Defendant's character for violence was not relevant to any legitimate issue at trial, and he did not put his character for peacefulness at issue. In general, evidence of a defendant's character or a trait of his character-that is, his propensity or disposition to engage in a certain type of conduct-is not admissible to prove his conduct on a specific occasion. ( Evid. Code, § 1101, subd. (a).) However, when a defendant offers evidence of his good character "to prove his conduct in conformity with such character or trait of character," the prosecution may offer evidence to rebut it. ( Evid. Code, § 1102, subds. (a), (b).) " 'When a defendant places his character at issue ..., the prosecution is entitled to respond with character evidence of its own.' " ( People v. Simon (2016) 1 Cal.5th 98, 145, 204 Cal.Rptr.3d 380, 375 P.3d 1, *592quoting People v. Loker (2008) 44 Cal.4th 691, 709, 80 Cal.Rptr.3d 630, 188 P.3d 580.) But in this case, defendant did not introduce evidence putting his character for peacefulness in issue. That evidence was introduced by the prosecution in its case-in-chief by way of defendant's taped statement to police. Evidence Code section 1102"allows the prosecution to present relevant opinion evidence regarding a defendant's character, but only when the defendant has first offered evidence placing his character in issue." ( People v. McFarland (2000) 78 Cal.App.4th 489, 494, 92 Cal.Rptr.2d 884, italics added; see People v. Pangelina (1984) 153 Cal.App.3d 1, 8, 199 Cal.Rptr. 916 ; People v. Terry (1970) 2 Cal.3d 362, 400, 85 Cal.Rptr. 409, 466 P.2d 961.) In other words, Evidence Code section 1102 prevents the prosecution from *878knocking down a <mask> of its own making. Moreover, Evidence Code section 1102, subdivision (b) allows the prosecution to introduce character evidence in the form of opinion or reputation evidence only, not specific acts of misconduct such as prior convictions or the facts underlying them. ( People v. Wagner (1975) 13 Cal.3d 612, 619, 119 Cal.Rptr. 457, 532 P.2d 105.) To the extent the trial court here concluded, after mulling it over, that defendant's implied statement to police "he's a peaceful person allows the District Attorney to get into the facts underlying that particular crime," the court abused its discretion under Evidence Code sections 1101 and 1102.


Third, Tilly's contends that permitting employees to earn reporting time pay for calling in prior to the start of a shift is unworkable because "there is no limit to how far in advance of a shift an employee might 'report for work' .... If [an employee] called in two days before, or three days before, or a week before, or two weeks before, in each case she would be performing exactly the same act: ascertaining by phone, in advance of a shift, whether to actually report for it." In so urging, Tilly's attacks a <mask> because it is the employer , not the employee, who directs how employees report for work.12 As we have said, we do not hold that employees are entitled to reporting time pay whenever they contact their employer to determine what their schedule is. We hold only that if, as plaintiff alleges in this case, the employer requires the employee to call in two hours before the start of a shift, and the employee does so but "is not put to work or is furnished less than half said employee's usual or scheduled day's work," then the employer is liable for reporting time pay.


Art Omi contends that if the court were to rule for respondent, the court would confirm the saying that “no good deed goes unpunished.” But Art Omi did no “good deed.” Respondent did the good deed, not Art Omi. The court finds that Art Omi is an illusory tenant and that respondent is the real tenant. Art Omi, the prime tenant, acted as Time Equities’s <mask> when Art Omi subleased the apartment to respondent. Art Omi never occupied or intended to occupy the apartment as its home and had no dominion and control over the apartment. Art Omi, Time Equities, and 346-50 East 20th Street LLC colluded in the scheme. They circumvented the rent laws and profited. They led respondent to believe that she could continue in possession as a rent-regulated tenant. Although she paid the monthly rent during her 11-year tenancy, she was compelled to a large extent to allow Art Omi’s occupants to stay in her apartment for free. When Time Equities received the monthly rent, it would split it in half: Time Equities kept half; Art Omi kept the other half. Everyone profited except respondent. Law and equity dictate that respondent should be the real tenant.


Under circumstances where a civic association counts among its members individuals who own property in the immediate vicinity, these holdings appear to be nothing more than a strained attempt to preserve technical perfection and result in the creation of “ <mask> ” litigants out of individual association members to whom befall the task of seeking a judicial solution to community problems. This destroys the very purpose *688for which such an organization is formed. The property owners of Douglaston have looked to the association as a medium through which their common rights might be preserved equally for all. These members united to attain the political and economic power consonant with one voice speaking the thoughts and protecting the rights of many. It is their way of making themselves heard above the noise of the grinding gears of modern bureaucratic machinery.


Judge Kleimax, in his Beltrand decision (p. 1046), constructs a <mask> by raising the question “ But how does a person innocently standing around, protect himself from the suspicions of officers?” The answer, of course, is completely obvious: he identifies himself and tells the police officer why he is standing around, even if that explanation is that he lives down the block and was getting some fresh air.


Fred creates a <mask> by his repeated references to an asserted duty of continuous updating. The trial court in its detailed statement of decision never mentioned or imposed any such duty. Fred infers the court found a duty of continuous updating because the court "did not identify at what point this breach of fiduciary duty occurred." Absent a specified date or dates on which the breach occurred, Fred apparently supposes the trial court believed the breach occurred every day-indeed every moment-he did not affirmatively disclose to Moira the Ameritrade account's performance in 2012.


But the People’s ostensible rebuttal of the Fifth Amendment analysis—an argument advanced neither by defendant nor relied on by the court—is an attack on a <mask>. This is so because the relevant constitutional analysis is provided by the framework found not in the Fifth but in the Fourth Amendment (People v Hall, 10 NY3d 303, 307 [2008] [recognizing a post-Schmerber v California (384 US 757 [1966]) “judicial consensus . . . that visual body inspections are constitutionally distinct from searches that require the police to intrude beyond the surface of a person’s body and that the two types of searches are therefore subject to different legal standards”]; Schmerber, 384 US at 767 [noting that, “if compulsory administration of a blood test does not implicate the Fifth Amendment, it plainly involves the broadly conceived reach of a search and seizure under the Fourth Amendment”]; United States v Dionisio, 410 US 1, 14 [1973] [“The required disclosure of a person’s voice is thus immeasurably further removed from *501the Fourth Amendment protection than was the intrusion into the body effected by the blood extraction in Schmerber” (emphasis added)]; Smith, 86 AD2d at 253 [“Dionisio establishes that seizure of a voice exemplar does not involve the severe, though brief, intrusion upon cherished personal security, or any intrusion into the body, and, therefore, like the seizure of fingerprints or handwriting, does not itself impinge upon any interest protected by the Fourth Amendment” (emphasis added and internal quotation marks omitted)]; Matter of Abe A., 56 NY2d 288, 295, 297 [1982] [applying a “Fourth Amendment inquiry . . . focusing on the bodily intrusion itself”]).


I joined Justice Baker's dissent in Board of Trustees v. Andrews , 2018 Ark. 12, 535 S.W.3d 616 (Baker, J., dissenting). Accordingly, while I should welcome any effort to walk back the unreasonably broad pronouncements in Andrews , I cannot do so in this case. As Justice Wynne noted in the latter half of his concurring opinion, even if the issue had been raised and ruled on by the circuit court-which, as Justice Baker ably notes, it was not-sovereign immunity is not implicated in a tax case where payments are made under protest. I am troubled that the majority saw fit to essentially create this issue, order briefing by the parties only to knock it down like it was a <mask>. The majority opinion is a unique example of an advisory opinion; the only legal controversy it resolves is the legal controversy that the majority created. I agree with Justice Baker's assessment that it was improvident to address Andrews in this appeal.


The trustee has applied the rule in Matter of Osborne (supra) by starting with the value of the deceased’s investment at the time of his death and deducting from that value the proceeds of sales of rights to subscribe for further stock and a so-called equalizing cash dividend which was paid when the bank whose shares decedent owned was merged with another. This equalizing dividend seems in its nature to have been an adjustment of capital value only. In the case of its own investments in shares the trustee deducted the proceeds of the sales of rights to subscribe for further stock. It took the residue after these deductions as the net of the capital to be kept intact under the rule in Matter of Osborne (supra). The special guardian criticizes these deductions and the court is of opinion that the criticism is sound. The equalizing dividend referred to was accounted for as principal in a previous account. There is nothing to indicate that it should have been deducted from the cost of the investment. It represented an increment in the capital value of the original investment. The cases recognize that such increments increase the capital to be protected. (Pratt v. Ladd, 253 N. Y. 213, 219; Matter of Hagen, 262 id. 301, 305; Thayer v. Burr, 201 id. 155, 158.) The proceeds of the sale of rights equally belong to capital as increment. The value of these rights has no relation to dividends or income. It represents perhaps the value of control or of future speculative possibilities in the stock *911or some other factor unrelated to earnings. The amount realized should be treated as an increment to principal (Robertson v. de Brulatour, 188 N. Y. 301, 315). In Matter of Hagen (supra) the court (p. 306) quoted with approval a statement in United States Trust Co. v. Heye (224 N. Y. 242) as follows: “ While the corpus of the fund may not be depleted, yet the corpus may accumulate or increase, and until there is some division in the nature of a dividend payable out of accumulated earnings or profits, there is nothing that can be awarded as income to beneficiaries.” The opinion then states that the profits from the sale of subscription rights are capital of the trust. If then the courts recognize an accumulation or increase of corpus and if they deny dividend participation except out of accumulated earnings or profits the capital to be protected under the rule in Matter of Osborne (supra) is the capital as increased by capital operations. It follows necessarily that the use of the equalizing dividend and of the proceeds of the sale of rights to reduce the amount remaining to be protected was erroneous. The objections of the special guardian in this respect are sustained and the distribution of the <mask> will be recomputed in accordance herewith.


