Court Opinion

ID: 8190263
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:13:10.117622+00
Date Added: 2024-06-11T16:40:35.141802
License: Public Domain

Maushalx, J.
The facts here must be regarded undisputed. Thereby a very simple case is presented of distributing net accumulations of a corporation from ordinary operations of its business during the existence of a trust in part of its capital stock, created by a conveyance in general terms, of the beneficial interest therein to one person for a term, remainder over to another or others; such distribution being in the form of common stock in which profits had been invested, and new preferred stock, both changing surplus into liabilities to stock or accumulated income into permanent capital. In such circumstances who takes the distributive share, the term tenant or the remainderman?
There is no question here as to legitimacy of distribution or-increase of stock. Indeed, it is not perceived how any could well be raised. There is no legal objection, in the absence' of some statute to the contrary, to a corporation declaring a dividend, payable in stock, out of its net income, leaving its-ordinary capital unimpaired. That method is common. True, the general conception of- dividend incidents to corporate stock is payment from time to time out of net income of moderate amounts, somewhat in the nature, as to regularity of payment and amount thereof, of interest on money investments represented by notes and bonds. But for convenience of the corporation and according to the judgment of directors, dividends out of net earnings carried as undivided profits, or surplus, or otherwise, and existing in cash or property, may be made in cash or stock of any legitimate kind by some method which will operate to actually transfer distrib*337utable assets — those not impairing capital — to individual ownership of stockholders, or constructively do so by beneficially giving them additional shares of stock, thus changing the distributable property into permanent capital against new liabilities. Moreover, by the written law of this state the stock method of distribution is recognized as legitimate and expressly authorized.
Sec. 1765, Stats. (1898), provides that
“Any corporation which has invested or may invest its net earnings or income or any part thereof in permanent additions to its property or whose property shall have increased in value, may lawfully declare a dividend payable to stockholders upon its capital either in money or in stock to the extent of the net earnings or income so invested or of the said increase in the value of its property; but the total amount of such dividend shall not exceed the actual cash value of the assets owned by the corporation in excess of its total liabilities, including its capital stock.”
That is but a statutory declaration of what has become unwritten law by the uniform trend of decisions.
Note that, independently of any statutory provision, the distribution of net income may not only efficiently change net assets, accumulated from income or increase in value of property, into additional stock liabilities, balanced by a transfer of such net assets to fixed capital, but the new stock may take the form of preferred. Moreover, at this point, the legitimacy of such a transaction is put beyond possible question by sec. 1759a, Stats. (1898), which provides that a corporation
“May issue preferred stock either at the time the common stock is issued in the first instance or at any time afterwards if all of the shareholders consent thereto. Such preferred stock may be so issued as to secure to the holder thereof the payment of dividends out of profits at a specified rate before dividends shall be paid upon the common stock, and for payment of such dividends accumulated or in arrears thereon; but such preferred stock shall give no preference over common stock in the distribution of corporate assets other than profits, *338and dividends thereon shall in no case be paid ont of the corporate assets not accruing from profits. . . .”
The dividend in question must be regarded as having been actually paid in stock. The outside arrangement to which all stockholders as individuals were parties, though contemplated by the directors in making, the dividend whereby the new stock was converted into money and, in effect, reached the stockholders in that form, makes no difference. The agent in the conversion acted for the individual owners, not for the corporation. Whoever was entitled to a distributive share of the stock became entitled to a like share of the proceeds of the sale thereof. The contest now is over such proceeds, but the right to the latter governs the right to the former. In other words, if the term beneficiary was entitled to the stock-dividend she is entitled to the money derived from the sale of the stock, as the trial court decreed, and not otherwise, and the judgment must be affirmed.
Notwithstanding some incidental allusions to the matter in Pabst v. Goodrich, 133 Wis. 43, 113 N. W. 398, the proposition for solution now has not heretofore been considered for decision’in this court. That case should not be read to the contrary, notwithstanding,, it must be said, a different idea might be derived from reading the ease as a whole, in the absence of some declaration to the contrary as made here.
