IN RE: SCHNUR'S ESTATE. (1934)

We ordered a transfer of this cause to this court after its decision by the District Court of Appeal. The opinion rendered therein by the District Court of Appeal was in part as follows:

This is an appeal from a judgment of the superior court sustaining a contest to allowance of a claim against the estate of William Schnur, who died October 7, 1930. Decedent by his will left three-fourths of the residue of his estate to his sister, Mrs. Perry D. Clark, respondent here, and the other fourth to Ellowene Delahoyde, a sister of his wife Vilona, who had died February 14, 1925. Mrs. Delahoyde, her sister Mary H. Boorman and her nephew John H. McDaniels appear in this action as appellants, contending that their claim filed against William Schnur's estate should have been recognized as valid by the superior court. This claim was for the sum of $8,172.09, proceeds derived by decedent from the sale in 1929 of certain stock subscription rights issued by Columbia Gas & Electric Corporation. Vilona Schnur had died intestate, leaving as her heirs at law the three appellants, each entitled to one-sixth of her estate (which was entirely separate property) and her husband entitled to one-half thereof. While the estate of Vilona Schnur was pending, the heirs entered into a written agreement by which all participation by the appellants in the property which she left was postponed until after the death of her husband, he being granted $4,000 in cash and a life interest in the real property, also certain rights in the personal property consisting of shares of stock in several corporations, some Liberty bonds and approximately $20,000 cash in bank. As to these items of personal property the agreement provided that William Schnur was to have the income thereof during his lifetime, with the additional right to draw upon the ‘property itself’ if at any time the income should prove insufficient to support and maintain him ‘with the necessary and proper comforts and conveniences.’ As to the corporate stocks the agreement provided that the certificates representing the same should be issued to William Schnur, to be by him endorsed and assigned in blank and held in trust by Mrs. Delahoyde and himself, and by them deposited in a safe deposit box to which both should have access. The Liberty bonds were to be held in trust in the same way. Upon the death of William Schnur the trust was to terminate and the property be distributed in equal shares by Mrs. Delahoyde ‘as surviving trustee’ to herself, Mrs. Boorman, and Mr. McDaniels. One block of stock so held in trust consisted of 1,519 shares of Ohio Fuel Corporation. About a year after this agreement was signed that corporation merged with Columbia Gas & Electric Company to form a new corporation named Columbia Gas & Electric Corporation and as a result of the merger and exchange of stocks, the item of 1,519 shares of Ohio Fuel Corporation became 532 shares of the common and 237 shares of the preferred stock of Columbia Gas & Electric Corporation. This corporation in April, 1929, increased its common stock from 4,000,000 to 10,000,000 shares and issued to its stockholders 2 1/2 new shares of common stock for each share of common previously held. In this way the original 1,519 shares of Ohio Fuel Corporation were transmuted into 237 shares of preferred and 1330 shares of common stock of Columbia Gas & Electric Corporation. In May of 1929 this last-named corporation announced an issue of rights to subscribe for additional shares of its common stock, the documents evidencing those rights being known as warrants. These warrants were sold by decedent for $8,172.09, the proceeds being deposited by him in his personal account instead of in the joint account where, under the terms of the abovementioned agreement, he and the other trustee, Mrs. Delahoyde, kept the cash of the Vilona Schnur estate. The question is whether the warrants or subscription rights which William Schnur sold constituted income to which deceased was entitled under the agreement of the parties, or an item of capital which should have been credited by him to the corpus of the trust estate.

The appellants contend that the decedent was not entitled to the warrants or the proceeds thereof, a contention which they have asserted heretofore by filing the above-mentioned claim against decedent's estate for the full amount thereof. This claim was allowed by the executor of William Schnur's estate and approved by the probate commissioner and the judge in probate. Later, a motion to vacate the order allowing the claim was denied but permission given to file objection within three weeks thereafter and prior to final distribution. This objection took the form of a contest which was sustained and which, as stated above, is brought before us on this appeal.

