Court Opinion

ID: 5248570
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:06:36.76543+00
Date Added: 2024-06-11T08:27:54.460373
License: Public Domain

Dowling, J. (dissenting):
There is no dispute as to the facts herein, which are set forth in detail in the report of the referee. So far as they are material to these appeals, they may be summarized as follows:
Charles F. G. Heye died on February 8, 1899, leaving a will which was admitted to probate on February 17, 1899. He left surviving him his wife, Marie Antoinette Heye, to whom letters testamentary were issued, and two children —• Marie Antoinette Lawrence Heye (now Marie Heye Clemens) and George Gustav Heye. By his will he gave his residuary estate to the* United States Trust Company of New York as trustee and directed that it be divided into three equal parts. The trustee was to pay and apply the net income of one part to the use of his wife, Marie Antoinette Heye, during her life; the principal was to go to such persons as she might appoint by will, and in default of appointment to his children in equal shares. The net income of one part was to be applied to the use of testator’s daughter, Marie Antoinette Lawrence Heye, during her life, and upon her death leaving issue the principal was to go to such issue per stirpes. Her children now living are the infant defendants Dorothy Heye Clemens and Marie Antoinette Wagener Clemens. The net income of the third part was to be applied to the use of testator’s son, George Gustav Heye, until he should reach twenty-eight years of age. On his reaching that age $150,000 was to be paid over to him and the balance held in trust until he should be thirty; then all of this balance except $100,000 was to be paid over to him and the balance ($100,000) was to remain in trust for him and the income to be applied to his use for the rest of his life. On his death all of the share of the residuary estate then held in trust for him was given to his issue. He attained the age of twenty-eight on September 16, 1902, and the age of thirty on September 16, 1904. His children now living are the infant defendants Mildred Agnes Heye and Lawrence William Heye.
Marie Antoinette Heye, the widow of the testator, died on the 18th day of February, 1915, leaving a will by which she exercised the power of appointment given her by the will of her husband and directed that the trustee should continue to hold one-half of the property, subject to such *583power in trust, during the life of Marie Heye Clemens, paying the net income to her use; and on her death it should pay over the principal to such persons as she might appoint by will, and, in default of appointment, to her issue; and' she further directed that the trustee should continue to hold the other one-half of said property during the life of George-Gustav Heye, paying the net income to his use and on his death it should pay over the principal as he might appoint by will, and, in default of appointment, to Marie Heye Clemens, or to her issue.
The plaintiff on May 10, 1899, received from Marie Antoinette Heye, the executrix of the will of Charles F. G. Heye, certificates for shares and fractional shares of stock in twenty companies whose stocks were distributed by the trustees of the Standard Oil Trust subsequent to the dissolution of the trust in 1892, as follows:
Fractional Shares. shares. •
Anglo-American Oil Co., Limited... 98 895000/972500
The Atlantic Refining Co........... 190 225000 /972500
The Buckeye Pipe Line Co......... 760 900000/972500
Eureka Pipe Line Co.............. 190 225000 /972500
Forest Oil Company............... 209 247500 /972500
Indiana Pipe Line Co.............. 76 90000 /972500
National Transit Co............... 1,936 924800 /972500
New York Transit Co.............. 190 225000 /972500
Northern Pipe Line Co............. 38 45000 /972500
The North Western Ohio Nat. Gas Co. 124 714500 /972500
The Ohio Oil Co.................. 304 360000/972500
The Solar Refining Co............. 19 22500 /972500 ■
Southern Pipe Line Co............. 190 225000 /972500
South Penn Oil Co................ 95 112500 /972500
Standard Oil Co. (Indiana)......... 38 45000 /972500
Standard Oil Co. (Kentucky)....... 38 45000 /972500
Standard Oil Co. (New Jersey)...... 380 450000/972500
Standard Oil Co. of New York...... 266 315000 /972500
Standard Oil Co. (Ohio)............ 133 157500/972500
Union Tank Line Co............... 133 157500 /972500
The certificates above mentioned represented the equivalent of $370,000 par value of so-called Standard Oil Trust certifi*584cates which had been owned by the testator and surrendered by him to the trustees of the Standard Oil Trust pursuant to a plan to dissolve the said trust. The Standard Oil Trust had been created by agreements dated January 2 and 4, 1882, by which the stock of certain companies theretofore held by certain individuals and corporations for common account were transferred to certain persons as trustees who issued certificates of beneficial interest therein to the beneficial owners of said stocks.
Upon the dissolution of the trust a majority of the stocks held by the trustees in the twenty companies above named were distributed ratably to the holders of the trust certificates as fast as they surrendered their trust certificates or made application for their distributive shares of. stock. Slightly less than a majority of the holders of the trust certificates did not surrender or make application for their distributive shares until after the Standard Oil Company (New Jersey) in 1899 adopted the resolution hereinafter mentioned. Meanwhile the stocks of the companies which had been distributed were not dealt in separately but the unit of trading was the proportionate interest in the several companies either equivalent to or represented by trust certificates, the result of which was that at all of the times mentioned the proportionate interest of the stockholders in each of the twenty companies remained the same as though the trust had not been dissolved.
In the year 1899 the capital stock of the Standard Oil Company (New Jersey), one of said corporations above named, was increased from 100,000 shares of the par value of $10,000,000 to 1,100,000 shares of the par value of $110,000,000, of which 1,000,000 shares were common stock and 100,000 shares were preferred stock, the stock previously outstanding being converted into preferred stock, and the officers of that corporation were duly authorized to issue said certificates of common stock in purchase of the stock of the remaining nineteen of said corporations and its own preferred stock at the rate of one share of such common stock for shares or various fractional shares of the stock of such other corporations and of its preferred stock, and the plaintiff on or about August 11, 1899, surrendered to the said Standard Oil Company (New Jersey) the said certificates of stock of the *585said twenty corporations above mentioned and received in exchange therefor 3,700 shares of the common stock of the Standard Oil Company (New Jersey).
