Coolidge v. Grant
Decision Date | 27 February 1925 |
Citation | 146 N.E. 719,251 Mass. 352 |
Parties | COOLIDGE et al. v. GRANT. |
Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
OPINION TEXT STARTS HERE
Appeal from Probate Court, Suffolk County.
Petition by Harold J. Coolidge and others, trustees, against Alexander G. Grant, guardian ad litem, for allowance of account. Decree for petitioners, and respondent appeals. Affirmed.
A. G. Grant, of Boston, for appellant.
E. A. McLaughlin, Jr., of Boston (H. J. Coolidge, of Boston, on the brief), for appellees.
The question in this case is whether a stock dividend received by the trustees under a will is to be paid to the life tenant as income, or held as a part of the principal of the trust. The plaintiffs as trustees held preferred stock in a Massachusetts corporation. That stock was entitled to cumulative preferential dividends at the rate of 6 per cent. under certain conditions. These were paid only intermittently, so that in March, 1922, the accumulated unpaid dividends amounted to $22.50 on each share. In February, 1922, in order to adjust these unpaid dividends, the directors voted to declare on each share a dividend of $2.50 in cash, and ‘a stock dividend of 20 per cent. * * * payable in 7 per cent cumulative prior preference stock at par’ to such shareholders as elected to receive it on named conditions. The vote to pay this stock dividend was prefaced by a recital to the effect that the company, after paying the cash dividend, would ‘have a surplus in its profit and loss account in excess' of the remaining overdue dividends ‘accumulated from earnings and invested in real and personal property.’ It does not appear whether this investment was ‘in real and personal property,’ needed and used for the purposes of the business of the corporation, or in property not so needed or used. The prior preference stock thus to be issued for adjustment of overdue cumulative dividends was a part of a much larger authorized issue of such stock, and during the year 1922 more than $2,500,000 of par value of such stock, in addition to that distributed among stockholders in adjustment of unpaid dividends, was issued and sold for cash for general corporate purposes.
Manifestly it was optional with the holders of the stock whether to accept the proposal of the corporation to adjust overdue cumulative dividends by taking the proposed stock dividend, or to retain their rights under the preferences secured by their preferred stock. The holders of a large number of shares of such stock refused to take such stock dividend in payment of overdue dividends, and at a later time these were paid in cash. The corporation earned its dividends annually during the entire period of ownership of their stock by the petitioners, but passed the dividends or paid them in part because of a desire ‘to conserve the company's resources.’
[1] The dividend in the case at bar was avowed by the directors in their vote to be a ‘stock dividend.’ There is no suspicion that this avowal was not made in good faith. A declaration by the officers of a corporation made honestly is entitled to great weight in determining the nature of a dividend. It was in substance and effect precisely what the directors said it was. It was the issuance of stock for full value in payment of an obligation of the corporation. When issued it was on an equality with all other stock of the same class. The amount of it became at once capital to be continued in the business of the corporation.
[2] The case at bar falls within the general rule for determining whether dividends belong to the life tenant or the remainderman. It is stated in Minot v. Paine, 99 Mass. 101, 108 (96 Am. Dec. 705): ‘A simple rule is, to regard cash dividends, however large, as income, and stock dividends,...
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...82 W. Va. 705; Tax Comrs. v. Pulnam, 227 Mass. 522; Lanning v. Tax Comrs., 247 Mass. 496; Talbot v. Milliken, 221 Mass. 367; Coolidge v. Grant, 251 Mass. 352. Three are controlled by state statutes. They are Georgia, Connecticut and the later New York decisions. Georgia Civil Cole (1910) se......
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