delivered the opinion of the court.
This is a suit brought by the trustees of the estate of John DeKoven, deceased, who ask the aid of the court in construing certain provisions of his will, wherein the “ rest and residue ” of his estate is given to them in trust “ to hold, invest, rent, manage and care for the same, and to pay the net income thereof ” to the testator’s wife “ during her life, so long as she remains unmarried, and upon her death or remarriage” to divide such rest and residue between the appellants herein, if living at the expiration of the wife’s life tenancy. There is no controversy as to the facts, and such of them as may be deemed necessary to an understanding of the questions of law involved a re set out in the foregoing statement.
The testator died April 30, 1898. He left as part of his estate, shares of stock in a number of corporations, which have since his death declared, in one case an extraordinary cash dividend, -in others stock dividends, and in others stock dividends and rights to subscribe at par for new issues of stock. The question has arisen whether any or all of these dividends and rights are to be considered 61 net income ” within the meaning of the provision of the will *204above referred to, payable to the testator’s wife as the life tenant, or whether they constitute a part of the capital or body of the estate, which by the will is, upon the expiration of the life tenancy, to be divided Between the appellants as remaindermen.
The dividends and rights arrange themselves in three classes. To the first of these belongs the extraordinary cash dividend of twenty per cent declared July 1, 1898, upon 300 shares of the capital stock of the Pullman Palace Car Company. This dividend of twenty dollars per share was paid in cash, amounting to $6,000, and it is to be determined whether this is páyable under the will to the life tenant as net income, or to the remaindermen as a part of the corpus of the estate. The money out of which it was paid appears to have been earned, for the most part at least, during the lifetime of the deceased, and to have been retained by the company as surplus assets. It had never been added to the capital of the corporation, but had remained in the company’s treasury as undistributed earnings. It had not become the property of the testator dur¿ ing his lifetime. While it remained in the company’s treasury it was subject to such uses as the directors might see fit to make of it for corporate purposes. Its ownership was in the corporation. This is well settled, and is conceded by counsel. In Gibbons v. Mahon, 136 U. S. 519-557, the court, by Mr. Justice Gray, says: “ The distinction between the title of a corporation and the interest of its members or stockholders in the property of the corporation is familiar and well settled. The ownership of that property is in the corporation, and not in the holders of shares of its stock. The interest of each stockholder consists in the right to a proportionate part of the profits whenever dividends are declared by the corporation, during itS'Oxistence under its charter, and to a like proportion of the property remaining upon the termination or dissolution of the corporation after payment of its debts. (Citing a number of authorities.) Money earned by a corporation remains the property of the corporation, and does not *205become the property of the stockholders, unless and until it is distributed among them by the corporation. The corporation may treat it and deal with it either as profits of its business, or as an addition to its capital.” To the same effect is Minot v. Paine, 99 Mass. 101, where it is said (p. 106): “ The net earnings of a railroad corporation remain the property of the company as fully as its other property till the directors declare a dividend. A shareholder has no title to them prior to the dividend being declared.” Hyatt v. Allen. 56 N. Y. 553; Greeff v. Equitable Life Assurance Society, 160 N. Y. 19-32. Applying the principle in the present case, no part of the earnings of the Pullman Palace Car Company out of which the extraordinary cash dividend under consideration was paid had become a part of the testator’s estate at the time of his death, no matter when they had been earned by the company. If the dividend had been paid to the testator in his lifetime, it would have been received by him as income from his stock investment. It did not become anything else when received by the trustees of his estate in the form of an extra dividend, after his decease. It was still income, like Other dividends, and as such it is payable to the life tenant under the provisions of the will.
This conclusion is in accord with what we regard as the greater weight of authority, and with what is said in Waterman v. Alden, 42 Ill. App. 294-319. Reference is there made to the earlier English cases in which it was held that extraordinary dividends and bonuses belonged to the remainderman as accretions to the capital, and it is said that “ in later cases the English courts refused to follow that rule,and cash dividends, whether ordinary or extraordinary, and bonuses declared out of the profits, were held to belong to the income tenant.” (See cases there cited.) The conclusion of the court in that case is thus stated: “ The profits were income, in the absence of an affirmative binding act on the part of the bank changing their character, and it was immaterial whether they were earned by the biink in the lifetime of the testator or after his death.” *206These views appear to have been concurred in by the Supreme Court in Waterman v. Alden, 144 Ill. 90. See, also, Davis v. Jackson, 152 Mass. 58. It is not seriously disputed by counsel for appellants that the life tenant is entitled to this extraordinary cash dividend as income of the estate.