There is much judicial and elementary literature in respect to the subject of discussion elsewhere but, in the aggregate, it is of such a nature as to rather confuse and render obscure any general logical basis for any general rule with which all authorities can be harmonized, if any such exist. It seems, at least without careful analysis, as other courts and text-writers have observed, that such authorities are in irreconcilable conflict. That is certainly true, as regards the dominant feature in the decisions upon the one side, which are few in number, after eliminating those reaching practically the same result but without appreciating the real basis for it, adopted *339by the supreme court of Massachusetts to which all'refer. Therefore, little or no benefit can be derived from an extensive discussion of mere case law. The. better way is to discover the essential principles involved, if that can be done, and for a rule, trace the operation of such principles to a logical result. iWe will endeavor to do that, but give more than a passing notice to the decision of the federal supreme court, which, ordinarily, this court would follow in regard to' a question in respect to which it had not theretofore spoken.
Further suggesting the perplexities of the situation from the point of view of case law, we read of the American or Pennsylvania rule,- the Massachusetts rule, Maine rule, New York rule, English rule, and perhaps others. There are adherents, in general, in some jurisdictions to one rule, in others to another, and so on through the list, with exceptions according to the varying views of judges, in the aggregate creating about as unsatisfactory a condition on a very important subject as could well be imagined.
V-ery naturally, in the situation we have pictured, without exaggeration it is thought, counsel for appellants appeal to the court to apply the rule stated in Topolewski v. Plankinton P. Co. 143 Wis. 52, 126 N. W. 554, and others in this court, viz.: in making a choice between conflicting lines of authority on an important legal question, there being no great preponderance in number of decisions and logic in favor of a particular doctrine, this court will incline to the one indorsed by the federal supreme court, and thus, as counsel think, adopt the so-called Massachusetts rule, making all stock dividends, regardless of whether declared out of profits accruing before or after the creation of a term interest or interest in remainder in the stock, go to the owner of the latter, Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057, being relied on.
There are several difficulties in following the claimed doctrine of the federal supreme court under the rule suggested. Eirst, there is a great preponderance of authority against the *340doctrine actually declared in Gibbons v. Mahon. Second, there is a still greater preponderance against the doctrine claimed to have been there declared. Third, the reasoning in the case is manifestly infirm at some points. Fourth, the great preponderance of authority not only in number of decisions but in logic is against the doctrine of the federal ease. Moreover, instead of such case, being an indorsement of the so-called Massachusetts rule, as is found stated in some textbooks, the basic feature of it is opposed thereto.
It is well said by learned text-writers that the doctrine that where there is an ownership of stock for a term and a remainder over, income accumulated during such term and distributed as dividends, regardless of how distributed, goes to the owner for the term in the absence of manifest intention otherwise by the creator of the estate, obtains in all but a very few states of the Union. 2 Cook, Corp. (6th ed.) § 554. The doctrine so dignified is stated by such text-writer, supported by a long line of authorities, thus:
“In disposing of stock or property dividends, as between tenant and remainderman” the court may “properly inquire as to the time when the fund out of which the extraordinary dividend is to be paid was earned or accumulated, and also as to the method of accumulation. If it is found to have accrued or been earned before the life estate arose, it may be held to be principal; and, without reference to the time when it is declared or made payable, to belong to the corpus of the estate, and not to go to the life tenant. . But when it is found that the fund, out of which the dividend is paid, accrued or was earned, not before but after the life estate arose, then it may be held that the dividend is income, and belongs to the tenant for life.”
The federal court, somehow, got, it seems, a wrong idea of the authorities. It was suggested that the only states holding contrary to its views were Pennsylvania, New Hampshire, and New Jersey, whereas, as the learned text-writer, in effect said, as before indicated, one could almost call the roll of the *341■other states in favor of tbe contrary, the exceptions being limited, probably, to Rhode Island, Georgia, Massachusetts, Illinois, and Connecticut; some of these being subject to elimination when the real basis for the doctrine adopted is appreciated, as for instance Georgia where there is a statute on the ■subject.
