Court Opinion

ID: 3595665
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:43:09.396744+00
Date Added: 2024-06-11T07:45:33.348402
License: Public Domain

I think we should affirm the determination made below. The question presented by this appeal relates to the application by the trustee of a testamentary trust of a stock dividend and, in reaching a determination, the court below, unanimously, concurred in following the rule laid down by this court in the cases ofMcLouth v. Hunt, (154 N.Y. 179), Lowry v. Farmers' Loan Trust Co., (172 ib. 137), and Robertson v. de Brulatour,
(188 ib. 301).
Eugene La Grove, deceased, by will, gave his residuary estate to a trustee, in trust, to hold the same and "to collect the rents, issues, income and profits therefrom and to pay the net rents, issues, income and profits therefrom, quarterly, to my wife from the time of my death, during the term of her natural life." Upon the wife's death, the will provided for the division of the *Page 479 
principal of the trust among children of the marriage; or, in event of there being none, then, among such persons as would be entitled to share in the wife's estate, in case of intestacy, under the Statute of Distributions in this state. At the testator's death there were no children of his marriage. A portion of his estate consisted in 3,000 shares of the capital stock of the Singer Manufacturing Company. Within two years of the testator's death, the board of directors of the company declared a stock dividend of 100 per cent. and, thereafter, the trustee received from the company a certificate representing 2,920 shares of the new stock; eighty shares of the estate holdings having been sold. The findings of fact, with respect to the declaration of this dividend, were that it "was declared and paid out of accumulated net surplus;" that the "dividend did not intrench upon the capital" and that the "stock dividend represented income solely." It was found that the company had accumulated the surplus from which the dividend was declared, exclusively, from earnings made in the business and not from any disposition of the capital of the company. The question is whether the trustee should pay over the shares of new stock received by him to the beneficiary, or whether he should retain them in the trust.
The question should no longer be regarded as an open one. The cases, which the court below has followed, laid down a rule, which is precisely applicable to the facts in the present case, and when the question first came up for decision, in McLouth v.Hunt, (supra), its determination was imperatively demanded. It had become necessary that a rule should be established upon a fundamental principle and the members of this court agreed in that decision. Prior thereto, in the case of Riggs v. Cragg,
(89 N.Y. 479, 487), a decision of the question was not required; but Judge ANDREWS, speaking for the court, observed that the decisions upon the subject in other states and in England were conflicting and that *Page 480 
"it will be the duty of this court, when occasion arises, to seek to settle the question upon principle, and establish a practical rule for the guidance of trustees and others." The occasion did arise in McLouth v. Hunt, in 1897, and the question received elaborate consideration. We were aware that it had been considered in the Supreme Court of the state and that the view there taken differed from that taken by the English courts, by the Federal Supreme Court and by the Massachusetts Supreme Court; but, upon a consideration of the question, upon the cases and upon principle, it was determined that a stock dividend, which represents a disposition of accumulated earnings, or profits, belongs to the life tenant of the trust estate. In that case, the Western Union Telegraph Co., by a capitalization of accumulated earnings, made and retained in its hands from time to time, increased its capital stock from $86,200,000 to $100,000,000, and declared a stock dividend of ten per cent. to its stockholders, among whom were the plaintiffs, the testamentary trustees of a trust to pay over the full income to beneficiaries named. It was held that, while the corporation may convert earnings into capital, in so far as life tenants and remaindermen are interested in the question, it is not affected by the mere fact of the ownership of the earnings. In that case, the earnings, which were thus distributed, had accumulated for ten years; six of which preceded the death of the testator. It was considered by the court that the transaction of issuing to stockholders stock certificates against accumulated earnings "was, in substance, a distribution of profits." The question next arose, in 1902, in the case of Lowry v. Farmers' Loan  Trust Co., (supra). There the trust was to apply the rents, issues and profits to the use of beneficiaries named and the trustee received an extra stock dividend of fifty per cent. upon shares of stock of the Pullman Palace Car Co., held in the estate. The dividend had been declared and paid from the "accumulated net surplus at *Page 481 
the credit of income account" and this accumulation had existed, at approximately the same figure, for some years prior to the testator's death. The question was carefully considered in the light of the decisions and the rule enunciated in McLouth v.Hunt was followed, without dissent. It was held that, by the declaration of a stock dividend, the stockholders received the representative of income and not of capital. "That which the directors of the corporation distribute among its stockholders, without intrenching upon capital," it was said, "must be comprehended within the term `profits' and we should assume that the testator intended that what might be paid in that way should belong to the beneficiary. * * * It was, simply, a mode of distributing the profits earned by the employment of the capital." (p. 145.) Again, the question came up to this court inRobertson v. de Brulatour, (supra), in 1907, and was decided with deliberation. The trust in that case was to apply the income and profits of a fund created by the testator to the use of his widow. A cash dividend from an accumulation of surplus running over twenty-six years, eighteen of which preceded the testator's death, was made by the New York  Harlem Railroad Co. This dividend and a stock dividend declared by the Chicago, Rock Island  Pacific Railroad Company, and covering income during the testator's life, were adjudged to be income, payable to the beneficiary. The cases of McLouth v. Hunt and of Lowry v.Farmers' Loan  Trust Co., (supra), were approved as establishing the principle that dividends, which distribute accumulated earnings, should be treated as income and go to the life tenant. The portion of the opinion in McLouth v. Hunt
