I concur in the opinion of Mr. Justice Shearn, except as to the disposition of the stock of the Colonial Oil Company, Standard Oil Company (California) and Standard Oil Company (Nebraska). The time, method and purpose of the acquisition of these stocks by the Standard Oil Company of New Jersey are stated in the opinion of Mr.' Justice Shearn and need not be repeated. His conclusion is that such portions of these stocks as were purchased out of the surplus earnings of the Standard Oil Company of New Jersey accumulated prior to the creation of the trust should be allotted to capital, and such as were purchased out of surplus earnings accumulated after the creation of the trust should be distributed to the life beneficiaries. In my opinion, the .determining factor is not the time of the accumulation, but the purpose and appropriation of the fund which had been accu*572mulated, whether it consisted of funds permanently reserved for working capital and paid out in the purchase of the stock of these' corporations as a means of extending their plant and facilities in producing and distributing their product, or merely as an investment of current profits which were applicable to dividends. If the first, they were capital assets; if the second, they were properly income.
The Standard Oil Company of New Jersey in 1899 filed an amended certificate of incorporation, whereby its capital stock was increased from $10,000,000 to $110,000,000, and upon the issuance of this new stock the various stocks which constituted the corpus of the trust estate were exchanged, as has been fully set forth in the opinions of Mr. Justice Shearn and Mr. Justice Dowling. This amended certificate of incorporation contained the following provision: “ The corporation may use and apply its surplus earnings, in accumulated profits authorized by law to be reserved, to the purchase or acquisition of property and to the purchase or acquisition of its own capital stock from time to time, to such extent and in such manner and upon such terms as its Board of Directors shall determine; and neither the property nor the capital stock so purchased or acquired, nor any of its capital stock taken in payment or satisfaction of any debt due to the corporation, shall be regarded as profits for the declaration or payment of dividends unless otherwise determined by a majority of the Board of Directors or a majority of the stockholders. * * * The Board of Directors shall have power * * * to fix the amount to be reserved as ■ working capital.”
On August 1, 1899, the following resolution was adopted by the board of directors of the said company: “Resolved, that all of the accumulated profits of the Company to this date, in excess of the amount required to pay dividends of l\% on the preferred and 5% on the outstanding common stock be reserved as working capital.” In 1901 (N. J. Laws of 1901, chap. 110, amdg. N. J. Laws of 1896, chap. 185, § 47) 'the Corporation Law of New Jersey was amended to provide:
“ Unless otherwise provided in the original or amended certificate of incorporation, or in a by-law adopted by a vote of at least a majority of the stockholders, the directors of every *573corporation created under this act shall, in January in each year, after reserving over and above its capital stock paid in, as a working capital for said corporation, such sum, if any, as shall have been fixed by the stockholders, declare a dividend among its stockholders of the whole of its accumulated profits exceeding the amount so reserved, and pay the same to such stockholders on demand.” (See 2 Comp. Stat. 1629, § 47.) The extract from the amended certificate of incorporation (ubi supra) gave the right to the directors to determine the extent to which surplus earnings should be reserved, and that profits so reserved and the extent to which they should be applied in the purchase of property or stock, or the property or stock so purchased, should not be regarded as profits for the declaration of dividends unless otherwise determined by a majority of the directors or a majority of the stockholders. On November 17, 1902, the board of directors adopted a resolution declaring a dividend of one and one-half per cent on the preferred stock and ten per cent on the common stock, and further “ Resolved, that all of the accumulated profits to this date in excess of the amounts required to pay dividends of one and one-half (lt%) per cent on the preferred stock and ten dollars ($10) per share on the outstanding common stock be reserved as working capital.” Since November 17, 1902, each of the regular dividends declared by the said company has been authorized in the foregoing form, except that since August 15, 1911, such resolutions have contained no reference to preferred stock.
The referee has found “ That between 1899 and the distribution of stock in 1911, refineries at new points were established, large additions were made to the system of pipe lines and a number of new companies were organized and transfers of property and marketing facilities made between the different companies. The business which at the time of the distribution of stock in 1911 was carried on by the Standard Oil Company of New Jersey and its subsidiaries was the outgrowth and continuation of the same business which at the time of the execution of the trust agreement of 1882 was carried on by or through companies or limited partnerships named in the trust agreement, and which at least from the *574date of said agreement was conducted as a unified or common business. The individuality of each of the affiliated corporations or organizations was scrupulously maintained, their accounts were kept entirely separate and distinct, all business transactions were transactions of the different organizations severally, but the good of the whole was sought rather than the advancement of any single organization at the expense of the whole. New refineries were established and existing refineries enlarged or abandoned, pipe lines constructed, producing properties acquired or developed, and other facilities acquired or created according to the requirements of the business as an entirety. New corporations were organized or existing corporations utilized as instrumentalities for the convenient transaction of the business, and the plants and properties employed in the business were vested in such corporations and from time to time transferred from one corporation to another as convenience required, and all the funds employed in the business were utilized by the management as a common fund out of which all amounts requisite for. construction and development by the several companies were supplied, each organization being debited or credited with the respective amounts advanced or borrowed and interest being duly debited and credited thereon.”
