Court Opinion

ID: 6581382
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:38:34.228531+00
Date Added: 2024-06-11T15:57:17.832235
License: Public Domain

Pardee, J.
John Grou died in 1.866, leaving a will containing the following clause:—“ I give, devise and bequeath to George Brinley, Oliver G. Terry and William J. Hamerslev, and their successors in office, the sum of one hundred thousand dollars, to have and to hold the same upon the trust and confidence following: that is to say, they shall invest and hold the same for the use and benefit of my four children, John Grou, Jr., George Grou, Mary J. Yail, and William D. Grou, during their natural lives, and shall pay to them equally the rents, dividends, increase and income thereof annually, after deducting the expenses of said trust, one-fourth to each during his or her life. If any of my children should die leaving issue living at their decease, his share or her share shall then be transferred to said children free from said trust; but if any should die leaving no children, the same shall be held in trust for the use and *74benefit of the survivors; and if all die without issue, then the estate is to go to my legal heirs.”
The testator at the time of his death was the owner of three hundred and thirty-three shares of the stock of the JEtna Insurance Company; of these shares two hundred and forty-four became a part of the fund then created at a valuation of $194 per share. The assets of the company then exceeded its liabilities to the amount of about $355,000. In 1881 the capital of the company was $3,000,000; its accumulated profits $3,000,000; and the market value of a share was $282. In that year it increased its capital from $3,000,000 to $4,000,000, apportioning the ten thousand new shares pro rata among the stockholders, they paying in $100 per share. The trustees thereby acquired the right to subscribe for ¿ighty-one and one third shares; they sold the right to subscribe for thirty-four and one third shares, receiving therefor $4,859.50; and of this sum they applied $4,700 to payment for forty-seven shares. After the increase the market value of a share was $232; in February, 1882, the date of this complaint, it was $235. The dividend for the year preceding the increase was twenty per cent; for the year succeeding, sixteen per cent.
The plaintiffs, “the trustees under the will, allege that George Grou, William D. Grou and Mary J. Vail (John Grou, Jr., haying died without issue and they taking his interest as survivors,) claim to be entitled to receive these forty-seven shares of new stock in the proportion to which they are entitled to the annual rents, dividends, increase and income of the trust fund, and that it should be transferred to them; and that Thomas J. Vail, husband of Mary J. Vail, claims that these forty-seven shares are, and should remain, a part of the capital of the fund.
The trustees ask the Superior Court to determine the following questions:—
1st. Whether the legal effect of the provisions of the trust in the will is such as to entitle the cestuis que trust' to the right to subscribe to the new stock.
2d. Whether the provisions of the trust require the *75plaintiffs to hold as a part of the trust fund the new stock so purchased by them, or to divide the same among the cestwis que trust, as a part of the rents, dividends, increase and income of the trust fund.
3d. Whether the cestuis que trust are entitled, as a part of the rents, dividends, increase and income of the trust fund, to subscribe for any portion of the new stock, or are entitled to any proportion of the profits that may arise from the purchase and sale of the new stock, or to any proportional part of the market value of the right to subscribe for such new stock at the time such subscriptions are made.
4th. In the event that the trust entitles the cestuis que trust to receive as annual rents, dividends, increase and income, any share of the benefit accruing to the trust fund by reason of the increase of stock by the fEtna Insurance Company, in what proportion does the benefit go to the cestuis que trust ?
The Superior' Court has asked the advice of this court upon these questions.
A shareholder has no proprietary interest in the accumulated profits properly retained by a corporation for the protection of its capital; he cannot acquire one by summoning it to make a rest in its business and take an account of them; he first obtains one when it has either in fact, form or intent set his proportion thereof as a dividend to his individual credit. This, of course, is the measure of the right of a life tenant; there is to him only a possibility that the profits may be divided, or that the use of them by the corporation may increase its dividend during his term.
In the case before us, neither in fact nor form did the corporation make any division, or part with any portion of its earnings in behalf of the stockholders. On the contrary it manifestly desired to retain its surplus intact and increase its strength by the addition of a million of dollars to its capital; its accumulated earnings all remained its property and subject to the risks of its business. It offered to the shareholders the privilege of paying in this sum; investors were of the opinion that this privilege was worth a premium; *76not because it carried with it the right then or ever to demand any portion of the surplus retained in good faith by the company, but presumably because they believed that from the income from its capital, surplus, and business, it would make regular dividends largely in excess of the ordinary rate of interest.
The increase in market value above cost of the shares constituting the capital of this fund, resulting either from an accumulation of profits by the corporation or from its vote to permit each one of its proprietors to purchase a fraction of a new share because he was the owner of an existing one, belonged to and formed a constituent part of this last, and of course of the capital. If the trustees had sold the existing share, and thereby had realized the increased value resulting from either of the mentioned causes, the entire proceeds of the sale would have still formed a part of the capital; and the excess in market value above cost of the right to purchase such fraction also belongs to and forms a constituent part of the existing share and of course of the capital; and when the trustees realized this excess by a sale of the privilege, the proceeds remained a part of that capital. In short, all of the increase of value which is realized from the act of the trustees in selling either the existing share with the privilege annexed, or the privilege severed therefrom, belongs to the capital; purchasers pay it from their money; all that is realized from the act of the corporation in making dividends belongs to the life tenant. Atkins v. Albree, 12 Allen, 359; Moss's Appeal, 83 Penn. St., 264. And this regardless of the question whether profits were accumulated before or after the purchase of. shares by the trustee; if before, and a dividend is made immediately after, it is the good fortune and the property of the life tenant; if after, and the corporation does not divide them during the life tenancjN it is the advantage of the remainder-man. Each must take the risk of his time, both as to the success of the business and as to the action of the directors in the matter of dividends.
Again, it is said that the will, which is the law of the *77case, requires the transfer of these forty shares to the life tenants, by the requirement that the trustees shall annually pay to them “ the rents, dividends, increase and income ” of the trust fund; that in the life of the testator the company had on three occasions increased its capital; that he foresaw that it would do so again; and that the word “increase” points to such an event. But, looking at the whole instrument, we are unable to find therein expressed any other intention in reference to that part of the fund invested in JEtna Insurance stock, than that his children should receive all that the company should actually separate from its funds and set to the trustees as dividends thereon.
The Superior Court is advised that the forty-seven shares paid for are a part of the principal of the fund; to he retained by the trustees as such.
In this opinion the other judges concurred.