So far as counsel have been able to ascertain, the courts of this state have never been called upon heretofore to determine whether stock subscription rights issued during a life tenancy belong to the life tenant or to the remainderman. In approaching the solution of that question on the facts in the present case we note that the agreement between the parties stated that it was the desire of all that in addition to a life estate in the real property of Vilona Schnur and the sum of $4,000 cash, the surviving husband, William Schnur, ‘shall also have all of the income from the remaining property of the estate from the time of the death of said Vilona McD. Schnur, and during his lifetime.’ The arrangement to which we have referred calling for issuance of stock certificates directly to William Schnur and assignment in blank by him was made ‘in order to provide for the payment of the income from said personalty to William Schnur during his lifetime, and for the distribution of said personalty upon his death.’ It was provided further that interest on the bonds ‘and also the dividends on said stock during the lifetime of said William Schnur shall be collected by, paid, to, and belong to the said William Schnur individually.’ (Italics in the foregoing excerpts added.)

In their very able and exhaustive briefs counsel for the respective parties have reviewed thoroughly the cases in which courts of this country have been called upon to determine the ownership as between life tenant and remainderman of dividends declared during the life period, calling attention to the three rules that have been adopted in various jurisdictions and which are summarized as to their operation on stock dividends in Re Joy's Estate (1929) 247 Mich. 418, 225 N. W. 878, 883, 72 A. L. R. 973, 980, as follows: ‘Under the Massachusetts rule, a stock dividend, declared during the life interest, whether earned partly before or partly during such life interest, goes in its entirety to the corpus of the estate; under the Kentucky rule, it is treated as income and goes to the life beneficiary; and under the Pennsylvania rule, it is apportioned between the corpus and the life beneficiary in such a way as to prevent loss to the corpus by a reduction of the actual intrinsic value of the shares as of the date when the lefe interest accrued. These rules are also applicable to extraordinary cash dividends.’

The Massachusetts rule is one of convenience, as appears from the following language in Lyman v. Pratt (1903) 183 Mass. 58, 66 N. E. 423: ‘In Minot v. Paine, 99 Mass. 101–108, 96 Am. Dec. 705, it is said that in such cases ‘a simple rule is to regard cash dividends, however large, as income, and stock dividends, however made, as capital.’ This general rule has been followed by this court ever since. [Cases.] In determining what is a cash dividend and what is a stock dividend, substance, and not form, is regarded. * * * In dealing with investments of this kind, it is impracticable for courts to ascertain what has been earned by the corporation after the time of an investment by a trustee, so as to determine accurately the income upon the investment for the purpose of an exact adjustment of the rights and interests of tenants for life and remaindermen. It is necessary to resort to some simple, arbitrary rule, and this which has been adopted works in most cases, although not always, with substantial equity.' (Italics ours.)

The rule under which stock dividends belong to the remainderman has been extended in Massachusetts to include stock subscription rights. See Chase v. Union National Bank (1931) 275 Mass. 503, 176 N. E. 508, 510, where the court says: ‘The right to subscribe for an increase of stock to be issued by a corporation must be treated as property capitalized by the corporation. It is in the nature of a stock dividend. Hyde v. Holmes, 198 Mass. 287, 293, 84 N. E. 318. * * * In Atkins v. Albree, 12 Allen [Mass.] 359, the life tenant was entitled to income by the terms of the will, and the court held that the proceeds of the sale of rights, to subscribe to new stock constituted capital and did not belong to the life tenant,’ etc.

In this cited case of Atkins v. Albree, decided in 1866, the character of a stockholder's pre-emptive stock subscription right is analyzed as follows: ‘The right or privilege to take new shares in a corporation upon an increase of the capital stock within the limits fixed by the charter is a benefit or interest which attaches to stock, not as profit or income derived from the prosecution of the corporate business, but as inherent in the shares in their very creation. Gray v. Portland Bank, 3 Mass. 364 [3 Am. Dec. 156]. It is true that the value of this right must always depend essentially on the success with which the operations of the corporation have been conducted, and on the prospect of future income and profits which the condition of the business of a corporation holds out to its stockholders. But this does not change the nature of the right or interest. It is still an original incident or attribute appertaining to each share; a right to a larger participation or ownership in the capacity of the corporation to earn profits; and not the gain or income itself, actually earned by the corporation. In this view, the value of the right must be regarded as a part of the corpus of the property devised in trust.’ (Italics added.)

It may be pertinent to quote at this point from the article ‘Corporations,’ 6A Cal. Jur. 759, § 427:

‘The rule is generally established that upon increase of stock the existing shareholders are entitled to subscribe to or purchase it in ratable proportions, in order to preserve their relative strength in the corporation. Such is the rule in the absence of statute, but by statute the rule is reversed in California.

