Greene v. Smith

• Decision Date: 10 May 1890
• Parties: GREENE et al. v. SMITH et al.
• Court: Rhode Island Supreme Court

19 A. 1081

17 R.I. 28

GREENE et al.

v. SMITH et al.

Supreme Court of Rhode Island.

May 10, 1890.

Bill to construe a will.

Joseph C. Ely, for complainants. Robert W. Burbank, for respondents.

DURFEE, C. J. The complainants, Lewis A. Greene and Forrest Greene, trustees under the will of Allen Greene, late of Providence, deceased, bring this suit for instructions. The will, among other property, bequeaths to the complainants 100 shares of the capital stock of the New York, Providence & Boston Railroad Company, and 50 shares of the capital stock of the Providence & Worcester Railroad Company, in trust to collect the income therefrom; and, after paying certain charges and expenses, "to pay monthly to said Emma R. Smith [testator's daughter, and the wife of Samuel N. Smith] personally, for her separate use, (and to no one for her,) such part of the remainder of said rents and income, after the making of said payments, as my said daughter shall desire for her use; and to pay, from time to time, such other and further sums from said income as may be required to give a good and sufficient education to the child or children of my said daughter;" but expending at no time more than they have in possession; and the balance, not so expended, to deposit in the Rhode Island Hospital Trust Company, from time to time, on participation account, and the same to withdraw, from time to time, with the interest accumulated thereon, if necessary for said Emma's support, and for the support and education of her children and their descendants. It appears from other parts of the will that the interest of said Emma in said shares of stock is a life-interest, with limitations over to herself in certain events, to her children and their descendants in other events, and in still other events to the complainants free from the trust. Said Emma has only one child, a son. In May, A. D. 1889, the Providence & Worcester Railroad Company voted to increase its stock, and offered the new shares, which were at a premium, to the stockholders at par, at the rate of 1 new to every 4 shares belonging to them. The complainants believed that the right to take the new shares was income, and, acting on this belief, took the 8 shares falling to the 50 held by them in trust, for said Emma, at her request; taking them in their individual names, and paying for them out of their own money, but under an agreement with her to transfer them to her on her paying the money. She has repaid $400, leaving $400 not yet repaid. In January, A. D. 1890, the directors of the New York, Providence & Boston Railroad Company, under authority conferred by the stockholders, decided to increase its capital stock, and offered the new shares to the stockholders at par, at the rate of 1 new share for every 4 shares held by them. The complainants this time took advice, and, being advised that the rights or options to take the new shares were principal, sold the rights or options falling to the 100 shares held by them in trust as aforesaid for $3,250. Said Emma claims said sum, and also said 8 shares as income. The complainants ask to be instructed whether they shall treat them as principal or income.

"We instruct the complainants to treat said sum and said new shares as principal. In re Brown, 14 R. I. 371, 373, this court decided that new shares of corporate stock, representing a surplus, distributed pro rata to the stockholders, are not to be regarded as income, and do not belong to the life-tenant. The case virtually decides the case at bar; for, if there be any material difference between them, it is that in the case at bar the surplus value is more clearly principal. The effect of issuing the new shares is simply to distribute the surplus value, previously belonging to the old, in the new as well as the old, proportionately lessening the value of the old. "Such a readjustment," say the court in the case above cited, "cannot be said to result in income." We do not see how the life-tenant acquires any greater right than he or she previously had to such surplus value, merely because of its wider distribution. "It is not income, but capital in a changed form." Biddle's Appeal, 99 Pa. St. 278, 283. And this is the doctrine which is, at least in cases like this, the...