Heyn v. Fidelity Trust Company

Shehan, J., delivered the opinion of the Court. This appeal is from a decree of the Circuit Court of Baltimore City, directing how certain dividends, paid to the executors and trustees of the estate of Edward C. Heyn on securities and stocks forming a part of the estate, and owned by the testator at the time of his death, on July 28th, 1936; should be distributed or allocated to corpus and income. The suit involves the construction of the Act of the General Assembly of Maryland of 1929, chapter 495, and codified in section 305C of article 93 of the Supplement to the Code of Public General Laws, 1935, which is as follows: “305G. All rents, annuities, dividends and periodical payments in the nature of income, payable under the provisions of any will, deed or other instrument executed after the first day of July, 1929, shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect *643 of time accordingly, unless otherwise expressly stated by the instrument under which they are payable; but no action shall be brought therefor until the expiration of the period for which the apportionment is made.” Edward C. Heyn, by his will, after some formal directions, and certain specific legacies, devised the rest of his estate to the Fidelity Trust Company and Robert E. Heyn, as trustees, for his four children. The Fidelity Trust Company and Robert E. Heyn were named as executors in the will. In the trust estate there were securities and shares of stock, the allocation of the dividends from which, between corpus and income, is the subject-matter in controversy in this suit. The stockholders, under the charters of these companies, are entitled to dividends, but only when and as declared by the boards of directors of the respective companies, and this immediately brings us to the question whether the date of the declaration of the dividend or the record date of the holding of the stock should be taken in the apportionment or allocation of the dividends to corpus or income. This question was decided in Zell v. Safe Deposit & Trust Co., 173 Md. 518, 196 A. 298. It was there held that the date of the declaration should be the controlling date with respect to the allocation to corpus or income. In further considering the questions here presented, the appellants divide these stocks, for convenience, as did the chancellor, in his opinion, into certain classifications with respect to the character and kind of stock and the nature of the dividends declared, and this division was substantially followed by the appellees in their argument, and, for convenience, we will make the same division herein, although not in the same order. First, testator held, prior to his death, shares of common stock, on which irregular dividends had been paid for a considerable period of time prior to hi's death and on which a dividend, since that time, has been declared and paid. Under this division the deceased held common stock in the United Corporation and, after his death, a *644 dividend of twenty cents was declared, payable on December 18th, 1936. Second, common stock on which dividends have been paid at regular intervals, both before and after the death of the testator. On shares of American Gas & Electric Company, North American Company, E. I. duPont deNemours & Co., Mid-Continent Petroleum Company, and Commercial Credit Company, regular dividends were paid at regular periods, both before and after the death of the testator. Third, shares of stock on which no dividends have been paid since the death of the testator. This applies to the Allegheny Corporation, Maryland Casualty Company, Manufacturers Finance Company, Baltimore Transit Company, and B. Y. D., Inc. Fourth, cumulative preferred stock, on which no divi- • dends had been paid for a time prior to the testator’s death, but on which one or more dividends have been paid thereafter. Under this division there was held 6% preferred stock of B. V. D., Inc., the Delaware corporation. There seem to have been no earnings on these shares of stock, but there was a paid in capital surplus, and, out of this, a quarterly dividend was paid for the first quarter of 1923, and thereafter no dividend was paid until December 21st, 1936. The resolution of the board of directors, authorizing this dividend, provided that the dividends so paid should be for the period commencing December 31st, 1931, and ending November 30th, 1932. It is claimed that the operation of this company had always shown a net loss, although the capital surplus was sufficient for the purpose. Fifth, shares of cumulative and noncumulative preferred stock, upon which full dividends have been paid at regular periods, both before and after the death of the testator. Under this classification, the testator held preferred stock of the General Motors Corporation, American Smelting & Refining Company, Consolidated Gas Company, and others. Some of these stocks are cumulative and others noncumulative, but it appears that *645 full, regular, quarterly dividends have been paid thereon, both before and after the death of the testator. Sixth, preferred stock on which no dividends have been paid since the death of the testator. Here there were shares of cumulative second preferred stock of the Manufacturers Finance Company, on which no dividends have been paid since the death of the testator. No other history of this company’s earnings and dividends seems to appear in the record with respect to these shares. Considering these classes of stocks, and dividends thereon, in the order above designated, it is apparent that the facts with respect to the first classification raise the same question as is presented in the case of Zell v. Safe Deposit & Trust Co., Executor, supra. When Edward C. Heyn died, he left, among other securities, shares of stock in the United Corporation on which no dividends had been declared for several years prior to his death. After his death, a dividend was declared, payable on December 18th, 1936. The chancellor ruled, adhering to the decision of the lower court in the Zell case, that there should be an apportionment as to this dividend, and it should be made on a basis of the number of days between the date of the last dividend prior to the testator’s death and the date of this dividend. The portion of the period prior to his death should determine the amount payable to corpus, and the portion of the period subsequent to