“Unless otherwise provided in the articles, the board of directors may issue shares, option rights or securities having conversion or option rights, without first offering the same to shareholders of any class or classes.' (Gen. Corp. Law, sec. 297, Civ. Code.)' The quoted section 297 was added to the Civil Code in 1931.

Alluding to the terms of Albree's will by which he left the income from twenty shares of stock to his widow the court in Atkins v. Albree, supra, sues the following language: ‘This gives her no property in the shares, or in money derived from the sale of an interest which formed a part of the original right appertaining to the shares, but only to receive the entire income to be derived therefrom, whether it continues to be represented by the number of shares held by the testator at his decease, or a portion of it becomes converted into money by the sale of the right to take new shares in the capital stock of the corporation. * * * The original shares and the money received from the sale of rights to take new shares in the capital stock of the corporation constitute the body of the trust property, which is to be treated as the capital or principal fund, the income of which is to be paid to the widow as directed by the will, and the whole is to go to the nephew on the happening of either of the events therein designated [i. e., remarriage or death of the widow]. Hill on Trustees, 386, 446. Paris v. Paris, 10 Ves. 185. Witts v. Steere, 13 Ves. 363.’

A review of the Massachusetts cases from Atkins v. Albree (1866) to Chase v. Union Nat. Bank (1931) shows that where the matter under consideration is the determination of conflicting claims by life tenant and remainderman to stock rights there has been no departure in that commonwealth during a period of almost seventy years from the principles laid down by Chief Justice Bigelow in the first of these two cases.

However, since ‘income’ is a flexible word, and, as pointed out by Mr. Justice Cardozo in Equitable Trust Co. v. Prentice (1928) 250 N. Y. 1, 164 N. E. 723, 725, 63 A. L. R. 263, ‘what is income in one relation may at times be principal in another,’ we find that the Massachusetts court in Tax Commissioner v. Putnam (1917) 227 Mass. 522, 116 N. E. 904, 910, L. R. A. 1917F, 806, decided that gains derived from the sale of rights to subscribe for new stock to be issued by a corporation may be taxed as ‘income’ on the theory that such rights may properly be classed as intangibles. In that case the court took occasion to remark that: ‘It is manifest that there is no inherent necessary and immutable reason why stock dividends should always be treated as capital. * * * The same is true of our rule * * * [cases] to the effect that rights to subscribe for new stock which have a market value are to be attributed to principal and not to income. Some other states hold the value of such rights to be income and not principal.’

In Rhode Island Hospital Trust Co. v. Tucker (1931) 51 R. I. 507, 155 A. 661, 662, 83 A. L. R. 1253, we find the following:

‘The Massachusetts rule, as applied to so-called stock dividends, although probably not approved by a majority of courts, is followed in many jurisdictions, including the United States Supreme Court. See Gibbons v. Mahon, 136 U. S. 549, 10 S. Ct. 1057, 34 L. Ed. 525; Towne v. Eisner, 245 U. S. 418, 38 S. Ct. 158, 62 L. Ed. 372, L. R. A. 1918D, 254; Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570; Hayes v. St. Louis Union Trust Co., 317 Mo. 1028, 298 S. W. 91, 56 A. L. R. 1276; Lamb v. Lehmann, 110 Ohio St. 59, 143 N. E. 276, 42 A. L. R. 437; Green v. Bissell, 79 Conn. 547, 65 A. 1056, 8 L. R. A. (N. S.) 1011, 118 Am. St. Rep. 156, 9 Ann. Cas. 287; Humphrey v. Lang, 169 N. C. 601, 86 S. E. 526, L. R. A. 1916B, 626; Security Trust Co. v. Rammelsburg, 82 W. Va. 701, 97 S. E. 122.

‘The same principle applies to rights to subscribe for stock and to rights to subscribe for debentures and bonds convertible into stock of the issuing company. In each instance a portion of corporate surplus has been permanently capitalized. See Greene v. Smith, 17 R. I. 28, 19 A. 1981; In re Brown, 14 R. I. 371, 51 Am. Rep. 397.’

