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exchange for its old ones, these new shares are not regarded as income, but go to the remainder-man.1 The life-tenant in such a case is not entitled to so much as represents the surplus earnings between the death of the testator and the offer of the new stock, but only to the dividends so long as they are duly declared.

§ 2220. Cash Dividend Declared Out of Capital Goes to Remainder-man.—But this rule is, by reason of the principle on which it rests, limited to dividends of profits or earnings merely. It is entirely consistent with the governing principle to hold that if a cash dividend is declared from a sale of the franchises and permanent property of the corporation, it will be regarded as capital and will go to the remainder-man, notwithstanding the form in which it was declared. An inaccurate and partial application of the same principle, and one in accordance with the Massachusetts theory, already considered, of considering the form of the dividend merely, has resulted in the holding that, when a corporation dissolves and winds up its affairs, and makes to its stockholders a dividend in cash, arising from all its assets, consisting in part of undivided earnings, the entire amount divided will be capital and not income. Here, the governing principle to which the author appeals would require so much of the dividend as consisted of undivided earnings, to go to the life-tenant.*

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§ 2221. Dividend from Expropriation of Real Estate of Corporation. It has been ruled that where the property of a corporation consists wholly of real estate and a part of it is taken under the right of eminent domain, and the compensation paid to the corporation therefor is by it distributed as a cash dividend to its shareholders, such a dividend belongs to the capital, and not to the income of a trust fund invested in the

1 Greene v. Smith, 17 R. I. 28.

2 Moss's Appeal, 83 Pa. St. 264; s. c. 24 Am. Rep. 164; Vinton's Appeal, 99 Pa. St. 434; s. c. 44 Am. Rep. 116. 3 Gifford v. Thompson, 115 Mass. 478.

4 Stock dividends arising from the sale of a part of the assets of a corporation, being capital, and not income, belong to the remainder-man, and not to the life-tenant. Re Curtis (Surr, Ct.), 29 N. Y. State Rep. 217.

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This decision is a flat denial of the doctrine laid down by the same court, in an opinion written by the same judge,2 in the leading case on the subject, where the court said: “The simple rule is to regard cash dividends, however large, as income; and stock dividends, however made, as capital." It also illustrates the gross injustice of the Massachusetts rule. In the case under consideration, a wharf company had a wharf, dock and warehouse, from which it derived an income. The city of Boston took a part of this real estate in laying out a new street, and paid it $185,000 therefor, of which the company divided $75,000 in cash among its stockholders, and $4,350 of this went to a shareholder who was trustee in a will creating such a trust as we are considering. It was held that only the profit or interest acccuing from re-investment by the trustee of the dividend so received could go to the life-tenant. But under the ruling in the leading case above quoted that "a stock dividend however made is capital," if, instead of acquiring this $75,000 from an expropriation of some of its real estate, it had accrued to the company from the earnings of the preceding six months, and the company had held it in its treasury and had elected, instead of dividing it, to issue a stock dividend in respect of it, this dividend would also have been capital to go to the remainderThis case shows that the Massachusetts court does not allow the question to be determined by the vote of the corporation, as it professes to do, but does go behind the form in which the dividend is declared, and does inquire whether it was in fact declared out of earnings or out of capital. But it seems to do this for the benefit of the remainder-man only not for the protection of the life-tenant.

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§ 2222. The Massachusetts Doctrine Criticised. — The Massachusetts doctrine seems to be a rule of mere convenience, and not a rule of justice. It loses sight of the real question under consideration, what is capital of the estate disposed of by the will, and not what is capital of the corporation; and it goes entirely beyond tenable ground where it allows this ques

1 Heard v. Eldredge, 109 Mass. 258; 8. c. 12 Am. Rep. 687.

3 Minot v. Paine, 99 Mass. 101; s. c. 96 Am. Dec. 705.

2 Chapman, C. J.

tion to be determined, not by the judicial courts upon a view of the real substance of the case, but by a board of directors, that is, by a committee of persons entirely foreign to the will, in passing a resolution declaring a dividend. A testator disposes of his estate upon a trust that the income shall go to his widow, and the capital to his children. The estate is invested in the shares of a railway company. The railway company, instead of declaring cash dividends, declares stock dividends; and thus, by the mere will of its board of directors exerted to serve the interest of the corporation which they represent, and having no reference whatever to the carrying out of the trust of the will of the decedent, both the corpus and its income are saved for the children, while the widow is allowed to starve. It has been also pointed out that the Massachusetts court have found it impossible to carry out the rule which they first declared, which left the matter to be determined by the substance and intent of corporate action. They have been obliged to hold that a cash dividend made from the expropriation of a portion of the company's property is capital and must go to the remainder-man, although the dividend was declared while the company was a going concern, thus making the question depend on the source from whence the dividend was derived; but they have steadily refused to apply the same principle where the dividend consisted of new shares which merely represented income earned but not divided in cash.2