his death Should determine the amount of income. Thus the Act of 1929, eh. 495, supra, was construed. It is our opinion that the chancellor erred, for the reasons stated by this court in the Zell case, and which need not be here repeated, and this dividend was entirely income. The contention of the appellant, that apportionment between corpus and income should be based on the dividend period fixed by the charter or by the customary practice of the corporation, and not the period beginning with the record date of the last dividend prior to the death of the testator, is sound in principle. What we have said applies generally to dividends on preferred *646 stock and on cumulative preferred stock. All are included in the broad language of the act, “all * * * dividends and periodical payments in the nature of income.” They do not accrue until declared, as is the case with the dividends on common stock. The rule is well stated in the English case, by Sterndale, M. R., In re Wakley, 2 Ch. 205, as follows; “ * * * In respect of the time with reference to which dividends are paid, there is no difference between a cumulative preference and an ordinary dividend. Each is a dividend for the year or other financial period of payment: that the preferred dividend is preferential, fixed, and cumulative means only this, that these are the factors by which the priority and the amount of the share of the dividend fund appertaining to the pref erence shareholder are ascertained.” And a similar analysis was made in Crozer’s Estate, 27 Pa. Dist. & County Rep. 179. The classes of stock here involved are common, preferred, and cumulative preferred stock. In none of these classes, under the facts here presented, does there seem to be any reason for a distinction in regard to the allocation of dividends. There is no special provision in the instrument, or in the charter under which they are declared, nor any extraordinary conditions relating to the dividend, as in Thomas v. Gregg, 78 Md. 545, 28 A. 565. See also, Baldwin v. Baldwin, 159 Md. 175, 150 A. 232, and Spedden v. Norton, 159 Md. 101, 150 A. 15, and Ex Parte Humbird, 114 Md. 627, 629, 80 A. 209. The mere classification of stock does not warrant a construction or inference to the contrary. Preferred stock ordinarily yields income with certain preferences over common stock, and cumulative stock has advantage with respect to both common and preferred stock, but these are only incidents relating to their classification, and have no special significance, when considering only their dividends, in the application of the rule prescribed in the Act of Assembly under consideration. A dividend on preferred stock, as on common stock, does not become due and payable until it is declared, and no obligation is created until such action *647 of the proper officers of the corporation is taken. With respect to cumulative preferred stock, the accumulations over the periods are preserved and paid out to stockholders in preference to common and preferred stock, but these are all income within the meaning of the statute and are intended to be treated the same in their allocation to corpus or income. We are primarily dealing with allocations of dividends with respect to income and corpus, and the statute provides that “all dividends” are included, and not with the respective preferences of the holders of classes of stock that the corporation has seen fit to create. In Crozer’s Estate, supra, the statement is made, with supporting authority, that: “The fact that the dividend is paid on preferred stock makes no difference in the application of the rules, so long as the transaction was in good faith with no intent to take advantage of the owner in remainder.” And further, that: “If dividends on cumulative preferred shares have not been paid for some time prior to the creation of the trust and are subsequently declared and paid during the period of the trust, whether or not out of earnings accruing prior to the creation of the trust, the dividends so paid are income.” With these principles in view we approach the second classification above made. Here there had been regular dividends both before and after the death of the testator,' and it is obvious that such as were declared before his death should be allocated to corpus and such as were declared for the period after his death should go to income, and such dividends as were declared for a period beginning before his death and ending after death should be considered like interest accruing from day to day, and so apportioned over the period. With respect to the third classification, no dividends have been declared since the death of the testator, and therefore there is no question presented here for our consideration, because such dividends as may have been declared prior to his death obviously belong to corpus. The fourth classification presents some difficulty. The *648 lack of earnings, the presence of a paid-in capital surplus and the statement in the dividend declaration to the effect that the dividends so declared should be for the period commencing December 31st, 1931, and ending November 30th, 1932, establishes a definite period. This period began and ended before the death of the testator, and if there was nothing more, and if we are to regard the statute in this respect as meaning literally what it says, and the declaration of the dividend as meaning what it says, then it follows that this must be regarded as income within the meaning of the statute. On the other hand, this payment is out of paid in capital surplus and not out of earnings, and is therefore a distribution of capital, in the nature of a liquidation dividend, and it is contended that the statute refers not to capital, but to income from capital, and the surplus capital, through the increase in the value of the stock, augments the estate, and this dividend merely takes out of the corpus something that belonged to the deceased at the time of his death, and to that extent lessens the value of his estate as it existed at that time, and should, therefore, belong to his estate as corpus after his death. This seems to be the correct view. It cannot be regarded as a periodical payment in the nature of income, and, as interest accruing from day to day, therefore this entire amount should be regarded as corpus, and no part thereof as income. Thomas v. Gregg, 78 Md. 545, 28 A. 565; Zell v. Safe Deposit & Trust