The principal question presented is whether so-called normal or regular commissions to be awarded to trustees for the management of real estate are to be computed on gross rents or net. (See Surr. Ct. Act, § 285, subds. 1-4.)
I agree with the courts below that the answer was given inBeard v. Beard (140 N.Y. 260). In that case EARL, J., said for the court: "We think the true rule for allowance of statutory commissions is this: Trustees are entitled to commissions for receiving all moneys which constitute the corpus of the estate, and any additions thereto from increase of any kind, and thus the moneys upon which commissions are to be computed can never *Page 268 exceed the gross amount of the estate and its net income; and the moneys paid out upon which commissions may be computed are the moneys paid out of the estate for debts, expenses of administration and to legatees or other beneficiaries, moneys which operate to diminish the estate as it exists in the hands of the trustees and pass out of and away from the estate" (p. 265). These are plain and emphatic words. The rule so stated cannot, in itself, be made to bear the meaning that gross rents are the base upon which commissions are to be allowed for real estate management.
Not less clear is the reason for the rule of the Beard case. Under another standard a trust estate might well be lost. We need not go outside this record for an illustration. In the management of real estate, each parcel is ordinarily handled as a separate unit. (Matter of Chapal, 269 N.Y. 464.) The three parcels here involved are so treated in this account. One parcel (the residence property at Larchmont, N.Y.) was operated throughout the period accounted for at a continuing deficit. It is purely accidental that other estate assets produced enough income to absorb this loss. Had the Larchmont property been the sole estate asset, then the trust corpus and that alone could have been the source of commissions, if chargeable on gross rents.
The now accounting trustee nevertheless asserts that computation of commissions on a net rent base would be contrary to a practice generally followed in this State for more than a century. This is a strong thing to say. Not an item of proof of such a sweeping generality is to be found in the record. For all that there appears, any number of fiduciaries may have taken commissions on net rents during the last century.
But, however that may be, the fact is, as this court now says, that in cases in which commissions were taken on gross rents, "the right to such commissions was not challenged or directly passed upon in the courts." What *Page 269 then was so decided? "The most that can be said is that the point was in the cases if anyone had seen fit to raise it. Questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents." (Webster v.Fall, 266 U.S. 507, 511.) Indeed, where a practice had been buttressed by a "multitude of cases in intermediate appellate courts in this State," the question in this court was not how long the practice had been going on. Even there the question in this court was whether the practice was right. (Prudence Co. v.160 W. 73rd St. Corp., 260 N.Y. 205, 209.) In that case, "We disapproved a long-continued practice in foreclosure proceedings, founded, as we believed, upon erroneous decisions of intermediate appellate courts." (Sears, Roebuck Co. v. 9 Ave.-31 St.Corp., 274 N.Y. 388, 401.) These citations seem to me to show that there is no force in the argumentation that a unilateral habit of trustees in taking their own commissions (not directly passed on by any court) must here be deemed to be the overriding ultimate authority.
Thus we are free, as I see it, to leave the uniform law as we find it limpidly stated in Beard v. Beard.
I am persuaded also that the Legislature has accepted the opinion of this court in the Beard case as declaratory of the rule governing the compensation of fiduciaries.
In case after case the courts have held that in respect of business management commissions were payable only on net return. So it was ruled in respect of a furniture business (Matter ofHayden, 54 Hun, 197; 125 N.Y. 776); in respect of a wharfage and warehouse rental business (Beard v. Beard, supra); and in respect of a hotel and store rental business (Matter ofSidenberg, 204 App. Div. 255). In the management of real estate there are no problems comparable in complexity to those that must have been solved by the trustees in the Beard case in successfully operating the Erie Basin enterprise, with a two-year gross income of over $600,000 from wharfage *Page 270 and warehouse rentals alone. Certainly any difficulties which confronted the now accounting trustee in the management of the three parcels here involved were negligible in comparison. The Larchmont residence property was let out for the summer seasons. The hotel property was rented for $25,000 per year plus fifty per cent of gross intake in excess of $115,000. The property in Greece was under lease to the American Tobacco Company.
When the Hayden and Beard cases had long been in the law the Legislature, in 1923, added to section 285 of the Surrogate's Court Act what is now subdivision 9 thereof, as amended. It is thereby provided: "Where an executor, administrator, guardian or testamentary trustee is, for any reason or cause whatsoever, entitled or required to collect the rents of and manage the real property, he shall be allowed and may retain five per centum of the rents collected therefrom in addition to the commissions herein provided." By this enactment, fiduciaries who manage real estate are assured the receipt of a management fee greater than that currently paid (at least in some localities) to non-fiduciaries. It seems to me to be incredible that the Legislature could have supposed that to this presumably gainful five per cent management fee there would be added two, four and six per cent commissions on gross rents. (See Surr. Ct. Act, § 285, subd. 8.) Real property in general could hardly carry itself and pay so high a tariff for management. I believe it was never intended that a trust was to be so administered as thus to guarantee such a profit to the fiduciary, though as a result nothing should be left for beneficiaries.
For the foregoing reasons I vote to affirm the order of the Appellate Division.
CRANE, Ch. J., concurs in opinion with LEHMAN, J.; O'BRIEN and FINCH, JJ., concur in the opinions of CRANE, Ch. J., and LEHMAN, J.; LOUGHRAN, J., dissents in opinion in which RIPPEY, J., concurs; HUBBS, J., taking no part.
Ordered accordingly. *Page 271