was referred to with approval, which held that where the rents, issues and profits of the trust estate were to be applied to the use of the beneficiary, stock dividends were comprehended within the term "profits." The question, which arose in Thayer v.Burr, (201 N.Y. 155), related to a distribution by the Adams Express Company *Page 482 
of bonds, by way of dividend among its stockholders. The trustee, in that case, received bonds proportionately to the shares of stock held in the trust created by the will. The rule established in the preceding cases was not questioned. It was held that, so far as the bonds distributed by the company represented actual earnings of the corporation, the life tenant was entitled to them and, so far as they represented, not corporate earnings, but, simply, the increased market value of securities owned by the company, that they should be held by the trustee for the remainderman. Finally, in 1912, the question came up in Matterof Harteau, (204 N.Y. 292). In that case, the testator, by his will, provided for the creation by his executors of a fund, from which they were to pay $1,200 a year to his wife, $600 a year to his sister and $400 a year to his niece. Upon the death of his widow, the sum of $35,000 was to be expended in the erection of a statue to Lafayette and "whatever sum may remain in the estate" was to be applied to certain benevolent, or charitable, institutions. The testator's widow survived the other two beneficiaries, the sister and the niece. Subsequently, a cash dividend of 100 per cent., payable out of the company's surplus, was declared by the Metropolitan Plate Glass Insurance Company, with the privilege to the stockholders of subscribing at par for additional stock to the extent of 100 per cent. of their respective holdings. Harteau's executors, holding shares of the company's stock, availed themselves of the privilege and received a dividend in new stock. The question was whether it was to be disposed of as capital, or income. The previous cases were not discussed; nor was their authority brought in question. The point for decision was, inasmuch as the dividend, whether taken as a whole, or as apportioned as of the time of the testator's death, "exceeded the aggregate of the annual payments directed by the will and an accumulation of it would be unlawful," whether it should go to the corporations *Page 483 
mentioned in the residuary clause, "as being the parties entitled to the next eventual estate," or to the estate of the deceased niece, as standing in that position. The decision was that the dividend should be apportioned, so that the increase of the surplus after the testator's death should be paid to the city on account of the legacy for the statue. There was no question as between life tenant and remainderman. Practically, as the dividend could not be paid to the annuitant, it all would go to the city, in time. By the decisions in McLouth v. Hunt, Lowry
v. Farmers' Loan  Trust Co. and Robertson v. de Brulatour,
the court has laid down a general rule; the correctness and authority of which have not been discussed, and, therefore, not affected, by the cases of Harteau and of Thayer v. Burr. There is nothing to distinguish the facts of this case, in the principle of decision applicable, from the facts of those cases; so far as the language of the will may be regarded. The widow is given the "rents, issues, income and profits" proceeding from the trust estate and that is as comprehensive as was the gift in the other cases. When the dividend is based upon a distribution of "profits" accumulated by the corporation, the rule established gives it to the life tenant. It would be a matter for grave regret, if the conclusiveness of our decisions, so advisedly and deliberately reached, could now be called in question. It was said by Chancellor KENT, and his words are quoted by Judge COOLEY in his work on Constitutional Limitations, (*50), "if a decision has been made upon solemn argument and mature deliberation, the presumption is in favor of its correctness and the community have a right to regard it as a just declaration, or exposition, of the law and to regulate their actions or contracts by it. It would, therefore, be extremely inconvenient to the public, if precedents were not duly regarded and implicitly followed. It is by the notoriety and stability of such rules that professional men can give safe advice to those *Page 484 
who consult, and people in general can venture to buy and trust, and to deal with each other." It is, in the highest degree, unwise and it reflects discreditably upon the stability of our decisions, when, having established a rule for the guidance of executors and trustees, we allow it to become the subject of doubt and of renewed discussion. What is there in the present case upon which to argue for a reversal of the rule we have established, except the extraordinary size of the dividend? Certainly, no new reasoning. But the size of the dividend was not considered to be an objection in Lowry v. Farmers' Loan Trust Co., where there was a stock dividend of fifty per cent., and it would be unfortunate, to say the least, to predicate upon that fact an argument for disturbing the rule, heretofore, deliberately adopted and declared by this court.
I, therefore, advise an affirmance of the order and decree appealed from.
CULLEN, Ch. J., WILLARD BARTLETT, CUDDEBACK, HOGAN and MILLER, JJ., concur with CHASE, J.; GRAY, J., reads dissenting opinion.
Judgment accordingly.