Gilkey v. Paine

Walton, J. On the 18th day of April, 1880, Sylvanus Rich, of Bangor, died, leaving a will, giving to trustees fifty shares of' the capital stock of the Boston and Albany Railroad Company, to be held by them for the benefit of the plaintiff (Mary KateGilkey, of Bangor), during her natural life, she to have "the net annual income thereof ” as fast as it should accrue and be received, by the trustees. At the time of the death of Mr. Rich, twenty-four thousand! one hundred and fifteen shares of the capital stock of the railroad, company were owned by the Commonwealth of Massachusetts. But in 1882, the railroad company purchased these shares of the-Commonwealth, giving in exchange the company’s bonds, payable-in twenty years, with interest at the rate of five per cent per annum. Having thus become the owner of these shares, the company voted to distribute, and did distribute, seventeen thousand five hundred and eighty-eight of them among its private stockholders, the distribution being at the rate of one share for each ten shares held by the stockholders. Of these shares, the trustees under the will of Mr. Rich, received five. They then held, in all, fifty-five shares. And they have paid to the plaintiff, not only the income on the original fifty shares, but also the income on the additional five shares. But this does no_t satisfy [324] her. She claims that she is not only entitled to the income on these five shares but to the shares themselves. We do not think this claim can be sustained. These shares' .are no portion of the "net annual income,” to which the plaintiff became entitled under the will. They are now, as they always have been, a portion of the original capital stock of the company. They are not newly created shares. And they do not represent .income. They were not created to represent income; nor were they purchased with income. They were not transferred to the stockholders as a substitute for any of the regular annual dividends of the company. These annual dividends have been paid since, as before, the distribution of these shares; and, so far as appears, they have been for the same amount. And the plaintiff has received, not only her regular dividends on the original fifty shares held by Mr. Rich at the time of his death, but she has also received the dividends on the five shares received by the trustees since his death. And there is no reason to doubt that she will continue to receive them in the future. We think she can rightfully claim no more. , If these shares had been purchased with the accumulated earnings of the road; earnings which, but for such purchase, would, or might have been distributed to the stock-holders as dividends, a very different case wmuld be presented. Possibly, they might then be regarded as representing income, and be treated as income. Leland v. Hayden, 102 Mass. 542. But these shares were not so purchased. They were purchased with the bonds of the company, — interest-bearing bonds, — thereby creating a debt of nearly four millions of dollars. The exact amount is three million eight hundred and fifty-eight thousand dollars. The tendency of such a debt is to reduce the amouut of the dividends and impair the market value of the stock. The plaintiff may need the dividends on the additional five shares to keep her income up to what it was before this interest-bearing debt was contracted. And we think it is right that she should have them. And if she needs the dividends to keep her income up, it is equally certain that the owner of the stock will need the five additional shares to keep up the aggregate value of his [325] interest in the stock. For if the dividends are diminished, the market value of the stock is sure to follow. It seems to us, therefore, that the equitable and proper division of these five shares between the owner of the life-interest in the original stock and the owner of the remainder, is to give the former the dividends and the latter the stock. If the income of the road is sufficient' to pay the interest on this newly contracted debt, and keep up the amount of its former dividends, then both parties will be benefited. Her income will be increased, and so will be the ag-gregate value of his stock. And then the division seems to us to be equitable and just. Authorities bearing upon the questions involved in this class of cases are cited in Richardson v. Richardson, 75 Maine, 570, and by counsel in their arguments in this case, and need not be repeated here. There is also a very able and learned review of the cases, both English and American, in the American Law Review for 1885, (Vol. 19, p. 737). And the correction of a supposed error with respect to one of the English cases, in 20 American Law Review, 746. But we can find no case presenting precisely the same question as the one which is presented in this case. The rule generally adhered to in England, is to treat all regular dividends as income, and all irregular dividends and bonuses as capital. A rule supposed to have been established in Minot v. Raine, 99 Mass. 101, and known as the Massachusetts rule, is that, stock dividends are to be regarded as principal, and cash dividends as income. But this has proved to be a very elastic rule in the state of its origin ; for in Leland v. Hayden, 102 Mass. 542, while professing to adhere to it, the court did in fact treat a cash dividend as capital, and a stock dividend as income. The effort in this country has been generally, to maintain the integrity of the capital, and to give all surplus earnings, in whatever form distributed, to the life-tenant. And, perhaps, no better rule than this can be adopted. It is the one to which we have endeavored to adhere in this case. Rill dismissed. Peters, C. J., Danfouth, Libbey, Emery and Haskell,, JJ., concurred.