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ment by the syndicate were accumulated net earnings, represented by cash or securities calling for cash. The remaindermen objected that this sum should not be credited to the income, but should have been held as capital. The referee found that the amount after the death of the testator was income, but that earned before the death of the testator was principal. Judge Danforth, delivering the opinion of the court, said:

"I find nothing in the will which indicates that the testator intended any such investigation or division, or that any other than the ordinary rule which gives cash dividends declared from accumulated earnings or profits to the life tenant should be applied. From the shares in question no income could accrue, no profits arise, to the holder until ascertained and declared by the company and allotted to the shareholder, and that act should be deemed to have been in the mind of the testator, and not the earnings or profits as ascertained by a third person, or a court upon an investigation of the business and affairs of the company, either upon an inspection of their books or otherwise."

Then after examining the authorities, the learned judge continued: "In this case no portion of the earnings which entered into the dividend had been capitalized by the company, and therefore the inquiry when the profits were earned, out of which it was to be paid, was immaterial. It is not claimed that the declaration of the dividend, as dividend from profits, was ultra vires, and whenever earned they were not profits until the directors so declared."

And quoting with approval from Sproule v. Bouch, L. R. 29 Ch. Div. 635, as follows:

"The general principle applicable to these Inquiries may, in our opinion, be thus stated: When a testator or settlor directs or permits the subject of his disposition to remain as shares or stock in a company, which has the power either of distributing its profits as dividend, or of converting them into capital, and the company validly exercises this power, such exercise of its power is binding on all persons interested under him (the testator or settlor) in the shares, and consequently what is paid by the company as dividend goes to the tenant for life, and what is paid by the company to the shareholder as capital, or appropriated as an increase of the capital stock in the concern, inures to the benefit of all who are interested in the capital. In a word, what the company says is income shall be income, and what it says is capital shall be capital."

The next case to which I wish to call attention is McLouth v. Hunt, 154 N. Y. 179, 48 N. E. 548, 39 L. R. A. 230. In that case the estate of the testator was bequeathed to the trustees with a provision that his directors pay over to the use and benefit of each of his grandsons, respectively, from and after the arrival at age of his said grandsons, respectively, the full income of one of the said parts. The portion of the estate which the executors received in trust was 254 shares of the capital stock of the Western Union Telegraph Company upon which the trustees received a stock dividend of 10 per cent., represented by certificates issued to them for 25.4 additional shares. This dividend was declared from the surplus earnings of the corporation, and it was claimed by the trustees that these stock dividends upon the Western Union stock was not income payable to the life tenants, but an accession to the capital which went to the remaindermen. The court held that what the corporation really did was to issue to the shareholders its own obligations in the form of stock certificates against the accumulated earnings which it had on hand, and these certificates,

having a market value, could readily be converted into money by the shareholders, so that the transaction was in substance a distribution of profits, and that in that case the stock dividend represented income and properly belonged to the life tenant.

The next case is Matter of Rogers, 161 N. Y. 108, 55 N. E. 393. In that case the testator created three separate trusts for the benefit of his children during their lives, with remainders to their issue. A part of the principal devised to the trustees was shares of the capital stock of the Rogers Locomotive & Machine Works. The testator died in 1868. The capital stock of the corporation was then $300,000, and this stock was appraised at $125 per share. The corporation continued business until 1893, paying dividends each year. In 1893 it sold its plant for the sum of $2,750,000, to be paid in stock of a new corporation known as the Rogers Locomotive Company, whose capital stock was $3,000,000. The stock of the new company, obtained from the sale of the plant of the old company, was divided among the stockholders of the old company in proportion of ten shares of new stock to one share of old stock. After this sale the old company remained in possession of other property which it had accumulated consisting of capital on hand, bills receivable, real estate, government bonds, and stock of other companies, amounting in round numbers to $3,000,000. This property the officers of the old corporation converted into money and distributed it among its stockholders. The question arose as to whom this belonged, whether to the life tenants or to the remaindermen. The court said:

"As we have seen, the surrogate held that all that was received upon the sale of the plant should be retained by the trustees as capital, and this included that which had been paid out for raw material. He also held that the first cash dividend made on the liquidation of $100 per share should also be retained by them as capital”

-and that the balance of the $3,000,000 that was divided among the stockholders of the old company was income to go to the life tenant. This determination was affirmed upon the ground that this $100 per share represented what was reserved for working capital by the new company, and was therefore capital, and that the balance was profits, which, being properly distributed as such, went to the life tenants. Here was property representing accumulated surplus which was distributed upon the winding up of a corporation; yet where it was distributed as surplus profits, and not as a part of the plant or working capital of the company, it was held to go to the life tenants, although apparently it was realized from real estate, government bonds, and stock in railroad corporations, cash on hand, and bills receivable.

