In re Osborne

• Decision Date: 03 December 1913
• Citation: 209 N.Y. 450,103 N.E. 723
• Parties: In re OSBORNE.
• Court: New York Court of Appeals Court of Appeals

209 N.Y. 450

103 N.E. 723

In re OSBORNE.

Court of Appeals of New York.

Dec. 3, 1913.

Appeal from Supreme Court, Appellate Division, Second Department.

Proceeding for the judicial settlement of the account of James W. Osborne, as executor and trustee under the will of Eugene La Grove, deceased. From part of an order of the Surrogate Court confirming the report of a referee, and from part of the court's decree, affirmed by the Appellate Division, Second Department (153 App. Div. 312,138 N. Y. Supp. 18), the executor and trustee appeals. Modified and affirmed.

See, also, 103 N. E. 823.

Gilbert D. Lamb, of New York City, for appellant.

Louis Marshall, of New York City, for respondent.

CHASE, J.

Eugene La Grove died a resident of this state October 4, 1908, leaving a will which was duly probated and by the fourth paragraph of which a trust was created as follows: ‘All the rest, residue and remainder of my property and estate, real, personal and mixed of every description and wheresoever situated of which I may die seized or possessed * * * I give, devise, and bequeath to my executor and trustee hereinafter named in trust, to hold said property and estate and invest and reinvest the same and to collect the rents, issues, income and profits therefrom, and to pay the net rents, issues, income and profits therefrom quarterly to my wife, Ivy Lee La Grove from the time of my death during the term of her natural life, and, upon her death, to divide the principal into as many shares as my wife shall leave children by our marriage her surviving * * * but in the event that my said wife shall die leaving no issue her surviving, then at her death the principal so set apart for her benefit shall be paid to such person or persons as would be entitled to share in her estate were she to die intestate under the statute of distribution in force at the time of her death in the state of New York.’ The testator did not leave any descendants. Ivy Lee La Grove, who was his wife, is living. The rest, residue, and remainder of the property, as provided by the fourth paragraph of the will, is held in trust by James W. Osborne as trustee pursuant to the provisions of such paragraph.

The will also provides in the fifth paragraph thereof as follows: ‘I hereby request my executor and trustee under this my will not to sell any stocks that I may hold at the time of my death in the Singer Manufacturing Company, unless the remainder of my property and estate is insufficient to pay my just debts and funeral expenses and the specific legacies and charges in this my will contained; and in case such remainder of my estate is insufficient to pay such debts and funeral expenses and the specific legacies in this my will contained, then and in that event I request my executor to sell only so much of the stock of said company as is necessary to be sold in order to pay such debts, legacies and charges. I authorize, however, my executor and trustee created under this my will that should he so elect, he may sell said stock or any of the same and in his discretion change the investment of said trust funds and should my executor and trustee elect to sell said stock or any part thereof, that he shall at all times keep the proceeds thereof as well as any other part of the trust funds herein devised or bequeathed invested in stocks and bonds of the United States or of the state of New York and such stocks and bonds or other investments as may be at the time legal investments for trust funds in the state of New York.’

The principal part of the estate of the testator consisted of 3,000 shares of the stock of the Singer Manufacturing Company, a corporation organized and existing under the laws of the state of New Jersey. The capital stock of the Singer Manufacturing Company at the time of the death of the testator was $30,000,000 . On that day it had a surplus of accumulated earnings arising exclusively from the business of the company amounting to $37,604,206. On June 17, 1910, such surplus had increased to $51,560,757. On March 31, 1910, the executor sold 80 shares of the stock of said company. On June 2, 1910, the board of directors of said company passed a resolution as follows: ‘Whereas this corporation now has a capital stock of thirty millions of dollars issued and outstanding and a surplus of thirty millions of dollars and upwards, and, whereas, it is desirable that said surplus to the extent of at least thirty millions of dollars should be retained by the corporation as working capital, and to that end that its capital stock should be increased to sixty millions of dollars and a stock dividend of thirty millions of dollars be declared out of such increase, therefore, be it resolved: First. That it is advisable to increase the capital stock of this corporation to sixty millions of dollars, and Second. That it is advisable to declare and pay to the stockholders of the corporation a stock dividend of thirty millions of dollars out of such increase of stock. And the board does hereby call a special meeting of the stockholders to be held at the company's office at the Singer Building in the city of Elizabeth on the sixteenth day of June, 1910, at three o'clock in the afternoon, to take action upon the above resolution and decide whether or not such increase of stock shall be made.’