The plaintiff in dividing said residuary estate of Charles F. G. Heye into three equal parts as directed by Ms will allotted 1,234 shares of the said common stock of the Standard Oil Company (New Jersey) to the trust created by the will of said Charles F. G. Heye for the benefit of Marie Antoinette Heye, and 1,233 shares of said stock to the trust created for the benefit of Marie Antoinette Lawrence Heye, now the defendant Marie Heye Clemens, and 1,233' shares of said stock to the trust created for the benefit of George Gustav Heye. As trustee for Marie Antoinette Heye it has ever since held-and continues to hold the 1,234 shares of the stock • of the Standard Oil Company (New Jersey), allotted as aforesaid to the trust created for her benefit; and as trustee for the benefit of Marie Heye Clemens it has ever since held and continues to hold the 1,233 shares of said stock allotted as aforesaid to the trust created for her benefit; but as trustee for the benefit of George Gustav Heye, it had, prior to the 1st day of September, 1911, duly disposed of all of the 1,233 shares of stock allotted as aforesaid to the trust created for his benefit, with the exception of 47 shares, and on September 1, 1911, it held as such trustee 47 shares of stock, wMch it has since continued to hold.
The aggregate amount of common stock issued by the Standard Oil Company (New Jersey) between 1899 and December 1, 1911, in exchange for stocks of the other nineteen corporations and its own preferred stock as aforesaid and also in acquiring additional shares of certain other corporations was 983,383 shares. All its preferred stock had been retired by the last-mentioned date.
In 1906 the UMted States brought suit under the Sherman Law (26 U. S. Stat. at Large, 209, chap. 647) against the Standard Oil Company (New Jersey), the companies whose stocks had been acquired by it by the issue of its own stock in exchange therefor as aforesaid and against a number of other companies whose stocks had been acquired by the Standard Oil Company (New Jersey) or its subsidiary companies at other times and against various individuals. *586(United States v. Standard Oil Co., 173 Fed. Rep. 177.) This suit, after an appeal to the United States Supreme Court from the decree originally entered, resulted ultimately in a final decree entered in 1911 in the United States Circuit Court for the Eastern Judicial District of Missouri. This decree adjudged that the Standard Oil Company (New Jersey) and other companies enumerated in section 2 of said decree had entered into and were carrying out a combination or conspiracy in restraint óf trade and commerce in petroleum and its products among the several States, in the territories and with foreign countries, and were monopolizing a substantial part of such commerce, all in violation of the so-called Sherman Law. The decree further declared that the stocks of the various corporations so named in section 2 were held by the Standard Oil Company (New Jersey) by virtue of such an illegal combination and it accordingly enjoined the Standard Oil Company (New Jersey), its directors, officers, etc., from voting any of the stock in any of said subsidiaries and from exercising or attempting to exercise any control, direction, supervision or influence over the acts of these subsidiaries by virtue of its holding of their stock. This decree in section 5 thereof thereupon continues as follows: " And these subsidiary companies, their officers, directors, agents, servants and employees are, and each of them is, enjoined and prohibited from declaring or paying any dividends to the Standard Company on account of any of the stock of these subsidiary companies held by the Standard Company, and from permitting the latter company to vote any stock in, or to direct the policy of, any of said companies, or to exercise any control whatsoever over the corporate acts of any 'of said companies by virtue of such stock, or by. virtue of the power over such . subsidiary corporations acquired by means of the illegal combination. But the defendants are not prohibited by this decree from distributing ratably to the shareholders of the ■principal company the shares to which they are equitably entitled in the stocks of the defendant corporations that are parties to the combination.”
;On appeal to the Supreme Court of the United States the decree of the Circuit Court was affirmed on May 15, 1911 (Standard Oil Co. v. United States, 221 U. S. 1), with *587the modifications, (1) that in view of the magnitude of the interests involved and their complexity,. the delay of thirty days allowed for executing the decree was too short and should be extended so as to embrace a period of at least six months; and (2) that in view of the possible serious injury which might result to the public from an absolute cessation of interstate commerce in petroleum and its products, by such vast agencies as those embraced in the combination, the defendants should not be enjoined from engaging or continuing in commerce among the States or in the territories of the United States for a similar period of six months. This period of six months dated from June 21, 1911. The provisions of the decree in question, while not making it compulsory, left it open to the Standard Oil Company (New Jersey) to distribute ratably to its stockholders the shares of the corporations adjudged to have been parties to the illegal combination. Accordingly the board of directors of the Standard Oil Company (New Jersey) on July 28, 1911, adopted the following resolutions:
“ Whereas, to execute and carry into effect the final decree in the case of the United States of America against the Standard Oil Company (of New Jersey) and others, it is necessary to distribute ratably to the stockholders of this Company the shares of stock of various corporations mentioned and described in such decree, owned by this Company either directly or through its ownership of stock of the National Transit Company, which corporations are as follows [here follow the names of the thirty-three corporations whose stocks were distributed].
“ Resolved, that the shares of stock of each of said corporations owned by this Company be distributed ratably to the stockholders of this Company of record on the first day of September, 1911, and that the shares of stock of the Cumberland Pipe Line Company and the Prairie Oil and Gas Company to which this Company will be entitled upon the distribution thereof by the National Transit Company to its stockholders, be likewise distributed ratably to the stockholders of this Company of record on the first day of September, 1911.
“ Resolved, that the National Transit Company be, and it hereby is authorized and requested to distribute ratably *588,to its stockholders of record on the first day of September, 1911, the shares of stock of the Cumberland Pipe Line Company and of the Prairie Oil & Gas Company which it owns, and to make in connection therewith such reduction in its capital stock as may be rendered necessary by such distribution.”
The distribution so ordered was made and the shares of the ' thirty-three enumerated corporations were accordingly distributed ratably to the stockholders of the Standard Oil Company (New Jersey). Plaintiff received certain of these stocks as trustee (1) of the trust for the benefit of Marie Antoinette Heye; (2) of the trust for the benefit of Marie Heye Clemens; (3) of the trust for the benefit of George Gustav Heye. The factor of division being 983.383, there were fractional shares of the stock of each corporation assigned to the respective funds. Omitting these fractions, the shares received from the trust for the benefit of Marie Antoinette Heye were as follows:
1,234 shares Anglo-American Oil Company, Ltd.
62 shares Atlantic Refining Company.
2 shares Borne Scrymser Company.
250 shares Buckeye Pipe Line Company.
3 shares Chesebrough Manufacturing Company.
3 shares Colonial Oil Company.
3 shares Continental Oil Company.
75 shares Crescent Pipe Line Company.
12 shares Cumberland Pipe Line Company, Inc.
