Kalbach v. Clark
| Citation | 110 N.W. 599,133 Iowa 215 |
| Parties | JOHN A. KALBACH, Adm'r and Trustee of the Estate of Emiline A. Clark, deceased, et al., Appellants, v. GEORGE P. CLARK, ET AL., Appellants |
| Decision Date | 07 February 1907 |
| Court | Iowa Supreme Court |
Appeal from Mahaska District Court.-- HON. B. W. PRESTON, Judge.
THIS is a suit for the construction of the will of Emiline A. Clark deceased. The trial court found that the heirs of Mary C Wolcott, who was one of the legatees in the will, took each one-seventh of her estate, not including five shares of stock issued by a corporation as dividends; that the children of George P. Clark took the interest devised to said George P and that the widows of John A. Clark and Edgar B. Clark, both deceased, took nothing of the estate of Emiline A. Clark. All parties in interest appeal.--Affirmed.
Decree affirmed.
Gleason & Preston, for John A. Kalbach and Peter C. and Lucien F Wolcott.
H. W. Gleason, guardian ad litem, for Mary P. Wolcott. J. F. & W. R. Lacey, for W. R. L. Lacey, guardian ad litem, for Emiline A. Clark a minor, and Emelyn Clark. Irving C. Johnson, for Edgar A., Ella M., and Gertrude S. Clark.
The material parts of the will under consideration are as follows:
It is my wish that my daughter Mary C. Wolcott have the use of my stock in the Sanborn Map Publishing Company in consideration of the kind care she has taken of me during my sickness, which has been long and severe. I do not wish her to part with it, but to keep the dividends for her own personal use, after she has paid Dr. Perrine all expenses connected with my own sickness and death and also my husband's funeral expenses.
At her death I wish the principal to be equally divided among the heirs of my four children, George P., John A., and Edgar B. Clark, and Mary C. Wolcott.
This will was executed December 23, 1882, and testatrix Emiline A. Clark died February 12, 1883. The will was not probated, however, until October 15, 1897. Mary C. Wolcott and Geo. P., John A., and Edgar B. Clark were all alive when testatrix died, but since that all have died, save George P. Clark, who is now alive. Defendant Geo. P. Clark has two children, Ella M. and Gertrude L. Clark. John A. Clark left a widow, name unknown, and one minor child, Evaline A. Clark. Edgar B. Clark left one child, Edgar A. Clark, and Mary C. Wolcott left surviving Lucian F., Peter C., and Mary P. Wolcott, her children. At the time of the death of Emiline A. Clark, she held ten shares of stock in the Sanborn-Peters Map Company, a corporation, which went into the hands of her daughter, Mary C. Wolcott, one of the legatees under the will. Mary C. Wolcott received all cash dividends declared on this stock down to the time of her death. After the appointment of plaintiff as administrator he collected and paid to Mrs. Wolcott all cash dividends received by him. Some time in the year of 1901 or 1902 the corporation changed its name to the Sanborn Map Company, and shares of stock were issued by the new corporation in exchange for shares in the old, and thereafter and in the year 1902 five additional shares of stock were issued by the new corporation to plaintiff as administrator, as a stock dividend declared by it. It is claimed, and, as we think, the evidence shows, that this stock dividend was declared out of the accumulations after the death of Emiline A. Clark. At the time of the organization of the new corporation the capital stock was increased from $ 200,000 to $ 400,000, and each shareholder in the old company received the same number of shares from the new that he held in the old, but they were for $ 100 each, instead of $ 50. In 1903 the stock was increased from $ 400,000 to $ 600,000, and each shareholder was given new shares of stock to the amount of 50 per cent. of his then holdings. The 50 per cent. increase or stock dividend was issued to plaintiff as administrator or trustee. The reason given for this dividend was that the value of the company's property had so increased as to justify it. We quote now from the testimony as to how this stock dividend came to be issued:
The questions presented by the record are these: First. Is Mary C. Wolcott entitled to the stock dividend of the five shares of stock issued before her death? Second. Are the children of Geo. P. Clark entitled to anything, he being alive at the time of the death of Mary C. Wolcott? Third. Do the children of Mary C. Wolcott, and of Edgar B., John A. Clark, and of George P. Clark, if they are entitled to anything, take per capita or per stirpes under the terms of the will?
