Case ID: ad_70/html/0443-01.html
Source: Caselaw Access Project
Author: {"author": "Hiscock, J.: Williams, J. (dissenting):", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

George T. Chester, Individually and as Executor, etc., of Mary P. Chester, Deceased, Respondent, v. Buffalo Car Manufacturing Company and Others, Appellants.
    
      .Corporation—issue of stock paid for out of surplus earnings—when it goes to a life tenant and when to remaindermen—when a legatee under the will of the original owner haring consented to a division of the stock between himself and the other remaindermen,'cannot recover it as such legatee or as executor or as legatee of the life tenant—a surrogate’s decree on the final accounting of the execute's of his testator is binding on him—what proof of ignorance of the manner of issue of the stock is insufficient.
    
    A corporation having a surplus of accumulated profits may, within the limits of good faith, either distribute it as dividends or retain it and convert it into capital. The substance and intent of the action of the corporation, as evidenced by its treatment of the surplus and its resolutions in issuing new stock against such surplus, will be considered by, if it does not control, the courts in deciding whether or not the new stock is dividend, and hence income belonging to a life tenant.
    If the corporation pays money or issues stock as a distribution of profits it will ordinarily go to the life tenant, but if it issues stock as capital and appropriates its surplus as an increase of the capital stock, such issue will be held to inure" to the benefit of the remaindermen.
    A testator, who left surviving him a widow, a son and three daughters, gave his residuary estate to his wife during her life with the remainder to his four children equally. Included in the residuary estate were sixty shares of the capital stock of a corporation, which had a capital stock of §40,000 and for many years prior to the death of the testator had allowed its earnings to accumulate. At the time of the testator’s death the accumulated surplus amounted to $289,341.88, which surplus was then permanently invested in the business of the corporation. After the testator’s death, and during the lifetime of the widow, the corporation declared and paid frequent cash dividends upon the stock. It also issued two thousand one hundred shares of additional stock and divided two thousand of them among its stockholders who paid nothing therefor. The agreement of the stockholders consenting to the issue of the additional stock and the action of the trustees of the corporation directing its issue denominated the transaction as an “ increase of capital stock.” At the time the additional stock was issued, the accumulated surplus of the corporation amounted to $443,030.57. .A few days before the issue of such stock the corporation paid to its stockholders $80,000 in cash, declaring such payment to be a dividend.
    
      Held, that the additional shares were intended to be and were issued to represent an accretion to the permanent working capital of the corporation and did not constitute a dividend of income; that, for this reason, the three hundred additional shares apportioned to the testator’s estate belonged to the remainder-men and not to" the life tenant.
    After the widow’s death one of the executors and trustees under, 'the testator’s will, wrote to the testator’s son, who was also an executor and trustee under the will, stating that the testator’s estate owned three hundred and sixty shares of the capital stock of the corporation in question, viz., the sixty original shares and the three hundred additional shares, and that for the purpose of securing an adjustment and settlement of matters as executor and trustee of ■ the testator he would offer the stock for sale at public auction. The wife of the testator’s son, to whom he had previously transferred all his interest in his father’s estate, thereupon presented a petition to the Surrogate’s Court alleging that as. assignee of her husband’s interest in his father’s estate she was the owner of ninety shares of such stock and that she did not wish to have such ninety shares sold, but desired to keep the same as an investment, and she requested that the executors be compelled to show cause why they should not deliver over to her such ninety shares of stock. The testator’s son joined in the petition, stating that he had read it and that the same was true," and that . he desired that the prayer of the petition be granted. An order was issued restraining the executor from selling the said ninety shares of stock until the further order of the court. Ho further proceedings were had in the Surrogate’s Court,.but by an arrangement between the parties the certificate for three hundred and sixty shares was surrendered to the corporation and four new certificates of ninety shares each were issued to the wife of the testator’s sou and to the testator’s, three daughters. Thereafter the testator’s son, his wife and the testator’s three daughters signed an acknowledgment that the executors and trustees “have fully and satisfactorily accounted to us astthe heirs and next of kin of said deceased for all moneys and property held by them as such Executors and Trustees,” and consented to the entry of a decree discharging the executors and trustees from any and all liability or accountability ' to such heirs. The decree entered upon such consent adjudged that the executors and trustees thereby were “finally released, .exonerated and discharged as the executors and trustees of and from any and all liability and accounla- . bility to said interested persons.” .
    
      Subsequently the testator’s son brought an action to establish title to the two hundred and twenty-five shares of additional stock distributed to his three sisters, claiming such stock in a three-fold capacity, namely, as assignee under a reassignment from his wife of his interest in his father’s estate, as executor under his mother’s will, and as specific legatee under such will of all her interest in the stock of the corporation. He also contended that, at the time of the proceedings in the Surrogate’s Court and the distribution of the stock among his wife and his three sisters, he was ignorant of the facts surrounding the issue of the disputed stock and did not know his rights therein.
    
      Held, that he could not maintain the action in the first capacity, as, if the stock belonged to his father’s estate, it had concededly been properly distributed;
    That, as it did not appear that there were any creditors of his mother’s estate or that there were any other persons who claimed to have derived any interest in the stock through her, his qualified .title as executor under his mother’s will became merged in his beneficial interest as legatee under such will and that, if such stock belonged to his mother’s estate, he would be entitled to it as an individual rather than as an executor;
    That the plaintiff, having consented to the distribution of the stock among his wife and three sisters, upon the theory that it constituted part of his father’s estate, could not subsequently insist that the stock was a part of his mother’s estate;
    That the decree discharging the executors and trustees was an adjudication that the division of the stock was proper and that such decree was binding upon the plaintiff in favor of the other legatees;
    That the contention that, at the time the stock was divided among the plaintiff’s wife and his three sisters, he was ignorant of the facts which attended the issue of the additional stock was not supported by the facts found.
    Williams, J., dissented.
    Appeal by the defendants, the Buffalo Car Manufacturing Company and others, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Erie on the 5th day of July, 1901, upon the decision of the court rendered after a trial at the Erie Special Term.
    
      Adelbert Moot, for the appellants.
    
      Frank C. Ferguson, for the respondent.
   Hiscock, J.:

The principal question involved upon this appeal is whether 300 shares of capital stock issued by the defendant car company in January, 1893, against an accumulated surplus, is to be regarded as a dividend and belonging to the life tenant under a will, or whether it is to be regarded as part óf the prinMpál of the estate and belonging to the remaindermen. There are other questions, but they are minor and incidental' to this one."

The learned trial justice has found Upon the issue above suggested in" favor of the life tenant and plaintiff "as her legatee and against the remaindermen. We are unable^ however, to agree with the result thus reached by him. We think the facts found in much detaildonot warrant such conclusion, and that under the features of this case it leads to results which are unnatural and inequitable. We think that the stock was not a dividend and income belonging to the life tenant, also that plaintiff is prevented from asserting such claim by reason" of certain settlements and surrogate’s decrees to which he was a party. "

Thomas Chester, the administration of whose estate presents this controversy, died February 18, 1884, leaving him surviving his widow, Mary P. Chester, and his children, the plaintiff, and the individual defendants. He left a last will and testament "which was duly admitted to probate, and which, so far as important here, after certain specific legacies not affecting the stock in issue, contained this clause: “T give, devise and bequeath all and singular the rest,, residue and remainder of my property and estate, both real and personal, unto my beloved wife, Mary P. Chester, "for her use and benefit during the full term of her natural life but no longer.”

Then followed remainder in said property to his said four children, to be divided ánd distributed to and among • them equally,, share and share alike, upon the death of his wife.

The will appointed the plaintiff and James F. Chard, husband of the defendant Elizabeth Chard, executors thereof. .

