockholders voted to double its capital stock, giving the stockholders the privilege of subscribing for the new stock at par and of paying for the same with the special dividend. It was the purpose of the bank to increase its fixed capital and thus enable it to make larger loans. All the stockholders, including the trustee, took the new stock. It was found that the above transaction constituted a distribution of the surplus earnings of the bank, a part of which accumulated after the trust went into effect.
The remaindermen contend that the transaction was in substance a stock dividend, and that, notwithstanding the foregoing finding, the new stock is capital and not income; also, that the testatrix's will discloses that she intended the life tenant should receive as income only such earnings as were declared as ordinary dividends. But we are of the opinion that their contention cannot be supported. The votes of the corporation left the stockholders at liberty to take and retain the cash dividend, or to take the new stock and treat the dividend as payment for it; and where such is the case it cannot be said to be a stock dividend, either in form or effect. Davis v. Jackson,
In Lord v. Brooks,
While it is found that the bank's action constituted "a distribution of the surplus earnings of the bank, a part of which accumulated after the trust went into effect," it is not found what that part is. Upon a further hearing this fact may be ascertained. The trustee should then be directed to make such a division of the stocks or their proceeds as will give the life tenant such part of the stocks or proceeds as is equivalent to his interest in the surplus earnings that accrued subsequent to the creation of the trust. The balance should be added to the corpus. Lord v. Brooks, supra; Peirce v. Burroughs,
We are also of the opinion that if the action on the part of the bank was a declaration of a stock and not of a cash dividend, conclusion would not be different, in view of the finding that a part of the dividend came out of surplus earnings which accumulated after the trust went into effect. As we have seen, the method pursued by this court in determining whether a given dividend is capital or income, there being no express provision as to the matter in the trust instrument, is to inquire into the actual nature and source of the dividend. If it is found to represent *204
surplus earnings of the business that have accrued since the creation of the trust, it is to be regarded as income and as belonging to the life tenant. If it is found to represent earnings that accrued prior to the creation of the trust, it is capital and belongs to the corpus of the trust. Lord v. Brooks, supra. And if it is found, in whole or in part, to represent the natural growth and increase in the value of the corporate plant and business, whether that growth and increase took place before or after the trust was created, it is also to that extent capital. Jones v. Railroad,
In 1903, the Park National Bank increased its capital stock one half, and gave its stockholders the right to subscribe, at $300 a share, for one share of new stock for every two shares of the old owned by them. The right to subscribe for a share of the new stock was worth upwards of $100, and surplus earnings to an amount greater than the value of all of the rights had accumulated since the creation of the trust and before 1903. The trustee subscribed for the fifteen shares of new stock to which the trust was entitled, took the certificate in his name as trustee, and borrowed the money to pay for the stock on a note signed by him as trustee. Three thousand dollars has been paid on the note out of the income belonging to the life tenant. This was done with the consent of the life tenant. The remaindermen contend that the rights to the new stock are capital and belong to the corpus.
It has been held in this state, in the absence of evidence showing the fact, that there is a presumption that the right to take new stock, if of value, is capital and belongs to the corpus (Peirce *205
v. Burroughs,
We are aware that the conclusion reached on this branch of the case is not in accord with the decisions in many jurisdictions. Atkins v. Albree, 12 Allen 359; Greene v. Smith,
In Pennsylvania, the courts have applied the equitable doctrine in determining the rights of life tenants and remaindermen in cash and stock dividends, but it would seem that they have failed to apply it in its integrity where subscription rights were involved. The decision in Biddle's Appeal, 99 Pa. St. 278, however, may be in harmony with the decision in this case; for although the subscription rights there in controversy were of value and represented surplus earnings, it was not shown that any of those earnings accrued between the date of the death of the testatrix and the granting of the subscription rights. In Moss' Appeal, 83 Pa. St. 264, the same finding was wanting, but the reasons advanced for holding the rights to be capital and not income were such as one would expect to find in jurisdictions where the courts look to the form and not the substance of the action of the corporation. The justice who delivered the opinion in that case seemed to think that the decision in Earp's Appeal, supra, proceeded upon the ground that the corporation recognized the transaction (the issuing of a stock dividend) as a "distribution of profits," and that that was the crucial distinction between that case and the one he was considering. But this is the argument of courts in jurisdictions that look to the form and not the substance of the act of the corporation. In Wiltbank's Appeal, 64 Pa. St. 256, it was held that the value of the rights was income. This decision proceeded upon the ground that if the value of the rights represented profits that accrued after the trust arose, the issuing of the rights was in substance a distribution of profits; and that, as the value of the old stock at the time the trust came into existence was not diminished by the issuing of the new stock, the rights necessarily represented profits and were income. But it seems to us that this decision overlooks one important feature, and that is that while the rights may represent profits since the trust arose, those profits are not necessarily surplus earnings, but may to some extent represent the natural growth and increase of the corporate plant, in which case, as we have seen, they would to that extent be principal and not income.
Case discharged.
All concurred. *207