Thomas v. Gregg
| Decision Date | 25 January 1894 |
| Parties | THOMAS v. GREGG ET AL. PENNINGTON ET AL. v. GREGG ET AL. |
| Court | Maryland Court of Appeals |
Appeal from circuit court of Baltimore city.
In the matter of the will of John Gregg, deceased. James Gregg and others, trustees under the will, filed a bill asking for directions to partition the estate according to the provisions of the will, and giving a list of the properties in their possession. Thereafter they filed a petition alleging that they had failed to include certain shares of stock, and asked that they might be permitted to amend their bill by including such shares. Permission to amend was granted, and the trustees made returns of the properties in their possession, in which such stock was included. John Marshall Thomas, executor of Annie G. Thomas, deceased, a beneficiary under the will, and Margaret Pennington, another beneficiary, joined by her husband, excepted to the return. The exceptions were overruled, and Thomas and Margaret Pennington and her husband appeal. Reversed.
Argued before ROBINSON, C.J., and FOWLER, BRISCOE, ROBERTS, PAGE and BOYD, JJ.
Rand. Barton and Skip Wilmer, for appellants.
L. M Reynolds and Sam'l Snowden, for appellees.
John Gregg died on February 11, 1890, leaving a last will and testament by which he left one-half of his property to three trustees, in trust for the sole and separate use and benefit of his daughter, Annie G. Thomas, for and during her natural life, and after her death then in trust to grant and convey transfer and deliver the same to the issue of her body living at the time of her death, share and share alike, etc. The other half of his property is left to the same trustees for the benefit of his other daughter, Margaret Pennington, for and during her natural life, and after her death to be held in trust for the issue of her body living at the time of her death, share and share alike, etc. In each case provision is made for the disposition of the property in the event of either daughter dying without issue. Among other provisions the will directs the trustees to make, under the order and supervision of a court having equity jurisdiction, a division and partition of his estate into two parts. Mrs. Thomas died in July, 1891, leaving three children and her husband, who was made executor of her last will and testament. The trustees filed a petition in the circuit court of Baltimore city, asking it to take jurisdiction over the estate, and on September 15, 1891, that court did assume jurisdiction over the same. On December 13, 1892, the trustees filed a bill or petition in said court asking that they may be directed to make a partition of the estate as authorized by the will. They gave lists of the properties, bonds, stocks, etc., in their possession, including 3,352 shares of the common stock of the Baltimore & Ohio Railroad Company. On December 19, 1892, they filed a petition in which they stated they had failed to include in their bill 670 shares of the common stock of the Baltimore & Ohio Railroad Company, which were issued to them in pursuance of a resolution of the board of directors of said company passed on the 11th day of November, 1891, whereby a dividend of 20 per cent. on the common stock of the company was declared for the three fiscal years ending, respectively, September 30, 1889, September 30, 1890, and September 30, 1891, and that the 670 shares of stock were issued to, and held by, them as dividends, or earnings, on the 3,352 shares of stock mentioned in their bill, and prayed the court to permit them to amend their bill by including the 670 shares of stock, which amendment was allowed by the court. The parties in interest answered the bill as amended. John Marshall Thomas, the husband and executor of Annie G. Thomas, who died in July, 1891, claimed in his answer that, inasmuch as the said 670 shares of stock are the dividends and earnings of the 3,352 shares of stock held by the deceased in his lifetime, for the three years ending September 30, 1889, September 30, 1890, and September 30, 1891, respectively, he, as executor of his wife and in his own right, was entitled to one-half of the proportionate part of the said earnings (dividend stock) that were earned between the decease of the testator on February 11, 1890, and the decease of Mrs. Thomas on July 8, 1891. Margaret Pennington and husband claimed that the 670 shares of stock were issued as a dividend on account of earnings and income, and that, hence, she was entitled to one-half of the same as her absolute property. Testimony was taken, and the court passed an interlocutory decree for partition, appointing the three trustees commissioners. The commissioners made their return to the court, and included one-half of the said 670 shares of stock in each of the two schedules of the trust property. Mr. and Mrs. Pennington and Mr. Thomas excepted to the return of the commissioners and trustees for the reasons set out in their answers. The circuit court of Baltimore city overruled the exception, ratified and confirmed the return, in respect to those shares of stock, and directed that they should be held by the trustees under the will of John Gregg. From this decree appeals were taken by J. Marshall Thomas, in his own right and as executor of Annie Gregg Thomas, and by Margaret Pennington and husband. The first question, therefore, to be decided is, are the 670 shares of stock issued by the Baltimore & Ohio Railroad Company to be considered as income, and vest in the life tenants, or as capital, and be held by the trustees, together with the rest of the trust estate?