On this opint, see, also, In re Merrill's Estate (1928) 196 Wis. 351, 220 N. W. 215, 216, 59 A. L. R. 1528, where it is said: ‘It is a well-nigh universal rule that the benefit of a right given by a corporation to its stockholders to subscribe at par, or other fixed amount less than the intrinsic value, for a new issue of stock, whether sold or exercised by taking new stock, is awarded to corpus and not to income, to the remainderman and not to the life tenant. 5 Fletcher on Corporations, § 3463; 2 Cook on Corporations, § 559; 24 A. L. R. 84; 42 A. L. R. 458. The note to the citation in Cook on Corporations and the note to be found in 24 A. L. R. 84 contain copious references to the authorities upon this question and an extensive review of them here will serve no good purpose. Lauman v. Foster, 157 Iowa, 275, 50 L. R. A. (N. S.) 531, 135 N. W. 14, is a recent case upon this subject, containing a rather extensive review of the authorities, wherein it is said that Holbrook v. Holbrook, 74 N. H. 201, 12 L. R. A. (N. S.) 768, 66 A. 124, is the only case coming to the attention of the Iowa court holding to the contrary, and even in that case ‘the difficulties in the way of treating such option or right to subscribe for additional stock as income are suggested.’'

Here it may be noted that the case of Lauman v. Foster was decided in 1912 and since then, as will appear hereafter, the views of the New Hampshire court as expressed in 1907 in Holbrook v. Holbrook, supra, in regard to ownership of stock rights have been accepted by the Supreme Court of Pennsylvania in Nirdlinger's Estate (1927) 290 Pa. 457, 139 A. 200, 203, 56 A. L. R. 1303, and Jones v. Integrity Trust Co. (1928) 292 Pa. 149, 140 A. 862, 863. The difficulties in the application of the rule as to value of stock rights are the same as those noted in respect to stock dividends in Lyman v. Pratt, supra (see italics), but have not been considered insuperable by the courts of New Hampshire and Pennsylvania. See, also, Weston v. Second Orthodox Congregational Society (1919) 79 N. H. 245, 110 A. 137, and Weston v. Second Orthodox Congregational Soc. (1915) 77 N. H. 576, 95 A. 146, 147.

While the courts of Massachusetts say a stock subscription right is in the nature of a stock dividend (Chase v. Union Nat. Bank, supra), the courts that established what is known as the Kentucky rule long ago decided in Hite's Devisees v. Hite's Ex'r (1892) 93 Ky. 257, 20 S. W. 778, 780, 19 L. R. A. 173, 40 Am. St. Rep. 189, that ‘this right stands upon a different footing from the claim to a stock dividend,’ harking back to the case of Atkins v. Albree, supra, as will be seen from the almost identical language used in the two decisions.

Since, under the Massachusetts rule, stock rights, like stock dividends, belong to capital it is but natural for the courts employing that rule to announce that the two interests are of a similar nature. And it is not surprising that the Kentucky court, awarding stock rights to capital and stock dividends to the life tenant (Hite's Devisees v. Hite's Ex'r, supra), finds them dissimilar.

Our Supreme Court has adopted neither the Massachusetts rule nor the Kentucky rule in determining the ownership of stock dividends, preferring, in the two cases where that question has been presented (Estate of Duffill [1919] 180 Cal. 748, 183 P. 337, and Estate of Gartenlaub [1921] 185 Cal. 375, 197 P. 90, 24 A. L. R. 1), to apply the reasoning developed under the American or Pennsylvania rule as to which Simpson, J., in Re Dickinson's Estate (1926) 285 Pa. 449, 132 A. 352, makes the following comment: ‘From Earp's Appeal, 28 Pa. 368, to Harkness' Estate, 283 Pa. 464, 129 A. 458, we have uniformly held that—‘Where extraordinary dividends, whether of cash, scrip or stock, are declared and paid on shares of corporate stock left by a decedent in trust, they are to be distributed by giving to the corpus sufficient to keep intact the value of the shares as they were at the time the trust began, and by giving the rest of the dividend to those entitled to the income of the estate.’ Following our lead, this has become the rule in nearly all the states of the Union.'

