Soehnlein v. Soehnlein

• Decision Date: 02 June 1911
• Citation: 146 Wis. 330,131 N.W. 739
• Parties: SOEHNLEIN ET AL. v. SOEHNLEIN.
• Court: Wisconsin Supreme Court

146 Wis. 330

131 N.W. 739

SOEHNLEIN ET AL.

v.SOEHNLEIN.

Supreme Court of Wisconsin.

June 1, 1911.

Dissenting Opinion, June 2, 1911.

Syllabus by the Judge.

In the absence of some prohibition in the written law or charter of a corporation to the contrary, surplus earnings, distributable to stockholders, may be converted into permanent capital by increasing the stock and distributing such increase as a dividend.

Corporate surplus earnings distributable as a dividend may be capitalized and distributed as preferred as well as common stock, in the absence of restraint in the written law or corporate charter.

Unless the written law or charter of a corporation forbids, it may declare a dividend out of surplus assets existing in money or out of money obtained against such assets, or by capitalizing such assets and making the distribution in common or preferred stock, or both.

Sections 1759a and 1765, Stats. 1898, affirm the foregoing, incorporating the same into written law.

If a corporate dividend be declared payable in stock and the stockholders unite in turning such stock into money so as to divide the proceeds in that form and the conversion is made to that end, as between a term beneficiary and a remainderman the one entitled to the dividend in new stock, is entitled to participate in like proportion in the converted fund.

The primary principle as to direction of corporate dividends declared out of surplus assets during a term, accumulated during such term, as between a term owner and remainderman, is that the possessor of corporate stock may convey it to one for a time, remainder over to another, free from authority of the corporation to disturb the purpose thereof; that not militating, however, against corporate power, exercised in good faith, to retain surplus and thus enhance the value of corporate shares or to distribute the same.

The principle logically resulting from the foregoing is that if surplus, accumulated during a term, regardless of how carried on the corporate books, or in what form of property received or how converted or reconverted into other forms before distribution as a dividend, and regardless of the manner of dividing, or intention of the corporate officers in the matter, a person owning stock for such term is entitled to all dividend incidents, if the creator of the special interest so intended at the time of creating it.

A companion principle to the foregoing is that, if one conveys stock to a person for a term and remainder to another and in no other way expresses his intention as to dividend incidents, the presumption of fact is that he intends the term owner to have all such incidents springing from distribution during the term out of gains to the corporation during such period.

All dividends on corporate stock, in the absence of any efficient showing to the contrary, are presumed to be out of income.

The sole test as to whether the term owner or remainderman of stock shall have any particular dividend is the intention of the creator of the two interests, and that is presumed to favor the term owner if the dividend was declared during the term out of income accumulated during that period.

“Income” in the foregoing means all accumulations whether in money or property, and regardless of the form when first obtained or how converted and reconverted before declaration of a dividend.

A corporation which capitalizes surplus profits, and distributes the new stock as a dividend, has as much assets after the increase of stock as before, but it has more liabilities. The new thing obtained by a stockholder is, to all intents and purposes, new property, the same as if the corporation had distributed money and the recipient had returned it for stock.

Stock received as a dividend is a thing of value, salable and enjoyable separate from the base stock, and is therefore an incident of the latter the same as a money dividend.

If a corporation capitalizes its surplus accumulated from income and makes a dividend in stock, the new stock represents old assets held against new liabilities and, as regards owners of old stock, is a distribution of income.

If, in particular circumstances the term owner of corporate stock is entitled to the benefit of a dividend distribution of corporate assets if made in the form of cash, he is entitled to it, whether large or small or whether made in cash or stock or in any other way.

In making a choice between conflicting lines of authority respecting a question which is new here, this court will incline to the doctrine of the federal Supreme Court in case of its having spoken upon the subject, there being no great preponderance in number of decisions and logic to the contrary.

The rule stated in the last foregoing does not constrain us to adopt the doctrine of Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057, 34 L. Ed. 525, it being contrary to the great weight of authority, as to number of decisions and logic as well.

If a person by will or otherwise creates a trust in corporate stock for the benefit of another, providing that such other shall have the income thereof for a stated period, the term “income” covers all distributions made by capitalizing surplus created by income and distributing stock evidence of liabilities or otherwise.

