190 Iowa 1385 | Iowa | 1920
It may be conceded that rules about to be set forth and invoked by appellee have often been held to obtain, where the trust property consisted of corporation stock.- See Smith v. Hooper, 95 Md. 16 (51 Atl. 844); Greene v. Smith, 17 R. I. 28 (19 Atl. 1081). But see, as to conflict thereon, 39 Cye. 445; 40 Cyc. 1790. But, if it makes a difference, the trust fund we are dealing with was money.
There is a long line of decisions to the effect that the life tenant must be content with the action of the corporation, and that he takes only such dividends as the corporation actually declares. Lauman v. Foster, 157 Iowa 275; Will of Barron, 163 Wis. 275 (155 N. W. 1087); Hyatt v. Allen, 56 N. Y. 553; Spooner v. Phillips, 62 Conn. 62 (24 Atl. 524, 527); Beveridge v. New York El. R. Co., 112 N. Y. 1 (19 N. E. 489); Greene v. Smith, 17 R. I. 28 (19 Atl. 1081) ; In re Kernochan, 104 N. Y. 618 (11 N. E. 149). And if the declared dividend is kept small, because, in good faith, it is deemed wise to reserve part of the profits to create a surplus against future years that may not be profitable, or if the low dividend is due to a good-faith appropriation of profits for betterments that would have a tendency to make dividends larger in the future, that which is not put into the dividend because of these purposes and appropriations, and which accretes the value of the stock, becomes an enlargement
So, on the one hand, it is asserted that increment in value due to undivided profits of surplus earned or put to the credit of the stock, though not declared in the form of dividends, should, be awarded to the life tenant (Wallace v. Wallace, 90 S. C. 61 [72 S. E. 553]); held that increase in value is income and, therefore, should go to the life beneficiary (Billings v. Warren, 216 Ill. 281 [74 N. E. 1050]); that everything in the nature of profits accruing during the continuance of the life estate belongs to the life tenant (16 Cyc. 621); all benefit and profit whatsoever coming from the property (In re Turfler’s Estate, 24 N. Y. Supp. 91) ; that the word “income” is very comprehensive (Sohier v. Eldridge, 103 Mass. 345, 350), and covers accumulated earnings or profits (40 Cyc. 1789, 1790, Thorn v. De Breteuil, 86 App. Div. 405 [83 N. Y. Supp. 849]); that income is anything which is gained from investments; anything that property or business earns, any profit (22 Cyc. 65, 66, 39 Cyc. 444); and that, if trust
On the other hand, it has been held in Lauman v. Foster, 157 Iowa, at 279, and Reed v. Head, 88 Mass. 174, 177, that “income,” used in a will which bequeaths stock, means the same thing as dividends. And it was held in Spooner v. Phillips, 62 Conn. 62 (24 Atl. 524), and Smith v. Hooper, 95 Md. 16 (51 Atl. 844), that income is not the equivalent of “accretion.” But need we attempt to reconcile the conflict?
II. As between remaindermen and life tenants, the question is not what corporation management may do about declaring dividends, so far as stockholders are concerned. What these managements may do is corporation law. What the rights of the remaindermen and life tenants are in corporation shares is a question of what it may reasonably be found was the intent of the creator of the trust. Thomas v. Gregg, 78 Md. 545 (28 Atl. 565, 568); Holbrook v. Holbrook, 74 N. H. 201 (66 Atl. 124) ; McLouth v. Hunt, 154 N. Y. 179 (48 N. E. 548); Luling v. Atlantic Mut. Ins. Co., 45 Barb. (N. Y.) 510; Howell v. Chicago & N. W. R. Co., 51 Barb. (N. Y.) 378; Smith v. Prattville Mfg. Co., 29 Ala. 503; Rance’s case, 6 Ch. App. (1870) *104; Bloxam v. Metropolitan R. Co., 3 Ch. App. (1867) *337; Simpson v. Millsaps, 80 Miss. 239 (31 So. 912, 9Í5). In Pritchitt v. Nashville Tr. Co., 96 Tenn. 472 (36 S. W. 1064), it was said:
“There can be no doubt that reserved and accumulated earnings * * * are corporate property; nevertheless we are unable to see how that fact determines or affects the question of interest therein as between life tenant and remainderman of shares. Those persons acquire their interests under the will or deed, and not through any action of the corporation.”
“Though endowed with the largest discretion in the honest management of its business, and allowed at pleasure to convert its net earnings into capital stock through the medium of stock dividends, a corporation cannot by that act * * * turn any portion of those earnings from the life tenant to the remainderman of original stock.” Pritchitt v. Nashville Tr. Co., supra.