Co., supra. In Ex Parte Humbird, 114 Md. 627, 629, 80 A. 209, 212, this court said: “The origin and character of the fund out of which the dividend is paid is the controlling subject of inquiry. If it i's found to represent earnings, it will be held to be income; but, if it is an appropriation of capital, it belongs to the corpus.” The Supreme Court of Pennsylvania, in Re Opperman’s Estate, 319 Pa. 455, 179 A. 729, 732, said: “We find that dividends were declared and paid from a surplus brought about by a reduction in capital stock. Hie distribution of this fund to shareholders by dividend *649 was a return of contributed capital by corporate action. It was an unusual circumstance, and having been paid as a dividend its allocation to corpus was beyond question.” In the fifth classification, shares of cumulative and noncumulative preferred stock were held, upon which regular quarterly dividends were paid at periods both before and after the death of the testator. There seems to be no question in this classification. The dividends paid before the death of the testator became a part of his estate and were, therefore, corpus. Dividends for the current period in which his death occurred should be allocated, under the statute, to corpus and income, and dividends paid for a period beginning and ending after his death should be regarded entirely as income. The sixth classification presents no question for our consideration. There were shares held by ‘the testator of cumulative second preferred stock, on which no dividends had been paid since the death of the testator, and no history of the company’s earnings or dividends appears in the record. We are, therefore, not called upon to pass upon any question in relation thereto. It should be stated, with regard to these several classes of stock, that there is no relation of debtor and creditor between the corporation and preferred stockholders or cumulative preferred stockholders until the declaration of the dividend, when, in consequence of the declaration, the obligation of debtor and creditor does arise. This question has been well considered in Crozer’s Estate, supra; and in Mitchell v. Liberty Clay Products, 291 Pa. 282, 139 A. 853, 855, it was said: “Preferred stockholders are members of the corporation, not its creditors. ‘Formerly it was a matter of doubt and discussion whether or not a preferred stockholder had any rights as a creditor of the company or was confined to his rights as a stockholder. The law is now clearly settled 'that a preferred stockholder is not a corporate creditor.’ ” It must, therefore, follow that the relation of debtor and creditor does not arise between the corporation and *650 a stockholder of any of these classes until the dividend has been declared. Having fully expressed our views with regard to the many problems presented on this appeal, the decree will be reversed in part and affirmed in part, as above indicated, and the case will be remanded for the passage of a decree in conformity with the views herein expressed. Decree affirmed in part and reversed in part, and case remanded for the purpose of a decree in conformity herewith; costs to be paid by the appellees. Offutt, J., delivered for the Court the following additional opinion, after reargument. Reconsideration of the conclusion announced in this case, Heyn v. Fidelity Trust Company, that a cash dividend declared subsequent to the death of the testator on the cumulative preferred 6% percent stock of B. V. D., Inc., was in the nature of a liquidating dividend and a distribution of capital rather than of earnings, requires a more elaborate statement of the factual background on which the. conclusion rested than is found there. Edmund C. Heyn died on July 28th, 1936, leaving a will dated January 8th, 1930, in which he bequeathed to the Fidelity Trust Company the residuum of his estate in trust, to pay the income therefrom (1) to the education, maintenance and support of his four children, until respectively they reach the age of twenty-one years (2) thereafter to pay to “such child” if male, the income from one-half of his share until he arrives at the age of thirty years, then to distribute to him one-half of his share absolutely, (3) to pay to him the income on the remaining half until he reaches the age of thirty-five years, and then to distribute to him that half absolutely, (4) in the case of the daughters to pay to each for her life the income from her share. Each child is given the power to dispose of his or her share by will, but failing such disposition the share given to each child is to go *651 to his or her descendants, and failing descendants to the survivors of the four children and their descendants per stirpes. The executors of the will in their distribution account distributed in kind to the trustee as a part of the share of each child 171 shares of cumulative preferred 6^/2 per cent stock of B. V. D., Inc., six shares cumulative preferred 7 per cent stock of the United States Steel Corporation, and eight shares cumulative preferred 7 per cent stock of Manufacturers Finance Company, which the testator owned at his death. Dividends on the preferred stock of B. V. D., Inc., were paid for the first quarter of 1932 and thereafter passed until December 14th, 1936, when a dividend of $6.50 per share was declared “for the period commencing December 1st, 1931, and ending November 30th, 1932,” payable December 21st, 1936, to stockholders of record at the close of business on December 18th, 1936. Another dividend of $6.50 on each of such shares was declared after the distribution account was filed, payable August 21st, 1937. The United States Steel Corporation paid a dividend on its preferred stock on November 29th, 1935, of fifty cents per share, at which time dividends, which if declared would have aggregated $15.00 per share, remained unpaid. On August 1st, 1936, it paid a dividend of $1.00 per share on account of such dividends, on November 2nd, 1936, its regular dividend of $1.75 per share and $2.00 per share on passed dividends, on December 1st, 1936, a dividend of $7.00 per share on passed dividends, and on January 30th, 1937, a dividend of $1.75 per share on passed dividends. A dividend on the preferred stock of the Manufacturers Finance Company was paid on July 13th, 1936, and after the death of the testator other dividends were paid, the aggregate of such payments, however, being less than the aggregate of payments of dividends on preferred stock at its regular rate would have been if they had been declared. *652 B. V. D., Inc., is a holding, company, which upon its organization in 1929 acquired the securities and stock of certain subsidiary corporations. The value of the property of the subsidiary companies fixed by an appraisal for the consolidation exceeded the par value of the common and preferred stock of B. V. D., Inc., and that excess was carried by it as a “paid-in capital surplus,” and “actually came from the earned surplus eventually of the constituent companies.” The history of its operations is indicated in this table: “Year Ended Operating Profit Loss Dividends Accrued Cumulative Accrued Dividends 8/31/30......... 