The case of Minot v. Paine, 99 Mass. 101, states a plain rule for the guidance of trustees in respect to dividends made in the usual manner. Cash dividends are to be regarded as income, and stock dividends as principal. But in the present case the manner of making the dividend was unusual, and a question has arisen as to what its character really is. In making it, the first step of the directors was to increase their capital stock to §1,000,000, by creating 3000 shares of new stock, at its par value of §100 each. They then declared a *574dividend of 40 per cent., and voted that the treasurer be authorized to receive said dividend in payment for 2800 shares of the stock, and issue certificates for the dividend. The balance of new stock, being 200 shares, they voted to sell. The stock which the shareholders were thus authorized to take was worth $163 per share. Although there was an implied option that any stockholder might take and keep the $40 cash dividend instead of the stock, yet, as it was so much less than the actual market value of the stock, it was an option of no value, and no prudent man would avail himself of it. If he did not wish to keep the stock, he would take it and sell. If he took the stock, it was not expected that he should first receive the $40, and then pay it back to the treasurer for the stock; for it is stated that the $280,000 were already invested in mills, machinery and other property. Nor was any formality necessary on the part of the shareholder, except to assent to the transaction and receive a certificate. By receiving a certificate, the substance of the transaction was, that the shareholder received a stock dividend ; and the substance of the transaction is to determine its character.
No prudent trustee would doubt that he ought to elect to take the shares, having a market value of $163, rather than the dividend in cash ; and, indeed, the defendants ask for a decree to that effect. They pray that the trustees may be directed not merely to take the money, but to pay it directly back to the treasurer and receive the new shares therefor, thereby obtaining a stock dividend. But, if the trustees receive it as a cash dividend, they are to credit it and account for it as such. The stock would then remain in the hands of the company, and the remaindermen might receive their proportion of its value. This is not what the plaintiffs desire. They ask, in substance, that the trustees shall take the stock, but shall pay it to the tenants for life as income. We think it is clearly their duty to take the stock; but, being a stock dividend, they should treat it as capital Decree accordingly.