Court Opinion

ID: 3484419
Source: CourtListenerOpinion
Date Created: 2016-07-05 21:09:31.026641+00
Date Added: 2024-06-11T14:13:34.076381
License: Public Domain

There are two fundamental questions on this appeal. The first is the meaning of Chapter 495 of the Acts of 1929; and the second is, Are the corporate dividends which are in controversy within the scope of the statute? The legislation is the first in Maryland on its subject matter, and the enactment is wholly found within a single paragraph:
305C. All rents, annuities, dividends and periodical payments in the nature of income, payable under the provisions of any will, deed or other instrument executed after the first day of July, 1929, shall, like interest on money lent, be considered as accruing from day to day, and shall be apportioned in respect of time accordingly, *Page 668 
unless otherwise expressly stated by the instrument under which they are payable, but no action shall be brought therefor until the expiration of the period for which the opportionment is made. Code (Supp. 1935), art. 93, sec. 305C.
There is no controversy that it is a condition precedent to the operation of the statute that the rights contemplated must originate by the terms of some document in writing. Here the trust, under which successive interests arise in the same subject matter, is created by will, and thus this condition is fulfilled. The claims of creditors do not affect the devolution of the property given in trust; and there is nothing disclosed to interfere with the application of the statute to any income within its contemplation. Thus far there seems to be no divergence of opinion. The difference is about what dividends are embraced within the meaning of the statute. The distribution by dividend either of corporate capital or of assets for the purpose of the liquidation of corporate affairs is not a distribution of income but of corpus itself. Such divisions of corporate capital and of assets in liquidation are clearly not dividends in the sense intended by the Legislature, and so do not constitute a restriction on the scope of the application of "All * * * dividends." The prevailing opinion, however, construes the inclusive adjective "all" of the Act to have this significance with reference to rents and annuities, but to lose this meaning when it reaches dividends, and then to acquire the sense of "some." Thus by the opinion of the majority of this court the statute does not apply to irregular or extraordinary declaration of dividends. Conformably with the opinion, payment of cumulative preferred dividends of a fixed yearly percentage on corporate stock in part discharge of arrears is not within the contemplation of the statute should the distribution of current earnings be made after a suspension and interruption of the annual declaration of the dividend because of past insufficient net earnings. The reasoning of the court in support of this position is best stated in its opinion, which finds *Page 669 
support for its conclusion in the decisions of English courts in the construction of the English statute on apportionment. It is submitted that too much reliance may be placed upon decisions of foreign courts in the construction of statutes, which are distinguished by substantial difference from the domestic act.
1. Statutes adopted from another state or country will generally be presumed to have been enacted with the meaning given to it by the construction placed upon it by the state or country of its origin before its adoption. Lavender v. Rosenheim,110 Md. 150, 72 A. 669. Such construction will be persuasive and will be followed if sound and reasonable. However, the rule is subject to important limitations. One of these is that it will not prevail over the plain and clear meaning of the statute, nor if the statute adopted differs materially in a substantial matter from the statute from which it is derived. Torrence v. Edwards,89 N.J.L. 507, 99 A. 136, 137; Copper Queen Consol. Mining Co.v. Arizona Territorial Board of Equalization, 206 U.S. 474, 27 S. Ct. 695, 51 L. Ed. 1143; Stutsman County v. Wallace,142 U.S. 293, 12 S. Ct. 227, 35 L. Ed. 1018. Thus, the English statute on apportionment (33 and 34 Vict. c. 35, 1870), along with the Massachusetts Act, furnished the basis for the enactment of the statute here under construction, yet the English statute was not adopted without material modifications. The statute in Maryland is only similar to the second section of the English statute, whose other sections are wholly omitted. The discarded fifth section is material because it defined the word "dividends" as used in the second section, and gave it particular meaning, so that the statute was made to embrace all dividends, whether periodical or not, which were not in the nature of a return or reimbursement of capital, provided only such dividends must be declared or expressed to be made for or in respect of some definite period. Re Griffith (1879), L.R. 12 Ch. D. 655; In reJowitt (1922) L.R. 12 Ch. Div. 422; In re Bouch, 29 Ch. Div. 635, 653; Bouch v. Sproul, L.R. 12 A.C. 385, 397, 401. *Page 670 
Even in the second section there are significant differences. The Maryland law applies to "all rents, annuities, dividends and periodical payments in the nature of income, payable under the provision of any will, deed or other instrument," while the income designated by the English Act may be "reserved or made payable under an instrument of writing or otherwise." Again, the language of the English Act in this section is "all rents, annuities, dividends and other periodical payments." The here italicized adjective phrase "other periodical" is so associated with the antecedent word "dividends" as to limit its meaning to those dividends which are periodical. See Hubbard v. Taunton,140 Mass. 467, 468, 5 N.E. 157; Alexander v. Greenup, 15 Va. (1 Munf.) 134, 144. The statute at bar does not contain this qualification of the general meaning of dividends. In thus modifying the wording of the second section of the English statute and rejecting its fifth and other sections which fixed the limited meaning of the word "dividends" as used in the second section, the General Assembly of Maryland declared the legislative intent in its own chosen words. The material changes noted give emphasis to the necessity of applying the domestic statute in accordance with its meaning as found from its own statutory expression rather than from the construction given by foreign tribunals to a substantially different statute. Bladesv. Szatai, 151 Md. 644, 652-653.