Thus it wo.uld appear that the reserve for working capital authorized by the amended certificate■ of incorporation of the Standard Oil Company of New Jersey was used for the development and extension of the plant and facilities of the company. Where it was deemed best, to accomplish' this purpose, to organize a new corporation or to increase the capital of an existing corporation, the entire stock of such corporation, or the increase thereof (the Standard Oil Company of New Jersey holding all the stock theretofore issued), was taken by the Standard Oil Company of New Jersey, and the money paid to the subsidiary corporation was paid out of this reserve for working capital. The stock thus purchased represented such an appropriation of this fund and was an enhancement of capital, the same as it would have been had the money been paid directly for the purchase or erection of the producing, manufacturing or distributing plants. The value of the capital stock of the Standard Oil Company *575of New Jersey was enhanced by the value of the stock thus purchased, and the dividends paid to the stockholders were increased by the net earnings of these plants, which were paid to that company upon the stock so acquired. When, therefore, the Standard Oil Company distributed these stocks to its stockholders pursuant to the decree of the United States court, it distributed the stock so acquired as a part of the capital invested in- the business. Although the fund from which the money was paid had been accumulated from undistributed profits, these profits had been withdrawn from profits distributable in dividends, pursuant to the authorization in the amended certificate of incorporation, which authorized the directors so to withdraw them, and which further provided that such investments “ shall not be regarded as profits for the purpose of declaration or payment of dividends unless otherwise determined by a majority of the Board of Directors or the stockholders.” Neither the directors nor stockholders of the said company ever made such a determination. The effect of the decree of the United States court was not to distribute those stocks to the stockholders as dividends, nor did that decree work a dissolution of the corporation or of any of its subsidiaries. The corporations all remained going concerns, carrying on their several business enterprises. The Standard Oil Company was deprived of the co-operation of the subsidiary companies, but still operated such plants as it owned prior to 1899 and the accretions thereto. The subsidiary companies — these three with the others — mentioned in the decree, their officers, directors, agents, servants and employees, were enjoined and prohibited from paying any dividend to the Standard Oil Company on account of the stock held by it, or from allowing the latter company to vote, or to direct the policies or exercise any control whatsoever over the corporate acts of the subsidiary companies. But the Standard Oil Company was. not prohibited from distributing ratably to its shareholders the shares to which they were equitably entitled in the stocks of the subsidiary companies.
This is what the Standard Oil Company of New Jersey did. The effect of this was merely to transfer from that company the stocks that it was holding to its stockholders, *576thus transferring to the equitable owners of such stock the legal title. A stockholder is the holder of a certificate that he is the owner of a specific share of the joint property and assets that are held by the corporation for all the stockholders. The legal title is in the corporation, but the stockholders are the equitable owners. Therefore, the transfer to the stockholders of the Standard Oil Company of the stock of these subsidiary companies ratably was merely a transfer of the legal title, to that extent, of the common property, so that each became the legal owner of that of which theretofore he had been the equitable owner. This was in no sense a dividend, but a transfer of capital assets. I am aware that Judge Cardozo has characterized this distribution as “ in-effect, an extraordinary dividend.” (Matter of Brann, 219 N. Y. 263, 267, revg. 171 App. Div. 800.) A careful reading of the opinion will show that the question whether this distribution was a dividend was not a determinative factor in the case. The distribution was made in the lifetime of the testatrix, and the question was whether the stock in the subsidiary corporations passed under the bequest of the original stock, or to the residuary legatee; and as was stated in the dissenting opinion in this court: “ The method of distribution of the surplus, whether it be called a dividend or not, has no bearing ón the case.” Whatever it was, “ the stock of the subsidiary companies when issued and received by the testatrix became an independent asset of the estate, not in any way attached to or accompanying the original stock ” and should be disposed of in accordance with the intent of the testatrix as shown by her will and codicil. (171 App. Div. 809.) The status of the distribution made by the Standard Oil Company clearly was not fixed and settled by the decision of the Court of Appeals in Matter of Brann (supra) as that of an extraordinary dividend, as is claimed by the counsel for the fife beneficiaries. Nor do I find anything in the cases relied upon by the counsel for the life beneficiaries which is inconsistent with the views that I have expressed in this opinion.
