Lyman v. Pratt
| Decision Date | 26 February 1903 |
| Parties | LYMAN et al. v. PRATT et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
J. B. & H. E. Warner, for Robt. M. Pratt.
Chas A. Williams, for guardian ad litem.
The only question in this case is whether a dividend made by the Lawrence Manufacturing Company, payable to stockholders on May 13, 1901, is to be treated by the trustees as income, to go to the life tenant, or as principal, to be held for the remainderman. In Minot v. Paine, 99 Mass. 101-108 96 Am. Dec. 705, it is said that in such cases 'a simple rule is to regard cash dividends, however large, as income and stock dividends, however made, as capital.' This general rule has been followed by this court ever since. Daland v. Williams, 101 Mass. 571; Leland v Hayden, 102 Mass. 542-550; Rand v. Hubbell, 115 Mass. 461, 15 Am. Rep. 121; Gifford v. Thompson, 115 Mass. 478; Adams v. Adams, 139 Mass. 449-452, 1 N.E. 746; Davis v. Jackson, 152 Mass. 58, 25 N.E. 21, 23 Am. St. Rep. 801; D'Ooge v. Leeds, 176 Mass. 558, 57 N.E. 1025; Hemenway v. Hemenway, 181 Mass. 406, 63 N.E. 919. In determining what is a cash dividend and what is a stock dividend, substance, and not form, is regarded; and often it is difficult to decide to which class a particular dividend belongs. The real question is whether the distribution made by the corporation is of money to be taken and used as income, or of capital to be retained in some form as an investment in the corporation. In dealing with investments of this kind, it is impracticable for courts to ascertain what has been earned by the corporation after the time of an investment by a trustee, so as to determine accurately the income upon the investment for the purpose of an exact adjustment of the rights and interests of tenants for life and remaindermen. It is necessary to resort to some simple, arbitrary rule, and this which has been adopted works in most cases, although not always, with substantial equity. In the present case the vote of an increase of the capital stock and the vote declaring dividends took effect on the same day, and the amount of the dividend was just enough to enable each stockholder to pay for the additional stock for which he was entitled to subscribe under the vote for the increase. It was undoubtedly expected that many of the stockholders would invest their dividend in the new stock; but there was no requirement that they should, and, except in...
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