Heyn v. Fidelity Trust Co.
| Citation | 1 A.2d 739,174 Md. 639 |
| Decision Date | 13 October 1938 |
| Docket Number | 92. |
| Parties | HEYN et al. v. FIDELITY TRUST CO. et al. |
| Court | Court of Appeals of Maryland |
For majority opinion, see 1 A.2d 83.
The prima facie presumption that dividend declared during trust period on cumulative preferred stock bequeathed in trust to successive beneficiaries is income may be overcome by proof that dividend was paid from capital.
There are two fundamental questions on this appeal. The first is the meaning of Chapter 495 of the Acts of 1929; and the second is, are the corporate dividends which are in controversy within the scope of the statute. The legislation is the first in Maryland on its subject matter and the enactment is wholly found within a single paragraph:
Code Supplement, 1935, Art. 93 sec. 305C.
There is no controversy that it is a condition precedent to the operation of the statute that the rights contemplated must originate by the terms of some document in writing. Here the trust, under which successive interests arise in the same subject matter, is created by will, and thus this condition is fulfilled. The claims of creditors do not affect the devolution of the property given in trust; and there is nothing disclosed to interfere with the application of the statute to any income within its contemplation. Thus far there seems to be no divergence of opinion. The difference is about what dividends are embraced within the meaning of the statute. The distribution by dividend either of corporate capital or of assets for the purpose of the liquidation of corporate affairs is not a distribution of income but of corpus itself. Such divisions of corporate capital and of assets in liquidation are clearly not dividends in the sense intended by the legislature, and so do not constitute a restriction on the scope of the application of 'All * * * dividends'. The prevailing opinion, however, construes the inclusive adjective 'all' of the Act to have this significance with reference to rents and annuities, but to lose this meaning when it reaches dividends, and then to acquire the sense of 'some'. Thus by the opinion of the majority of this Court the statute does not apply to irregular or extraordinary declaration of dividends. Conformably with the opinion, payment of cumulative preferred dividends of a fixed yearly percentage on corporate stock in part discharge of arrears is not within the contemplation of the statute should the distribution of current earnings be made after a suspension and interruption of the annual declaration of the dividend because of past insufficient net earnings. The reasoning of the Court in support of this position is best stated in its opinion which finds support for its conclusion in the decisions of English courts in the construction of the English statute on apportionment. It is submitted that too much reliance may be placed upon decisions of foreign courts in the construction of statutes, which are distinguished by substantial difference with the domestic act.
1. Statutes adopted from another state or country will generally be presumed to have been enacted with the meaning given to it by the construction placed upon it by the state or country of its origin before its adoption. Lavender v. Rosenheim, 110 Md. 150, 72 A. 669, 132 Am.St.Rep. 420. Such construction will be persuasive, and will be followed if sound and reasonable. However, the rule is subject to important limitations. One of these is that it will not prevail over the plain and clear meaning of the statute, nor if the statute adopted differs materially in a substantial matter from the statute from which it is derived. Torrance v. Edwards, 89 N.J.L. 507, 99 A. 136, 137; Copper Queen Consol. Mining Co. v. Arizona Territorial Board of Equalization, 206 U.S. 474, 27 S.Ct. 695, 51 L.Ed. 1143; Stutsman County v. Wallace, 142 U.S. 293, 12 S.Ct. 227, 35 L.Ed. 1018. Thus, the English statute on apportionment (33 and 34 Vict.C. 35, 1870), along with the Massachusetts act, G.L. (Ter.Ed.) c. 197, § 27, furnished the basis for the enactment of the statute here under construction, yet the English statute was not adopted without material modifications. The statute in Maryland is only similar to the second section of the English statute, whose other sections are wholly omitted. The discarded fifth section is material because it defined the word 'dividends' as used in the second section and gave it particular meaning so that the statute was made to embrace all dividends, whether periodical or not, which were not in the nature of a return or reimbursement of capital, provided only such dividends must be declared or expressed to be made for or in respect of some definite period. Re Griffith, [1879] L.R. 12 Ch.D. 655; In re Jowitt, [1922] L.R. 12 Ch.Div. 422; In re Bouch, 29 Ch.Div. 635, 653; Bouch v. Sproul, L.R. 12 A.C. 385, 397, 401.
