and 132 New York State Reporter ness. At the death of the testatrix the value of the total assets of the company was $1,791,708.59; the value of plant and equipment being $748,152.43; and value of materials being $345,193.35; cash, bills receivable, etc.: Invested surplus $418,492 50 279,870 31 $698,362 81 These figures make no account of the value of the good will, franchise rights, or dividend-earning capacity of the company as a going business concern. This was the property as it existed when the will was made and took effect at testatrix's death. One of the questions involved in the case was how much of this amount constituted principal and how much "dividends, issues and profits," under the provisions of the will creating the trusts in question. What were the rights in the fund between the holders of the intermediate estates and the remaindermen? The surrogate held that the principal was the value of the plant, equipment, and materials, and its good will, patents, patent rights, licenses, trade-marks, rights, privileges, and franchises, called above plant, equipment, and materials, $1,093,345.78, and necessary working capital, $70,000, making a total of $1,163,345.78, and the balance being invested surplus, $118,492.50, and working cash capital, $279,870.31, less above, $70,000-$209,870.31, making a total of $628,362.81, was “dividends, issues and profits," and this result is not seriously objected to here. It was, at all events, substantially correct. From 1896 to 1901 the business increased largely. Three hundred and five per cent. in dividends were paid to the stockholders, and profits were made besides those dividends amounting to $1,424,034.82, which were undivided at the time of the sale hereinafter referred to, and a part of which had been invested in betterments and materials. June 20, 1901, the company sold its entire plant, equipment, and materials for $6,626,837, of which materials, supplies, product, finished or in process, patterns, drawings, and templates, were valued at $1,126,837; value of plant and equipment at death of testatrix, $748,152.43; expended for betterments since her death, $553,410.57; and the balance was $1,198,437, which covered all patents, patent rights, licenses, trademarks, rights, good will, privileges, and franchises, and an agreement that the company should be wound up and dissolved and all capital stock turned over to the purchaser, and that the company and its officers should not for 10 years thereafter carry on the business of manufacturing locomotive engines. There was expressly excepted from the sale, cash on hand or in bank, bills and accounts receivable, stocks, bonds, leases, agreements, warrants, or other forms of invested surplus earnings. The sale was fully consummated, the company received the purchase price, and was itself finally dissolved October 30, 1903. After the sale there was paid and distributed to the stockholders, including the trustees under the will, as accumulated surplus earnings, $900,000, being those as found at testatrix's death, $628,362.81, and those accumulated thereafter, $271,637.19. There seems to be no controversy but that these payments were properly made, and, so far as the trusts in question were concerned, were properly distributed to the holders of the intermediate estates. The main contention arises over the increase of the assets, or the value thereof, at the time of the sale in 1901. The principal at testatrix's death was $1,163,345.78. The sale was for $6,626,837. The increase was $5,463,491.22. This was made up of materials, $781,643.65; betterments, $553,410.57; and balance of $4,128,437. The question is whether this increase is to be regarded as principal or as “dividends, issues and profits." The surrogate decided it was to be regarded as principal and "accretions" thereto. It will be noted that there is no controversy now as to what the principal was at the time the trusts were created. Between that time and the discontinuing of business, however, the income of the company had increased, and large dividends had been paid, from time to time, which went to the holders of the intermediate estates, so far as the trust shares were concerned. Other earnings of the company were used to purchase additional materials and to make additional betterments. And there was, moreover, a large general increase in the value of the property itself, including among other things the good will of the business, which had not been considered in making up the "principal," as of the date of the creation of the trusts in question; and including also patents, patent rights, privileges, and franchises, the agreement to go out of business and dissolve the company, and not itself or its officers to carry on the same business for 10 years thereafter. The words "dividends, issues and profits," used in the creation of the trusts, should be construed as meaning practically "income or earnings." The large balance of $4,128,437, covering good will, franchises, etc., can hardly be regarded as earnings or income. It was an increase in the value of the property itself, and such increase was in no proper sense a profit arising from or growing out of the stock which was the subject of the trusts. This principle was clearly enunciated and illustrated in Stewart v. Phelps, 71 App. Div. 91, 75 N. Y. Supp. 526, affirmed on opinion below, 173 N. Y. 621, 66 N. E. 1117. The terms of that trust were "rents, income, issues and profits," and they were held to give the intermediate beneficiary only the annual income, and not any increase in the value of the securities in which the fund was invested. There is some reason to question the correctness of the surrogate's conclusion as to the other two items of materials and betterments. Those