The opinion in Pabst v. Goodrich, 133 Wis. 69, 113 N. W. 398, is restrained to conform to the decision there and to the decision in this case.

Appeal from Circuit Court, Milwaukee County; Warren D. Tarrant, Judge.

In the matter of the trust created by the will of Frederick Pabst, deceased. Proceeding by Emma Soehnlein against Edith Soehnlein and Beatrice Soehnlein to obtain judicial directions as to certain trust funds. Judgment for plaintiff, and defendants appeal. Affirmed.

Special proceedings to obtain judicial directions respecting ownership and disposition of trust funds.

The facts found by the trial court are undisputed. The following is a summary thereof so far as relates to Emma Soehnlein and her children:

1. January 1, 1904, Frederick Pabst died, testate. He made a deed of gift at the time of executing his will and both took effect. By the deed a trust in $700,000, or thereabout, par value of the capital stock of the Pabst Brewing Company, was created for Emma Soehnlein. By the will he created a similar trust in one-fifth of his estate.

2. The following were beneficiaries under the will and deed: His widow Maria, who deceased October 3, 1906, Gustave G. and Frederick, Jr., sons, Marie Goodrich, a daughter, Emma, a daughter, wife of Frederick William Soehnlein, by whom she has living a daughter Edith, born October 13, 1903, and a daughter Beatrice, born January 12, 1906, and Emma Maria Pabst, born December 25, 1890, child of deceased's daughter, also deceased, Elsbeth von Ernst.

3. In due course the Wisconsin Trust Company became sole trustee under both will and deed.

4. Said Gustave G., Frederick, Jr., Marie Goodrich, Emma Soehnlein, Edith and Beatrice Soehnlein and Emma Maria Pabst are the only persons interested under the trusts created by both deed and will.

5. At the date of the instruments mentioned Pabst Brewing Company was a Wisconsin corporation with 10,000 shares of paid up capital stock of $1,000 each. The will provided that, in case of Emma Soehnlein surviving her mother and then having a child 10 years old living, she should have one-fifth of the estate, but in case of her not so surviving and having such issue the property should remain in trust, Emma receiving the income thereof until the event of her having a child 10 years of age occurring and then the corpus be delivered to her, and in case of her decease, not having received the property but leaving a child or children, the income to go to them equally until one arrive at the age of 10 years and the corpus to them likewise go. The trust deed created for Emma a trust in one-fourth of 2,840 shares of corporate stock upon like conditions.

6. Pursuant to the deed, 710 shares of the stock were set aside for Emma and pursuant to the will, including a distribution hereafter referred to, 418 shares were so set aside.

7. December 11, 1906, the company possessed 3,322 shares of its stock, part purchased before and part after the decease of Mr. Pabst, all at a cost of $4,495,629.89, which was somewhat less than the company's surplus at such decease.

8. On said December 11th said treasury stock was duly and equally distributed among the stockholders, making the total of the trust shares to Emma 1,063 under the deed and 418 under the will.

9. After the trusts all took effect and prior to May 10, 1910, the corporation accumulated a surplus from earnings of $3,086,562.02.

10. Such net earnings were available for distribution among the stockholders as a dividend in the discretion of the directors.

11. $708,894.12 of such available funds was in the form of an investment in 736 shares of the common stock of the corporation.

12. January 13, 1910, and soon thereafter. corporate proceedings were duly had changing the 10,000 shares of the corporate stock of $1,000 each into 100,000 shares of $100 each and increasing the capital stock on account of the aforesaid net earnings by 20,000 shares of 7 per cent. preferred stock of $100, par value, each.

13. At the time of such change it was contemplated by the stockholders that such preferred stock and $500,000, par value, of the common stock, out of that in the treasury, should be distributed as a dividend, the idea being to convert all into cash, affording the stockholders a cash dividend equivalent to the market value of such stock. To that end arrangements were made for the conversion as soon as the distribution of stock should be effected, so that the stockholders might, in effect, receive cash instead of stock, the purpose being payment of a cash dividend aggregating the net income available therefor earned subsequently to January 1, 1904, without reducing the cash resources of the corporation.

14. January 13,...