In May, 1953, the. corporation reduced the par value of its .common stock to. $8.50 per share and issued two shares of .$8.50 par common stock in exchange for each outstanding share of $17 par common. As a result of said transaction, the trustee received 1,000 of $8.50 par common stock, all of which have *899been tentatively allocated to principal. In People ex rel. Adams Elec. Light Co. v. Graves (272 N. Y. 77 [1936]), an analogous situation, the Court of Appeals held unanimously, since there had been no distribution of stock, just a transfer from surplus to the capital stock account, there had been no distribution of anything to the shareholder. Therefore, when the corporation issued shares of stock in exchange for outstanding shares, the distribution was a stock split rather than a <mask>.


In Equitable Trust Co. v. Prentice (250 N. Y. 1, 8-9, supra) the court noted that dividends are usually thought of as synonymous with earnings and income, but that stock dividends sometimes embrace corporate assets other than earnings or may be based in whole or in part upon earnings accumulated prior to the beginning of a trust in which a life tenant has an interest (i.e. Matter of Osborne, supra.) Essentially, however, a dividend constitutes a distribution of earnings, and a <mask> is made by the issuance and delivery to stockholders of additional stock, supported by assets, usually earnings, transferred to capital. It amounts to a cash dividend and a simultaneous reinvestment thereof with the company by the stockholder, and the stockholder receives additional stock from the company as evidence thereof. A stock split, on the other hand, gives the stockholder no additional stock, but merely divides that which he previously held without altering the amount of the capital and surplus of the company. The latter is the situation in the case at bar.


*290Early in 1955, about eight years after the death of the testatrix, the trustees acquired certain shares of common stock of American Cyanamid Company. In May, 1957, the company declared ‘ ‘ a <mask> of one share of common stock on each share of common stock * ® * to the holders of record at the close of business June 3, 1957;” that upon the issuance of such stock capital surplus was to be charged about 88.6% of the value of these additional shares and about 11.4% charged to earnings. The trustees have tentatively allocated the stock dividend to income, but have retained the stock pending the instant judicial settlement of their accounts. The income beneficiaries urge that this stock dividend be treated as income in view of the aforesaid provisions of article twenty-eibst of the will; the special guardian representing the remaindermen contends that as a result of this stock dividend there has been a dilution in the principal value of the trust; that the quoted market value of the stock after the effective date of the stock dividend was one half of what it was before that date, and that the action taken by the company was a “ stock split.” The higher market value before the stock dividend date and the lower market value after that date are not determinative of the question here (Matter of Tealdi, 16 Misc 2d 685, 688).


The balance sheet of Hartford Fire Insurance Company for the year ending December 31, 1960 shows a net gain from operations of $25,615,219. From this account there were paid cash dividends of $11,763,666. In the “ Consolidated Statement of Gains and Losses ” during 1960 it appears that realized capital losses totaled $3,389,305, and “ Sundry Gains and Losses In Surplus ” amounted to the sum of $7,452,645 ”. Objectants assert that there was no earned surplus from which such <mask> could be paid without infringing on capital, and that as appears from Exhibit “ E ” capital gains in 1959 provided the only apparent basis for the increase in surplus during 1959.


In Matter of Lawrie (119 N. Y. S. 2d 906) the court defined the distinction between a <mask> and a stock split; the former being described as a capitalization of earnings or profits together with a distribution of the added shares which evidence the assets transferred to capital, and the latter as representing a mere increase in the number of shares evidencing ownership without altering the amount of capital or surplus. Inasmuch as the resolution described the distribution as a stock dividend, the court is not justified in viewing as a stock split what the directors recognized as a stock dividend (Matter of Strong, 198 Misc. 7, affd. 277 App. Div. 1157; Matter of Lissberger, 189 Misc. 277), especially if the testatrix intended that all dividends were to be regarded as income. Matter of Lawrie (supra) related to *392a dividend of the same type as here involved, which was determined to he a stock dividend rather than a stock split.


It appears, from the account and the testimony submitted in connection with it, that the capital stock of the railroad company mentioned was $700,000, divided into 14,000 shares, each of the par value of $50; of which 13,052 shares had previously been issued, leaving a balance of 948 shares in the treasury of the company unissued. At a meeting of the directors of the company after the death of the testator, held September 17th, 1884, it was resolved to issue said 948 shares as follows: to the stockholders of the company as they that day appeared of record on the books of the company, at the rate of seven and one quarter shares for each 100 shares of stock then *91owned and held by each stockholder, and in like proportion for any larger or smaller amounts of stock so owned or held. In addition, it was also resolved, that, for the purpose of equalizing fractional parts of shares between stockholders, the stock should be rated at $1.50 (it was then in the market at $1.60), and payments should be received from any stockholder whose fraction of a share should amount to a moiety thereof, in the like manner and at the same rate. On October 1st, 1884, the executors received from the Atlantic Avenue Railroad company 22 shares of the capital stock of said company, paying therefor $18.75 for equalization; and on November 22d, 1884, they sold the same at $80 per share, amounting to $1,760. After deducting the sum of $18.75 paid by them for equalization of shares, they now ask to whom they shall credit the balance of said sale of $1,741.25,—whether the same should be paid to the executors and trustees to be held by them as capital, or be paid by them to the life tenants as income. In reference to the question whether an extra <mask> shall be deemed capital or income, the English and American decisions are very conflicting, and the question has not been definitely settled by the Court of Appeals of this State.


A <mask> of five per cent was declared by the New York Gas-Light Company, in October, 1853, which was received by the executors. But it appeared by the evidence that the fund out of which this dividend was made formed no part of the earnings of the company, but it was realized by a sale of its real estate on Canal, Centre and Hester streets, in the city of New York. This dividend accordingly was not governed by the legal principle indicating the appropriation-proper to be made of stock dividends declared out of surplus earnings; for it was really made from the proceeds of property constituting a part of the capital of the corporation, and which the directors considered themselves justified in declaring in the then financial condition of the corporation. It was not appropriately income received by the estate, but it was in the nature, so far as it extended, of a change in its capital. It was properly, therefore, so regarded by the executors, and it could not be carried into the accounts as the income of the estate. No other objections requiring further consideration have been taken to the decrees forming the subjects of these appeals, and as those *107which have been considered cannot be sustained, it follows that the decrees themselves should be affirmed.


*371within the trust. Markle received from the corporation at least $110 per share more than its book value at the time of the sale and this loss was sustained by the minority stockholders including the trustee here. In other words, Markle’s gain over the book value was an impairment of the value of the holdings of the other stockholders. The total impairment in the corporation’s financial position by this purchase must be obtained by multiplying 24,900 shares by $110, the loss per share, or an aggregate of $2,739,000. This transaction is nowhere explained in the account or in the information obtained from the corporation or its accountants, but the necessity for reconciling the loss may perhaps be found in the attempted adjustment sought to be made by the reduction of capital from $5,000,000 to approximately $1,250,000, or a reduction of about $3,750,000. Whatever alleged basis of legal authority may may have been claimed by the corporation officers to justify the transaction, it cannot be held here to authorize the distribution of a fictitious surplus as between the life tenant and remaindermen. We are required by the authorities applicable to the distribution of stock dividends to “ look into the facts, circumstances and nature of the transaction and determine the nature of the dividend and the rights of the contending parties according to justice and equity.” (Matter of Osborne, 209 N. Y. 450, at p. 475; Equitable Trust Co. v. Prentice, 250 id. 1; Pratt v. Ladd, 253 id. 213.) In Bourne v. Bourne (240 N. Y. 172) one of the tests is laid down in the following language: “ At times a <mask> has had for its object merely a change in the number of shares representing the proportional interest of the stockholders in the capital and surplus of the corporation. * * * Here we had little difficulty in allotting such a dividend to the remainderman.” Upon the latter theory the contention of the trustee here, that all the distribution should be retained in capital, seems to be correct. Its counsel contends that all the trustee possessed after the distribution of the Markle stock was two shares in place of the one originally held. That these two shares together represented the same holding in the corporation. He contends that each stockholder had but two shares for each share previously held, but with a large assumed corporate indebtedness against it. He urges that the stockholders owned no larger proportionate interest in the corporation, simply holding two pieces for each piece they previously held in the entity or in the equity after the large indebtedness had been incurred for the purpose of absorbing the Markle stock. .This argument finds further basis for support in Equitable Trust Co. v. Prentice (250 N. Y. 1, at p. 12): “ Stock dividends in the true sense, i. e., dividends capitalizing surplus as distinguished from those payable in the stock *372of a subsidiary * * * have predominantly the quality of' an increment to principal, though at times, in furtherance of intention, they have been classified as income. * * * Upon the distribution of a stock dividend, ownership of the assets is precisely as it was. ‘ A stock dividend does not distribute property, but simply dilutes the shares as they existed before.’ ”


Since the American Cyanamid distribution is at a rate greater than 6%, it is principal unless the will provides otherwise. In determining whether the will provides otherwise, certain definitions and rules of construction “ shall apply Paragraph (a) of subdivision 3 provides that ‘ ‘ A <mask> or distribution in the shares of the distributing corporation or association shall mean a distribution in the shares of the distributing corporation or association, whether in the form of a stock split or a stock dividend, at the rate of six per cent or less of the shares upon which the distribution is made.”


It is to be noted that the testator also gave to his trustees the binding and conclusive power to determine whether any <mask> was ordinary or extraordinary and to allocate it accordingly. In connection with this discretionary power, this court indicated in its prior decision (13 Misc 2d 289) that the trustee beneficiary was not precluded from participation in the exercise of discretion as to the allocation of dividends by section 141 of the Real Property Law. Upon reconsideration of the question, the court holds that section 141 of the Real Property Law precludes the trustee beneficiary from any discretion or participation in any decision concerning the allocation of such stock dividends. The Legislature, when it enacted section 141 of the Real Property Law in 1945, codified pre-existinglaw which prohibited a trustee from distributing principal to himself. (Rogers v. Rogers, 111 N. Y. 228; Robertson v. De Brulatour, 188 N. Y. 301; Matter of Lawler, 215 App. Div. 506; Lenzner v. Falk, 68 N. Y. S. 2d 699.) Since its enactment, our courts have broadened its application to include the disqualification of a trustee in the exercise of discretion by him in determining the amount of income to be distributed to *720himself. (Matter of Peabody, 277 App. Div. 905; Matter of Heinrich, 195 Misc. 803; Matter of Bender, 200 Misc. 768.) If, in the ease at bar, the trustee beneficiary were allowed to allocate to herself as income stock dividends which otherwise would go to principal, it would in effect constitute an invasion of principal prohibited by section 141 of the Real Property Law.