were the product of the surplus of yearly "income or earnings." The betterments had become a part of the property itself, the plant, and equipment. The materials were on hand and were simply materials, or in process of manufacture into locomotives. These amounts were to be distributed to the stockholders, not of a going concern, but of a company that had ceased doing business and had been closed up. Were they a part of the "principal" of the trust fund, or were they "income and earnings"? In Matter of Rogers, 22 App. Div. 428, 48 N. Y. Supp. 175, and 161 N. Y. 108, 55 N. E. 393, there were some conditions very like those here involved. The company started in 1838 with a capital of $300,000. Rogers died in 1868. The words used in creating the trust were "income or interest." During the continuance of the trust the and 132 New York State Reporter company paid 10 per cent. dividends semiannually. The business was very successful, large improvements were made in the plant, and large investments were made outside in bonds, stock, and real estate. In 1893 the whole plant, materials, and good will were sold for $2,750,000, in the stock of a new company organized for the purpose of acquiring the property, and the old company went out of business. The old company had other property besides that sold, of the value of $3,000,000, and both these amounts, in all $5,750,000, were divided between the stockholders. The large increase in the property of the company resulted from accumulated and undivided profits and earnings of the company since its organization in 1838. The $3,000,000, at the time of the closing up of the business, was not being used in any way as active capital. It was invested in securities outside. In making a division of the fund, so far as the trusts were concerned, the $2,750,000 stock in the new company, issued to the stockholders in the old company, was regarded by the surrogate as capital, while the $3,000,000 of outside investments was regarded as profits or accumulated income. The Appellate Division and the Court of Appeals affirmed the surrogate. Clearly the moneys invested outside the business could not be regarded as capital. The amount received on the sale, however, was all held to be capital, including that for material, whether in process of manufacture or not, and the courts held this to be, in the absence of proof to the contrary, a part of the working capital, necessary to use in the business, and therefore capital, and not merely "income or interest." It was the product of accumulated, undivided profits, that had been made a part of the property itself, as necessary to the carrying on of the business, enlarged and extended as it had been. This decision is authority for holding the betterments and materials in this case a part of the capital or principal, rather than "earnings or income," so far as these trusts are concerned. We have carefully examined the surrogate's opinion, and the briefs of counsel, and the various cases referred to by them, and must refrain from making any argument ourselves, or attempting to harmonize the apparent conflict in the decisions of the Court of Appeals. We conclude, upon the authority of the Rogers Case above, and upon a reasonable construction of the terms of these trusts, that the surrogate was correct in his decision in reference to this part of his decree. If we are wrong, the Court of Appeals can readily correct us. The question as to a sinking fund, so-called, arises out of the consideration that there has been a decrease in the value of some bonds, in which investments have been made, by the wearing away of premiums thereon, to the amount of $9,158, and it is claimed this amount should have been provided for by reserving interest received thereon to meet this deficiency. This question has been held to be largely one of the intention of the testatrix, to be determined in each case upon the language of the will and the surrounding facts and circumstances. McLouth v. Hunt, 154 N. Y. 179, 48 N. E. 548, 39 L. R. A. 230; Matter of Hoyt, 160 N. Y. 607, 55 N. E. 282, 48 L. R. A. 126; N. Y. Ins. & Tr. Co. v. Baker, 165 N. Y. 484, 59 N. E. 257, 53 L. R. A. 544. The surrogate considered the question under this rule, and concluded that no sinking fund was required as to these bonds in question. We have examined and considered his opinion and the briefs of counsel and the cases referred to therein, and see no reason to disagree with the surrogate's conclusion. There has been a very large increase in the estate by reason of the holding of the common stock of the new locomotive company, $2,750,000, and some preferred stock of the company, 13,000 shares, in which investments have been made. Perhaps this consideration has no real bearing upon the question of a sinking fund as to other securities, but it hardly seems in accordance with equity and equality to permit the remaindermen to retain the large increase realized upon some securities, and at the same time require the holders of the intermediate estates to contribute from their income amounts to keep the other securities good for their original purchase price, and the courts will lean towards an equitable and just disposition of these questions. The decree should be affirmed, with costs, as hereinbefore suggested, payable from the fund. All concur. (111 App. Div. 860) In re HUDSON WATERWORKS. (Supreme Court, Appellate Division, Third Department. March 13, 1906.) 