2. The enactment was made so late as 1929 for the purpose of changing the common law rule then in force that rents, annuities, dividends and periodical payments were not generally apportionable. The rule worked unfair results, and it was thought that if these yields of capital were treated as accruing due from day to day in the manner of interest or money lent, and thus made apportionable in respect of time, the inequalities would be removed. In an able treatise on the Construction of Wills
(1927) by Edgar G. Miller, Jr., an enactment was suggested which is substantially the form of the one passed. Section 120, n. 1, pp. 336, 337. *Page 671 
Not only did inequalities exist because of the effect of the common law rule against the apportionment of rents, annuities and periodical payments, but greater confusion and conflict prevailed with reference to corporate dividends, which fell into ordinary and extraordinary, and money and stock dividends. The rule was established that regular corporate dividends were not apportionable. In respect of extraordinary corporate dividends, whether declared in money or in shares of stock, there was great conflict of authority. These difficulties brought about remedial legislation. In the Restatement of the Law of Trusts by the American Institute of Law the whole subject matter is considered, and the law on the subject is formulated, with the qualifying footnote that its rules are not effective where the subject is governed by statute. See Vol. 1, ch. 7, secs. 232, 234, 235, pp. 698-699; 236, p. 702 n.
3. Before the enactment of chapter 495 of the Acts of 1929, the decisions were not harmonious with reference to the apportionment of extraordinary corporate dividends. There was need of statutory clarification. 86 University of Pennsylvania Law Review, 681; 2Machen on Corporations, sec. 1389, p. 1150, nn. 3, 4; 4 Bogerton Trusts and Trustees, sec. 845, p. 2448, n. 34, secs. 846, 847, 848, 850, n. 98, p. 2463, sec. 857.
The first decision in Maryland on the allocation of a dividend declared payable on corporate stock which was held in trust for the benefit of a life tenant and then over for a remainderman, was rendered in Thomas v. Gregg (1894), 78 Md. 545, 28 A. 565. A testamentary trust had been created by a testator, who died on February 11th, 1890. The use of one-half of the estate was given to each of his two daughters for life, and then over in remainder. A life tenant died on July 8th, 1891, survived by a husband and three children, and the life tenant of the other half and her husband. A twenty per centum stock dividend for three years ending September 30th, 1891, was declared and made payable in stock of the corporation. A controversy arose over the distribution *Page 672 
of the stock. On the one hand it was asserted to be payable to the tenant for life as income, and, on the other, it was claimed as corpus to be held for the use of the tenant for life and then over to the remainderman.
The resolution that declared the dividend set forth the application by the corporation of the net earnings for the three fiscal years ending September 30th, 1891, and stated that there remained of the net earnings and income of the company a sum which, in addition to amounts derived from other sources, had been used in reduction of the bonded and car trust indebtedness of the company to the amount of $1,325,102.64, and, also, for the permanent improvement of the railway and for new construction, all of which constitute valuable additions to the property and to the capital assets of the company, and so a common stock dividend of twenty per centum was declared upon the common stock of the company for the period named.
The court considered the conflicting rules enforced and came to the conclusion that the best rule permitted the disregard of the presumption that a dividend on the common stock, when declared in stock, is to be deemed capital and, when declared in money, is to be deemed income, is not conclusive and, so, that the form of the dividend may be ignored, and its real nature determined. The principle there established was that, if it could be certainly known that the distribution in the stock dividend included net profits, and their proportion was known, and such proportion of net earnings, although formerly used as capital, had been so employed temporarily and with the intention on the part of the directors of the corporation of refunding such net profits as so applied to the shareholders as income, it would thereupon become the duty of equity to make the investigation required, and dispose of the stock in an equitable distribution between the tenants for life and the remaindermen. Pages 556, 557.
After reaching this opinion, the court was confronted with the action of the corporation which clearly disclosed *Page 673 
that the dividend was of profits which had been carried by the corporation to its capital account, and so the court was obliged to resort to the testator's will, and to find from it the intention of the testator that the life tenants were to have the benefit of all the income from the testator's property.
The intention of the testator must have been given paramount weight for these reasons. In the absence of a clear abuse of their discretion or fraud, the directors of the corporation had the discretion to dedicate net earnings to the capital requirements of the corporation. In the event of such an application, the stockholders had no right to the disbursement of such earnings in a dividend on stock. Nor, in the absence of misconduct, did the court have any concern with the appropriation of income in corporate affairs, and could not substitute its conception of the judicious use of corporate net income in order to make and enforce a different application or use from that lawfully adopted by the accredited agents of the stockholders in the management of corporate affairs. The shareholders were bound to anticipate the capitalization of net earnings by appropriate corporate action, and the distribution of stock to the shareholders was the final corporate action to evidence and to consummate the capitalization. Thus, while the allocation of a corporate dividend to trust corpus or to income is a duty of the trustee, and may be properly brought within the province of a court of equity, nevertheless neither the duty of the trustee nor the occasion for the chancellor to act may arise where, in the absence of an abuse of discretion or of fraud, there has been no dividend declared of corporate net earnings. Hence, whether the dividend is a capitalization of net earnings or their distribution by payment is a vital distinction in deciding whether the dividend to a trustee is to be distributed by him as income or held as part of the corpus of the trust.
