That part of the order appealed from, which directs that $83.75 of bond interest be allocated to principal in order to amortize the premium paid above par in the purchase of the bonds, is in favor of the remaindermen beneficiaries and against the interests of the life beneficiary. Therefore, the guardian
ad litem
is not a
“party aggrieved”
by such portion of the order, and cannot appeal therefrom. Sec. 274.10, Stats., and
Estate of Bryngelson
(1941),
We deem that the only remaining issue before this court is whether sec. 231.40 (12), Stats., which makes Wisconsin’s Uniform Principal and Income Act applicable to estates *6 of remaindermen in existence at the time of the passage of the act, is unconstitutional as applied to stock dividends received subsequent to the passage of the act by the trustee of a previously existing trust. Counsel for the life beneficiary, Mrs. Sawyer, contend that such subsection is unconstitutional as applied to such stock dividends on the ground that it impairs vested property rights of the life beneficiary contrary to the “due process” clause of the Fourteenth amendment of the United States constitution. 1
Over the years there has been a wide divergence of opinion among the courts of this country as to whether stock dividends received by a trustee of a trust constitute income or corpus. The two principal rules for allocating stock dividends that have competed for acceptance by courts of the various jurisdictions are the so-called Massachusetts and Pennsylvania rules.
This court in the case of
Soehnlein v. Soehnlein
(1911),
The Pennsylvania rule inquires as to the time relative to the commencement of the life interest covered by the accumu *7 lation of earnings from which the stock dividend was made; and, if it is ascertained that the entire dividend was earned before the commencement of the life interest, the entire dividend is awarded to corpus; and, if it is ascertained that the entire dividend was earned after the commencement and during the continuance of the life interest, the entire dividend is awarded to income; and, if it is ascertained that the dividend was paid from a fund accumulated partly before and partly after the commencement of the life interest, the dividend is apportioned between the life tenant and the re-maindermen. It will thus be seen that such rule places great importance upon corporate bookkeeping. Under such rule it becomes incumbent upon the trustee to obtain balance sheets of the corporation of a date immediately preceding and immediately following the declaration of each stock dividend received to see how much of the dividend has been charged to capital and capital surplus and how much to earned surplus and undivided profits. If any part was charged to earned surplus or undivided profits, then it will become the duty of the trustee to obtain corporate balance sheets and profit-and-loss statements covering the entire period that the particular corporate stock has constituted an asset of the trust. This likely may prove to be an onerous burden in. many cases.
On the other hand, under the Massachusetts rule, as now embodied in sec. 231.40 (5) (a), Stats., all stock dividends received by a trustee are deemed to be principal. The reasons which prompted the National Conference of Commissioners on Uniform State Laws to adopt the Massachusetts rule in drafting the Uniform Principal and Income Act are stated in the commissioners’ prefatory note as follows (9B Uniform Laws Anno., p. 366) :
“The aim followed in the act is that of as simple and convenient administration of the estate as is consistent with fairness to all beneficiaries. It is felt, too, that workable rules *8 are after all nearest the settlor’s probable intent, for he has not probably contemplated extensive and detailed bookkeeping adjustments of the property he has destined for his donees. When the first draft of the act was presented, the conference voted to follow the so-called Massachusetts rule of awarding cash dividends on corporate stock to income and share dividends to principal, thereby rejecting the Pennsylvania rule, or one of the several variations of it, requiring some apportionment between the two funds. Experience has shown that, however praiseworthy the intent, the latter rule is unworkable, since neither trustee nor court has the means to value the corporate assets in such way as to secure the fair adjustment aimed at. Consequently the majority of the large commercial states have already favored the former and more-convenient rule, which is stated in section five below.”
The American Law Institute adopted the Pennsylvania rule in the original Restatement, 1 Trusts, p. 701, sec. 236 (b), issued in 1935. By 1947 the trend away from the Pennsylvania rule and toward the Massachusetts rule was so strong that the Institute reversed its position and promulgated a revised sec. 236 (b) adopting the Massachusetts rule. Restatement, 1948 Supp., 1 Trusts, p. 940, sec. 236 (b).
