Kentucky,24 Maine,25 North Carolina 26 and Vermont.27

It has been said that "the principle underlying these decisions is that if the testator had lived the dividend would have been income to him no matter when the earnings were made, and what would have been income to him should be considered as intended by him to be income to his beneficiary for life if declared in dividend during her life." 28 Another reason sometimes given for rejecting the qualification that the life tenant is not entitled to so much of the income as was earned in the lifetime of the testator is that "too much difficulty and uncertainty would attend the practical operation of such a test." 29

Some of the courts adopting this rule have recognized that there possibly may be exceptions to it,30 but have held, that none will be made unless it is clearly demonstrated that the general rule would, under the conditions of the particular case, work inequity, and that some other determination of the conflicting claims would lead to results more in consonance with the strict rights of the parties.31

It has been held to apply to cash dividends declared as incidents to

24 Cox v. Gaulbert's Trustee, 148 Ky. 407, 147 S. W. 25; Hite's Devisees v. Hite's Ex'r, 93 Ky. 257, 19 L. R. A. 173, 40 Am. St. Rep. 189, 20 S. W. 778; Chinn v. Courtney, 14 Ky. L. Rep. 422.

25 In Richardson v. Richardson, 75 Me. 570, 46 Am. Rep. 428, it was held that, where a corporation declares a dividend on its stock payable in money, the stockholder at the time, whether a life tenant or a remainderman, is entitled to the whole dividend, irrespective of its source, amount, or the length of time in which it was earned.

In Gilkey v. Paine, 80 Me. 319, 14 Atl. 205, it was held that one entitled to the "net annual income" of stock was entitled to all dividends and bonuses distributed which represented surplus earnings.

26 Humphrey v. Lang, 169 N. C. 601, L. R. A. 1916 B 626, 86 S. E. 526. 27 King v. Follett, 3 Vt. 385. 28 Bryan v. Aiken, Del. - 86 Atl. 674, rev'g Del. Ch. - 82 Atl. 817.

29 Richardson V. Richardson, 75 Me. 570, 46 Am. Rep. 428.

"The difficulty attending such an inquiry, the impossibility of attaining accuracy, and of ascertaining the many sources from which the profit has been derived, are the reasons for this rule." Hite's Devisees v. Hite's Ex'r, 93 Ky. 257, 19 L. R. A. 173, 40 Am. St. Rep. 189, 20 S. W. 778.

30 See Union & N. H. Trust Co. v. Taintor, 85 Conn. 452, 83 Atl. 697; Bishop v. Bishop, 81 Conn. 509, 71 Atl. 583; Boardman v. Boardman, 78 Conn. 451, 12 L. R. A. (N. S.) 779, 62 Atl. 339.

31 Boardman v. Boardman, 78 Conn. 451, 12 L. R. A. (N. S.) 779, 62 Atl. 339.

In Smith v. Dana, 77 Conn. 543, 69 L. R. A. 76, 107 Am. St. Rep. 51, 60 Atl. 117, it is said that the rule is

the merger of two corporations, and for the immediate purpose of so adjusting the capital and assets of the merging institutions that the merger could be accomplished.32

§ 3714. Rule that all stock dividends are capital. In some jurisdictions it is held that a stock dividend on shares, although it may be declared out of profits earned after the death of the testator, becomes a part of the corpus of the estate, to be preserved for the remainderman, and does not go to the life beneficiary as income or profits. This is known as the Massachusetts rule. It obtains in that state,33 and has also been adopted or recognized in Connecticut,34

Illinois 35 and Rhode Island,36 by the Supreme Court of the United States,37 and by the Supreme Court of the District of Columbia,38 has been approved by way of dictum in North Carolina,39 and is the rule by statute in Georgia.40 And it also seems to be the rule in England.41

This doctrine proceeds on the ground that since, in the absence of any restraining statute, a corporation may treat and deal with the money earned by it either as an increase of its property, or as the profits of its business, so long as the corporation holds it as part of the corporate property, it is capital of the corporation, and the interest therein represented by each share of stock is capital, and not income of that share.42

§ 3715. What are stock and what are cash dividends. In those jurisdictions in which all stock dividends are ordinarily regarded as capital and go to the life tenant,43 it is often necessary to determine whether a particular dividend is a stock or a cash dividend before it can be determined to whom it belongs. As we have seen in previous sections it is the characteristic feature of a stock dividend that the property of the corporation remains unchanged, but that each one of the shares of the increased capital stock represents a smaller fractional interest than before in the total amount of the corporate property; 44 while on the other hand a cash dividend does diminish the property of the corporation by exactly the amount of the dividend so paid out, but leaves the fractional interests represented by each share of the capital stock exactly what it was before.45 It has been said that whether a dividend is the one or the other depends upon the substance and intent of the action of the corporation, as shown by its vote.46

binding on all persons interested under 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, inures to the benefit of all who are interested in the capital." Fry, J., in Bouch v. Sproule, 12 App. Cas. 385, 397. And see In re Barton's Trust, L. R. 5 Eq. 238.

