Bishop v. Bishop.

Prentice, J. Mary F. Bishop, as the life beneficiary of one of the trusts created by her mother’s will in a one fifth share of the latter’s estate, claims to be entitled to receive in her own right one fifth of both the Adams Express Company bonds and the Westinghouse Air Brake Company stock which came into the hands of the executors as original issues, whether or not they are to be regarded as income of the testatrix’s estate in that sense which would entitle her as fife tenant to share in their division. William D. Bishop, the life beneficiary of the trust similarly created in another one fifth, asserts a like claim. These two join with the cestuis que trust under the third trust created by the will, in asserting that the Express Company bonds are to be regarded as income of the testatrix’s estate in which they are entitled to share pursuant to the trust provisions of the will regulating the appropriation of income. The first of these two claims rests solely upon the language of the will, which, in the case of the two life beneficiaries first mentioned, provides that the trustee in the one pay over to the life tenant “the net amount of the increase, income, profits and interest” of the share, and in the other “the net increase, income, profit and interest.” An examination of the will shows that the testatrix, in seven different places in it, used language descriptive of the interest of life tenants, and that five different forms of expression were employed by her for that purpose. Twice it is simply “income”; twice “net income and profits”; once “net income, profits and interest ”; and once each the phrases already recited. In the directions to the executors as trustees, they are directed to collect “the income, profits and interest” of the fund in their hands; in those to the Knickerbocker Trust Company, it is directed to collect “the increase, income, *525 profits and interest.” In the case of each of the two trusts in question, in respect to which the more extended phraseology is used, the testatrix describes that which is given to the life tenants as “the life use” of the trust fund. The testatrix’s general scheme for the bestowment of her bounty evidences a distinct purpose to treat her five children and their children with equality, except so far as she was led to create ordinary trusts with respect to two of them and a spendthrift trust with respect to a third, with the natural incidents of such trusts. Wolfe v. Hatheway, 81 Conn. 181, 70 Atl. 645. It is thus evident from the will that the testatrix used the differing forms of expression noticed with no intent to create preferences or to discriminate between the several life beneficiaries, and that whichever of the formulae she used to express her meaning, she thereby intended to comprehend income as distinguished from principal, and that only. The life tenants place special emphasis upon the use of the word “increase.” In Brinley v. Grou, 50 Conn. 66, 77, we said that the phrase “the-rents, dividends, increase and income” meant no more in the will in litigation than “ income.” The same is equally true of the language here used. The second claim resolves itself into two propositions, to wit: (1) that the life beneficiaries under each trust are entitled to the benefit of' one fifth of' the net income of the testatrix’s estate from the time of her decease, and (2) that the Express Company distribution partook of the character of what is called a cash dividend, and is therefore to be regarded as income. “It is well settled in this State, as it is in many other jurisdictions, that 'where there is a bequest of the whole, or of an aliquot part, of the residue of an estate to a legatee for life, remainder over, and no time is -fixed by the will for the commencement of such life use, the legatee is entitled to the use or income of the clear residue so bequeathed, as the same may at last be ascertained, to be computed from *526 the death of testator.’ ” Webb v. Lines, 77 Conn. 51, 53, 58 Atl. 227; Bancroft v. Security Co., 74 Conn. 218, 222, 50 Atl. 735; Lawrence v. Security Co., 56 Conn. 423, 439,15 Atl. 406; Bartlett v. Slater, 53 Conn. 102, 106, 22 Atl. 678. This will contains no express provision upon the subject. If anytime other than that of the testatrix’s decease is fixed by it as that from which income for the benefit of life beneficiaries is to be computed, it results by implication from the facts that the executors were directed to divide the estate as soon after the testatrix’s decease as might be conveniently and lawfully done, that shares thus ascertained were given to the several trustees, and that it was either' the income thereof or sums set' out of such income which the trustees were either required or permitted to pay to the cestuis que trust. That these matters are not sufficient to raise an implication of a direction contrary to the general rule stated, clearly appears from the consideration given to this subject in Bancroft v. Security Co., 74 Conn. 218, 222, 50 Atl. 735. The life beneficiaries are therefore right in this branch of their claim. Preliminary to the question involved in the second proposition, is one as to the character of the Express Company. It was organized in 1854 under the statute laws of New York as a joint-stock association. It is an-association of individuals in the nature of a partnership and possessing the element of personal liability. The courts of New York have apparently had difficulty in defining the exact status and character of associations similarly organized. They have, however, said