Fulweiler v. Spruance
| Decision Date | 28 July 1966 |
| Citation | 222 A.2d 555,43 Del.Ch. 196 |
| Parties | Margaret H. FULWEILER, a Defendant Below, Appellant, v. P. Lea SPRUANCE, Plaintiff Below, Appellee, and Preston Lea Spruance, Jr., Margaret Spruance Denham, William Halsey Spruance, and Blaine T. Phillips (Guardian Ad Litem for Alice Lea Spruance, II, Lea Spruance, William H. Spruance, Jr. and For All Unborn Issue of Preston Lea Spruance, Jr., Margaret Spruance Denham, William Halsey Spruance and Alice Lea Spruance, II), Defendants Below, Appellees |
| Court | Supreme Court of Delaware |
Appeal from Court of Chancery in and for New Castle County.
Vincent A. Theisen and Victor F. Battaglia, of Theisen & Lank, Wilmington, for Margaret H. Fulweiler.
John J. Morris, Jr., and Howard L. Williams of Morris, James, Hitchens & Williams, Wilmington, for P. Lea Spruance.
Blaine T. Phillips, of Berl, Potter & Anderson, Wilmington, for Preston Lea Spruance, Jr., Margaret Spruance Denham, and William Halsey Spruance, and as Guardian Ad Litem for Alice Lea Spruance, II, Lea Spruance, William H. Spruance, Jr., and for all unborn issue of Preston Lea Spruance, Jr., Margaret Spruance Denham, William Halsey Spruance and Alice Lea Spruance, II.
This is an appeal from the Court of Chancery which granted summary judgment for the plaintiff. The plaintiff (hereafter 'Lea') and principal defendant (hereafter 'Margaret'), formerly husband and wife, are now divorced. Named as additional defendants are three adult children of Lea and Margaret and the Guardian Ad Litem for a minor child, two minor grandchildren and the unborn issue of the four children (all hereafter 'children').
Prior to the divorce of Lea and Margaret they entered into an Agreement under which it was provided, Inter alia, that in the event Margaret obtained a final decree of divorce from Lea, he would hold separately for the purposes set forth in the Agreement one-half of all shares of Christiana Securities Company (hereafter 'Christiana') common stock and one-half of all E. I. duPont deNemours & Co., Inc. (hereafter 'duPont') common stock which he owned of record, and one-half of all shares of duPont common stock to which he was beneficially entitled under a certain trust terminating in 1955.
Under the Agreement Lea is required to hold the shares of stock separately and within five days of the receipt of any cash dividends upon such shares, to pay to Margaret for her support and the support of the children a sum equal to such dividend or dividends. In addition, Lea is required to transfer to Margaret as her sole property any shares of stock received by him as a stock dividend on the stock held by him separately under the Agreement.
The Agreement by further provisions, not material here, provides for the distribution of the separately held stock in the event either Lea or Margaret predeceases the other and, finally, after the death of both, for the ultimate division of the separately held stock among the children and their issue. This last provision explains the presence of the children as defendants in this lawsuit for the protection of their interests in the income and ultimate disposition of the stock.
The stock holdings of Lea which give rise to this controversy are those of Christiana and duPont common stock. After the execution of the Agreement and the divorce of Lea and Margaret, those shares were actually held separately by Lea and, pursuant to the requirement of a supplementary Agreement, stop transfer orders were delivered to the transfer agents of the respective companies effectively preventing the sale or transfer of them by Lea.
The matter which gave rise to this controversy was the distribution in 1962, 1964 and 1965 by duPont and Christiana to their stockholders, pursuant to a Federal Court order, of General Motors Corporation common stock held by those companies. As a result of these distributions, Lea received as the registered holder of the separately held duPont and Christiana common stock 5946.32 shares of General Motors common stock. It is with respect to this General Motors stock that this lawsuit is concerned. Margaret claims it as her sole property under the Agreement, while Lea claims it as an addition to the separately held stock under the Agreement.