The widow, Mary P. Chester, died February 16, 1897. She left a will which was admitted- to probate September' 25, 1897, whereby she appointed plaintiff sole executor, and devised and bequeathed tollina the greater part of her property and estate, and expressly" including all of- her interest in the stock of the Buffalo Car Manufacturing Company.

At the time of his death Thomas Chester was the owner of sixty shares of -the capital stock of the defendant car company, each share being of the par value of $100, and the total capita! stock being $40,000. Said companyhad only declared one dividend while testator was alive and the holder of its stock, but, as expressly found by the trial court, “ a large, surplus of earnings had been allowed to accumulate in the operation of said corporation.” Its statement or inventory of January 5, 1884 (just before testator’s death), showed an accumulated surplus above the original capital stock of $289,341.88. - After the testator’s death,, and. down to the death of his widow, the life tenant, it at frequent intervals declared large cash dividends, at first upon the original 60 shares held by testator and subsequently upon the 360 shares which included the stock issue in dispute. These dividends were all paid or conceded to belong to the widow, although, as matter of fact, she did make provision whereby a large portion of them were ultimately paid to and enjoyed by her four children. These dividends, during the period in' question, amounted to $93,450. Notwithstanding their payment, it appears that at the time the stock issue in question was made, the accumulated surplus of the car company was $443,030,57,. or $153,688.69 more than, at the date of death of the testator. Such amount of increase, however, was subsequently and during the life of Mrs. Chester largely distributed and reduced by cash dividends of which she.had the benefit.

Said testator left' other valuable property, the income of which his-widow Was entitled to, and consideration of which we do not regal’d as of importance here.

Shortly after his death the certificate for the original 60 shares of stock standing in his name was surrendered by the executor Chard and canceled, and a new certificate for said shares issued in form to the estate of Thomas Chester, and when the additional 300-shares Were issued it was by a certificate running to the estate of Thomas Chester and delivered to said executor. •

Prior to and as authority for the increase in the capital stock of said car company, upon January 7, 1893, the stockholders therein-signed an agreement which recited that they “hereby mutually agree one with another to increase the capital stock of the said company from forty thousand dollars ($40,000.00), consisting of four-hundred shares of one - hundred ($100.00) par ¡value each, to two-hundred fifty thousand dollars ($250,000.00), consisting of twenty-five hundred shares of one hundred dollars ($100.00) par value each,, one hundred shares of which said stock shall be held in the treasury of said company and be sold by the trustees as they may decide to some railroad party, which shall be for the best interests of the company, the balance of the increased stock to be dividedyro rata among the stockholders of the said company according .to their present holdings.” This action was followed up by a .meeting of the trustees of said car. company held January 14,1893, at which, as specifically found by the trial judge, “the capital stock of the Buffalo Car Manufacturing Company was increased from .$40,000.-00, consisting of four hundred (400) shares of the par value of ,$100.00 each, to $•250,000.00, consisting of twenty-five hundred ,(2,500.) shares of the •par value of $100.00 each. * * * .That npnew:money;,or.propj erty Was contributed hy any stockholder .at. the time of-"said increase of ..stock” Thereafter the certificate for the 300 shares in .question was issued, . -

There havebeen .various disagreements .and controversies between plaintiff and his sisters, the defendants, over the estate of their father. We do not deem it material to go into the. details of any of them except the ones 'which specially.relate to the disposition and division of this stock. ■. '

While the will of Thomas Chester did not specifically-name and-appoint Iiis executors also trustees,-they were still .treated as such. A fair construction of the will and the administration of the .property as between the life tenant and the. remaindermen properly called upon.them to act as such. In addition,to this, by .the specific request of the widow, the conduct of ¡the other parties and .the decrees of the Surrogate’s Court they.were upon all sides treated and regarded as trustees as well as executors. The .plaintiff at some time transferred all of his interest ip his father’s estate to his wife, Helen R. Chester. In September, 1897, .the executor Chard .wrote plaintiff a letter commencing “ You will remember that ,the estate of Thomas-Chester owns three hundred and.sixty shares of the capital stock of .the Buffalo Car Manufacturing Company,” .and then stating that for the purpose of securing .ap adjustment and settlement of ..matters as executor .and trustee of Thomas Chester hé should offer said stock for sale at public auction.at a given date.

Thereupon plaintiff’s wife, as his assignee, instituted .proceedings in the Surrogate’s Court of Erie county setting-forth various facts in regard to the death of Thomas Chester, the administration of his estate, the provisions of his will, the assignment to her of plaintiff’s interest in said estate and that one of the items of property in the hands of the executors was said 360 shares of the capital stock of the Buffalo Car Manufacturing Company. Her petition then further referred to the receipt of the letter just mentioned from the executor Chard alleging “ that as the assignee of the interest of the said George T. Chester in the estate of his said father Thomas Chester, deceased, she became and is now the owner of ninety (90) shares of the said three hundred and sixty (360) shares of the Buffalo Car Manufacturing Company’s stock. That she does not desire to have her said ninety shares (90) shares sold but wishes to keep same as an investment.” Upon her petition she requested that the executors of the will of Thomas Chester be compelled to show cause why they should not deliver over to her her aforesaid ninety (90) shares of the capital stock of the Buffalo Car Manufacturing Company,” .and that in the meantime they might be enjoined. George T. Chester, although having assigned his interest in said estate and stock, joined in his wife’s petition, saying “ that he has read the foregoing petition of his wife Helen Reid Chester, and that the same is true. That he desires that the prayer of the said petitioner be granted.” Upon this petition an order to show cause was granted and Chard was restrained from selling, disposing "of or incumbering the said ninety shares of stock until the further order of the court. Ho further proceedings in Surrogate’s Court appear to have been had. An arrangement, however, was made by the parties amongst themselves which resulted in the certificates for the three hundred and sixty shares of stock being delivered to the company for cancellation, and upon September 30, 1897, four new certificates of ninety shares each were issued in place thereof to plaintiff’s wife and the individual defendants herein respectively.

After such arrangement and division of said stock amongst said four people, and in Hovember, 1898, upon an acknowledgment signed by thé three defendant heirs and also by plaintiff and his wife, that James F. Chard and George T. Chester, “ as the Executors and Trustees of the Will of Thomas Chester * * * have

fully and satisfactorily accounted to us as the heirs and next of kin of said deceased for all moneys and property held by them as such Executors and Trustees ; ” and, upon the express consent that said Chard and Chester might have a decree made and entered discharging them of and from any and all liability or accountability to his heirs without- further accounting, a decree. was duly entered in the Surrogate’s Court of Erie county upon the petition of said executors,, ordering and decreeing that said Chard and Chester should be and thereby were “ finally released, exonerated and discharged as the executors and trustees of and from any and all liability and accountability to said interested persons.”

The trial court found that the plaintiff “ had no knowledge of the declaration of said stock dividend, nor of the increase of stock, nor of the issuing of said certificate for three hundred (300) shares * * * and did not know of the increase of said stock until after the death of the said Mary P. Chester.”

Sometime before the commencement of this action the car company, having disposed of a part of its business and assets, entered upon a course of liquidation.

Upon these and many other facts which it is impossible to recapitulate in detail, the learned trial court found that said 300 shares of the new stock “ represented and was a payment and distribution of income upon and from the sixty (60) shares of stock of which the said Thomas Chester died possessed and owning at the time of his death.” In accordance with such finding of fact lie reached the conclusion of law that plaintiff was entitled to recover from his three sisters the 225 shares of stock delivered to them under the arrangement-hereinbefore referred to and was entitled to have- them and also the car company account, and be held liable for all dividends paid to such sisters, respectively, on such portion of said 300 shares so delivered to them.

