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Opinion of the Court.

trustees as to their votes with reference to the proposed arrangement.” “If a man has his shares placed in settlement, he gives his trustees, in whose names they stand, a power of voting, and he must use his influence to get them to vote as he wishes. But where the company, by a majority of their votes, have said that they will not divide this money, but turn it all into capital, capital it must be from that time. I think that is the true principle, and I must hold that these additional shares formed part of the capital fund under the settlement, and went to the children, and not to the tenant for life (their mother).” Barton's Trust, L. R. 5 Eq. 238, 243-245.

In the most recent English case on the subject, William Bouch bequeathed to his executor, in trust for his widow for life, and after her death to the executor, his personal estate, including shares in an iron company, whose directors had power, before recommending a dividend, to set apart out of the profits such sums as they thought proper as a reserved fund, for meeting contingencies, equalizing dividends or repairing or maintaining the works. Four years after the testator's death, the company, upon the recommendation of the directors, and out of a fund so reserved in the testator's lifetime, and of undivided profits, about half of which accrued before his death, made a bonus dividend, and an allotment of new shares, with liberty to each shareholder to apply the bonus dividend in payment for the new shares. Bouch's executor took the new shares and applied the bonus dividend in payment therefor. The House of Lords, reversing the judgment of the Court of Appeal, and restoring an order of Mr. Justice Kay, held that the corporation did not pay or intend to pay any sum as a dividend, but intended to and did appropriate the undivided profits as an increase of the capital stock; that the bonus dividend was therefore capital of the testator's estate, and the widow was not entitled either to the bonus or to the new shares. The difference of opinion was not as to the general principle which should govern, but only as to its application to the action of the corporation in the particular case. The House of Lords fully approved the statements of the general principle by Vice Chancellor Wood in Barton's Trust, above

Opinion of the Court.

cited, and by Lord Justice Fry, in delivering the judgment of the Court of Appeal, as follows: “When a testator or settlor directs or permits the subject of his disposition to remain as shares or stock in a company which has the power either of distributing its profits as dividend, or of converting them into capital, and the company validly exercises this power, such exercise of its power is binding on all persons interested under him, the testator or settlor, in the shares; and consequently what is paid by the company as dividend goes to the tenant for life, and what is paid by the company to the shareholder as capital, or appropriated as an increase of the capital stock in the concern, enures to the benefit of all who are interested in the capital. In a word, what the company says is income shall be income, and what it says is capital shall be capital." “In most, if not in all cases, the inquiry as to the time when the profits were earned by the company is an immaterial one as between the tenant for life and remainderman. Their rights have been made dependent on the legitimate action of the company, and” (subject to any rights arising from the law of apportionment, which was not in question)" are determined by the time, not at which the profits are earned by the company, but at [by] the time at which they are by the action of the company made divisible among its members.” Sproule v. Bouch, 29 Ch. D. 633, 653, 658, 659; Bouch v. Sproule, 12 App. Cas. 385, 397, 402, 407, 408.

The same principle was established in Massachusetts before the case of Sproule v. Bouch had come before the courts of England. Atkins v. Albree, 12 Allen, 359; Minot v. Paine, 99 Mass. 101 ; Daland v. Williams, 101 Mass. 571; Leland v. Hayden, 102 Mass. 512; Rand v. Ibubbell, 115 Mass. 461 ; Gifford v. Thompson, 115 Mass. 478. And in Connecticut, Rhode Island and Maine, a dividend of new shares, representing accumulated earnings, is held to be capital and not income. Brinley v. Grou, 50 Conn. 66; Brown's petition, 14 R. I. 371 ; Richardson v. Richardson, 75 Maine, 570, 574.

In New York, the recent judgments of the Court of Appeals appear to have practically overruled the decisions of the lower courts in Clarkson v. Clarkson, 18 Barb. 646; Simpson v.

Opinion of the Court.

Moore, 30 Barb. 637 ; Woodruff's Estate, Tucker, 58, and In re Pollock, 3 Redfield, 100, cited in behalf of the plaintiff; and to have settled the law of that State in accordance with that of England and of Massachusetts.

In Hyatt v. Allen, 56 N. Y. 553, the defendant, by a contract made August 11, 1871, under which he transferred to the plaintiffs certain stock in a manufacturing corporation, agreed to pay them “all profits and dividends of and upon the stock up to the first day of January, 1872.” In April, 1872, the corporation declared a dividend of fifteen dollars a share, five sixteenths of which were found by a referee to have been derived from the increase in value of its property between August 11, 1871, and January 1, 1872; and the court below gave judgment for the plaintiff for that proportion of the dividend. But the Court of Appeals reversed the judgment, and said: “A shareholder in a corporation has no legal title to the property or profits of the corporation until a division is made." " When, therefore, a contract is made in relation to dividends or profits, it must be deemed to have reference to dividends or profits to be ascertained and declared by the particular company, and not to growing profits from day to day, or month to month, to be ascertained upon an investigation by third persons, or courts of justice, into the accounts and transactions of the company.” 56 N. Y. 557, 558.