62 shares Eureka Pipe Line Company.
21 shares Galena Signal Oil Company, preferred.
70 shares Galena Signal Oil Company, common.
125 shares Indiana Pipe Line Company.
638 shares National Transit Company.
62 shares New York Transit Company.
50 shares Northern Pipe Line Company.
752 shares Ohio Oil Company.
225 shares Prairie Oil and Gas Company.
6 shares Solar Refining Company.
125 shares Southern Pipe Line Company.
31 shares South Penn Oil Company.
43 shares South West Pennsylvania Pipe Lines.
*589313 shares Standard Oil Company (California).
12 shares Standard Oil Company (Indiana).
12 shares Standard Oil Company (Kansas).
12 shares Standard Oil Company (Kentucky).
7 shares Standard Oil Company (Nebraska).
188 shares Standard Oil Company of New York.
43 shares Standard Oil Company (Ohio).
1 share Swan & Finch Company.
150 shares Union Tank Line Company.
31 shares Vacuum Oil Company.
• 8 shares Washington Oil Company.
3 shares Waters-Pierce Oil Company.
The trust estate for the benefit of Marie Heye Clemens received 1,233 shares of the Anglo-American Oil Company, Ltd., and proportionate amounts of all the other stocks. The trust estate for the benefit of George Gustav Heye received 47 shares of Anglo-American Oil Company, Ltd., and proportionate amounts of all the other stocks. The certificates representing the trustee’s shares in these corporations other than the Anglo-American Oil Company, Ltd., were received by the trustee on or about December 1, 1911, and the stock of the Anglo-American Oil Company, Ltd., in January, 1912.
The thirty-three corporations whose shares were so distributed by the Standard Oil Company (New Jersey) comprised shares in seventeen out of the nineteen corporations whose shares were acquired by the Standard Oil Company (New Jersey) in 1899. The Forest Oil Company, one of the remaining two corporations, had been absorbed by the South Penn Oil Company in 1902, and the stock of the North Western Ohio Natural Gas Company was not directed to be distributed by the above resolution. The remaining sixteen corporations whose stocks were so distributed comprised the following:
Eight companies whose stocks were owned by the Standard Oil Company (New Jersey) in 1899 and prior to the testator’s death as follows:
Borne Scrymser Company,
Chesebrough Manufacturing Company,
Continental' Oil Company,
Galena Signal Oil Company (representing the consolidation of Galena Oil Company and Signal Oil Company),
*590Standard Oil Company (Kansas),
Swan & Finch Company,
Vacuum Oil Company,
Waters-Pierce. Oil Company.
Three companies whose stocks had been acquired by the Standard Oil Company (New Jersey) out of its cash earnings subsequently to 1899, as follows:
Colonial Oil Company,
Standard Oil Company (California),
Standard Oil Company (Nebraska).
Two companies whose stocks were acquired by the Standard Oil Company (New Jersey) subsequently to December, 1899, from its subsidiaries as follows:
South West Pennsylvania Pipe Line Company,
Washington Oil Company,
Crescent Pipe Line Company.
Two companies whose stocks were distributed by the National Transit Company in 1911 pursuant to the above resolution:
Cumberland Pipe Line Company.
Prairie Oil and Gas Company.
In the case of some of the subsidiary corporations whose stocks were acquired by the Standard • Oil Company (New Jersey) in 1899 in exchange for its common stock, or were theretofore held by it, its holdings were increased therein between 1899 and 1911 by its purchase of increases of capital stock of such subsidiaries issued for cash at par, and through 'stock dividends declared and paid by them. Thus the Standard Oil Company (New Jersey) had between 1899 and 1911 bought for cash at par out of its own earnings stock in eleven subsidiary companies of the aggregate par value of $60,650,000, which it carried on its own books at an aggregate book value of $71,503,765 as of December 1, 1911, and which the subsidiary companies carried on their books as of an aggregate book value of $127,237,375 on December 31,1911. These companies were: Anglo-American Oil Company, Colonial Oil Company, Crescent Pipe Line Company, Northern Pipe Line Company, Ohio Oil Company, Southern Pipe Line Company, Standard Oil Company of California, Standard Oil *591Company of Kansas, Standard Oil Company of Nebraska, Standard Oil Company of New York and Union Tank Line Company. Stock dividends were also declared and paid to the Standard Oil Company (New Jersey) by certain of the subsidiaries (Crescent Pipe Line Company, Indiana Pipe Line Company, Northern Pipe Line Company, Southern Pipe Line Company, and Vacuum Oil Company) between 1899 and 1911, of the par value of $12,975,000, whereof the book value on December 1, 1911, according to the books of the Standard Oil Company (New Jersey) was $18,367,870, and whereof the book value on December 31, 1911, according to the books of the subsidiary companies was $26,330,837. The book value on the books of the Standard Oil Company (New Jersey) at which the stocks distributed on December 1, 1911, and the Anglo-American Oil Company, Ltd., stocks were carried, was $280,121,948.62. These distributions were entered on the company’s journal vouchers as follows:'
“Journal Voucher.
“ No. 217 New York, December 1st, 1911.
“ Charge.
“ Reserved Profits
“ To distribute ratably to stockholders of record Sept. 1st, 1911, the stocks owned and held by this Company as per attached list in accordance with the opinion and order of the Supreme Court of the United States, May 15th, 1911, and resolution of Board of Directors, July 28th, 1911......'........... $268,856,501 00
“ Credit
“ Sundry Stock Accounts as per attached
list...............................$268,856,501 00
“ Approved,
“Entered (Signed) C. G. FAY,
“Jour. Folio 87. Assistant Comptroller”
“Journal Voucher.
“ No. 17 New York, Jany. 20th, 1912.
“ Charge
“ Reserved Profits
“ To distribute to stockholders of record Sept. 1st, 1911, in accordance with the opinion and order of the *592Supreme Court of the United States May 15th, 1911, and Resolution of Board of Directors July 28th, 1911, Stock of Anglo-American Oil Co. Lim., on basis of One (1) Share Warrant of £1. for each share of
Standard Oil Co................. $11,265,447- 57
“ Credit
“ Anglo-American Oil Co. Limited, Share
Warrants, 983,383 Share Warrants... $11,265,447 57
“ Approved,
“ Entered (Signed) C. G. FAY,
“ Jour. Folio 7. Assistant Comptroller.”