28,502.09 8/31/31.________ 477,961.24 8/31/32......... 985,729.30 253,968.00 253,968.00 8/31/33......... 382,538.16 201,680.37 455,648.37 8/31/34......... 349,512.76 260,370.51 716,018.88 8/31/35......... 36,126.22 260,370.50 976,389.38 8/31/36......... 468,006.32 260,370.50 1,236,759.88” In the fiscal year ending August 81st, 1930, dividends in the amount of $218,332.29 were paid, in the year ending August 31st, 1931, dividends in the amount of $338,-972.30, and in the year ending August 31st, 1932, dividends in the amount of $84,630.00. In August, 1937, a further dividend of $6.50 per share on its preferred stock was declared for the period commencing December 1st, 1932, and ending November 30th, 1933, and paid from net profits realized in the preceding fiscal year. The company’s charter provided for an issue of 75,000 shares of cumulative preferred 6% per cent stock having a par value of $100 per share and 50,000 shares of common stock having no par value. That capitalization was subsequently reduced to 50,000 shares of preferred and 25,000 shares of common stock. Its charter provided that dividends not exceeding 61/2 per cent on its preferred stock might, in the absolute discretion of its directors, be declared from the net profits of the corporation, payable, if declared, on the first day of June, September, December and'March, should be paid before *653 any dividends were paid on the common stock, and that such dividends on the preferred stock should be cumulative, and that accumulations of undeclared and unpaid dividends on preferred stock should be paid before any dividends were paid on the common stock. The table shown above indicates that for the period beginning August 8th, 1930, and ending August 31st, 1936, the corporation earned in profits $1,228,559.33, and lost $1,499,816.76, that is, over that period it lost $271,-257.43 more than it earned. In the same period, but including the dividend declared in December, 1936, it paid in dividends on its preferred stock $902,305.09, so that its net loss over the period of $271,257.43, and the aggregate amount of the dividends paid, must have come from surplus accumulated before the trust. It appears to be conceded that the United States Steel Corporation for some time prior to the testator’s death and since then earned net profits sufficient to have paid current dividends on its preferred stock, and that its surplus earnings accumulated at the testator’s death were sufficient, or nearly so, to have covered its payments on account of passed dividends. There is nothing in the record to indicate the source of the dividends paid since the testator’s death on the preferred stock of the Manufacturers Finance Company, although it does appear that when such dividends were paid earlier dividends had been passed. Out of these facts several questions arise: One, does Code, art. 93, sec. 305C (Acts of 1929, ch. 495) known as the Apportionment Act, control the apportionment of dividends, declared after the death of the testator, on the cumulative preferred stock of the three companies above described? Two, are such dividends allocable to corpus, to income, or ratably to each (a) if the act does apply, (b) if it does not apply? Three, if such dividends may be apportioned, what must be the basis of the apportionment ? The statute provides: “All rents, annuities, dividends and periodical payments in the nature of income, payable *654 under the provisions of any will, deed or other instrument executed after the first day of July, 1929, shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect of time accordingly, unless otherwise expressly stated by the instrument under which they are payable; but no action shall be brought therefor until the expiration of the period for which the apportionment is made.” Code, art. 93 (1935 Supp.) 305C. The chief difficulty in applying that language literally to dividends declared after the death of the holder on stock given by him in trust for successive beneficiaries lies in the irreconcilable difference between dividends and such income as rents and annuities. Rents and annuities are payable ordinarily under the terms of some contract which at once establishes a contractual relation between the parties, under which, while the sums to be paid thereunder may not become payable and due until the occurrence of a predetermined date, they must inevitably eventually become payable, and because of the fixed and certain character both of the payments and of the time when they must be made they may be readily and precisely apportioned. Dividends on the other hand do not accrue, or become due or payable, until declared (13 Am. Jur., Corporations, sec. 683), and until declared no relation of debtor and creditor arises between the stockholder and the corporation in respect to them {Ibid), for until declared they do not exist. Now the words “dividends and periodical payments,” used in the English Apportionment Act, apparently refer to dividends which are paid at regular intervals or periods, because the word “other” also qualifies “rents and annuities” which are commonly so paid. The question is whether a dividend becomes due and payable upon the incidence of such a period or date when no dividend has been declared. The Maryland Apportionment Act is substantially identical with the second section of the English Apportionment Act of 1870, omitting the section of that Act *655 which defines “dividends.” But in respect to the second section of the English Act Jessel, M. R., a very sound lawyer, in Carr v. Griffith, 12 Ch. 661, said that if the Act had stopped with that section it might well have meant dividends payable