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§ 2223. Rule Under Georgia Code.—The code of Georgia enacts that "the natural increase of the property belongs to the tenant for life. Any extraordinary accumulation of the corpus, such as an issue of new stock upon the share of an incorporated or joint-stock company, attaches to the corpus and goes with it to the remainderman. The application of this statute to the provisions of a will illustrates in an apt degree the inconvenience of the legislature attempting to interpret wills by the enactment of a statute. It was held that dividends of the capital stock of a railway company amounting in one case to $40.00 per share and in another to $32.00 per share, went to the life-tenant and not to the remainder-man. Such dividends were

1 Ante, § 2221.

2 Ante, § 2216, et seq.

3 Code of Georgia, ed. of 1873, § 2256.

the

natural increase," and not "the extraordinary accumulation of

the corpus," within the meaning of the above statute.1

ARTICLE VI. REMEDIES TO COMPEL PAYMent of DeclarED DIVIDENDS.

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§ 2227. Stockholder Cannot Sue for a Dividend until Declared. From what has preceded, it follows that, except in the case of preferential or guaranteed stock, a stockholder can not sue the corporation for his share of accumulated profits until a dividend has been declared a matter within the discretion of the directors, and which the courts will not in general control.1

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§ 2228. But May when Dividend has been Declared. But when a dividend has been declared it becomes a debt due from the corporation 5 to each stockholder in proportion to the number of his shares, and he may sue and recover the same at law. The resolution declaring the dividend is a written admission on the part of the corporation of an indebtedness to each particular stockholder, payable in the legal currency of the country, unless otherwise specified in the resolution. It follows that it will be no defense to such an action to show that the earnings of the corporation were received in property other than legal currency.8 Nor can the corporation set up as a defense to such an action that

1 Miller v. Guerrard, 67 Ga. 284; s. c. 44 Am. Rep. 720.

2 Ante, § 2127.

Post, § 2289, et seq.

4 Beveridge v. New York El. R. Co., 112 N. Y. 1; s. c. 19 N. E. Rep. 489. Wheeler v. Northwestern Sleigh

Co., 39 Fed. Rep. 347.

6 Keppel v. Petersburg R. Co., Chase Dec. (U. S.) 167; Beers v. Bridgeport Spring Co., 42 Conn. 17.

Scott v. Central &c. R. Co., 52 Barb. (N. Y.) 45; Ehle v. Chittenango Bank, 24 N. Y. 548.

8 Ibid.

it has been compelled to part with its surplus funds in the payment of an illegal tax under duress of a threatened levy.1

§ 2229. Limitation of Such Actions. -Dividends declared on the capital stock of a corporation and payable on demand are not subject to the running of prescription or limitation until there has been a demand and refusal.2 The reason is that, though the declaration of a dividend creates a debt of the corporation in favor of the stockholder, it is a debt payable only on demand, and has been compared to the obligation of a bank to its depositors. Other cases rest their holdings upon the trust relation which exists between the company and its stockholders, which, in effect, amounts to the same thing; for there must be an initial point at which the possession of the company becomes one animo domini.

§ 2230. Remedy in Equity to Recover Dividend. Where a dividend has been declared, and the corporation afterwards attempts to re-appropriate it and refuses to pay it, it has been held that dissenting shareholders may invoke the aid of a court of equity to compel its payment. This holding proceeds on the principle, hereafter considered, that the directors of the corporation are trustees in theory of equity for the benefit of all the shareholders, and that if they act in disregard of the rights of a minority, equity will protect them.5 In the case first cited the directors had declared a dividend of seventy per cent. to be credited to the stockholders pro rata and to

1 Kimball v. Corn Exchange Nat. Bank, 1 Ill. App. 209.

2 Armant v. New Orleans &c. R. Co., 41 L. A. An. 1020; s. c. 7 So. Rep. 35; St. Romes v. Levee Steam Cotton Press, 20 La. An. 381; Philadelphia &c. R. Co. v. Cowell, 28 Pa. St. 329, 339; s. c. 70 Am. Dec. 128; State v. Baltimore &c. R. Co., 6 Gill (Md.), 363, 387; Bank of Louisville v. Gray, 84 Ky. 565; s. c. 2 S. W. Rep. 168. See also Keppel v. Petersburg R. Co., Chase Dec. (U. S.) 167, 213, where it

is held that dividends being payable only on demand, interest can only be allowed from that date.

8 Armant v. New Orleans &c. R. Co., 41 La. An. 1020; s. c. 7 So. Rep. 35. See also Brown v. Pike, 34 La. An. 576; post, § 2232.

4 Bank of Louisville v. Gray, 84 Ky. 565: s. c. 2 S. W. Rep. 168.

5 Beers v. Bridgeport Spring Co., 42 Conn. 17; Gordon v. Richmond &c. R. Co., 81 Va. 621.

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