166 Misc. 791 | N.Y. Sup. Ct. | 1938
There is but one question in these cases: Did the creator of the trusts intend that such a dividend as that declared by Spencer Kellogg & Sons, Inc., on July 12, 1937, should be considered by the trustees as principal and not income?
The trust agreements of 1916 provided: “ It is understood and agreed between the parties that any stock dividend or dividends, or distribution of property other than cash, received by the trustees at any time during the life of the trust upon the stock of Spencer Kellogg & Sons, Inc., shall for the purpose of this trust be considered principal and not income.”
The dividend in question was paid in accordance with the following resolution adopted by the board of directors of Spencer Kellogg & Sons, Inc., on the 14th day of June, 1937:
“ (a) 50c per share in cash; or
“ (b) One share of capital stock for each 50 shares of capital stock now outstanding.
“ Any stockholder electing to receive cash shall notify the Company * * * All stockholders who shall not have so notified
the Company of their election to receive cash, will be paid their dividends in stock.”
The trustees made no election. It seems to me quite clear that this dividend was not a “ stock dividend ” as that term is used in-law. If all of the stockholders had elected to receive their dividends in cash, and consequently no stock had been issued, it would occur to no > ne to call this payment a stock dividend. A stock dividend is declared only by the directors, and, therefore, it cannot be that the character of a dividend is to be determined by the actions of the stockholders. In this particular case most of the stockholders received their dividends in stock, but some elected to receive cash. That surely cannot make the same dividend a cash dividend in some instances and a stock dividend in others. Moreover, this dividend was paid not out of surplus but out of profits made during the current year, and it has none of the other usual attributes of a stock dividend. It was not simply a dilution of the existing shares, but it was an actual distribution of the property of the corporation to those who elected to take cash. After its payment the stockholders did not continue to own the same proportionate share of the assets of the corporation.
The guardian cites Doland v. Williams (101 Mass. 571) as an unusual dividend held to be a stock dividend. In that case the directors wanted to declare a stock dividend but were by law prevented from so doing, and they undertook to accomplish their desire by circumvention, and the Massachusetts court held that they had succeeded. It will be noticed that they paid out no cash. As one commentator says, if the corporation “ really lets go the cash ” (33 Harv. Law Rev. 885), no stock dividend results. A dividend in cash with the right to purchase new stock is not a stock dividend. Neither is a distribution of a corporation’s holding of stock of another company, and for the same reasons a dividend payable in cash or stock at the option of the stockholder is not a stock dividend.
I am also of opinion that the dividend in question was not a “ stock dividend ” or “ other extraordinary dividend,” to be credited to the account of principal within the intention of the creator of the 1923 trust.