Mo good reason appears for depriving the life tenant of this cash dividend declared and paid on stock which became a part of the trust estate, in view of the fact that the testator gave to her all the net income of his estate without reference to when such income was paid or received.
The second of the questions presented relates to another class of so-called dividends paid by the issue of certificates of stock and known as “ stock dividends.” These were declared by four of the corporations in which the trust estate was the holder of capital stock. The Pullman Palace Car Company, in 1898, increased its capital stock fifty per cent and issued new stock to that amount representing earnings of the company added to its capital. This new issue of stock was distributed to its stockholders of record in the ratio of one share for each two shares before outstanding. The trustees of the testator holding 300 shares of stock in said company received 150 shares of the new issue, of a par value of $100 a share fully paid. In like manner the Pullman Loan and Savings Bank in December, 1898, increased its capital stock from $100,000 to $200,000, paying for the same out of its surplus and undivided profits, and declaring a stock dividend of 100 per cent, of which the estate holding fifty shares of the original issue became entitled to and received fifty additional shares of the par value of $100 each. In March, 1900, the Chicago Telephone Company, another of the corporations in which the estate was a shareholder, holding 3.55 shares of its stock, declared a stock dividend, so called, of which the estate received seventy-one shares of th¿ par value of $100 each. And lastly, the Chicago, Rock Island and Pacific Railway Company, in which the estate was the holder of 900 shares of capital stock, directed, in May, 189,8. the distribution of 46,156 additional shares to its stockholders of record, in the proportion of one new share for *207each ten shares previously held; and the estate received ninety shares of the new issue of the par value of $100 each. It appears from a resolution adopted by the directors of the last named company, that the stock so distributed was issued in payment of certain addition and improvement bonds. These were dated in 1881, 1882, 1883 and 1884, and were issued to the treasurer of the company to evidence, apparently, a debt from the company to itself for money taken from income account as a temporary arrangement to enable the company to proceed with certain additions and improvements before the creation, by the sale of bonds and stock, of a fund for such purpose. These bonds were payable to the treasurer as trustee, either in lawful money or “ with full paid shares of capital stock,” as the company might at the time elect, to be distributed to those who should then be stockholders. The company elected to pay with an issue of full paid stock. This stock represented, therefore, earnings of the company which had been invested in its plant and become a part of its capital.
These stock dividends were all, it will be seen, substantially of the same character. In no case was the stockholder allowed an option to take a money dividend instead of stock. In this respect the facts differ from those in Waterman v. Alden, 42 Ill. App. 294, above referred to. These stock dividends are claimed in behalf of the life tenant as “ net income,” and in behalf of the remainder-men as a part of the capital to be held in trust for their benefit.
It is urged in behalf of appellants that it was not the meaning and intent of the testator, ascertained as it must be from the whole will and all its parts (Harrison v. Weatherby, 180 Ill. 418), that the net income payable to the life tenant should include future stock dividends. This, however, must depend on whether such dividends are, or not, “ net income ” of the trust estate. The life tenant is entitled to all such “ net income ” no matter in what form it may be received, but not to any portion of the capital.
