It is said that in Great Britain it is well settled that where a corporation, whether authorized or unauthorized by law to in crease its capital stock,' accumulates and invests part of its earnings, and afterwards apportions them among its shareholders as capital, the amount so apportioned must be deemed an accretion to the capital of each share, the income of which only is payable to a tenant for life; Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057, 34 L. Ed. 525.
Where a company, by a majority of the votes, has decided not to divide the money, but to turn it all into capital, it must be held capital from that time; L. R. 29 Ch. Div. 635; L. R. 12 App. Cas. 385. The same principle was established in Massachu setts before the last cited English case had come before the courts of England; Atkins v. Albree, 12 Allen (Mass.) 359; Minot v. Paine, 99 Mass. 101, 96 Am. Dec. 705; De land v. Williams, 101 Mass. 571; Leland v. Hayden, 102 Mass. 542 ; Rand v. Hubbell, 115 Mass. 461, 15 Am. Rep. 121. And in Connecticut, Rhode Island and Maine a divi dend of new shares representing accumulat ed earnings is held to be capital and not in come; Brinley v. Grou, 50 Conn. 66, 47 Am. Rep. 618; Boardman v. Mansfield, 79 Conn. 634, 66 Atl. 169, 12 L. R. A. (N. S.) 793, 118 Am. St. Rep. 178; ,In re Brown, 14 R. I. 371, 51 Am. Rep. 397; Richardson v. Richard son, 75 Me. 570, 46 Am. Rep. 428. A stock dividend is held not to distribute property ; Kalbach v. Clark, 133 Ia. 215, 110 N. W. 599, 12 L. R. 4, (N. S.) 801, .12 Ann. Cas. 647; but simply dilutes the shares as they ekisted before; Williams v. Telegraph Co., 93 N. Y. 189. In In re Kernochan, 104 N. Y. 618, 11 N. E. 149, the court applied the same rules as between the remainderman and the person entitled for life to the in come of shares bequeathed in trust, reject ed the test of determining what part of a cash dividend should be deemed principal and what part income, by ascertaining how much was earned before and how much aft er the death of the testator, approved the English doctrine above cited, and said that from the shares in question ,no income could accrue, no profit arise to the holder until declared by the company, and that act should be deemed to have been in the mind of the testator, and not the earnings or profits as ascertained by a third person, or a court upon an investigation of the business of the company.
Where the votes of the corporation left the stockholders at liberty to take the cash dividend or to take new stock and treat the dividend as payment for it, it cannot be said to be a stock dividend ; Davis v. Jack son, 152 Mass. 58, 25 N. E. 21, 23 Am. St. Rep. 801. In Lord v. Brooks, 52 N. H. 72, it was held that the surplus earnings of a corporation that were not divided at the date of a trust deed belonged to the corpus of the trust as a part of the capital of the trust fund, and that dividends declared out of surplus earnings accrued since the date of the trust deed were income for the life tenant.
Stock which a corporation has acquired from its stockholder in payment, of a debt, and which it distributes among its remain ing stockholders as surplus earnings, goes to the life tenant, and not to the remainder man ; Green v. Bissell, 79 Conn. 547, 65 Atl. 1056, 8 L. R. A. (N. S.) 1011, 118 Am. St. Rep. 156, 9 Ann. Cas. 287.
In Holbrook v. Holbrook, 74 N. H. 201, 66 Atl. 124, 12 L. R. A. (N. S.) 768, it is said the method to be pursued is to inquire into the actual nature and source of the dividend. If it is found to represent surplus earnings accrued since the creation of the trust, it is income and goes to the life tenant. If it is found to represent earnings accrued prior to the creation of the trust, it is capital and goes to the corpus of the trust. And if It is found in whole or in part to represent the increase in value of the corporate plant and business, whether it took place before or after the .trust was created, it is also to that extent capital, citing Jones v. Railroad, 67 N. H. 234, 30 Atl. 614, 68 Am. St. Rep. 650; Van Blarcom v. Dager, 31 N. J. Eq. 783 ; Hite's Devisees v. Hite's Ex'r, 93 Ky. 257,