periodically. But, applying the definition, he decided that under the statute dividends whether paid at fixed times or otherwise were apportion-able. It is true that the facts of that case were peculiar and that what was called stock partook more of the nature of a debenture, and that what was called a dividend was more in the nature of interest at a fixed rate, because it was payable quinquennially at the rate of five per cent on the amount paid up on the shares, out of earnings or capital. In Re Sale [1913] 2 Ch. 697, a testatrix died in September, 1909, leaving a will in which she bequeathed in trust for a life tenant 375 five per cent cumulative preferred shares of a certain corporation. A dividend of two per cent on that stock was declared for the year ending January 31st, 1909. Thereafter no further dividends were declared until the so called “arrearages” amounted to two hundred and fifty pounds, and in that period of accumulation the corporation had set up a large sinking fund. The life tenant died in 1912, and at her death her executors claimed that they were entitled to those arrearages out of any future preferential dividends. In deciding that question it was said that In re Griffith, supra, merely decided that a quinquennial bonus fell within the description of a dividend defined in the Apportionment Act of 1870, section 5, and that “The resolution creating the cumulative preference shares is in common form and the articles provide for the declaration of dividends in the usual way out of profits and for the creation of a reserve fund at the directors’ discretion. * * * The life tenant had no right to a fixed dividend charged on profits in any event. She had merely a right to a preferential dividend as and when the directors of the company chose to declare it, and no dividend for any part of the life tenancy period was in fact earned or *656 declared. The remaindermen also relied on In re Armitage [1 893] 3 Ch. 337, where Lindley, L. J., said: ‘What does a man mean when he leaves shares to a tenant for life ? He means that that tenant for life shall have the income arising from the shares in the shape of dividends or bonuses declared during the lifetime of the tenant for life. He does not mean that the tenant for life shall receive profits in any other sense.’ That passage is applicable to the present case. On the true construction of the will the testatrix in my judgment intended that on the life tenant’s death the shares and all dividends declared for periods subsequent to that date should belong to the remaindermen absolutely.” In Re Taylor’s Trusts [1905] 1 Ch. 734, it appeared that by an indenture of settlement certain funds were settled upon trusts in favor of a Miss Hilda Nora Grace Matheson in contemplation of her marriage, that the schedule included certain bond certificates, part of an issue secured by a second mortgage on the property of a Mexican railroad company, containing a promise to pay interest at six per cent when and as earned, the payments to be cumulative but to be payable only from net profits remaining after payment of interest on the obligor’s first mortgage bonds. Some of the bonds were sold from time to time, and eventually those that remained were sold for twenty-seven hundred pounds, and at the time they were sold there was a substantial amount of interest in arrears and unpaid on them. After the sale Miss Matheson, who had married, died, and the question arose as to whether her executor was entitled to any part of the twenty-seven hundred pounds. Denying any such right the court said: “It all turns on this—that there is no obligation in this instrument to pay interest in any event; there is only an obligation to pay interest out of a fund, and there is no obligation to pay until there is such a fund; and if there be not such a fund during the existence of the tenancy for life, then the tenant for life, as it appears to me, is not entitled to any interest. *657 “Under those circumstances, it seems to me, the tenancy for life, which came to an end on May 22, 1902, down to which date there was no fund, is not entitled to anything in respect of income. “Therefore, the sum which has been received for purchase-money is not apportionable.” In Re Wakley [1920] 2 Ch. 205, the question was whether the Apportionment Act applied to dividends, paid upon shares held by the testator, declared after his death in a resolution allocating them to a period in the testator’s life time when no dividends were declared or paid. The stock was cumulative and preferred, but no dividends were payable thereon except from profits. Holding that the Act did not apply, Lord Sterndale, M. R. said: “If the declaration be, as I think it is and must be, in respect of the year in which divisible profits exist, the Apportionment Act does not apply to the dividends so declared. I ought to notice the argument placed upon the word ‘arrears.’ It is a convenient expression, and is often used in cases of this description, but it cannot be taken as meaning arrears in the strict sense of the word, which I ‘take to be sums of money in respect of which the date of payment has passed, for, as I have already pointed out, no dividends were due or payable in the earlier year, because the conditions essential to payment had not been performed. So far I have dealt with the matter apart from authority, but there is authority in favor of the view which I have expressed.” And to the same point Lord Justice Warrington: “It follows that when profits are available and the company determines to distribute them, it is the shareholder who is then entitled to the shares who takes the dividend, and not the person entitled to them in past years, though the dividend may in the case of cumulative dividend be large enough to cover the amount which would have been paid in past years if there had been profits available, but which was not paid because there were no such profits.” *658 See also Marjoribands v. Dansey [1923] 2 Ch. 307, and In re Sandback [1933] Ch. Div. 505. It is a sound and a familiar principle of statutory construction (that the meaning given to a statute by courts of the jurisdiction in which it was first enacted should be given great weight, and where they are consistent with reason and sound logic may be accepted as controlling. Lavender v. Rosenheim, 110 Md. 150, 156, 72 A. 669; Zell v. Safe Deposit & Trust Co., 173 Md. 518, 196 A. 