§ 984. The Same Subject: Extraordinary Dividends From

Stock.

The income from stock may be given to one for life, with remainder of the corpus to another. But extraordinary dividends in stock or in cash may be declared. When the question is settled as to whether such dividends belong to the income or to the corpus, the respective rights of the life tenant and the remainderman are readily determined. The difficulty arises as to such determination. There is much conflict of authority, the English rule having been changed and now agreeing with the Massachusetts rule. Under the American decisions there are three distinct lines of cases, known as the Massachusetts rule, the Pennsylvania rule, and the Kentucky rule. All of these doctrines recognize the fact that whether a dividend declared by a corporation during the continuance of a life estate is to be regarded as income or capital is primarily a question of construction to ascertain the testator's intention. The difficulty arises when the will merely directs the payment of the "earnings" or "income" or "dividends" to the life tenant, and is not sufficiently clear to guide the court where the corporate distribution arising from stock holdings is of an unusual or extraordinary nature.

§ 985. The Same Subject: English Rule.

The early English rule, adopted at the end of the sixteenth century, held all extraordinary or unusual dividends declared during the life estate, whether in stock

95, 139 Am. St. Rep. 73, 110 Pac. 113.

As to gifts for life of the rents, income, use, etc., of realty, see §§ 961, 962.

As to gift of what "remains undisposed of" by devisee of fee not limiting estate to one for life, see § 930.

or in cash, to belong to the corpus and not to the income.35 But this rule has been changed and is now practically the same as that hereinafter referred to as the Massachusetts rule.36

§ 986. The Same Subject: Massachusetts Rule.

Under this rule all cash dividends are. regarded as income and stock dividends are regarded as capital.37 It makes no difference when the dividend was earned, provided it was declared out of the net earnings during the life tenancy. The Massachusetts rule has been substantially followed by the Supreme Court of the United States,38 and by the courts of Connecticut, Illinois, Ohio, and Rhode Island.39

8987. The Same Subject: Pennsylvania Rule.

The Pennsylvania rule, as declared in Earp's Appeal," is this: Net earnings when declared as dividends, whether in stock or in cash, belong to the life tenant, provided that such earnings have been made, or have accumulated, since the stock in question was held as part of the trust estate. This rule differs from the Massachusetts rule in this: It makes no difference whether the dividend is declared in stock or cash; and it does make a difference when the earnings were made or accrued, for the

35 Brandon v. Brandon, 4 Ves. Jun. 800.

36 In re Hopkins' Trusts, 18 L. R. Eq. 696; Jones v. Evans, 107 L. T. R. (Ch. Div.) 604.

37 Minot v. Paine, 99 Mass. 101, 108, 96 Am. Dec. 705.

38 Gibbons v. Mahon, 136 U. S. 549, 34 L. Ed. 525, 10 Sup. Ct. R.

39 Smith v. Dana, 77 Conn. 543, 107 Am. St. Rep. 51, 69 L. R. A. 76, 60 Atl. 117; De Koven v. Alsop, 205 Ill. 309, 63 L. R. A. 587, 68 N. E. 930; Wilberding v. Miller, 88 Ohio St. 609, L. R. A. 1916A, 718, 106 N. E. 665; In re Brown, 14 R. I. 371, 51 Am. Rep. 397.

40 Earp's Appeal, 28 Pa. 368.

dividend does not go to the life tenant unless declared out of net earnings made or accrued during the existence of the life tenancy.

The Pennsylvania rule has been substantially followed in Delaware, Iowa, Maine, Maryland, Mississippi, Minnesota, New Hampshire, New Jersey, New York, South Carolina, Tennessee, Vermont and Wisconsin."1

§ 988. The Same Subject: Kentucky Rule.

This rule was formerly known as the New York and Kentucky rule, but in a late New York case12 the highest court in that state receded from its former position and adopted the apportionment feature of the Pennsylvania rule. While the Kentucky rule is like unto the Pennsylvania rule in that it makes no distinction between cash and stock dividends declared out of surplus earnings, it differs therefrom in holding that dividends, whether cash or stock, are non-apportionable and are considered as accruing in their entirety as of the date when they are declared.48

41 See Bryan v. Aikin, (Del.) 86 Atl. 674, reversing (Del.) 82 Atl. 817; Kalbach v. Clark, 133 Iowa 215, 12 Ann. Cas. 647, 12 L. R. A. (N. S.) 801, 110 N. W. 599; Gilkey v. Paine, 80 Me. 319, 14 Atl. 205; Thomas v. Gregg, 78 Md. 545, 44 Am. St. Rep. 310, 28 Atl. 565; Goodwin v. McGaughey, 108 Minn. 248, 122 N. W. 6; Holbrook v. Holbrook, 74 N. H. 201, 12 L. R. A. (N. S.) 768, 66 Atl. 124; Van Doren. v. Olden, 19 N. J. Eq. 176, 97 Am. Dec. 650; In re Osborne, 209 N. Y. 450, Ann. Cas. 1915A, 298, 50

L. R. A. (N. S.) 510, 103 N. E. 723, 823; Wallace v. Wallace, 90 S. C. 61, 72 S. E. 553; Pritchitt v. Nashville Trust Co., 96 Tenn. 472, 33 L. R. A. 856, 36 S. W. 1064; In re Heaton's Estate, 89 Vt. 550, 96 Atl. 21; Soehnlein v. Soehnlein, 146 Wis. 330, 131 N. W. 739.