In Re Harkness' Estate, supra, may be found an interesting refutation of the claim that because the Supreme Court of the United States has said in cases there referred to (notably Gibbons v. Mahon, 136 U. S. 549, 10 S. Ct. 1057, 34 L. Ed. 525, a case arising in the District of Columbia), that a stock dividend is capital, the courts of every state must say so. The opinion reads as follows, on that point: ‘The decisions of that eminent tribunal are entitled to the greatest consideration; but since, so far as concerns the present question, no construction of the ‘Constitution, and the laws of the United States which shall be made in pursuance thereof, and all treaties made * * * under the authority of the United States,’ entered into the determination of those cases, we are at liberty, under the facts above set forth, to follow the rules of property long established in our own state; and, in principle, that court has frequently so decided.'

In Re Dickinson's Estate, supra, holding that stock dividends should be equitably apportioned between life tenant and remainderman, we find the Pennsylvania court, as late as 1926, following the rule early declared in that state (Biddle's Appeal [1882] 99 Pa. 278), and awarding the proceeds derived from the sale of stock subscription rights to the corpus of the trust. In the following year, however, the same court, in Nirdlinger's Estate, supra, after an exhaustive and able review by Mr. Justice Kephart of the adoption and operation of the three rules as to dividends, cash and stock, in the various jurisdictions of the country, has this to say to stock subscription rights:

‘There is another situation where a corporation, for its own purposes, issues new stock for which rights to subscribe are given shareholders. They are commonly called ‘rights,’ and as such have a value. The benefit of these rights, whether sold by the trustee or exercised by taking new stock, is in other states generally awarded to the remainderman. [Citing cases.] In jurisdictions following the Massachusetts rule, this result follows as a logical consequence. In other jurisdictions it would seem the life tenant should receive the benefit of the right so far as it is attributable to earnings that have accumulated during the life interest, provided the intact value of the corpus be maintained. This was the decision in Holbrook v. Holbrook, 74 N. H. 201, 12 L. R. A. (N. S.) 768, 66 A. 124. As noted, however, in Lauman v. Foster [157 Iowa, 275, 50 L. R. A. (N. S.) 531, 135 N. W. 14], supra, the decision in the Holbrook Case is contrary to the great weight of authorities.

‘There is some conflict in the Pennsylvania cases on this point. See Wiltbank's Appeal, 64 Pa. 256, 3 Am. Rep. 585, and Moss' Appeal, 83 Pa. 264, 24 Am. Rep. 164, where Wiltbank's Appeal, supra, was distinguished upon the ground that the rule there stated applied only where there was an actual profit, whereas in the case then before the court the issue of the new shares reduced the value of the original shares held by the trust estate. [Citing cases.]’

Such conflict as had previously existed in Pennsylvania on the pertinent question was terminated in the following year by the decision in Jones v. Integrity Trust Co., supra, as will be noted more particularly hereafter.

In Holbrook v. Holbrook, supra, the court, after reciting conditions peculiar to the case, said: ‘If this interpretation of the case is correct, it is difficult to see why the giving of the rights to stockholders should not be considered a distribution of income, the same as the giving of stock is in the case of a stock dividend, provided it is shown that the rights represent net earnings that have accrued during the term of the life tenant. And, when the distribution is in the form of stock rights, the argument that it may be difficult to ascertain whether they in fact represent income or capital is of no greater weight than when the distribution is in the form of a stock dividend. The object of the inquiry in each case is to do justice by the parties and effectuate the intention of the creator of the trust. If this interpretation of the case is incorrect, and upon a further hearing it should be made to appear that some part of the value of the rights was due to surplus earnings that accrued prior to the creation of the trust, or to natural growth and increase in the value of the corporate plant and business, then the trustee should be directed to make such disposition of the stocks or their proceeds as will repay the life tenant for the sums advanced by him in purchasing the stock and such further sums as any value in the rights is due to surplus earnings that accrued between 1900 and 1903, and the balance should be held by him as a part of the corpus.’