298. If the reasoning of these cases in respect Ito the English Apportionment Act is accepted as sound, the Maryland Act would not apply to an irregular dividend such as that under consideration, declared after the death of the donor, settlor, or testator, but only to dividends declarable on stock on which dividends have been paid at fixed intervals, or where the stock is sold during the life of the trust in such a period, or where the holder of a succeeding interest takes in a dividend period on the termination of a preceding interest. In re Wakley, supra, 212. In this case dividends on the cumulative preferred stock were, if payable at all, payable under the company’s charter at certain fixed dates regularly recurring. But they were not payable at all until declared, and in fact ¡they were not paid at the specified times but irregularly, nor was the company under any obligation in respect to their payment, other than to pay no dividends on its common stock until it should first have paid all dividends which would, if declared, have been payable in and for past periods. Any different result would require the assumption of a wholly fictitious regularity in the payment of dividends on the stock, when it is undisputed that there was no such regularity. Assuming that the statute does not apply to such dividends, we are remitted to what may be called the common law for a rule for the determination of the rights of successive beneficiaries to the income from trust funds realized from such dividends as that declared *659 in December, 1936, on the cumulative preferred stock of the B. V. D. Inc. There are varying views as to what that rule should be, so that what is accepted as just and equitable in one jurisdiction may be regarded as inequitable and unsound in another, so that the rights of beneficiaries seem to depend upon geography rather than logic. It is pointed out in an ably prepared and exhaustive note in 86 University of Pennsylvania Law Review, p. 765, that there are three rules having some support, The Pennsylvania rule, the Massachusetts rule, and the Kentucky rule. But it cannot be said that the courts of any state have been wholly consistent in applying any of these rules. In that state of the law we are constrained to accept that rule which is most nearly in harmony with the past decisions of this court. In Thomas v. Gregg, 78 Md. 545, 28 A. 565, the court, after a careful and extensive examination of the cases, adopted the principles implicit in the Pennsylvania rule as stated in Earp’s Appeal, 1857, 28 Pa. 368. In Thomas v. Gregg, supra, a testator bequeathed in trust for the benefit of his daughters for life, and at their death to their issue, railroad stock upon which after his death a stock dividend was declared out of earnings, part of which had accumulated prior to the testator’s death. Following Earp’s Appeal, supra, the court held that where the dividend was payable out of earnings, whether payable in stock or in cash, it should be distributed to the life tenant or remainderman accordingly as it was paid from the surplus accumulated before or after the testator’s death. In the course of the opinion it is said (page 568) : “When it is possible for the court to ascertain to any certainty whether the distribution in the stock dividend includes net earnings, and, if so, what proportion, and also whether such earnings were intended to be made a part of the capital, or merely to be used temporarily, with the intention on the part of the directors of refunding them to the shareholders as income, we think it is the duty of the court to make such investigations and dispose of the stock in an equitable way *660 between the tenants for life and the remaindermen,” and later:—“It is clear that the testator desired his daughters to get the benefit of the income of all his property, and it is equally clear that the company intended to compensate the stockholders for the loss of the income of a definite period, used by them, by declaring a dividend to cover that period, viz. ‘the period ending September 30, 1891’.” In that case one of the life tenants died leaving, to survive, her sister. The dividend was declared after the death of the testator but during the joint lives of the life tenants. It was held that as between them and the remaindermen it should be apportioned. The stock was bequeathed in trust for the “sole and separate use and benefit” of the daughters rather than the income from the stock. In Earp’s Appeal, supra, a testator bequeathed the residue of his estate in trust to collect the rents, income, and interest and. pay it in certain proportions for the use of his children. Included in the estate was stock of a manufacturing corporation which had accumulated prior to the testator’s death a large surplus, out of which after his death it declared a stock dividend. There it was held that the surplus accumulated during the testator’s life was capital and part of the stock itself and belonged to the corpus of the estate, but that so much as accumulated thereafter was income. That result was based in part on the fact that the bequest was not of the stock itself, but of the income therefrom, and in the course of the opinion it was said: “where the profits of a manufacturing or banking corporation have been accumulating for many years, until the market value of the stock is more than double its original price, and the owner dies, directing the ‘income’ of his estate to be applied to particular objects for limited periods, these extraordinary accumulations are as much a part of his capital as any other portion of his estate, and must, tfierefore, be regarded as forming a part of the principal from which the future income is to arise.” In Quinn v. Safe Dep. & Tr. Co., 93 Md. 285, 48 A. *661 835, it was held that an extraordinary dividend declared after the death of a testator on stock which he had bequeathed in trust, out of profits which had accumulated during his life, as a sinking fund, but which through an event happening after his death became available for dividends, belonged to the life tenants. Comparing these two cases, it is apparent that in Thomas v. Gregg, supra, it was held that dividends paid out of earnings accumulated in part prior to the death of the testator but declared after his death were, as between the estate and the life tenants, apportion-able, while in Quinn v. Safe Dep. & Tr. Co., supra, it was held