If the distribution in fact was either wholly or partly the result of capitalization of corporate surplus earnings or surplus capital legally available for distribution as dividends to stockholders, it must be considered as a true <mask> to the extent of the capitalization, and not as a stock split, and is to be allocated to the income account of the trust instead of the principal account (Matter of Davis, 11 Misc 2d 372; Matter of Fosdick, 4 Misc 2d 1003, affd. 3 A D 2d 1000, affd. 4 N Y 2d 646 and cases cited).


Equitable Trust Co. v. Prentice (250 N. Y. 1, 7-8): “The rule in this State was settled, until changed in 1926 as to subsequent trusts by an amendment of the statute (L. 1926, ch. 843, amending Pers. Prop. Law, § 17-a), that as between life *371beneficiary and remainderman a <mask> would be reckoned as principal or income according to the origin of the surplus out of which it was declared. To the extent that it distributed a surplus existing at the creation of the trust, it would be allocated to principal; to the extent that it distributed a surplus earned thereafter, it would be allocated to income [cases cited].” (See, also, Matter of Lloyd, 292 N. Y. 280, 285.)


Thus it appears that there is an agreement as to the method of the apportionment to be adopted should the court hold that there must be an apportionment. The Fifth Avenue Bank was incorporated on July 22, 1875, with a capital stock of the par value of $100,000 and a surplus of another $100,000 so that each stockholder paid $100 for each share of stock and contributed $100 towards the “ surplus fund ” of the bank. The testator died on April 12, 1902, leaving a will in which he created a trust for the life of Mary Norton Perkins and such trust was properly set up as of the date of his death. Part of the capital of this trust fund consisted of twenty-four shares of stock or twenty-four one-thousandths of all the then outstanding shares of the Fifth Avenue Bank. In 1914 the trust received as a dividend one and eighty one-thousandths shares. All parties concede that this one and eighty one-thousandths shares belongs to the remaindermen for the reason that it was declared out of forty-three shares which were purchased by the bank and carried as part of its capital prior to the institution of the trust and later redistributed among holders of the remaining nine hundred and fifty-seven shares held by the various stockholders. In 1918 the bank increased its capital from $100,000 to $200,000 and issued one thousand additional shares of the par value of $100 each which were distributed as a <mask>, the trustees of this trust receiving twenty-five and eighty one-thousandths shares of the stock of the Fifth Avenue Bank as their proportion of the stock dividend so that they then held a total of fifty and one hundred and sixty one-thousandths shares. They sold one hundred and sixty one-thousandths of a share in 1919 and they now hold fifty shares. The trustees originally in their account allocated thirty and twenty-one one-thousandths of these shares to the principal of the trust and twenty and one hundred and thirty-nine one-thousandths to the income thereof *866but on a recalculation these figures have been changed by the stipulation and the correct division, if one is to be made, is to allocate to the principal of the trust thirty-three and one hundred and sixty-five one-thousandths shares and to the income account sixteen and nine hundred and ninety-five one-thousandths shares. The special guardian’s contention as we have already noted, is that all of this stock dividend should be allocated to the principal account. The argument set forth in his learned and exhaustive brief offers many and various considerations in support of his position but the dominant argument is developed out of his premise that the action taken by the stockholders and directors in 1918 determined the nature of the transaction. Expressed in brief terms his argument is that the stock dividend in question was issued against the “ Surplus Fund ” was “ a readjustment of capital, a matter of bookkeeping ” and “ had nothing whatsoever to do with the accumulated earnings or undivided profits of the bank.” As the chief support of these contentions he points to that part of the resolutions adopted by the stockholders which reads as follows:


It appears that from the date of decedent’s ieath, 1915, to the date of the distribution, the capital of the General Electric Company had more than doubled. The surplus during that period had trebled. The capital value of each share of stock had increased $21. The accumulated net earnings of the company, after deducting therefrom dividends paid during said period, approximated $204,000,000. Under the circumstances it must be presumed that the purchase of the stock of the Electric Bond and Share Company was from the net earnings of the General Electric Company. (U. S. Trust Co. v. Heye, 224 N. Y. 242, 261; Bourne v. Bourne, 240 id. 172.) So much of the stock, therefore, of the Electric Bond and Securities Company as represents shares of the Electric Bond and Share Company purchased by the General Electric Company subsequent to the decedent’s death should be allocated to income. The 40,007 shares distributed by the Electric Bond and Share Company after decedent’s death as a <mask> should also be allocated to income. (Bourne v. Bourne, supra; Matter of Osborne, 209 N. Y. 450.)


Section 17-a of the Personal Property Law directs that unless otherwise provided for by the will, a <mask> must be regarded as principal rather than income. A trustee, however, must obey the command of the testator that a dividend which otherwise would be regarded as principal should be treated as income (Matter of Lloyd, 292 N. Y. 280). There is here a clear direction that all stock dividends as well as ordinary or extraordinary cash dividends be treated as income. That income was to be so favored is also confirmed by the direction in the will that dividends from 4 6 wasting asset corporations ” should also be treated as income.


The plaintiff, Hatch, demanded in his complaint that the defendant, the American Union Telegraph Company, be enjoined from delivering to the Western Union Telegraph Company certain property that it had sold for $15,000,000 to that company, and that the Western Union be enjoined from receiving said property and from paying for it; and also that it be enjoined from paying to its stockholders a certain <mask> of $15,526,590, as provided in -the agreements men*307tioned in the complaint, and that said agreements to be adjudged to be invalid, illegal and void. This was also a part of the relief demanded in the Williams case.


Subsequent to Mr. Tracy’s death and subsequent to the date of execution of Mrs. Tracy’s will a 100% <mask> was declared with the result that the said trustee became the holder of 80 shares of the Canandaigua National Bank and Trust Company stock instead of the original 40 received by it. This stock dividend became effective on or about August 7, 1957, approximately three years subsequent to the date of Mrs. Tracy’s will which is in question.


But the point is that the Osborne case has not been overruled or superseded, and while it remains the law it must be accepted and followed. Merely because the rule in the Osborne case has led to difficulty and has been superseded by legislative action to cover trusts created subsequent to May 17, 1926, this does not afford a substantial reason for a court of law to refuse to construe as such that which in fact amounted to a <mask>. As long as the court is under a duty here to find that there was in fact a stock dividend underlying and constituting a part of the exchange of shares involved herein, the court may not accept what is denominated as the “ form of the transaction ” as controlling. In this case, both substance and form, when all the instruments are read together, clearly show that a stock dividend was intended and was included as part of the transaction.


In January, 1945, the trustee purchased 200 shares of the $1 par common stock of Burlington Mills Corp. for $9,244.96. In March, 1945, the said corporation distributed to the trustee another 200 shares of said stock which constituted a split of two for one. This distribution was capitalized by a transfer from capital surplus to the common stock account of $1 per share. The income beneficiary claims the entire 200 new shares as a “ <mask> ” because the company transferred $1 per share from capital surplus to capital stock account.


“ Ordinarily where corporate stock is held in trust for a life tenant and a remainderman, and a <mask> is thereafter declared representing more than the corporate earnings subsequent to the creation of the trust, such stock dividend is partly income and partly corpus, and has to be apportioned accordingly between the life tenant and the remaindermen. Day v. Faulks, 79 N. J. Eq. 66 (Ch. 1911), affirmed 81 N. J. Eq. 173 (E. & A. 1912) ; McCracken v. Gulick, 92 N. J. Eq. 214 (E. & A. 1920) ; Hagedorn v. Arens, 106 N. J. Eq. 377 (Ch. 1930).


The distinction between ‘ ‘ stock dividends ’ ’ and ‘ ‘ stock splits ” has been defined as follows: “ The essential distinction between a <mask> and a stock split is that in the former there is a capitalization of earnings or profits together with a distribution of the added shares which evidence the assets transferred to capital, while in the latter there is a mere increase in the number of shares which evidence ownership without altering the amount of capital or surplus.” (Matter of Lawrie, 119 N. Y. S. 2d 906, 911.)


In Matter of Payne (Bingham) (supra), the court did not attempt to lay down a new general rule. It noted (p. 9) that the Osborne “ intact value ” rule 11 was intended as a minimum figure below which the corpus of the trust could not be reduced, not as a jumping-off place above which income could claim everything.” The court then proceeded, by way "of fuller discussion of the problem, to state the exact situation which now confronts this court and said that the transfer of capital surplus to the capital account (as was done in this case) would not invoke the Osborne rule, saying at page 11: “ Frequently, capital surplus is created through the use of earnings to support ordinary stock dividends which the income beneficiary will already have received. A rule of the New York Stock Exchange, required and enforced by the Securities and Exchange Commission, demands that, when a <mask> is declared, the earned surplus account of the corporation must be charged with the market value of the stock to be distributed, not merely its par or stated value. (See N. Y. Stock Exchange — Company Manual, § A-13; Rappaport, SEC Accounting Practice and Procedure [1956], p. 312.) Since, ordinarily, only par or stated value goes into the capital stock account, the excess of market value over par or stated value is transferred to capital surplus. The income beneficiary receives the shares thus capitalized. If capital surplus thus derived is subsequently transferred to the capital stock account to support a further issuance of stock, the award of any such stock to income would actually represent a double distribution to the income beneficiary of the identical earnings! Consequently, even if capital surplus is in part made up out of earnings capitalized in years gone by, it is *511generally accepted that the further transfer of such earnings from capital surplus to the capital stock account does not constitute such a capitalization of earnings as will call the Osborne rule into play. ’ ’


The effect of the action taken by Standard Oil Company (Indiana) was the issuance of a <mask> of new stock and the transferring of $405,746,402.38 to its capital account, being $25 for each additional share issued. The funds transferred from the company’s capital surplus account constituted 43.03% of the entire sum transferred to the capital account, and the funds transferred from the company’s earned surplus account constituted 56.97% of the funds transferred to the company’s capital account. On December 1, 1954, each trust received 100 additional shares of stock.