42 In re Osborne, 209 N. Y. 450, Ann. Cas. 1915A, 298, 50 L. R. A. (N. S.) 510, 103 N. E. 723, 823.

43 Hite's Devisees v. Hite's Exr., 93 Ky. 257, 40 Am. St. Rep. 189, 19 L. R. A. 173, 20 S. W. 778.

CHAPTER XXXV.

VESTED AND CONTINGENT INTERESTS.

§ 989. Vested and contingent interests generally.

§ 990. Effect of expressions of contingency.

§ 991. Where the contingency occurs during lifetime of testator. § 992. Contingency that beneficiary be living at a designated

time.

§ 993. Gift "payable" when beneficiary attains a certain age. § 994. Gift upon attaining a certain age.

§ 995. Effect of intermediate gift of income of principal which is to pass to beneficiary at a certain age.

§ 996. Where payment is postponed for the convenience of the estate.

§ 997. Divesting of vested estates: Interest contingent upon surviving termination of preceding estate.

§ 998. The same subject.

§ 989. Vested and Contingent Interests Generally.

A conditional or contingent devise or legacy may lapse because of the non-performance of a specified condition or the failure of some designated contingency.1 An unconditional devise or legacy which has once vested, can not be divested. Once the title has passed to the beneficiary, it can not revert.2 But as will be shown later, a conditional devişe or legacy may vest, but thereafter be divested either in part or in whole. No interest, of course, can be acquired in any property devised or bequeathed, prior to the death of the testator; but at that time a beneficiary may take an immediate interest with the right to

1 See § 757.

2 Succession of Vance, 39 La. Ann. 371, 2 So. 54. See § 895.

both title and possession, or he may be vested with the title with the right to possession or enjoyment postponed until some future date, or he may take neither the title nor right to possession, both being dependent upon the happening of some contingency. Upon the determination of the character of the gift, therefore, depend the benefits which a devisee or legatee will receive. A vested interest or remainder is the subject of sale, and a conveyance thereof is valid in equity. A contingent remainder is not liable to levy and sale under an execution, and a purchaser at an execution sale prior to the event upon which the vesting depends will take nothing.1

§ 990. Effect of Expressions of Contingency.

A cardinal principle of construction is to so construe a testamentary gift that it may vest at the earliest possible moment, the law favoring vested rather than contingent interests. The fact that the testator directs the

5

3 Grayson v. Tyler's Admr., 80 Ky. 358; Griffin v. Shepard, 40 Hun (N. Y.) 355.

4 Roundtree v. Roundtree, 26 S. C. 450, 2 S. E. 474.

5 Realty.-Duffield v. Duffield, 3 Bligh N. S. 260, 331; Doe v. Considine, 6 Wall. (U. S.) 458, 18 L. Ed. 869; Olmstead v. Dunn, 72 Ga. 850, 859; Fields v. Lewis, 118 Ga. 573, 45 S. E. 437; Chapin v. Crow, 147 Ill. 219, 37 Am. St. Rep. 213, 35 N. E. 536; Boatman v. Boatman, 198 Ill. 414, 65 N. E. 81; Heilman v. Heilman, 129 Ind. 59, 28 N. E. 310; Nelson v. Nelson, (Ind. App.) 72 N. E. 482; McLaughlin v. Penney, 65 Kan. 523, 70 Pac. 341; Lewis v. Howe, 174

N. Y. 340, 66 N. E. 975, 1101; Arnot V. Arnot, 75 App. Div. (N. Y.) 230, 78 N. Y. Supp. 20; Manhattan Real Estate Assn. v. Cudlipp, 80 App. Div. (N. Y.) 532, 8 N. Y. Supp. 993; Allison v. Allison's Exrs., 101 Va. 537, 63 L. R. A. 920, 44 S. E. 904; Smith v. Smith, 116 Wis. 570, 93 N. W. 452.

Personalty. McArthur v. Scott, 113 U. S. 340, 28 L. Ed. 1015, 5 Sup. Ct. 652; Campbell v. Weakley, 121 Ala. 64, 25 So. 694; Mitchell v. Mitchell, 73 Conn. 303, 47 Atl. 325; Clark v. Shawen, 190 Ill. 47, 60 N. E. 116; Moore v. Gary, 149 Ind. 51, 48 N. E. 630; Taylor v. Taylor, 118 Iowa 407, 92 N. W. 71; Robinson v. Palmer, 90 Me.