This action was brought for the construction of certain clauses of the will of John Lowry, deceased, and for an accounting by his executor and trustee. The real question, however, which is presented by the appeal is whether a certain stock dividend declared by the Pullman Palace Car Company upon its capital stock belongs to the life tenant or to the remaindermen.
Thé facts are undisputed. Upon the trial it appeared that on the 26th of January, 1895, Mr. Lowry died, leaving a will and codicil* which were admitted to probate, and letters testamentary issued to the Farmers’ Loan and Trust Company, the 'executor and trustee therein named, which qualified, entered upon the discharge of its duties, ever since has been, and now is acting as such; that at the time of Mr. Lowry’s death he was the owner, among other securities, of fifty shares of the capital stock of the Pullman Palace Car Company, which company then had a capital stock of $36,000,000* divided into shares of the par value of $100 each, and it also then had undivided profits. amounting to upwards of $25,000,000; that *410the trust company, acting under the provisions of the will creating the trust, divided the trust estate and set apart for the plaintiff, one of the children of the testator, among other securities, eight shares of the capital stock of the Pullman Palace Car Company, upon. which it paid to him, up to October, 1898, all of the cash dividends declared by the Pullman Company payable to the holder of such shares, including an extra dividend of twenty per cent. In October, 189.8, the Pullman Company, out of the undivided profits of surplus which it then had, amounting to about $20,000,000, declared, a stock dividend of fifty per cent, payable on the fifteenth of. Rovember following, and four of such shares were on the latter date delivered to the -trust company. The plaintiff claims such shares, and the trust company having refused to deliver the same to him, upon the ground that they belong not to him, the life tenant, but to the remaindermen, this action was brought, the object of which is really to determine the title to the same. ■
So much of the will of the testator as seems to be pertinent to the solution of the question presented reads as follows:
“ Seventh. I direct my executor to set apart one-fourth part of the rest, residue and remainder of my estate, real and personal,, wheresoever situate, of which I may die seized, and said one-fourth, part I ■ give, devise and bequeath to the Farmers’ Loan and Trust Company, a body corporate of the State of Rew York, in trust, to receive the rents, issues and profits thereof and to apply the same to the use of my wife,"Louisa L. Lowry, until her death .or remarriage, and on her death or remarriage, then the said'portion of my estate so held in trust for her shall go to in crease the portion of my .estate held in trust for the benefit of my children, as hereinafter, stated. , ■ ,
“2. The rest of my residuary estate I direct my executor to divide into as many portions as I may leave children or issue, of deceased children me surviving, making such division per stirpes, and counting the children of any deceased child of mine as one. One of said shares I hereby devise in trust for..the benefit of. each ■ one of my children who may survive me, that is to say, I give, devise and bequeath the same to the Farmers’ Loan .and Trust Company, in trust, to receive the rents; issues and profits thereof and,to apply, the, same-to the use of 'each one of my children, who. may survive me, during the natural life of such child, and after the death of each *411•child, to pay over the principal of such trust fund to the right heirs of such deceased child. * * *
“ Eleventh. * * * When any investment of trust funds has been made by purchase of securities, such securities shall form part •of the principal of the trust fund and follow the trust; and the entire income from such securities shall be applied as income, irrespéetive of the price paid for the securities, or the subsequent value thereof; it •being my will that no part of such income shall be diverted-to form ••a sinking fund to replace any loss to the principal by depreciation in value of the securities.”
The learned justice sitting at Special Term, after a trial had, reached the conclusion that the plaintiff, the life tenant, was not entitled to this stock dividend; that it belonged to the remainder-men, and he, therefore, dismissed the complaint upon the merits, and from the judgment thereafter entered in accordance with his decision, the plaintiff has appealed.