The next case is Lowry v. Farmers' Loan & Trust Company, 172 N. Y. 137, 64 N. E. 796. In that case the testator died in 1895. He rave one-fourth of his residuary estate to trustees, to apply the rents, incomes, and profits thereof to the use of the testator's wife until her Ceath or remarriage, in either of which events the trust property should go to increase the portion of the estate held in trust for the benefit of his children. As a part of this trust there was stock of the Pullman Palace Car Company, eight shares of which formed a part of the trust estate held for the plaintiff. That company declared a dividend

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of 50 per cent., payable in certificates of stock at par value. This dividend was declared and obtained from the accumulations of net surplus as the same appeared in the accounts of the company; and it was held that such a transaction, although in the form of an issue of stock certificates, was a distribution of the profits and what the stockholders got represented income and was income. The rule is that "where a corporation has declared a dividend upon its capital stock, payable in new stock certificates, if it is based upon an accumulation of earnings or profits, by their distribution in that manner the stockholders receive the representative of income and not of capital"; that "while the corporate action may not be necessarily conclusive upon the court with respect to the question, if it is based upon facts and is not purely arbitrary, it will and should be controlling." The court then goes on to say:

"It is true enough, as the appellant argues, that the testator, at the time of his death, owned the right to share in the assets of the corporation, proportionately to the amount of stock which he held; but it does not therefore follow that dividends thereafter made from the accumulations of earnings must be regarded and treated as additions to the capital of the trust estate. All stockholders are interested in the operation of the property of a corporation and their shares of stock represent individual interest in the corporate enterprise. in its capital, as in its net earnings; but the corporation itself has the legal title to all the properties and holds them for their benefit. They have a right to dividends, only as the corporate agents, in the exercise of their discretion, may declare them. * The declaration of a dividend by a corporation

**

in active operation is the appropriation of a portion of the assets, which represented the net earnings of the corporation, for the use of the stockholders, and pro tanto the assets are diminished. The stock no longer represents them. The capital is unchanged; but the value in the market of the shares may be affected by the diminution in the amount of the corporate assets. 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 for the remainderman. That question will be determined by the origin of the dividend. In this case 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 its 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 diminishing the capital, nor of increasing the capital for any corporate purpose or need. It was simply a mode of distributing the profits earned by the employment of the capital."

The case of Chester v. Buffalo Car Mfg. Co., 70 App. Div. 443, 75 N. Y. Supp. 428, is entirely in line with these decisions, for there the court said:

"While it is subject to modification and variation, the natural and fundamental idea of life income payable under a will is of that current income which accrues and becomes payable from time to time during the life tenancy upon a principal fixed as of the time when the trust took effect and remaining substantially unchanged."

The fact that the particular money that was used in the payment. of this dividend was from the sale of real estate seems to me entirely unimportant. The company had been in operation for many years. It had from time to time moved its depot, as its business required.

It had invested money in the real estate necessary for its new depot, and when the old real estate became unnecessary it was sold, and the proceeds of such sale became money of the company, to be distributed if it was not needed for the business of the company. It represented surplus profits, just as much as if the money invested in the new real estate had been kept in its possession and this real estate exchanged for the new real estate required for the new depot. In this case, as in Lowry v. Farmers' Loan & Trust Company, supra, "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," and "that which the directors of the corporation distribute among its stockholders, without intrenching upon capital, must be comprehended within the term 'profit,' and we should assume that the testator intended that what might be paid in that way should belong to the beneficiary." It follows that the learned referee was wrong in holding that this dividend was a part of the capital, and that the judgment should be modified by directing it to be paid to the life tenant.

