In the Matter of the Estate of Dudley B. Dawson, 641 A.2d 1026 (N.J. 1994)

Facts

The will provided that trustees should allocate stock dividends to income and allocate stock splits to principal but did not defined the terms.

Procedural History

The trial court adopted the New York Stock Exchange Rule that stock distributions were dividends if they constituted less than 25% of outstanding shares and splits if 25% or more.  The Appellate Division reversed and relied on the traditional approach.

Issue(s)

Did the Appellate Court err in reversing the judgment of the trial court and rejecting the approach of the New York Stock Exchange?

Holding(s)

Yes.

Reasoning/Analysis

The Court found that the rule they adopted was similar to the trial courts test that a dividend is less than 25%.  They went on to say that although 25% is usually the maximum share increase, a 25% cutoff may not work in every case.  Courts should inquire into all the facts and circumstances including the effect of the distribution and the corporation’s description.

Judgment/Outcome

The Court reversed the judgment of the Appellate Court.