Whenever the stock of any of the subsidiary companies was increased, subsequently to 1899, and, the increase or any part thereof was issued for cash to the Standard Oil Company (New Jersey), the entry on the books of the latter company was a charge to the stock investment account of the company affected and a credit to the cash account of the Standard Oil Company (New Jersey) for the amount of the disbursement. If such increased stock or part thereof was distributed as a stock dividend and received by the Standard Oil Company (New Jersey), the entry on the Standard Oil Company (New Jersey) books was a charge to the corresponding stock investment account and a credit to the profit and loss account of the investment in the stock of the company making the stock distribution. The Standard Oil Company (New Jersey) down to the year 1906 carried a profit and loss account with each stock investment in a subsidiary company, which represented the New Jersey company’s proportion of the surplus or undivided profits of the subsidiary company not paid to the New Jersey corporation dividends.
On November 20, 1902,^ the balance standing to account of surplus on the books of the Standard Oil Company (New Jersey) was transferred to “ reserve profits account ” and since November 20, 1902, all earnings in excess of the amount required to pay dividends have been transferred to reserve profits. The cash earnings of the Standard Oil Company (New Jersey) between January 1, 1899, and December 1, 1911, from its own business and cash dividends from all subsidiaries (not including cash earnings accumulated but not distributed by subsidiaries) exceeded the dividends paid by the Standard Oil *593Company (New Jersey) during said period by $328,691,788.13, which is over $48,000,000 more that the amount at which the stock distributed on December 1, 1911, was then carried on the books of the Standard Oil Company (New Jersey).
The book value per share of the stock of the Standard Oil Company (New Jersey) on December 31, 1899, was $202.32.
Before the distribution of December 1, 1911, accumulated earnings had brought this book value up to $566.57.
, After this distribution the book value was $281.72 per share.
On February 15, 1913, the Standard Oil Company (New Jersey), pursuant to resolution of its board adopted on February third, paid a cash dividend of forty per cent to stockholders of record at the close of business on February 7, 1913. The preamble to the resolution referred to this distribution as arising from the collection of large sums of money which had been owing by the former subsidiaries of the Standard Oil Company (New Jersey) at the time of the distribution in 1911 and which had since been collected into the treasury of the Standard Oil Company (New Jersey).
The book value of the stock of the Standard Oil Company (New Jersey) before this forty per cent distribution was $289.89 and after such distribution was $249.89.
This distribution, like the distribution of stocks in 1911, was charged to reserve profits.
The journal vouchers in reference to this dividend were as follows:
“ Journal Yo'ucher 79. .
“New York, February 15th, 1913.
“ Received
“ from Standard Oil Company,
(New Jersey)
“ Check to order of National City Bank for credit to Standard Oil Co. (N. J.)
Dividend Account.................. $39,335,320 00.
“ For amount of Dividend Checks No. 1 to No. 6090, inclusive, on National City Bank this day to cover distribution of $40.00 per share on 983,383 shares *594Common Stock of this Company as per resolution of Directors Feby. 3d, 1913.
“ For account of Dividends Paid “ (General Ledger)
“ (Signed)- C. G. FAY,
“ Asst. Comptroller.
“ Journal Voucher.
“ Under date of Dec. 31, 1913. “New York, Feby. 19th, 1914.
“ No, 1019 “ Charge
“ Reserved Profits............... $39,335,320 00
“ Credit
“ Dividends paid ■
“For distribution February 15th
1913, transferred.......... $39,335,320 00
“ Approved
“ Entered (Signed) C. G. FAY,
“ Jour. Folio 205. Comptroller.”
At the time of this distribution the Standard Oil Company (New Jersey) had issued and outstanding 983,383 shares of common stock and no preferred stock, and its net assets just prior thereto were $285,074,538.54.
The amount received by the plaintiff as trustee upon the cash distribution by the Standard Oil Company (New Jersey)' has been paid over to the life beneficiaries as income during the pendency of this action without objection on the part of the trustees or the remaindermen.
Between the date of the distribution of December 1, 1911, and the entry of the judgment in this action, stock dividends and extraordinary cash dividends were declared and paid and rights to subscribe for increases of capital stock at par were offered to stockholders by a number of the former subsidiaries of the Standard Oil Company (New Jersey) whose stocks had been distributed in December, 1911, as follows:
The following companies declared and paid stock dividends:
Anglo-American Oil Company, November 26, 1913, 100 per cent stock dividend.
*595Galena Signal Oil Company, May 15, 1913, 50 per cent stock dividend.
Solar Refining Company, June 30, 1913, 300 per cent stock dividend.
South Penn Oil Company, July 31, 1913, 300 per cent stock dividend.
Standard Oil Company (Indiana), May 15, 1912, 2,900 per cent stock dividend.
Standard Oil Company (Kansas), June 30, 1913, 100 per cent stock dividend.
Standard Oil Company (Nebraska), April 25, 1912, 33% per cent stock dividend.
Standard Oil Company (Nebraska), June 30, 1913, 25 per cent stock dividend.
Standard Oil Company (New York), June 30, 1913, 400 per cent stock dividend.
Standard Oil Company (California), May 1, 1916, 50 per cent stock dividend.
A stock dividend amounting to 100 per cent was declared by the Standard Oil Company (Ohio) on May 26, 1916, but had not been paid on the date of the plaintiff’s last supplemental account in this action. The judgment as entered directs the disposition to be made of this stock dividend when received.
The following companies offered to stockholders rights to subscribe for additional stock at par:
South Penn Oil Company, July 31, 1913, 100 per cent at par.
Standard Oil Company (California), August 31, 1913, 80 per cent at par.
Standard Oil Company (California), February 2, 1914, 45,183 shares at par.
Standard Oil Company (Kentucky), February 14, 1914, 200 per cent at par.
The Kentucky company at the same time declared a cash dividend of 200 per cent, which was expressly made applicable to payment of the subscription rights.
Swan & Finch Company, August 21, 1912, 400 per cent at par.
Vacuum Oil Company, February 29,1912, 500 per cent át par.
*596The following company declared a cash dividend:
Solar Refining Company, December 20, 1913, thirty dollars a share.
Two companies distributed stock of other corporations!
Ohio Oil Company, February 1, 1915, distributed stock of Illinois Pipe Line Company.
