
    Mary Ann Gibbons vs. Jane Owen Mahon.
    Equity. No. 8,914
    Decided June 1, 1885.
    Justices Cox, James and Meebick sitting.
    A testatrix bequeathed two hundred and eighty shares of stock in a gaslight company in trust to pay the dividends -‘without diminution of principal,” to his daughter for life. , The company having from its earnings doubled its original plant, issued, after the death of the testatrix, additional shares of stock representing this increase in the capital; and these shares it divided among the stockholders in proportion to the original stock owned by them. The cestui que trust claimed' these additional shares absolutely on the ground that they represented the profits or earnings of the original shares and were in effect dividends. Held:
    
    1. A corporation has a right, within reasonable grounds and in good faith to reserve and apply the profits to the increase of the- plant, and the stockholders hold their stock subject to this right.
    2. That certificates of stock are simply the representative of the interest which the stockholder has in the capital of the corporation. Before the issue, therefore, of this new stock, the stockholder held precisely the same interest in the increased plant, and in the capital that he held afterwards. The new shares were but a new representation of that interest, and not an increase of it. A dividend is something with which the corporation parts, but they parted with nothing in issuing this stock but an evidence of an ownership already existing. Being, therefore, in no sense, dividends, the duty of the trustee was to hold them, together with the original shares, for the benefit of the remainderman, paying only the dividends upon the whole to the life legatee. •
    The Case is stated in the opinion.
    
      Riddle, Davis & Padgett for complainant:
    By the terms of Mrs. Smith's will, the defendant holds the original 280 shares “for the advantage and behoof" of the complainant, whom the will entitles to receive the dividends of those shares, as such dividends accrue during her lifetime.
    “ Dividends," as used in the will, is unqualified; it includes, in its technical sense, as well as in its ordinary and common acceptation, all distributions to corporators, of the profits of the corporation, whether such distributions are large or small; or whether made at long or short intervals ; and without any regard to the manner or place of their declaration or mode of payment. Clarkson vs. Clarkson, 18 Barb., 646, 657. Hooper vs. Rossitor, 1 McClel., 536.
    The new shares are in effect and in substance a stock dividend. Daland vs. Williams, 101 Mass., 574. Rand vs. Hubbell, 115 Mass., 461. Bailey vs. R. R. Co., 22 Wall., 635-6.
    And the tenant for life of stock is entitled to all dividends declared thereon during his life, irrespective of the time when they were earned, provided only that they do not impair the capital of the trust fund. Bates vs. MacKailey, 31 Beav., 280; Richardson vs. Richardson, 75 Me., 570; see Goodwin rs. Hardy, 57 Me., 143; Jermain vs. Lake Shore Co., 91 N. Y., 483; Paris vs. Paris, 10 Ves., 185.
    J. Hubley Ashton for defendant:
    The term “dividends” was evidently used in the will in its ordinary acceptation of moneys paid out of profits by a corporation to its shareholders.'
    The rule is that when a testator, uses a word which has a well known ordinary acceptation, it must appear very certain that he has said, on the face of the will, that he uses it in another sense, before the ordinary sense can be interfered with. Lord Cranworth in Hicks vs. Sollett, 3 De G. M. and Gor., 793.
    The term “dividend,” when applied to corporate stock, has a well understood signification, and imports only a division of money from what the corporation has determined to be income ; and that is the legal meaning as well as the popular acceptation of the term. Bradley, Ch. J., in Taft vs. R. R. Co. (8 R. I., 333), defines the term, thus:
    “ A dividend is money paid out of profit by a corporation to its shareholders.”
    And see Lockport vs. Van Alstyne, 31 Mich., 79 ; Hyatt vs. Allen, 56 N. Y., 550 ; Kings vs. R. R. Co., 29 N. J. L., 87.
    A stock dividend, as it is called, is, in fact, no dividend at all, and is merely a dilution of the shares as they existed before. Williams vs. Western Union Tel. Co., 93 N. Y., 162 ; Taylor on Priv. Corp., sec. 801.
    But whatever interpretation is placed on the term “ dividends,” as used in this will, and whatever it may he deemed to embrace, it is clear, under the provisions of the will, that it does not include any newly created shares awarded to the defendant upon an increase of the capital stock of the corporation.
    1. The 280 shares held by the testatrix at the time of her death are bequeathed to the defendant upon the trust, during the life of the plaintiff, to cause the “ dividends ” to he paid to her “ without percentage of commission or diminution of principal;” and it is directed that, after her death, the stock and income are to revert to the estate of defendant “without encumbrance or impeachment of waste.”
    This is not a gift of the stock to the plaintiff; as is well settled. Read vs. Head, 6 Allen, 177; Barrus vs. Kirkland, 8 Gray, 512; Atkins vs. Albree, 12 Allen, 361.
    The bequest to the plaintiff is of the “dividends” or “income ” only for life.
    The legal property in the shares and the interest they represent in the corporation, its property and franchise, is vested in the defendant by the will.
    It is only after a dividend has been made by the corporation from what it has determined to be income, that the plaintiff has any right or is in a position to claim anything.
    A testator who gives personal property in this manner is held to have the interest of the successive takers equally in view. Kinmouth vs. Brigham, 5 Allen, 270.
    This will plainly shows that the testatrix intended that the interest in the corporation bequeathed to the defendant should not be impaired during the life of the plaintiff; that no part of it should be diverted from the defendant; and that the whole should go intact to defendant absolutely after the death of the plaintiff.
    2. It is demonstrably clear, under the will, as thus analyzed, that all new shares awarded to defendant on an increase of the capital stock, in whatever manner or with whatever intent such shares may have been issued, constitute an integral part of the capital bequeathed to her in trust and belong to her absolutely on the death of plaintiff.
    The existing shares of the capital stock of a corporation represent all its capital; and within the designation of the capital of a corporation is- embraced not only its capital stock, but all its property, real and personal, constituting the assets of the corporation, including (as said by the Supreme Court of Massachusetts) “ money earned by the corporation, unless and until distributed among the stockholders by the corporation.” Gifford vs. Thompson, 115 Mass., 478 ; New Haven vs. City Bank, 32 Conn., 106; Morawetz, Priv. Corp., sec. 348.
    The capital of a corporation thus includes its capital stock, while the capital stock embraces only indirectly the capital.
    The capital of a corporation thus defined is its property, but each shareholder has a vested interest in that capital in the proportion of the shares held by him to the whole number of the outstanding shares of the capital stock of the corporation. Lowell, Transfer of Stock, sec. 4.
    That interest, as the Supreme Court has often said, is a distinct and independent interest held by the shareholder, and in his property, and the certificate of stock is the muniment of his title and the evidence of his right. Van Allen vs. Assessors, 3 Wall., 573; Farrington vs. Tennessee, 95 U. S., 686; Kent vs. Mining Co., 78 N. Y., 159; Weatherby vs. Baker, 35 N. J. Eq., 505.
    