Reduced to its final analysis, the first question is this: Does a stock dividend pass to a legatee of a life estate in the original shares of stock, or are they part of the estate which passes directly to the remainderman? This question has been variously answered by the different courts of the country, and we have never before had occasion to consider it. Three rules seem to have been established by the decisions of the other courts -- one known as the American or Pennsylvania rule, another the Massachusetts or the rule in Minot's case, and the third the English rule. Under the so-called "American rule" the courts inquire as to when the stock dividends were earned. If before the life estate arose, it is treated as belonging to the corpus of the estate, and does not go to the life tenant; but, if the fund out of which it was paid was earned or accrued after the life tenancy arose, then the stock dividend goes to the life tenant. Earp's Appeal, 28 Pa. 368; Biddle's Appeal, 99 Pa. 278; Philadelphia Co.'s Appeal (Pa.) 16 A. 734; Spooner v. Phillips, 62 Conn. 62 (24 A. 524, 16 L. R. A. 461); Hite v. Hite, 93 Ky. 257 (20 S.W. 778, 19 L. R. A. 173, 40 Am. St. Rep. 189); Gilkey v. Paine, 80 Me. 319 (14 A. 205); Lord v. Brooks, 52 N.H. 72; Van Doren v. Olden, 19 N.J.Eq. 176 (97 Am. Dec. 650); Riggs v. Cragg, 89 N.Y. 479; Hyatt v. Allen, 56 N.Y. 553 (15 Am. Rep. 449); Cobb v. Fant, 36 S.C. 1 (14 S.E. 959). See 26 American Law Review (Feb., 1892) 1, and Moss's Appeal, 83 Pa. 264 (24 Am. Rep. 169). Under the Massachusetts rule, stock dividends, no matter when earned or however declared, are treated as capital and go to the remainderman. Cash dividends, however, go to the life tenant. Minot v. Paine, 99 Mass. 101 (96 Am. Dec. 705); Daland v. Williams, 101 Mass. 571; Gibbons v. Mahon, 136 U.S. 549 (10 S.Ct. 1057, 34 L.Ed. 525). There have been some modifications of this rule, however, in Massachusetts. See Heard v. Eldredge, 109 Mass. 258 (12 Am. Rep. 687); Leland v. Hayden, 102 Mass. 542; Davis v. Jackson, 152 Mass. 58 (25 N.E. 21, 23 Am. St. Rep. 801); Millen v. Guerrard, 67 Ga. 284 (44 Am. Rep. 720); Parker v. Mason, 8 R.I. 427; Greene v. Smith, 17 R.I. 28 (19 A. 1081). See, also, 5 American Law Review, 720; Perry on Trusts (3d Ed.) sections 544, 545. Under the English rule, ordinary cash or stock dividends go to the life tenant, while extraordinary dividends are treated as belonging to the corpus and go to the remainderman. Witt v. Steere, 13 Ves. 363; Bates v. McKinley, 31 Beav. 280; In re Barton Trust (L. R.), 5 Eq. 238. The rule has not, however, been adhered to in all cases in England. See Gugden v. Alsbury, 63 L.T.R. 576; Ellis v. Barfield, 64 L.T.R. 625; In re Bouch (L. R.), 29 Chap. Div. 635.
With such divergence of opinion, it is manifest that cogent reasons may be given in support of either of these propositions. We shall not attempt to review the cases cited in support of the different rules. He who cares to know the logic thereof may read. Our duty is performed when we establish a rule for this State which we believe best sustained on principle and by authority. That rule more nearly approximates what is called the American than any other. Under it we start with the notion that all pure dividends, whether in cash or stock or other property are a part of the income, and, when declared, should go to the life tenant, and not to the remainderman, as it is not a part of the corpus of the property, but a part of the income derived from the use and management thereof. Any dividends, so-called, presumptively belong to the life tenant, as they are, in the absence of a showing to the contrary, assumed to have been divided as profits. If, however, the so-called stock dividends represent the corporate capital -- that is, represent nothing but the natural growth or increase in the value of the permanent property, so that there is merely a change in the form of ownership -- such stock should go to the remainderman; for in such cases the dividend is a dividend of capital, representing simply an increase in the value of the physical property, good will, or other thing of tangible value. This is the modified American rule announced in Spooner v. Phillips, 62 Conn. 62 (24 A. 524, 16 L. R. A. 461); Hite's Devisees v. Hite's Ex'r, 93 Ky. 257 (20 S.W. 778, 19 L. R. A. 173, 40 Am. St. Rep. 189); Williams v. Tel. Co., 93 N.Y. 162; Lord v. Brooks, 52 N.H. 72; Moss's Appeal, 83 Pa. 264 (24 Am. Rep. 164); Thompson on Corp. sections 2192, 2193. Under this rule it becomes a question of fact as to the actual nature of the dividend. The mere fact that the directors of the corporation call it either one thing or the other is not controlling. The Massachusetts rule has also been adopted by the Supreme Court of the United States,...
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