Prairie Oil and Gas Company, March 22, 1915, distributed stock of Prairie Pipe Line Company.
The plaintiff, as trustee of the three trusts under the will of Charles F. G. Heye, deceased, received in each case the stock or extraordinary cash dividend so declared and paid in respect to the shares of the stock of the corporation declaring the same theretofore received by the plaintiff upon the distribution of December, 1911. It exercised the right offered to it to subscribe for 200 per cent of the stock held by it in the Standard Oil Company (Kentucky) using for that purpose the cash dividend which by resolution of the company was made expressly applicable to the payment of such stock. In the case of the remaining subscription rights the trustee either sold them for cash or exercised them, paying in the latter event for the additional stock out of the principal of the trust, and in the ease of the South Penn Oil Company exercised in part and sold in part the subscription rights offered by resolution of July 31, 1913, by said company.
By the judgment appealed from it is determined that the shares distributed by the Standard Off Company (New Jersey) in December, 1911, did not constitute a distribution of undivided profits, or of surplus assets in any form, as dividends from earnings of capital, and are not income, rents, issues and profits of the trust estates payable to the life beneficiaries under the will of Charles F. G. Heye, deceased, but that the same accrued to and constitute part of the principal of the trust estates.
It was further adjudged that the stock dividends, cash dividends (other than ordinary dividends) and stock subscription rights declared and offered subsequently to December 1, 1911, by the former subsidiary companies of the Standard Oil Company (New Jersey) were when received by the plaintiff or (in respect to subscription rights) exercised by the plaintiff subject to apportionment between capital and income *597of the respective trusts, according to certain rules therein laid down, as follows:
“ (a) Where shares of the company declaring the dividend or offering the rights were received by the trustee at the time of the establishment of the trusts and were exchanged for the stock of the Standard Oil Company (New Jersey); or where the stock of such company was then held by the Standard Oil Company (New Jersey), or one of its subsidiary companies, the book value to be maintained in the capital of the trust funds should be computed as of May 10, 1899, the date of the establishment of the trusts.
“ (b) Where shares of the company declaring the dividend or offering the rights were not held in the trusts at the time they were established and the stock of such company was not then held but was subsequently acquired by the Standard Oil Company (New Jersey), or one of its subsidiary companies, the book value to be maintained in the capital of the trust funds should be computed as of the date of such acquisition.
“ (c) In any case in which the capitalization of any of -the subsidiary companies was increased between the date of the establishment of the trusts, or the first acquisition of the stock by the Standard Oil Company (New Jersey), or one of its subsidiary companies, and the date of the distribution in December, 1911, such stock increases should be deemed, for the purposes of the apportionment herein directed, to have become in due proportion a part of the several trust funds as, and when, the stock increases were so respectively acquired by the Standard Oil Company (New Jersey) or one of its subsidiary companies; and the book values of the several portions of such stocks so added to the capitalization of such company should be computed as of the respective dates of such acquisition of the stock and an average book value ascertained as that to be maintained in the capital of the trust funds; and subscription rights, if exercised, or the proceeds, if sold, should be apportioned on the same basis.”
These rules are then, by the judgment, applied to the particular facts as found. .
As appellants the life beneficiaries appeal from the judgment in so far as it adjudges that the shares received by the trustee *598upon the distribution of 1911 constitute part of the principal of the respective trusts, and in so far as it adjudges that any of the subsequent dividends or subscription rights (or proceeds thereof) constitute principal. Their contention is that the distribution of 1911 charged on the company’s books to reserve profits is in fact such a distribution of profits; that this distribution is an extraordinary distribution within the meaning of the rules of apportionment laid down in Matter of Osborne (209 N. Y. 450, 477), and that under the rules there laid down the life beneficiaries are entitled to the whole "of such distribution since in the case at bar the surplus of the company has during the trust period increased through earnings (not including any unearned increment, increased value of real estate, unrealized market or paper profits, etc.) to such an extent that the distribution when made may be awarded to the life beneficiaries without impairing the book value of the trust investment as of the date of the commencement of the trust.
If the shares received by the trustee upon the distribution of 1911 are thus adjudged to the life beneficiaries from the date of their receipt by the trustee the life beneficiaries are, of course, also entitled to all subsequent dividends, distributions and subscription rights accruing upon such shares.
The life beneficiaries, however, claim further that they are entitled to the whole of such subsequent dividends, distributions and subscription rights irrespective of the ultimate decision in reference to their rights to the shares received by the trustee upon the 1911 distribution of the Standard Oil Company (New Jersey).
As respondents upon the appeals taken by the trustee and the remaindermen, the contention of the life beneficiaries is, that the judgment as entered, although giving them less than their rights, is correct so far as it goes, and that the proportion of the extraordinary dividends and. subscription rights awarded thereby to the life beneficiaries is, from any point of view, the minimum of their rights.
As appellants, the trustee and the remaindermen contend that the rights to subscribe pertaining to stocks constituting part of the principal of the trusts were principal and are not subject to apportionment between the life beneficiaries *599and the principal of the trust funds, nor are rights to subscribe, coupled with a cash dividend, equivalent to a stock dividend and subject to a like apportionment. They further contend that the stocks distributed by the Standard Oil Company were acquired by the trust estates at the time of the distribution and must be kept good as of that time as though they had been purchased with funds constituting part of the principal of the estate. The referee held that the interest of the trust estates in the distributed stocks antedated their distribution and that the value to be kept good in the case of each stock is the value of the trust estate’s pro raa equitable interest therein at the time the trust was established (if it was the stock of one of the twenty companies or was then held by one of the twenty companies), or at the time it was acquired by the Standard Oil Company (New Jersey) (if it was so acquired after the establishment of the trust). In those cases where the holdings of the Standard Oil Company of stock in a company were increased from time to time prior to distribution, the referee held that the trust estate’s pro rata equitable interest in each lot acquired was to be kept good as of the time of its acquisition. The trustee further contends that in the case of stock dividends not required to keep good the principal of the trust, the life beneficiaries are not entitled to the stock itself, but only to the book value of the stock, and that the trustee on paying over such book value to the beneficiary, may retain the stock as principal.
As respondents, the trustee and remaindermen contend that the learned referee was correct in his holding as to the effect of the distribution of 1911, but that even if his position on that point is not sustained, the stock that the trustee turned over to the Standard Oil Company (New Jersey) in 1899 in exchange for the stock of the latter corporation, and which they received back from the Standard Oil Company (New Jersey), must be regarded as principal of the trust.
