Facts
- Frank Cirigliano owned 2,000 shares of Citizens Bancshares, Inc. (Citizens).
- Cirigliano’s will devised 100 shares of Citizens stock each to John T. Law, Marino Paletti, and Teresa Calabrese.
- The will left the residue of Cirigliano’s estate to Geraldine C. Watson and Virginia Paletti, who served as co-executrices.
- On April 21, 1990, Citizens executed a four-for-one stock split, increasing Cirigliano’s holdings from 2,000 shares to 8,000 shares and reducing the par value per share; Cirigliano’s proportional ownership interest in Citizens remained the same.
- Cirigliano died on May 15, 1990, after the stock split.
- In the Circuit Court of Lewis County, the court ruled that the three stock legatees were entitled to only 100 shares each, without any increase for the stock split.
- Law, Marino Paletti, and Calabrese appealed.
Issues
- Whether, absent anything in the will showing a contrary intent, a legatee who is devised a stated number of shares is entitled to the additional shares produced by a stock split occurring between execution of the will and the testator’s death.
- Whether entitlement to stock-split shares should turn on classifying the stock gift as a “specific” bequest or a “general” bequest.
Decision
- The Supreme Court of Appeals of West Virginia reversed and remanded.
- The court held that, in the absence of anything manifesting a contrary intent, a stock legatee is entitled to any additional shares the testator receives because of a stock split occurring between execution of the will and the testator’s death.
- The court held that the specific-versus-general bequest distinction is not used to resolve stock-split disputes.
- Because a four-for-one split occurred, each 100-share devise carried the split-created shares needed to represent the same proportionate interest (i.e., 400 shares per 100-share devise), absent contrary intent.
Legal Principles
- The primary rule in construing a will is that the testator’s intent governs, unless it conflicts with law or public policy.
- A stock split does not change a shareholder’s proportionate ownership interest or increase the intrinsic value of the shareholder’s holdings; it changes the number of shares (and related attributes such as par value) as a matter of form.
- The “specific” versus “general” bequest classification is not applicable to determining the effect of a stock split on a testamentary stock gift.
- In the absence of anything manifesting a contrary intent, a legatee of stock is entitled to additional shares received by the testator due to a stock split occurring after the will is executed and before the testator’s death.
Conclusion
Watson v. Santalucia holds that when a corporation effects a stock split between a will’s execution and the testator’s death, the stock legatees take the split-created additional shares tied to their devised interest unless the will shows a contrary intent; the court therefore reversed the circuit court’s limitation of the legatees to the pre-split share numbers and remanded for further proceedings consistent with that rule.