Humphrey v. Lang

• Decision Date: 13 October 1915
• Docket Number: 183.
• Citation: 86 S.E. 526
• Parties: L.R.A. 1916B,626, 169 N.C. 601 v. LANG ET AL. HUMPHREY ET AL.
• Court: North Carolina Supreme Court

86 S.E. 526

L.R.A. 1916B,626, 169 N.C. 601

HUMPHREY ET AL. v. LANG ET AL.

No. 183.

Supreme Court of North Carolina

October 13, 1915

Appeal from Superior Court, Pitt County; Connor, Judge.

Suit by H. L. Humphrey and others against J. A. Lang and others to construe a will. From the judgment rendered, plaintiffs appeal. Affirmed.

Under a will giving all revenue from a certain bank to testator's widow, a dividend paid in the form of a time certificate of deposit held "revenue," and not principal.

This is a civil action to determine the rights of Annie R. Lang, the widow, and the other devisees of W. M. Lang, under item 3 of his will, which reads as follows:

"Third. I give and devise to my wife, Annie Lang, the horse, buggy trap and harness I may have on hand at my death; one milk cow, one house and lot, and furniture, situated on Main and Church streets in the town of Farmville. All revenue from the Bank of Farmville, the Bank of Greenville, and the Farmville Oil & Fertilizer Company; the Freeman Ellis lot on the Norfolk Southern Railroad; one lot on Moore's land, and four hundred dollars in Farmville bonds."

The cause was heard at May term, 1915, of the superior court of Pitt county, by Judge Connor, upon agreed facts:

The Bank of Farmville, having determined to increase its capital stock, did, on the 30th day of March, 1915, declare a dividend of a fraction over 100 per cent., and said dividend accruing to the stock referred to in item 3 of said will aggregated $2,100; the stockholders having the privilege of taking the dividend either in new stock or a time certificate of deposit. Said dividend in the form of a certificate of deposit was paid over to the defendant executors of W. M Lang, and is now in their hands as executors.

The court below adjudged that the defendant Annie R. Lang was the owner absolutely of all the property mentioned in item 3 of the will, except the stocks in the two banks and in the Fertilizer Company, and as to those she was entitled to the dividends during her life. The court further adjudged that the $2,100 dividend, declared by the Bank of Greenville and paid to the executors in a certificate of deposit, was revenue or income, and not principal, and that said Annie R Lang was entitled thereto. From the judgment rendered, plaintiffs appealed.

J. L. Horton, of Farmville, and Jas. H. Pou, of Raleigh, for appellants.

Harding & Pierce, of Greenville, for appellees.

BROWN J.

The ruling of the superior court must be sustained. The interpretation placed upon the will is manifestly correct, and the only assignment of error we need discuss relates to the $2,100 dividend of the Bank of Farmville. This question has been much discussed by text-writers and courts, and the weight of authority seems to be in favor of the proposition, as stated by the Supreme Court of the United States in Gibbons v. Mahon, 136 U.S. 559, 10 S.Ct. 1057, 34 L.Ed. 525:

"Ordinarily a dividend declared in stock is to be deemed capital, and a dividend in money is to be deemed income, of each share."

A stock dividend differs materially from a cash dividend. The former takes nothing from the property of the corporation, and adds nothing to the interests of the shareholders. Its property is not diminished, and their interests are not increased; whereas, a cash dividend declared on the then existing capital stock subtracts so much from the treasury of the corporation and transfers it to the pockets of the stockholders.

This is the view expressed by us in Trust Co. v. Mason, 152 N.C. 660, 68 S.E. 235, 136 Am. St. Rep. 851. Accumulated earnings of a corporation remain its property until distributed, and until then remain liable for its debts and are under its control. They do not become the property of stockholders until distributed by the corporation. When so distributed, they become the property of stockholders, and not until then. If distributed exclusively in the form of new or additional stock, they remain as capital; but, if distributed in the form of cash or its equivalent, they are regarded as income and belong to the life tenant. This is the consensus of judicial opinion in England, as well as in the United States.

In Paris v. Paris, 10 Ves. 185, an extra dividend was declared by a bank from the profits of the previous years. Lord Eldon held that it was income and went to the life tenant, and said it made no difference whether the dividend was in money or in stock; that the distinction, in the language of his Lordship, was "too thin." He cites and relies upon the case of Brander v. Brander, 4 Ves. 800. In Clayton v. Gresham, 10 Ves. 288, the same rule was adopted in respect to an extraordinary dividend of profit made by a bank among its stockholders. Lord Erskine adopted the same rule in Witts v. Steere, 13 Ves. 362, although expressing some doubt as to its correctness. In Barclay v. Wainwright, 14 Ves. 66, Lord Eldon, after reviewing the cases, decreed to the life tenant an extra dividend declared by the bank. The same ruling was followed in Norris v. Harrison, 2 Madd. 279. In Hooper v. Rosseter, McClel. 527, Lord Chief Baron Alexander said that it seemed clear from all the cases, from the first to the last, that, wherever a division was made clearly and distinctly as a dividend only, the life tenant was to have it.

In Price v. Anderson, 15 Sim. 473, an increased dividend made by an insurance company was held to be income. The Vice Chancellor said that, as the company had declared the dividend as a dividend, he held that it belonged to the tenant for life. In the case of Hopkins Trusts, L. R. 18 Equity Cases, 1874, a holder of shares in an insurance company bequeathed his personal estate to trustees in trust for his wife for life, the dividends and income thereof to go to her with the remainder over. An extraordinary dividend was declared on the shares from accumulations of five years previous to his death; held, that these dividends were income and belonged to the tenant for life. In that case it was said that the testator, who was well acquainted with the value of the shares and the condition of the company, as he had held the shares for many years, when he gave to his wife the dividends and income, must have intended her to have all the dividends from the same whatever they might be.

In Brown v. Collins, L. R. 12 Equity, 586, it is held that dividends in a public company, earned before, but declared after, the testator's death, are income, and not capital. To the same effect are Bates v. McKinley, 31 Beaver, 280; Jones v. Ogle, L. R. 8 Chancery, 192; MacLaren v. Stainton, 27 Beaver, 460; Preston v. Melville, 16 Sim. 163. In this case a large bonus on bank stock was held to belong to the life tenant. It is admitted...