Significant among the jurisdictions not mentioned by the federal court opposed to its favored doctrine are New York, Maine, Maryland, South Carolina, and Kentucky.
The reference by the federal court to Néw Yc'k cases is quite misleading and unfortunate as the following will show. A long line of adjudications in New York are to the effect that a distribution of income made during the pendency of the term interest in stock, and accumulated during such term, whether distributed by means of a stock dividend or otherwise, goes to the term holder. As for example, in McLouth v. Hunt, 154 N. Y. 179, 48 N. E. 548, it was remarked that the decisions in general are in hopeless conflict; that those in England, favored by the federal court, were not well considered, and that the trend of decisions in this country, as well ■as the weight of argument and reason, is in favor of the doctrine that income accumulated during a life interest in stock and distributed in the form of a stock dividend, goes to the life tenant. In short, the doctrine of the Massachusetts court and the federal court was unqualifiedly condemned. To point such condemnation and that there is no difference, in the circumstances of the proposition under discussion, between a cash and a stock dividend, these words of Lord Chancellor EldoN were referred to with approval: “As to the distinction between stock and money, that is too thin; and if the law is, that this extraordinary profit, if given in the shape of stock, shall be considered capital, it must be capital if given as money.”
The doctrine that, in the circumstances here, a stock dividend goes to the term beneficiary wherever a cash dividend *342would, and that the only test is whether the dividend fund was accumulated and declared during the existence of the particular interest, was adopted in New York long before the decision referred to and has been emphasized in unmistakable'terms since. In Lowry v. Farmers’ L. & T. Co. 172 N. Y. 137, 64 N. E. 796, speaking of such right of the term beneficiary the court said:
“Had this dividend of fifty per cent, been declared and paid in cash, would there have been much doubt about plaintiff’s right to receive it ? . . . What reasonable, or substantial, distinction is there, in principle of ownership, between a dividend which is paid in stock and one which is paid in money, when either is based upon a division of earnings ? , Mr. Mora-wetz, in his work on Corporations (§ 468), has observed, with respect to such stock dividends, that, fin substance and effect, it amounts to a distribution of profits among the shareholders, in cash and a subsequent purchase of new shares in the company with the sums distributed.’ . . . That the value of the shares of stock has been lessened by a dividend is a fact of no relevancy in determining the question of whether the dividend is to be regarded as income to the life tenant, or as capital for the remainderman. That question will be determined by the origin of the dividend. . . . That which the directors of the-corporation distribute among its stockholders, without entrenching upon capital, must be comprehended within the term ‘profits’ and we should assume that the testator intended that what might be paid in that way should belong to the beneficiary. There is no question of diminishing the capital; nor of increasing the capital for any corporate purpose, or need. It was, simply, a mode of distributing the profits earned by the employment of the capital.”
That doctrine was particularly reaffirmed in Robertson v. De Brulatour, 188 N. Y. 301, 80 N. E. 938, the court holding .that the directors of a corporation cannot make a term beneficiary of capital stock, or the owner in remainder, the proper payee of a dividend declared out of surplus, according to their manner of declaring it — that a stock dividend out of surplus earnings goes to the life tenant unless there is a clear indication that the creator of the tenancy intended otherwise.
*343One more reference to the federal case will suffice to show that it should not he regarded as persuasive in favor of appellants’ position. The court, at one point, seems to have overlooked the fact that, by the Massachusetts rule, the intention of the creator of the term and remainder over, is immaterial; that the whole matter is governed by the corporate action and intention in declaring the dividend. ■ The latter court remarked in D'Ooge v. Leads, 176 Mass. 558, 560, 57 N. E. 1025:
“Everything is made to turn upon the action of the corporation. A simple rule is to regard cash dividends, however large, as income, and stock dividends, however made, as capital. . . . The simple question in every case is whether the distribution made by the corporation ... is of capital to be held as an investment in the corporation. While this, arbitrary rule may sometimes defeat the intention of the testator, in most cases it accomplishes the result intended.”
