Court Opinion

ID: 8193696
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:16:50.942464+00
Date Added: 2024-06-11T16:40:41.507902
License: Public Domain

Owen, J.
The question involved in this case arises by reason of the shrinking of the assets of the brewing company by virtue of prohibition legislation making a continuance of the business on the part of the brewing company unlawful and destroying its value as a going concern. There *255is no doubt that prior to such legislation the brewing company was in a healthy financial condition, doing a good business and having a substantial value as a going concern. It had earned profits subsequent to the death of the testator which, if distributed in the form of dividends, belonged to the appellant as life tenant. A distribution of a one hundred per cent, stock dividend based on earnings subsequent to testator’s death had been declared and paid over to the appellant. This, however, did not absorb all of the earnings of the company subsequent to testator’s death to which appellant would have been entitled had dividends based upon such earnings been declared and paid. Dividends on such earnings, not having been declared and paid, remained the property of the company and were carried by it on its books as accumulation or surplus. Respondent contends that the shrinking in the value of the assets of the company by reason of the legislation mentioned should not be permitted to wipe out the profits of the company, thereby causing, the entire loss resulting from such legislation to be borne by the life tenant.
It is the settled law of this state that when an owner of stock conveys the same to another for a term without efficiently manifesting to the contrary, the presumption of fact is that he intends the term owner to' enjoy all the income incidents of the stock during such term. .If distributable and distributed to stockholders during the term, no matter what form of property embodies it at first, or what changes occur in form before the distribution occurs, and whether such income be distributed in the form of cash or a stock dividend, when so distributed it belongs to the life tenant. Soehnlein v. Soehnlein, 146 Wis. 330, 131 N. W. 739; Miller v. Payne, 150 Wis. 354, 136 N. W. 811; State ex rel. Dulaney v. Nygaard, 174 Wis. 597, 183 N. W. 884. While the cases in which this principle has been declared involved a distribution of profits or income in the nature of a dividend made by a going concern, we see no reason why the *256same rule should not apply in the distribution of the proceeds arising from the liquidation of a corporation.
In an extended note reviewing the authorities upon this subject to be found in 12 L. R. A. n. s. 805, the annotator says:
“Logically, it would seem that the respective rights of life tenant and remainderman in extraordinary distributions should be governed by the same principles, whether the distribution is made by a corporation which contemplates a continuance of. its corporate existence and business, or is made in process of liquidation, or in contemplation of consolidation or merger with another corporation.”
With this we fully agree, and hold that whatever moneys come into the hands of the trustees as the proceeds of the liquidation of the brewing company which can be said to represent profits of the business of the company earned during the term of the life tenant shall be paid over by .the trustees to the life tenant.
The difficulty in this case is to determine what proportion of the proceeds of the liquidation sale may be so treated. While, during the time that the brewing company was permitted to prosecute its business, profits to a considerable amount were earned by the company out of which dividends might have been declared, such dividends were not declared and such profits were not distributed to the stockholders. It is fundamental that until profits of a corporation are distributed in the form of a dividend or otherwise the stockholder obtains no right or title thereto. Such profits belong exclusively to the corporation. They may be retained by the corporation and added to corpus, and unless a distribution is made during the term of the life tenant the latter acquires no right or title thereto. It is also plain that if the earnings of one year are absorbed by the losses of another the loss is that of the life tenant. It follows logically, it would seem, that where the accumulations during a term are wiped out by a shrinkage in the assets of the cor*257poration due to any reason, whether it be a loss of business, increase of competition, fire, flood, or legislation, as in this instance, the loss is that of the life tenant. The reason is that the life tenant has no title in or right to the surplus or accumulated profits until the corporation makes distribution thereof.
The losses of a corporation are first charged against the surplus of the corporation, and the corporation remains solvent so long as its original capital is not impaired. Losses do not impair the capital of a corporation so long as a surplus is available to meet such losses. Upon a liquidation of a corporation its first duty is to discharge its liabilities. Its capital stock is a liability. When its liabilities, including those represented by its capital stock, have been paid, the amount remaining may (though we think not necessarily) be considered earnings. So far as this case is concerned it may be so considered for the reason that no appeal has been taken from that portion of the judgment which directs the trustees to pay all proceeds arising from the liquidation over and above par value of the capital stock to the life tenant. In the instant case the corporation made no distribution of the earnings. Before the liquidation of the company the earnings had been lost through a shrinkage in values. It therefore had no earnings except whatever surplus was left after the discharge of its corporate liabilities. This surplus is directed by the judgment of the lower court to be paid to thfe life tenant. This is all to which the life tenant is entitled. This, we think, carries out the intention of the testator.
Referring to the rule which has been written into the jurisprudence pf this state, adverted to in the beginning of this opinion, to the effect that when an owner of stock conveys the same to another for a term without efficiently manifesting to the contrary the presumption of fact is that he intends the term owner to enjoy all the income incidents of the stock during such term, it should be stated as a corol-*258Iary that the presumption also is that in case of the liquidation of a corporation the remainderman shall receive the par value of the capital stock of the corporation before any distribution is made to the life tenant. It should not be forgotten that in this case the remainderman sustains a substantial loss even though he be paid the par value of the capital stock. At the time of the death of the testator the brewing company was a going concern. Its earning power was indicated by the fact that at the time of the death of the testator it had accumulations amounting to two hundred per cent, of its capital stock. Since that time it had earned and distributed earnings in the form of a stock dividend to the amount of one hundred per cent. Its intangible assets in the nature of good will must have been of great valuQ. This belonged to corpus. Miller v. Payne, 150 Wis. 354, 136 N. W. 811. The loss of this element of value, as well as the enhancement of the value of assets from sources other 'than an accumulation of earnings, falls entirely upon the remainderman. Miller v. Payne, 150 Wis. 354, at p. 378 (136 N. W. 811).
Our conclusion is that it was the intention of the testator that upon a dissolution of the corporation the remainderman should first be paid at least the par value of the capital stock and that the life tenant should participate only in the proceeds remaining thereafter. As the trial court awarded all of such earnings to the life tenant, she has no cause to complain of the judgment.
By the Court. — Judgment affirmed.