Bulkeley v. Worthington Ecclesiastical Society

• Decision Date: 07 March 1906
• Citation: 63 A. 351,78 Conn. 526
• Parties: BULKELEY et al. v. WORTHINGTON ECCLESIASTICAL SOCIETY et al.
• Court: Connecticut Supreme Court

63 A. 351

78 Conn. 526

BULKELEY et al.

v. WORTHINGTON ECCLESIASTICAL SOCIETY et al.

Supreme Court of Errors of Connecticut.

March 7, 1906.

Appeal from Superior Court, Hartford County; Joel H. Reed, Judge.

Action by William Bulkeley and others, as executors of the will of Harriet N. Wilcox, deceased, against the Worthington Ecclesiastical Society and others, for the construction of the will. From a judgment sustaining demurrers to answers and statements of claims filed by Bulkeley and others, executors, and by the Worthington Ecclesiastical Society, they appeal. Affirmed.

Frank L. Hungerford, for appellant executors. William Waldo Hyde, for appellant Worthington Ecclesiastical Society. John H. Kirkham, James E. Cooper, and George W. Andrew, for appellees American Board of Commissioners for Foreign Missions and others. Charles Welles Gross, for appellee Bulkeley.

PRENTICE, J. There are two questions presented upon the record. The first grows out of the conflicting claims of life tenants and remaindermen to the fruits of stocks held in trust. It arises upon the demurrer of the remaindermen to the answer and claim of the life tenants. The pertinent facts involved, as they are admitted by the demurrer, are the following: By the will of Harriet N. Wilcox, who died in April, 1893, Sherwood F. Raymond was given the residuum of her estate "during his life, and after his decease to be equally divided" among certain remaindermen. Among the property received by Raymond as a part of the corpus of this trust fund were 259 shares of the stock of the Berlin Iron Bridge Company, of the appraised value of $7,122.50. Subsequently for a period of years the company did a large business, paid regular dividends, and accumulated a large surplus out of its earnings, and its stock came to have a largely increased market value. In this situation the company by the unanimous vote of its stockholders voted to discontinue its business and wind up its affairs, and to sell its entire plant and all its materials, merchandise, assets, business, contracts, and good will, except its cash on hand, bills and accounts receivable, and cash due on completed contracts, to the American Bridge Company, in consideration of the receipt by the selling company of certain preferred and common shares of the vendee corporation and certain cash. This vote was carried out and the Berlin Iron Bridge Company received said stock and cash. The assets retained by the Berlin Company in this transaction were all in the process of liquidation under the vote turned into cash, and all debts and claims paid, leaving in the treasury a considerable sum in cash. All the stockholders of the Berlin Company agreed to accept in the distribution of its effects their proportional shares of said American Bridge Company stock and such distribution was made. The cash in the treasury as the result of the payment by the bridge company and the liquidation as a aforesaid was by the directors voted to the shareholders in cash in the form of dividends. Said Raymond received his proportional share of both said stock and cash. The amount received in cash was $6,151.25, and the admission of the demurrer is that it was paid out of assets representing surplus earnings. The American Bridge stock thus received by Raymond was later and during his lifetime exchanged for stock of the United States Steel Company, as the result of the absorption of the former company by the latter. Raymond subsequently died. The defendant executors of his will make no claim to said stock, but do claim all of said cash payment as rightfully belonging to his estate. The other defendants claim said sum as remaindermen.

The claim in behalf of the Raymond estate is based upon the admissions of fact that the cash received represented surplus earnings and the general rule of law laid down in Smith v. Dana, 77 Conn. 543, 60 Atl. 117, 69 L. R. A. 76, to the effect that cash dividends declared and paid upon stocks held in trust are to be regarded as income and pass to the life tenants. In that case we took occasion to observe that in applying this rule regard should be had, not alone to the letter of the vote of declaration, but also to the substance and intent of the corporate act as disclosed thereby. Judged by this test the votes of the directors pursuant to which the cash in question was paid to Raymond were in no true sense declarations of cash dividends within the meaning and Intent of the rule. They were not passed by the directors in the exercise of their discretionary powers in determining what of the corporate assets representing surplus should be separated and withdrawn from that body of them to be retained for future corporate use, and thus separated go out to shareowners as income freed from all claim of the corporation thereon. There was no purpose on the part of the directors to make a division of profits as such among the owners of shares which were to continue to exist. The company was engaged in liquidating its business and distributing all its assets to its stockholders. The end sought was the return to the owners of stock of all that the company owned and its distribution to them in exchange or substitution for the shares which thereafter were to cease to exist. The directors were called upon to exercise no discretion. They had hut a single duty, and that was to distribute everything in their hands, and they performed that duty as to cash and stocks in like manner. The company had ceased its operations as a going concern. The period within which dividends in the ordinary sense are made had passed. Its acts were only the necessary perfunctory ones attending dissolution. To quote the language of the Supreme Court of Massachusetts upon the subject of this very rule as reported in the recent case of Brownell v. Anthony, 75 N. E. 746: "This language was used of corporations continuing in existence and retaining their capital for the purpose of exercising their corporate powers; obviously it has no application to dividends of the assets made in liquidation of a corporation which has been or is to be dissolved."

The remaindermen in their behalf assert the proposition that all assets distributed in the process of the liquidation of a corporation attach to the capital interest, and they appeal to the cases of Church v. Colegrove, 74 Conn. 80, 49 Atl. 902 and Smith v. Dana, 77 Conn. 543, 60 Atl. 117, 69 L. R. A. 76, in support of their contention. The life tenants contend that the construction which the remaindermen give to the language of the opinions in these cases is too liberal and sweeping, that they were pronounced with respect to different states of fact from that now presented, and that there appears in them no intention to lay down a rule of universal application of such scope as is now claimed for it. We are led, therefore, to a discussion of the general question involved. Apparently the courts must assume one of two attitudes, to wit: (1) Adopt and apply the rule appealed to by the remaindermen as one of general application; or (2) adopt some theoretical rule determinative of the conflicting rights and claims of those who assert income and capital interests in respect to assets held by corporations in liquidation, and in each case enter upon a sorting out process, by means of which and through a minute examination into the affairs of the corporation the source, quality, and character of the corporate assets shall be discovered and determined, and those assets which within the adopted rule attach to the income interest be aparted from those which properly belong to the capital interest.

The latter attitude, it will be seen, involves as the first step the adoption of a just and equitable rule to be applied, and this will be found to be no easy task, as courts and legal writers have discovered. The life tenants commend the rule referred to upon the closing page of Smith v. Dana as that which alone leads to exact justice. It has,...