Smith v. Dana

• Decision Date: 09 March 1905
• Parties: SMITH v. DANA et al.
• Court: Connecticut Supreme Court

60 A. 117

77 Conn. 543

SMITH

v. DANA et al.

Supreme Court of Errors of Connecticut.

March 9, 1905.

Appeal from Superior Court, Hartford County; George W. Wheeler, Judge.

Interpleader by Samuel D. Smith, as testamentary trustee under the will of Alfred Smith, deceased, against C. Bates Dana and others, to determine the rights of adverse claimants to moneys received by plaintiff trustee as a dividend on stocks held by him in trust From the judgment, all the claimants appeal. Reversed.

Charles Welles Gross, for plaintiff. Charles E. Gross, for appellant I. C. Bates Dana. Grosvenor Calkins, for appellants W. S. B. Dana et al. Edward I. Baker, for appellees C. Bates Dana and Gertrude M. Steele.

PRENTICE, J. The will of Alfred Smith, who died in Hartford, the place of his residence, on August 12, 1868, was on August 16th following admitted to probate in the court of probate for the district of Hartford. By the will the testator gave to trustees the sum of $100,000. By the terms of the trust the trustees were required to pay over the income to certain persons designated during the lives of three grandchildren and the survivor of them, and upon the death of the last survivor to divide and distribute the corpus in the manner provided. Each of the three grandchildren was made the beneficiary of a share of said income during his life. The defendant I. C. Bates Dana is the only one of them surviving. Certain of the other defendants are his children and the husband of one of them. The remaining defendants are the children of Alfred F. Dana, another of said grandchildren. The third died childless. It is assumed and conceded by all parties that those defendants embrace all who, under the provisions of the will, are or can become entitled to share in the income of the trust estate, and all who are or can become entitled to participate in the division of the corpus upon the termination of the trust to pay over income, unless it be persons representing them or hereafter born children of said Bates Dana. The children of Alfred occupy the position of both life tenants and remaindermen. The claim which they here assert is made in the former capacity.

