The opinion of the court was delivered by
Swayze, J.
The question presented is answered by our decision in Day v. Faulks, 81 N. J. Eq. 173. In that case Vice-Chancellor Stevens had stated (79 N. J. Eq. 66) the difficulties with his usual clearness and precision and we affirmed for his reasons. It is unnecessary, therefore, to go to other jurisdictions for a rule, as far as any question presented by this case is concerned. It may be well to restate the reasons.
The fundamental principle is to carry out the intent of the testator. Clearly, when he has created a trust fund and directed that the income be paid a beneficiary for life, he intends to secure that income to the life tenant; that is the very object of the fund. Where specific stocks may, pursuant to the will or the statute regulating investments for a trust fund, be retained by the trustee, it is a fair inference that the testator meant the life tenant to have the ordinary annual income of those stocks within the limits of variation permitted to the judgment of the directors. The difficulty arises when the income is extraordinary, due to an unusual accumulation of earnings by reason of extraordinary prosperity, or when the accumulated savings of years are to be distributed. Where the dividend is extraordinary we long ago adopted the rule of apportionment between the tenant for life and the remainderman. Van Doren v. Olden, 19 N. J. Eq. 176; Ashurst v. Potler, 29 N. J. Eq. 625; Lang v. Lang, 57 N. J. Eq. 325. Whatever may be said in favor of giving extraordinary dividends to the corpus of the estate by way of more ample security for the maintenance of the trust fund, it is equally consonant with the presumed intent of the testator that the life tenant, for whose welfare he has shown himself solicitous by the creation of the trust, should receive at least some of the extraordinary dividend. It may often be made up of earnings with*217held by the good judgment of the directors from distribution at the expense of the life tenant, and it is but fair that he who has suffered by the enforced abstinence should profit by the action of the directors in distributing during the continuance of the life estate the accumulations resulting from that abstinence. But for the necessity of the directors of the corporation guarding against business risks and possible future misfortunes, all earnings of the corporation made after the testator’s death might be distributed to the life tenants, since all such earnings are income on the investment as it stood at that time. As long as proper management required that these earnings be not distributed, they may be retained, but when the time conies for a distribution it is equitable that the portion of earnings after testator’s death to be distributed should go'to the life tenant. A difficulty, however, arises when the distribution takes the form of a stock dividend. As the vice-chancellor pointed out in Day v. Faulks, a stock dividend if transferred to the life tenant gives him not only earnings during his life tenancy but an interest in the original capital and earnings prior to testator’s death. A stock dividend may well be large enough to reduce the book value as well as the market value of the stock held for the corpus of the estate, because it amounts to giving each share a smaller proportionate interest in the assets of the corporation. It will certainly lessen the proportionate interest of the estate in the corporation, a result that cannot have been contemplated by the testator. His desire for the welfare of the life tenant would necessarily lead him to preserve intact the principal of the trust fund; that has been the guiding principle of our decisions. To withhold all dividends would strengthen, tire corpus of the estate, but the testator can hardly mean to. starve the life tenant for the benefit of remaindermen, whom he often has never seen. What is necessary is an equitable rule for the ascertainment of the respective interest of life tenant and remainderman in surplus which has been converted into capital stock. To use the language of the vice-chancellor, in Day v. Faulks, the company “has made a disposition” of the earnings to that extent. We still think the rule in Day v. Faulks is equitable. It gives the new capital stock *218to the estate, but subject to a charge in favor of the life tenant of the amount of his money used to pay for the stock, usually the par value. This gives protection to the estate against the possibility of a, reduction in the value of the shares, and it gives the life tenant the cash out of earnings accrued during his life estate which the directors have applied irrevocably to the capital of the corporation so that not even the courts can hereafter force the distribution of that cash in the form of a dividend. The practical working is shown by the decree of this court in Day v. Faulks. It adjudges “that the life tenants under said will are entitled to an interest in. said stock so received by said trustee equivalent to their share of the said earnings which it was intended to capitalize, and which were capitalized as aforesaid, and that the complainant, as such trustee, is entitled to all residuum of interest in said stock, such residuum representing capital of the company, in esse as such, when such dividend wa.s declared and therefore belonging to the principal of the trust fund; and that the life tenants are entitled to have their share of said earnings charged on said stock and so much of said stock sold as may be necessary to satisfy .the charge and so enable them to realize their interest therein.” This rule has the merit of simplicity; it protects the corpus against wasting by stock dividends, and gives the life tenant that portion of the earnings irrevocably taken from the life tenant to pay for the new stock; he loses the advantage of securing market value for the stock when it is at a premium. That market value goes to the corpus if the trustee chooses to sell to satisfy the charge. This is in harmony with the rule in Ballantine v. Young, 79 N. J. Eq. 70, which gave the value of an option to take new stock to the corpus of the trust fund.
The application of this rule to the present case results in a modification of the figures. The new shares (three hundred and eighty-five) had a total par value of $1,925. This amount only is the amount of earnings taken irrevocably from the life tenant and invested in the new stock and chargeable to the trustee as income. The record is remitted for the necessary corrections.
*219For affirmance—None.
For reversal—Williams—1.
For modification■—The Chiee-Justice, Swayze, Tren’chaed, Bergen, Minturn, Kalisoi-i, Black, Katzenbact-i, White, Heppeni-ieimer, Taylor, Ackerson—12.