As we indicated in the beginning, we do not come to the decision of this appeal with the feeling that there is any strong and predominating equity inherent in plaintiff’s claim and theory. And in saying this, we overlook entirely its incidental surroundings. We disregard the fact that plaintiff comes as the legatee of the life .tenant, whose death has terminated any use or need by her for-this property viewed as income, seeking through the intervention of her will to procure, as against his sisters, an unequal distribution of his father’s estate. Upon the other hand, we hold ourselves subject to the same equitable consideration which should prevail if the life tenant herself were here seeking for a full admeasurement of the provisions made and intended by her husband for her support during her life. Being so guided, we still think that during her life without the stock in dispute, there was worked out a liberal fulfillment of the bequest to her of the income upon her husband's stock in this company. Estimated from the dividends declared upon the Chester stock and the other figures found, the company made earnings and profits during the life tenancy of Mrs. Chester amounting to the neighborhood of $700,000. "With her husband’s death it apparently entered upon a new policy of distributing in cash dividends amongst its stockholders substantially all of its profits. "We thus find that its surplus between his and her death had only increased $72,000. All of the remainder of these tremendous earning and profits had been distributed in cash and she had received as her share during the period of twelve years $93,450. That she did not receive still more was due'to the accident of her death between two dividend periods, for soon after her decease the company made another cash dividend of forty per cent.

Using round figures, at the time the new stock was issued the surplus of the company was $443,000, of which $153,000 had accumulated after the death of the testator. Assuming for the sake of the argument that the new stock is to be deemed issued as against this total surplus, practically two-thirds of it, or 200 shares, would be against that which had accumulated before the death of the testator. If plaintiff’s contention prevails, and in addition to the cash dividends above referred to, the accumulated capital and surplus existing when testator died, is distributed in the proportion of 200 shares to the life tenant as against only 60 shares going to the remaindermen, we believe it must impress the judgment at once, as at least an unusual division.

"While it is subject to modification and variation, the natural and fundamental idea of life income payable under a will is of that current income which accrues and becomes payable from time to .time during the life tenancy upon a principal fixed as of the time when the trust took effect and remaining substantially unchanged. Sometimes the amount of this principal is fixed by directions for the investment of a definite sum, and at other times by the appropriation of specified securities as bonds or stocks. In the case of the latter, while it may happen that by means of an extraordinary dividend there will be allotted to the life tenant a certain per cent of profits which accrued before his estate commenced, that is the unusual course rather than otherwise. We certainly do not expect or readily accept such a solution between the life tenant and remaindermen through the medium of dividends as will divide a testator’s estate as it existed at his death between the former and the latter in the proportion of three or four, shares to the former for one to the latter.

It is, however, insisted that unacceptable as such result may be in this case, this court is compelled by controlling decisions to adopt and affirm it. We do not think tliis is so.

This question, whether additional capital stock issued by a corporation against accumulated earnings and profits shall belong to the life tenant or remainderman, has naturally been a prolific source of dispute and controversy. In trying to deal fairly and equitably with it, the courts have been led by different theories and varying phases under which the issue was presented, into irreconcilably conflicting opinions."

Turning to those. decisions which are controlling or at least authoritative,"there seem to be, reasonably well defined, two. rules which we may utilize in measuring the rights of the parties here.

First.' A corporation with a surplus of accumulated profits, within the limits of good faith, has the power either to distribute it as dividends, or to retain it and convert it into capital.

Second. The substance and intent of the action of the company as evidenced by its treatment of the surplus' and its resolutions in issuing new stock against it, will be.considered by, if not control, the courts in deciding whether such issue is dividend and' hence income belonging to the life tenant or not. If the company pays money or issues stock as a distribution of profits, it will ordinarily go to the life tenant. If it issues, stock as capital and appropriates its surplus as an increase of the capital stock of the concern, such issue will be held to inure to the benefit of the. remainderman. (Matter of Kernochan, 104 N. Y. 618, 629, 630; Gibbons v. Mahon, 136 U. S. 549.; McLouth v. Hunt, 154 N. Y. 179, 194; Matter of Rogers, 161 id. 108.)

There is the other general rule always applicable to construction, under a will, that we must ascertain, if possible, the meaning and intention of the testator, to be derived from the language employed in the creation of the trust, from the relations of the parties to each other, their condition and all the surrounding facts and circumstances. (McLouth v. Hunt, supra, 190.)

We shall endeavor to apply these principles and rules to the facts of this case. So far as the last one is concerned, it appears that for years before the testator’s death the policy had been pursued by the defendant company of accumulating its profits, only one dividend having been paid to him. The surplus at the time of his death was more than seven times greater than its capital stock. While there is no definite finding upon that subject, we 'may assume from what incidentally appears that the testator and his wife were elderly people. The wife’s demands for income were apparently not extravagant or large. This appears from the fact that most of the income which she did receive or become entitled to receive from this stock during her life was passed over to her children. It is difficult' for us to believe that when the testator left the income of this property to his widow he believed or anticipated that the long-continued policy of the corporation would be immediately reversed, and by a stock dividend several shares of the property which it had at his death, would pass to the life tenant, as against one which would then be left for his children. As was said in Matter of Rogers (supra, 113), in accordance with a well-settled policy then long pursued of retaining accumulated earnings for working capital, it must “ have been within the contemplation of the testator that a reasonable amount would- be retained by the directors for this purpose.”

The first of the other two rules is too well established to require discussion. It must be admitted at once that if, in the exercise of an honest judgment, the defendant corporation saw fit to permanently capitalize its profits, instead of distributing them in dividends, the life tenant could not force a change of policy. She could not compel dividends if the company saw fit to accumulate surplus.

The second rule seems to flow logically from the first. As long as the corporation has power to decide for the purposes of its own management whether it will capitalize or distribute earnings, it is proper that the courts should consider such decision in settling between them the rights of those —: remainderman and life tenant — who are interested in its stock.

It perhaps may be granted for the sake of the argument rather than held, the question not being here, that this company in 1893 had the power to distribute amongst its stockholders its surplus and so make it a dividend that this court would have felt constrained to treat such dividend as income payable to the life tenant.

Upon the other hand, we think it undoubtedly had the power to so capitalize its surplus and then issue new stock against it, so clearly and explicitly declaring the latter to represent and be an increase of its actual permanent working capital, that no court could fairly say the new shares were a distribution of profits or income. It will be seen that the question addressed to the court in a given case, whether new shares are dividend and income or increase of capital, must almost necessarily be governed largely by the purpose and attitude and condition of the corporation. This must he so unless every issue of stock against surplus is to be indiscriminately called a dividend and treated as income.

What was the nature of the stock issued in. this case? The learned trial court has said, in substance, that it was issued as a stock dividend and was a distribution of income upon the original sixty shares. Such finding, however, is a conclusion dependent upon and governed by many facts.

If, as we think, the detailed facts and circumstances otherwise found do not sustain it, it must yield to them. (Phelps v. Vischer, 50 N. Y. 69, 72; Bonnell v. Griswold, 89 id. 122, 127; Rochester Lantern Co. v. S. & P. P. Co., 135 id. 209, 212.)

It is perfectly manifest from its statement and otherwise that the profits accumulated by this corporation down to the testator’s death and dovyi to the issue of this stock were treated as an accretion to capital and permanently invested in plant and other assets necessary for the conduct of business. Substantially none of them were carried in the form of cash. The real estate and machinery alone upon January 5, 1884, inventoried at. $119,832.11, or 'practically three times the amount of the authorized capital. It is perfectly evident also that this company could not have done its business upon a capital of $40,000, but that it was' necessary to accumulate and use a large amount besides. The men who were in charge of its affairs in 1893 and knew its needs realized this and did not divide up a large portion of this surplus by a cash dividend, the equivalent in legal principle of a stock dividend. In fact, a very forcible argument as to what the directors did not intend to do in the way of distributing the surplus in dividends is to be drawn from what they did do in that respect. They appreciated that the stockholders were entitled to liberal dividends from the large earnings, and they declared those in cash. A few days before this new scrip was issued they paid to the stockholders $80,000 in cash.. That was a dividend and so intended and declared. Then they issued stock for $210,000 of surplus, and denominated it, not a dividend, but an increase of capital. If they had intended to distribute'that amount of surplus, and not keep it for permanent capital, there was no necessity for taking the two different steps.

