Kenyon v. Nichols, 1 R. I. 411; Foster v. [ that a street was laid out along the back Browning, 4 R. I. 47, 67 Am. Dec. 505; end of the same as shown by the plat. There Greene v. Creighton, 7 R. I. 1; Pyper v. was no reference to the plat or to the street Whitman, 32 R. I. 511, 80 Atl. 6, 35 L. R. A. in question in the deed to complainant. The (N. S.) 938; Sprague v. Kimball, 213 Mass. property was replatted by the respondent, 380, 100 N. E. 622, 45 L. R. A. (N. S.) 962, and the street in question was moved 100 Ann. Cas. 1914A, 431; Sargent v. Leonardi, feet to the west, leaving a row of house 223 Mass. 556, 112 N. E. 633; Trustees v. lots between complainant's property and the Lynch, 70 N. Y. 440, 26 Am. Rep. 615; street. The bill prayed that the respondent Norton v. Ritter, 121 App. Div. 497, 106 might be compelled to lay out the street as N. Y. Supp. 129. shown on the original plat. The demurrer to the bill of complaint was sustained, and upon an appeal the action of the superior court was affirmed. In considering the case this court said:

Our statute of frauds and statute on "The Conveyance of Estates" each forbid the establishing of an easement on parol testimony.

"No action shall be brought: First. Whereby to charge any person upon any contract for the sale of lands, tenements or hereditaments, or the making of any lease thereof for a longer time than one year, unless the promise or agreement upon which such action shall be brought, or some note or memorandum thereof, shall be in writing, and signed by the party to be charged therewith, or by some other person by him thereunto lawfully authorized." Gen. Laws, c. 283, § 6.

"Every conveyance of lands, tenements or hereditaments, absolutely, by way of mortgage, or on condition, use or trust, for any term longer than one year, and all declarations of trusts concerning the same, shall be void unless made in writing duly signed, acknowledged as hereinafter provided, delivered, and recorded in the records of land evidence in the town or city where the said lands, tenements or hereditaments are situated." Gen. Laws, c. 253, § 2.

[4] Each of the above statutes contains the word "hereditaments." An easement is a hereditament and an interest in land capable of creation or transfer only by operation of law, or by grant or prescription. Words and Phrases, Second Series, vol. 2, p. 211.

"There being, then, no grant of a right of way by express terms by the deed, or by reference to the plat, no claim of a right of way acquired by implication by reason of any actual existing way in use as an apparent and continuous easement, and no claim of a right of way by necessity, we are unable to find that the complainant has acquired any right of way in Conimicut avenue (so called) merely by the exhibition of a plat to him prior to the sale of the land to him, on which plat there was a street delineated and shown under the name of Conimicut avenue."

[5] The only distinctions that can be drawn between the case of Pyper v. Whitman and the case now under consideration is that the former case involved the consideration of what might be termed a "positive easement," viz. a right of way, and the present case concerns a negative easement, viz. a restriction upon the land of the respondent company, and it does not appear in Pyper v. Whitman that the complainant erected a house on the land. These distinctions are immaterial. The second distinction has been considered above. The evidence in Pyper v. Whitman was far stronger This question has been considered and as to the character of the representations determined in this state in the recent case alleged to have been made than in the of Pyper v. Whitman, 32 R. I. 511, 80 Atl. present case, and the added element was 6, 35 L. R. A. (N. S.) 938. The facts in said present in that case of a plat duly laid out case were admitted to be true on demurrer. and used extensively for advertising purposThe case came to this court upon appeal es. To this extent there was a written or from decree of the superior court sustaining rather printed paper which was some evithe demurrer and dismissing the bill. The dence of what was the original intention complainant purchased a tract of land from of the parties. In the present case we have the respondent relying on a plat exhibited no evidence of any tangible nature by which at the time of the sale which showed a con- the fact (if it is a fact) that representations templated street running along the back were made by the respondent's agents can end of the property purchased by the com- be established. To supplement the oral tesplainant. This plat was extensively used timony of the complainant, her husband and by the respondent in advertising his land for sale. The plat was posted in several places in the vicinity. At the time of purchase the respondent represented to the complainant that all of the streets designated upon the plat would be laid out and open- by some person at some time. ed for public use. The complainant, rely- aware of the fact that in some jurisdictions ing upon these representations, purchased there are cases which appear to be opposed the property and alleged that he paid a to the doctrine laid down in Pyper v. Whit

two other witnesses, each testifying to different conversations held at different times with the company's treasurer, we have nothing but a plat on which a pencil mark has been drawn around certain house lots We are

(107 A.)