      If, therefore, the capital stock is increased by the proper authorities, the right to take the additional shares vests in the shareholders pro rata; and when new stock is issued to share equally with the existing stock, it is the right of each shareholder that it shall be so distributed as not to divest him of his vested proportionate right in the corporate property, including the accumulated profits.
    This doctrine, first declared in Gray vs. Portland Bank, 3 Mass., 364, may now be regarded as settled in the law of private corporations. Eidman vs. Bowman, 58 Ill., 444; State vs. Smith, 48 Vt., 266; Dousman vs. Wisconsin, etc., M’f'g Co., 40 Wis., 418.
    This right of the shareholders, in respect to new shares issued on an increase of the capital stock of a corporation, is a benefit or interest which attaches to the old stock, not as profit or income, but as inherent in the shares in their very creation. It is an original incident or attribute appertaining to each share — a right to a larger participation or ownership in the capacity of the corporation to earn profits, and not the gain or income itself actually earned by the corporation. Gray vs. Portland Bank, 3 Mass., 364; Atkins vs. Albree, 12 Allen, 361.
    It follows from these principles that, by the bequest of the legal property in the original shares, the defendant became vested with the legal right to receive, and hold, under the will, as part of the corpus of the trust property, a proportionate number of any new shares distributed by the company among the stockholders.
    That right was an interest or benefit which appertained to the old shares in their original creation, and passed to the defendant by the bequest of those shares, and can no more be diverted from her than any portion of the 280 shares named in the will.
    It is obvious that the new shares must be added to the old in the hands of the defendant as capital, in order to execute the intention of the testatrix, as above indicated in regard to the interest held by her in the corporation at the time of her death.
    