We need not pause to point out, at length, the illogical nature of that doctrine. The result of it is to give to corporate officers, by the mere form adopted by them for distributing surplus earnings, power to defeat the purpose of a person in creating a life or term interest in stock. The federal court seemingly fell into some confusion in respect to the matter in supposing it was following the Massachusetts rule, and yet saying:
“In ascertaining the rights of such persons [term beneficiary and owner in remainder], the intention of the testator, so far as manifested by him, must of course control; but when he has given no special directions upon the question as to what shall be considered principal and what income, he must be presumed to have had in view the lawful power of the corporation over the use and apportionment of its earnings, and to have intended that the determination of that question should depend upon the regular action of the corporation with regard to all its shares.” 136 U. S. 559.
That is equivalent to saying — the directors of a corporation have a right to convert surplus earnings, whether accumulated *344during the existence of the precedent term or before, into permanent capital, issuing stock as a dividend therefor, and as to such a distribution, though really of capital, the creator of the precedent term can manifest an intention that the benefit shall go to the term owner, and in such case such intention will control, but in the absence of such manifestation the law will supply the intention by presumption, to the effect that a distributive shate of capital stock during the term shall go to the owner in remainder.
Notwithstanding the federal court thus unequivocally declared for dominance of the intention of the creator of the particular interest, instead of that of the corporation in making the dividend, supposing it was following the Massachusetts and English rule, it also used this language:
“Whether the gains and profits of a corporation should be so invested and apportioned as to increase the value of each share of stock, for the benefit of all persons interested in it, either for a term of life or for years, or by way of remainder in fee; or should be distributed and paid out as income, to the tenant for life or for years, excluding the remainderman from any participation therein, is a question to be determined by action of the corporation itself.” 136 U. S. 558.
That precedes the declaration that the intention of the creator of the particular interest, after all, controls, and is followed by this:
“Therefore, when a distribution of earnings is made by a corporation among its stockholders, the question whether such distribution is an apportionment of additional stock representing capital, or a division of profits and income, depends upon the substance and intent of the action of the corporation, as manifested by its vote or resolution; and ordinarily a dividend declared in stock is to be deemed capital, and a dividend in money is to be deemed income, of each share.” 136 U. S. 559.
The three declarations from one viewpoint would seem to present a plain contradiction. But out of the ambiguity can be read, pretty clearly, the idea that, presumptively, a stock *345dividend is to be regarded as capital, and so to pass, in sueb •a case as tbis, to the owner in remainder, according to the pre-■snmed intention of the creator of the two interests, nothing appearing efficiently to the contrary; thns only changing the rebuttable presumption of fact in favor of the life or term tenant as most courts hold, to such a presumption against him, and repudiating the Massachusetts doctrine that the intention of the creator of the particular interest in the stock is immaterial.
It will be observed that in McLouth v. Hunt, 154 N. Y. 179, 48 N. E. 548, the custom of the New York court to follow the federal supreme court on new and doubtful questions, in harmony with the declaration in Topolewski v. Plankinton P. Co. 143 Wis. 52, 126 N. W. 554, was suggested, yet the court reached the conclusion that, in the particular instance, the rule could not apply.
In the ultimate, as we have seen, the infirmity in the federal case lies in the rule of construction adopted; that is in holding that a distribution to stockholders of dividend stock is presumed to be a distribution of the same, as capital, not as income, and that in case of a term and remainder ownership in stock, the presumption, nothing appearing efficiently to the ■contrary, is that the creator of the separate interests intended such a dividend to go to the latter. Eeverse the first presumption and the last logically must go with it. In any event the basic principle of the federal case, is that the intention of the creator of the two interests in the stock governs, not the action of the corporation as regards making a distribution in cash or stock, in harmony with the great weight of authority in this country. So it will be seen text-writers who have dignified, while condemning, the doctrine, found in its fulness not to •-extend much beyond Massachusetts, by proclaiming that the “supreme court of the United States has thrown the. great weight of its authority in favor thereof,” fail to analyze carefully or understandingly Gibbons v. Mahon, supra.