Taking up for consideration, in the first place, the appeal of the life beneficiaries, I am of opinion that the learned referee was in error in holding that the distribution of 1911 “ was not a distribution of undivided profits, or of surplus *600assets in any form, as dividends from earnings from capital,” and the shares distributed thereunder “ were not, when received by the plaintiff, income, rents, issues or profits of the trust estates, payable to the life beneficiaries under the will of Charles F. G. Heye, but accrued to the principal of the trust estates,” I believe that this question is determined by the decision of the Court of Appeals in Matter of Brann (219 N. Y. 263). That case involved the construction of the will and codicil of Alice Y. Leavitt. The will was made in 1908. After a specific legacy, it created a trust for the annual payment of $600 to a brother for life, with remainder to charities. The subject of the trust was described by the testatrix as “ the 30 shares of stock of the Standard Oil Co. owned by me.” These shares then constituted the bulk of her estate. All the rest, residue and remainder of the estate, “ including any legacy which may lapse or be void,” she gave to her friend, Mrs. Johnston. The brother died in April, 1911, prior to the distribution in question by the Standard Oil Company (New Jersey) of the stocks of the subsidiary company. Nine months after such distribution (in September, 1912) the testatrix made a codicil. Her brother was then dead; the shares of the subsidiary companies were already in her hands; and by her codicil she gave money legacies amounting to $1,700 to friends and charities, and disposed of a picture. “ In all other respects,” she provided, “ I do hereby ratify and confirm my said will.” Three months later she died. The question presented for determination was whether the shares in the thirty-nine subsidiary companies passed as part of the original shares, or stood separate and by themselves and passed to the residuary legatee. In the discussion of the question the status of the shares distributed was discussed at length by the court, and became relevant to the decision. It was a question presented by the briefs of the respective counsel upon the appeal and had been discussed in both the prevailing and the dissenting opinion in this court (171 App. Div. 800). Judge Cardozo, in his opinion, first disposed of the argument (again advanced on this appeal) that the distribution of the stocks in the subsidiary companies by the Standard Oil Company (New Jersey) was compulsory. He said: “ In December of the same year *601[1911], the Standard Oil Company of New Jersey distributed among its stockholders the shares which it held in a large number of subsidiary oil companies. It did this under the compulsion of a decree of the United States Supreme Court by which it was required to dispose of its holdings in corporations under its control. The decree did not compel it to distribute the holdings among its own stockholders. It might have sold the shares and distributed the money, or even kept the money in its treasury. It elected, however, to distribute the shares in kind.” (Matter of Brann, 219 N. Y. 263, 266.) The court then proceeded to consider the main question involved and in so doing held that there was no substantial identity between this extraordinary dividend distributed by the Standard Oil Company (New Jersey), consisting of the stocks in the subsidiary companies, and the shares upon which the dividend was paid, thus answering a contention again advanced upon this appeal, that the dis-. tributed stocks, together with the stock of the New Jersey company (representing the undistributed assets), merely represented the shares of the New Jersey company as they were prior to the distribution, and that as the New Jersey stock formed part of the capital of the trust in question, the stocks substituted for it as the result of the distribution likewise form part of the capital of the stock. Judge Cardozo proceeded to say: “It is true that the gift of the thirty shares is a specific legacy, and that a specific legacy will be construed in the light of the situation existing when it was made (Matter of Delaney, 133 App. Div. 409; 196 N. Y. 530). But it is also true that unless the subject of a specific legacy exists, unchanged in substance, at the date of the will, there results an ademption, complete or partial according to the facts. In strictness, there has been in this case no ademption at all, for the thirty shares, which were the subject of the legacy, exist; but since the subsidiary shares, while held by the parent company, helped to give the primary shares their value, the analogy of ademption becomes useful. Slater v. Slater (L. R. [1 Ch. 1907] 665) states the controlling principle, and applies it to a situation similar to the one at hand. The principle is that a change in the nature of the property works an ademption unless it is a change ‘ in name or form only ' *602(Slater v. Slater, supra, at pp. 671, 672, quoting Oakes v. Oakes, 9 Hare, 666, 672. See, also, Norris v. Harrison, 2 Maddocks, 268). It may be that where the change is merely formal, as where a company is reorganized and there is a reissue of the shares, the identity of the gift will be held to be substantially preserved (Mallam v. McFie, L. R. [1 Ch. 1912] 29; Turner v. Leeming, L. R. [1 Ch. 1912] 828), but that is not this case. Here the original shares remain intact, and there is no contest about them. The new shares are, in effect, an extraordinary dividend declared during the life of the testatrix (Brundage v. Brundage, 60 N. Y. 544; Equitable Life Assurance Society v. Union Pacific R. R. Co., 212 N. Y. 360). The case stands the same as if the Standard Oil Company had sold the shares, and distributed the proceeds. It is hardly denied that a voluntary dividend, whether paid in money or in stock, would be separate from the primary shares. The argument is that a different rule is applicable here because the dividend was compulsory. But the suggested distinction is inadequate. It was once thought that ademption was dependent on intention, and ‘ it was, therefore, held in old days that when a change was effected by public authority, or without the will of the testator, ademption did not follow. But for many years, that has ceased to be law ’ (Slater v. Slater, supra, at p. 671). It has ceased to be law in England (Jarman, p. 163;* Slater v. Slater, supra). It has ceased to be law in New York (Ametrano v. Downs, 170 N. Y. 388). What courts look to now is the fact of change. That ascertained, they do not trouble themselves about the reason for the change. We cannot find substantial identity between this extraordinary dividend and the shares from which they came.” (Matter of Brann, 219 N. Y. 263, at pp. 267, 268.)
