Goldsmith v. Swift

The duty of the trustee to retain twenty-seven additional shares of ,sto.ck,-and,to -hold tho-sanm-as part of, the ...corpus of. the trust seems to us quite plain. Those shares do not in any sense represent earnings or income, but they are simply an accretion to the ■original stock, wdiich was made in the process of consolidating the two corporations, for the purpose of equalizing the value of the interests of the stockholders therein respectively. No dividend was intended, or was in fact made, by the issue of those shares. 'On the contrary, 100 shares of the stock of the old corporation, held by the trustee, were worth 127 shares of the stock of the new corporation. When issued, they represented capital, and not earnings or profits, or anything which could be the subject of a dividend.

With respect to eighty shares of the stock held by the trustee, the case is different. Those shares were issued in payment or in lieu of antecedent certificates, and -the- latter represented the earnings of one of the old corporations, which had accrued before the certificates were issued. Those certificates were redeemable either in money or stock, at the option of the corporation that issued them. No time for redemption was fixed, but they were transferable, and the holder of them was entitled, at the like option, to dividends thereon out of the future earnings, at the same rates and times as dividends should be paid on capital stock. Such certificates are, in ordinary parlance, called scrip, and the distribution of them among stockholders, is usually called a scrip dividend. It is true that the *205property of the corporation remained intact notwithstanding the issuing of the certificates. No money was distributed, nor was the property which had been acquired by an expenditure of the past earnings of the corporation in any manner converted. All. that the corporation possessed before the certificates were issued it retained as its own property afterwards. Nor did the certificates create any absolute indebtedness against the corporation. (People ex rel. Williamsburgh Gas Co. v. Assessors, 76 N. Y., 202.) Still, the-agreement to apply future earnings or stock to the redemption of the certificates, though optional on the part of the corporation, was of some value to the holder, and when the certificates were converted into stock the holder derived the same benefit from them,, that he would have received if they had imported an absolute-obligation to that effect. We think, therefore, that such certificates should be treated by the trustee as a dividend within the meaning of the trust (Bailey v. Railroad, 22 Wall., 604), and, of course, that the stock with which they were redeemed is of the same-character. Such seems to be the rule, so far as one has been established in this State. (Clarkson v. Clarkson, 18 Barb., 646;. Simpson v. Moore, 30 id., 637; Woodruff Estate, 1 Tuck., 58 ;. Brundage v. Brundage, 60 N. Y., 544.) The question generally is fully discussed in Perry on Trusts, section 545 and note.

It is hardly necessary to add that the right to dividends accrues when they are declared, no matter when the earnings were made. (22 Wall., supra.)

There must be judgment for the plaintiff in accordance with this-opinion.

Judgment for plaintiff on submitted case, with costs.