that almost the full measure of corporate attributes has been bestowed upon them until the difference, if there be one, is obscure, elusive, and difficult to see and describe. People ex rel. Winchester v. Coleman, 133 N. Y. 279, 31 N. E. 96; People ex rel. Platt v. Wemple, 117 N. Y. 136, 22 N. E. 1046. In Lockwood v. Weston, 61 Conn. 211, 215, 23 Atl. 9, we said of the shares of stock of similar associations, that for all practical purposes, and so *527 far as the question of taxation was concerned, we were of the opinion that they should be considered and treated as if they were shares of stock in private corporations. The same is equally true of the shares held by the stockholders of the Adams Express Company as representing their interests in the assets of the association, and as defining their relation to them and their rights resulting from the incidents of its management, in so far as any question here presented is concerned. The association has property devoted to and utilized in the conduct of its business which serves as its capital, and is called its capital, although the precise amount of it may not be easily ascertainable. The managers are authorized to declare dividends out of the profits to such extent as they may from time to time determine. There is no question about the existence of assets which would have justified the division to the shareowners of $24,000,000 out of accumulated profits and without encroaching upon anything which could be called its capital fund. The only question is whether such a division and distribution was made as to entitle life beneficiaries to its fruits. Into its determination there can enter no factor arising from the peculiar character of the Company to differentiate the situation in any essential particular from that which would be presented were it a true corporation. D’Ooge v. Leeds, 176 Mass. 558, 57 N. E. 1025. The general rule, subject, perhaps, to possible exceptions, is that persons having a right to the income of trust funds invested in stocks are entitled to the enjoyment of those dividends declared by the directors of the respective corporations which partake of the character of cash dividends, not including, however, those which may be so declared in the process of liquidation or reduction of capital, and that their rights are limited to such dividends. Smith v. Dana, 77 Conn. 543, 548, 556, 557, 60 Atl. 117; Boardman v. Mansfield, 79 Conn. 634, 637, 66 Atl. 169. Cash dividends, as that term is applied in this connection, include all distri *528 butions of the surplus assets of a corporation, whether the same be in the form of cash or property, which are made to shareholders pro rata through the medium of dividend declarations in such manner that the assets so distributed are aparted from the body of the assets of the corporation to become the property of the shareholders, and thus pass out of the dominion and control of the corporation into that of the shareowners. Boardman v. Mansfield, 79 Conn. 634, 639, 66 Atl. 169; Green v. Bissell, 79 Conn. 547, 552, 65 Atl. 1056. In the present case what the stockholders received in hand was the bonds of the corporation — its obligations, therefore, and not its assets. A money dividend declared creates a debt. Beers v. Bridgeport Spring Co., 42 Conn. 17, 25. It is quite possible, therefore, that it would not necessarily militate against the validity of a cash dividend declaration that it provided, as an incident of it, for the issue of evidences of indebtedness, provided that proper conditions and limitations were observed. It is unnecessary, however, for the purposes of this case, to determine this question, or to attempt to formulate the principles applicable to such a situation, since the conditions and limitations which must attend any such transaction in order that its character as a cash dividend declaration may be preserved, are here palpably absent. Such a dividend by a corporation can be declared out of surplus assets only. It will not be permitted to reach the capital. Davenport v. Lines, 72 Conn. 118, 128, 44 Atl. 17; Smith v. Dana, 77 Conn. 543, 553, 60 Atl. 117. The authority of the managers of this Company is expressly limited to the declaration of dividends out of profits, and no one would venture to assert, that their right to distribute all the assets of the association in the form of dividends declared, was greater than that of corporation directors to do the same thing. The bonds issued to the stockholders are its unlimited obligations. As such, they are a charge upon all the assets .of the *529 Company. Their holders are empowered, in case of need, to exhaust its entire property in their satisfaction, leaving the shareholders nothing to give value to their stock. Clearly a distribution of income or profits camiot be made to embody such contingencies, and as clearly, if it could, some adjustment of accepted principles would be necessary to protect the rights of remaindermen against those of life tenants. But the life tenants contend that the bonds are only one feature of a larger transaction, which must be looked at and judged as a whole. And they say that when the action of the Company which involved the issue of the bonds as one of its incidents is examined in its entirety and with a correct appreciation of the interrelation of the bonds and their collateral, and of the rights of the parties created by the trust indenture, it will be found that it presents all the essential- characteristics of a distribution of surplus assets such as satisfies the requirements of a cash dividend. Certain of