The will provided that, in setting apart said trust fund of $100,000, there should be included therein 300 shares of the stock of the Holyoke Water Power Company, which the testator owned; the same to be taken for that purpose at their par value. That was done. The capital stock of said corporation was then $350,000. July, 1877, said capital was increased to $600,000 by the issue of new stock subscribed and paid for at par. The right to subscribe for this new issue was accorded to existing stockholders pro rata. The trustees sold the rights attaching to said 300 shares. In 1893 the capital stock was again increased to $1,200,000, in the same manner as before. At this time the trustees subscribed for and took 200 shares, making their trust holdings 500 shares, and sold the remaining rights. December 20. 1902, the directors declared a cash dividend of 65 per cent. payable December 24th to stockholders of record December 20th. The plaintiff, who is the only survivor of the trustees, received the sum of $32,500 as the amount of said dividend upon said 500 shares. This sum he now holds. The defendants Bates Dana and the children of Alfred Dana claim the whole thereof as income to which they are entitled. The children of Bates Dana claim that the whole or at least the bulk of said sum belongs to the corpus of the trust estate, and should be held by the trustee as an accretion thereto. The trial court sustained this claim with respect to approximately two-thirds of the dividend, and adjudged that the balance be divided as income. This conclusion, and the reasons which the court gave in support of it, as well as those which counsel for said children of Bates Dana urge in support of their broader contention, require for their understanding and examination a statement of some of the facts which enter into the history of the corporation in question, and which serve to indicate the source and character of the corporate assets which formed the basis of the 65 per cent. dividend. Previous to 1859 the Hadley Falls Company, a Massachusetts corporation, had acquired a large tract of land where the city of Holyoke is now located, and had constructed a dam across the Connecticut river, extending from South Hadley, on the northeasterly shore, to Holyoke, on the southwesterly shore, of the Connecticut river, and had built locks and canals at Holyoke, and had laid out streets, sites for manufactories, tenements, and residences, and several factories, residences, and other buildings had been erected. Among other buildings, said Hadley Falls Company had constructed a small gas plant, which it operated. Subsequently said company went into a receiver's hands, and the Holyoke Water Power Company, hereinafter referred to as the Holyoke Company, was in 1859 organized with a capital stock of $350,000 to purchase and take over said property of said Hadley Falls Company The purchase was made, the entire capital of the Holyoke Company being paid as the consideration therefor. The purposes of the Holyoke Company, as defined in the act creating it, was "of upholding and maintaining the dam across the Connecticut river heretofore constructed by the Hadley Palls Company and one or more locks and canals in connection with the said dam, and of creating and maintaining a water power to be used by said corporation for manufacturing and mechanical purposes, and to be sold or leased to other persons or corporations to be used for like purposes." The charter gave the corporation "full power and authority to purchase, take, hold, receive, sell, lease, and dispose of all or any part of the estate, real, personal, or mixed, with all the water power, water courses, water privileges, dams, canals, rights, easements, and appurtenances thereto pertaining or belonging or therewith connected or which have at any time heretofore belonged unto or been the property of the said Hadley Falls Company, and any other real estate that may be required for the use of said corporation for the purposes contemplated by this act." The Holyoke Company continued the manufacture, sale, and distribution of gas by the usual means and methods, to supply the needs of the growing community which came into existence upon the site of its property, and which in time became the city of Holyoke, without other authority therefor than was contained in those portions of the charter recited until 1873, when special legislative authority was obtained. In 1880 the company was, as required by law of all persons engaged in the generation and sale of electricity, duly authorized to engage in that business by an order of the board of gas commissioners. From that date down to December, 1902, it generated electricity for sale and distribution, erecting and maintaining a plant for that purpose. As the result of proceedings instituted under the provisions of chapter 370, p. 949, of the acts of the Legislature of Massachusetts of the year 1891, which are in the main similar to those in force in this state regulating the establishment of gas and electric plants by municipalities within which there are existing public service plants of that character owned by private corporations, the city of Holyoke on December 15, 1902, acquired both the gas and electric plants of the Holyoke Company: paying therefor the sum fixed by the commission appointed for that purpose by the court under the provisions of said act. Upon such acquisition the right of the Holyoke Company to engage in the business of manufacturing and distributing gas or electricity ceased by virtue of the provisions of said act. The amount so paid by said city to said company was $721,043. By the use of said sum and other moneys of the corporation on hand, which at the time did not exceed $150,000 in amount, the dividend in question, requiring the disbursement of $780,000, was paid. The actual cost to the company of the electric light plant was $243,776.34. Previous to the declaration of said dividend of 65 per cent. the market value of the shares of said company was from $380 to $385 per share. At the time of its declaration the company held real and personal property amounting in value to more than $4,000,000 over and above all of its obligations. At the date of the commencement of this action the market value of the shares of the company, as evidenced by the sale of a few shares of said stock, appeared to be from $315 to $325 per share. All sums derived from the issue of stock have gone into the general treasury, and there become mingled with the other funds of the company. No separation of funds has been made, and it is impossible to trace the funds derived from any one source so as to follow them into any distinct investments. For many years the company has paid regular dividends of 10 per cent. per annum. Between February 1, 1809, and January 15, 1901, it paid extra dividends amounting to 90 per cent. of the capital stock.

The present contention between those who stand in the relation of life tenants and remaindermen to trust funds invested in stocks presents the oft-recurring question as to the rights of persons occupying those relations to participate in the benefits of a distribution to stockholders of the assets, or some portion of the assets, of the corporation. In the present case a solvent and going corporation, whose capital was undergoing no reduction in amount, declared a dividend payable and paid in cash. Life tenants of stock held in trust claim to be entitled to the dividend payment as income. Remaindermen claim that it should go to augment the capital account of the trust estate. In Minot v. Paine, 99 Mass. 101, 96 Am. Dec. 705, the necessity of some plain and simple rule which in situations like the present, frequently arising, should serve to guide trustees in the discharge of their...