Atlantic Coast Line Dividend Cases

The single question presented on this appeal, is whether a 20 per cent stock dividend, declared by a resolution of the directors of the Atlantic Coast Line Railroad Company, a Virginia corporation, and payable in the common capital stock of the company, on the 20th day of January, 1905, shall be treated as "income," payable to the life tenants, or as principal, belonging to the appellant, as trustee under a deed from Moses H. Powder of Baltimore City, deceased.

The facts upon which the decision must rest are practically undisputed, and are set out in an agreed statement of facts contained in the record.

The trust created by the deed, under which the stock of the railroad company was held, and upon which the dividend was declared, is as follows: "In trust so that Moses Hindes Powder, trustee herein named, shall and will receive, take and collect all the rents, issues, income, profits and interest of said property hereby conveyed, and from all investments or changes of investments of the same, made or to be made, as hereinafter provided for, and apply the same to the support and maintenance of Moses Hines Powder, and his wife and children during the lives of Moses Hindes Powder and his wife, and after the death of both of them the principal of said estate and all increase thereof to become the absolute property of their children, share and share alike, the children of any deceased child to take only their parents' share, that is, that share thereof to which, if living, the parents would be entitled."

Mr. Powder died in October, 1894, and the appellant, as substituted trustee, holds fifty-six shares of the stock of the Atlantic Coast Line Railroad Company, of the par value of one hundred dollars per share, belonging to the trust estate.

On the 20th of April, 1899, Mrs. Powder conveyed all her interest under the trust to one Sarah A. Danskin and she subsequently conveyed it to the appellees, Beryl D. Powder and Margaret D. White, who are the only life tenants of the trust property.

At a meeting of the board of directors of the company, held in Richmond, on November 15th, 1904, the following resolution was passed: "It is the opinion of the board that the surplus net earnings of this company are sufficient to justify the payment to the holders of the common capital stock of this company of a dividend of 20 per cent, payable in the common capital stock of this company, and to that end it is requested that the stockholders increase the capital stock of the company so that the same shall be $50,000,000, out of which the said dividend may be declared and paid."

Subsequently the stockholders of the company recommended the declaring of the dividend, and the board of directors of the company passed these resolutions.

"Resolved, That an extra dividend of 20 per cent, be and hereby is declared payable to the holders of the common capital stock of this company, of record January 2d 1905, and payable in the common capital stock of this company on and after the 20th day of January, A.D. 1905."

"Resolved, That an extra dividend of 5 per cent be, and the same is hereby, declared payable out of the surplus net earnings of this company to the holders of the common capital stock of this company, of record at the close of business on December 31st, 1904, and that this dividend shall be paid to the holders of said stock in the 4 per cent certificates of indebtedness of the Atlantic Coast Line Company held and owned by this company, which said surplus net earnings have been invested and shall be payable on and after the 20th day of January, A.D. 1905; said certificates of indebtedness shall be issued in the names of the holders of said common stock of this company of record at the close of business on December 31st, 1904."

It is admitted that the extra dividend of 5 per cent payable in certificates of indebtedness of the company, is income, and there is no appeal from that part of the decree directing them to be transferred to the life tenants. It is also conceded, that the trust covers the period of the operations of the railroad company and "that since June 30th, 1900, no change has taken place in the persons, entitled to receive the income from the shares of stock, mentioned herein."

These are the undisputed facts in the case and are fully stated in the record.

Whatever may be the rule established by the Courts in other jurisdictions, and they are by no means in accord, it is well settled in this State, since the adjudication in Thomas v.Gregg, 78 Md. 545, and Quinn v. Safe Deposit and TrustCompany, 93 Md. 285, that there are cases where stock dividends, such as the one now under consideration, should be held to be income and not capital. The determination of the question depending "upon the substance and intent of the action of the corporation as manifested by its vote or resolution."

In other words, when a dividend based upon the earnings of a company is declared payable in stock and the company had the power of so distributing it, and this power was validly exercised, it is to be treated as income and not capital, and goes to the tenant for life.

Now, according to the resolution passed by the railroad company on the 15th of November, 1904, it was declared, that it is the opinion of the board that the surplus net earnings of the company are sufficient to justify the payment to the holders of the common capital stock of the company of a dividend of 20 per cent payable in the common stock of the company, and the capital stock was subsequently increased out of which the extra dividend of 20 per cent was payable.

Here there is an express and manifest declaration on the part of the company as to how and in what manner the distributions of the net earnings should be made, and the company having the power of distributing its profits as dividend or capital, its action therein is binding on all persons interested, and should not be controlled by the Courts.

The language of the deed of trust is quite clear, and there can be no question, that under its provisions, the dividends are payable to the appellees. It provides, that the trustee shall receive the rents, issues, income, profits and interest of the property, and all increase thereof, and apply the same * *. Obviously, the use of the terms "income," "profits," "interest" and "all increase of the property," is sufficient to control the dividend in this case. It is difficult to imagine what more appropriate terms could have been used by the grantor in the deed to have designated his intention. Smith v. Hooper, 95 Md. 16.

As we agree with the conclusion reached by the learned Judge of the Circuit Court of Baltimore City, that the stock dividend of twenty per cent, payable in stock, and the dividend of five per cent (5%) payable in certificates declared by the railroad company, should be treated as income, and payable to the life tenants under the Powder trust, we shall affirm the order appealed from, the costs to be paid out of the dividends so declared.

Order affirmed, costs to be paid out of dividends.

(Decided June 22d 1905.)

In the cases of The Safe Deposit and Trust Co., Trustee, v.Annie S. Long, and The Same v. Gertrude W. Elder, the questions were the same as that discussed in the foregoing opinion and the orders appealed against were affirmed for the reasons there given.

In Safe Deposit and Trust Co. v. Bertha White et al. BRISCOE, J., delivered the opinion of the Court.

This appeal involves a construction of that portion of the will of Henry James, late of Baltimore City, relating to the rights of the appellees, under section E of Clause three of the will. The language of the will is as follows: "In trust as to each part or division for the sole and separate use and benefit of my daughter to whom the same may have been by my trustees set apart and designated as hers for and during the term of her natural life, with remainder to her children."

The question, here, being the same as the one presented in the appeal of the Safe Deposit and Trust Company of Baltimore v.Beryl D. Powder et al. decided at this term, the order herein appealed from, will be affirmed for the reasons stated in that case.

Order affirmed, the costs to be paid out of dividend.

(Decided June 23rd, 1905.)

In Safe Deposit and Trust Co., Trustee, v. Eliza H. Cassardet al. BRISCOE, J., delivered the opinion of the Court.

The appellees in this appeal are life tenants under the seventh, eighth and ninth clauses of the will of Thomas Kensett, late of Baltimore City. The trusts for each of the life tenants are the same, the language being as follows: "In trust and confidence, however, that the dividends, interest, rents and net income arising from the estate and property embraced in this article of my will shall be for the sole, exclusive and separate use of my daughter, Eliza H. Cassard, during her life and shall be paid over to her as they accrue" with remainder to her children.

The questions presented on this appeal are identical with those decided by this Court in the case of the Safe Deposit and TrustCompany of Baltimore, Trustee, v. Margaret D. White and BerylD. Powder, at this term of Court, and the orders appealed against in this case will be affirmed for the reasons stated by us in the opinion filed in that case.

Orders affirmed, the costs to be paid out of the dividends, ineach appeal.

(Decided June 23rd, 1905.)