To our minds it seems plain, independently of any written *346law on the subject, that, presumably, all dividends regardless of bow made are out of increase of assets properly convertible into surplus, treatable as mere income and so treated in making the dividend, whether made in one or another of-the usual ways. Such is the rule in most jurisdictions. It seems just as plain" that, when a person transfers stock by will or otherwise to be held beneficially by one for a time with remainder over to another, nothing appearing to the contrary, the presumption of fact is that all dividend distributions of assets,, made out of distributable earnings, accumulated during the existence of the term and so dispersed during the term, go to-the term beneficiary. To say that when a stockholder conveys his stock, as in this case, he thinks otherwise than that the-term owner will take all benefits, as to such stock, of dividends out of earnings made during such term, regardless of the manner of making the dividends, seems contrary to common knowledge. To use the homely but expressive phrase, so dignified by the English chancellor: a distinction between stock dividends and money dividends declared out of accumulations during a given period, saying in a case like this, the former is a distribution of capital and goes to the remainderman and the latter is a distribution of income and goes to the life tenant, is “too thin.” It loses sight of the fact- that the real question is not whether a stock dividend, so made, is capital as. between the corporation and the stockholder, but whether it is such as between the term owner and the remainderman; and the further fact that the intention of the corporation officers-is immaterial, while that of the creator of the special interest is everything. Call it a distribution of income in one case and of capital in the other, merely because in the latter excess assets, derived from corporate income of some sort, is capitalized in the operation — however illogical it may be to change the name merely because of changing the form,- — yet the natural thought will remain undisturbed, that the creator of the term intended all such benefits should be incident thereto.
*347Tkus it will be seen that the primary principle recognized' by most authorities in this country, including the federal supreme court, is that the owner of corporate stock may convey the beneficial interest therein, in whole or in part, for a time to one and the whole ownership in remainder to another, unhampered by any power lodged in the corporation to disturb* the purpose of the conveyance; recognizing, however, corporate authority, acting in good faith, to retain surplus earnings or other accumulations during such time; thus enhancing, the value of the shares, or to distribute the same. From that follows, logically, that, whenever such a distribution is-made — whether by capitalizing the surplus accumulated during such time, meaning the excess of assets in value over and above liabilities to stock, accumulated during such time, either in cash and retained as such, or converted into property,, or accumulated in any other of the ways indicated in sec. 1765, Stats. (1898), of creating distributable surplus, and regardless of whether carried in a surplus account or that and one of undivided profits, or otherwise, or by several or all ways-of carrying such assets in the accounting system adopted, and issuing, ratably, new shares, or paid out of cash on hand, or by legitimately obtaining cash on account of the surplus assets and charging the same against some appropriate account; and whether an ordinary or extraordinary or bonus dividend; or whatever called — the distributive1 shares, as regards the owner of the stock presently, is income and, so, an incident of the ownership during the period of accumulation, declaration and distribution, if the creator of the particular term so intended. ,'
The next principle, logically springing from the foregoing,, and the rule of the common law as well, sanctioning distribution of corporate surplus assets in the way suggested, and the-custom existing as matter of common knowledge to make dividends out of surplus assets in all the ways mentioned, is that when an owner of stock conveys tho same to another for a term *348■without efficiently manifesting to the contrary, the presumption of fact is that he intends the term owner to enjoy all the income incidents of the stock during such term. The idea is that once income of the corporation during the term in cir•cumstances as in this case, always income during the term if •distributable and distributed to stockholders during the term, no matter what form of property embodies it at first or what •changes occur in form before the distribution occurs.