On said 16th day of June, 1910, the stockholders adopted a resolution as follows: ‘Resolved, that the directors be and they hereby are authorized and empowered to forthwith declare a stock dividend of thirty millions of dollars, or one hundred per cent on the present issued capital stock of this company, and to issue forthwith in payment thereof certificates of fully paid nonassessable stock, to the stockholders of record at this date, in the amounts in which they are respectively entitled to the same.’

On June 17, 1910, the board of directors of said company adopted a further resolution as follows: ‘Resolved that the directors declare and they do now declare a stock dividend of thirty millions of dollars, or one hundred per cent on the present issued capital stock of this company payable forthwith to the stockholders of record on the 16th day of June instant out of said increase of stock, and that the president and treasurer be and they hereby are authorized and directed to issue forthwith to the several stockholders of record on the said 16th day of June instant, certificates for so many shares of fully paid and nonassessable stock as said shareholders shall severally be entitled to in payment of said dividends.’ Thereupon, and on the same day, June 17, 1910, said company paid over and delivered to James W. Osborne as such executor a stock dividend of 2,920 shares of the par value of $100 each, being one share of increased capital stock of said company for each share of old stock theretofore held by said Osborne as executor, and said stock remains in the possession of said Osborne as such executor and trustee.

After the death of La Grove, and prior to the payment to Osborne as such executor of the stock dividend, regular cash dividends had been paid on said stock amounting in the aggregate to $242,564.18, which has been paid from time to time by said executor to said Ivy Lee La Grove, the beneficiary under the trust, as provided by said will.

The troublesome question as to who is entitled to extraordinary dividends declared upon stock held in trust as between life beneficiaries under the trust and the remaindermen is again presented to us for our consideration.

The question has been considered by the courts in this and other states and countries in many and various forms from time to time since the decisions and opinions of the courts have been published. It has been said that no question before the courts has been more troublesome. Certainly none has resulted in greater contrariety of views. Decisions that are apparently contradictory either in the same court or in the courts of different states and countries have, however, been caused in part by different facts and circumstances existing in the cases decided, and the effect necessarily given to the language of the will or instrument creating the trust in the particular cases in which the decisions have been rendered.

[1][2] In determining who is entitled to a dividend upon stock held in trust, the intention of the testator or the maker of the trust must be carried out when such intent is clear, so far as such intent does not result in an unlawful accumulation of income. Very many cases arise, however, where the testator or maker of the trust had not considered the possibility of enormous dividends being declared by corporations to effectuate their reorganization or in the division of accumulated profits, made necessary by new statutes, changed circumstances, and modern rules and conditions, or, if such testator or maker of the trust had considered such possibility, he failed to express himself in the instrument creating the trust so as to show any clear intention regarding the same.

In England, as far back as 1799, it was established as a rule that all extraordinary or unusual dividends declared during the continuation of a life estate, whether payable in cash or in stock, belong to the corpus of the fund and not to the income. Brander v. Brander, 4 Ves. Jr. 800. The decision in the case cited was repeatedlyfollowed and the rule restated. The rule in England as stated in the earlier cases has been materially modified, and dividends of cash are now held to belong to the life tenant and stock dividends to the remainderman, subject, perhaps, to an examination of the facts and circumstances in each case in applying the rule as stated. Bouche v. Sproule, L. R. (12 App. Cas.) 385.

In Massachusetts, in Minot v. Payne, reported in 99 Mass. 108, 96 Am. Dec. 705, it is said: ‘A simple rule is to regard cash dividends, however large, as income; and stock dividends, however made, as capital.’ The courts of that state...