dividends to the remainderman.80 This is often called the Massachusetts rule. "A trustee needs some plain principle to guide him," so the court in the Minot case declared, as if a clear pathway for him was of more importance than a just division between life tenant and remainderman.81

Secondly. There followed the discovery that earnings were sometimes divided in the form of stock, possibly to favor the remainderman. So the rule in some jurisdictions has been modified and all dividends declared out of earnings, whether in cash or stock, go to the life tenant, while the division of other property or its proceeds goes to the remainderman.8 This rule has regard for the substance rather than the form of things.88 When all the earnings thus divided have accumulated since the testator's death, the rule is just and reasonable.

82

Third. In determining the character of a dividend, whether it is a real division of earnings or not, some courts hold that the action of directors is conclusive,84 while others sternly oppose such a position.85 The highest federal tribunal has declared that the decision of directors concerning the nature of a dividend is to be accepted by the courts as final, therefore if

80 Minot v. Paine, 99 Mass. 101; Read v. Head, 6 Allen (Mass.) 174; Richardson v. Richardson, 75 Me. 570 and cases cited; Millen v. Guerrard, 67 Ga. 284; Gibbons v. Mahon, 136 U. S. 549; Smith v. Dana, 77 Conn. 543; Boardman v. Boardman, 78 Conn. 451.

81 In Gilkey v. Paine, 80 Me. 319, 325, the courts say that the “rule supposed to have been established in Minot v. Paine, 99 Mass. 101, has proved to be a very elastic rule in the state of its origin; for in Leland v. Hayden, 102 Mass. 542, while professing to adhere to it, the court did in fact treat a cash dividend as capital, and a stock dividend as income."

82 Hite v. Hite, 93 Ky. 257; McLouth v. Hunt, 154 N. Y. 179, affg. 92 Hun 607; Pritchitt v. Nashville Trust Co., 96 Tenn. 472; Moss's Appeal, 83 Pa. 264. One who is entitled to the net annual income "of stock can rightfully claim all dividends and bonuses distributed among stockholders." Gilkey v. Paine, 80 Me. 319. See 33 Alb. L. J. No. 22, p. 424; Ibid, No. 6, p. 106; 19 Am. L. Rev. 737 and 20 Am. L. Rev. 746.

83 Moss's Appeal, 83 Pa. 264, 269.

84 Rand v. Hubbell, 115 Mass. 461, 474; Gibbons v. Mahon, 136 U. S. 549.

85 McLouth v. Hunt, 154 N. Y. 179, affg. 92 Hun 607; Pritchitt v. Nashville Trust Co., 96 Tenn. 472.

a stock dividend is declared it should go to the remainderman, while a cash dividend should be paid to the life tenant. The highest federal court is unable to escape from the chain of reasoning forged by the Supreme Court of Massachusetts. "Even granting that directors may act in good faith, on reasons perfectly sound to themselves, they may despoil the life tenant and unduly add to the wealth of the remainderman." The court maintains that "reserved and accumulated earnings, so long as they are held and invested by the corporation, being part of its corporate property, it follows that the interest therein, represented by each share is capital, and not income, as between the tenant for life and the remainderman." If this reasoning be correct, then a stock dividend is not a dividend, no division is effected, but simply a transformation of surplus or earnings into capital. But this transformation by the directors, we contend, ought not, as between the life tenant and remainderman, to change the earnings into anything else; and the courts have a clear duty to perform in conserving the interests of both, and in preventing directors from intentionally or otherwise perverting the interests of both parties.86

Justice Gray's contention was a reiteration of a former opinion delivered as Chief Justice of the Supreme Court of Massachusetts. In this he sought to strengthen his position by declaring that "the English judges, though varying in opinion upon the effect of particular votes declaring extraordinary dividends, have all agreed that the determination of each case must turn upon the legal construction of the vote of the corporation."87 Other courts have seen with greater clearness

86 In McLouth v. Hunt, 154 N. Y. 179, 197, the court said: "That a testamentary provision of this character, for the benefit of both the life tenant and the remainderman ... can in this way be voted up or down, increased or diminished as the corporation may elect, and that such action precludes the courts from looking into the real nature and substance of the transaction and adjusting the rights of the parties according to justice and equity, is a proposition that cannot be accepted. The mere adoption by the corporation of a resolution cannot change accumulated earnings into capital, as between the life tenant and remainderman."

