Mr. Justice Paxson
delivered the opinion of the court, January 22d 1877.
Henry Lazarus, by his will, devised “ the income, profits and products” of his estate to his wife for life, and after her death (after the payment of certain legacies) he devised all of his estate to residuary legatees, among whom are the appellants. At the time of his death in 1868, he was the owner of one hundred shares of the capital stock of the Pennsylvania Company for Insurance on Lives and Granting Annuities. The stock of said corporation consisted of ten thousand shares of $100 each, amounting to $1,000,000. The executors did not sell this stock, but retained it in their hands as a pa.rt of the residuary estate. An Act of Assembly was passed in 1872, authorizing said company to increase its capital stock by the [268]*268issue of new stock not exceeding $1,000,000. In March 1873, the company accepted this act, and proceeded to issue ten thousand shares of $100 each, thus doubling the original capital. To each of the old stockholders was given the privilege of subscribing and paying for as many shares of the new stock as he or she held of the old. The estate of Henry Lazarus thus became entitled to subscribe for one hundred shares of the new stock. At that time the old stock was worth, in the market, $240 per share, which valuation was based upon actual cash assets in the hands of the company, there being an admitted surplus of $1,400,000 over and above the $1,000,000 originally paid in. In May and June 1873 the market price or option to subscribe for shares was $66 each. The executors of Henry Lazarus having no funds on hand to subscribe for the one hundred new shares to which his estate was entitled, sold the option or right to subscribe for sixty of them for $66¿ each, realizing' the sum of $4000 therefrom, and with this money they subscribed and paid for the remainder, to wit, forty shares. Mary Lazarus, the widow, claims these forty shares as income. The residuary legatees claim them as a portion of the corpus of the estate devised to them. The Orphans’ Court, under the authority of Earp’s Appeal, 4 Casey 368, and Wiltbank’s Appeal, 14 P. F. Smith 256, awarded thirty-three of said shares to the widow as income or profits. Erom this decision both parties entered an appeal to this court; the widow alleging that she was entitled to the whole of the forty shares; the remaindermen alleging that she was not entitled to any of them. Whether she is- entitled to the whole or any portion of the forty shares is the sole question presented by this record.
We are in no doubt about the law. That can be ascertained with mathematical precision. The difficulty is in applying the principles of law, however well settled, to the facts of a particular case. Herein we think the learned judge of the Orphans’ Court fell into error. This case differs widely from either Earp’s Appeal or Wiltbank’s Appeal. In Earp’s Appeal, the testator at the time of his death in 1848, held five hundred and eighty shares of the stock of the Lehigh Crane Iron Works, of the value of $125 per share. This stock formed a part of the residuary estate of the testator, and was bequeathed to his executors in trust.to pay the income thereof to his four children during life, with remainder over. For several years after the death of the testator the company had made large profits. Upon the first day of July 1854, the actual surplus earnings of the company, as ascertained by the report of the master, amounted to the sum of $714,542.15. On the 10th of July 1854, under authority of an amendment to its charter, the company proceeded to make distribution of a portion of this accumulated profit, by increasing its capital stock from $200,000 to $500,000. This increase was represented by six thousand new shares at $50 each, apportioned among the then stockholders, and paid for entirely out of the sur[269]*269plus earnings or profits of the company. The five hundred and forty shares held by the estate of Robert Earp, received eight hundred and ten of the additional shares, making altogether one thousand three hundred and fifty shares. The contention was whether the eight hundred and ten shares should be regarded as principal, and as such remain in the hands of the executors, or whether they should be regarded as income, and go to the life-tenant. After the increase of stock the shares fell from $125 to $80 per share. The decree of the court below, affirmed by this court, awarded a portion of the new shares to the life-tenant as income. But an examination of the decree shows that the court was careful to award to the executors enough of the new stock to make up the deficiency in value of the original five hundred and forty shares caused by the issue of the new, thus preserving the integrity of the capital to the remaindermen.