In Williams v. Western Union Telegraph Co., 93 N. Y. 162, the Court of Appeals, in the course of an elaborate discussion of the right of a corporation, when unrestrained by statute, to make a stock dividend, said: “When a corporation has a surplus, whether a dividend shall be made, and if made, how much it shall be, and when and where it shall be payable, rest in the fair and honest discretion of the directors uncontrollable by the courts." “Whether they shall be made in cash or property must also rest in the discretion of the directors." “Desiring to use the surplus and add it to the permanent capital of the company, and having lawfully created shares of stock, they could issue to the stockholders such shares to represent their respective interests in such surplus.” “ After a stock dividend a corporation has just as

Opinion of the Court.

much property as it had before. It is just as solvent and just as capable of meeting all demands upon it. After such a dividend the aggregate of the stockholders own no more interest in the corporation than before. The whole number of shares before the stock dividend represented the whole property of the corporation, and after the dividend they represent that and no more. A stock dividend does not distribute property, but simply dilutes the shares as they existed before.” 93 N. Y. 192, 189.

Finally, in Kernochan's Case, 104 N. Y. 618, the Court of Appeals applied the same rules as between the remainderman and the person entitled for life to the income of shares bequeathed in trust; rejected the test of determining what part of a cash dividend should be deemed principal and what part income by ascertaining how much was earned before and how much after the death of the testator; approved the general principle laid down in the cases of Barton's Trust, L. R. 5 Eq. 238, 245, and Sproule v. Bouch, 29 Ch. D. 635, 653, above cited; and said: “From the shares in question no income could accrue, no profits arise to the holder, until ascertained and declared by the company and allotted to the shareholder; and that act should be deemed to have been in the mind of the testator, and not the earnings or profits as ascertained by a third person, or a court, upon an investigation of the business and affairs of the company, either upon an inspection of their books or otherwise." "The rule is a reasonable and proper one, which limits the rights of a stockholder to profits by the action of the managers of a corporation or company. It is their sole and exclusive duty to divide profits and declare dividends whenever, in their judgment, the condition of the affairs of the corporation renders it expedient; and it would lead to great embarrassment and confusion if a court should undertake to interfere with their discretion so long as they do not go beyond the scope of their powers and authority.” 104 N. Y. 628, 629.

In Earp's Appeal, 28 Penn. St. 368, on the other hand, the Supreme Court of Pennsylvania declined to follow the early English cases, and adopted the rule, that where a corporation,

Opinion of the Court.

after having accumulated large surplus profits for many years before and since the death of the testator, increased its capital stock, and issued additional shares to the stockholders, so much of the surplus profits as had accumulated in the lifetime of the testator should be deemed capital, and so much as had accumulated since his death should be deemed income; and in Wiltbank's Appeal, 64 Penn. St. 256, where a corporation voted to increase its capital stock by an issue of new shares to be subscribed and paid for by the stockholders, and a trustee holding shares sold the right to take some new shares, and took others and sold them at an advance, that rule was carried so far as to hold that the sums so received by the trustee were income of the old shares, for the reason that the right to subscribe to new shares, the court thought,“ was not a part of the capital of the old stock, but a mere product of an advantage belonging to it," "a right incidental to the stock and therefore income.” The rule upon which those two cases proceeded has since been treated as settled in Pennsylvania, although there has been some difficulty, if not inconsistency, in applying it; and in one case Mr. Justice Paxson, now Chief Justice of Pennsylvania, spoke of both those cases as exceptional and depending on peculiar circumstances. Moss's Appeal, 83 Penn. St. 264, 269, 270; Biddle's Appeal, 99 Penn. St. 278; Vinton's Appeal, 99 Penn. St. 434. The only other States, so far as we are informed, in which the Pennsylvania rule prevails, are New Jersey and New Hampshire. Van Doren v. Olden, 4 C. E. Green, 176; Ashhurst v. Field, 11 C. E. Green, 1; Van Blarcom v. Dager, 4 Stew. Eq. 783, 793; Lord v. Brooks, 52 N. H. 72; Peirce v. Burroughs, 58 N. H. 302, 303. Upon the grounds already stated, that rule appears to us to be open to grave objections, both in principle and in application, as well as opposed to the weight of authority.

In the case at bar, the testatrix bequeathed to her daughter, Jane Owen Mabon, two hundred and eighty shares of stock in the Washington Gaslight Company, as well as some shares in an insurance company and bonds of the United States, “in trust for the advantage and behoof of” her daughter, Mary Ann Gibbons; and directed that after the decease of the tes

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