Zell v. Safe Deposit & Trust Co.

Shehan, J., delivered the opinion of the Court. The question presented on this appeal arises on a case stated (Code, art. 16, sec. 221 et seq.) and is whether a certain dividend on the common stock of the Zell Motor Company, owned by A. Stanley Zell, deceased, and declared after his death, is apportionable between the testator’s estate and Gertrude L. Zell, life beneficiary under a trust created by his will for her benefit, because of the provisions of article 98, section 305C, of the 1935 Supplement of the Code of Public General Laws of Maryland. A. Stanley Zell, at the time of his death, on April 25th, 1935, was possessed of 18,533 of the 20,000 shares of stock of the Zell Motor Car Company. He left a will, ⁵²⁰ executed on January 19th, 1935.

To certain employees of this company, he bequeathed 525 shares, and to Sidney S. Zell, his son, and to the Safe Deposit &! Trust Company of Baltimore City, as trustee for Gertrude L. Zell, his wife, the remaining 18,008 shares, or 9,004 shares to each of them. In the will there were specific provisions authorizing the distribution in kind of this stock, or the liquidation of the company, or the sale of the stock and distribution of the proceeds. The executors of the will decided to distribute the stock in kind.

The will is of considerable length, and its provisions, only in so far as they affect this case, need be here considered. The will has in it this significant provision: “1st. If either my wife, Gertrude L. Zell, or my son, Sidney Stanley Zell, is surviving, then said share, which in any event I herein term for purposes of identification ‘my wife’s trust,’ shall be paid over and transferred to the Safe Deposit and Trust Company of Baltimore, as Trustee. “Said Trustee shall pay the net income therefrom, accounting from the, date of my death, to my said wife during her life, and after my said wife’s death, or after my own death, if my wife predeceases me, shall pay said income to my said son, Sidney Stanley Zell, until his death.” The Act of 1929, chapter 495, as codified in Code (Supp. 1935), art. 93, sec. 305C, reads as follows: “All rents, annuities, dividends and periodical payments in the nature of income, payable under the provisions of any will, deed or other instrument executed after the first day of July, 1929, shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect of time accordingly, unless otherwise expressly stated by the instrument under which they are payable; but no action shall be brought therefor until the expiration of the period for which the apportionment is made.” It is obvious that this act alters the common law rule of apportionment as to rents, annuities, and dividends ⁵²¹ and periodical payments in the nature of income, and gives to them the same attribute as has always been possessed by “interest on money lent” which accrued “from day to day,” but the statute makes an important reservation in its provision that such rents, annuities, dividends, and periodical payments “shall be apportionable in respect of time accordingly, unless otherwise expressly stated by the instrument under which they are payable.” The question thus presented, for the consideration of the court, arises out of the record of dividends heretofore declared and in respect to a dividend of $9,266.50, $4,602 of which was applicable to the 9,004 shares of stock of said company held by the Safe Deposit & Trust Company of Baltimore, as trustee for Gertrude L. Zell. Mrs. Zell claims that the entire dividend on the 9,004 shares of stock should be paid to her, and the Safe Deposit & Trust Company of Baltimore, as executor, claims that this dividend should be apportioned as of the date of the death of A. Stanley Zell.

The questions submitted in the special case stated for the determination of the court are: “(a) Is the life tenant entitled to the entire dividend of $4,502.00 on the 9,004 shares of stock of the Zell Motor Car Company included in the one-half of the residue of the estate bequeathed in trust for her for life, on the theory that the dividend was paid after the death of the testator, and is not apportionable? “ (b) Is the said dividend apportionable as of the date of the death of the testator, and if so— “(1) is the life tenant entitled to $1,578.54, being that proportion of the dividend of $4,502.00 on 9,004 shares of stock; of the Zell Motor Car Company included in the one-half of the residue of the estate bequeathed in trust for her life, which the number of days (250) elapsed after the date of the death of the testator (April 25, 1935) to the stock of record date of the February, 1936, dividend (December 31, 1935) bears to the number of days (713) elapsed between the stock of record date of the January, 1934, dividend (January 17, 1934) and the ⁵²² stock of record date of the February, 1936, dividend (December 31, 1935) ? or, “(2) Is the life tenant entitled to $1,721.35, being that proportion of the said dividend of $4,502.00 which the number of days (286) elapsed after the date of the death of the testator (April 25, 1935) to the date upon which the February, 1936, dividend was payable (February 5, 1936) bears to the number of days (748) elapsed between the date the January, 1934, dividend was payable (January 18, 1934) and the date of the February, 1936, dividend was payable (February 5, 1936.) ?” The last dividend paid on the stock of this company prior to the death of the decedent was on January 18th, 1934, and no further dividends were paid until that of February 5th, 1936, to stockholders of record on December 31st, 1935, of fifty cents per share. The records of the company show that these dividends were paid out of surplus earnings and profits. A comprehensive dividend sheet is in the record, disclosing that for several years past dividends of varying amounts have been irregularly paid as the company had the money in hand. The appellant contends that the dividend in question was not of the character contemplated by the act, because it was not periodical, but in that respect was uncertain and indefinite, and therefore no basis as to time was established or could be properly ascertained upon which an allocation could be predicated, and, second, that it was expressly provided in Mr. Zell’s will that there should be no apportionment.

The Safe Deposit & Trust Company’s position is, that the Legislature made no exceptions but provided in express terms that “all rents, annuities, dividends and periodical payments in the nature of income” were included in the act. There are no cases in this state directly upon this question. We will, therefore, give some consideration to the decided cases in other jurisdictions and to the history of the act under consideration, but, before doing this, the question arises whether the date of the declara ⁵²³ tion of the dividend or the record date of the holding of the stock should be accepted in the apportionment or allocation between corpus and income. Again, there are no cases in Maryland deciding this point.

It would seem, however, that the date of declaration should control, because on that date the relation of debtor and creditor aiises between the corporation and the stockholders and no obligation arises to pay dividends until they are declared, and ordinarily they can or should only be declared out of earnings, and such earnings can be definitely determined on the declaration date and no other date can be so safely accepted. The present earnings and a declaration of dividend should coincide. This principle seems to be founded in reason, and has the support of cases in other states. In Re Given’s Estate, 323 Pa. 456 , 185 A. 778 , and Opperman’s Estate, 319 Pa. 455 , 179 A. 729 , and Nirdlinger’s Estate, 327 Pa. 160 , 193 A. 33 , the Supreme Court of Pennsylvania held that, “as respects apportionment of cash dividend on stock held in trust, under common law, date of declaration of the dividend fixes rights of parties.” And see 60 A. L. R. 703, where the authorities are collected and the conclusion is reached that “it is settled by a long line of authorities, that the date on which a cash dividend is declared governs, and