There is a wide and irreconcilable difference of opinion *208between courts whose opinions are entitled to respect, as to whether stock dividends, so called, are to be regarded as income to which a life tenant is entitled, or as merely representing capital to be held in trust for the remaindermen. Some of these cases seem, however, to have turned in some measure upon the intent-of the testator derived from the language used in creating the trust estate or from the facts and circumstances of the particular case. This seems to be true of two leading cases in the Court of Appeals of Hew York, cited by appellee’s counsel—McLouth v. Hunt, 154 N. Y. 179, and Lowry v. The Farmers’ Loan & Trust Company, 172 N. Y. 137. In Cook on Corporations (Chap. 32, Sec. 353, et seq.), it is pointed out that the reare “ three well defined rules upon this subject which may be denominated the American or Pennsylvania, the Massachusetts, and the English rule.” The first of these is to the effect that when the fund out of which an extraordinary stock or property dividend is to be paid was accumulated by the corporation before the life estate arose it should be held to be principal belonging to the corpus of the estate; but if earned after the life estate arose then the dividend should be deemed income, and go to the life tenant. The Massachusetts rule regards all cash dividends, large or small, as income, and stock dividends, whenever earned and however declared, as capital. The English rule as it was originally stated treated extraordinary cash or stock or property dividends as belonging to the corpus of the trust; hut later English decisions are to the effect that extraordinary cash dividends may be decreed to the life tenant. The general subject and the authorities are well considered by the United States Supreme Court in Gibbons v. Mahon, supra, to which reference may be had. The conclusion reached in that case is that stock dividends declared as in the case at bar go to the remainder-man. This rule is, we think, supported by sound reasoning and sustained upon principle by the greater weight of authority. Spooner v. Phillips, 62 Conn. 62; Mills v. Britton, 64 Conn. 4; Brown & Larned, Petitioners, 14 R. I. 371; Richardson v. Richardson, 75 Me. 570; Millen v. Guerrard, *20967 Ga. 284; Bouch v. Sproule, L. R., 12 Appeal Cases, 385-397.
A dividend is defined as “ a corporate profit set aside, declared and ordered by the directors to be paid to the stockholders on demand or at a fixed time. Until the dividend is declared these corporate profits belong to the corporation, not to the stockholders, and are liable for corporate indebtedness.” Cook on Corporations, Chap. XXXII, Sec. 534. A stock dividend “is lawful when an amount of money or property equivalent in value to the full par value of the stock distributed as a dividend has been accumulated and is permanently added to the capital stock of the corporation. * * * In this country these dividends are frequently made, and are constantly sustained by the courts.” Idem, Sec. 563.
There is a clear distinction between an extraordinary cash dividend no matter when earned, and stock dividends declared as in the case at bar. The one is a disbursement to the stockholder of accumulated earnings, and the corporation at once parts irrevocably with all interest therein. The other involves no disbursement by the corporation, which parts with nothing to the stockholder. The latter receives, not an actual dividend, but certificates of stock which evidence in a new proportion his interest in the entire capital, including such as by investment of accumulated profits has been added to the original capital. The differences of opinion as to whether this additional issue of stock is to be treated as income for the life tenant or capital to be held in reserve for the remainderman, grow out of the fact that such stock dividends undoubtedly represent additions to the original investment in the corporation. Hence they have been regarded, with what seems to us unsatisfactory reasoning, as income to the stockholder, whereas in fact they are not, as we view the matter, “ income ” to him, but represent additions to the source of his income, viz., his invested capital. The stockholder never receives these additions while the corporation continues its business. They do not go to him in any form; and hence the difficulty *210we find in regarding them as income to him. A stock dividend gives the stockholder merely the evidences of additions made by the corporation to its own capital. He can, it is true, still retain the old stock certificates and sell the new ones, but by so doing he parts with so much of his interest in the capital of the corporation. The profit he may so derive is of the same nature that he would receive if no earnings had been added to capital and no stock dividend had been declared, but the market value of his stock should have arisen above par by reason of increased earnings and larger cash dividends declared thereon, and he should sell so much of it as represents the rise above its-original par value. He would thus diminish his capital, although the earning power of what he has left might afterward equal that of his original investment. It is capital that he parts with. Fluctuations in market values of stock and in dividends therefrom constantly occur, regardless of whether the original capital has been increased by addition of accumulated profits or not.