Read in the light of these facts and considerations, we think the consent of the stockholders and the action of the directors show that they had no intention to make a dividend, but that they intended by an issue of new shares to so add to and increase their paper capital that it would represent and correspond with their actual woi’king capital. We think the predominating purpose was to permanently increase capital rather than to. divide up profits. The stockholders’ agreement recites that they “ mutually agree one with another to increase the capital stock of the said company,” etc. W e do not see how they could well express more plainly the idea of enlarging their capital. It is true, as was said by the court in the McLouth Case [supra, 195), that no money was paid for this stock and nothing added to the actual property of the company. But that is always so when stock is issued as this was against a surplus. If money or property is paid for new stock upon a subscription it could not possibly be called a dividend. Yet it cannot be doubted that stock maybe issued against a surplus as permanent capital instead of a dividend if the corporation so elects. If the words used, increase the capital stock,” are themselves ambiguous, they cease to be so when we again recall that such increase was against an accumulation of assets already in use as working capital and which could not be actually distributed as dividend amongst the stockholders without disrupting its business.

It may be suggested that a stock dividend would not really divide the assets amongst the stockholders, but would leave them still in the possession of "the company. This, however, is not an answer, if we are right that one of the tests by which to determine the question here presented is whether the company intended by this stock issue to make an addition to its permanent principal or capital rather than distribution of income by cash or stock.

We think the construction of the words of the agreement which we have adopted as sustaining the former view is upheld in the Gibbons Case (supra, pp. 551, 569), and in which respect we do not understand that case to be overruled- or questioned by the MoLouth case." Moreover, the agreement- and resolution referred to are significant for what they omit to say in plaintiff’s favor.

In the Kernochan case, relied upon by him, there was- a resolution which expressly provided for a dividend at a certain rate per share (p. 627). In the McLouth case the parties actually stipulated that the corporation “ by a capitalization of accumulated earnings made and retained * * * increased its capital stock * * * and predicated thereon made a stock- dividend of ten per cent,” etc.

Thus in both of these leading cases the corporation having the power to do so, explicitly ■ declared the disputed issue to be a dividend, and that being done the court gave it to the life tenant who was entitled to dividends as income.

In Lowry v. Farmers' Loan & Trust Co. (56 App. Div. 408) the court manifestly intended to follow the McLouth and Rogers cases. There again the stock in controversy was issued under a resolution which expressly authorized and directed it as a stock dividend.

Further, we think the McLouth case fairly outlines the doctrine that in -each case the court will look into the surroundings and nature of the transaction which produces the stock issue and adjust the rights of the contending parties according to justice and equity. We do not think that it was intended to hold that every issue of stock against a surplus was income going to the life tenant. There is a manifest difference between a distribution of 10 per cent upon upon the capital and an issue of 500 per cent of stock.

We are thus led to conclude that the 300 shares in question were intended to be and were issued to represent an accretion to the permanent working capital long used and recognized as such, and that they were not a dividend from income or profits belonging to the life tenant.

We believe that a defense to this action is also found in the proceedings had in Surrogate’s Court for the settlement of the testator’s estate, and in the agreements made and executed between plaintiff and his sisters for the division of the stock in dispute, which were connected with and in whole or part served as a basis for such proceedings in Surrogate’s Court.

■ Plaintiff, in seeking here to enforce his claims, assumes the threefold role of assignee of his wife, who in turn was his own assignee, of any interest in his father’s estate; executor of his mother’s estate; specific legatee under her will of this stock.

He has no standing in the first character. If this stock belonged to his father’s estate it has concededly been distributed in proper proportions. Measuring his demands by their derivation through his mother’s estate, we think that, "for the purposes of the discussion to follow of the agreements and proceedings above referred to, he must be regarded at the time of their occurrence as having been entitled to this stock as an individual rather than as executor, if entitled to it at all.

He was specific legatee of it. His mother died February 16,1897, and her will was duly admitted to probate September 25, 1897, before any of the important steps hereinafter recounted occurred. It very clearly appears that no other legatees or distributees had any interest .in this stock. It does not appear that any creditors had any such interest. In fact, it is a very permissible inference from all the facts found in regard to Mrs. Chester that there were no creditors to interfere with plaintiff’s specific legacy in the stock.

Under such circumstances his qualified title as executor became merged in his beneficial interest as devisee and, legatee and as such latter, individually, he became vested with the legal title to the stock if it belonged to his mother’s estate. (Blood v. Kane, 130 N. Y. 514.)

All doubt upon this point is removed by plaintiff’s own attitude in this case. He alleges in his complaint that his mother, by her will, devised and bequeathed all her property and estate to him, and that he “ thereby became the owner of the said three hundred shares of stock and entitled to receive the same.”

Having thus defined the character and capacity through which plaintiff must urge his demands, we come immediately to the question whether he could take part as he did in the various agreements and decrees which treated of, and related to, this stock as part of his father’s estate, and then many years afterwards, when these proceedings had long been executed and the stock divided in accordance with them, obtain an entirely new adjustment upon the ground that the stock did not belong to his father’s estate at all,- but was-part of his mother’s. We say very frankly we do not believe he can, or ought to. We revert first to the occurrence of September, 1897, when the other executor, Mr. Chard, gave notice in effect that he treated this stock as all belonging to Thomas Chester’s estate and proposed to sell it' as such, and plaintiff’s wife and then assignee took the position in effect that such stock did not belong to the father’s estate and that as representative of her husband she was entitled to one-quarter of it, and requested that such proportion and interest be allotted to her, expressing her willingness that the other heirs, defendants here, should have their similar respective shares.

Plaintiff joined in the verification of her petition and requested that the prayer of the said petitioner be granted.” It was granted by the acts of the parties without further proceedings in- court. The stock was divided as belonging to the father’s estate, under the terms of his will, and plaintiff’s wife and assignee, by his request and desire, received, and she or he still holds, ninety shares upon that theory belonging to her. The defendants hold their respective portions which plaintiff now seeks by virtue of the same division which gave hers.

W e think it clear, if this arrangement and division by the parties between themselves was otherwise binding and, when executed, irrevocable, that plaintiff, who was a party, to, and requested it cannot now be allowed to disrupt and overturn it by a claim through his mother’s estate, which he then possessed- as-fully as now, and which he did not then mention or assert.

It is said, however, plaintiff was ignorant of the facts which attended the issue of the 30G shares of stock; also that his sisters parted with no rights upon this division,.and that, therefore, there is nothing to now prevent taking the stock away from them by virtue of a different theory of ownership. We shall consider the first proposition later, saying and assuming for the present that it is •not sustained.

■ So far as the second one is concerned, it may be said that such an adjustment as was made may be sustained against a ¡oarty as well by virtue of gain to him as by loss to those with whom he deals. The executor claimed then as now that all of this stock belonged to the estate of Thomas Chester and was about to sell it. Plaintiff and his wife evidently felt that they might be put to a disadvantage by such sale and, therefore, said, “ Give up the sale and let us have our share of this stock and the others can have theirs.” This was done, and we think a sufficient consideration is found in the substitution and mutuality of the transaction to uphold it. We may, however, look at it in another light. If we should assume that the three sisters, defendants here, had absolutely no right to this stock, yet if plaintiff and his wife voluntarily consented, as a matter of pure gift and gratuity, that they should have each a quarter thereof, and such consent and gift was executed and the stock delivered, we fail to see how plaintiff, except for some legal reason, as fraud or mistake, could thereafter get the stock back from them.

