The only question in this case is whether a dividend made by the Lawrence Manufacturing Company, payable to stockholders on May 13, 1901, is to be treated by the trustees as income to go to the life tenant or as principal to be held for the remainderman.'
In Minot v. Paine, 99 Mass. 101, 108, it is said that in such cases “ A simple rule is, to regard cash dividends, however large, as income, and stock dividends, however made, as capital.” This general rule has been followed by this court ever since. Daland v. Williams, 101 Mass. 571. Leland v. Hayden, 102 Mass. 542, 550. Rand v. Hubbell, 115 Mass. 461. Gifford v. Thompson, 115 Mass. 478. Adams v. Adams, 139 Mass. 449, 452. Davis v. Jackson, 152 Mass. 58. D’ Ooge v. Leeds, 176 Mass. 558. Hemenway v. Hemenway, 181 Mass. 406. In determining what is a cash dividend and what is a stock dividend, substance and not form is regarded, and often it is difficult to decide to which class a particular dividend belongs. The real question is whether the distribution made by the corporation is of money to be taken and *61used as income, or of capital to be retained in some form as an investment in the corporation.
In dealing with investments of this kind it is impracticable for courts to ascertain what has been earned by the corporation after the time of an investment by a trustee, so as to determine accurately the income upon the investment for the purpose of an exact adjustment of the rights and interests of tenants for life and remaindermen. It is necessary to resort to some simple, arbitrary rule, and this which has been adopted, works in most cases, although not always, with substantial equity.
In the present case the vote of an increase of the capital stock and the vote declaring dividends took effect on the same day, and the amount of the dividend was just enough to enable each stockholder to pay for the additional stock for which he was entitled to subscribe under the vote for the increase. It was undoubtedly expected that many of the stockholders would invest their dividend in the new stock, but there was no requirement that they should, and, except in reference to time and amount, each transaction had no apparent relation to the other. Only five years before, the amount of the capital stock had been changed on account of a change in the business, by a vote to diminish it, and at this later time the condition of the business was such as to make a larger capital desirable. Every stockholder was entitled to receive his dividend in cash and to use it as he chose. There was no duty, legal or moral, to subscribe for new stock. Indeed, the subscription for the whole amount of the stock had been underwritten or guaranteed before the stock was offered to the stockholders. Judging from the price at which the stock sold in the market, as shown by the agreed statement of facts, it is fair to presume that the dividend represented earnings.
We think that the arrangement for an increase of the capital had no such connection with the dividend as to change the character which was impressed upon the dividend by the vote making it payable in cash. The case is quite unlike D' Ooge v. Leeds, 176 Mass. 558, and we think there is no material difference between it and Davis v. Jackson, 152 Mass. 58.
Decree for the life tenant.