(42 R. I. 365)

clusions are not only founded on the better reason, but are supported by the great RHODE ISLAND HOSPITAL TRUST CO. weight of authority. Pyper v. Whitman, V. PECKHAM et al. (No. 433.) 32 R. I. 511, 80 Atl. 6, 35 L. R. A. (N. S.) (Supreme Court of Rhode Island. July 2, 938; Norton v. Ritter, 121 App. Div. 497, 106 1919.) N. Y. Supp. 129; Sprague v. Kimball, 213 Mass. 380, 100 N. E. 622, 45 L. R. A. (N. S.) 962, Ann. Cas. 1914A, 431; Squire v. Campbell, 1 Myl. & Cr. 459.

1. WILLS

684(3) — INTENTION-DISPOSITION OF DIVIDENDS.

If testator in his will had expressed an intention relative to the disposition of extraordinary dividends as between life tenant and remainderman of a trust fund, such intention would govern.

2. TRUSTS 272(3) DISPOSITION OF INCOME-ORDINARY DIVIDENDS.

In Hall v. Solomon, 61 Conn. 476, 23 Atl. 876, 29 Am. St. Rep. 218, each of several purchasers, including defendant, entered into a parol agreement with the grantor "that no portion of the premises so sold should be used for the sale of intoxicating liquors. This agreement was in each case a part consideration of the sale." The court evidently found that the whole tract had been restricted, and that each lot owner, when he purchased, understood and agreed that his lot would be restricted. Upon complaint of grantor and other lot owners, the defendant was enjoined. The court found TAL ASSETS-LIFE TENAnt and REMAINDERthat the oral agreement was not an agreement for the sale of an interest in or con

cerning real estate. We have already stated that the restrictions contended for in this case are easements and interests in land. The court in Hall v. Solomon cited Tallmadge v. East River Bank, 26 N. Y. 105. The latter case is also cited in the complainant's brief in this case. The language used in Norton v. Ritter, supra, namely, "The agreement was deemed valid in Tallmadge v. East River Bank, 26 N. Y. 105, whether correctly or not," indicates that there was at least a question in the mind of the New York court whether the latter case was correctly decided.

We find that the complainant is not entitled to have the restrictions contained in the deed to her husband imposed upon the respondent's house lots.

It appears in evidence that a "plat office" building and two other small buildings used as stores are located within the street lines at the junction of Warwick avenue and Oakland Beach avenue. Counsel for respondent admitted in argument that respondent was bound to remove all buildings under its control which were located within the street lines. For a long time the respondent in connection with its business used the "plat office." Mr. Ham testifies that Brown, the respondent's treasurer, leased to tenants the two small store buildings. The complainant is entitled to a decree for the removal of these buildings.

On July 7, 1919, at 10 o'clock a. m., parties may present decree in accordance with this opinion.

On Motion for Rehearing.

The complainant's motion for reargument filed July 10, 1919, is denied and dismissed.

Ordinary dividends, regardless of the source whence, or the time when, the fund was accumulated by the corporation, go to the life being presumed to have been earned when detenant of a trust holding the company's stock,

clared.

3. TRUSTS

MAN.

272(1)-DISPOSITION OF CAPI

Capital assets in liquidation are capital, and not income, as between life tenants and remainderman in a trust fund.

4. TRUSTS 272(3)—CAPITAL AND INCOMEPROCEEDS OF STOCK DIVIDEND.

Where a stock dividend was declared by a company whose stock was held by a trust against surplus assets earned before the creation of the trust, but, instead of distributing sold it, and distributed the greater portion of the stock among stockholders, the corporation the cash received, such extraordinary cash dividend belonged to the corpus of the trust estate as capital, and not to the life tenants as income.

Bill for instructions by the Rhode Island Hospital Trust Company, as executor and trustee, against William T. Peckham and others. Decree in accordance with the opinion directed to be presented.

old B. Tanner, of Providence, of counsel), for Tillinghast & Collins, of Providence (Harcomplainant.

Benjamin F. Lindemuth, of Providence, for respondents.

Elisha C. Mowry, of Providence, guardian ad litem, pro se.

RATHBUN, J. This is a bill in equity seeking instruction, brought by the complainant as executor and trustee under the will of Fenner H. Peckham, Jr., to deter

mine whether certain dividends should be

paid as income to the life tenants under the terms of said will, or added to the principal of the trust estate for the benefit of the remaindermen.

