
    In the Matter of the Judicial Settlement of the Account of George Leask and Others, as Trustees of the Trusts Created in and by the Last Will and Testament of Hudson Hoagland, Deceased. Laura Hoagland and Others, Appellants; George Leask and Others, as Trustees, Respondents.
    First Department,
    November 7,1913.
    Surrogate — decree as res adjudicata— corporation — stock dividend — trust —when stock dividend not capital — burden of proof.
    Although a surrogate has approved an account of trustees in which they credit a stock dividend as capital held for the benefit of remaindermen, upon the filing of a subsequent account in which another stock dividend is credited as capital, the former decree is not res adjudicata.
    
    Where, upon such an accounting, there is nothing to indicate from what source the surplus assets of the corporation represented by the stock dividend were derived, and nothing to rebut the presumption that such surplus represented an accumulation of earnings or profits, the stock dividend prima facie belongs to the life interests, and the burden is upon the trustees to prove the contrary before they can include such shares as capital.
    
      Appeal by Laura Hoagland and others from a decree of the Surrogate’s Court of the county of New York, entered in said Surrogate’s Court on the 4th day of March, 1912, judicially settling the account of the testamentary trustees herein.
    
      James Gillin, for the appellants Laura Hoagland and Mary E. McCarty.
    
      Henry W. Baird, for the appellant Charles F. Hoagland.
    
      Thomas S. Ormiston, for the appellant Mary F. Rose.
    
      J. Hampden Dougherty and William H. Hamilton, for the respondents.
   Hotchkiss, J.:

In December, 1906, the Pullman Company declared a stock dividend, in pursuance of which the trustees came into possession of certain shares of that company. Thereafter the trustees filed with the surrogate an account in which they credited as capital held for the benefit of remainder-men the shares so received. No objection was made to this account by any of the parties representing the life interests, and a decree was passed approving the account as filed. Thereafter, in March, 1910, the Pullman Company distributed among its stockholders a further stock dividend, in pursuance of which the trustees received additional shares. In their account, upon which the decree was made which gives rise to this appeal, the trustees credited these additional shares to the remainder-men, following the same course they had pursued with respect to the shares received in pursuance of the 1906 dividend. To this last account the appellants, representing various life interests, filed exceptions, by virtue of which they claim all of the shares received by the trustees from both of the aforesaid stock dividends. The issues were sent to a referee, who held that the stock resulting from both dividends should be treated as income belonging to the representatives of the life interests, and that the latter were not estopped by the decree on the former accounting, but were entitled to raise the question of the proper disposition of the shares received as the result of the 1906 dividend. The learned surrogate refused to confirm the report, holding (1) that the decree upon the former accounting was binding so far as it related to the 1906 dividend, and as to that dividend only; and (2) that the evidence with respect to the 1910 dividend was prima facie sufficient to justify a holding that such dividend was capital and that the burden lay upon the life interests to prove to the contrary, a burden which they had not sustained.

So far as the former accounting is concerned, there is no doubt that the learned surrogate was right. (Matter of Bannin, 142 App. Div. 436.) But we do not agree with his conclusions with respect to the 1910 dividend. Presumptively, all dividends, whether paid in cash or in stock, are income. (Walker v. Walker, 68 N. H. 407; Miller v. Payne, 150 Wis. 354; Soennlein v. Soennlein, 146 id. 330; Kalbach v. Clark, 133 Iowa, 215.) The only evidence with respect to the circumstances under which the dividend of .1910 was declared is the following statement appearing in one of the schedules attached to the account filed by the trustees:

“ On March 21, 1910, the stockholders of the Pullman Company adopted the following resolution:

“Whereas, the value of the assets of this Company exceeds the par value of the capital stock by more than Twenty Million Dollars ($20,000,000)

“Resolved, that for the purpose of representing in the capitalization of this Company existing surplus assets to the extent of Twenty Million Dollars ($20,000,000) the Capital Stock of the Company is hereby increased * * * and Resolved, that the Directors be authorized to distribute said Twenty Million Dollars ($20,000,000) Capital Stock pro rata, to stockholders of the Company,” etc.

There is nothing in this resolution to indicate from what source the surplus assets of the company, represented by the dividend, were derived, and nothing to rebut the presumption that such surplus represented an accumulation of earnings or profits. In this situation, the stock dividend prima facie belonged to the life interests (Lowry v. Farmers’ Loan & Trust Company, 172 N. Y. 137), and the burden was upon the trustees to prove to the contrary before they could properly include the shares in their account under the head of capital.

The decree appealed from should be modified so far as it sustained the objections to the referee’s report relating to the stock dividend of 1910, and the referee’s report as to such dividend confirmed. If, however, the executors desire to take testimony as to the source from which the assets representing such dividend were derived, a referee will be appointed for that purpose, and the entry of the final order reserved until the coming in of the report. As to the dividend of 1906, the decree should be affirmed, without costs to either party.

Ingraham, P. J., Lahghlin, Scott and Dowling, JJ., concurred.

Decree modified as directed in opinion, without costs. Order to be settled on notice.  