Stock dividends add nothing to the capital of the corporation, nor to the capital of the stockholder. They may make it easier for the latter to dispose of a part of his interest. It was the addition made to the plant or capital of the concern out of earnings, which increased the value of his shares, and the stock dividends merely represent in a new form a part of what the original stock would otherwise represent. Income of a corporation is rarely if ever, all of it, income to the stockholder. Some of the earnings must go out for expenses of operation and for repairs. Without repairs a plant would naturally in time wear out, and the corpus or capital invested cease to earn dividends. What goes into repairs and what goes into permanent improvements or enlargements are alike added to the invested capital to maintain it unimpaired, or to increase its power to earn income for the stockholder. The life tenant as well as the remainderman profit by thus maintaining and improving the original investment. It would be as logical to award the life tenant a corresponding *211interest in the original shares in proportion to whatever earnings or profits are expended for necessary repairs, as to award him. or her the portion of such earnings or profits invested in permanent improvements of added to capital. Both repairs and such enlargements of capital come from the same source and are generally made for the same purpose, viz., to maintain or increase the earning capacity of the original investment. It is, as we have said, within the power of a corporation acting within its charter powers, in good faith and with an honest purpose to protect the interests of all concerned, to determine for itself whether its earnings shall be applied to repairs, or to betterments, or to a fund for use in its business; and this regardless of whether its action rhay diminish for the time being the income of a life tenant or increase the estate of a remainderman. “ Profits on hand are valuable to the capital, and a right to share in them passes upon a sale or bequest; but they are the property of the corporation and may be applied to such uses as it may lawfully make of them.” Waterman v. Alden, supra (p. 319). In Minot v. Paine, supra (p. 107) the court says : “ It is obvious that if the directors had made no stock dividends, but had invested the income in permanent improvements, making no increase of the number of shares, the improvements would have been capital belonging to the legatees in remainder.”
The precise question we are considering arose in the case of Gibbons v. Mahon, 136 TJ. 8. 519, above referred to. We find no real distinction between the facts in that case, and those, in the case at bar. It is there said (p. 559): “ A stock dividend really takes nothing from the property of the corporation, and adds nothing to the interests of the shareholders. Its property is not diminished, and their interests are not increased. After such dividend as before, the corporation has the title in all the corporate property; the aggregate interests therein of all the shareholders are represented by the whole number of shares, and the proportional interest of each shareholder remains the same. The only change is in the evidence which represents that *212interest, the new shares and the original shares together representing the same proportional interest that the original shares represented before the issue of new ones.” It being within the powers of the directors of a corporation, acting, as we have said, in good faith, to determine in what manner accumulated earnings shall be applied, the nature of the interest of a life tenant and remainderman in such accumulated profits may be determined by such action; and as is further said in the case last cited, “ ordinarily a dividend declared in stock is to be deemed capital, and a dividend in money is to be deemed income of each share.”
The questions involved have been elaborately argued by counsel on both sides in the case before us, and we have carefully considered the cases cited which do not accept the conclusion we are compelled to adopt. We need not review them at length. In McLouth v. Hunt, supra, the New York Court of Appeals says; “ For all corporate purposes the corporation may doubtless convert earnings into capital, when such power is conferred by its charter; but when a question arises between life tenants and remainder-men concerning the ownership of the earnings thus converted, the action of the corporation will not conclude the courts.” Where, as in the case at bar, the corporation has thus converted earnings into capital, we know of no principle which can justify the courts in taking it away from the remairidermen, to whom the testator has left it by his will, and giving it to the life tenant, to whom the testator has left only the net income of such capital.
