Court Opinion

ID: 9682748
Source: CourtListenerOpinion
Date Created: 2023-08-24 13:16:01.854544+00
Date Added: 2024-06-11T18:17:39.657390
License: Public Domain

Mr. Justice Garwood,
concurring.
This comment is not intended as a deviation from either the result reached or reasoning followed by the Court. It merely expresses my own reasons as to why the so-called Massachusetts Rule rather than the Pennylvania Rule should apply in connection with stock dividends declared during the existence of a life estate.
As the main opinion correctly states, a stock dividend or stock “split” leaves the stockholder exactly where he was before, except that his interest is expressed in terms of a larger number of shares. Not infrequently, however, a stock dividend coincides with a large accumulation by the corporation of profits which are not distributed in the form of cash dividends, but are retained in the business, with the result that, in fact, as well as on the corporate books, there is a large “surplus” over and above the value of the funds (and other corporate property) corresponding to the capital stock as the latter stood prior to the dividend.
In such a situation it is felt, and with some justice, by the advocates of the Pennsylvania Rule that where the actual accumulation of surplus has occurred in whole or part during the existence of the life estate, the life tenant ought to get the benefit of it by receiving a corresponding portion of the stock issued as the stock dividend instead of being relegated to merely such cash dividends as the board of directors might see fit to distribute. In other words, the theory is that the life tenant has a right to the undistributed profits accumulated during the existence of the life estate, as well as to such profits as are distributed in the form of cash dividends.
The difficulty about this is that it entails too much of an inquiry into the operations of the corporation, with a correspondingly undesirable complication in accounts between the life tenant, remaindermen and the corporation. Since, as stated, the stock dividend has no value significance in and of itself, there is no particular reason to treat it as the occasion for giving the life tenant a share in the undistributed profits. If he is entitled to a share of the undistributed profits at all, then he is entitled to it just as much without a stock dividend as with one; and thus the question is simply whether a life tenant should be allowed both the profits distributed in cash during the life tenancy and *94the profits earned during the life tenancy but not distributed. If we thus recognize a right in the life tenant to undistributed profits, a large number of life estates will inevitably involve complicated and difficult problems of accounting, which may run back many years, and perhaps even reach into the propriety of the accounting methods of the corporation concerned. No doubt this is one reason why the Texas Trust Act provides that, in the absence of specific provision by the trustor to the contrary, stock dividends, in the case of trusts, are treated as principal rather than income. See Art. 7425b-29, Vernon’s Texas Civ. Stats. Indeed, this provision itself justifies our conclusion to follow the Massachusetts Rule.
Opinion delivered July 9, 1958.
Rehearing overruled October 1, 1958.