From such <mask> the trustee of the Norton estate received thirty-five per cent of 9,000 shares, or 3,150 shares of Continental Can Company, Inc., common stock. These 3,150 *878shares were apportioned as between the life tenant and the remainder-men: to the life tenant as income, 1,948 shares; to principal, and as such added to the trust estate, 1,202 shares. The trust estate Was thereby increased so as to consist of 10,202 shares of par value Continental Can Company, Inc., common stock. These 10,202 shares were adjudged by a decree of this court entered October 6, 1920, to possess a corporate book value of $1,151,213.04, being the same value as before the stock dividend.


The stock distribution made by Standard Oil Company of New Jersey in 1956 has been the subject of review by several courts of original jurisdiction under comparable provisions of wills or trust agreements directing that stock dividends were to be treated as income rather than principal. (See Matter of Muller, 5 Misc 2d 83; Matter of Tealdi, 16 Misc 2d 685; Matter of Thoms, 4 Misc 2d 987, appeal dismissed 5 A D 2d 954; Matter of Parsley, 21 Misc 2d 461.) A direction that stock dividends shall be treated as income does not extend to stock splits which have been regarded as distributions of principal, and the courts have *1054generally interpreted such a direction to include as income a <mask> supported by capital surplus as well as earned surplus (Matter of Muller, supra; Matter of Chapman, 208 Misc. 390; Matter of Davis, 11 Misc 2d 372).


On the hearing of the demurrer in the court below it was adjudged that the answers set up a good and sufficient defense, and judgment overruling the demurrer with costs was given to the defendant. The defendant is alleged in the complaint to have been the holder of 125 shares of the stock of the corporation. The second answer alleges in substance, as to the twenty-five shares, that a certificate thereof was issued by the officers' of the company (of whom defendant was not one) as a <mask>, under the pretense that the said company had earned surplus profits to the amount of twenty-five per cent upon its capital stock, and a resolution was passed by the board of directors of the said company declaring that such profits had been earned, and directing that they be divided among the stockholders by means of a stock dividend, in place of cash, to *412the amount of twenty-five per cent of the stock he-ld by such stockholders respectively; but in truth and in fact no such profits had been earned or any part thereof; and the said board of directors, after issuing such certificates, and before any of the notes mentioned in the complaint had been made or indorsed, passed another resolution rescinding their former resolution directing such increase of capital and such stock dividend, thereby, in substance, annulling the certificate for twenty-five shares, which the defendant has befln at all times ready and willing to surrender to the said company.


The trust was created in 1931 pursuant to the decree in a proceeding before the Surrogate (Surrogate’s Court, N. Y. County, 29 May, 1931, p. #1959/1930, Matter of Vought). The settlor is the life tenant, her two unobjecting sons are the secondary life tenants with contingent remainders depending upon survivorsMp and their infant issue are contingent remain*985dermen. The instrument provides in paragraph 7 that “ All stock dividends and extraordinary cash dividends shall be considered as income and be paid to the income beneficiary thereto entitled ’ ’. The trust is expressly made irrevocable except as to administrative provisions and also provides for invasion of principal in favor of the secondary life tenants. The petitioners seek construction as to <mask> allocation and the primary life tenant seeks them as income and also objects to other allocations by the trustees of stock dividends which have been credited to principal. The special guardian for the contingent infant interests seeks a construction that all stock dividends belong to principal. He also asks for a reformation of the trust which is at once overruled as beyond the scope of this proceeding and unwarranted as purely hypothetical (Matter of Mount, 107 App. Div. 1, affd. 185 N. Y. 162). The objections and construction prayed for by the settlor-life tenant are sustained and the objections of the special guardian are overruled. When, as here, by the expressed choice of the settlor of the trust created in 1931 (and controlled by the provisions of Personal Property Law [§ 17-a, eff. in 1926], and as therein authorized), she undertook to take it out of the usual operative effect of that statute as to “ all stock dividends ” it meant that universally (Matter of Lloyd, 292 N. Y. 280, 285). For the words “ stock dividends ” in that statute have been held to be all embracing (Matter of Ryan, 294 N. Y. 85) when applied to a trust controlled by the statute. The expression of a choice forecloses a retreat to an allocation as required under the rule in Matter of Osborne (209 N. Y. 450). The choice was the settlor’s (Matter of Lloyd, supra). The guardian’s appointment is extended to include the interest of the newly discovered interest of the infant Craig Vought whose interest is the same as those presently represented by the special guardian (Civ. Prac. Act, § 1311). Let the accounts otherwise held to be proper be adjusted and recast accordingly and commissions be recomputed. Allowances will be fixed in the final order to be settled with the revision of the account.


In 1951 the corporation distributed two shares of $15 par capital stock in exchange for each Outstanding share of $25 par capital stock. In Matter of Horrmann (3 A D 2d 5, supra) the court held that 5/6ths of the $15 par shares were distributed as a stock split and the balance as a <mask>. However, since of the additional capitalization required on the issue of the $15 par shares, $149,539,527 or 98.75% was obtained by a transfer from capital surplus to the capital stock account, and only $1,888,203, or 1.25% was transferred from the earned surplus account, the trustee has tentatively allocated 399.17 shares to principal and 83/100ths of a share to income.


I further hold that in this transaction there was no distribution of profits as such and that none of the additional stock received by the trustee can be earmarked as accumulated earnings or surplus distributable to the life tenant. The amended account, filed by stipulation of the parties, confirms this conclusion for the representatives of the company stated in answer to a written inquiry from the attorneys for the trustee that “No portion of the <mask> paid in 1926 was treated as from earned surplus.” Moreover, the condition of the company on December 31, 1929, with any new surplus set up as of that date by réason of a further write-up of assets, cannot affect the issue here which must be determined as of, November 30, 1926 — the time of distribution of the stock. It is immaterial, of course, as to what may have occurred by reason of subsequent events. The test is to be made as of the exact time of distribution. It does seem, however, that the court cannot ignore *373the recent tremendous shrinkage in the value of commodities — nationwide and worldwide in its scope. That condition only emphasizes the need of caution in authorizing distributions to life tenants. None should be made unless the right of the life tenant to receive part of the distribution is clearly established. Counsel for the life tenant contends that the assets which were written up in value were purchased out of earnings accumulated after the inception of the trust. A mere revaluation of company assets avails little in the ascertainment of the nature of the distribution. No actual sale of the assets, which might have established actual profits, took place. In the face of the decline of commodity values, the write-ups of a few years ago may be deflated into write-downs in the value of the same assets to-day or a year hence. In the present case all the equities are in favor of the remaindermen and the capital of the trust fund should not be further endangered or impaired by an unjustified distribution. The new shares in their present converted form must all be retained by the trustee as capital.


Insofar as the directors intend to create a <mask> out of earned surplus the cases show that such intention will be recognized. If they attempt to create a stock dividend in fact, but seek to disguise it or fail to classify it, the court will determine from their acts what they really intended. (Soles v. Granger, supra; Matter of Norton, supra, and see Matter of Hagen, 262 N. Y. 301, 306, supra.) But if they act in good faith the court ordinarily will not question their decisions (Bourne v. Bourne, 240 N. Y. 172, 177; Matter of Lissberger, 189 Misc. 277, 279, affd. 273 App. Div. 881, leave to appeal denied, 298 N. Y. 934 supra; and see Matter of Hagen, supra, p. 306) nor undertake to make corporate decisions for them which they saw fit not to make themselves. (Matter of Bonbright, 186 Misc. 172, 177 supra.)


His codicil, so far as involved here, reads as follows: “ Should the Standard Oil Company of Hew Jersey, make a <mask> or increase its capitalization then and in that event, I give and bequeath to my said Executor and Trustee upon the trusts created by the Third paragraph of my last Will and Testament for the benefit of my wife, Minnie Megrue, such increase as may arise from the One Hundred shares of the capital stock of the- -Standard Oil Company of Hew Jersey heretofore bequeathed to him, to be held by him as part of the principal of such trust, such increase,, if any, shall follow the original shares as finally disposed of.”


The formula used by the trustee in allocating the stock is correct if it conforms to our holding that in each case of a stock distribution under the instrument under review, the trustee is required to determine whether the stock is charged for corporate purposes in part against capital surplus and in part against earned surplus or is partially a stock split and partially a <mask>.


The declaration of trust contains the following provision: ‘ ‘ In every case of extraordinary cash or <mask>, any such dividend is to be distributable wholly as income regardless of the fact that the so doing may result in an encroachment on the principal of the trust ’ ’. The inclusion of such a provision in the instrument creating the trust was specifically permitted by statutory provision in effect at the time this declaration of trust was executed (Conn. Gen. Stats. [1930 Rev.], § 4966).


If after the declaration of a stock “ dividend” the original share and the new shares which are received by way of <mask> have a total value of less than the original book value then there has been impairment. There is no such diminution here. The value after the declaration exceeds the value of the trust investment at the time of each purchase.


In other paragraphs of the will, the word “Executor” or the words “ Executors and Trustees ” were used aptly and in an appropriate manner. Significantly, in paragraph twelve where the testatrix provides that no title in the trust assets or income therefrom shall vest in any beneficiary or be liable for the debts, contracts or engagements of any beneficiary, she used only the word “ Trustees ”. The court is of the opinion that she intended to vest the power of apportionment of <mask> or rights solely in the trustees. The court, therefore, holds that the testatrix not having ‘ ‘ otherwise provided ’ ’ in her will, section 17-a of the Personal Property Law applies and that the act of the executors in allocating the stock dividends to principal was correct. This objection is therefore, overruled.