The court exemplified the practical operation of its decision by ruling that the fiscal period for the ascertainment of net earnings should be six months, if that be *Page 674 
practical, and, if not, the fiscal year of the company should be taken as the period. For the life tenant to become entitled to the net profits of such periods, she must be alive at the end of the period. So, the testator having died on February 11th, 1890, the proportion of the net income embraced in the stock dividend for the fiscal year ending September 30th, 1889, was capital, and the stock which represented this amount became a part of the corpus of the trust. The life tenant, Annie G. Thomas, died on July 8th, 1891. If practical to compute the net earnings on a six months' basis, the net earnings during the period from September 30th, 1889, to March 31st, 1890, to September 30th, 1890, to March 31st, 1891, would pass in the form of stock to the estate of Annie G. Thomas as income, but if the calculation had to be made on a yearly basis, the net earnings for the fiscal year expiring on September 30th, 1890, would fix the proportion of the stock dividend to go to the estate of the dead life tenant. The proportion of the net income from either September 30th, 1890, if on a yearly basis, or March 31st, 1891, if on a six months basis, would pass in the form of the proportionate number of shares of the stock dividend to the capital or corpus of the trust.
The next case is that of Quinn v. Safe Dep.  Tr. Co. (1901),93 Md. 285, 48 A. 835. A testamentary trustee was directed to pay the net income of the trust to the testator's children for life, and then over. A part of the trust estate was shares of stock in the Canton Company, which had endorsed certain bonds of a mortgagor, and had accumulated a sinking fund, which was in the form of money and ground rents, for the purpose of paying the bonds at maturity. Practically all of this fund had been set aside before the testator's death. The bonds were paid off by another company, and the sinking fund thereby became discharged and available for the corporate purposes of the Canton Company. The directors passed a resolution declaring an extraordinary dividend of ten dollars a share out of the money and retained the ground rents as a capital investment. The sum of $4,000 *Page 675 
was the dividend received by the trustee, and of this amount $3,814 had been accumulated before the testator's death, and $184 had been the net profits carried to the fund after the testator's death.
It was argued that Thomas v. Gregg, supra, controlled, and that the real nature of the dividend should be investigated, and that portion which had been amassed out of earnings before the testator's death was capital, and that only the comparatively small sum which had been earned after his death was payable to the life tenants as income. The court held the dividend was income and applied the principle that, in the absence of bad faith, a company's distribution of its net profits in a dividend in money or its conversion into capital is a valid exercise of power if conferred, and is binding upon all parties in interest, and consequently what is paid as dividend goes to the tenant for life, and what is paid by the company to the shareholder as capital or is appropriated as an increase of the capital stock of the concern enures to the benefit of all who are interested in the capital. It is difficult to reconcile these two decisions.Bogert on Trusts and Trustees, sec. 845, n. 34, p. 3448. While there is the difference of a dividend of stock, in the first case, and of money, in the second, the fundamental question in each case is the power of an equity court to investigate and determine whether a lawful dividend, no matter its form and what it may be determined by the declarant to be, is a distribution of net income or of capital, and whether, and in what part, it is payable and receivable by the tenant for life or the remainderman. In the first case, the court declined to accept as capital a distribution so declared by the declarant, and, in the second case, the court refused to disturb the action of the declarant, although in both instances the distribution was fundamentally of retained and dedicated net earnings. In short, in Thomas v. Gregg, supra, the decision was inconclusive and would seem to be controlled by the testator's intention as found in his declaration of trust rather than by any unequivocal adoption of what is known as the *Page 676 
Pennsylvania rule. In the later case of Quinn v. Safe Dep.  Tr.Co., supra, the court ignores the Pennsylvania rule, and refers to decisions which enforce the doctrine of the Massachusetts courts. Boucher v. Sproul, L.R. 12 App. Cas. 385; Gibbons v.Mahon, 136 U.S. 559, 10 S. Ct. 1057, 34 L. Ed. 525; Bates v.McKinly, 31 Beavan 280; Van Doren v. Oldin, 4 N.J. Eq R., 176;Richardson v. Richardson, 75 Me. 570; New York etc. Co. v.Nickals, 119 U.S. 296, 7 S. Ct. 209, 30 L. Ed. 363.
However in the Atlantic Coast Line Dividend Cases (1905)102 Md. 73, 61 A. 295, the court cites both cases in support of the proposition that "when a dividend based upon the earnings of a company is declared payable in stock and the company had the power of so distributing it, and this power was validly exercised, it is to be treated as income and not capital, and goes to the tenant for life." The court was speaking with reference to an extraordinary dividend of twenty per centum
declared upon the existing capital stock of a corporation, and payable in the stock of that company. The railway corporation in question was formed in 1900, and in November, 1904, the directors passed a resolution, which was later approved by the stockholders, whereby it was stated that the surplus net earnings justified the dividend mentioned, and that it should be declared, and that for this purpose the capital stock of the company should be increased so as to provide for the issue of the stock dividend. While the terms of the testamentary trust were quite broad and inclusive, and the court did say that it "is quite clear and there can be no question, that under its provisions, the dividends are payable to the appellee," nevertheless the court rested its opinion on the doctrine that the declaration of a stock dividend based upon the "surplus net earnings of a corporation throughout a period of years is income and not capital and goes to the tenant for life." In this case there existed the particular feature that the profits distributed were the net earnings of the company during the existence of the trust. The decision last cited is later, and the reasoning *Page 677 
of the court seems definitely to abandon the position of the court in Quinn v. Safe Dep.  Tr. Co., supra, and to adopt the decision in Thomas v. Gregg, supra, as controlling. Ex parteHumbird, 114 Md. 627, 634, 80 A. 209; Coudon v. Updegraf,117 Md. 71, 80, 83 A. 145.