For a review of the English authorities, see Gibbons v. Mahon, 136 U. S. 549, 34 L. Ed. 525, aff 'g 4 Mackey (D. C.) 130, 54 Am. Rep. 262; Kalbach v. Clark, 133 Iowa 215, 12 L. R. A. (N. S.) 801, 12 Ann. Cas. 647, 110 N. W. 599; McLouth v. Hunt, 154 N. Y. 179, 39 L. R. A. 230, 48 N. E. 548, aff'g 92 Hun (N. Y.) 607, 38 N. Y. Supp. 1146;

Pritchitt v. Nashville Trust Co., 96 Tenn. 472, 33 L. R. A. 856, 36 S. W. 1064; In re Heaton's Estate, 89 Vt. 550, L. R. A. 1916 D 201, 96 Atl. 21.

42 Gibbons v. Mahon, 136 U. S. 549, 34 L. Ed. 525, aff'g 4 Mackey (D. C.) 130, 54 Am. Rep. 262; De Koven v. Alsop, 205 Ill. 309, 63 L. R. A. 587, 68 N. E. 930, aff'g 107 Ill. App. 190; D'Ooge v. Leeds, 176 Mass. 558, 57 N. E. 1025; Rand v. Hubbell, 115 Mass. 461, 15 Am. Rep. 121.

43 See § 3714, supra.
44 See § 3684, supra.
45 See § 3677, supra.

43 Gardiner v. Gardiner, 212 Mass. 508, 99 N. E. 171; Rand v. Hubbell, 115 Mass. 461, 15 Am. Rep. 121; Leland v. Hayden, 102 Mass. 542, 551.

In applying the rule that cash dividends go to the life tenant "regard should be had not alone to the letter

VI Priv. Corp.-12

The form of the dividend is not necessarily controlling.47 And "the real nature of the transaction must be determined from what was done in carrying it out." 48 So "a dividend purporting to be made in cash will be regarded as a stock dividend when it manifestly was intended to be such," 49 while, on the other hand, the fact that a cash dividend is misnamed a stock dividend in the votes of directors and stockholders authorizing and carrying into effect the distribution cannot change its character.50 Nor will the mere fact that a dividend may first or last take the shape of certificates of stock necessarily make it a stock dividend.51

Where stockholders are given a right to receive a dividend in cash, or in lieu thereof, to subscribe for a new issue of stock to the amount of their interest in the accumulated earnings, at their election, it is in effect a cash dividend, which goes to the life tenant.52 And the same is true of a dividend of cash representing profits where the

of the vote of declaration, but also to the substance and intent of the corporate act as disclosed thereby." Bulkeley v. Worthington Ecclesiastical Society, 78 Conn. 526, 12 L. R. A. (N. S.) 785, 63 Atl. 351. And see, to the same effect, Smith v. Dana, 77 Conn. 543, 69 L. R. A. 76, 107 Am. St. Rep. 51, 60 Atl. 117.

47 Gardiner v. Gardiner, 212 Mass. 508, 99 N. E. 171; Leland v. Hayden, 102 Mass. 542, 551.

48 Gray v. Hemenway, 212 Mass. 239, 08 N. E. 789.

49 Gray v. Hemenway, 212 Mass. 239, 98 N. E. 789.

50 The fact that a cash dividend is misnamed a stock dividend in the votes of directors and stockholders authorizing and carrying into effect the distribution cannot change its character. Green v. Bissell, 79 Conn. 547, 8 L. R. A. (N. S.) 1011, 118 Am. St. Rep. 156, 9 Ann. Cas. 287, 65 Atl. 1056.

5 Gray v. Hemenway, 212 Mass. 239, 98 N. E. 789; Leland v. Hayden, 102 Mass. 542, 551.

52 Ballantine v. Young, 79 N. J. Eq. 70, 81 Atl. 119; Humphrey v. Lang, 169 N. C. 601, L. R. A. 1916 B 626, 86 S. E. 526.

Where the stockholder is at liberty to take and retain the cash dividend, or to take the new stock and treat the dividend as payment for it, the dividend cannot be said to be a stock dividend either in form or effect. Cox v. Gaulbert's Trustee, 148 Ky. 407, 147 S. W. 25; Holbrook v. Holbrook, 74 N. H. 201, 12 L. R. A. (N. S.) 768, 66 Atl. 124.

Where a dividend payable in cash was declared out of the profits of a corporation, it was held to be income as between life tenant and remainderman, although permanent improvements to an equal amount had previously been made by the corporation, and it was just sufficient to pay for a voted increase of the capital stock for which the stockholders were at liberty to subscribe in proportion to their shares. Davis v. Jackson, 152 Mass. 58, 23 Am. St. Rep. 801, 25 N. E. 21.

The holding to this effect in Waterman v. Alden, 42 Ill. App. 294, was approved by the Supreme Court on appeal (144 Ill. 90, 30 N. E. 972), although the judgment of the Appellate Court was reversed on other grounds. See also De Koven v. Alsop, 205 Ill. 309, 63 L. R. A. 587, 68 N. E. 930,