The main issue in this appeal is whether the General Motors shares now held by Lea shall be transferred to Margaret as her sole property or shall be retained by Lea and added to the shares separately held by him under the Agreement after selling sufficient of them to pay the capital gains tax assessed by reason of the distribution.
Several provisions of the Agreement are pertinent in connection with the arguments made. We quote them in full:
'1(b) (iii) If at any time the Husband shall receive any additional or other shares of stock through any stock split on any of the shares * * * which are to be held separately by him, or by way of merger or through any other means whereby additional or other shares of stock are received by virtue of the ownership of said shares to be held separately, except a stock dividend, such shares shall similarly be held separately by the Husband for the purposes hereinafter set forth.
'1(b) (iv) Whenever and from time to time the Husband receives any cash dividends upon any of the shares of stock to be held separately * * *, the Husband, within five days thereafter, shall pay unto the Wife a sum or sums equal to such dividend or dividends for her support and maintenance and for the support and maintenance of the minor children as hereinafter provided.
'1(b) (vi) Any shares of stock received by the Husband as a stock dividend or dividends on the shares of stock to be held separately by him hereunder shall be transferred and assigned unto the Wife as her sole property if she is living and, after her death, in the same manner and proportions as is provided herein for cash payments.'
Margaret argues that the General Motors stock received as a result of the distribution is either a 'cash dividend' which would mean that Lea under 1(b) (iv) is required to pay to Margaret within five days a sum equal to its value, or that the distribution constitutes shares of stock received by Lea as dividends on shares of stock held separately which means that Lea under 1(b) (vi) is required to transfer them to Margaret as her sole property.
Subparagraph 1(b)(iii) requires that if Lea receives any additional or other shares of stock by reason of a stock split, or by reason of a merger, or by any other means, that he shall hold such additional or other shares separately for the purposes of the Agreement. Expressly excluded from this requirement, however, are shares of stock received as a stock dividend which under the provisions of 1(b)(vi), are required to be transferred to Margaret.
In duPont v. duPont, Del., 208 A.2d 509, we held the divestiture of General Motors stock by the duPont Company was not a stock dividend. Margaret now concedes that the General Motors stock held by Lea was not received as a stock dividend and that she has no claim to it on this ground.
Margaret claims, however, that she is entitled to the stock under the provisions of 1(b)(vi) of the Agreement as shares of stock received by Lea as 'dividends on the shares of stock' held separately by him. By this contention Margaret seeks to construe 1(b)(vi) as requiring not only the transfer to her of stock dividends, but also the transfer to her of all stock of companies other than duPont and Christiana received by Lea. To adopt this contention would be to construe 1(b)(vi) as providing two exceptions to the direction of 1(b)(iii) which, in terms, provides only one, i.e., a stock dividend.
We think the construction sought to be put on 1(b)(vi) is artificial and strained. This result may be reached only by separating the phrase 'stock dividend' from the phrase 'dividends on the shares.' This may not be, however. Subparagraph 1(b)(vi) is obviously designed to provide for the enforcement of the one exception appearing in 1(b)(iii), that of a stock dividend. Such being so, the use by the draftsman of the singular and plural of the word 'dividend' must be considered as merely an example of cautious draftsmanship since, otherwise , the result would have the effect of broadening the single exception of 1(b)(iii) far beyond its scope. In essence, it would be to rewrite the provision.
We are of the opinion, therefore, that Margaret is not entitled to the General Motors stock by reason of any provision of 1(b)(vi).
Margaret further contends, however, that she is entitled to the stock, or its equivalent in money, under the provisions of 1(b)(iv). The argument is that the distribution of General Motors stock was the equivalent of a cash dividend paid to Lea.
The argument is based upon the fact that the recipients of the General Motors stock could have been taxed upon it as ordinary income but for 26 U.S.C. § 1111, and 30 Del.C. § 1148, which were enacted to give the recipients of the stock the tax benefit of treating it as a return of capital rather than as ordinary income. It is argued that this special treatment demonstrates that in fact the distribution of the General Motors stock was nothing more than an ordinary dividend.
We think, however, that the answer to the question is not to be found in the tax...
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