Court Opinion

ID: 3864973
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:58:39.023101+00
Date Added: 2024-06-11T14:14:55.853507
License: Public Domain

I am unable to concur in the opinion of the court, because in my judgment there is no evidence which justifies the conclusion that the entire cash dividend *Page 65 
of $46.30 per share, which was received from Utility Company by the trustees, should be treated by them as income of the trust estate.
This dividend, together with other similar dividends paid by Utility Company to its other stockholders, represented by far the greater part of the profit which was received by Utility Company, on its holdings of shares of stock of The Narragansett Association, when the entire assets of the latter corporation were distributed pro rata among its stockholders in liquidation of its affairs.
As shown in the foregoing opinion of the court, the original holding by Utility Company of shares of stock of The Narragansett Association, consisting of 104 shares, was received by the former corporation in July 1913 from the trustees of the trust created for the benefit of Adeline T. Sprague under the will of Samuel S. Sprague and was paid for, to those trustees, in shares of stock of Utility Company.
At this time and throughout its existence, by far the greatest part of the assets of The Narragansett Association consisted of its interest, as sole lessor under a long term lease, in certain real property in the city of Minneapolis, Minnesota.
When the liquidating dividends from that corporation were received by Utility Company in December 1936, it became desirable to ascertain the actual value in July 1913 of the 104 shares of the stock of the former corporation which were owned by the latter corporation; and this was determined to have been $656.61 per share, based on a valuation of $625,000 for the interest of the former corporation under the aforesaid lease and a valuation of about $32,900 for its securities, and making the total value of the 104 shares $68,287.44. There is no evidence that the value was any different, when, on August 10, 1920, the trustees under the trust for the benefit of Mrs. Whitmarsh received 399 *Page 66 
shares of the stock of Utility Company from the trustees of the trust for the benefit of her mother.
At that time that corporation's holding of shares of stock of The Narragansett Association was still 104 shares. But the former corporation received from the latter corporation a stock dividend of 312 shares in November 1922 and another one of 10 shares in August 1930, making the total amount of such stock held by the former corporation thereafter and until the final liquidation of the latter corporation 426 shares. There is nothing in the evidence in this case to indicate that any part of these stock dividends represented earnings of the latter corporation; and they therefore must be assumed to have represented only capital of such corporation.
When, near the end of 1936, The Narragansett Association transferred to its stockholders, including Utility Company, all its real estate, as a part of its plan of total liquidation of its assets, this real estate consisted of its interest as lessor under the above-mentioned lease of real property in Minneapolis. There is no evidence that any earnings of The Narragansett Association had been used to increase the value of this real estate; but it had greatly increased in its market value, apparently because of changing conditions as to such real property in Minneapolis and as to the market values of such income-producing investments.
Therefore it seems clear to me that when this real estate was transferred by The Narragansett Association to its stockholders, in shares proportional to their respective holdings of its stock, it was properly transferred and received as being by far the greater part of the capital of the former corporation and as not including any of its earnings. Hence it seems clear to me that when this real estate was sold and conveyed by these stockholders for $1,000,000, the proportionate part which was paid to Utility Company, as one of the stockholders, out of that total sale price, namely, $116,776.31, *Page 67 
was properly paid and received as its distributive share of the main capital asset of The Narragansett Association and as not including any of the earnings of that corporation.
This being so, it necessarily follows, in my judgment, that Utility Company was justified in treating, and indeed was bound to treat, all that amount as being a part of its capital. What it then did was that it separated out from that amount the sum of $68,287.44, which, as above stated, was the estimated total value, in July 1913 and probably on August 10, 1920, of the holdings of that corporation in the shares of stock of The Narragansett Association, and retained that as a part of its own capital for the future; and that it then paid out all the rest of the above-named sum of $116,776.31, namely, $48,488.87, as a part of the extraordinary dividend of $46.30 per share which on December 28, 1936 it paid out to its stockholders, totaling $57,736.10, and of which $19,353.40 went to the complainant trustees.
From the evidence, then, and bearing in mind that evidently these two corporations were not trading but investment corporations, it seems clear to me that Utility Company, in paying out to its stockholders the sum of $57,736.10, as above stated, was justified, at least to the extent of the above sum of $48,488.87, in paying it out, as it did, as being a dividend fromprincipal only; and that therefore the trustees were bound to treat as principal of their trust estate at least so much of the total dividend of $19,353.40, received by them, as constituted their proportionate share of the above-mentioned sum of $48,488.87, namely, $16,253.77. See Miller v. Payne, 150 Wis. 354, 376-379, 136 N.W. 811, 818-820.
Therefore, I feel obliged to dissent from the conclusion arrived at in the foregoing opinion of the court that the entire dividend of $19,353.40, received by the trustees from *Page 68 
Utility Company, was income of the trust estate and not capital.
As to such part of that dividend as exceeded the above sum of $16,253.77, namely, $3099.63, the matter is by no means so clear to me. That was paid by Utility Company to the trustees as being wholly a part of the capital of that corporation; but it actually was the trustees' proportionate part of the sum of $9247.23, which is the difference between the above-mentioned sums of $48,488.87 and $57,736.10 and which apparently was not received by Utility Company from the proceeds of the sale of the real estate transferred by The Narragansett Association to its stockholders, but was wholly or largely the former corporation's proportionate part of the proceeds from the sale by Rhode Island Hospital Trust Company of the securities transferred to it by The Narragansett Association for the benefit of the latter's stockholders; or it may have been wholly or largely money received by Utility Company as its proportionate part of the cash liquidating dividend paid by The Narragansett Association out of money in its treasury.
In this connection it is of interest that the evidence shows that in 1913 the real estate of The Narragansett Association constituted about 95% of its total assets and that in 1936 it constituted only about 86% of that corporation's total assets. Whether any of this very considerable increase in personal property assets represented income which had been received in the interval and accumulated is not shown by the evidence.
To the extent that the above sum of $9247.23 came to Utility Company from such personal property assets of The Narragansett Association it may, so far as the evidence shows, have come, in whole or in part, from such accumulated income of the latter corporation which had never been made a part of its capital. If any part of this sum did come to Utility Company from such income, I am strongly inclined *Page 69 
to believe that such part should have been treated by Utility Company as income and distributed to its stockholders as such; and that such proportionate share of that part as was received by the complainant trustees in the dividend of $46.30 per share from that corporation should be treated by them as income from the trust estate, even though, in paying to them that dividend, Utility Company described it as a dividend paid from capital.
The reason why I am strongly inclined so to believe depends in large part upon the facts, shown by the evidence, that the two corporations were, and had been for many years, practically under the same management and control, and that their affairs were and had been largely, if not entirely, supervised by the trustees or their representatives, who therefore might fairly be taken to have had actual or constructive notice of the true nature of the dividend to them which is in question in this cause.
But there is no good reason for pursuing this particular subject further, since the evidence does not make it at all clear whether the securities transferred and the cash paid out by The Narragansett Association in liquidation really constituted principal or income of that corporation and the majority of this court has determined, for a different reason, that all of the dividend in question in this cause constituted income of the trust estate.