It is claimed in behalf of appellants herein that under the facts in this case these so-called stock dividends should still be considered a part of the trust fund for the benefit of the remaindermen, even though the Pennsylvania rule above referred to should be adopted, inasmuch as it is claimed that the earnings upon which the stock dividends were based, had accumulated before the testator’s death. However that may be, we regard the difficulty in the application of that rule by a trustee as an obstacle to its application which in many cases would be insuperable. As said *213by Mr. Justice Cartwright in Waterman v. Alden, before referred to, “ no apportionment could be made without an examination of the accounts and transactions of the bank, and the courts refuse to enter upon such examinations, but regard dividends accruing at the time they are set apart.” If, however, a rule should be applied which is laid down in the case of Lowry v. The Farmers’ Loan and Trust Company, 172 N. Y. 137, where the same dividend of the Pullman Palace Car Company in controversy here was under consideration, the result should still be that under the undisputed facts in the case at bar the stock dividends, so called, must be regarded as representing a part of the capital belonging to the trust estate and not as income for the life tenant. In that case the Hew York court says: “ That the value of the shares of stock has been lessened by a dividend, is a fact of no relevancy in determining the question of whether the dividend is,to be regarded as income to the life tenant, or as capital to the remainder-man. That question will be determined by the origin of the dividend. In this ease a fund had been created by an accumulation of the net earnings of the corporation, and it remained a part of the general assets until, in the judgment of the directors, the time came when it was proper and prudent to distribute it among the stockholders. That which the directors of the corporation distribute among the stockholders, without intrenching upon capital, must be comprehended within the term ‘ profits,’ and we should assume that the testator intended that what might be paid in that way should belong to the beneficiary. There is no question of increasing the capital for any corporate purpose or need. It was simply a mode of distributing the profits earned by the employment of capital.” While we are compelled to differ from views thus expressed in that case for reasons we have before indicated, yet if we should agree with the above quotation the result would still be that the stock dividend referred to therein must in the case at bar be regarded not as an actual dividend, but merely as a distribution of evidences of capital which was already accu*214mulated by the corporation in the lifetime of the deceased, and was represented by the shares outstanding in his name at the time of his death. In other words, it formed a part of the corpus of his estate, the income of which only was left to the life tenant. To give to the life tenant in the case at bar these stock dividends would be to reduce by so much the value of the original corpus of the estate devised to the remaindermen, and would “ intrench upon ca.pital.”
We conclude that the court must treat as-capital that which by the action of the corporations referred to has in fact become such, and that the stock dividends under consideration belong to the corpus of the trust estate.
The third of the sources from which the trustees of the estate have derived funds with reference to which they ask the instructions of the court, are certain rights and privileges of subscribing to the stock of five of the corporations in which said trust estate is interested. By reason of their holding shares of the capital stock of such corporations, the said trustees were given rights to subscribe at par for a certain amount of the new stock to be issued by each of said corporations respectively, proportioned to the number of shares before held by the estate. Inasmuch as such new stock when issued had a market value greater than par, these rights to subscribe were salable at a premium. Some of them were accordingly sold by the trustees in the exercise of the discretion vested in them, and they received therefor sums aggregating several thousands of dollars. In the remaining two corporations the trustees availed themselves,of the rights and did subscribe for such additional stock, paying therefor out of funds belonging to the estate.
Such rights to subscribe have been generally held to be incident to the ownership of the stock, and therefore capital to be added to the trust fund held for the remaindermen, the income of which goes to the life tenant. This is said to be “ equally true whether the trustee subscribes for the new stock for the benefit of the trust or sells the right to subscribe for a valuable consideration. In either *215event the income goes to the corpus.” Cook on Corporations, Chap. 32, Sec. 559; Atkins v. Albree, 94 Mass. 359; Biddle’s Appeal, 99 Pa. State, 278; Eidman v. Bowman, 58 Ill. 444. In the ease last cited it is said: “ When the company determine to increase their capital stock within the limits of their charter, each of the previous shareholders has the right to a proportionate amount of the new stock if it should be added to the old shares.” We agree with the Circuit Court that these rights to subscribe and the proceeds of their sale belong to the trust fund. We do not regard the case of Waterman v. Alden, supra, as holding to the contrary. In that case it is said that “ a surplus equal to the amount of new stock had been earned at testator’s death. The nexv stock was not issued as a stock dividend which stockholders were to take in that form, but the new stockholders were permitted to subscribe for the new shares of stock to the amount of their interest in the accumulated earnings, in lieu of a cash payment of that amount, so that they could take either stock or cash at their election.” There was therefore in that case neither a stock dividend declared, nor was there given a mere right to subscribe for the new stock. In effect the stockholders received a cash dividend which they could invest in the new stock or not, as they chose.
For the reasons indicated we are compelled to regard as erroneous that part of the decree of the Circuit Court which finds the stock dividends of the Pullman Palace Car Company, the Pullman Loan and Savings Bank, the Chicago Telephone Company and the Chicago, Rock Island and Pacific Railway Company to be part of the net income of the estate. The decree is therefore reversed and the cause will be remanded to the Circuit Court for further proceedings in accordance with the views herein expressed.