Although this court has never been called upon before to decide this question, it has frequently been before the courts of England, as well as many of the courts of last resort in this country. We are not helped, but rather embarrassed, however, by the fact that so many courts have passed upon the question, as we find jurists entitled to our highest respect widely differing on the subject. It is true that some of the decisions can be reconciled by a careful examination of the facts on which they are based, yet there are others which are irreconcilable. The authorities generally agree that if the intention of the testator can be gathered from the will, it must prevail in determining such questions as are now presented for our consideration, but the will of John Gregg throws butlittle, if any, light on the subject. There is a class of cases that decides that when the company has the power of distributing its profits as dividends, or of converting them into capital, and it validly exercises such power, it is binding on all persons interested, and what the "company says is income shall be income, and what it says is capital shall be capital." In other words, that the intention of the company shall prevail in determining the question. This court decided in State v. Baltimore & O. R. Co., 6 Gill, 363, that the directors of this company are only bound to divide such part of the net profits as they may deem proper; that they can apply any portion of the net profits not divided to any legitimate purposes of the company, and that they can expend the revenues of the company absolutely, without being bound to refund them, or they could appropriate and agree to refund them to the stockholders, in their discretion. This statement of the power of the directors assumes, of course, that they would act in good faith. The only evidence in the case that in any way reflects upon the intention of the company is the resolution of the directors declaring the dividends, which is as follows:
"Whereas, for the fiscal years terminating September 30, 1889, 1890, and 1891, the net earnings and income of the company have amounted to the sum of $4,545,272.34, as shown by its reports, after the payment of dividends on the first and second series of preferred stock to the amount of $900,000, the adjustment of sinking fund accounts, and after charging to operating expenses during those years over one million dollars, expended in betterments and improvements of the physical condition of the property, and in bringing it up to a higher working standard; and whereas, after charging to 'profits and loss' of those years the sum of $1,617,-051.09,--a deduction which has been deemed proper to make by reason, mainly, of depreciation of the value of equipment, which properly should have been made during the year 1888,--there still remains of such net earnings and income the sum of $3,311,455.23, which sum, in addition to the amounts derived from other sources, has been used in reduction of the bonded and car-trust indebtedness of the company to the amount of $1,325,-102.64, and also for the permanent improvement of the railway, and for new construction, all of which contribute valuable additions to the property and to the capital of the company: Therefore, resolved, that a dividend of twenty [20] per cent. be declared upon the common stock of this company for the period ending September 30, 1891, payable on and after 31st day of December, 1891, in common stock of the company, at the office of the treasurer, to the stockholders of record on the 30th of November, 1891," etc.
As so many different views have been expressed by the courts in passing upon the respective rights of tenants for life and remainder-men in regard to what are commonly called "stock dividends," it will be well to refer to some of the leading cases. In Minot v. Paine, 99 Mass 101, what is sometimes called "the Massachusetts rule" was adopted, viz. "to regard cash dividends, however large, as income, and stock dividends, however made, as capital." The court said that the trustee needed some plain principles to guide him, and deemed the above rule simple and equitable, as...
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