In Foard v. Safe Dep.  Tr. Co. (1914), 122 Md. 476,89 A. 724, it was held that surplus earned before the death of the testator, and distributed in the form of an unusual dividend declared after his death and made payable in money, was corpus of the testamentary trust created by the testator, and not income which was payable to the life tenant under the trust. The dividends of earnings, which had accrued after the death of the testator, were income which was payable to the life tenant, no matter whether the dividends be in cash, scrip or stock.Washington County Hospital v. Hagerstown Trust Co., 124 Md. 1, 7, 8, 91 A. 787. After the two cases last cited, the NorthernCentral Dividend Cases (1915), 126 Md. 16, 94 A. 338, were decided. The decision distinguishes between dividends of stock, and dividends of money. With reference to dividends which are payable in stock, the rule applied was that of Thomas v. Gregg,supra, and a stock dividend that represented earnings which had been expended for betterments was declared apportionable between life tenants and remaindermen where earnings accruing during the life estate were included in the earnings so applied. On the other hand, it was said, on the authority of Quinn v. Safe Dep. Tr. Co., supra, that a dividend payable in money should go as income to the life tenant without regard to when the earnings or income accrued. Compare Foard v. Safe Dep.  Tr. Co., supra. In the Northern Central Dividend Cases, supra, at pp. 29-30, the court, writing in reference to the cash dividends, quoted fromFrance on Corporation Law, 280, the statement: "As between successive owners of a share, the dividend belongs to him, who is the owner at the time it is declared; and this is true although there is a future day of payment. Such is the rule also when there are successive interests in the same *Page 678 
share as in the case of life tenant and remainderman; there will be no apportionment when the life tenancy expires between dividend days." Miller v. Safe Dep.  Trust Co., 127 Md. 610.
It is not perceived upon what sound equitable basis the form of the dividend is determinative of whether it is apportionable. The rule of apportionment is equitably rooted in substance as against form, and, so, its genesis and theory alike demand that in equity income and corpus be awarded without regard to the form in which income or capital is distributed in dividend among corporate shareholders. Matter of Osborne, 209 N.Y. 450, 477, 103 N.E. 723, 731; Mandeville's Estate, 286 Pa. 368, 370, 133 A. 562, 563; Rhode Island Hospital Trust Co. v. Packhorn, 42 R.I. 365, 372, 107 A. 209, 212; Restatement, Trusts, sec. 236b, comment S; 86 University of Penna. Law Review, p. 111.
While no later case upon the question has been found where the question has been decided by this tribunal, a preference is indicated for the logical rule as stated and given effect inFoard v. Safe Dep.  Tr. Co., supra. See Krug v. MercantileTr.  Dep. Co. (1918), 133 Md. 110, 116, 104 A. 414; Spedden v.Norton (1930), 159 Md. 101, 105, 150 A. 15; Baldwin v. Baldwin
(1930), 159 Md. 175, 180-184, 150 A, 282; Bogert on Trusts andTrustees, sec. 844, p. 2446:
It would seem incontrovertable that a review of the prior decisions of this tribunal demonstrates that conflict and inconsistency exist. In Thomas v. Gregg (1894), supra, andQuinn v. Safe Dep.  Tr. Co. (1901), supra, basically different rules and principles are enforced in determining what shall be allocated as trust income and what as trust corpus. Again, in the determination of the inquiry whether the dividend declared is a distribution of capital or of net earnings, the statement of the corporation in reference to the source of the dividend is held conclusive, and this presumption is operative if the dividend be of stock, or of money or made payable out of current net earnings or past undistributed net profits, whether carried *Page 679 
as surplus or allocated to capital and invested in tangible capital assets. Thus the court of equity, which justifies its intervention between life tenant and remainderman on the ground of preserving the equities of substance as against the primafacie indicia of form, surrenders the ascertainment of the factual basis upon which such equities depend to the decision of the corporation, unless its action be vitiated by fraud.Northern Central Dividend Cases, 126 Md. 16, 28, 94 A. 338;Atlantic Coast Line Dividend Cases, 102 Md. 73, 61 A. 295. It is inconsistent with the equitable theory to give more than presumptive verity to the corporate declaration. Bogert onTrusts and Trustees, sec. 850, p. 2463. Again, with reference to whether there is any apportionment between life tenant and remaindermen between dividend dates, the decisions are not harmonious where the dividend is of stock (1) or of money (2). Compare (2) Quinn v. Safe Dep.  Tr. Co., supra, withNorthern Central Railway Dividend Cases, supra; and (1)Thomas v. Gregg, supra, with Northern Central Dividend Cases,supra (stock).