This case was exceptional in its character. As a general rule, nothing earned by a corporation can be regarded as profits, until it shall have been declared to be so by the corporation itself, acting by its board of managers. The fact that a dollar has been earned gives no stockholder the right to claim it until the corporation decides to distribute it as profit. The wisdom of such distribution must of necessity rest with the corporation itself. From motives of prudence and self-interest it is frequently desirable to add all or a portion of the earnings to the capital. This is sometimes necessary as a basis of credit for more enlarged operations. It is often a wise exercise of discretion for a corporation to strengthen itself in this way, and with such discretion a stockholder cannot interfere. I-Iis only remedy is by an appeal to the ballot at the election for directors. But where a. corporation, having actually made profits, proceeds to distribute such profits amongst the stockholders, the tenant for life would be entitled to receive them,, and this without regard to the form of the transaction. Equity, which disregards form and grasps the substance, would award the thing distributed, whether stock or moneys, to whomsoever was entitled to the profits. This is all that was done in Earp’s Appeal. The profits had accumulated until they reached nearly three-quarters of a million dollars. A considerable portion of this surplus was distributed to the stockholders in the shape of new stock. It was confessedly profits. It was judicially ascertained to be profits after a careful examination and report by the master. The corporation recognised the transaction as a distribution of profits. The present case differs from Edrp’s Appeal in this, that the corporation had made no distribution of profits in the shape of stock or otherwise, other than its regular dividends. In Earp’s' Appeal the stockholder paid the company nothing for the new stock. It was paid for wholly out of the profits. Here the stock of the company was merely doubled in amount, the stockholders paying therefor its par value in cash.
[270]*270Wiltbank’s Appeal was a different case and stands upon its own peculiar facts. YYithout going into the details of that case, it is sufficient to say that the trustees sold the new stock and realized an actual profit, which was carried to the trust account.
There was also the further significant fact stated in the opinion of the court, that there had been no serious diminution of the value of the old stock caused by the neAV issue. Here, then, was the case of the capital remaining unimpaired for the remaindermen, and an actual, realized profit by the sale of the new shares. Such profit was properly awarded to the life-tenant. No such state of facts exists here.
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Mr. Justice Paxson
delivered the opinion of the court, January 22d 1877.
Henry Lazarus, by his will, devised “ the income, profits and products” of his estate to his wife for life, and after her death (after the payment of certain legacies) he devised all of his estate to residuary legatees, among whom are the appellants. At the time of his death in 1868, he was the owner of one hundred shares of the capital stock of the Pennsylvania Company for Insurance on Lives and Granting Annuities. The stock of said corporation consisted of ten thousand shares of $100 each, amounting to $1,000,000. The executors did not sell this stock, but retained it in their hands as a pa.rt of the residuary estate. An Act of Assembly was passed in 1872, authorizing said company to increase its capital stock by the [268]*268issue of new stock not exceeding $1,000,000. In March 1873, the company accepted this act, and proceeded to issue ten thousand shares of $100 each, thus doubling the original capital. To each of the old stockholders was given the privilege of subscribing and paying for as many shares of the new stock as he or she held of the old. The estate of Henry Lazarus thus became entitled to subscribe for one hundred shares of the new stock. At that time the old stock was worth, in the market, $240 per share, which valuation was based upon actual cash assets in the hands of the company, there being an admitted surplus of $1,400,000 over and above the $1,000,000 originally paid in. In May and June 1873 the market price or option to subscribe for shares was $66 each. The executors of Henry Lazarus having no funds on hand to subscribe for the one hundred new shares to which his estate was entitled, sold the option or right to subscribe for sixty of them for $66¿ each, realizing' the sum of $4000 therefrom, and with this money they subscribed and paid for the remainder, to wit, forty shares. Mary Lazarus, the widow, claims these forty shares as income. The residuary legatees claim them as a portion of the corpus of the estate devised to them. The Orphans’ Court, under the authority of Earp’s Appeal, 4 Casey 368, and Wiltbank’s Appeal, 14 P. F. Smith 256, awarded thirty-three of said shares to the widow as income or profits. Erom this decision both parties entered an appeal to this court; the widow alleging that she was entitled to the whole of the forty shares; the remaindermen alleging that she was not entitled to any of them. Whether she is- entitled to the whole or any portion of the forty shares is the sole question presented by this record.