In Equitable Life Assurance Society v. Union Pacific R. R. Co. (212 N. Y. 360) the Baltimore and Ohio Railroad stock was held merely as an investment of surplus. That road was *577not a part of the plant of the Union Pacific, nor was it used to extend the facilities of the latter company. The sole benefit accruing to the Union Pacific from the stock holding was the receipt of dividends on the investment. The distribution of that stock was, therefore, a distribution of surplus that was properly applicable to dividends, and the fact that the distribution was made of the stock itself, rather than in cash that could have been obtained by the sale of the stock, made no difference. The court further recognized that special circumstances might take the case out of “ the ordinary rule,” which they applied in that case, “ of corporate management established by decisions, statutes and business usages that the surplus of these gains or profits beyond what may be necessary to keep good the liability to capital stock which has been issued, may, in the discretion of a board of directors, be distributed amongst its stockholders as dividends and returns on their investment.” (P. 366.)
In the instant case, as has been shown, special circumstances exist. The stock was purchased from a fund that the certificate of incorporation stated should not be appropriated in the payment of dividends, and the plants of the corporation were used in the business of the Standard Oil Company and were in effect an extension of its own plant and facilities.
In Matter of Schaefer (178 App. Div. 117; affd., on opinion of Scott, J., 222 N. Y. 533) the surplus had been invested in leases of saloon properties and chattel mortgages on saloon fixtures and on such leases. This was not an investment of worldng capital in the plant and facilities of the corporation’s business. The leases were not secured for the purpose of carrying on business by the corporation in the demised premises, but for the purpose of reletting to others, and the profit, if any, on the investment accrued in the increased rent received, and upon the mortgage loans the corporation received interest on the investment and nothing more. This court held that when the corporation purchased from the trustees the stock, the value of these investments was represented in the price paid for the stock and, in so far as the money so invested was accumulated during the trust period, it should go to the life beneficiaries, for it was taken from a fund *578applicable to dividends, and which would have gone to them had it been so distributed.
Matter of Rogers (22 App. Div. 428; 161 N. Y. 108), while it dealt with the dissolution of a corporation and hence thus distinguishable in some particulars from the case at bar, is illuminating of points involved in the instant case and goes far to sustain the conclusion that I have reached. The Rogers Locomotive and Machine Works was started in 1838 with a small capital ($300,000). From time to time its plant was increased, until it had large and valuable buildings and plant devoted to manufacturing purposes and an extensive stock of materials on hand. In addition, it had a large fund in cash, bonds and stocks of the United States government, bonds of other corporations, and real estate located in other States. All of the increases in plant and the purchasing of the securities had been made out of accumulated profits. In 1893 another corporation was organized called the Rogers Locomotive Company with an authorized capital of $3,000,000. The old company transferred all its works, buildings, plant, stock on hand and good will for $2,750,000 in the stock of the new company. Thereupon the original company proceeded to liquidate. The directors sold some of the securities and the real estate and from time to time made distribution. The stock in the new company was ratably distributed to the stockholders of the old, and a division in kind was made of the railroad stocks and cash dividends. Altogether there was distributed to the holder of each share of stock in the old company 1,144 per cent in the stock of the new company, 1,000 per cent in cash, and 175 per cent in railroad stock. The testator had died in 1868, creating a trust for certain life beneficiaries with a remainder over in certain shares of stock in the original company. A controversy arose between the life beneficiaries and the remaindermen. It was decided by the surrogate that the stock in the Rogers Locomotive Company was capital; that the cash dividends (except a part, as to which no appeal was taken) and the dividend of railroad stock were income. This decision was affirmed in the Appellate Division and the Court of Appeals. In the course of the opinion the latter' court said (p. 113): “ What then is capital and what is profits? In a manufacturing business a *579plant is of first importance, and as the business increases an enlargement thereof, with the necessary tools, fixtures and machinery, is one of the things to which the earnings of the company may properly be devoted. This must be deemed to be fairly within the contemplation of the testator in creating the trusts with the capital stock of this company. After the plant, there arises a necessity for raw material and labor to manufacture it. This requires what is usually termed a working capital, and it, of necessity, varies in amount depending upon the magnitude of the business. It must, therefore, also have been within the contemplation of the testator that a reasonable amount would be retained by the directors for this purpose. The sale of the plant, as we have seen, included the stock of raw material on hand and that in the process, of manufacture, and we must assume that the sum obtained from such sale included so much of the working capital as was necessary for the procurement of raw material. * * * The appellants claim that all of the assets were necessary, but this we cannot admit. It is very clear that the investment in government bonds, railroad stocks, and lands in the western States was not capital employed in the business of the corporation, and, consequently, was not necessary as a working capital. * * * We incline to the view that substantial justice has been done the parties by the order appealed from and that it should be affirmed.”