If this court had seen fit by court decision to reverse the rule of the
Soehnlein Case
and adopt the Massachusetts rule, without a caveat that the newly adopted rule should not apply to pre-existing trusts, no constitutional problem would be presented. This was made clear by the United States supreme court in an opinion written by Mr. Chief Justice Taft in
Tidal Oil Co. v. Flanagan
(1924),
Does the fact, that the prior rule adopted by court decision is reversed by a later legislative enactment made applicable to existing trusts, result in an unconstitutional impairment of existing property rights? We think not if the prior rule related to a matter of future trust administration and lay in a debatable field where there existed a divergence of opinion as to which of two or more rules is the better or more socially desirable. For the purpose of illustrating the convincing argument which can be advanced in favor of the contention that a stock dividend constitutes principal and not income, we quote from a recent decision by the Oregon supreme court in
Stipe v. First Nat. Bank
(1956),
“Generally speaking, stock dividends are treated as principal accretions rather than as income. . . .
“A stock dividend takes nothing from the property of the corporation and adds nothing to the interests of the shareholders. The property of the corporation is not diminished. The stockholders’ interests are not increased. Their proportional interests remain the same. The only change is in the evidence which represents a given stockholder’s interest, that is, the new shares representing the same proportional interest that the original shares represented before the issue of the stock dividend. In short, the corporation is no poorer and the stockholder is no richer than they were before. A stock dividend is, therefore, not in any true sense *10 a dividend at all. Its issuance is, in the last analysis nothing more than an incident or process in corporation bookkeeping.”
A similar view had been expressed in a number of court decisions prior to the execution by testatrix in 1921 of her will in the instant case. One instance of such is
Eisner v. Macomber
(1920),
Our conclusion in this respect is supported by the recent case of
Farmers Bank & Capital Trust Co. v. Hulette
(Ky. 1956),
*11 “It must be borne in mind that we are interpreting the rights of parties as of today. Their rights must be governed by what we consider as current sound principles of law. In the absence of any provisions in the will which could lead to a different interpretation, we must presume the testatrix intended any legal difficulties of construction arising under her will to be solved according to the prevailing legal principles applicable to changed conditions. ...
“. . . no one could claim a vested interest in the liquidat- 1 ing distribution of the Kentucky Concrete Pipe Company prior to 1954. Thus, we are confronted with a question of construction of the will which arose only upon the dissolution of the corporation. We are asked to construe the word ‘income’ as it relates to the acts of the corporation in 1954. To say that the lifeless hand of Mrs. Boggs [the testatrix] should bind us to a legal concept of ‘income,’ as it existed in her lifetime, in other lawsuits is asking too much. The function of courts in seeking justice in the light of changing times and concepts would largely be stultified if the legal effect of words used in a will in one generation should create! a vested right in that construction with respect to other,! wills and other parties.”
We also deem that our own decision in
Will of Yates
(1951),
It is fundamental that the life beneficiary possessed no vested property right in the earnings of a corporation, shares
*12
of whose stock constituted part of the portfolio of investments of the trust at the time of the enactment of the Wisconsin Uniform Principal and Income Act, prior to a declaration of a dividend by the board of directors payable therefrom.
Estate of Gerlach
(1922),
We are cognizant of the fact that the Pennsylvania court has reached the opposite result with respect to the same constitutional question in
Estate of Crawford
(1949),
The county court of Sauk county in Will of Nishan (decided April 9, 1958), was recently faced with the identical question which confronted the trial court in the instant case, i.e., is sec. 231.40 (12), Stats., constitutional as applied to stock dividends received by a testamentary trustee of a prior-existing trust subsequent to the enactment of the Wisconsin Uniform Principal and Income Act? That court concluded that such section is constitutional as applied to such stock dividends. Through the courtesy of counsel amici curiae, *13 Judge Gollmar’s memorandum decision in that case was printed as an appendix to their brief. We, therefore, in the writing of this opinion, have had the benefit thereof as well as the equally carefully written memorandum decision of Judge Mudroch in the instant case.
By the Court. — Paragraph No. 1 of the order appealed from, relating to the allocation of the stock dividend of the Texas Company, is reversed, and the cause is remanded for further proceedings consistent with this opinion.
Notes
Counsel for the life beneficiary also contend that sec. 231.40 (12), Stats., contravenes sec. 12, art. I, Const., which provides that no
ex post facto
law, nor any law impairing the obligation of contracts shall ever be passed. Sec. 231.40 (12) is not an
ex post facto
law because it does not pertain to criminal prosecution.
State ex rel. Prahlow v. Milwaukee
(1947),
Miller v. Payne
(1912),
Such a holding is supported by the prevailing orthodox theory of the force of judicial precedents. Under such theory, when a prior decision is overruled, “ ‘it never was the law, and the later pronouncement is regarded as the law from the beginning.’ ”
Estate of Bray
(1950),