A guardian ad litem was appointed to represent the interests of the three minor children of William T. Peckham, deceased, and the interests of all persons not in being and

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes
107 A.-14

ascertainable having any interest in the sub- land corporation to pay for the common ject-matter, and has filed his answer sub-stock of the new company, and that the mitting the interests of his wards to the balance of said assets, $1,218,131.65 (the surcare of the court. The respondent, Charles F. Peckham, and the administrator of the estate of William T. Peckham, have answered, admitting the facts. The bill was taken pro confesso as to the remaining respondents. Fenner H. Peckham, Jr., died on the 25th day of December, 1915, leaving a will where in he devised to the complainant in trust the residue of his estate. The material provisions of the trust are as follows:

"The remainder of the net income of this trust estate shall be paid over quarterly by my said trustee, one-third (%) to my wife, Mary Carpenter Peckham, two-ninths (2/9) to my son, Charles F. Peckham, two-ninths (2/9) to my daughter Alice Peckham and two-ninths (2/9) to my son, William T. Peckham; or in

plus of the old Rhode Island corporation), should constitute the paid-in surplus capital of the new corporation at its organization. It was ascertained that $690,018.39 of this surplus was accumulated by the Rhode Island corporation prior to March 1, 1913. On the same day, May 25, 1917, the Rhode Island corporation distributed, “as a final distribution in liquidation" to its common stock. holders, in exchange, share for share, of their common stock in the corporation, the said capital stock of the new Massachusetts corporation. The complainant trustee exchanged the 217 shares of the old corporation held by it as part of the residuary estate.

Three days later, May 28, 1917, the Massathe event of the death of any of my said chil-chusetts corporation voted to issue preferred dren, the issue of any deceased child is to take that portion of the income which his, her or their parent would have taken, if living."

And after providing for the disposition of said income upon certain other contingencies, none of which have occurred, the testator directed that

Upon the decease of the survivor of his said three children, "all of said trust estate shall be divided among my heirs at law, in accordance with the statute then in force in the state of Rhode Island, in the case of persons dying intestate, and said trust shall thereupon cease

and determine."

On the testator's death, he was the owner of 217 shares of the common stock of the Hope Webbing Company, a Rhode Island corporation. These shares became part of the residuary trust estate. They were not specifically mentioned in the will.

capital stock to the amount of $750,000 under a contract of underwriting with bankers and to give subscription rights thereto to its common stockholders, in the proportion of three shares preferred for every four shares of common stock. The entire issue of preferred stock was sold and paid for in cash. The trustee did not subscribe.

The "plan of reorganization," so called, was completed by the Massachusetts corporation declaring on June 29, 1917, and on August 24, 1917-out of the surplus accumulated by the Rhode Island corporation prior to March 1, 1913-dividends of $50, $10, and $9 per share, payable respectively on June 30, September 1, and October 1, 1917. Letters were sent with the checks stating that each payment was in distribution of surplus earned prior to March 1, 1913, and that, in the opinion of counsel, the payments would be The comOn May 17, 1917, while the trust was in free from federal income taxes. operation, and during the progress of the plainant trustee received on account of these life estate, the Hope Webbing Company sub-three payments, a total of $14,973, and it mitted to its stockholders a tentative plan is regarding the distribution of this sum that for what was called a "reorganization of the the trustee now seeks instruction. capitalization of your corporation." On May 25, 1917, a Massachusetts corporation was formed bearing the same name and having the same number of shares of authorized common capital stock as the said Rhode Island corporation. On the same day, May 25, 1917, all the assets of the Rhode Island The fund in question represents extraordicorporation were sold and transferred, as a nary dividends. These dividends were 50 going concern, to the new Massachusetts cor- per cent., 10 per cent., and 9 per cent., payporation, in consideration of the assumption able respectively June 30, September 1, and by the Massachusetts corporation of all the October 1, 1917. For several years the old liabilities of the Rhode Island corporation Rhode Island corporation paid regular quarand of the transfer to the Rhode Island cor- terly dividends amounting to 13 per cent. anporation of all of the common stock of the nually. The letter of May 17, 1917, from the Massachusetts corporation; the Massachusetts Rhode Island corporation to its stockholdcorporation, however, retaining the right to ers, describing "the plan of reorganization," issue preferred stock to the amount of stated that "the plan would make possible $750,000. On the same day it was agreed a distribution of a part of the company's that the Massachusetts corporation should surplus," and also that "the dividend charges

The question presented to the court is whether this fund of $14,973, representing dividends, should be paid by the trustee to the life tenant as income or added to the corpus of the trust estate for the benefit of the remaindermen.