' Applying the foregoing to this case, the learned trial court could not well have reached any other legal conclusion from ■the facts found than the one complained of5i i. e. that the stock dividend, and hence the proceeds of the sale of the dividend stock, as to the interest in question, belonged to Mrs. Soehn-■lein. Neither in the trust created by deed or that created by will, is there any indication that it was thought she would have during her term anything less than the whole beneficial interest. On the contrary the indications are unmistakable from the plain language used that she was intended to have all ••such benefits. Such language was very broad and comprehensive. In the deed all dividends paid on stock were expressly referred to. No exception was made, expressly or by reasonable inference. Coming to the particular term and referring to the precedent broad characterization, the creator of the trust said: The dividends thereof shall be paid to said 'Emma Soehnlein, etc. In the trust created by will, manifestly intending to convey the same idea as that indicated in the deed, the net income, the whole of it, from the stock was ■disposed of for the period preceding the one in question. Coming to the later period, referring to income before spoken of, the testator provided “said Emma receiving the income thereof until,” etc., “said part of my estate shall continue to be held in trust by my executors and trustees during the life of said Emma' and the income thereof annually paid to her and the body or principal of said part shall,” etc. All was thus disposed of which might be distributed to stockholders *349as incidents of ownership; only the body or principal— plainly the capital represented by the stock and undistrib-ntable surplus when the special interest was created — was in-contemplation as the corpus which should go over to the ownership in remainder.
Why should not the rule be as indicated? Any other would take from the ownership of property in the form of corporate stock freedom to dispose of it as the owner sees fit, as he may any other kind of property. Otherwise in case of the latter the intent of the owner in parting with it would prevail, but in the former the action of third parties, or operation of an arbitrary rule of law having no logical basis, would control. Why is a distribution of surplus assets existing in cash or a distribution in small amounts any different from a distribution of surplus assets in any other form o-r in large amounts? It is the surplus after charging off liabilities to stock, in either case, which forms the distributable fund. Capital in the true sense is measured by the money value of assets available to balance liabilities to stock. When the net assets are not sufficient for that and have been once sufficient, the capital is said to be impaired. When there is more than enough there is an excess, strictly speaking, a surplus subject to distribution, in the absence of any statutory restraint, to the stockholders. In whatever form the distribution takes it is an income incident of the stock and a depletion of net assets of the corporation, but not a depletion of its capital, strictly so called. True, when the surplus is capitalized and the distribution is made in stock as a dividend to stockholders the corporation has as much assets after the distribution as before, but not as much net assets. The latter are decreased to the same extent if the distribution be in money as if in stock. In one case corporate assets are depleted. In the other corporate liabilities are increased. In each the surplus is depleted and the same in the one case as in the other. If a surplus be created by earnings in the ordinary course of busi*350ness and makes its first appearance in evidence in tbe form of •cash, but exists in other forms of property at the time of the distribution, regardless of how carried on the books or the bookkeeping methods of recording the result of the distribution, it is a distribution of earnings just the same, not of capital. The status of capital, strictly speaking, as regards liability to stock is no different in one case than in the other. As surplus assets are capitalized by the distribution so the liabilities are correspondingly increased, and the stockholder in one case the same as in the other, and to the same extent in une case as in the other, receives something which he can use separaté and distinct from his previous possession of stock. In practical effect, a new thing, whether the distribution be in money or stock.' Being such new thing, moving to the •.stockholder because of his ownership of stock, why is it not income and, if out of accumulations of distributable assets ■during a beneficiary term, income out of earnings, so far as the stockholder for such term is concerned, regardless of the form of the new thing or the manner in which it reaches the •stockholder, or that of the bookkeeping feature in the office of the corporation?