      Where new stock is created and the number of shares increased, each share becomes a less proportion of the whole stock than it was before, so that the original shares represent a smaller fractional interest in the corporation, its franchises and property, than they did before the increase of the capital stock. Leland vs. Hayden, 102 Mass., 542.
    It is necessary, therefore, that the new shares be added to the old in the hands of defendant as capital, in order that she may retain the same proportionate interest in the whole, corporation that she previously held, and that the interest bequeathed by the will may be preserved for the benefit of defendant, as legatee in remainder, after the decease of the plaintiff, in conformity with the intention of the testatrix.
   Mr. Justice James

delivered the opinion of the court.

This was a hill filed to obtain the construction of a will. The case was heard on bill and answer. It appears that the late Ann W. Smith, of this District, left by her will, among other things, 280 shares of the stock of the Washington Gaslight Company to Jane Owen Mahon in trust for the complainant. The paragraph of the will referred to is as follows:.

“I hereby give, devise and bequeath to my daughter Jane Owen Mahon, wife of David W. Mahon, of the city of Washington'aforesaid, and to her heirs and assigns, two hundred and eighty shares of stock of the Washington Gaslight Company [and some other things] in trust for the advantage and behoof of my said daughter Mary Ann Gibbons ; and that after my decease the said Jane Owen Ma-hon, her heirs and assigns, shall cause the dividends of said stock and the interest of said bonds, as they accrue, to be paid to my said daughter Mary Ann Gibbons, during her lifetime, without percentage of commission or diminution of principal. And in case ot the death of the said Mary Ann Gibbons, then the said stock, bonds and income, shall revert to the estate of my said daughter, Jane Owen Mahon, without encumbrance or impeachment of waste.”

The answer shows that the accumulated profits of the gas company were, from time to time, expended in. extending the plants of their works, and that in the meantime dividends were declared and paid, and that the latter were regularly paid over to the cestui que trust by the defendant.

After the plant had accumulated so that it was double its original; value, Congress, by the act of May 24, 1866, increased the capital stock of the gaslight company to one million dollars, for which the company was authorized, of course, to issue stock. Two hundred and eighty additional shares were issued to this trustee, and upon the whole, the original and the new two hundred and eighty shares, she continued for some years to pay the dividends to the cestui que trust. But now the cestui que trust claims that these two hundred and eighty shares should be transferred to her on the ground that, as they represent profits earned and declared by the company, they really belonged to her under the terms of the will.

As a proposition of law, a corporation has a right, within reasonable grounds and in good faith, to reserve and apply its profits to the increase of the plant, and the stockholders hold their stock subject to this right. The company is the legal owner of the whole plant and of the capital, in trust, of course, for the stockholders; but the stockholder is entitled to the profits only when the company, acting in good faith and reasonably, shall divide them; but not until then.

These earnings, then, went into the plant and were not divided. The company lawfully reserved them. When, under this act of Congress, it came to issue new stock, the stock was in ro sense a dividend. Certificates of stock are simply the representative of the interest which the stockholder has in the capital of the corporation. Before the issue of these two hundred and eighty new shares this trustee held precisely the same interest in this increased plant in the capital of the corporation that she held afterwards. She merely had a new representative of an interest that she already owned, and which was not increased by the issue of the new shares. A dividend is something with which the corporation parts. But they parted with nothing in issuing this new stock. They simply gave a new evidence of ownership which already existed. They were not in any sense, therefore, dividends for which this trustee had to account to the cestui que trust. She stood after the issue of the new shares just as she had stood before, and the trustee was obliged to treat them just as she did, namely, as a part of the original, and to pay the dividends to the cestui que trust.

It is hardly worth while to dwell upon any other proposition. We are of opinion that these new shares were simr ply representative of the interest that the trustee already had in the corpus. They were not, in any sense, a dividend. They came into her hands in trust just as the old shares came into her hands; and, as we have said, are, in fact, but an additional representative of a corpus, which, before this issue, was represented by the original shares of stock. The life legatee is entitled to receive, therefore, only the dividends declared on all of these five hundred and sixty shares. The corpus itself is held by the trustee for the ben ©fit of the remainderman.  