We are in no doubt about the law. That can be ascertained with mathematical precision. The difficulty is in applying the principles of law, however well settled, to the facts of a particular case. Herein we think the learned judge of the Orphans’ Court fell into error. This case differs widely from either Earp’s Appeal or Wiltbank’s Appeal. In Earp’s Appeal, the testator at the time of his death in 1848, held five hundred and eighty shares of the stock of the Lehigh Crane Iron Works, of the value of $125 per share. This stock formed a part of the residuary estate of the testator, and was bequeathed to his executors in trust.to pay the income thereof to his four children during life, with remainder over. For several years after the death of the testator the company had made large profits. Upon the first day of July 1854, the actual surplus earnings of the company, as ascertained by the report of the master, amounted to the sum of $714,542.15. On the 10th of July 1854, under authority of an amendment to its charter, the company proceeded to make distribution of a portion of this accumulated profit, by increasing its capital stock from $200,000 to $500,000. This increase was represented by six thousand new shares at $50 each, apportioned among the then stockholders, and paid for entirely out of the sur[269]*269plus earnings or profits of the company. The five hundred and forty shares held by the estate of Robert Earp, received eight hundred and ten of the additional shares, making altogether one thousand three hundred and fifty shares. The contention was whether the eight hundred and ten shares should be regarded as principal, and as such remain in the hands of the executors, or whether they should be regarded as income, and go to the life-tenant. After the increase of stock the shares fell from $125 to $80 per share. The decree of the court below, affirmed by this court, awarded a portion of the new shares to the life-tenant as income. But an examination of the decree shows that the court was careful to award to the executors enough of the new stock to make up the deficiency in value of the original five hundred and forty shares caused by the issue of the new, thus preserving the integrity of the capital to the remaindermen.
This case was exceptional in its character. As a general rule, nothing earned by a corporation can be regarded as profits, until it shall have been declared to be so by the corporation itself, acting by its board of managers. The fact that a dollar has been earned gives no stockholder the right to claim it until the corporation decides to distribute it as profit. The wisdom of such distribution must of necessity rest with the corporation itself. From motives of prudence and self-interest it is frequently desirable to add all or a portion of the earnings to the capital. This is sometimes necessary as a basis of credit for more enlarged operations. It is often a wise exercise of discretion for a corporation to strengthen itself in this way, and with such discretion a stockholder cannot interfere. I-Iis only remedy is by an appeal to the ballot at the election for directors. But where a. corporation, having actually made profits, proceeds to distribute such profits amongst the stockholders, the tenant for life would be entitled to receive them,, and this without regard to the form of the transaction. Equity, which disregards form and grasps the substance, would award the thing distributed, whether stock or moneys, to whomsoever was entitled to the profits. This is all that was done in Earp’s Appeal. The profits had accumulated until they reached nearly three-quarters of a million dollars. A considerable portion of this surplus was distributed to the stockholders in the shape of new stock. It was confessedly profits. It was judicially ascertained to be profits after a careful examination and report by the master. The corporation recognised the transaction as a distribution of profits. The present case differs from Edrp’s Appeal in this, that the corporation had made no distribution of profits in the shape of stock or otherwise, other than its regular dividends. In Earp’s' Appeal the stockholder paid the company nothing for the new stock. It was paid for wholly out of the profits. Here the stock of the company was merely doubled in amount, the stockholders paying therefor its par value in cash.