Then follows a commentary upon the attitude of the Pennsylvania court in various cases, including Biddle's Appeal, supra; Moss' Appeal, 83 Pa. 268, 24 Am. Rep. 164; Earp's Appeal, supra, and Wiltbank's Appeal, 64 Pa. 256, 3 Am. Rep. 585, some of which gave rise to the remark in the Nirdlinger Case, supra, that there was some conflict in the Pennsylvania cases on the point involved. The reasoning of Holbrook v. Holbrook, favorably referred to in Nirdlinger's Estate, was followed in Jones v. Integrity Trust Co., supra, where we find the following: ‘So far as concerns the 10 per cent. stock rights, the case stated shows that some of the stockholders took the new shares, but it does not disclose what was done by the estate. This is important in determining who should receive the benefit of those rights. We stated in Nirdlinger's Estate, 290 Pa. 457, 466, 139 A. 200 [56 A. L. R. 1303], that there was some conflict in the authorities with respect to the proper disposition of such rights. We now definitely decide that, where a corporation gives to the trustees of an estate the right to subscribe for new stock, and they avail themselves of such offer, the benefit resulting therefrom must be apportioned in the same manner as an extraordinary stock dividend would be; that is, there should be allotted to the corpus of the trust sufficient thereof to maintain unimpaired the intact value of the stock held by it, and the life tenant should receive the balance, because it represents corporate earnings which accumulated after he became entitled to all dividends at any time thereafter payable out of such accumulations.’

As we have stated, the Supreme Court of California has accepted the rule of apportionment of stock dividends between life tenant and remainderman as developed by the Pennsylvania courts, Mr. Justice Melvin saying in Estate of Duffill, supra, at page 758 of 180 Cal., 183 P. 337, 340: ‘That we adopt the American or Pennsylvania rule is evident from the foregoing discussion and the cases cited. In re Osborne, 209 N. Y. 450–477, Ann. Cas. 1915A, 298, 50 L. R. A. (N. S.) 510, 103 N. E. 723, 823, is an excellent example of the application of the rule which there was stated as follows: ‘(1) Ordinary dividends, regardless of the time when the surplus out of which they are payable was accumulated, should be paid to the life beneficiary of the trust. (2) Extraordinary dividends, payable from the accumulated earnings of the company, whether payable in cash or stock, belong to the life beneficiary, unless they intrench in whole or in part upon the capital of the trust fund as received from the testator or maker of the trust or invested in the stock, in which case such extraordinary dividends should be returned to the trust fund or apportioned between the trust fund and the life beneficiary in such a way as to preserve the integrity of the trust fund.’'

The decision in Estate of Gartenlaub, supra, holding that the remainderman is entitled to the value of the stock as it existed at the date of the creation of the trust and that the accumulations beyond that date are distributable to the life tenant as income or profits confirms the policy declared in the Duffill Case. Since this policy in Pennsylvania and California rests upon the view that stock dividends may be given in whole or in part to the life tenant, so long as such distribution comes from earnings and so long also as it does not decrease what the Pennsylvania court calls the ‘intact value’ of the corpus, we see no logical reason why California should not take the further step along with Pennsylvania and following the lead of New Hampshire adopt the same view as to a stock subscription right.

The objection may be urged that such a view ignores the right of a shareholder to maintain his original proportionate interest in the corporation by the purchase of new stock at each increase, an argument advanced in support of the Massachusetts rule in jurisdictions where that rule has been adopted, e. g. Hayes v. St. Louis Union Trust Co. (1927) 317 Mo. 1028, 298 S. W. 91, 56 A. L. R. 1276. But as we have been by reference to section 297, Civil Code, this argument has little or no weight to-day in California. Recent comment on this subject by Professor Ballantine appears in his work on California Corporation Laws (1932 Ed., pp. 98–101) where under the caption ‘Abrogation of Preemptive Rights,’ discussing the objections to and departure from the old rule, he says: ‘The idea of the committee which drafted the present provision (referring to section 297, Civ. Code) was that justice and convenience could be served more effectually by holding directors to high standards of good faith and fairness in the exercise of their power to issue shares rather than by any positive rule conferring preemptive rights. The so-called preemptive right is in effect simply a remedy or device to enforce fair dealing as to existing shareholders. Stock structures have become so complex in recent years that it has become impracticable to find any fair basis of apportionment of new issues between different classes of shares. The practical solution is to issue the shares for their reasonable market value without favoritism toward the insiders. Even when a new issue of shares is offered to existing shareholders pro rata, it will often work injustice, because many of the shareholders may be unable to take their allotment and may thus lose their relative interest and influence. In many cases the directors may exercise their discretion to make a first offering to existing shareholders in order to avoid any suspicion or charge of favoritism on their part.’ See, also, article on ‘Conflicting Claims of Life Tenant and Remainderman to ‘All stock—No Cash’ Dividends,' 46 Harvard Law Rev. 298, p. 303, n. 34 (Dec., 1932). That our courts have not been greatly impressed with the so-called pre-emptive right as related to the intricate stock structures of recent years was evidenced more than a decade ago by their refusal to accept the Massachusetts rule, and their holding, on the contrary, that the shareholder's right is fully protected if the intact value of the stock which belongs to him in remainder is not impaired when it reaches him.