The force of this opinion is sought to be avoided by counsel for the remaindermen by treating as dictum so much thereof as characterizes the distribution of 1911 as an extraordinary ■ dividend. But not merely is the reasoning of the court persuasive but the reiteration of the description of the distribution as an “ extraordinary dividend ” and the cases cited to support that description (Brundage v. Brundage, 60 N. Y. *603544, and Equitable Life Assurance Society v. Union Pacific R. R. Co., 212 id. 360) together with the importance attached by the court to the determination of the nature of the distribution in question (because of its direct effect upon the nature of the stock whose ownership was before the court for adjudication), all demonstrate that the conclusion reached as to the character of this distribution was an essential part of its opinion and to be respected and followed as such. The case of Equitable Life Assurance Society v. Union Pacific R. R. Co. (212 N. Y. 360) is particularly illuminating as to the view which the court, in the Brann case, took of the distributed stocks as representing a distribution of surplus profits. In the Equitable case the facts are set forth in the opinion of Mr. Justice Clarke in this court (162 App. Div. 81) as follows:
“ In 1901 and 1902 the defendant purchased $90,000,000 of common stock of the Southern Pacific Company and $78,000,000 of stock of the Northern Pacific Railway Company and thereafter transferred said stock to the Oregon Short Line Railroad Company, a corporation subsidiary to and entirely controlled by defendant. Said stocks were paid for with the proceeds of the sale of the following bonds: $100,000,000 face value first lien four per cent convertible gold bonds, which bonds were thereafter to the extent of $99,450,000 •converted by the holders into a like amount of the common stock of the defendant; $31,000,000 face value four per cent participating twenty-five year gold bonds of said Oregon Short Line Railroad Company, which bonds were thereafter redeemed from proceeds of sale of about $32,625,000 face value of four per cent twenty-five year refunding bonds of said Oregon Short Line Railroad Company.
“ In 1902 the Northern Pacific Railway Company stock aforesaid was exchanged for upwards of $82,000,000 par value of stock of the Northern Securities Company. In 1905, upon the dissolution of the Northern Securities Company, said Oregon Short Line Railroad Company sold a part of its holdings of stock of said Northern Securities Company and received in exchange for the balance of said holdings a large amount of the stocks of the Northern Pacific Railway Company and Great Northern Railway Company theretofore *604held in the treasury of the said Northern Securities Company. Thereafter said Oregon Short Line Railroad Company sold the entire amount of stocks of the Northern Pacific Railway Company and the Great Northern Railway Company so acquired by it and reinvested the proceeds in stock of various other companies including $32,334,200 par value of common and $7,206,400 of preferred stock of the Baltimore and Ohio Railroad Company. In 1913, pursuant to a decree entered in a suit brought by the United States against the defendant and said Oregon Short Line Railroad Company requiring said companies to dispose of the Southern Pacific Company’s stock then held by them, said Oregon Short Line Railroad Company exchanged with the Pennsylvania Railroad Company $38,292,400 of the Southern Pacific Company stock held by it for $21,273,600 of common, and $21,273,600 of preferred stock of the Baltimore and Ohio Railroad Company. The capital stock of the Baltimore and Ohio Railroad Company acquired as aforesaid to the amount of $28,480,000 of preferred and $53,607,800 common stock was thereafter acquired by defendant from the Oregon Short Line Railroad Company.
“ The proceeds of the sales, as alleged, of stocks of the Northern Securities Company, Northern Pacific Railway Company and Great Northern Railway Company exceeded by the amount of $58,684,157 the cost of the stock of the Northern Pacific Railway Company from which said securities were derived, and after the sale this amount was credited by the Oregon Short Line Railroad Company to its profit and loss account and paid by it as a special dividend to the defendant as the holder of all its capital stock, and said amount was credited by defendant to its profit and loss account, and is included in its surplus as claimed. Various items of excess over cost realized by defendant on the sale of the other stocks and securities have likewise been credited to its profit and loss account and included in its claimed surplus.
“ In July, 1907, defendant issued and sold bonds known as its twenty-year four per cent convertible gold bonds realizing upon said sale ninety per cent of the face value thereof in cash and charging to said profit and loss account the discount of ten per cent. Said bonds, by their terms, are convertible at the option of the holders into common capital *605stock of the defendant at the rate of $175 face value of such bonds for $100 par value of such stock. Prior to January 8, 1914, of the bonds so issued there were surrendered for conversion $37,025,800 face value, and in exchange therefor and upon the retirement of said bonds there was issued to the holders common capital stock of the defendant to the amount of $21,157,600 par value. The net reduction of defendant’s liabilities resulting from said bond conversion, to wit, the sum of $15,868,200, has been credited by defendant to said profit and loss account and is included in the surplus claimed by it.
“ The defendant by its charter and the laws of Utah is authorized to issue, preferred and common stock, and now has outstanding 995,435 shares of the par value of $99,543,500 of preferred and 2,166,624 shares of the par value of $216,-662,400 of common stock. The articles of association of said corporation provide as follows with regard to the respective priorities of said two classes of stock: ‘ Such preferred stock shall be entitled, in preference and priority over the common stock of said corporation, to dividends in each and every fiscal year, at such rate, not exceeding four per cent per annum, payable out of net profits, as shall be declared by the Board of Directors. Such dividends are to be non-cumulative, and the preferred stock is entitled to no other or further share of the profits.’
“ And it is alleged that in all other respects said preferred and said common stock are entitled under said Articles of Association and the laws of Utah to equal rights in said corporation and its assets.’
“ On January 8, 1914, the directors of defendant declared an extra dividend upon its common capital stock, payable April 1, 1914, consisting of the following amounts upon each share:
“ First. Three dollars in cash.
“ Second. Twelve dollars par value of preferred capital stock of the Baltimore and Ohio Railroad Company, and
“ Third. Twenty-two dollars and fifty cents par value of common capital stock of the Baltimore and Ohio Railroad Company.
“ The value of the stocks and cash proposed to be distributed by way of such extra dividend is approximately $80,000,000.
*606“ The dividend of four per cent per annum has been regularly declared and paid upon the preferred stock. Defendant’s board of directors resolved that the extra dividend declared as aforesaid on January 8, 1914, was declared out of accumulated surplus of defendant, and that the capital stock of the- Baltimore and Ohio Railroad Company which should be disposed of pursuant to said dividend declaration be charged to defendant’s profit and loss account, and expressly found and declared that the accumulated unappropriated surplus profits of defendant exceeded the amount necessary to pay such dividend. While the complaint expressly alleges that the aggregate value of the assets of the defendant exceeds the aggregate amount of its outstanding capital stock and liabilities by the amount of the surplus or credit balance to its said profit and loss account,’ it is claimed that the stock of the Baltimore and Ohio Railroad Company and the funds from which the proposed dividend is to be paid constitutes a capital asset of the defendant and forms a part of the corpus of its property, and that plaintiff and the other holders of preferred stock are entitled to share pro rata with the holders of common stock in any distribution of capital assets or accretions of capital.”
