Spedden v. Norton

¹⁰³ Urner, J., delivered the opinion, of the Court. The appellants are life beneficiaries of a trust created by the will of Robert M. Spedden, who died on April 1st, 1911. Among the assets of the trust are 183 shares of the capital stock of the Edmondson Realty Company, having a par value of $100 per share. A cash “liquidating dividend” of fifteen per cent, of the par value of the stock has been declared by the board of directors of the company, following other similarly characterized dividends aggregating one hundred per cent, of the par value of the stock, and the principal question for decision is whether the latest dividend of that description belongs to the corpus of the trust or is payable as income to the beneficiaries for life.

The Edmondson Realty Company was incorporated in 1906 for the purpose, as stated in its charter, “of buying, selling, mortgaging, leasing, improving, disposing of or otherwise dealing in lands in this State.” Its operations have been confined to the development and disposition of building lots from a single tract of 105 acres, in the suburbs of Baltimore, which it purchased for $215,000 about the time of its incorporation. In pursuance of the plan of sub-division adopted by the company, approximately one-fourth of the area was appropriated to streets and the remainder to building lots, except a few acres not suitable for such uses. The policy of the corporation was to improve the lots by the erection of dwelling houses through the agency of a construction company, under an agreement providing for a system of financing by the owning company and a division of the profits to be realized by the leasing of the properties and the sale of the reserved ground rents. After acting under such an agreement for a period of sixteen years, the Edmondson Company has proceeded independently since 1922 with the sale of the unimproved lots, and the land remaining in its ownership, when the liquidating dividend in question was declared, on June 4th, 1928, had been then reduced to nine or ten acres, having an estimated value of $55,000 or $60,000.

At the inception of the trust, in 1911, the stock of the Edmondson Realty Company was intrinsically worth about ¹⁰⁴ $250 per share. That was the price received for certain shares of the stock sold in the course of administration by the executors of the will under which the trust originated, and the testimony in the record supports the valuation thus indicated. Erom 1914 until 1927, at irregular intervals, the corporation declared a series of fourteen dividends ranging from six to twenty per cent, of the par value of its common stock and stated in the authorizing resolutions to be payable out of the corporate income. There was an issue of preferred stock, of the par value of $28,000, but that was redeemed in 1924.

Eo question is involved as to an apportionment of the dividend under consideration as between the corpus and income of the trust, but the inquiry is whether as a whole it should be paid to the life tenants or should be held for the remaindermen. The returns to the stockholders of the corporation were derivable only from the development and sale of the land in which its capital was invested. The profits realized from the increase in value produced by the corporation’s activities in the improvement of the property, as distinguished from its normal enhancement in its undeveloped condition, were earnings of the corporate enterprise, and the dividends from that source would ordinarily be regarded as income of a trust to which they were payable. Ex parte Humbird, 114 Md. 627 ; Washington County Hospital Assn. v. Hagerstown Trust Co., 124 Md. 1 ; Krug v. Mercantile