Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/807

 CHAP. XV.] LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 801. tributed in the form of a cash dividend is sometimes principal ; * and in New York, stock dividends declared out of earnings are held to be income. 2 It has also been held where a testator directed the income of shares to be paid to one person for life, remainder to other parties, that dividends declared in the form of certificates of indebtedness go to the life-tenant, although they may consist in part of profits accumulated before the testator's death. 3 But where it is resolved to increase the corporate stock, and the right of shareholders to subscribe is valuable, and is sold, the proceeds are principal of which the interest only goes to the life-tenant. 4 § 801. In regard to this somewhat confusing matter of the rights of life tenant and remainder-man in stock dividends, the following suggestions are hazarded. Usually to speak of a "stock dividend" involves in reality a contradiction in terms. A dividend is a distribution of profits. But when a corporation has accumulated profits, and declares a "stock dividend," just what the corporation does not do is to declare a dividend. A "stock dividend" is no dividend, no real dis- tribution, either of profits or capital ; but merely an increase 1 Heard v. Eldredge, supra. 2 McLouth v. Hunt, 154 N. Y. 179; Lowry v. Farmers* L. & T. Co., 56 App. Div. 408; Chester v. Buffalo M'f'g Co., 70 App. Div. 443. Ace. Hite v. Hite, 93 Ky. 257; Thomas v. Gregg, 78 Md. 545; Pritchitt v. Trust Co., 96 Tenn. 472. 3 Milieu v. Guerrard, 67 Ga. 284. The English rule is as follows : "When a testator or settler directs or permits the subject of his dispo- sition to remain as shares or stocks in a company which has the power either of distributing its profits as dividend, or of converting them into capital, and the company validly ex- ercises this power, such exercise of its power is binding on all persons interested under the testator or set- tler in the shares, and consequently what is paid by the company as div- idend goes to the tenant for life, and what is paid by the company to the shareholder as capital, or appro- priated as an increase of the capital stock in the concern, enures to the benefit of all who are interested in the capital." Bouch v. Sproule, 12 App. Cas. 385, 397; language of Jus- tice Fry quoted above and elsewhere. See, also, Sugden v. Alsbury, 45 Ch. D. 237; Ellis v. Barfield, 60 L. J. Ch. 488; Hooper v. Rossiter, 1 McClel. 527 ; Barclay v. Wainwright, 14 Vesey, 66 ; Price v. Anderson, 15 Simons, 473; Preston v. Melville, 16 Simons, 163; Johnson v. Johnson, 15 Jur. 714. 4 Atkins v. Albee, 12 Allen, 359 ; BiddhVs Appeal, 99 Pa. St. 278; Brin- ley v. Grou, 50 Conn. 66; Green v. Smith, 17 R. I. 28; Hite v. Hite, 93 Ky. 257; Eisner's Appeal, 175 Pa. St. 143. 787