The question before the court was whether the distribution of the Baltimore and Ohio stock was a distribution of profits or a distribution of capital, and it was held to be a distribution (even though unusual in amount) of accumulated gains or profits, which the directors of a going concern may at any time at their discretion divide among stockholders as income on their investment. The Court of Appeals said (p. 366): “ When a corporation is organized it secures capital by the issue of shares of capital stock. The fund or property thus secured answers the twofold purpose of furnishing means for carrying on the operations of the corporation and also security for the payment of creditors. This capital stock is carried as a liability and universally, so far as I am aware, at its par amount. It is thus carried as a liability because this is the proper bookkeeping entry. But aside from this, such entry also serves to emphasize the duty of the corporation to keep its capital stock unimpaired for the protection of those dealing with it. If the operations of the corporation *607result in gams, such gains are carried to the credit, not of the capital stock account but of some other account as surplus or profit and loss. Of course they may be capitalized by the issue of stock against them and sometimes in the cases of certain corporations like banks or insurance corporations where a certain ratio between assets and liabilities other than to capital stock is required, such surplus or profits may be counted and maintained as capital although not formally capitalized.
“ In the absence of some such special consideration I think we may take notice that it is the ordinary rule of corporate management established by decisions, statutes and business usages that the surplus of these gains or profits beyond what may be necessary to keep good the liability to capital stock which has been issued, may, in the discretion of a board of directors, be distributed amongst its stockholders as dividends and returns on their investment.”
Judge His cock also quoted with approval (at p. 372) from the opinion in Williams v. Western Union Telegraph Co. (93 N. Y. 162) wherein it was said (at p. 191): “ But if it can be conceived that this was a dividend of property within the meaning of the section of the Revised Statutes above set out, then what property did it divide? Not any portion of the capital of the company; that remained intact. After subtracting the dividend there remained to the company the full amount of its prior capital stock, to wit: Property to the value of $41,073,410. . Such is the finding of the trial court, and that cannot here be disputed. The company had made surplus earnings which it could have divided, but instead of dividing them it had invested them in property to facilitate and enlarge its business; and such property was found to be worth $15,526,590. That sum constituted its surplus. It was commingled with the other property of the company and used for corporate purposes. But it was not beyond the reach of the dividend-making power of the directors. They could reclaim it for division among the stockholders, and, if practicable, convert it into cash for that purpose. They could borrow money on the faith of it and divide that. They could issue to the stockholders certificates of indebtedness, redeemable in the future, representing their respective interests *608in such surplus, thus, in effect, borrowing the same of the stockholders. Desiring to use the surplus and add it to the permanent capital of the company, and having lawfully created shares of stock, they could issue to the stockholders such shares to represent their respective interests in such surplus.”
The referee’s findings herein, supported by the proof, established that the cash undistributed earnings of the Standard Oil Company (New Jersey) from January 1, 1899 (little over a month before testator’s death), to December 1, 1911, were $328,691,788.13, which sum exceeds by over $48,000,000 the value of the stocks distributed. The vouchers of the company and its books treat the distribution as one of “ reserve profits ” or “ accumulated profits.” The laws of the State of New Jersey prohibit the making of any dividends, except from surplus or from net profits arising from the business of the corporation unless its capital stock was reduced. (“An Act concerning corporations [Revision of 1896],” N. J. Laws of 1896, chap. 185, § 30, as amd. by N. J. Laws of 1904, chap. 143; 2 Comp. Stat. 1617, § 30.)
Treating the distribution of stocks as an extraordinary dividend, the rule applicable thereto is laid down in Matter of Osborne (209 N. Y. 450, 477): “2. Extraordinary dividends, payable from the accumulated earnings of the company, whether payable in cash or stock, belong to the life beneficiary, unless they entrench in whole or in part upon the capital of the trust fund as received from the testator or maker of the trust or invested in the stock, in which case such extraordinary dividends should be returned to the trust fund or apportioned between the trust fund and the life beneficiary in such a way as to preserve the integrity of the trust fund.”
The action of the Standard Oil Company (New Jersey) was the setting apart for distribution among the stockholders by valid resolution of its directors of a portion of the corporate assets made available through accumulated earnings and without impairing the capital stock of the corporation. It makes no difference with the rule to be applied whether the distribution is practically enforced or voluntarily made. (Hazzard v. Philips, 173 App. Div. 431.) In the present case the particular course followed in the 'distribution can hardly be called compulsory, as other courses were left open *609by the decision of the United States Supreme Court, even if they were less practicable. Nor was it necessary that the resolution of distribution should be called in terms a dividend. “ A division of profits without the formality of declaring a dividend is the equivalent of declaring a dividend.” (Hartley v. Pioneer Iron Works, 181 N. Y. 73.)
In the case at bar the original shares of the Standard Oil Company (New Jersey) stock owned by the testator and passing to his trustees were not reduced either in number or value by the distribution, nor was the capital of the trust fund as received from the testator entrenched upon, either in whole or in part. On the contrary, after this distribution of stocks the book value of the shares in the Standard Oil Company (New Jersey) was $281.72 per share, while on December 31, 1899, the book value of each share was only $202.32. I am, therefore, of opinion that the integrity of the trust fund having been in no way impaired by the distribution in question, the shares of stock so distributed by way of extraordinary dividend must be awarded to the life beneficiaries.
As the stocks distributed were the property of the life beneficiaries from the date of their receipt by the trustee, the life beneficiaries are, of course, also entitled to all subsequent dividends, distributions and subscription rights accruing upon shares, and no questions of apportionment arise in reference thereto.
I believe that the judgment appealed from should be modified so as to award to the life beneficiaries all shares received by the trustee upon the distribution by the Standard Oil Company (New Jersey) in December, 1911, and January, 1912, as well as all extraordinary dividends and subscription rights made or offered thereafter by any of the companies whose stocks were so distributed; and as so modified, the judgment should be affirmed, with costs to all parties who have appeared on this appeal, payable out of the trust fund.
Judgment modified as stated in opinion, and as modified affirmed, with costs to all parties appearing, payable out of the trust fund.

 6th Eng. ed.— [Rep.