that a cash dividend, out of funds accumulated before the testator’s death, where not declared until after his death, went to the life tenant as income. In the Northern Central Dividend Cases, 126 Md. 16, 94 A. 338, the directors of a railroad company voted an increase of its capital stock in order to pay a stock dividend to its stockholders to reimburse them for their failure to receive dividends out of past earnings, which had been applied to betterment of the company’s property rather than to dividends. It was held, as between the life tenant and the remainderman under a trust, the dividend should be treated as income or corpus accordingly as the earnings out of which it was payable accrued before or after the death of the testator. The court, in stating that conclusion, said (page 28): “Our conclusion, based upon the action of the directors and stockholders of the company, is that the stock dividend of 40 per cent., like the other dividends in the case, is income.” “The next question is: How are these dividends to be apportioned between the life tenants and remaindermen? The rule of apportionment is well established in this state by the cases of Thomas v. Gregg, 78 Md. 545, 28 A. 565; Quinn v. Safe Dep. & Tr. Co., 93 Md. 285, 48 A. 835; Atlantic Coast Line Dividend Cases, 102 Md. 73, 61 A. 295; Coudon v. Updegraf, 117 Md. 71, 83 A. 145; Ex parte Humbird, 114 Md. 627, 80 A. 209; and Foard *662 v. Safe Dep. & Tr. Co., 122 Md. 476, 89 A. 724. In. Thomas v. Gregg, supra, it was held that a stock dividend representing earnings devoted to betterments will be apportioned 'between life tenants and remaindermen, where earnings accruing during the life estate are included in the income; and in Quinn v. Safe Dep. & Tr. Co., supra, it was held that a cash dividend goes to the life tenant without regard to the time when the earnings or income accrued.” In Ex parte Humbird, 114 Md. 627, 80 A. 209, it was held that where a life tenant is entitled to the income from the stock of a corporation, and that corporation sells part of its property and distributes the proceeds in cash as a dividend that the dividend is to be treated as corpus. In Foard v. Safe Dep. & Tr. Co., 122 Md. 476, 89 A. 724, testator bequeathed stock in a corporation in trust for his wife during her life and at her death to his daughter. After his death the corporation declared a dividend of 100 per cent to be paid from the proceeds of the sale of securities in which, surplus profits accrued prior to his death had been invested. The question was whether they should be treated as income or corpus. In deciding that the dividend should be treated as corpus, and in stating that conclusion, the court quoted with approval this statement in Smith’s Estate, 140 Pa. 344, 21 A. 438: “It is well settled in this state that, when the stock of a corporation is by the will of a decedent given in trust, the income thereof for the use of the beneficiary for life, with remainder over, the surplus profits, which have accumulated in the lifetime of the testator but which are not divided until after his death, belong to the corpus of his estate; whilst the dividends of earnings made after his death are income, and payable to the life tenant, no matter whether the dividend be in cash, or scrip, or stock.” (Page 725). See also Coudon v. Updegraf, 117 Md. 71, 83 A. 145. In the Atlantic Coast Line Dividend Cases, 102 Md. 73, 75, 61 A. 295, the directors of a railroad company *663 declared an extra stock dividend on stock held by a trustee in trust to pay to a life tenant the rents, issues, income and profits and interest of the property and all increase thereof, with remainder over to others. The resolution declaring the dividends recited that the “surplus net earnings” of the company justified the payment of the dividend, and it appeared that that surplus was earned during the period of the trust. It was held that the dividend was income. In Washington County Hospital Assn. v. Hagerstown Trust Co., 124 Md. 1, 91 A. 787, it was held that a dividend declared from the proceeds of the sale of corporate property made in the ordinary course of its business, which was to buy and sell such property and distribute the profits as dividends, was income. In Miller v. Safe Dep. & Tr. Co., 127 Md. 610, 96 A. 766, it was held that the reason for appropriating to the corpus of a trust estate a dividend from profits earned but not distributed during the donor’s life did not apply to a dividend based on corporate profits earned during the trust period. In Baldwin v. Baldwin, 159 Md. 175, 150 A. 282, a trustee holding funds for a tenant for life with remainder over bought for the trust estate shares in a bank at $500 per share. At that time the book value of the shares was $889. Later it declared a stock dividend which had the effect of reducing the book value of the shares to $322.50. The award of the entire dividend to the life tenant would have had the effect of lessening the book value of the shares held for the corpus to the extent of $67.50 per share. The question was whether the dividends should be awarded to the life tenant, to corpus, or apportioned. In dealing with that question Judge Umer for the court restated the rule in these words (page 283) : “It is a recognized general rule in this state that the disposition of extraordinary dividends from earnings, whether declared in cash or in stock, will depend upon the time when the funds used for the dividends were accumulated. If they were earned before *664 the trust began, or before it acquired stock in the corporation, the dividends are held to belong as a whole to the corpus. If the dividend funds were altogether earned after the inception of the trust, or its investment in the stock, then the dividends in their entirety go to the tenant for life’. But when the earnings represented by the dividends accrued partly before and partly after the trust or its interest in the stock originated, the dividends are apportioned between the life estate and the remainder according to the ratio of the earnings in the respective periods just indicated.” The court also quoted and approved this language from In re Nirdl inger’s Estate, 290 Pa. 457, 139 A. 200, 56: “Under the Pennsylvania or American rule adopted in most American jurisdictions, the rights of the life tenant and the remainderman to an extraordinary cash or stock dividend declared during the life tenancy