After this division was made, plaintiff and his coexecutor Chard petitioned to have their accounts as executors and trustees-finally settled and themselves discharged. Their petition recited that they had fully accounted for all the property which had come into their possession. An instrument was executed by all the parties interested, including this plaintiff and his wife, which acknowledged distribution to and receipt by the parties of all property held by them as such executors and trustees,” and consented that they be discharged. Upon this a decree was made by Surrogate’s Court discharging them, the surrogate “ being satisfied that the said executors have duly accounted to all the interested parties for their interest in said estate.” The scrip for this 300 shares of stock had been issued to and held and claimed by the estate of Thomas Chester. This had been made patent to the plaintiff at least by the letter and attitude of the executor Chard at the time of its proposed sale. The only way it had ever been distributed was as belonging to his estate and amongst his four children. Therefore, when this decree, founded upon the release and consent of the parties, held that the executors were entitled to be discharged because they had distributed to the persons entitled all the property which had come into their hands, it necessarily adjudicated that the division in question was a proper distribution for which they should receive credit. If that stock, which indisputably had been issued to this estate and came into the control of its executors at the time of this decree, belonged to plaintiff as legatee of his mother, no proper distribution of it had been made and the decree was improper. We do not doubt,that the Surrogate’s Court had jurisdiction to’ determine where this personal property belonged, as between the different legatees and. their representatives and successors, whether it went to the life tenant or remaindermen. We also feel equally clear that that was one of the questions necessarily involved in this accounting, and that upon it, unless reversed or annulled in some way, the surrogate’s decree was a binding adjudication.

Plaintiff was a party to that accounting and decree. He was not only a party to it as an executor .and petitioner, but he was named and made a party as one of the persons interested in the estate. He was then vested with just as. much right and title as now by virtue of his mother’s will to all of this stock. If his claim is just now it was then, and he was entitled to a very different decree from that which was entered. We do not deem it necessary to indulge in any extended reasoning to show that the decree if binding in favor of the executors is also a binding adjudication in favor of the different heirs who took the stock from them and were parties to the decree.

It is, however, strenuously urged in behalf of plaintiff, for the purpose of relieving him from the conclusions which we have drawn from the proceedings above detailed that he was not cognizánt of the facts surrounding the issue of the disputed stock; that he did not know his rights and was laboring under ignorance; that, therefore, he is not bound by • what took place. The trial court in a qualified manner has found for this claim. We are, however, unable to reconcile such conclusion with .the detailed facts found and upon which it would have to rest.

• Plaintiff knew that Thomas Chester’s estate at his death held only sixty shares of this stock. He knew by the letter of his coexecutor, if not otherwise, before any of the steps or proceedings now invoked against him were taken, that this holding had increased to three hundred and sixty shares, and that the estate of Thomas Chester held and claimed them. As an executor he must be charged with knowledge that the estate had not expended a large sum of money-in buying- these additional shares. He knew that a corporation could not at will multiply the number of its capital shares, but that it must have some assets against which they were issued. He knew that when the corporation issued these additional shares without receiving money for them, it must necessarily have issued them against an accumulated surplus of profits over and above the amount of its original capital. The fact that he had taken part in inventorying the original sixty shares at $850 per share instead of par, at least ought to have suggested to a person of average experience that the company was putting its surplus into an increase of its shares. When he knew all these things he was charged with sufficient knowledge to suggest the legal inquiry whether such new stock was income and belonged to him as his mother’s legatee. He may not have thought about this question, or if he did he may have thought differently than he does now. But that is not sufficient to relieve him from the consequences of what was done, if he was fairly apprised of the facts. There is no evidence that any effort was made to keep him in ignorance or mislead him. There is noth, ing in the record of the litigation presented to us which makes us believe that these parties were led astray through too much mutual confidence or that plaintiff was slow to see or assert his rights in this estate. In April, 1898, and thus many months before the surrogate’s decree, plaintiff’s wife called upon the defendant corporation under the statute for a detailed, verified statement of its affairs, which was furnished to her. We have no idea that plaintiff was a stranger to this step or that with his attorneys to guide him he felt unable to secure more information upon this subject if he desired it.

We are impressed upon' all of the facts as they are unfolded in the findings, that the difference between plaintiff’s attitude in 1898 and now is not due to his having been then disabled by ignorance of the essential facts. It is more probably due to the conclusion which has come to him since, that upon those facts known then as now, it might have been possible for him to have obtained more stock.

The conclusions reached upon the main proposition carry with them a decision of the other minor and incidental questions involved in the case.

The judgment appealed from should be reversed, with costs to the appellant to abide event.

Adams, P., J., McLennan and Spring, JJ., concurred; Williams, J., dissented.

Williams, J. (dissenting):

; The interlocutory judgment appealed from should be modified as hereinafter stated, and as modified affirmed, with costs to respondent against appellants other than corporation, and with costs to corporation appellants against respondent.

The action was brought to determine the ownership of 225 shares of the capital stock of the defendant corporation and for equitable relief incidental to such ownership. The questions involved may be stated generally to be : '

First, whether the stock was at any time owned by the plaintiff? or the widow,his mother; and, second, whether anything has occurred since to deprive them of such ownership or to prevent plaintiff’s, recovery thereof.

The facts are somewhat complicated and should be clearly understood. There was no case or case and exceptions made or inserted in the record, and I must, therefore, be controlled by the decision of the trial court as to the facts upon which the conclusions of law. were based.

One Thomas Chester died February 18,1884. At the time of his death, and for some time prior thereto, he was the owner of 60 shares of the capital stock of the defendant corporation. The capital stock was then $40,000, divided into 400 shares of $100 each. He left him surviving his widow, Mary P. Chester, and four children, the plaintiff George T. Chester, and Elizabeth Chard, Kate C. Miller and Cora C. Tripp. He left a will, whereby he gave to each of his three daughters $20,000 and to his son a bond and mortgage for $40,000, made by the son and held by the father, and then gave his widow all the residue of liis' estate, real and personal, for her use and benefit during life, and after her death, in fee to his four children,.to be divided equally between them, and made his son and son-in-law, James F. Chard, executors. The will was admitted to probate April 18, 1884, and letters testamentary were issued to the executors named, who qualified and entered upon the. discharge of. their duties. On the 29th day of December, 1884, the certificate for the 60 shares of capital stock of the defendant corporation was surrendered by the executor Chard to the corporation and canceled, and a new certificate for said 60 shares was, by the procurement of said executor Chard, issued to the estate of Thomas Chester. On the 14th day of January, 1893, the capital stock of the defendant corporation was increased from $40,000 to $250,000; from 400 to 2,500 shares. Of the 2,100 shares newly issued, 100 shares were set aside as treasury stock and 2,000 shares were divided pro rata among the holders of the old stock, that is, 5 shares of new for each share of old stock. On the 28th day of February, 1893, the corporation issued a certificate for 300 shares of the newly issued stock to the estate of Thomas Chester, based upon its holding of 60 shares of the old stock. The widow, Mary P. Chester, died February 16, 1897, leaving a will whereby she gave all her interest in the' capital stock of the defendant corporation to the plaintiff, George T. Chester, and made him executor. The will was admitted to probate September 25, 1897, and letters testamentary were issued to the executor named, who qualified and entered upon the discharge of his duties.

