Hyde v. Holmes
| Decision Date | 02 April 1908 |
| Citation | 84 N.E. 318,198 Mass. 287 |
| Parties | HYDE v. HOLMES et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Hunneman guardian ad litem of Faith, Mola, and L. H. Holmes.
Grosvenor Calkins, for Sara H. Watts and others.
Gardner & Gardner, for M. Ella Holmes.
Chas H. Beckwith, guardian ad litem of L. Frank Holmes.
The plaintiff, a trustee holding stock in corporations, the income of which is to be paid to life tenants and the principal to be held for remaindermen, asks the instruction of the court as to whether a certain dividend of the Pullman Company, declared in November, 1906, and dividends of the Farr Alpaca Company, declared on June 30, 1906, are to be treated as capital and held for the remaindermen, or as income to be paid to the life tenants.
No question is now made that the dividend of the Pullman Company was a stock dividend to be treated as capital. See Minot v. Paine, 99 Mass. 101, 96 Am. Dec. 705; D'Ooge v. Leeds, 176 Mass. 558, 57 N.E. 1025.
The dividends of the other corporation were in all essential particulars like those considered by this court in Davis v. Jackson, 152 Mass. 58, 25 N.E. 21, 23 Am. St. Rep 801. They were declared as payable in cash, and every stockholder could take the money and use it as he chose. An increase of the capital stock of the corporation was voted the same day, and every stockholder had a right to subscribe to the new issue an amount proportional to the amount of his ownership of stock. He might, if he chose, apply the dividend to the payment for this new stock. The increase was of such an amount that the cash dividends would just pay for the new stock to be issued, and it was undoubtedly expected that many if not most of the stockholders would exercise their option by subscribing. The value of the stock was such as to make the right to take it very valuable, and they could sell their rights for a substantial sum. In each of the two communications from the treasurer to stockholders informing them of the increase of the capital stock, they were told that valuable rights to subscribe to stock were attached to the shares then held by them.
The dividend was declared from the earnings of the corporation, and before the distribution it was in the nature of income in the treasury of the corporation. Where its earnings are not capitalized, either formally or substantially, by a corporation, there is no reason why courts, in adjusting rights between life tenants and remaindermen, should desire to treat the earnings as capital. We are of opinion that the present case is fully covered by the decision in Davis v. Jackson, ubi supra, in which the earlier cases of Rand v. Hubbell, 115 Mass. 461, 15 Am. Rep. 121, and Daland v. Williams, 101 Mass. 571, are considered and distinguished. The general subject was again considered and the doctrine of Davis v. Jackson, applied in Lyman v. Pratt, 183 Mass. 58, 66 N.E. 423, a case very similar to the one now before us.
The remaindermen suggest a difficulty from the fact that two dividends of different amounts were declared with an interval of only two months between the days when they were to become payable, and that the capital stock was to be increased twice, once on each of these days, and that the last dividend would be made upon the stock with the additional number of shares included in the first increase. This does not change the nature of the company's action in declaring the dividends, although were it not for the fact that the petitioner subscribed for the new stock of the first issue and had other money on hand for investment sufficient to pay for it,...
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