It is curious to observe that the federal court discovered a vital distinction between a stock and cash distribution because in the former the assets of the corporation remain the same, ■overlooking the fact that the net assets do not remain the same, and confusing, as it seems, the term “capital,” strictly .■so called, the net which makes up the equivalent of stock liabilities, with capital in the broader sense which includes the net property in the whole — did that, relying on the logic in Williams v. W. U. Tel. Co. 93 N. Y. 162, indulged in there merely to demonstrate that capital, strictly so called, is the •equivalent of existing stock and all excess is surplus and subject to be distributed in the form of a stock dividend if desired; which was repeated in McLouth v. Hunt, 154 N. Y. 179, 48 N. E. 548, and Lowry v. Farmers’ L. & T. Co. 172 *351N. Y. 137, 64 N. E. 796, to demonstrate that the distribution by the stock method, if of earnings of any kind during the term is a distribution of income in the strict sense; that the new stock represents income and is income so far as the corporation is concerned, in that it is produced from income. Eor the greater reason, so far as the stockholder is concerned, it is income because of its coming to the stockholder as a separable incident of the stock. Such is the case, logically, and such it is recognized by our legislative scheme, as before indicated, sanctioning in case of income which has taken the form of property other than money and is'carried on the books as surplus, distribution thereof as in this case.
Notwithstanding a few jurisdictions differ with the foregoing it seems that the conclusion is based on irresistible logic’. The authorities supporting it, as well might be expected, are so numerous, easily found, and so familiar that we will not prolong the opinion by further citations. The opposite view, when followed back to its source, will be found not to have been logically deduced and based on principle, but to be a mere arbitrary rule; framed largely, it would seem, for convenience of administration regardless of the liberty and inviolability of private contract rights.
The fact that the dividend stock in this case was in the form of preferred stock cannot make any difference so long as the transaction was in good faith with no intent to take advantage of the owner in remainder. Preferred stock may be issued as freely as common stock, when authorized by the stockholders. ETo distinction exists. As dividends can be made out of surplus assets however created, so the same may be distributed by dividends as legitimately in the form of stock as in that of money and in the form of preferred stock as in that of common stock.
The foregoing accords with the conclusion of the trial court. In reaching it we have not found it necessary to refer to anything said in Pabst v. Goodrich, 133 Wis. 43, 69, 113 *352N. W. 398. The dividend under consideration there was regarded by the court as made, substantially, out of accumulations prior to creation of the beneficial term. ■ Therefore, the-question, vital now, was not' involved and the court for that reason expressly declined to treat the subject.
We do not overlook the fact that this was said, in the former-opinion, referring to a dividend made some time after the death of Mr. Pahst: “The contention is that ... at least so-much of the amount represented by the dividend as represented the profits -earned . . . after the death of the testator should he so paidmeaning paid to the term tenant. That by itself, suggests that some part of the dividend, in fact, represented profits earned after creation of the trust. The dividend was declared out of stock bought in by the company out of accumulations, leaving still a surplus over and above the entire liabilities to stock, including treasury stock; indicating that the stock might have been purchased with distributable-surplus. So far as surplus accumulated after the creation of the trust was in fact so distributed, the part represented by the particular stock should logically have gone to the owner of' the special interest therein. The trial court there seems to have held that any increase of assets from earnings, forming part of the surplus, and not existing in money, was not distributable by dividend payments as income, but was distributable, if as dividends at all, as capital. It may he difficult to reconcile the decision now made with all said in that case, or all the inferences that might be drawn therefrom. But it is not considered the court intended to decide that a dividend cannot he declared which, as between a term owner of stock and an owner in remainder, would go to the former unless declared out of income existing in cash,- — that a stock dividend as between two such ownerships goes any different than a cash dividend. The idea was that the surplus out of which the stock dividend was paid was substantially accumulated before creation of the two interests and that such small part as *353was not so accumulated, if any, was not separable by the findings or any definite evidence in the record, and so could only be treated as so accumulated. It was not then supposed directors could make surplus distributable as income or as capital, as between the two interests, according to the manner of distribution, and regardless of the testator’s purpose; or that assets from surplus was treatable, as between such two interests, differently according to their character. The case should be read as merely deciding that a dividend made as a means of distributing among stockholders surplus accumulated before the creation of the two interests in the stock, as regards such stock, went to the owner in remainder.
By the Court. — Judgment affirmed.