1. APPEAL-APPEALA Ble Order. An appeal lies from an order denying, because a proper bond was not presented, an application to file an undertaking for the purpose of discharging a lien against the amount due a contractor from a municipal corporation for the construction of a public improvement, although such order gives the privilege to renew the motion on additional papers; such permission giving the applicant no further right than he would otherwise have. 2 MUNICIPAL CORPORATIONS-PUBLIC IMPROVEMENTS-DISCHARGE OF LIENUNDERTAKING BY WHOM SIGNED. Laws 1897, p. 524, c. 418, § 20, as amended by Laws 1898, p. 318, c. 169, provides in subdivision 5 that a lien against the amount due a contractor from a municipal corporation may be discharged by a contractor executing an undertaking, with two or more sufficient sureties, in such sums as the court may direct, conditioned for the payment of any judg ment which may be recovered in an action to enforce the lien. Laws 1897, p. 515, c. 418, § 2, defines the term "contractor" as "a person who enters into a contract with the owner of real property for the improvement thereof," and section 22 of said act provides that the article "is to be construed liberally to secure the beneficial interests and purposes thereof." Held, that the assignee of a contractor stands in the latter's place, and may procure a discharge of the lien by filing an undertaking as principal. Appeal from Special Term, Columbia County. In re Hudson Waterworks. From an order denying the application of the National Commercial Bank of Albany for the discharge of a lien on moneys due for the construction of waterworks in the city of Hudson, it appeals. Reversed. Hurd, Sherman & Co., a corporation, had contracted with the city of Hudson for constructing a part of the system of waterworks, which was authorized by chapter 187, p. 332, Laws 1904. One John Stackpole filed with the city treasurer of Hudson a notice of lien on the said public improvement to the amount of $822. The National Commercial Bank of Albany presented to a justice of the Supreme Court an undertaking which was signed by itself as principal and with the American Surety Company of New York as surety, and 98 N.Y.S.-3 J and 132 New York State Reporter asked for a discharge of the lien of said Stackpole. By affidavit upon the application it was shown that this contract of Hurd, Sherman & Co., and all moneys due and to grow due thereon, had been assigned by the said corporation to the said bank. The justice hearing the application made the following order: "The National Commercial Bank of Albany having executed an undertaking with the American Surety Company of New York as surety, and having served a copy of the same, together with a notice that the said undertaking would be presented to me at my chambers, in the city of Hudson, N. Y., on the 4th day of November, 1905, at 9 a. m., and that the surety thereunder would justify at such time and place, and said special proceeding having been duly adjourned from time to time to this date: Now, on reading and filing the said undertaking and notice, and due proof of service filed therewith, and the affidavit of J. Murray Downs, verified November 16, 1905, and it appearing to me that the said undertaking is not such an undertaking as is contemplated by Laws 1897, p. 524, c. 418, § 20, subd. 5, as amended by Laws 1898, p. 318, c. 169, and for that reason I have decided to decline to pass upon the sufficiency of the said undertaking, or its form, or the sufficiency of the surety; and after hearing Rosendale & Hessberg, attorneys for the National Commercial Bank of Albany, and Brownell & Tilden, attorneys for the above-named lienor. It is ordered that the said application to file the said undertaking for the purpose of discharging the said lien be, and the same hereby is, denied, on the ground that the said undertaking is not such an undertaking as is contemplated by Laws 1897, p. 517, c. 418, § 20, subd. 5, as amended by Laws 1898, p. 318, c. 169, and without prejudice, however, to a renewal on additional papers." From this order the National Commercial Bank of Albany has appealed to this court. Argued before PARKER, P. J., and SMITH, CHESTER, and KELLOGG, JJ. Rosendale & Hessberg (J. Murray Downs, of counsel), for appellant. Brownell & Tilden (John L. Crandell, of counsel), for respondent. SMITH, J. The right of the appellant to appeal from this order is challenged because of the privilege given therein to renew the motion upon additional papers. The application was denied because a proper bond was not presented. If the right to renew upon another and proper bond were dependent upon this permission, the order would probably not be such a final order as to authorize an appeal. See Robbins v. Ferris, 5 Hun, 286; Wells, Fargo & Co. v. W. C. & P. C. R. R. Co., 12 App. Div. 49, 42 N. Y. Supp. 225. The bank, however, might without such permission have presented another bond and might have asked the judge to approve of the same. The permission therefore to apply upon additional papers would seem to give no further right to the appellant than it would otherwise have. Notwithstanding such privilege, therefore, it may consistently appeal if the approval of its bond was improperly refused. Section 20, c. 418, p. 524, Laws 1897, as amended by chapter 169, p. 318, Laws 1898, provides for the discharge of a lien for a public improvement. It is therein provided that a lien against the amount due or to become due a contractor from a municipal corporation for the construction of a public improvement may be discharged as follows: 46 (5) Either before or after the beginning of an action by a contractor executing an undertaking with two or more sufficient sureties, who shall be freeholders, to the state or the municipal corporation with which the notice of lien is filed, in such sums as the court or a judge or justice thereof may direct, not less than the amount claimed in the notice of lien, conditioned for the payment of any judgment which may be recovered in an action to enforce the lien." |