In Robertson v. de Brulatour (188 N. Y. 301), while the cash distributed was realized in part from the sales of real estate no longer necessary in the company’s business, it was held that the sale did not create the surplus nor affect it as an item in the account of assets and liabilities, but that the sales of real estate and securities to the extent that they were made assets, were liberated, and the cash accumulated was a cash surplus which the directors could, in the exercise of their discretion, distribute among the stockholders.
The case of Williams v. Western Union Telegraph Co. (93 N. Y. 162) was an action brought by a stockholder to restrain the company from issuing stock to purchase stock in certain other telegraph companies, and distributing a stock dividend. The counsel for the life beneficiaries quotes lengthily from pages 191 and 192 of the opinion. But as this case *580dealt with the rights of directors to declare dividends, when questioned by a dissenting stockholder, there is nothing in it that throws any light on the consideration of the case at bar.
I have no quarrel with the portion of the opinion cited by my brother Shearn from Smith v. Dana (77 Conn. 543, 554), although the holding in that case that stock dividends irrevocably fix the status of the surplus thus capitalized, and that such dividend goes to the capital of the trust, irrespective of the time when the surplus was accumulated, is contrary to the rule in this State. I do not question the right or the power of a majority of the directors of the Standard Oil Company to have abandoned these subsidiary companies and sold them, or to have distributed the fund reserved for working capital in cash, for such right was expressly given by the amended certificate of incorporation of the company. But by that certificate it was also provided that out of profits they might reserve a fund for working capital, and it was within their discretion to expend this money in the purchase or enlargement of the plant and facilities of the company, which they did directly and through the organization or purchase of other companies subsidiary and auxiliary to the corporation. The amended certificate provided that such property and such fund should not be applicable to or distributable as dividends, unless a majority of the directors or a majority of the stockholders so voted.
In my opinion, until such action, the investment is and must be deemed to be a capital investment, and when without such vote the stock of the subsidiary companies under consideration herein was transferred to the stockholders, it was a distribution not of surplus, not by way of dividend, but of an aliquot part of the capital assets of the corporation, of which theretofore they had been the equitable owners and thereby became the legal owners. Therefore, when the trustees received this stock it was their duty to hold it as a part of the capital of the trust estate, paying over to the life beneficiaries the income therefrom, which theretofore had been received and paid over as a part of the dividends of the Standard Oil Company, but which now is paid directly from the subsidiary company to the trustee. The removal of an intermediate conduit through which the income had been received has not, *581in my opinion, changed the whole character of the stock holding.
To my mind this works not alone substantial justice, but gives effect to the intention of the testator and is entirely in harmony with the controlling principle of Matter of Osborne (209 N. Y. 450). We have held in Baker v. Thompson (181 App. Div. 469), decided herewith, that the rules in that case are applicable to a distribution of surplus of the corporation by dividend or otherwise, but not to capital assets. That there may be large accretions of capital by increase of plant and facilities which, although paid for out of income, are not distributable as dividends, and which when paid to a trustee become a part of the capital of the trust, was distinctly held in Matter of Rogers (supra), and was declared by the court to work substantial justice and to give effect to the intention of the testator — which was that the income should go to the life beneficiary, but that the principal should go to the remainder-men. In the instant case, by the result which, in my opinion, should be adopted, the parties would be left exactly in the position they have been. The income from these subsidiary stocks would be paid to the life beneficiaries by the trustees, who will receive it directly from the subsidiary companies, instead of in the form of dividends from the Standard Oil Company, and the stock of the subsidiary companies- will 'be held by the trustees instead of by the Standard Oil Company. The rule in the Osborne case was adopted to prevent the appropriation by the life beneficiary of accretions to capital which had resulted from income received and not distributed prior to the creation of the trust. It should not be applied to allow the appropriation by the life beneficiary of other legitimate accretions to capital after the creation of the trust. The book value of the stock at the time of the creation of the trust is not to be adopted as the fixed value of the capital, which cannot thereafter be increased in any manner whatsoever.
For the reasons above given, I am of opinion that these shares of stock in the Colonial Oil Company, the Standard Oil Company of California, and the Standard Oil Company of Nebraska, should be held as a part of the capital of the trust, and not distributed in whole or in part to the life beneficiaries.