Before proceeding further with the statement of facts, let us understand the claims made by the parties as to the first question involved herein, the original ownership of the stock, old and new. There is no dispute but that the 60 shares held by the father at the time of his death was a part of the corpus of his estate, and at the death of the widow belonged to all the children, one-fourth to each. The controversy arises over the 300 shares of newly issued stock. The plaintiff claims these shares never belonged to the corpus of the estate, but were income from the estate, and as such belonged to the widow absolutely and passed under her will to the plaintiff absolutely. Of the 360 shares of stock, the plaintiff was concededly the owner of 15 shares of the old stock, and 75 shares of the new stock. The question is whether he was the owner of the remaining 225 shares of the new stock, and this involves the question whether the 300 shares of new stock when issued, belonged wholly to the widow as income, or to the corpus of the estate, to the income from which alone she was entitled during her life. The further facts bearing upon the determination of this question are as follows:

The only dividend received by Thomas Chester upon the 60 shares of stock during his lifetime was February 7, 1882, $1,500. A large surplus of earnings was allowed to accumulate, which at the time of his death amounted to $289,341.88. The value of the stock at .the time of his death was $850 per share, in all $51,000,. as appraised in the inventory of the estate, based upon the last yearly statement made by the defendant corporation.

The dividends received by the widow, Mary P. Chester., upon the .60 shares of stock from the time of her husband’s death, until the increase of the capital stock in January, 1893, were: April 15,1884, $1,500; October 9,1884, $3,000 ; October 3,1885, $3,000 ; November 1, 1886, $6,000; December 5, 1887, $1,500; August 20,. 1888, $6,000; August 22, 1888, $6,000; August 31, 1888, $6,000; December 30, 1888, $7,050 ; September 16, 1889, $1,500 ;. January 27, 1891, $1,500; January 30, 1892, $6,000; January 11, 1893, $12,000 ; making in all. for the nine years $61,050, and at the time of the increase of the capital stock the surplus of earnings allowed to accumulate were $443,030.51, an increase during the nine years since the death of Thomas Chester of $153,688.69. After deducting the amount of the stock dividend made in increasing the capital stock $210,000, the surplus earnings still on hand were $233,030.57, which was $56,311.31 less than at the time of Thomas Chester’s death.

The dividends received by the widow, Mary P. Chester, from the time of the increase'of the capital stock, in 1893, until her death, in 1897, upon the 360 shares of stock, were, December 28, 1893, $7,200; January 10, 1895, $7,200; September 25, 1896, $18,000, making in all $32,400, and at the" time of her death the. surplus of earnings allowed to accumulate were $362,006.29, an increase during the four years of $128,975.63. These figures show that during the lifetime of the widow and after her husband’s death she received in all of cash dividends on the stock, the 60 shares of old and 300 shares of new, $93,450. There was also the stock dividend of 300 shares, or $30,000 at $100 per share, and there was during the time a total increase of the surplus earnings from $289,341.88 to $362,006.29, that is, $72,664.41.

After the death of the widow, Mary P. Chester, and February 4, 1898, there was a dividend of forty per cent paid upon the stock of the defendant corporation, which upon the 360 shares belonging.to the parties to this action amounted to $14,200.- And then in.the month of February, 1899, the corporation sold out all its property, except bills and accounts receivable and cash, for $553,861.71, and went into liquidation. It has paid certain liquidation dividends to its stockholders. The dividends upon the 360 shares have, however, been deposited in the Fidelity Trust Company .of Buffalo, LT. Y., to the amount of $79,200, to await the result of this action. There will be added to this amount of deposited dividends about $3,366, less some expenses of liquidation.

The plaintiff, George T. Chester, knew nothing of the increase of the stock and the issue of the 300 new shares, until after the death of the widow, his mother, Mary P. Chester. Whether she knew of it does not appear. In August, 1886, the widow and the plaintiff and Mrs. Chard and Mrs. Miller, by a writing executed by them, directed the executors of the estate to divide all moneys received by them from the defendant corporation from the date of such writing to January 1, 1889, belonging to the estate, equally between the four heirs, Mrs. Chard, Mrs. Miller, Mrs. Tripp and George T. Chester, the plaintiff. All the dividends received from the defendant corporation upon the 60 shares of stock, from the time of the death of Thomas Chester until the increase of the capital stock, were, with one exception, divided among the four children by the direction of the widow, and all the dividends received upon the 360 shares of stock, after the increase and up to the time of the widow’s death, were also divided among the four children by direction of the widow. Whether the writing above referred to was relied upon as such direction, or whether there was other direction, does not appeay. It does appear that by a writing made by the widow, February 27, 1888, she stated that she had always regarded the executors named in the will as trustees of her husband’s estate, for her benefit, and that she had always dealt with them as such, she being thus relieved personally of the charge and management of the estate, and asked that their accounts be settled before the surrogate, the same as if the will had expressly made them such trustees for her benefit during her life, and that the executors thereafter act as such trustees. And thereupon the settlement was made and decree entered April 17, 1888, upon a petition filed February 29, 1888; and in such petition and settlement the writing of August, 1886, was recognized as signed by all the four heirs, though the name of Mrs. Tripp does not appear signed to the writing in the record of the findings, by the trial court. The executor James F. Chard was, prior to. the death of Thomas Chester, a trustee of the defendant corporation and secretary thereof, and continued to be such trustee and secretary until the death of the widow, while the plaintiff, George T. Chester, was at no time a trustee or officer of the corporation. After the settlement of the estate above referred to, the executors continued to hold the stock of the defendant corporation with the consent of the widow and all the next of kin, the four children. When the certificate for the 300 shares of newly issued stock was made out, it was to the estate of Thomas Chester, and was delivered to the executor James F. Chard. Under these circumstances we can hardly assume, in the absence of an - express finding to that effect, that the widow had actual knowledge of the issue of the 300 shares of new stock, and that it was issued in the name of the estate and not in her name. The findings are that she received all the dividends from the old and the new stock, but this is rather a conclusion than otherwise; The real fact apparently was that the executor Chard, who acted for her and who had sole charge of this part of the business as trustee or otherwise (because the plaintiff had no knowledge of the increase of the stock), received all the dividends and divided them, and there was no more reason why' the widow should inquire and- know that the dividends were on - 360 rather than on 60 shares of the stock than that the plaintiff should. She had no personal charge or management of the business. She had imposed such care and management upon the executors as trustees or otherwise.. There, was more reason why the plaintiff should know about the increase of stock and form of the new. certificate than the widow.

Finally, as bearing upon this branch of the case, the court has found as a fact that the 300 shares of new stock represented and was a payment and distribution of income upon and from the 60 shares of stock owned and. possessed by Thomas Chester at his death, but it is not found whether such income was earned before or after the death of Thomas Chester.

These seem to me to be all the facts bearing upon the first question involved here, the original ownership of the 300 shares of newly issued stock.

I think it is now well settled in this State as a general rule that as between a tenant for life and remaindermen, stock dividends belong to the life tenant if made during the life tenancy, though from earnings accumulated wholly or in part before such tenancy commenced.

In Riggs v. Cragg (89 N. Y. 487) it was said that this question had not then been considered by the court of last resort in this State, and it was not passed upon in that case. The question seems first to have been considered by the Court of Appeals in the case of Matter of Kernochan (104 N. Y. 618).

The will there gave to the executors portions of the estate in trust, to receive the rents, interest and income, and apply the same to the use of the widow during life, remainder to the beneficiaries named. The trust fund included certain shares of stock upon which a dividend was declared after the death of the testator, in part from earnings accumulated before his death. It was held that the widow was entitled to the whole of the dividend; that whether the earnings were accumulated before or after the death of the testator, they were not profits accruing -to, or owned by, the stockholders unless set apart by the corporation for their use, and they belonged to the widow because ascertained and declared after her husband’s death.