4. Although the tendency of the later decisions of this court is to affirm a modified form of what is known as the Pennsylvania rule, the decisions are seen not to have been wholly consistent. In view of this difficulty and drift of the later decisions from the Pennsylvania rule, a solution of some of the problems was sought in the remedial legislation of chapter 495 of the Acts of 1929. The statute is presumed to have been enacted by the Legislature with full knowledge of the existing condition of the law; and the meaning and effect of the statute are to be determined with reference to the decisions of the court on the subject matter. 4 Bogert on Trusts and Trustees, sec. 844, p. 2446, sec. 857, pp. 2483-2486. With this background and the state of the law in mind, the construction of the statute must be made.
The general rule is that where by will or other instrument a party is made the beneficiary for a designated period, he is entitled to the income of the trust from the *Page 680 
date of the death of the testator, or the date of the instrument executed by the donor or settlor, unless it is otherwise provided in the will or other instrument. The situation, therefore, before the passage of the statute of apportionment, was that the income received by the trustee from the property held in trust, other than that income received from rents, annuities and ordinary dividends on shares of stock, which did not accrue wholly within the life tenancy or designated period, was apportionable; and (a) such portion of such income as accrued during the life tenancy or designated period should be distributed as income, and (b) such portion as did not accrue during the life tenancy or designated period should be added to principal. The exclusion from this general rule of rents, annuities and ordinary dividends on shares of stock is because these forms of income were not apportionable at common law. In order to introduce equality and uniformity among successive interests in rents, annuities, dividends, and periodic payments of income, the General Assembly of Maryland passed chapter 495 of the Acts of 1929.
There is no sound reason why there should not be an apportionment of ordinary dividends as well as of extraordinary ones. 2 Machen on Corporations, sec. 1388, p. 1149; Lang v.Lang, 57 N.J. Eq. 325, 328, 41 A. 705. The statute employed apt words to bring both equally within the enactment. So to include either ordinary or extraordinary dividends and to exclude the other is a violation of the positive expression of the Legislative will, and a defeat of its purpose to produce uniformity in the apportionment of corporate dividends.
5. The statute does not relate to some dividends, but explicitly embraces "all" dividends of income. So long, therefore, as the dividend is of income, as contradistinguished from a distribution of capital or by way of liquidation, the dividend, whether ordinary or extraordinary, is apportionable by the statute. It is true that income in the form of rents and annuities is founded in contract, and assumes the form thereunder of a definite sum of *Page 681 
money which is periodically payable by agreement to a certain person. So, the amount of the default and the period the payment of the income remains unpaid are fixed and known, and the default is actionable. A dividend, however, is not in default until declared, and until then no right of action at law exists. Although the rate of dividend is sometimes agreed, and its payment periodically may be contemplated in the issue of stock or be established by custom, yet the relation of corporate debtor and creditor does not arise until the declaration of a dividend is made. Thus the right to the payment of rents or annuities is absolute according to the terms of their creation, while the legal right of a shareholder to dividends does not arise until a dividend has been made and declared, although the amount of the profits and the condition of the corporation are such that the shareholder could compel the directors to make a distribution of the profits. The present vested right to rents and annuities is in contrast with the potential right to a dividend, which is not vested until the dividend is made and declared. Whatever their distinguishing differences, the statute has made them common in being apportionable and, like interest on money lent, rents, annuities and corporate dividends are considered as accruing from day to day, and as apportionable in respect of time accordingly. The condition for an apportionment under this statute exists where there are successive interests in the same rent, annuity, or corporate stock. So, the apportionment between the successive interests is with reference to the particular period of payment in which one interest ends and the successive interest begins. With a rent or annuity the stated sum is payable annually or periodically, so the period of apportionment presents no difficulty, as the period, within which the successive interests subsist, coincides in time with the contractual obligation to pay at the due date the accruing rent or annuity. There is no such co-existence in the case of a dividend. However, when, with the declaration of a dividend, the relation of debtor and creditor comes simultaneously *Page 682 
into being, the dividend, by force of the statute, must be accepted as having previously accrued from day to day in respect of a period of time immediately precedent to the day of the declaration of the dividend. The end of the period is thus fixed, but the day of its beginning cannot be ascertained by resort, as in the case of rents and annuities, to a definite contractual period. There are analogies, however, which are determinative. Rents, annuities, and corporate dividends are alike the product of capital at work. In common they represent the yield of invested principal. The apportionment to be made is not based upon the amount either of the rent, the annuity, or the dividend, but is grounded on the period of time within which successive interests must be adjusted. If the capital of a corporation is productive uniformly of net earnings in an amount sufficient to assure the declaration of regular dividends at fixed intervals, the period of apportionment would certainly be between the customary dividend dates. Should the corporate capital decline in net yield, and the regular declaration of dividends cease and the making of dividends would become either irregular, as the fluctuating earnings and condition of the corporation would require, or occasional, as in the making of an extraordinary dividend, these circumstances would reflect upon the earning capacity of the capital employed and the rate in time of its productivity, but would not affect the principle that between successive interests in the same shares of stock the apportionment of income in the form of dividend from stocks, when made with reference to a statutory accrual from day to day, must be between dividend dates, however separated in time, unless no prior dividend had been made, when the period would be between the time of the issue of the shares and the first dividend declared. Thus, through the creation of the fiction of a uniform accrual, from day to day, until the day of the declaration or due date of the ultimately declared dividend, the statute made certain a definite period of time with reference to whose length in days *Page 683 
the proportionate shares of the successive interests in the amount of the dividend would be ascertained. As thus construed, both regular or ordinary, and irregular or extraordinary, corporate dividends, which are declared in the distribution of net earnings and profit, are apportionable under the provisions of the statute.