In his decision, Mr. Justice Goldman cited the able memorandum of Surrogate Collins in Matter of Davis (128 N. Y. S. 2d 152, 153) in which Surrogate Collins defined the difference between a <mask> and a stock split-up as follows: ‘ ‘ This court has heretofore pointed out the difference between a stock mvidend and a stock split. See Matter of Lissberger, 189 Misc 277, 71 N. Y. S. 2d 585, affirmed 273 App. Div. 881, 78 N. Y. S. 2d 199; Matter of Lawrie, Sur., 119 N. Y. S. 2d 906, 911. In the former, there is a capitalization of earnings or profits and a distribution of the shares which represent assets transferred to capital, while in the latter there is a mere increase in the number of shares without altering the amount of capital or surplus. The distinguishing feature ‘ is the permanent retention of earnings in the business through formal transfer of earned surplus, legally available for dividends to capital account. ’ ”


Included in the trust, set apart by direction of the surrogate, were 254 shares of the capital stock of the Western Union Telegraph Company, upon which the trustees received a <mask> of 10 per cent. ¡November 10j 1892, in the form of twenty-five and four-tenths additional shares of stock. This dividend was declared out of surplus earnings of the company, accumulated for almost ten yeans, or six years before and four years after the death of the testatrix. The question involved was whether this stock dividend was income or capital of the trust estate. The court held it to be income belonging to the life tenants.


It was determined by a decree of this court made October 6, 1920, that the original trust investment in common stock of this company had a total book value of $1,151,213.04 for 10,202 shares of par value common stock, constituting the corpus of the trust. This was represented at the beginning of this accounting period by 10,202 shares at the par value of $100, there having been originally 9,000 shares in the corpus of the trust, but in the intermediate period a <mask> had been declared and apportioned between the fife tenant and the remaindermen, which accounts for such increase. This book value of $1,151,213.04 represents the amount which must not be intrenched upon by1 any apportionment of extraordinary dividends. The estate received 27,205J shares of new stock in place of the 10,202 shares previously held. Of these new shares, 20,404 shares received by the trustee constituted an exchange and were undoubtedly principal. The remaining 6,8011 shares represent the stock dividend to be paid to the fife beneficiary or apportioned between the fife beneficiary and the remaindermen, in accordance with the distributive rule cited. (Matter of Osborne, supra.) It, therefore, becomes essential to ascertain the book value of these 20,404 shares on December 31, 1922, after the payment of the two-thirds share stock dividend.


In all the distributions here involved, the capitalization was made simultaneously with the stock distribution and by a transfer to capital from a fund otherwise legally available for the payment of dividends. To the extent, at least, that the distribution was accompanied by a simultaneous capitalization of earned surplus it represents a <mask> (Matter of Fosdick, 4 N Y 2d 646). To the extent that the distribution capitalized surplus which would otherwise have been available for payment of dividends, i.e. capital surplus, the overwhelming weight of authority is to the effect that this also constitutes a stock dividend (Matter of Horrmann, 3 A D 2d 5; Matter of Berger [Bankers Trust Co.], 6 Misc 2d 468; Matter of Thoms, 3 Misc 2d 784; Matter of Muller, 5 Misc 2d 83).


The executor of the estate of the widow claims that 7/12 of the new General Electric stock or 175 shares at $50.055466, value $8,759.71, and 56.97 shares of new Standard Oil Company (Indiana) stock at $49.0465, value $2,794.18, should be apportioned to income and be paid to the estate of the widow. He does not raise any question of solvency of her estate and relies on the rule laid down in Matter of Osborne (209 N. Y. 450 [1913]). The court in that case held that as between life beneficiary and remainder-man a <mask> would be reckoned as principal or income according to the origin of the surplus out of which it was declared. To the extent that it distributed a surplus existing at the creation of the trust, it would be allotted to principal; to the extent that it distributed a surplus earned thereafter, it would be allocated to income (Equitable Trust Co. v. Prentice, 250 N. Y. 1, 7 [1928]). Market value, good will and like considerations cannot be considered in apportioning a dividend (Matter of Osborne, supra, p. 485). Those who share in the corpus contend this apportionment would be contrary to the testator’s intent.


The United States Steel Corporation in May, 1955 split its common stock so that two shares were issued for each share outstanding. There was no change in the capital or surplus account. The new stock can in nowise be deemed a dividend, since stockholders possessed no more assets or no greater interest in the corporation than before the split. The new issue was not a <mask> and stock received thereunder must be credited by the trustee to its principal account.


Since the date of execution of the trust instrument herein (1936), corporate practices, financial policies and corporate distributions have changed. Stock splits, as commonly known today, were rare in 1936, and the approach to their understanding and treatment must be understood in the preparation of present day trust instruments. So also the answer as to whether a given stock distribution is a <mask> and therefore income, or whether it is a stock split and therefore principal, depends upon *896the means used by the corporation to capitalize its shares and the draftsman must be aware of the possible pitfalls in failing to recognize modern corporate practice,


The remaindermen contend, second, that in apportioning the <mask>, the date of the decree effecting this distribution, November 30, 1920, must be taken as the date upon which the trusts were created, i. e., the date upon which the trusts were actually set up. With this contention I do not agree. The several cestuis que trustent were entitled to the income of the trusts from the date of death. That was the date when the trusts were created. There is nothing in the language of this will to indicate a contrary design, nor any direction to postpone the creation of the trusts beyond this point. I hold that under the will of testator, the trusts were created as of the date of- his death on December 18, 1918, and the apportionment is to be made as of that date. (Matter of Bird, 241 N. Y. 184.)


Exhibits “G” and “ N ”, although they do not constitute official financial records of the respective insurance companies, reflect the source of the respective stock distributions. In both cases, it appears that distributions were paid from surplus. In the case of Insurance Company of North America, the distribution is stated to have been paid from “ Accumulated Earnings ”, In the case of Hartford Fire Insurance Company, the distribution is stated to have been made from earned surplus. In both cases the distribution was treated by the companies as a <mask> rather than a stock split.


Thus Matter of Fosdick was principally concerned with the state of the law as it existed at the time of the creation of the trust and is of rather limited authority because it involved the interpretation of a rather unusual clause in a particular trust instrument. The court did not pass upon the precise question of whether or not a <mask> can be capitalized by a transfer from capital surplus and it was not until Matter of Payne (7 N Y 2d 1, supra) was decided that the term “ stock dividends ’’has been further clarified and defined as used in trust instruments.


Answers to said petition have been filed herein both by said Ivory C. Lawton, as executor and trustee under said will, and by said Harry D. Lawton, Ivory C. Lawton and Ruth Barker, individually, they contending, among other things, and alleging *822that the <mask> mentioned and referred to in said petition was payable by said Northville bank in the stock of said corporation declaring the same after the enactment of chapter 843 of the Laws of 1926, and after said law became effective; and because of the said mentioned amendment to section 17-a of the Personal Property Law (added by Laws of 1922, chap. 452) of the State of New York all of the stock dividend declared by said bank in respect of the stock of such corporation composing the principal of the trust created under decedent’s will should be treated by the executor and trustee as principal only, and not income of such trust, said respondents denying that said petitioner is entitled to receive any of. said twenty shares of stock dividend so declared and distributed by said bank to its stockholders of record on January 11,. 1927.


It appears that in effecting the " split-up ” the corporation transferred from earned surplus $25,451,052.77. The balance required to make up the necessary amount at $10 par value per share was transferred from “ Capital in Excess of Par Value ” in the amount of $15,995,877.23. If the total of $41,446,930 had been transferred from the earned surplus account learned counsel for the trustee would agree that the additional stock issued under the ‘ ‘ split-up ’ ’ would be considered a <mask> and would, under the terms of the agreements, be distributable to the beneficiary as income. The problem arises by reason of the transfer to stated capital from “ Capital in Excess of Par Value ”. At first blush the court might well believe that some division should be made between income and principal and that 16/41 of the new stock should be transferred to principal and 25/41 to income. Such an easy solution would however be a disservice to the already complicated condition of the law on this subject.


The paragraph to be construed reads as follows: “ Eighth : I direct that the trustees hereunder, whenever they shall receive any shares of stock of a corporation, by way of a <mask> upon any shares of stock of the same corporation held by the trustees as part of the trust estate hereunder, or shares of stock of other corporations distributed by way of extraordinary dividends by any corporation whose shares of stock are held by the trustees as a part of the corpus of the trust estate created hereunder, to retain in the corpus of such trust estate all such stock dividends or extraordinary dividends. However, any such stock dividends paid in lieu of recoupment of dividends defaulted or accumulated while the shares of stock are held in my estate or in the trust estate, shall be deemed income. ’ ’


Corporate enterprise in the United States has undergone many revolutionary changes since 1913 when the Osborne case was decided. The growth and complexity of our giant corporations and the means devised by these corporations to effect tax savings and improved share marketability could hardly have been contemplated or foreseen by our courts at a time when income taxes were unknown. The plain fact is that an equitable rule devised by our courts at that time no longer remains equitable, because of many varied and unforeseen factors. These factors have caused the repudiation of the rule in the State of Pennsylvania (Matter of Cunningham, 395 Pa. 1) and have elicited adverse comment by legal editorial writers (60 Col. Law Rev. 557) but as yet no change has been made in the rule insofar as the State of Néw York is co'neérñéd. There is no doubt that this difficult and perplexing problem should be restudied with a *39view towards arriving at an equitable solution to the problem not quite so arbitrary as section 17-a of the Personal Property Law. Perhaps the solution lies in crediting income beneficiaries with exactly the amount, in cash, or stock at the fair market value thereof, that it transferred from earnings or earned surplus to capital when an extraordinary <mask> is declared, regardless of the number of shares issued for each share held and regardless of the designation or name given to the dividend by the issuing corporation.