The court below had apportioned to the beneficiaries that portion of the dividend earned before the death of the testator, and to the widow that portion earned after such death, thus applying, a rule said to be .founded on general equity, viz., “ that when a fund is given for life to one beneficiary, and remainder over, the first shall have its earnings after his life tenancy begins, and the remainder-man the balance.” Judge Danforth, however, said: “I find nothing in the will which indicates that the testator intended any such investigation or division, or that any other than the ordinary rule which gives cash dividends, declared from accumulated earnings or profits, to the life tenant, should be applied. The direction to his executors is to receive the rents, interest and income of his estate, and apply the net amount of such rents or other income * * * to the use of his wife. From the shares in question no income could accrue, no profits arise, to the holder until ascertained and declared by the company, and allotted to the stockholder, and that act should he deemed to have been in the mind of the testator, and not the earnings or profits, as ascertained by a third person, or a court upon an investigation of the business and affairs óf the company either upon an inspection of their books or otherwise.”

In McLouth v. Hunt (154 N. Y. 179) the residuary estate was by a will given to his executors in trust, to “ take, receive, hold, care for, preserve, maintain, invest and reinvest, convert, sell, lease and collect the same,” and pay over a portion of such income to the use and benefit of his grandsons respectively during their minority,, and after arriving at the age of twenty-one years, to pay over to them the full income, and upon their arriving at the age of thirty-five years, the full amount'of principal with any accumulations thereon remaining, and in case of death before arriving at the age of • thirty-five years, the fund was given to other persons in fee. The testator died September 18, 1888. There was included in the trust estate 254 shares of Western Union Telegraph .Company stock, upon which a stock dividend of ten per Cent was declared November 10, 1892, upon the '■surplus earnings of the telegraph comj>any accumulated during the ten years prior thereto. The court, among other things^ was asked to detérmine whether this stock dividend belonged to the life tenants (so called) or to the remaindermen, whether it was income or part of the corpus of the estate. The trial court held that the dividends belonged to the life tenants and they were entitled to the same as earnings or income, and the Court of Appeals affirmed that decision. J udge O’Brien, writing for the court, considered all the- cases in this State and-elsewhere and arrived at the conclusion that the decision made by the court below was equitable and just and was supported by reason and authority. It is apparent the surplus earnings from which the dividend was declared were accumulated, á part before and a part after the death of the testator. The opinion was certainly based upon such an understanding of the facts, because Judge O’Brien states therein that, “the resolution recites that the earnings of the corporation had been withheld from the shareholders for almost ten years; that they had accumulated, and that it was the intention of the directors in taking such action, and the shareholders in consenting to it, to distribute such accumulated earnings to the shareholders in the form of stock certificates instead of money.”

In Matter of Rogers (22 App. Div. 428; 161 N. Y. 108) the will created trusts for the benefit of testator’s children during their lives with remainders to their issue. In the trust fund were shares of stock in a corporation. The testator died August 25,1888. The corporation continued in business until 1893, paying yearly dividends, at first of ten per cent and later of twenty per cent. Then it sold its plant, with raw material and that in process of manufacture, for $2,750,000, to be paid for in the stock of a new corporation. The stock of the new company was divided among the stockholders of the old company in the proportion of ten shares of the new stock for one of the old. The old corporation had still other property, of the value of $3,000,000, and the corporation sold this property and distributed the proceeds among its stockholders. The question was as to the rights of the life tenants and remaindermen in the new stock and proceeds of the other property sold. The referee before whom the case was first heard held that the whole fund was to be treated as capital or part of the corpus of the trust estate, and that the life tenants were entitled to no share in it. The surrogate modified the report of the referee, holding that 100 per cent of the cash dividend, and the dividends of the new stock, were capital, and that the remainder were profits or income, to which the life tenants were entitled. The decision of the surrogate was afiirmed in the Appellate Division and in the Court of Appeals. The case was decided in the Appellate Division November, 30,1897, the week after the decision of the Court of Appeals in McLouth v. Hunt (supra), which was decided November 23,1897. No reference was made by the Appellate Division to the McLouth-Hunt case, and we assume, therefore, the latter case was not brought to the attention of the Appellate Division in the 'Rogers case. Justice Cullen did, however, say in the Rogers case, “ While the corporation continues to do business or as is sometimes said, is a going concern, the law is settled in this State that a cash dividend is income and goes to the life tenants, no matter at what time the profits from which the dividend was declared may have accrued or have been accumulated.” (Citing the Kernochan Case, 104 N. Y. 618, above.)

In view of the McLouth-Hunt case we must add that the same is true of a stock dividend as of a cash dividend. The Appellate Division, however, held that the rule stated had no application to the Rogers case, where there was no dividend by a going corpora■tion, but a division made of the assets of a liquidating corporation among its stockholders. Later in his opinion Justice Cullen says : Had the company before transferring its plant to the new corporation, distributed this whole surplus or reserve fund among its stockholders, it would have gone to the life tenant, and no well-founded complaint could have been made that such a distribution was either illegal or inequitable-.” It further appears from the opinion of the Appellate Division that the life tenants took no exceptions, and made no objection to the decision of the surrogate, so far as it held that a portion of thé fund was capital and belonged to the remainder-men. The case cannot, therefore; be regarded as an authority so far as .the Appellate Division or Court of Appeals is concerned for the proposition that any part of the fund was capital :and belonged to the remaindermen. Ho authorities were cited by the Court of Appeals in its opinion, the only reference thereto being the statement that the cases to which their attention had been called furnished but little aid in the determination of the question presented under the peculiar facts of the case. The appeal -to the Court of Appeals was by the remaindermen alone. The life tenants did not appeal. This case, therefore, cannot be said in any way to have modified or overruled the former decision of the court in the MoLouth-Humt case.

It may be further noted that the Appellate Division in the first department, in December, 1900, followed the law as laid down in the MoLouth-Hunt case in Lowry v. Farmers' Loan & Trust Co. (56 App. Div. 408), and held that a stock dividend, declared out of undivided profits or surplus (a portion uf which was earned before the testator’s deáth), upon stock of a corporation set apart by. a trustee of a trust fund created by a will, belonged to the life beneficiary of the trust, and not to the remaindermen. ■

In the case we are considering it does not appear when the surplus earnings were accumulated from which the stock dividend was made, whether before or after, or both before and after the death of the testator. There was a surplus at the death of $289,341.88, and at the time this dividend was 'made this surplus had increased to $443,030.57. The dividend was $210,000. The whole of it may have been made from the surplus accumulated before the death. The whole of it could not have been made from the surplus accumulated after the death, because the surplus so accumulated was only $153,688.69. It was made from the whole surplus accumulated up to the time it was made, without any limitation to that accumulated during any particular time. In any event, under the authorities we have referred to, the 300 shares of- new stock issued upon the 60 shares of old stock owned by the estate belonged to the widow, and the children had no interest therein.

I have very carefully considered the suggestions of counsel for the appellant and I find no justification for any different result growing out of the language of the will in question or the facts found by the trial court, It is suggested that in the McLouth-Hunt case the language of the will was peculiar in that it provided that the executors should pay the life tenants the full income, but this language was used because it had already been provided that prior to the life tenants coming of age, only portions of the income were to be paid to them, and then followed, the provision that from the age of twenty-one to thirty-five thq full income should be so paid.

This language could have no bearing upon the testator’s intention with reference to the disposition of any dividends upon the sixty shares of stock, made after his death. The remarks of Judge Danforth in the Kernochan case, above quoted, are quite applicable here. I find nothing in the will or in the condition of the property or' of the widow and next of kin, indicating any intention on the part of the testator to take this stock dividend out of the ordinary rule which gives the whole of it to the life tenant to the exclusion of the. remaindermen. There is no basis for any claim that the widow assented or admitted that the new stock belonged to the estate, by permitting the certificate to be taken to, and the stock to stand during her whole lifetime, in the name of the estate. It does not appear that she had any knowledge or information as to the form of the certificate or that the stock stood in the name of the estate.