are determined by a division of the dividend between the claimants so as to preserve intact the book value of the devised property (the corpus) as it existed at testator’s death. This was made clear by the decision in Earp’s Appeal, 28 Pa. 368, long recognized as a leading authority. The effect of the rule is to give to the life tenant the income which has been earned since the trust came into being, but, at the same time, to preserve the value of the corpus as it was at the date of the death of the testator, or, to use a more convenient term, to preserve the intact value of the estate. This intact value includes the par value of the stock, plus any accumulation of income earned before the death of the testator. Earp’s Appeal, supra. From 'it must be substracted capital losses. In re Dickinson’s Estate, 285 Pa. 449, 132 A. 352.” See also 83 A. L. R. 1261; 24 A. L. R. 9; 42 A. L. R. 448; 50 A. L. R. 375; 56 A. L. R. 1287; 59 A. L. R. 1532; 72 A. L. R. 981; Bogert on Trusts & Trustees, secs. 841-857, for a discussion of the Pennsylvania rule and cases illustrating its application. Insofar as any general principle may be deduced from these cases, it is that where, after the beginning of a *665 trust holding stock for successive beneficiaries, a dividend is declared on that stock, if the dividend is payable from profits accumulated in the trust period, whether payable in cash or in stock, it is income and payable for the use of the life tenant, but if paid from surplus accumulated prior to the trust period from profits, the sale of the company’s property (where such sales are not in the ordinary course of its business) or from any other source, and the dividend lessens the book or dollar value which the shares had when the trust began, to the extent necessary to restore that value the dividend is to be treated as capital and paid into the corpus of the trust estate. And that the declaration of the corporation as to whether the dividend represents earnings binds the parties to this case. Northern Central Dividend Cases, supra. Applying these principles to the facts and circumstances affecting the dividends of 1936 on the cumulative preferred stock of the B. V. D. Inc. the conclusion seems inevitable that it must be treated as income and payable to the life tenant. It is at once apparent that from 1930 to the death of the testator, considered as one period, the company operated at a loss. The only dividends paid in that period must therefore have been paid from surplus, and therefore depleted to the extent of such payments the book value of the company’s stock. But they were paid to the testator, so that he was compensated for that depletion, for while the stock may have been worth less, he received the equivalent of the depreciation in the cash dividends. But it is conceded that in 1936 the company earned profits sufficient to pay the dividends declared in that year. The directors in their discretion could have carried those profits to surplus, or they could have distributed them, as they did, in the form of a dividend to the stockholders of the company. They were under no obligation in reason, in logic or in law, to starve the present stockholders by depriving them of a legitimate share in the current earnings of the company, in order to increase the book *666 value of the shares. In such a case the reasoning of Warrington, L. J., in Re Sale, quoted above, and this statement from Atlantic Coast Line Dividend Cases, supra: “Here there is an express and manifest declaration on the part of the company as to how and in what manner the distributions of the net earnings should be made, and, the company having the power of distributing its profits as dividend or capital, its action therein is binding on all persons interested, and should not be controlled by the courts,” apply. The comptroller of the company wrote that the “dividend paid in December, 1936, might, therefore, be considered as having been paid out of the earnings for the year ended August 31st, 1936,” which was obvious enough, since it is undisputed that the earnings for that year far exceeded the amount of the dividend declared. The earnings for the dividend year were more than sufficient to pay it. Whether to retain those earnings to increase the book value of the stock or to distribute it as a dividend to the stockholders, was wholly within the discretion of the directors. They elected to distribute them as a dividend, allocable to the dividend year ending November 30th, 19.32, but payable to stockholders of record as of December 18th, 1936. Like facts confronted the court in Re Wakley, supra, but there the court decided that it was not within the power of the directors to alter the rights of stockholders by such a declaration, and that seems to be good law. And if, as is the fact, the dividend was declared out of current earnings to stockholders of record on December 18th, 1936, it was income and not corpus. Northern Central Dividend Cases, supra, page 29, 94 A. 338. It does not appear with sufficient certainty that the earnings of 1937 were sufficient to pay the dividend declared for that year. If they were, for the reasons stated, the dividend should be treated as income. If they were not, then to the extent that they were from surplus accumulated before the trust they should be distributed to capital. In the absence of any evidence on the point, *667 since the burden was on the representative of the remainderman to show that the dividend was payable in whole or in part to corpus, prima facie it may be assumed that it is income. In re Nirdlinger’s Estate, 290 Pa. 457, 139 A. 200, 208. For the reasons stated, dividends declared by the United States Steel Corporation after the beginning of the trust out of current earnings must also be considered to be income. The prima facie presumption would be too that the dividends declared during the trust period on the stock of the Manufacturers Finance Company must be treated as income. But as the record is silent as to the source of those dividends, that presumption may be overcome by proof that it was paid from capital. It follows that so much of the decree from which this appeal was taken as awards these dividends to the corpus of the trust estate must be reversed. Decree reversed and, cause remanded for a decree in conformity with the views expressed in this opinion, the costs to be paid equally by the parties to this appeal.