[270]*270Wiltbank’s Appeal was a different case and stands upon its own peculiar facts. YYithout going into the details of that case, it is sufficient to say that the trustees sold the new stock and realized an actual profit, which was carried to the trust account.
There was also the further significant fact stated in the opinion of the court, that there had been no serious diminution of the value of the old stock caused by the neAV issue. Here, then, was the case of the capital remaining unimpaired for the remaindermen, and an actual, realized profit by the sale of the new shares. Such profit was properly awarded to the life-tenant. No such state of facts exists here. It requires but a cursory examination of this transaction to show that no profit has been made except upon paper. As before observed, the corporation had declared no profits and distributed none. It merely allowed the holder of each share of the old stock to subscribe for a corresponding share of new stock, and to pay to the company the par value thereof. This right or option was worth from sixty to seventy dollars per share. The executors sold the option for sixty shares and with the proceeds bought and paid for forty shares of the new stock. The latter is said to be profit. It looks like profit and might readily be mistaken for it. That it is not, is conclusively shown by the facts as found by the learned judge of the court below. He says: “In January 1873, the stock sold for $240 per share. In July 1873, it sold for $170 a share. The result on the shares, after the option to subscribe, was to add to the assets $1,000,000, and ten thousand new shares. The stock was doubled; most of the options were sold in May and June. They then went down to $66 for each option to subscribe. The largest number was sold at that price. If a stockholder sold his option to subscribe at $70 each he was just even, and if at less than $70, he lost.” It thus appears that for each dollar gained by the sale of the options, a corresponding dollar was taken from the value of the original shares. If the company had gone into liquidation the day before the issue of the new stock, the one hundred shares of original stock would have realized $24,000. If it had gone into liquidation the day after, the one hundred and forty shares would have realized the same sum. Where then was the profit ? It was figured out by the court below in this wise : — •
The original one hundred shares were worth . . $24,000
The one hundred and forty shares, market price at the
time of the audit, $225, were worth . . . 31,500
Being net profits of . . . . . • • $7,500
The fallacy of this theory consists in the fact of estimating the one hundred and forty shares, not at their actual value at the time of the transaction, but at their market value, three years after-[271]*271wards. A more uncertain rule could not well be imagined. It would make the rights of the parties depend upon the condition of the stock market, which is as variable as the tides, without their regularity. Market values are well enough upon a question of distribution, where the parties are about to realize; but upon a question of values between life-tenants and remaindermen, a judicial decree should go down through the shifting sands of the stock market until it reaches the solid rock of actual values. The application of any other rule might work serious injustice. It is well known that within the last year the stock of more than one large corporation has varied in price over one hundred per cent. Even if the market value were a proper test, why take it three years after the transaction occurred ? Why not one year, two years, or any other time? The tenant for life and remaindermen might well differ as to the precise day which should fix' the market value, as the bulls or the bears might happen to be in the ascendant. It often happens that stocks that are intrinsically worthless are kept up at high prices by the ways that are peculiar to Third street and Wall street. In such a case as this, the solemn judgment of a court upon a question of values, defining the rights of parties in the future, must have a more secure foundation. The date at which the value of this stock must be estimated is the time when the transaction took place. Its actual value then was $170 per share. This valuation is based, not upon the caprice of the market, but upon actual assets in the hands of the company. If it was worth $225 per share in 1876, when this account was audited, the increase is the result of the gains of the business 6f the company during the preceding three years; as such it forms a portion of the capital of the company, and so must remain until such time as said company shall declare it to be profit and in some manner provide for its distribution. When such event shall occur, the one hundred and forty shares will be entitled to their proportion thereof.
We are of opinion that the forty shares of new stock issued by the company form a portion of the capital of the residuary estate of Henry Lazarus, deceased, and must be held upon the same uses and trusts as are expressed in the will of the testator in regard to the original one hundred shares of the same stock.
The decree is reversed, and the record remitted to the Orphans’ Court for further proceedings in accordance with the views contained in this opinion; the costs of the appeal to be paid by the appellee.