Cox v. Sellers
Decision Date | 09 November 1942 |
Court | Court of Chancery of Delaware |
Parties | FRANK G. COX, JOHN H. SHIVELY and WILMINGTON TRUST COMPANY, a corporation of the State of Delaware, Trustees under item 8 of the Last Will and Testament of William F. Sellers, deceased, v. MARY G. SELLERS, ANNA SELLERS COX, FRANK GARDNER COX, JR., WILLIAM SELLERS COX, and WILLIAM SELLERS COX, JR |
BILL FOR INSTRUCTIONS filed by the trustees under Item 8 of the will of William F. Sellers, deceased. The respondents Mary G Sellers and Anna Sellers Cox are the widow and daughter respectively, of the testator, and are the life beneficiaries of the trust. The other respondents are children and issue of Mrs. Cox, and are the persons who would be entitled to the corpus of the trust if it should be terminated now and if Mrs. Cox should fail to exercise a power of appointment of the corpus. By order of this court William Sellers Cox was appointed guardian ad litem of his minor son, the respondent William Sellers Cox, Jr. Heard on bill, answers of the respondents, and two stipulations of facts.
Charles F. Richards, of the firm of Richards, Layton & Finger, for complainants.
Clarence A. Southerland, of the firm of Southerland, Berl & Potter for respondents Mary G. Sellers and Anna Sellers Cox.
Robert H. Richards, of the firm of Richards, Layton & Finger, for respondents Frank Gardner Cox, Jr. and William Sellers Cox individually and as guardian ad litem of William Sellers Cox, Jr.
The trustees seek instructions whether they should distribute to the life beneficiaries, or retain as trust corpus, all or part of certain monies received by them from the liquidation of a corporation of which they held preferred and common stock. The monies in question represent the amount of dividends on the preferred stock which were accrued and unpaid at the time of liquidation, and which were paid out of the capital of the corporation. The life beneficiaries contend that the entire amount should be paid to them; while the other respondents, to whom I shall refer as remaindermen, assert that the sum should be held as corpus of the trust.
The testator, William F. Sellers, died in June, 1933, a resident of New Castle County. By his will, dated March 28, 1932, he created a trust, the relevant terms of which read thus:
The testator owned, and the trustees received 5385 shares of the preferred stock of Edge Moor Iron Company (out of 5712, the total outstanding), and 1369 shares of common stock (out of 8000, the total outstanding). The corporation had no other classes of stock. The par value of each class was $ 100 a share. Provisions of the company's amended certificate of incorporation relating to the shareholders' rights to the corporate assets are set forth in Garrett v. Edge Moor Iron Co., 22 Del.Ch. 142, 194 A. 15, 16. The provisions important here are these:
No dividends were ever paid on the common stock. Full dividends were regularly paid on the preferred, to and including October 1, 1931, but were not thereafter paid by the corporation. In December, 1935 the corporation was dissolved and receivers in dissolution were appointed. The company had had an operating loss for the year 1930 and for every subsequent year of its existence. At the time of dissolution, the corporate books showed that the amount in value of its assets, less liabilities, was insufficient to pay the par value of the preferred stock and accrued dividends thereon, plus the par value of the common stock.
The receivers liquidated the corporate assets and paid to the preferred shareholders the par value of their shares in two installments, $ 35 per share on July 16, 1936 and $ 65 on September 18, 1936. In the case of Garrett v. Edge Moor Iron Co., supra, affirmed by the Supreme Court under the caption Pennsylvania Co. for Insurances on Lives, etc., v. Cox, 23 Del.Ch. 193, 199 A. 671, it was determined that the preferred shareholders were entitled to receive, in addition to the par value, the amount of unpaid dividends on their stock from October 1, 1931, to the time of payment of the par value of the stock. Pursuant to the decree entered in the cited case, the complainants, as preferred stockholders, received the aggregate sum of $ 158,480.55, or $ 29.43 a share, in satisfaction of the preferential right to accrued dividends upon liquidation. This is the fund in dispute here. The receivers distributed to the common stockholders, for each share of their stock, property which was valued for tax purposes at about $ 17. The common stockholders thus received substantially less than the par value, $ 100 a share, at which price the common stock had been issued. The source of the payment of the accrued dividends to the preferred stockholders was not earnings of the corporation, but was corporate capital; and the payment reduced the amount of assets available for the common stockholders as a return of their capital contribution.
All parties agree that the intent of the testator must control whether the trustees should pass on to the life beneficiaries, or retain as part of the trust corpus, the amount of the accrued dividends on the preferred stock. The testator did not provide specifically for the situation. He expressed the intent that "net income" of the trust should be paid to the life beneficiaries, and that the trust corpus should be retained for distribution to others. Accordingly, the question presented may be stated thus: Was the fund representing accrued dividends on the preferred stock income of the trust? The life beneficiaries take the position that it has the requisite attributes of trust income. They insist that it is a distribution made in fulfillment of the corporate contract to assure payment of cumulative dividends to the preferred stockholders; and that the right to such dividends is in its very nature a right to income, or to a return upon the investment represented by the preferred stock.
On the other hand, the remaindermen contend that the fact that the source of the fund was capital of the corporation determines the disposition which the trustees must make of it; that the established Delaware rule of allocation of corporate distributions dictates that all distributions which represent corporate capital must be held as trust...
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Cox v. Sellers
...filed by the trustees under Item 8 of the will of William F. Sellers, deceased. An opinion was filed in this matter on November 9, 1942, 26 Del.Ch 350, 28 A.2d 679. At the close of the opinion, one question was reserved afford the solicitors an opportunity to argue it separately. The solici......