Nor may defendants avail themselves of the doctrine of ratification by their citation to Blake v Blake (225 AD2d 337 [1st Dept 1996]). As shown by the resolution concerning the preferred <mask> (see infra), there were only two directors, James Lippman and Shaffer. Shaffer’s deposition testimony revealed an informal corporate governance relating to the salary and the severance matters, with board meetings occurring by happenstance whenever he, James, Linder and Sherman Levey convened on the telephone or got together. No resolution of the hoard is referred to in connection with the so-called severance distributions, nor does it appear that the requirements of Business Corporation Law § 713 (a) were adhered to, either by virtue of board action alone or by shareholder ratification. Accordingly, the presumption of waste remains for this case. (See generally, Cohen v Ayers, 596d 733, 741 [7th Cir 1979] [applying New York law], cited with approval in Aronoff v Albanese, 85 AD2d at 5-6.)


A residuary clause does not ex necessitate rei dispose of the rents and income within the meaning of section 63 of the Real Property Law. • If we deem the "trust"funds to be fixed amounts, all the accumulations thereof would not pass into the residuary estate, on the ground that the residuary clause amounted to a disposition of the rents and profits within the meaning of section 63 of the Real Property Law; That statutory provision *314refers to a specific disposition of rents and profits, to take effect pending the vesting in possession of an expectant estate. In every case where there is a fixed specific trust fund and an expectant estate created therein, the residuary clause would operate, as contended by counsel for the residuary legatees, to prevent the holder of t'he next eventual estate from taking the income under section 63. Then in no case where the rents, pending the vesting in possession of the expectant estate, are disposed of could the holder of an expectant estate be entitled to such rents so long as a residuary clause could be found in the will. Matter, of Harteau (supra,) is a distinct authority to the contrary. In that case, under the will, the executors were directed to make annual payments out of the residuary estate to the testator’s wife during her life, and other payments to two nieces during the lifetime of the widow, and upon her death the executors were directed to appropriate from the general fund $35,000, to be expended in the erection of a statue of General La Fayette; the remaining estate was to be paid to certain named institutions. The only annuitant surviving was the widow. The assets of the estate consisted of 160 shares of corporate stock in the Metropolitan Plate Glass Insurance Company. By reason of <mask>, surplus income amounting to $17,722.39 was in the hands of the trustees at the time of the filing of their account. The Court of Appeals, modifying the decision of the Appellate Division, held that • such surplus income belonged to the La Fayette fund and not to the corporations entitled to the residuary estate. The case may therefore be deemed an authority for holding that the persons presumptively entitled to the next eventual estate are the persons entitled to take presumptively at the time the income is to be distributed. In that case there was a residuary estate which was broad enough to carry the undisposed of' income. . The decision is authority for the rule that the disposition referred to in section 63 of the Real Property Law is a specific and particular dis*315position of the rents and profits. Apparently even a broader holding was made, and the residuary estate was held not to include the income earned by the excess of the corpus over the $35,000 necessary for the trust fund. Although' the fund amounted to only $35,000 out of the entire estate of $41,000, the entire surplus income, upon an examination of the record on appeal, appears to have been earned on a particular portion of the estate, amounting to less than $35,000, namely, $32,000. The court deemed that the fund of $35,000 had been constituted out of that portion of the estate on which the accumulated income had been earned. To the same effect are Meldon v. Devlin (31 App. Div. 146; affd., 167 N. Y. 573; Craig v. Craig, supra,, 93.)


On September 23, 1954, and prior thereto the trustees held 200 shares of capital stock of Standard Oil Company of Indiana. On this date a resolution was adopted by such corporation authorizing the increase of capital stock from 20,000 to 40,000 shares of the same par value per share. Following a recital that surplus was sufficient to pay a cash dividend and a <mask>, the resolution provided for a “ dividend ” of sixty-two and one-half cents per share on the capital stock of such company payable out of earned surplus and a “ stock dividend ” of 100% on the capital stock of such company payable first out of capital surplus and the remainder out of earned surplus on December 1, 1954.


It is clear that this sentence creates the possibility, remote though it be, that the widow might be deprived of some share of trust income. As an example, if the trust included as a capital ¡ asset shares of “A” Corporation, and “A” Corporation declared a dividend payable in the shares of “ B ” Corporation, this dividend would, by the direction of the testator, be treated as principal and not income. Yet a dividend payable by a cor- ' poration in the stock of another corporation is not a <mask> of the declarant corporation but is the same as a divi- 1 dend of cash (City Bank Farmers Trust Co. v. Ernst, 263 N. Y. 342, 346 [1934]; Matter of Rogers, 22 App. Div. 428, 432, affd. 161 N. Y. 108 [1899]; Matter of Matthews, 280 App. Div. 23, ] 29, affd. 305 N. Y. 605 [1953]).


*493As stated in the petition (p. 6): “ In order to provide for the additional shares to be distributed as <mask> to holders of its capital stock of record on October 25, 1954, the Standard Oil Company (Indiana) transferred the sum of $405,746,402.38 to its capital account being $25 for each additional share issued. Of this sum $174,612,824.62 was transferred from capital surplus, being the entire balance in the capital surplus account of the company on that date. The balance of $231,133,577.76 was transferred from earned surplus.”


In the case of Lowry v. Farmers’ Loan and Trust Company, 172 N. Y. 137, the court lays down the rule: “ The transae*198tion, through which the property of the corporation is being distributed in the extraordinary form of a <mask>, is to be looked into; in order that its true nature may appear and-that a determination may be reached, whether capital, or an' accumulation of profits on the capital, is being divided among the stockholders. While the corporate action may not be necessarily conclusive upon the court, with reference to the question, if it is based upon facts, and is not purely arbitrary, it will, and should, be controlling.” Row, was the action of this company arbitrary in declaring this dividend ? It would hardly seem so from the statement which they issued. It had a surplus ; it had a very large surplus. It stated that it believed that the common-stock holders were equitably entitled to a portion of this surplus, and it actually paid it in cash.


The grantor said “regularly” (2) “pursuant to a settled policy ’ ’. The minutes of the meetings of the board of directors of Eastman Kodak Company when these stock dividends were declared show that the matter of <mask> was considered de novo on each occasion that one was declared. In 1948 the preamble to the resolutions authorizing the stock dividend mentioned “ the advisability of declaring a stock dividend on the common stock at this time.” (Emphasis added.) In 1949 such preamble repeated ‘ ‘ at this time ’ ’ and stated that the management “ had come to the conclusion that such action would be advisable for substantially the same reasons that the stock dividend was declared in 1948 ’ ’. In 1950 such preamble mentioned a “ further stock dividend ” and stated that the “ management had come to the conclusion that such a dividend should be declared at this time, and that the amount of it should be 10% of the stock held ”. (Emphasis added.) No mention was made of an established intention or policy, and the language used shows that each year was considered on its own earnings record. It may well be inferred that the directors had in the back of their collective minds the thought that the financial needs of the company presently and prospectively were such that earnings should be retained for use in the business, and that so far as reasonably possible without impairment of fair cash dividends, earnings should be capitalized by payment of stock dividends. But they did not resolve to pay a stock dividend in a stated percentage amount or under any circumstances or conditions henceforth. In five of the thirteen years from 1948 through 1960 they declared 5% stock dividends, in two of such years they declared 10% stock dividends, in one year *257(1959) they declared a 100% stock distribution, and in five of such years they declared no stock dividend or stock distribution. If any policy were in the minds of the directors, it was at most to declare a stock dividend for some amount in those years in which the earnings justified it, consistent with the payment of reasonable cash dividends. At best the court could only speculate that such had become a settled policy. No announcement was made by the company in or after 1956 that its dividend policy was to be changed. Yet since the year 1956 such stock dividends have not been declared. This fact tends to confirm the conclusion that the company had established no settled stock dividend policy, and that it would be mere speculation to anticipate the action of the board of directors. A review of the history of the stock market with respect to Eastman Kodak Company stock shows that in the years after 1948 near the time for the consideration of the annual corporate dividend the market usually rose on hopes of a stock dividend, and in many years when such hopes did not materialize the market fell on the disappointing news. This action tends to show that the matter of stock dividends was one of hope and speculation and not of established policy.


At the time this agreement was made and thereafter the three individual defendants (the parties of the third part) were in sole control of the corporation and were officers, directors and stockholders thereof. At that time the capital stock of the corporation consisted of 200 shares of common stock each of the par value of $100, of which 100 shares were outstanding. Pursuant to the agreement, the plaintiff entered into the employment of the corporation and also purchased the fifteen shares of stock at the price of $2,500, receiving a certificate therefor on May 5, 1931. The plaintiff was also elected as a director. The plaintiff continued in the employ of the corporation until December 31, 1933, when the agreement in question came to an end. On January 2, 1934, written demands were made upon the defendants by the plaintiff to purchase the stock for the minimum price of $2,500, as provided in the agreement. These demands were rejected. On December 31, 1931, while the agreement was in effect the plaintiff received a <mask> of fifteen shares of the Grum-Ko Silk Corporation. During the term of the plaintiff’s employment and while he remained the owner cf the fifteen shares of stock certain changes in the structure of the corporation took place.


Inasmuch as the decedent died prior to the enactment of section 17-a of the Personal Property Law, and his will contains no provision in respect to the allocation of stock dividends as between principal and income we must determine his “ presumable intention ” by resort to general principles of construction. (Equitable Trust Co. v. Prentice, supra, p. 9.) Obviously as the law stood prior to 1926 a transfer of earned surplus to capital for the purpose of declaring a <mask> and the declaration and issuance of such stock dividend to a trustee stockholder required the allocation of such stock to a life tenant of the trust within the limits of the Osborne case. (Matter of Strong, supra, p. 15.)


The trustees originally received 103 shares of capital stock of Security Trust Company of Eochester. In 1941 the directors of Security Trust Company declared an 100% <mask> and transferred earnings to capital. The trustees of the trust herein thereupon received an additional 103 shares of stock of Security Trust Company as the result of such dividend. They apportioned it hy allocating 26 shares thereof to principal and 77 shares to income, using the date of death of the testator as the basis for determining the intact value in the computation of the allocation.