The foregoing portion of the opinion of the District Court of Appeal, we hereby approve and adopt as a part of the opinion of this court. As we have seen, the trial court rendered judgment in this action in favor of the estate of the deceased life tenant, and thereby sustained the contest of the devisee under the will of the life tenant to the claim presented against his estate by the remaindermen, the appellants in this action, which claim had been allowed and approved by the executor and the court. The trial court apparently acted upon the theory that the warrants and the stock subscription rights were income from the trust fund, and that it belonged to the life tenant, which would be the case if the so-called Kentucky rule prevailed in this state. It would follow, therefore, if this were the only basis of the trial court's judgment, that said judgment should be reversed. In this connection, we might say that contestant, the respondent herein, set up two grounds of contest in her written contest to the allowance of said claim. In the first ground she alleged that, under the terms of the trust agreement between the deceased Schnur and the appellants, the former was entitled to all of the income from the trust property, and that the $8,172.09 in this controversy were the proceeds of said warrants and stock subscription rights, and that they were income from said trust property. As her second ground of contest, she alleged facts which, if true, showed that the value of the trust estate had not been diminished by the issuance of said warrants and the sale thereof and retention of the proceeds of said sale by the decedent, William Schnur, and therefore the proceeds thereof were income. In the second ground of contest is the specific allegation, ‘that the value of said rights so sold by the deceased did not represent an accretion in value of the corporate assets of said Columbia Gas & Electric Corporation, and that the value of said rights represented earnings of said Columbia Gas & Electric Corporation, and of Ohio Fuel Corporation with which it was merged, accumulated after the creation of said trust estate and after said deceased became entitled to all the income from said trust estate.’ It will thus be seen that respondent's second ground of contest, if the facts alleged therein were true, was sufficient to show that, even under the so-called Pennsylvania, or American, rule the proceeds received from the sale of said warrants were income and therefore, belonged to the deceased, William Schnur, the life tenant. But, as we have seen, she produced no evidence in support of this ground of her contest, and the court for that reason found the allegations therein contained were untrue. We have held that contestant cannot prevail under the first ground of her contest, as it was based entirely upon the theory that the said sum of $8,172.09 was income from the trust property. As the court found all the allegations of her second ground of contest untrue, it would seem that the judgment can find no support from that source.

Notwithstanding this condition of the record, the respondent contends that the judgment sustaining the contest should be affirmed. The basis of her contention is that the burden of proving that the proceeds from the sale of said warrants belonged to the corpus of the trust, and was not income, was upon the remaindermen, the appellants herein. We find, however, that the rule is just the reverse, or in other words, that, under the Pennsylvania rule which also prevails in the state of New Hampshire, the presumption is that the proceeds from the sale of stock subscription rights as between the life tenant and the remaindermen are to be regarded as capital and belonging to the remaindermen. Peirce v. Burroughs, 58 N. H. 302, 303; Rockwell v. Dow, 85 N. H. 58, 154 A. 229, 235; and Waterhouse's Estate, 308 Pa. 422, 430, 162 A. 295, 297. In the first of these three cases the court said: ‘A part of the estate was stock of various railroads. During the life estate the railroads issued new stock, giving stockholders the right to buy the new shares at par. * * * Was it capital, or income? * * * Without any evidence tending to show that it was income, it should be regarded as capital. * * * There being no evidence that the right to take new shares was property, or the proceeds of property earned by the corporations, or that it was in any sense income or profits, it is capital belonging to the remainderman.’ The Supreme Court of Pennsylvania in Waterhouse's Estate, supra, stated the rule as follows: ‘When the trustees sell stock rights, the presumption is that the proceeds derived therefrom represent capital assets of the estate, and the burden of showing the contrary rests on those who assert a claim to the fund or part of it. In the present case, the burden of proof rested on the life tenants.’ These authorities clearly hold that the burden of proving that the proceeds of the sale of said warrants were income rested upon the respondent, who claimed under the life tenant. In the absence of any evidence, the presumption was that these proceeds belonged to the appellants. Respondent's case, we think, is not strengthened by reference to either section 748 of the Civil Code, or to subdivision 12 of section 1963 of the Code of Civil Procedure. The first of these two sections purports to define the term ‘income’ and provides that ‘the income of property, as the term is used in this part of the code, includes * * * the interest of money, dividends upon stock, and other produce of personal property.’ This section of the Code evidently refers to ordinary dividends upon corporate stock, and has no reference to stock subscription rights which may or may not be income, depending entirely upon whether they represent net earnings of the corporation. Subdivision 12 of section 1963 of the Code of Civil Procedure lists certain presumptions in force in this state, one of which is the presumption, ‘that a person is the owner of property from exercising acts of ownership over it.’ The facts of the instant case shown that William Schnur received these warrants, or stock subscription rights under the trust agreement creating the trust, and it would be a most unconscionable assumption to construe his wrongful appropriation of these rights as an act tending to show his ownership of said property. The evidence shows all the conditions under which William Schnur received and disposed of these stock subscription rights and his acts in that transaction furnish no basis for any presumption that he was the owner thereof.

