157 Iowa 275 | Iowa | 1912
— The plaintiff is the widow of George C. Lauman, who died many years ago. His will was admitted to probate, and therein, among other provisions, he bequeathed his personal estate to three trustees, directing them to deal with it substantially as he might have done, if living, and “that all the rest and residue of my estate be held together, without division, by my trustees during the life of my wife, to whom they shall pay the entire net income of my estate, after deducting taxes and proper expenses of the trust. Payments of the income shall be made every three months, beginning with the first day of the month in which I die.” Other portions of the will indicate what shall be done with the property after the widow’s death. Among other securities of the estate which came into the trustees’ possession were one hundred shares of stock in the Continental National Bank of Chicago, 111., and with reference thereto it was stipulated that at that
In April, 1906, the surplus, including the individual earnings, had become $1,016,052.99 and the capital stock was increased to $4,000,000; the stockholders being given the option to subscribe as before, with the exception that the price was fixed at $200 per share. The trustees purchased thirty-three shares on the 3d day of April, 1906, paying therefor $6,600, and on June 25, 1908, sold the same at the net price of $7,220. Prior to this increase, the book value of the stock was $134 per share, and it was $151 afterwards. In February, 1906, prior to this increase of stock, the market' value was $259 and thereafter $240 per share, though it decreased by May 2d to $228 per share.
In September, 1909, the surplus, including all undivided earnings, became $3,991,608.12, and the bank increased its stock to $5,000,000, permitting the stockholders to subscribe as before, but at $175 per share. On September 6, 1909, the trustees procured fifty shares of the stock at the price stated, and on December 9th of the same year sold the same at the-net price of $14,401.85. Prior to
TJpon this statement of facts, the plaintiff claims the sums of money derived by the trustees in the subscription for and purchase of the stock and sale thereof as a part of the net income directed to be paid to her in the clause of the will quoted; she having received the cash dividends declared on all the stock held by the trustees. It will be observed that the trustees, by exercising the options, derived altogether $15,175, and that doubling the capital stock in 1901 impaired the book value of the stock from about $140 per share to $127; that, inasmuch as more than book value was exacted for the increased capital stock in 1906, such value was enhanced thereby $17 per share, while the book value was reduced by the increase of capital stock in 1909 $45 per share. The sole inquiry is whether the difference between what the trustees paid for the stock in the manner described and received on sale should be paid to the plaintiff as income from the estate, or preserved as a portion of such estate for the remaindermen.
Hite v. Hite, supra: “It was also error to hold that the privilege, given by a corporation to its stockholders, to take additional stock at par, when the stock is worth more, belongs to the life tenant. This right stands upon a different footing from the claim to a stock dividend. It is a mere incident of the old stock. It is a right appurtenant to it, and as such is a part of the capital. It can not be fairly considered as income, but is inherent in the
In re Eisner’s Appeal: “An increase of capital by the issue of new stock to persons paying for it at its par value implies the very reverse of profits earned. The fact that the privilege of subscribing for it is given to existing stockholders, and that it may be sold by them at a premium, is far from proving that the premium is to be regarded as income, the payment or withdrawal of which leaves the original capital unimpaired. The property of a corporation, after payment of liabilities, belongs to the existing stockholders, who therefore are entitled to any and all enhancements of its original value; and such enhancement belongs, not to a tenant for life, but to the remainderman. Scholefield v. Redfern, 32 Law J. Ch. 627; Hubley’s Estate, 16 Phila. (Pa.) 327; Middleton’s Appeal, 103 Pa. 92. When new stock is issued at par, the actual increase of capital is precisely the amount thus received by the company; and if the new stock has, at the time, an intrinsic value' beyond what was paid for it, this presumptively can only be because the holders of the new stock have been put on a footing of equality with holders of old stock, and thus become entitled to share with' them in a distribution of assets, should the company be dissolved. The gain of the new stockholders is the precise measure of loss in intrinsic value of the capital of the old stockholders.”
In Brinley v. Grou, supra: “In the case before us,
Aside from the book values as .stated, whatever the trustees obtained on sale for the additional stock was the excess of the market values over such book values, and represented the proportional increase in value of the new and original stock, and was in no legal sense a part of the income. For this reason, market values ought to be given scant, if any, consideration in determining whether an
The surplus, including the undistributed earnings, continued in the bank, notwithstanding the different increases of capital stock, and doubtless is there yet, if not lost. Of course, the stockholders were given the options, because of their interest in the capital, surplus, and undistributed earnings of the bank. They were then entitled' to the proportional share of these upon dissolution of the corporation, or might have obtained that much upon the sale of existing stock. In granting the option, the corporation no more than protected this right in the outstanding stock without changing its character from capital to income. The option was of value, for the reason that it represented the privilege of buying shares at less than their value, but therein did not impair the income of the life tenant; for the latter became entitled to the dividends' as on the new stock, if bought with funds of the estate, and, in -any event, the income on the proceeds realized from the disposition of the option. True this involved a depreciation in the value of existing shares; but who shall say what part of the value of the option represented the growth of the business, its good will, and the like, and how such depreciation is to be distributed as between-these and the accumulated sur
In Holbrook v. Holbrook, 74 N. H. 201 (66 Atl. 124, 12 L. R. A. (N. S.) 768), the difficulties in the way of treating such option or right to subscribe for additional stock as income are suggested; but, notwithstanding these,, the court reached the conclusion that such options or rights, at least in part, should be so regarded. That decision is contrary to the great weight of authority, and, as we have attempted to show, is not sound in principle.
As observed in Re Kernochan, 104 N. Y. 618 (11 N. E. 149) : “From the shares in question, no income could accrue, no profit arise, to the holder until ascertained and declared by the company and allotted to the shareholder, and that act should have been deemed to have been in the mind of the testator, and not the earnings or profits as ascertained by a third person, or a court, upon an investigation of the business and the affairs of the company, either upon an inspection of their books or otherwise.”
The value of the right to subscribe necessarily depends upon the efficiency of the corporation’s management, its location, its good will, and the like, and the right to subscribe for additional shares of stock, when given the stockholder, merely affords him the opportunity, because of owning the stock, of participating in a larger way in the capacity of the corporation to earn profits, and is to be regarded as an incident or an attribute appertaining to the stock. It follows that, though plaintiff was entitled to the income derived from the new stock, or from the profits derived from the sale thereof, the right to subscribe for additional shares formed no part of the, income derived from the estate of the testator. — Affirmed.