Inasmuch as I am unable to concur with the views held by my associates in this important matter I desire briefly to state my reasons for such disagreement.
The substantial features of the trust under consideration are the familiar ones of income to life tenants and principal to remaindermen. The principal of the trust was constituted of capital stock of the Singer Manufacturing Company and I shall accept the view adopted by the prevailing opinion that the so-called Russian losses of $12,000,000 were suffered by that company after the trust took effect in 1919. The directors of the corporation set out to repair these and other losses by carrying to the capital accounts of the corporation many millions of dollars concededly representing current profits after the trust took effect. If these directors had elected permanently to retain these current earnings as part of their capital accounts instead of distributing them, of course within the restrictions of good faith on the part of the directors the life tenants would have had no claim to relief. But they did not do this. They subsequently made an extraordinary dividend which it is admitted was in part a distribution of these current earnings which temporarily had been placed by the directors in their capital accounts. Under these circumstances I am unable to see any good reason why the life tenants should not have their share of the dividend representative of these earnings.
Only two reasons are given for the opposite view.
In the first place it seems to be thought that because the directors of the corporation temporarily elected to treat these current earnings as capital, the courts should regard *Page 185 them as having been permanently transferred into capital for the purposes of the trust, which is quite a different thing. For the purpose of determining what was income and what was principal in such a trust as this we have repeatedly refused to be bound by the action of the directors of the corporation whose capital stock constituted the corpus of the trust.
The second reason given for the action which is to be taken is furnished by the theory that where the principal of a trust is impaired after the death of the testator such impairment ought to be repaired at the expense of the life tenant by carrying to such principal current earnings. Concededly no such rule has ever yet been laid down by this court. In fact the only thing which has ever been said on the subject was opposed to such view. (Thayer v. Burr, 201 N.Y. 155.)
It seems to me that this rule will operate as an arbitrary disregard of the testator's intentions in creating the trust and in addition will be discriminatory and unjust.
The testator has provided that the life tenants should have the current income and the remaindermen the principal and I fail to find anything which authorizes the court to overturn this intention when a dividend is made and use the income which belongs to the life tenants for the purpose of repairing the principal which belongs to the remaindermen. The administration by the courts of these trusts is difficult and complicated enough already and we ought not to add a new difficulty especially if it will overturn the testator's intention.
In the second place I think that the rule is unjust as between remaindermen and life tenants. We have held that if the principal of the trust is increased by some cause other than addition of current earnings as, for instance, stock of a corporation becoming more valuable, this increment does not constitute earnings which may be claimed by the life tenants. But now, instead of holding the correlative of this rule and imposing upon *Page 186 the remaindermen who enjoy the benefits of such an increment, the disadvantages of a decrease in the value of principal through losses, we say that the life tenant must be compelled to make up those losses. In other words, the life tenant seems to lose whatever happens.
If instead of doing as proposed we should allow the impairment of the principal of the trust to stand at least as against repairment by current earnings, both remaindermen and life tenants would in an equitable manner share and bear this loss. The remaindermen would lose through depreciation in the value of the principal unless later made up, and the life tenants would suffer that diminution of current earnings which naturally would come from a reduced capital. This would be equitable and fair.
It is no answer to say that when the principal of the trust is made good through appropriation of current earnings, the life tenants will then receive interest on the capital of the trust as it was at the time the latter took effect and thus the intent of the testator will be carried out. The trouble with this theory is that current earnings which belong to the life tenants are appropriated to the restoration of the principal of the trust and the life tenants then simply receive interest on a principal which has been created at their expense by appropriation of current earnings; they receive interest on principal when they are entitled to both the principal and the interest as being part of the current earnings.
CARDOZO, POUND, McLAUGHLIN, CRANE and LEHMAN, JJ., concur with ANDREWS, J.; HISCOCK, Ch. J., dissents in opinion.
Judgment affirmed, with costs. *Page 187