6. The probability that a long period of time may elapse between the date of the dividend involved and (a) either the date of the last preceding dividend, (b) or the date of the issue of the original issue of the stock, in the event there had been no earlier dividend, is a circumstance which relates to thelength of time during which by statute the dividend is declared to have accrued from day to day. During this period the principal has been employed to earn a yield, and, so, the relative space in time of the period does not militate against the construction given. Whether the duration be long or brief, the language and the purpose of the Act is unaffected. See In re Griffith, Carrv. Griffith (1879), L.R. 12 Ch. D. 655.
Again, the settlor, donor, or testator has no right to a dividend on corporate stock until one is declared and becomes payable. So, no question of apportionment can arise until the dividend is due. Hence, the transfer, before the dividend is declared and is due, of title by the instrument under which the successive rights in the stock arise, transmits, unless reserved, all the interest of the testator, donor, or settlor. Should a dividend be later declared, the then instant rights of the subsisting and successive parties in interest in the shares of stock and the income therefrom are determined among such parties as their relative rights may exist at the time the dividend has become due. Consequently, the construction here given the statute does not create, as has been urged, delays and new difficulties in the settlement and administration of estate. By embracing within its scope both ordinary or regular and extraordinary or irregular dividends of corporate income, and making their distribution among successive beneficiaries with reference to certain *Page 684 
or readily ascertainable periods of time, upon the assumption that the amount of the dividend had accrued from day to day, the apportionment statute introduced into the distribution of corporate dividends an equal degree of certainty and simplicity with what prevails in the apportionment of interest on money lent.
7. The advantages of the simple, arbitrary, universal rule which the statute had adopted makes, in most instances, but not always, for substantial justice. It conforms closely to the rule which is enforced under the leadership of the appellate courts of Massachusetts and other influential tribunals which allot corporate dividends of money to trust income. Bogert on Trustsand Trustees, sec. 851, p. 2464; sec. 843, p. 2443; sec. 857;Gibbons v. Mahon, 136 U.S. 549, 10 S. Ct. 1057, 34 L. Ed. 525. It relieves the fiduciary of many heavy responsibilities, such as ascertaining the intact or original dollar value of the trust corpus; or whether the dividend is declared from surplus which was earned before or after, or partly before and after, the operative date of the instrument creating the successive rights; and, if accumulated partly before and after either the operative date of the instrument or the termination, during the period of the operation of the instrument, of a successive right of income, what are the relative amounts of the income which had accumulated before and after such points of division. The discharge of such duties would oblige the fiduciary to obtain information from the corporation, which he may act upon and so run the risk of its accuracy. If he should desire to go back of such information and assure himself of the true condition of the corporation, he would require expert aid, and, the greater the length of time included by his inquiry, the more costly it would become, especially if the corporation is of foreign origin or location. Not every fiduciary would be competent nor possess the facilities to fulfill these obligations, nor is every trust or fund possessed of the financial resources to acquire the necessary information. So a fiduciary would be frequently compelled to choose among expensive *Page 685 
investigation, litigation, or the assumption of a risk which he ought not to bear. These considerations argue for the reasonableness of the construction of the statute here maintained. Even in those circumstances where the statute may not prove to be theoretically fair, nevertheless its practical effect may, because of its simplicity, certainty, and ease, prove, in the long run, more economical, sensible and beneficial than an abstractly just rule. See Bogert on Trusts and Trustees, sec. 857, pp. 2484, 2485. Compare Perry on Trusts (7th Ed.), secs. 544-545A.
8. Before leaving the subject, it should be stated that the construction here advocated does not bring within the purview of the statute a distribution of corporate earnings in the form of an issue of the capital stock of the corporation to its shareholders. It is true that the issue of authorized capital stock has been frequently held to be income, in an attempt to do equity, although no legal right exists or is denied. The error lies in failing to keep in mind that until a dividend out of corporate earnings is made, neither the testator, donor, nor settlor, nor his personal representatives, nor the beneficiaries, may be heard against the appropriation made in good faith by the corporation of its earnings and income. The appropriation may be to dividend or to capital, and such corporate action is implicitly authorized and contemplated in the ownership of capital stock. Supra. When, therefore, the corporation permanently dedicates its accumulated earnings to capital, and evidences that action by the issue to its shareholders of shares of its capital stock, the stock so received is capital. The corporation has made its final election, and its shareholders are thus bound.
Nor does there appear any sufficient ground for equity to intervene and alter the legal rights of the parties. In the declaration of a dividend whereby the surplus or accumulated earnings are distributed in money, there is no capitalization of the earnings, and the relative position of the life tenant and remainderman with reference *Page 686 
to their future relative rights in the corpus of the trust estate, so far as the particular corporation is concerned, is unaffected. The equality mentioned is maintained if there be a capitalization of the accumulated earnings of the corporation, and it be distributed by a stock dividend, if the stock received be carried to the corpus of the trust. The assets of the corporation would remain undiminished, and the share of the trust would be the same, since the net earnings, whether current or accumulated, would have their equivalent value embraced in the increased capital stock wherein they were capitalized. Actually no payment would occur, but there would be an allocation of earnings by their transfer to the capital account. The share of the trust in the aggregate assets would be expressed in terms of a fraction, whose denominator and numerator, while greater numerically, would continue to denote the unchanged fractional proportionate interest or share of the trust in the corporate assets. If the dividend is thus capitalized, and, as between life tenant and remainderman, the shares of stock received by the trust estate be allocated to trust corpus, the relative position and rights of such successive owners would be recognized and assured by the life tenant enjoying its use for life, and the remaindermen acquiring its residue in value at the end of the life interest. Thus the successive owners would get the full measure in value of their rights, without inequality.