Finally respondent attacks the sufficiency of appellants' claim, and contends that it fails to allege that, when deceased's life estate terminated, said stock was of less value than when the life estate was created as a result of the retention by decedent of the proceeds of said sale, and, furthermore, that said claim is invalid in that it fails to allege that any part, or all, of the proceeds of said sale should be apportioned to the corpus of the trust estate to preserve its value intact as of the date of its creation. The further objection is made that said claim fails to allege that the retention of said proceeds by the deceased was an improper exercise of the right to appropriate the corpus which was expressly given him in the agreement creating the life estate. In effect, these objections to said claim might be likened to a general demurrer to said claim on the ground that it did not state facts sufficient to constitute a valid claim against the estate of said decedent. They appear to be based upon the assumption that a claim against an estate must be drawn with the precision required of a complaint in an ordinary civil action. It has never been so held in this state. On the other hand, if the facts stated in a claim are sufficient to apprise the executor or administrator of the nature and amount of the demand, it is a sufficient demand against the estate. 11 Cal. Jur., p. 702; Robinson v. Chapman, 98 Cal. App. 278, 276 P. 1081; Standiford v. Cantrell, 87 Cal. App. 736, 741, 262 P. 800; Pollitz v. Wickersham, 150 Cal. 238, 250, 88 P. 911, 916. In the last-named case we find the question of the sufficiency of a claim against a decedent's estate discussed as follows: ‘The claim read fair enough upon its face, not stating facts which necessarily put it under the ban of the Constitution. Whether the transaction was, in fact, in contravention of the constitutional provision, was a question of fact that could only be determined by a consideration of the circumstances under which it was had, and the conduct of the parties in reference thereto, * * * and plaintiffs were not required to show those circumstances in their claim. It is not required that a claim against an estate should state the facts with all the preciseness and detail required in a complaint, and the sufficiency of such a claim is not to be tested by the rules applicable to pleadings. It should, of course, as said in McGrath v. Carroll, 110 Cal. 79, 83, 42 P. 466, 468, ‘sufficiently indicate the nature and amount of the demand to enable the executor and judge in probate to act advisedly upon it,’ and this, we think the claim in question did.' The facts which go to make up appellants' demand against the estate of William Schnur, deceased, were fully and clearly stated in their written claim filed against said estate and are sufficient to show the nature and amount of appellants' demand. As shown, the executor and the court allowed the claim as presented, and it must be inferred from such allowance and approval that the nature of the claim and also its amount were understood and approved both by the executor and the court. Standiford v. Cantrell, supra, page 741 of 87 Cal. App., 262 P. 800.

The judgment is reversed, with directions to the trial court to ascertain (in the event the respondent so desires) the extent, if any, of the diminution of the corpus of the trust by reason of the retention by decedent of the proceeds of the subscription rights, and thereafter to proceed in accordance with the views expressed in the opinion; and, if it be found that no diminution of the corpus has taken place, to enter judgment dismissing said contest.

PER CURIAM.