Reserved and accumulated earnings held and invested by the corporation are corporate property; but that this is so in
III. The flaw in the cases that try and fix a hard and fast rule here by adopting corporation law is that, from the fact that the trust fund is, say, corporation stock, they assume in every case that the testator intended the distribution to be subject to the rules that govern the management of the corporation in which the stock is owned. The case of In re Armitage, 3 Ch. (1893) 337, is illustrative. It rules squarely that, when the testator leaves shares to a tenant for life, his intention is the tenant shall have the income in the shape of dividends declared during his lifetime, and he intends that the tenant shall receive profits in no other sense: that, for instance, he does not intend the life tenant shall have such profits as arise from a realization on shares.
Grant that this is sound law where the will is silent — where no intention that the ordinary rules that govern the relation of management and shareholder shall not govern in determining what may be given to the life tenant. The fact remains that a vitally different situation is presented when the will makes it clear that the life tenant shall have, despite general rules such as that he can take nothing except dividends declared by the corporation. No case of the many which affirm that the interest of the life tenant is confined to the receipt of declared dividends has ever ventured to as much as intimate that this is true where the testator indicates the intention that these rules shall not govern. As said in Wallace v. Wallace, 90 S. C. 61 (72 S. E. 553), while, in the absence of contrary direction in the testament, the rules that govern management and stockholder do control, after all, “the trust deed is .the law of the ease. The plaintiff had the right to make or not to make the deed as she thought best, and, making it, she had the right to frame the details as she pleased; and she made them so strong that we do not feel authorized to disregard them in favor of any supposed general rule of practice upon the subject.”
In Pritchitt v. Nashville Trust Co., 96 Tenn. 472 (36 S. W. 1064), the court said that the life, tenant and the remainderman acquire their interest under the will, and not through any action of the corporation; in Wilberding v. Miller, 88 Ohio St. 609 (L. R. A. 1916 A. 718, 729), that, notwithstanding general rules, say, the one which gives the right to lower dividends because betterments are made, the intention of the testator to be derived from the language employed in the creation of the trust and from the relation of the parties to each other and the circumstances of the case must control, though, if there be no special direction in the will as to what shall be considered principal and what income, the testator will be presumed to have had in mind the legal
Though the corporation may at will declare or decline to declare a dividend, its actions cannot bind the courts as to the proper ownership of a declared dividend. It can do nothing fo favor the life tenant or the remainderman as it may desire, because there must first be considered whether the testator contemplated what the corporation is doing. It does not have the power to substitute its will for that of the testator, and, as a result, starve the life tenant, say wife and children of testator, for the benefit of remaindermen who may be unborn when the will is made. Hite’s Devisees v. Hite’s Exr., 93 Ky. 257 (20 S. W. 778). To like effect is In re Heaton’s Estate, 89 Vt. 550 (96 Atl. 21); McLouth v. Hunt, 154 N. Y. 179 (48 N. E. 548); and Soehnlein v. Soehnlein, 146 Wis. 330 (131 N. W. 739). The corporation and the courts may not defeat the just and clear purpose of the testator. Appeal of Smith, 140 Pa. 344 (21 Atl. 438, at 440). No rule of practice should work a failure to carry out the intention of grantor in the trust. 1 Morawetz on Private Corporations (2d Ed.), Section 466; 2 Beach on Private Corporations, Section 600; 1 Spelling on Private Corporations, Section 457. “Corpus,” “principal,” “dividend,” “income,” and other words of like import, are but nomenclature. What shall be given to the life tenant is fixed by the deed of trust, and mere names and definitions cannot defeat the intent disclosed by that instrument. 40 Cyc. 1788. And whether a distribution made by a corporation during the continuance of the life estate is to be regarded as income or as capital is primarily one of construction — a question of intention of the creator of the trust, manifested by the will or other instrument by which the right to the income is, for the time being, severed from the corpus. In re Heaton’s Estate, 89 Vt. 550 (96 Atl. 21). And the mere use of
So the sole question we have is: What was it that the creator of the trust before us intended should be received by the remaindermen and the life beneficiary, respectively, — what intention as to this is to be gathered from the will?
IY. The direction to the executors is to pay income annually to the son during life, and that, at death of the son, “said trustees or their successors are to pay the principal sum to the trustees of Iowa College, and to the American Home Missionary Society, to each one half, for the general uses of said institutions.”
It is said, in the case of In re Heaton’s Estate, 89 Vt. 550 (96 Atl. 21), that, where the remainderman receives the corpus, undiminished in value from what it was at the inception of the trust, this “is all that he can justly claim, unless the creator of the trust has evidenced an intention that he shall receive more. ’ ’ “Principal sum” means the “main” sum, being the amount left in trust, — the amount originally paid for and invested in the stock. 31 Cyc. 1173. Principal sum means also the “original gift,” being once more the amount invested in the bank stock, and not its present value. 31 Cyc. 1174; Gammon v. Gammon, 153 Ill. 41 (38 N. E. 890). It has been held that, where property which was originally part of the corpus has been
The order below must be reversed, and the relief prayed by appellant granted. — Reversed.