We are of the opinion that the learned justice erred in the conclusion reached by him. The testator intended that the plaintiff ■—■ ■one of his children — should, during his life, receive the entire ■“ rents, issues and pr-ofits ” of that portion of the estate set apart for Ms benefit. The will so declares, and the 11th clause simply adds -emphasis to that intent. The provision there is, that the entire income from such securities “ shall be applied as income, irrespective of the price paid for the securities or the subsequent value thereof.” Nothing is to be diverted to form a sinking fund or to replace any loss to the principal by depreciation in-the value of the •securities. Mr. Lowry’s legal interest in the Pullman Company, when lie died, consisted of the fifty shares of stock held by him. He had no contrnl over the surplus, out of which the stock dividend or some poi'tion of it was subsequently paid. He could not have compelled a division of this sm-plus so long as the directors refused, in good faith, to make a division of it. The legal title to the surplus was in the corporation, and the directors — to whom the statute had •committed the management and business of the affairs of the corporation — alone could direct a distribution among the stockholders, and if they" refused, failed or neglected in this respect the stockholders were powerless, unless they could show that such surplus was not required in the prosecution of the business of the corporation or that *412tlie directors acted in bad faith. Until such facts had been establishecl the stockholders of the corporation had no legal interest in the surplus and could not have maintained an action at law to compel -a distribution of it. (Greeff v. Equitable Life Assurance Society, 160 N. Y. 32, and cases cited; Burden v. Burden, 159 id. 287.) The board of directors, at any time after the death of Mr. Lowry, could have declared a dividend sufficiently large to have exhausted the surplus if" the same existed in cash, and if such dividend had been payable in cash no one would have seriously contended but that the plaintiff would, have been entitled to it, to the entire exclusion of the remaindermen.. The law seems to b.e well settled, in this State at least, that a cash dividend is income, and goes to the life tenant, no-matter at what time .the-profits from which the dividend is declared may have accrued or .have been accumulated, (Matter of Kernochan, 104 N. Y. 618 ; Matter of Rogers, 22 App. Div. 432; S. C. affd., 161 N. Y. 108.) The Pullman Company,■ instead of making a cash dividend, made a, dividend payable in stock, which, as a matter of fact,, represented, either betterments, additions to the property acquired by the corporation, or cash- held by it, a dividend which represented additional capital involved in the business of the corporation which had. been accumulated from time to time from its net earnings not divided when the same were made, but appropriated by the corporation for the prosecution of its business. The stock dividend thus made was, in effect, as though the corporation had increased its capital stock, divided the surplus earnings in cash among its stockholders, and the stockholders had taken the cash and purchased the stock. Such a dividend in principle must be considered the same as a dividend in money among the stockholders respectively entitled thereto, and, if this be true, then a stock dividend having .for its. basis and representing the surplus earnings of a corporation, must ■be treated as though such surplus earnings had been divided among the stockholders and the cash actually paid to them, and- held. .to-belong to the life tenant and not to the remaindermen. •
This is the rule, as we understand it, adopted by the Court of Appeals in McLouth v. Hunt (154 N. Y. 179), and Matter of Rogers (161 id. 108). The syllabus in the McLouth case, which seems to express the conclusion of the court so far as it relates to-the question here presented; is, “ when a stock dividend declared by *413a, corporation ■ and allotted to shares of its original capital stock, belonging to a testamentary trust estate, constitutes, as matter of fact, a distribution of accumulated earnings or profits, it represénte income and belongs to the life tenant of the trust estate, as between him and the remainderman.’’ And the expression of the court in the Rogers case is substantially to the same effect. There the question of a stock dividend was not directly involved, the issue presented being between the life tenant and the remaindermen as to their respective interests in .the distribution of the assets of a corporation made upon its final dissolution, and the court held that it was permissible in such case to show what, if any, portion of the sums distributed proceeded from profits and what from capital, to the end that the profits might be allotted to the life tenant, and the ■capital of the corporation held for the remaindermen.
Many authorities have been called to our attention in the briefs submitted, bnf the two referred to seem to be decisive and controlling upon this court. (See, also, Clarkson v. Clarkson, 18 Barb. 646; Riggs v. Cragg, 26 Hun, 89.)
Our conclusion, therefore, is that the stock dividend of fifty per cent declared upon the capital stock of the Pullman Palace Oar Company, four shares of which were allotted to the eight shares held by the trust company in trust for the benefit of the plaintiff, is, .according to the intent of the testator, “income” and belongs to the plaintiff absolutely, and that the same should be delivered to him by the trustee, and that the learned trial justice, in reaching the opposite conclusion, erred, for which reason the judgment appealed from must be reversed and judgment rendered for the plaintiff, with costs in all the courts to be paid out of the principal of the estate.
Van Brunt, P. J., O’Brien, Ingraham and Hatch, JJ., concurred.
Judgment reversed and judgment rendered for the plaintiff, with cost in all the courts to be paid out of the principal of the estate. '