(107 A.)

the continuance of regular quarterly divi- [of the trust. In Talbot v. Milliken, 221 Mass. dends on the common stock." When the 367, 108 N. E. 1060, a cash dividend of 50 per checks making the payments of $50, $10, and cent. was declared within at least one year $9 per share were sent to the stockholders, a after the creation of the trust, by a corporaletter in each instance was inclosed stating tion with surplus assets, at the death of the that the payment was in distribution of sur-testator, nearly equal to its capital stock, and plus earned prior to March 1, 1913. It is conceded that these dividends were earned before March 1, 1913; that is, before the testator's death and the commencement of the trust.

[1] If the testator in his will had expressed an intention relative to the disposition of extraordinary dividends, such intention would govern. R. I. Hospital Trust Co. v. Bradley, 103 Atl. 486, 491; Bushee v. Freeborn, 11 R. I. 149, 150. But the testator made no special provision for extraordinary dividends. He makes no specific mention of his stock in the Hope Webbing Company, and his intention cannot be gathered from the will.

[2] The law is well settled that ordinary dividends, regardless of the source whence or the time when the fund was accumulated, go to the life tenant. Ordinary dividends are presumed to have been earned when declared. Newport Trust Co. v. Van Rensselaer, 32 R. I. 231, 78 Atl. 1009, 35 L. R. A. (N. S.) 563; 7 R. C. L. 291; Matter of Osborne, 209 N. Y. 450, 476, 103 N. E. 723, 823, 50 L. R. A. (N. S.) 510, Ann. Cas. 1915A, 298. On what principle shall we determine whether the fund representing extraordinary dividends is income going to the life tenant or capital to be held for the benefit of the remaindermen?

A few courts have adopted what has been termed a "practical rule of convenience" and commonly known as the Massachusetts rule. The rule was first stated as follows:

"A simple rule is to regard cash dividends, however large, as income, and stock dividends, however made, as capital." Minot v. Paine, 99 Mass. 101, 108 (96 Am. Dec. 705).

the court held that the dividend was income and should go to the life tenant.

The question of disposition of an extraordinary cash dividend earned before the creation of the trust has never been considered by this court.

We cannot sanction a rule which depends entirely upon the action of a board of directors attending to their own business, in their own proper way, with no thought or care as to the rights of life tenants and remaindermen. If, from surplus accumulated before the death of the testator, the directors declared a cash dividend, by such a rule it goes to the life tenant as income, although it was not earned by the trust fund. Had the directors, instead of distributing cash, used the money to purchase stock in their corporation, the stock dividend would go to the corpus, and the trust fund would not be robbed for the benefit of the life tenant. If a stock dividend is declared from the surplus accumulated during the life of the trust, the corpus is enriched at the expense of the life tenant. The great weight of authority is opposed to this rule.

In Vinton's Appeal, 99 Pa. 434, 44 Am. Rep. 116, the court said:

"The rule is a very simple and convenient one, and may relieve trustees and courts of much trouble; but it is certainly not one which commends itself for its justice and equity. * To us, it seems like a bungling rule of law that, at one time, would give what is indisputably income to the remainderman, and, at another, what is clearly capital to the

life tenant."

Much of the confusion has arisen through When surplus is distributed in cash, these the inability (by lack of evidence) or unwillcourts say it is income, regardless of the ingness of courts to apportion dividends when time when the surplus was accumulated, and the surplus was earned partly before and give the dividend to the life tenant. If the partly after the creation of the trust. We distribution is in the form of a stock divi- know of no reason why a court should redend, it is capital and belongs to the corpus fuse to effectuate the intention of the testaof the trust. in other words, cash is income, tor and do justice between the parties by and stock is capital. "The simple question apportioning an extraordinary dividend, and in every case is whether the distribution many courts whose opinions are highly remade by the corporation is money to be spent spected do not hesitate to apportion divias income or is capital to be held as an in-dends earned partly before and partly after vestment in the corporation." D'Ooge v. the creation of the trust.

Leeds, 176 Mass. 558, 57 N. E. 1025. See In Earp's Appeal, 28 Pa. 368 (a leading Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057, 34 L. Ed. 525; Richardson v. Richardson, 75 Me. 570, 46 Am. Rep. 428; De Koven v. Alsop, 205 Ill. 309, 68 N. E. 930, 63 L. R. A. 587. These courts give extraordinary cash dividends to the life tenant, regardless of whether the surplus from which the dividend came was accumulated before the death of the testator or during the life

case which has been consistently followed by the Pennsylvania court), stock dividends having been declared based upon surplus accumulated partly before and partly after the death of the testator were equitably apportioned between the life tenant and the remainderman. See, also, In re Smith's Estate, infra; Matter of Osborne, 209 N. Y. 450, 103N. E. 723, 823, 50 L. R. A. (N. S.) 510, Ann.