The second question presented is as to the 100 shares of the capital stock of the Chicago, Rock Island & Pacific Railroad Company, and as to certain cash dividends paid upon the stock held by the trustees. The same principal that we have before discussed in regard to the dividend of the Harlem Railroad Company determines this question, and the referee was clearly right in holding that these dividends belonged to the life tenant.

The next question is as to the proceeds of the sale of rights to subscribe in the Chicago, Rock Island & Pacific Railroad Company and the New York Central Railroad Company. We think the referee was right in respect to this question, and that the amount realized was a part of the capital of the estate. When the corporation gave to the existing stockholders a right to subscribe to its capital stock at a price fixed, there was nothing in this right of the nature of a dividend or distribution of profits. It was a right which accrued to the owners of the stock as an incident to its ownership. If the owner of the stock had accepted the option and had subscribed to the stock, the stock so subscribed and paid for out of the capital of the trust would be clearly a part of the trust property, and any increase in the value of that stock after its subscription would accrue to the capital of the trust. The trustees, not being in a position to make these subscriptions, sold the right to subscribe, and the proceeds realized from a sale of this right were a part of the capital of the trust. This question is presented in Matter of Kernochan, 104 N. Y. 618, 11 N. E. 149, and that case is controlling upon this point.

The next question is as to the necessity of establishing a sinking fund to provide for any depreciation in the value of the securities. which form a part of the trust estate. This question is also settled by the authorities that we have before considered. It is now settled that where specific securities are devised, with a direction to pay the income and interest of those securities, the beneficiary is entitled to all the interest, even though the payment of all the interest would tend

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to reduce the selling value of the securities. McLouth v. Hunt, supra; Matter of Rogers, 22 App. Div. 428, 48 N. Y. Supp. 175.

The only remaining question is as to the right of the trustees to one-half commissions for receiving the entire trust property. I think we must treat this question without reference to the fact that the executors and trustees were the same persons. Whether or not the executors were entitled to commissions is not before us. The will bequeathed certain property to the trustees in trust, and it has been received by them, and is now held by them under the provisions of the will; and these trustees are entitled to such a commission as the law allows to trustees who have received bequests of personal property in trust, to hold it during the life of the beneficiaries and to pay the income and proceeds thereof during her life to the beneficiary and upon her death to deliver the securities over to the remaindermen. Upon this appeal we are not concerned with the right to commissions upon the income which was received by the trustees and paid to the life tenant, as by an express stipulation that question has been arranged by private agreement between the life tenants and the trus

tees.

Section 2802 of the Code of Civil Procedure provides for a voluntary accounting by trustee created by a last will and testament before a surrogate. It provides that a surrogate before whom such an accounting may be had "shall allow to the trustee or trustees the same compensation for his of their services, by way of commission, as are allowed by law to executors or administrators, besides their just and reasonable expenses therein." By section 2730 of the Code, the commissions of an executor or administrator are fixed as a percentage "for receiving and paying out all sums of money." While these sections of the Code were the only provisions allowing or regulating commissions to trustees, the right to such commissions was presented to the Court of Appeals in Phoenix v. Livingston, 101 N. Y. 451, 5 N. E. 70, where the main portion of the trust property consisted of real estate. In discussing whether or not the trustees were entitled to commissions upon the real estate held by them, and considering sections 2730 and 2802 of the Code, it is said:

"Sums received and paid out are made the basis of computation. It has, nevertheless, been held that securities received by an executor, and by him turned over to the parties entitled, might be treated as money received and paid out for the purpose of computing commissions. This was itself an extension of the authority of the statute, justified by the consideration that what was accepted as money by the parties interested might well be treated as such for purposes of compensation. But we are asked now to take a step further, and give a new extension to the act, which does violence to its language, and makes land, in no just sense received or transferred, constructively money. They were authorized to sell and to rent the real estate. Upon all sums of money thus realized and passing through their hands they were entitled to commissions; but the unsold lands, at the close of the. trust, passed to the possession of the remaindermen, not through any title derived from the trustees, but by force of the original devise. The trustees transferred no land, but simply refrained from exercising their power of converting it into money. And so they not only never paid it out, even con. structively, by any grant or conveyance, but never even received the absolute fee, which all the time was a vested interest in remainder. Their estate was simply commensurate with their trust, bounded as to duration by the terms