My conclusion is • that the 300 shares of new stock belonged to the. widow from the time they were issued until her death, and the children had no interest therein. At her death the stock under her will passed to her son, the plaintiff George T. Chester. The remaining question is whether anything has occurred since the death of the widow which deprives the plaintiff of the present ownership of the stock, or prevents his recovery of the same.

As already stated, the widow died- February 16, 1897,-but- her will was not admitted to probate until September 25, 1897. At some time prior to September 30,1897 ' (just when does not appear), the plaintiff assigned and transferred' to his wife, Helen R. Chester, all his interest in-his father’s estate, and this assignment covered and included whatever interest he had in the-360 shares of stock as residuary legatee under that will. It did not cover or include whatever interest he acquired in the 300 shares of stock by his mother’s will. September 6, 1897, James F. Chard, plaintiff’s coexecutor under the father’s will, wrote the plaintiff that the estate owned 360 shares of stock in the. defendant corporation, and that as all parties desired the estate matters settled and adjusted, hé, as executor and trustee, would offer all the interest of the estate in such stock for sale to the highest bidder on the 4th day of October; 1897. ' Thereafter, and September 14, 1897, Helen R. Chester’ presented to the surrogate a petition wherein she stated the facts necessary to enable her to secure the relief asked for, which already appear, and need not be again repeated here, and stated, among other things, that the executors held- the 360 shares of stock, and that she, as her husband’s assignee, was entitled to 90 shares thereof,, and she asked that the stock belonging to her might be delivered to her and not sold. As a result of this application, with the assent of all the parties, the certificate for the 300 shares and the certificate for the-60 shares of stock were surrendered up to the corporation and canceled, and September 30, 1897, four new certificates, of 90 shares each were issued, one to Helen R. Chester and one to each of the three daughters of Thomas Chester, and the proceeding before the surrogate was discontinued. The plaintiff assented -to this division of the stock, It was while Helen R. Chester held this' stock that the forty per cent dividend was paid. February 4, 1898, she received on the 90 shares .$3,-600. On the 20th day of January, 1899, she assigned and transferred to her husband, the plaintiff, all her right, title and interest in the property and stock of the defendant corporation.' This action .was commenced January 31, 1899.

It does not appear when the plaintiff first claimed the whole 30.0-shares of stock under his mother’s will, except that it was prior to the commencement of this action.

It is apparent that neither the plaintiff nor -his wife supposed, when the stock ivas divided between the four parties, that such a division was other than in accordance with the real rights .of the parties. Just hów much information they had as to the facts connected with the issue of the 300 shares of stock it is impossible to say. They evidently were not informed as to the law, if they wóre as to the facts. Ho question was made as to the division being in accordance with the strict legal rights of the parties until just before the commencement of this action. There was no disagreement, no controversy as to the real rights of the parties in the stock at the time the division was made. That being so, I am unable to see how there was any compromise or settlement of any controversy or any consideration for the assent or agreement by plaintiff or his wife to divide the stock, giving each party 90 shares, or any estoppel preventing'the plaintiff from recovering his stock and tlie dividends paid and unpaid thereon since the death of his mother. It would seem that all the parties supposed that thé 300 shares of stock belonged to the estate of Thomas Chester, and acted upon that theory. Even if the facts were fully known, the law applicable to the facts was not understood, as the court has since held it to be.

In the absence of any consideration for the division, even a consideration growing out of a compromise or settlement of a disputed controversy, I am unable to see how the fact of the division of the stock has operated to deprive the plaintiff of the interest he would otherwise have therein.

Much litigation was had between the parties to this action other than the defendant corporation as to matters growing out of their interests in the residuary estate of Thomas Chester and the business of the old firm of Thornton & Chester, of which Thomas Chester was a member at the time of his death, and which was continued during the lifetime of the widow, and there was. also a contest of the will of the widow and mother, Mary P. Chester. Rone of these litigations, however, in any way related to or involved the interests of the parties in the stock in question, unless it was the contest over the will of Mary P. Chester, and the parties did not evidently regard that contest as in any way affecting their rights in the stock. Finally, Rovember 14, 1898, there were papers and writings executed between the parties settling their differences and litigations, except one action that was particularly specified, and then it was provided that it was expressly understood and agreed that none of the papers, nor all of them together, should be construed to release any claim between the parties except those expressly enumerated.

Ho claim had then been made or suggested as to this stock in' question, and no such claim was enumerated in the writings and agreements constituting the settlement thus made between the parties. The controversy in this action was not, therefore, settled by any express agreement made at that time. It was not .in the minds or within the contemplation of the parties. Under these, circumstances; I am unable to see how any estoppel as to this claim by plaintiff, of an interest in this stock, could arise. The consent to the discharge of the executors of the estate of Thomas Chester in no way affected this claim. Ho relief is sought against them.. Ho remedy against them in behalf of the. defendants, the three daughters, as to this stock was lost by this discharge. The 300 shares of stock never belonged to the estate, but to the widow. The executors never dealt with this stock so as to render them liable to the daughters of the testator in any way. The plaintiff now makes no claim and asks no relief against his coexecutor, Such coexecutor is not a party to- the action. More than this, these shares of stock were surrendered by the coexe'cutor of plaintiff and canceled, and the new certificates for 90 shares each were issued by consent of all the parties. Ho further claim could, therefore, be made against him on account of such stock by any of the parties.

The claim here sought to be enforced is not one against the estate ’ or its executors, but against the three daughters of the testator, who have received a portion of the 300 shares of stock, which never. belonged to the estate nor to them at all, but which has been received by such daughters without legal right and without their paying any consideration therefor.

I.am unable to perceive any reason why such claim should not be enforced, and the judgment, so far as it affords relief against them, should not be affirmed.

The corporation whose capital stock is in litigation is also a party to the action. It was a necessary party for various reasons.

The court, however, erroneously directed judgment in favor of the plaintiff and against the corporation itself for $9,000, the dividends upon the stock of plaintiff paid to the three daughters after the certificates of stock had been issued to them, and' before the corporation had gone into liquidation or had any notice of plaintiff’s claims to the stock, and also for the costs of the action. This relief was granted upon the theory that the dividends were Wrongfully paid to the daughters. It is said that the corporation knowing all the facts was bound to know the law, and, therefore, knew that these 300 shares of stock belonged to the plaintiff, and that the daughters had no interest therein. The stock, however, stood upon the corporation’s books in the name of the three daughters, and they held their certificates with the assent, and it may be said by the procurement, of the plaintiff and his wife. She commenced . the proceeding to procure the division of the stock, and the plaintiff added his affidavit to his wife’s petition, swearing to the truth thereof and stating his desire that the petition be granted. Thereupon the daughters and plaintiff’s coexecutor acceded to the desire of plaintiff and his wife, the proceeding was dismissed, and the division was made upon consent of all the parties. How could the corporation do otherwise than pay the dividends as it did ? It was not a wrongful payment. Ho matter who were the legal owners of the stock, all the parties directed its division as it was divided, and assented to the payment of the dividends in accordance with such division, and such payment relieved the corporation from all liability to respond again for such dividends. The payment of the dividends to the daughters was not wrongful, and the judgment, so far as it provided for a recovery of the dividends from the corporation, and for costs, was erroneous and should be modified and corrected.

My conclusion is, therefore, that the judgment appealed from should be modified by striking therefrom all provisions to .the effect that the defendant corporation wrongfully issued certificates of stock to the other defendants, and wrongfully paid dividends thereon to such other defendants, and that plaintiff have personal judgment and execution against such defendant corporation therefor, with interest and costs, or for any other amount, and as so modified affirmed, with costs to the respondent against the appellants qther than the corporation, and with costs to such corporation appellant against the respondent.

Judgment reversed and new trial ordered, with costs to the appellants to abide the event.