87 Rand v. Hubbell, 115 Mass. 461, 474. By will a trust fund was

that an actual accumulation of profits is what it purports to be, that a board of directors cannot by any resolutions or declarations or use of the money divest it of its real character, and that any attempt to do so should be prevented by proper legal action.

Fourthly. In many cases unusual or extraordinary dividends declared are composed in part at least of the profits or property existing at the time of the testator's death. In such cases the portion earned or existing before his death goes to the remainderman, and the other portion to the life tenant.88 This rule, first established in Earp's Appeal,89 is expanding, though opposed in some jurisdictions.90 In one of the latest decisions it was declared that dividends must be regarded in their entirety at the time they are declared, and the life tenant takes the whole, though a portion may have been earned before the testator's death, because it may not be practicable to divide them. It is true that so long as directors act in good faith in making accumu

created, the income of which was to go to A, and on her death the corpus to B, the remainderman. The fund consisted of stock in two banks, which afterward absorbed the stock of two other banks, and during the process two extra dividends were declared. The funds used in their payment could not be traced to their source, but the stock of each bank was worth more than before. It was held that the dividends were income and therefore went to the life tenant. "Having been paid out of surplus, the presumption is that they were paid out of profits." Boardman v. Boardman, 78 Conn. 451, 457.

88 Van Doren v. Olden, 19 N. J. Eq. 176; Lang v. Lang, 56 N. J. Eq. 603; Estate of Smith, 140 Pa. 344; Earp's Appeal, 28 Pa. 368; Moss's Appeal, 83 Pa. 264; Biddle's Appeal, 99 Pa. 278; McKeen's Appeal, 42 Pa. 479; Vinton's Appeal, 90 Pa. 434; Phila. Trust Co.'s Appeal, 24 Pa. Week. Notes 137; Oliver's Estate, 136 Pa. 43; Wiltbank's Appeal, 64 Pa. 256; Pritchitt v. Nashville Trust Co., 96 Tenn. 472; Thomas v. Gregg, 78 Md. 545, containing a good review of cases; Lord v. Brooks, 52 N. H. 72; Cobb v. Fant, 36 S. C. 1. See note 16 L. R. A. 461.

Contra-Brander v. Brander, 4 Ves. (Eng.) 800; Paris v. Paris, 10 Ves. 185.

89 28 Pa. 368.

90 Hite v. Hite, 93 Ky. 257. Money earned by a corporation during a stockholder's lifetime, but not distributed as dividends until after his death, is income and goes to the life tenant and not to the remainderman. DeKoven v. Alsop, 205 Ill. 309.

lations the court may not listen to the complaint of a life tenant who desires a division; but when a dividend has been declared, whether in cash or stock, it would not be difficult for a court in many cases to determine whether it had been declared out of earnings or other property; and, if out of earnings, what portion had accumulated since the testator's death. And whenever the truth can be ascertained, then the above rule ought to be applied. In other words, the simpler Massachusetts rule ought to be applied only when it is very difficult or impossible to find out the truth.

41. Stock Can be Taken for Owner's Debts.

As a share of stock is in the nature of a chose in action, at common law it could not be taken by a levy of execution. By statute, it can be taken perhaps in every state to satisfy the debt of a creditor of the owner.91 Furthermore, if a certificate has been issued therefor to the subscriber or purchaser, in the larger number of states, by common law and statute, he can hold the stock, as we have seen against an attaching creditor of the vendor.9 92

91 Blair v. Compton, 33 Mich. 414; Slaymaker v. Bank, 10 Pa. 373; Foster v. Potter, 37 Mo. 525; Howe v. Starkweather, 17 Mass. 240; Nabring v. Bank, 58 Ala. 204; Denton v. Livingston, 9 Johns. (N. Y.) 96; Nashville Bank v. Ragsdale, Beck (Tenn.) 296; Princeton Bank v. Crozer, 22 N. J. Law 383, 385; Morgan v. Thames Bank, 14 Conn. 99; Stamford Bank, v. Ferris, 17 Conn. 259; Ball v. Towle Mfg. Co., 67 Ohio St. 306. See $15.

92 See $15 and Chap. XXVIII. §2.