An examination of Exhibit C reflecting the “ Surplus and Reserves ’ ’ for the period from December 31, 1956, through December 31, 1960, shows a balance in the “ surplus ” account of $150,000,000, a balance which remained constant from the years 1956 through 1960. To provide for such 100% stock distribution, objectants contend that the transfer to capital of some $27,046,435 to support what was described as a 100% <mask> came from an increase in the market value of securities in the sum of $12,023,427, the transfer from voluntary reserves of $11,954,721, on item of “ Surplus Paid In ” of $4,357,331, and several miscellaneous accounts. If such transfers were found to be transfers from capital surplus and not from earned surplus, the stock dividend would be allocable to principal and not to income.


Subsequent to the execution of the will and in July, 1960 the said bank declared and paid a 20% <mask>, thereby increasing testatrix’ stock ownership from 171 shares to 205, which she owned at her death. Shortly prior to her death, however, the stockholders of the bank had approved of a merger with the First National Bank of Glens Falls, by which the Hudson Falls stockholders would receive 1.8 shares of Glens Falls for each share of Hudson Falls. This merger, however, was not approved by the appropriate banking authorities and did not become effective until July 12, 1963, some two weeks after Mrs. Sheldon’s death. The question thus is, who owns the resulting 369 shares of First National Bank of Glens Falls and the dividends declared thereon since the death of testatrix.


By the provisions of section 17-a of the Personal Property Law, unless otherwise provided in the will, a <mask> must be regarded as principal rather than income. However, the trustee must obey a command that a dividend which otherwise would be regarded as principal shall be treated as income. (Matter of Lloyd, 292 N. Y. 280.) The intention is here emphatic that all stock dividends shall be payable as income. The testatrix expressly directed that “ all dividends ” be treated as income “ any provision of law to the contrary notwithstanding.” The intention therefore is clear that dividends were not to be subjected to the rule of the statute or to an allocation based upon principles of equity, but to the testamentary direction to treat all dividends as income. The phrase “ all dividends ” is all-inclusive and embraces the distribution here involved so as to render the entire stock distributed to be delivered to the income beneficiary.


The respondent, James Cannon Lambeth, objects to the action of the executors in allocating stock dividends to principal. He contends that the executors’ powers to apportion stock dividends were derived from paragraph eighth of the will which reads as follows: “ and my said Trustees are further authorized and empowered to apportion any <mask> or rights which may be declared on any shares held by any of said trust funds between the corpus of said funds and the income, and their determination of the amount to be apportioned between principal and income shall be final and binding upon all concerned. ’ ’ The accountants argue that the powers granted under the above-quoted provision applied to them only as trustees and not as executors and that as executors they were required under section 17-a of the Personal Property Law to allocate all stock dividends to principal. That section provides that ‘ ‘ Unless otherwise provided in a will * * * any dividend which shall be payable in the stock of the corporation or association declaring or authorizing such dividend * * * shall be principal and not income of such trust.” The court agrees with that contention.


Arguing, though without absolute assurance from the record, that the quoted portion of the will was the product of the testator’s own draftsmanship and hence is to be governed by the rules applicable to instruments drawn by laymen, the life beneficiaries insist that: “ While the testator used the words ‘ dividend in the stock of the issuing company,’ and ‘ dividend stock, ’ it is clear from his memorandum (Objectants’ Exhibits 7A and 7B) that in the use of those terms he was thinking of both stock dividends and stock splits in the sense of ‘ return It is hardly to be believed that when the testator referred to dividends of 10% or less, knowing that during the 15 years he had held I.B.M. stock there has never been a <mask> of more than 5%, he was thinking of the possibility at some future time of there being a stock dividend of 10% or more.”


Within the authorities cited, the corporate action taken sufficiently *885indicated that the two-thirds of a share issued was in the nature of a <mask>. It was so issued by unanimous vote of the stockholders through proxies given pursuant to a letter which indicated that there was to be such a stock dividend. It becomes unnecessary in this case to go behind the official action of the stockholders and directors or to violate those acts in any way. It is a mere matter of interpretation of what they intended and did, based upon specific evidence which clearly and completely establishes what they did and which is not inconsistent with what they said.


The special guardian, however, in effect asserts that in the interval there had been an increment to principal amounting to $5,513.50 and, therefore, increasing the principal value of the stock holdings to $52,422.50, wherefore, under the enumerated principle second, principal is entitled to receive a pro tanto distribution of the present <mask>, which he calculates to be 147.123 shares.


At the time of his death, the testator was the owner of 875 shares of stock of the State Bank of Ontario of a par value of $20 each. He had received these shares by virtue of the stock split and dividend in exchange for the original 35 shares of stock of a par value of $100 each. At the time of the execution of the will, the 35 shares liad a tolal book value of $44,006.20; at the time just prior to the stock split the 35 shares had a book value of $1,383.54 per share or a total book value of $47,423.90. After the stock split and the declaration of the <mask>, the 875 shares owned by the testator had a book value of $55.34 per share or a total book value of $48,422.50.


The distinction between a <mask> and a split-up of shares has been ably defined (Matter of Laurie, 119 N. Y. S. 2d 906). The distinction drawn is that shares issued to represent capitalization of earnings or profits constitute a dividend while a mere increase in the number of shares is a split-up. This distinction, however well recognized in financial parlance, is purely one of accounting. It might and possibly does have some purpose in clarifying changes in corporate financial structure, but basically in fact it is without meaning. A dividend is a distribution of corporate assets, generally money resulting from earnings. Neither in a stock 11 dividend” nor a split-up is there any distribution of assets. The stockholder has exactly what he had before, though the symbols of his ownership undergo a change. The fact that there is a simultaneous change in the label of corporate accounts is equally illusory. Whether the account is designed as capital or surplus or undistributed earnings or whatever may be, it was and remains an asset of the corporation. The stockholder upon dissolution becomes entitled to his proportionate share of the account regardless of its label on the corporate books. A change in the name of the account is absolutely without effect on this right. It follows that there is no such thing as a stock dividend when that term is used to describe a distribution by a corporation of its own common stock to its shareholders. (A dividend may, of course, be paid in the stock of another *158corporation or in securities of the paying corporation other than common stock.)


The capitalization of surplus capital and earnings, as in this case, results in a <mask> and not a stock split. (Matter of Fletcher, 20 Misc 2d 686.) A stock split increases the number of shares without altering the amount of capital or surplus (Matter of Davis, 11 Misc 2d 372). Moreover since the resolution described the distribution as a stock dividend, the court is not justified in viewing as a stock split what the directors regard as a stock dividend (Matter of Strong, 198 Misc. 7, affd. 277 App. Div. 1157; Matter of Lissberger, 189 Misc. 277).


I hold further that the dividend of four per cent on the common stock must be a cash dividend. Where a will authorizes investments in other than legal securities, the language of such authorization should be strictly construed. (Matter of Herriman, 142 Misc. 164; Matter of Franklin Trust Co., 84 id. 686.) The word “ dividend ” in the ninth paragraph of the will is, therefore, construed to mean a cash dividend and not to include a <mask>. Such a construction is in conformity with the testator’s intention to insure the safety and soundness of the non-legal investments authorized by the will.


*118A distribution in shares, on the other hand, is a stock split when there has been a watering down of stock without the use of surplus, while a transfer of surplus to the capital account will produce income in whatever form the distribution takes (Matter of Lissberger, supra). Again, a <mask> has been declared when there has been a capitalization of earnings from profits together with the distribution of added shares which evidence the assets thus transferred to capital (Matter of Lawrie, 119 N. Y. S. 2d 906). Stated otherwise, a distribution without infringement upon the capital of the corporation is a distribution of income and the rule of apportionment gives to the life tenant the earnings thus distributed. Those earnings, accrued after the establishment of the trust, are always an incident of stock ownership although inchoate until there is a distribution by capitalization in whatever form (United States Trust Co. v. Heye, supra). The test is whether, by the particular transaction, the earnings have been permanently retained by the corporation, as distinguished from a division occurring where the capital and surplus accounts remain unaffected (Matter of Davis, supra). The life tenant’s benefit from income capitalization cannot be defeated by the device of destroying potential income by turning surplus into capital (Equitable Trust Co. v. Prentice, 250 N. Y. 1, supra). Nor is the market value of the stock at the time of the transaction relevant (Matter of Osborne, 209 N. Y. 450, supra).


The trustees made no election and the court, in its opinion, said (p. 792): “It seems to me quite clear that this dividend was not a ‘ <mask> ’ as that term is used in law. If all of the stockholders had elected to receive their dividends in *972cash, and consequently no stock had been issued, it would occur to no one to call this payment a stock dividend. A stock dividend is declared only by the directors, and, therefore, it cannot be that the character of a dividend is to be determined by the actions of the stockholders. In this particular case most of the stockholders received their dividends in stock, but some elected to receive cash. That surely cannot make the same dividend a cash dividend in some instances and a stock dividend in others. Moreover, this dividend ivas paid not out of surplus but out of profits made during the current year, and it has none of the other usual attributes of a stock dividend. It "was not simply a dilution of the existing shares, but it was an actual distribution of the property of the corporation to those who elected to take cash. After its payment the stockholders did not continue to own the same proportionate share of the assets of the corporation.”


The capitalization of current earnings or actual earned surplus is a necessary prerequisite to the distribution to income of a <mask>; and in the absence of evidence of the capitalization of such current earnings were earned surplus, the distribution represents a stock split rather than a stock dividend to which the Osborne rule has no application. Therefore, the entire stock distribution must be credited wholly to principal (Matter of Payne [Bingham), supra; Matter of Lissberger, supra) unless it appears that earned surplus or accumulated earnings was the source of the distribution.


