Foard v. Safe D. T. Co. of Balto.

Stockbridge, J., delivered the opinion of the Court. This case conies before the Court under the 47th General Equity Rule, as a case stated. It, therefore, presents no conflict of facts, merely a question of law. The Joseph R. Foard Company is a corporation formed in 1888, with a full paid capital stock of 500 shares of the par value of $100.

It began to pay dividends on its stock in 1896, and continued to do so until 1912, or after the happening of the events which gave rise to this case. The dividends paid varied in amount from 10% per annum to as high as 100%; thus in 1902 there was made what was in effect,a dividend, though called in the minutes of the company “a special distribution” of undivided profits of 100 %; and again in 1907 there was an extra dividend of 50%, although with these two exceptions there does not appear to have been any larger dividend declared in any one year than a dividend of 20%. After 1 he'Special dividend of 50% in 1907, the net earnings of the company over and above the usual average dividends were allowed to accumulate, and not being actually needed in the prosecution of the company’s business, $25,000 of such accumulation were in 1908 used for the purchase of 200 shares of the capital stock of the First Rational Bank; and again in June, 1910, there was purchased for the sum of $23,750 a certificate of indebtedness of the City of Baltimore of the par value of $25,000. ⁴⁷⁸ Mr. Joseph R. Foard, the president of the company, was the owner of 252 shares of the capital stock, more than a majority, together with other property. On the 31st March, 1911, Mr. Foard executed a will by which after giving certain pecuniary legacies, he disposed of his property as follows : he gave to his wife absolutely, all household silver, jewelry, furniture, ornaments, books, pictures, horses and carnages, as well as other miscellaneous presonal property on his place in Baltimore County; the residue of his property was then divided into thirds, of which one-third was bequeathed to his wife, absolutely; one-third, to a daughter by a former marriage, and the remaining third, “to the Safe Deposit and Trust Company of Baltimore City in trust for my wife Virginia Lee Foard one third, the income therefrom to be paid her during her natural life, and after her death, the said one-third to go to my daughter, Elsie Blackistone Ellison, absolutely.” On the 28th June, 1911, Mr. Foard died, his will was duly admitted to probate, and all debts, legacies and the expenses of .administration paid, out of other assets than the stock, a dividend upon which is the occasion of this suit.

Six days-prior to Mr. Foard’s death at a meeting of the directors of the Foard Company, it was stated by the chairman of the meeting, “Owing to poor general conditions, the company was just about holding its own,” and upon his recommendation a dividend of 5% was authorized to be paid, not out- of the earnings of the company for the preceding-six months, but out of the undivided profits. Four months later, on October 20th, 1931, at a meeting of the directors of the company there- was declared an extra dividend of 100% upon the capital stock of the company, and “it was further resolved that the investments of this company in the First National Bank of Baltimore and in Baltimore City stock be realized as quickly as market conditions may justify, in order to facilitate the payment-of the extra dividend just declared.” Acting under this power, the stocks in question ⁴⁷⁹ were sold, realizing $50,212.50, which was deposited in the general deposit account of the corporation, and in due time checks were drawn against it for the payment of this extra dividend. At that time the estate of Mr. Foard was still in the hands of the executor, and the payment of the dividend upon Mr. Foard’s stock was made to' such executor. In the division of Mr. Foard’s estate under his will, the share included in the clause above quoted amounted to 84 shares of the capital stock, and the question is whether the- dividend of 100% so declared by the company in October, 1911, is to be treated as part of the income of the trust to be paid over to Mr. Foard’s widow, or whether it shoxxld be added to the corpus of the trust estate, in which case Mrs. Virginia Lee Foard woxxld be entitled dxxring her life only to the income arising from it, and this dividend would then pass at the termination of her life as a part of the corpus of the estate to Mr. Foard’s daughter, Mrs. Ellison.

The legal question presented, therefore, is whether this extraordinary or unusual dividend of 100% is to be treated as