Even in the second section there are significant differences. The Maryland law applies to 'all rents, annuities, dividends and periodical payments in the nature of income, payable under the provisions of any will, deed or other instrument', while the income designated by the English act may be 'reserved or made payable under an instrument of writing or otherwise'. Again, the language of the English act in this section is 'all rents, annuities, dividends and other periodical payments.' The here italicised adjective phrase 'other periodical' is so associated with the antecedent word 'dividends' as to limit its meaning to those dividends which are periodical. See Hubbard v. Taunton, 140 Mass. 467, 468, 5 N.E. 157; Alexander v. Greenup, 15 Va. 134, 1 Munf. 134, 144, 4 Am.Dec. 541. The statute at bar does not contain this qualification of the general meaning of dividends. In thus modifying the wording of the second section of the English statute and rejecting its fifth and other sections which fixed the limited meaning of the word 'dividends' as used in the second section, the General Assembly of Maryland declared the legislative intent in its own chosen words. The material changes noted give emphasis to the necessity of applying the domestic statute in accordance with its meaning as found from its own statutory expression rather than from the construction given by foreign tribunals to a substantially different statute. Blades v. Szatai, 151 Md. 644, 652, 653. 135 A. 841, 50 A.L.R. 232.
2. The enactment was made so late as 1929 for the purpose of changing the common law rule then in force that rents, annuities, dividends and periodical payments were not generally apportionable. The rule worked unfair results, and it was thought that if these yields of capital were treated as accruing due from day to day in the manner of interest or money lent, and thus made apportionable in respect of time, the inequalities would be removed. In an able treatise on the Construction of Wills (1927) by Edgar G. Miller, Jr., an enactment was suggested which is substantially the form of the one passed. Section 120, n. 1, pp. 336, 337.
Not only did inequalities exist because of the effect of the common law rule against the apportionment of rents, annuities and periodical payments, but greater confusion and conflict prevailed with reference to corporate dividends, which fell into ordinary and extraordinary, and money and stock dividends. The rule was established that regular corporate dividends were not apportionable. In respect of extraordinary corporate dividends, whether declared in money or in shares of stock, there was great conflict of authority. These difficulties brought about remedial legislation. In the Restatement of the Law of Trusts by the American Institute of Law the whole subject matter is considered, and the law on the subject is formulated, with the qualifying foot-note that its rules are not effective where the subject is governed by statute. See vol. 1, Ch. 7, secs. 232, 234, 235, pp. 698, 699; 236, p. 702 n.
3. Before the enactment of Chapter 495 of the Acts of 1929, the decisions were not harmonious with reference to the apportionment of extraordinary corporate dividends. There was need of statutory clarification. 86 University of Pennsylvania Law Review, 681; Machen on Corporations, vol. 2, sec. 1389, p. 1150, nn. 3, 4; 4 Bogert on Trusts and Trustees, § 845, p. 2448, note 34, §§ 846, 847, 848, 850, note 98, p. 2463, § 857.
The first decision in Maryland on the allocation of a dividend declared payable on corporate stock which was held in trust for the benefit of a life tenant and then over for a remainderman, was decided in Thomas v. Gregg, 1894 78 Md. 545, 28 A. 565, 44 Am.St.Rep. 310. A testamentary trust had been created by a testator, who died on February 11, 1890. The use of one-half of the estate was given to each of his two daughters for life, and then over in remainder. A life tenant died on July 8, 1891, survived by a husband and three children; and the life tenant of the other half and husband. A twenty per centum stock dividend for three years ending September 30, 1891, was declared and made payable in stock of the corporation. A controversy arose over the distribution of the stock. On the one hand it was asserted to be payable to the tenant for life as income, and, on the other, it was...
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