Ademption of a disposition unless ademption by extinction {Matter of Wright, 7 N V 2d 365) depends more on the intention of testator than the labelling of the disposition. (See Matter of Kotcher, N. Y. L. J., Jan. 19,1970, p. 15, col. 8.) Mrs. Volckening clearly intended that the Volck-Nu-Matic stock be included in the paragraph 9th trust. In that case, the liquidating dividend should be so included. The family corporation was liquidated during Mrs. Volckening’s lifetime. After her death the liquidating dividend was received by the estate executors. If there had been a stock split or <mask> the paragraph 9th trust would have been entitled to the benefit irrespective of whether the disposition was general or specific. A liquidating dividend is a partial return of capital. It should be treated as a reverse stock split, the dividend substituting for the stock. (Matter of Schimenti, 42 Misc 2d 983; Matter of Bradley, 38 Misc 2d 945; Matter of Howard, 46 Misc. 204; Matter of Morris, 36 Misc 2d 1094.) This conclusion is reached without consideration of the tax treatment of the corporate dissolution by the decedent or on her behalf by the estate.


On December 10,1954, the stockholders approved a proposal to declare a <mask> and on the same date, the board of directors adopted the following resolution: 1 ‘ Further Resolved, that simultaneously with said amendment’s becoming effective the officers are authorized and directed to transfer from the corporation’s capital surplus account (designated on the books as ‘ Capital in excess of par value ’) to stated capital the total amount of capital surplus, including all paid-in surplus, shown on the books of the corporation as of December 31, 1954 and as verified by the audit of Peat, Marwick, Mitchell & Co., and to transfer from earned surplus (designated on the books as ‘ Earnings retained for use in the business ’) to stated capital the balance necessary to increase the stated capital by an amount equal to $5 times the number by which the issued common shares are increased as a result of the reclassification of shares.”


On May 22, 1961 certain securities were transferred to the trustee having an agreed market value on May 21, 1961 pursuant to the settlement agreement of $397,210. On May 22, 1961 the trustee should have received property valued at $400,000. In other words a shortage of $2,790 then existed. Thereafter on June 15, 1961 the trustee received a check for $372.37 further reducing the shortage to $2,417.63. All the stock delivered to the trustee had gone ex-dividend prior to the transfer of ownership except the Kennecott Copper stock, but the dividends thereon had not yet been paid. Therefore the transferors were entitled to all the dividends except on the Kennecott Copper stock. Under the circumstances it was proper to credit the trustees with the dividends to be paid on the stock and accrued bond interest, except for the Kennecott *256Copper <mask>. In that instance the trustees having owned the stock prior to the ex-dividend date were entitled to the dividend therefrom.


*689Here, the settlor’s direction, that “ all dividends payable in the stock ” of a corporation were to be treated as income, is to be given effect. (Matter of Fosdick, 4 N Y 2d 646, 655.) “ Dividends ”, as the term is ordinarily understood, refers to such portion of the profits and surplus funds of a corporation as are validly set apart and distributed to stockholders (see 18 C. J. S., Corporations, § 457; Matter of Fosdick, supra, p. 653); and the term is to be so construed when used in a trust indenture unless otherwise indicated by context. The distribution of corporate surplus may be in cash, or by way of stock representing the surplus (see Matter of Fosdick, supra). Where distribution of surplus is in stock, and is carried out by segregating as capital that part of the surplus it represents, it is nevertheless in the category of a “ dividend ’ ’, and is known as a “ <mask> ’ ’ (see Matter of Fosdick, supra).


In his report to the stockholders for the year 1922 President Grailwell refers to the transfer of this $4,500,000 from surplus to capital account, showing that it was part of the stated capital behind the issue of new shares of no par value. Inasmuch as the old stock represented 135,000 shares and the two for one referred to in the letter of December 7, 1922, equals 270,000 shares and accordingly represents the exchange, the mathematical total of capital necessarily explains the rest of the transaction. The 90,000 shares would represent two-thirds of a share against the old outstanding capitalization, and these 90,000 shares, being exactly one-quarter of the new stock, represent the $4,500,000 drawn from surplus and set up in the new stated capital behind the common stock. These mathematical results show complete compliance with the letter of December seventh. The transfer of surplus to capital immediately upon the completion of the corporate acts performed at the meeting of the stockholders, shows the entire thing was a part of one transaction carried out step by step as it was required to be in accordance with the law and in accordance with the plan, and must be interpreted as it was stated to be in the letter, an exchange in part and a <mask> in part. Unless we are to impute dishonesty and fraud to the holders of the proxies and a purpose and intent not to carry out the plan described in the letter, we must intérpret the word “ exchange ” in the resolution to mean compliance with the plan, and while new shares were exchanged for old, part .of the transaction was, strictly speaking, an exchange and the other part was, in fact, a stock dividend. It was not necessary that the dividend be called a stock dividend in order to make it such. The mere creation and issue of new shares of stock upon the basis of surplus assets which thus became converted into stated capital, amounts to a stock dividend without denominating it as such. (2 Cook Corp. [8th ed.] § 536; Alsop v. De Koven, 107 Ill. App. 190.)


The trustee contends that the petition is insufficient in that it fails to set forth allegations which would support a conclusion of intent that in giving to the petitioner the trust 1 ‘ income ’ ’, the settlors intended to include extraordinary stock dividends, that at least part of each distribution described in the petition constituted a <mask>, and that petitioner is entitled to the number of shares she has claimed as representing that part. It is conceded, however, that if petitioner has established a right to anything, even though it may be less than she has claimed, the petition affords a basis for fixing the extent of that right. The trustee argues further that the petition is deficient in failing to allege that the directors of the issuing corporations either described the distributions in question as stock dividends or intended to effect stock dividends in making those distributions.


I have used tables prepared by the attorney for the executors to show: (1) The value of investment at the time of the creation of the trust in the several Standard Oil companies; (2) the value of the investment as represented by the original shares after payment of <mask>; (3) impairment of the corpus of the trust, and the number of shares required to make good the impairment; (4) number of shares which the life tenants are entitled to receive.


“ Whereas, this Company has accumulated and is in possession of a fund equalling thirty per cent (30%) of its unearned premiums, in addition to the amount of its capital stock and all outstanding liabilities, including the amount of all unearned premiums on unexpired risks and policies, * * * “ Now, Therefore, be it Resolved, that the Board of Directors of this Company, by at least three-fourths thereof, hereby authorizes an increase of capital stock of this Company from Ten Million Dollars ($10,000,000) to Fifteen Million Dollars ($15,000,000), such increase *901to be made from the above described fund and to be distributed pro rata to the stockholders of this Company as hereinafter provided, * * * It Is Further Resolved, that provided an increase in the capital of this Company from $10,000,000 to $15,000,000 be duly authorized at the special meeting of stockholders hereby directed to be called for the purpose, and duly approved by the Superintendent of Insurance, this Board, on behalf of this Company, hereby declares a <mask>, payable December 30,1927, to stockholders of record December 12, 1927, of $5,000,000, which shall consist of 500,000 shares of the capital stock of this Company of the par value of $10 each, if the number of shares of the capital stock of the Company shall then (namely on December 30, 1927) have been increased and the par value thereof changed, as herein provided, but shall consist of 200,000 shares of the par value of $25 each if no change shall then have been made in the number of shares into which the capital of this Company is divided and in the par value thereof; and this Board further directs that such shares be distributed pro rata to stockholders of this Company of record December 12, 1927, such distribution to be made where and when necessary in fractional share certificates of stock, and for that purpose the officers of this Company are directed to transfer on the books of the Company $5,000,000 from surplus account to capital account * * *.” The action of the board of directors was approved at a meeting of the stockholders held on December 1, 1927. The increase in capital stock was subject, however, under the Insurance Law, to the approval of the Superintendent of Insurance (Ins. Law, §§ 52, 117, as amd.),* and the payment of the stock dividend was, by the terms of the resolution declaring it, subject to this approval being subsequently obtained. The certificate approving the increased capital stock was issued by the Superintendent of Insurance on December 14, 1927.


The trust instrument refers solely to stock dividends and is completely silent as to stock splits. Therefore, shares received on a stock split are principal while those received as a <mask> are income. (Matter of Horrmann, 3 A D 2d 5 [1956]; Matter of Fosdick, 4 N Y 2d 646 [1958].) The income beneficiary and the trustee are agreed on this, but they are not in agreement as to the nature of the distinction between a stock dividend and a stock split.


Thus it seems immaterial in the instant case that the resolutions adopted by the stockholders and directors of the Canandaigua National Bank on August 7, 1957, referred to the action taken as a 100% <mask>. The number of shares were increased from 2,500 to 5,000 and the par value remained the same at 100. The officers were authorized to transfer $100,000 from surplus and $150,000 from undivided profits thereby increasing the common stock by $250,000. Those learned in the law may see a monumental difference between a two for one stock split and a 100% stock dividend, but to the average investor there is no such marked difference. Proportionate ownership in the business remained the same and the aggregate book value of shares held remained the same. Under such circumstances how could Mrs. Tracy, a woman of advanced age and poor health, and who had by her will stated she intended to dispose of all “ unexpended and unused principal ” in the trust, now be held not to have intended disposition of the additional shares?


It is not necessary to analyze the statutory construction urged in behalf of respondent since the court does not construe the testamentary provision as distinguishing between ordinary and extraordinary stock dividends. The testator referred to an ' ‘ extraordinary cash or <mask> ’ At the time the will was executed, former section 17-a of the Personal Property Law was in effect. The section provided that in the absence of a contrary provision in the will, any dividend payable in stock shall be principal and not income of the trust. The section made no distinction between ordinary and extraordinary stock dividends. It would be unreasonable to hold that the testator intended to make such a distinction with the effect that extraordinary stock dividends would be income pursuant to the will, but ordinary stock dividends would be principal as directed by the statute.


In view of the obvious fact that the <mask> was taken from surplus accumulated prior to the execution of the will and was part of a plan by the representatives of the State Bank of Ontario to devalue the stock, and does not represent profits earned between the date of the execution of the will and the date of the decedent’s death, it seems that these circumstances must differ from the facts existing in the case of Matter of Jaynes (supra) and are more in line with the situation set forth in the case of Matter of Adams (supra).