On the other hand, if the stock dividend is to be taken as trust income and given to the life tenant, equality of estate and enjoyment is destroyed. Not only does the remainderman permanently lose every interest in the stock dividend declared, since the shares of stock become the absolute several property of the life tenant, but the trust estate is correspondingly depleted by reason of the fact that the number of shares of stock transferred by the instrument which created the interests in succession remains constant, while the number of shares of the corporation is increased by the total number of the shares of the stock dividend. In other words, by increasing *Page 687 
the number of shares the value of each outstanding formerly issued share is proportionally lessened. So the shares of stock held in remainder are reduced in value as their proportionate share of the corporate property is thus diminished. To increase numerically the denominator of the fraction which represents the total number of shares into which corporate ownership is divided, and to have remain unchanged the numerator, which expresses the number of shares held in remainder, illustrates mathematically how inevitably, and in what proportion, the loss in value of the shares of stock held in remainder must follow the allocation of the issue of capital stock to income. Nor is it true that the shares of new stock issued were paid for by the sum of the net earnings thus capitalized. They were not so bought. As pointed out by Lord Bramwell in Bouch v. Sproule (1887) L.R. 12 A.C. 385, at 407, "The price of the new share was that sum and the diminished value of the old shares." It must be concluded that neither by legal right nor upon any equitable principle may the life tenant or other lesser tenant in time be awarded a distribution of capital stock as corporate income. The subject matter of the statute of apportionment in Maryland is income, and not principal, and there appears no reason to enlarge its meaning to include a distribution of capital stock, whose apportionment as income would be to the prejudice of the interest of the remainderman.
9. The next inquiry is what dividends are involved on this appeal. The testator at the time of his death held shares of stock which fell into the two general divisions of preferred and common stock. The preferred stock division was composed of cumulative and noncumulative preferred stock. With regard to the allocation of dividends, the stocks are separable into three classes. The first embraces the preferred and common stock on which no dividends have been paid after the testator's death, and, therefore, these shares present no immediate problem. Thesecond class is composed of certain other common and cumulative preferred shares *Page 688 
of stock on which the ordinary dividends on common stock and the full dividends on preferred stock have been declared after the death of the testator for the regular annual or less periods which began last before, and ended after, the death of the testator, but during the period of life tenancy, and were payable in money out of the net earnings of the respective corporations for such regular dividend periods. Such ordinary dividends are income, and unless changed by the statute, should all pass to the tenants for life.
While the language of the final decision in the instant case does not expressly limit the scope of the application of its language to extraordinary dividends, it would seem that this is the necessary implication. The court bases its consideration of the case on its preliminary finding that the dividends in controversy are not regular or ordinary, but are irregular orextraordinary, dividends. It, therefore, must be assumed that the court has not decided the effect of the statute on ordinary money dividends, which by explicit legislation are declared to accrue from day to day, and are made apportionable in respect of time unless otherwise provided by the instrument under which the income is payable. Code, art. 93, sec. 305C; Acts of 1929, ch. 495.
It is the opinion of the writer of this dissent that the opinion should have considered dividends of the second class, and held them apportionable by force of section 305C, supra.
The third class is formed by another group of cumulative preferred shares of stock, on which no dividends at the expiration of the corporate fiscal year or other regular dividend period had been declared and paid for some time before the testator's death; but, after the death of the testator, dividends, in usual amount, had been resumed and declared and paid out of current net earnings and applied in discharge of part of the arrearages which had accumulated on account of the cumulative dividend. The prevailing view is that such a dividend is an irregular or extraordinary dividend, whether *Page 689 
declared in money or in stock, and not within the scope of the statute. The nature of the dividends involved in this third class may be considered by particular reference to the dividends declared by the B.V.D., Inc., on its cumulative preferred stock, which the testator held at the time of his death on July 28th, 1936. The corporation was formed to acquire certain corporate enterprises. It was created in 1929, and the value of its corporate assets was in excess of its authorized capital common and preferred stock. This excess represented, it is said, the net profits of the acquired corporations, but it must be regarded as contributed surplus, which entered substantially into the book value of the stock at the time the testator acquired the stock. 4Bogert on Trusts and Trustees, sec. 842. It was designated by the corporation as "paid in capital surplus." The operations of the company were not uniformly successful, but dividends on the preferred stock were paid out of this contributed surplus in a large sum during the ownership of the testator, but all dividends had ceased after the fiscal year ending on August 31st, 1932; and these cumulative accrued dividends had grown to the sum of $1,236,759.88 at the close of the fiscal year on August 31st, 1936. The payment of dividends on the preferred stock was resumed in 1936 when, at a meeting held on December 14th, 1936, a dividend of $6.50 a share was declared for the period beginning on December 1st, 1931, and ending November 30th, 1932, and payable on December 21st to stockholders of record at the close of business on December 18th, 1936.