the provisions of the trust instrument are pointed out in support of this position. The remaindermen, on the other hand, indicate several of its features as affording a demonstration that no asset of the Company has been set out to become the property of shareholders, and so aparted from its general assets as to pass out of its dominion and control into that of the shareholders. They insist that under the agreement there is no item of the Company’s assets concerning which it can be affirmed that shareholders now have or ever will have any control over it or property in it, or now have or ever will have a right to the proceeds of its sale either directly or indirectly. It requires no very careful examination of the trust deed to appreciate the force of this contention. But there is no occasion to pursue the line of inquiry thus suggested and thus cumulate reasons, since it is clear that there is nothing in the deed which serves to qualify or limit that provision of the bonds already noticed which makes them payable, in cuse of need, out of *530 any of the Company’s assets and thus a contingent charge upon all such assets down to the last penny of them. This condition being present, it cannot be said that the Company’s action which brought the bonds into the hands of the stockholders was one in the nature of the declaration of a cash dividend. Counsel for the remaindermen have attempted to fix the character of the transaction. It is suggested that it constituted either a reduction of capital and a return of a part thereof to the stockholders, or a capitalization of certain of the Company’s assets by the virtual creation of preferred stock. Another pertinent query would be whether or not it was anything more than it purported to be upon its face, to wit, an issue of the obligations of the Company secured by collateral, with certain unusual provisions as to rights in respect to the collateral and its appropriation reserved to the assignor or granted to the trustee or the bondholders. We, however, have no occasion to enter upon any of the lines of inquiry thus indicated. It is immaterial to the claim of these life tenants what the essential character of the transaction was, provided it was not the declaration of a cash dividend. As the life beneficiaries are entitled to share in the net income of the testatrix’s estate from the time of her decease, the administration account filed October 14th, 1907, in which there was no separation of principal from income items, is inadequate for all purposes. It serves to disclose the total amount of the estate and income funds in the hands of the executors, but does not reveal what, of that total is to be regarded as principal and what net income. A correct adjustment of the rights of the parties requires the ascertainment of these two factors of the total funds in hand, the first for the purpose of the division and distribution under article two of the will, and the second for the disposition of net income. To this end á separate accounting as to principal and income is necessary. In such *531 an accounting the Connecticut succession tax and New York State tax are properly chargeable to the principal account. The item for taxes paid to the city of Bridgeport is chargeable to the income account. As the one hundred and six shares of the Air Brake Company stock form a part of the principal of Mrs. Bishop’s estate, it is apparent that the division made of that stock proceeded upon a mistaken theory and resulted unjustly to the Russell T. Bishop share, and too favorably to the other shares. The partial distribution of personal estate filed January 28th, 1908, is to be interpreted as setting out to the Connecticut Trust and Safe Deposit Company, as trustee of the two shares of which Mary F. and William D. were the respective life beneficiaries, the items of property enumerated in the schedule of property assigned to each of these shares, including the Adams Express Company bonds, subject only to the condition attached to these bonds, that they be not judicially declared to be income. As that condition must fail, the transfer of the title to these bonds is to be regarded as having been equitably complete, carrying with it the right of the life tenants to enjoy the income thereof which has accrued since the date of the distribution. The Superior Court is advised to render its judgment of advice that both the one hundred and six shares, new issue, of the capital stock of the Westinghouse Air Brake Company, and the $40,000, par value, of Adams Express Company bonds, form a part of the principal of Mrs. Bishop’s estate; that the language of the trust provisions of her will whereby income is disposed of in favor of life beneficiaries comprehends the just proportion of the net income of her estate from the date of her decease; that the distribution of January 28th, 1908, was effective to set out to the Connecticut Trust and Safe Deposit Company, as trustee, the Adams Express Company bonds therein alloted to the two shares of which Mary F. Bishop and William D, *532 Bishop are the respective life beneficiaries; that these beneficiaries are entitled to the income which has accrued thereon since said distribution was made; and that the sum of $1,405.37 paid by the executors to the city of Bridgeport for taxes is to be charged by them against income, while the sums of $3,722.22 and $1,281.27 paid to the States of Connecticut and New York, respectively, are to be charged against principal. No costs in this court will be taxed in favor of any party. In this opinion the other judges concurred.