The portion of the dividends on the preferred stock which was paid out of the contributed surplus of the company before August 31st, 1932, was a distribution of the contributed surplus or capital of the corporation during the lifetime of the settlor, and so does not concern us here. The company had not paid any part of the preferred cumulative dividends from the close of the fiscal year on August 31st, 1932, until the declaration of the dividend in December, 1936. A large amount of preferred *Page 690 
cumulative dividends had accrued during this period. The resumption of dividend payment was out of current net profits, and so the dividend was of corporate earnings which were necessarily applied as a dividend credit on the arrearages of preferred dividends, in order that the corporate duty to pay the agreed preferred cumulative dividend might be discharged to the extent of the net profits available for that purpose, and, so, after the accrued due preferred dividends were ultimately so paid, the corporation might eventually be free to declare as well a dividend on the common. The dividend so declared was at the close of the fiscal period, and at the annual rate which was specified in the issue of the authorized preferred stock, and was for the normal period of one year; so, although the declaration had been deferred, it was not in any accurate sense an unusual or extraordinary dividend. On the contrary it possessed every feature of an ordinary dividend whose regular declaration was interrupted solely because of an anterior absence of available corporate profits.
There was nothing unusual in time or size of the dividend. Is it to be said that because a contemplated cumulative dividend on preferred stock is not annually paid on account of lack of corporate profits, it becomes thereby, when payment is resumed, an extraordinary dividend? It is submitted such a dividend, when resumed, lacks every element of the irregular or extraordinary. What the corporation proposes to do regularly, year by year, at a specified rate, when and as the corporate profits allow, cannot be said to be extraordinary when done, even though an interruption or suspension in declaration has occurred through the corporation's financial position. The fact that the dividends on the preferred stock are cumulative when unpaid is a demonstration that an inability or failure to pay periodically and regularly was anticipated and provided for as a not unusual corporate event. See Restatement of Law of Trusts, sec. 236, comment on clause (a), sub-sec. c, p. 703.
10. Whether the dividend of net income and earnings *Page 691 
be regular or ordinary, irregular or extraordinary, the construction adopted by this dissent would make the dividend discussed apportionable under the statute. There is, however, this distinction to be observed with regard to dividends which in their nature are regular or ordinary, and those which are irregular or extraordinary. These represent two classes, and, in determining the period of statutory accrual in time which precedes the dividend, on a class of stock, the length of time is computed with reference to that particular class. In the statute, dividend is used generically, and the two classes are the included species of dividends. The apportionment is of the distribution of net earnngs or profits accruing by statute from day to day on one of the species, and so the apportionment must be made with reference to the periods of time in respect of that same species, since, to get the proper ratio of division, the periods of intervening time must be in relation to the same species of dividends, as like must be brought in comparison with like.
11. The effective date of the dividend may be the date of its declaration or the record date for the ascertainment of the stockholders to receive the dividend. Code, art. 23, sec. 15;Brune on Maryland Corporation Law, sec. 72, pp. 93, 94, 432, 371. So, an apportionment of the relative rights in a corporate dividend of the personal representative of the testator, donor, or settlor, of the tenant for life or other period, and of the remainderman, would arise if (a) the effective date of the instrument or (b) the termination, within the period of the operation of the instrument, of the tenancy for life or other period, would be in time either between successive effective dividend dates of the same class of dividends; or, should it be a first dividend on the stock, between its effective date and the prior date of issue of the original issue of those shares of stock which represent the capital so invested.
Thus, except as otherwise provided by the terms of the instrument executed by the testator, donor, or settlor, *Page 692 
the whole dividend so received would be apportioned with respect to an entire space in time, whose length, accordingly as the facts would determine, is either the number of days: (1) between the date of the original issue of the shares of stock (which represents the capital invested) and the effective due date of the first declaration of a similar dividend of net earnings or profits (which represents yield or income of capitalinvested); or (2), in the event there had been a previous similar dividend, between successive effective due dates of the last antecedent similar dividend and the current similar dividend.
Having thus found the length of days of the entire period during which by the statute the dividend declared had been accruing from day to day during that period, the whole dividend would be apportioned in the ratio of the number of days of the whole period before the day the instrument of the testator, donor, or settlor became operative to the number of days of the whole period after such operative day. So that the amount of the dividend so found to have accrued during the portion of the period before the operative day of the instrument would form a part of the principal or corpus of the property which the testator, donor, or settlor intended to be transferred by the instrument which created the rights of successive interests, and the residue of the dividend or the amount which so accrued during the portion of the period after the operative date of the instrument would be income for distribution to the party entitled by the terms of the instrument.
If the operative date of the instrument be before the beginning of such statutory corporate period of accrual of dividend from day to day, the total dividend so declared due is distributed as income so long as there is a beneficiary for life or other period. The rule of apportionment as stated is applicable where there are two or more successive life tenants or beneficiaries of designated periods of successive enjoyment of income; and, also, as between beneficiaries and remaindermen. Compare *Page 693 Restatement of the Law of Trusts, ch. 7, sec. 235, pp. 697-701.
Having dissented from the opinion in Zell v. Safe Dep.  Tr.Co., Executor, 173 Md. 518, 196 A. 298, and from the first opinion in the instant case, and being unable to agree with the additional opinion of the court, the grounds of these dissents should be stated by way of explanation. *Page 694