The decree should be affirmed, with costs to the trustees, the special guardian • and- Jessie Brooks Ty-ler, payable .out of the fund. - ' ' - .
*775The testatrix made the will October 5, 1896, and died November 5,1896. The will was admitted to probate November 16,1896, and Stevens and Solano qualified as executors and trustees thereunder and served as such. The former was a son-in-law and the latter a daughter of the testatrix. _By the will, articles 8, 9, 10, 11 and 12, five trusts were created, each of 247 shares of the stock of the Brooks Locomotive Works, for the benefit of five grandchildren. The language of the five articles was precisely the same except as to the name of the beneficiary. The stock was given to the executors in trust, to hold the same, collect the dividends, issues and profits thereof, and apply to the use of the beneficiary, in semiannual payments or as often as the same shall be declared, paid or realized, until the beneficiary arrived at the age of thirty years, and then the stock with any accumulations or earnings thereon to be transferred to the beneficiary absolutely. If the beneficiary died before he became thirty years old, leaving issue surviving, the same to go to such issue; if there were no such issue, the same to go to the then surviving children and grandchildren of testatrix, they taking per capita and not .per stiftpes.
These articles were subject to article 13 of the will, which provided that the executors should not be held liable for any depreciation in the value of the stock, and while the testatrix wished the stock 'to be held so long as it seemed t<? the executors prudent to hold it, yet she'authorized them to sell it and reinvest the proceeds whenever they deemed it prudent to do so, and they should not be held liable for any loss or depreciation in such investments resulting from mistakes in judgment in making the same.
The Brooks Locomotive Works was organized by the husband of the testatrix in 1869. The capital stock was $250,000, in shares of $100 each, and has always remained the'same. Mr. Brooks was, during his.lifetime, the president and dominating spirit of the company. He died in 1887. At the time of his death the company was a prosperous business concern. A majority of the stock went to the testatrix when her husband died, and she assumed the control of the affairs of the company, which continued in a prosperous condition until her death, in 1896. , The period of the company’s greatest prosperity was, however, between 1896, when the will was made and the testatrix died, and in 1901, when the company sold *776out. and discontinued business. 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
Gash, bills receivable, etc.:
Invested surplus... ........'.. $418,492 50
Working cash capital.......... 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 tins 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 thé remaindermen l The surrogate held that the principal was the value of the plant, equipment and materials, and its good will, patents,, patent fights, licenses, trade marks, rights,, privileges and franchises, called aboVe plant, equipment and materials............................ $1,093,345 78
And necessary working capital............■..... 70,000 00
Making a total of:........................ $1,163,345 78
And the balance, being invested surplus ............ $418,492 50
And working cash capital........... $279,870 31
Less above........... ............ 70,000 00
----' 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.
*777June 20, 1901, the company sold its entire plant, equipment and materials for.................................. $6,626,837 00
Of which, materials, supplies, product, finished or in process, patterns, drawings and templates, were
valued...........................¡........ $1,126,837 00
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.......:................ 4,193,437 00
which covered all patents, patent rights, licenses, trade marks, rights, good will, privileges and franchises, and an agreement that the company shoul(l be wound up and dissolved and all capital stock turned over to the purchaser, and that the company and its officers should not for ten 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 00
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 00
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 00
*778- The question is whether' this increase is'to be regarded as principal or as ‘‘ dividends, issues and profits.” The surrogate decided it was to he regarded as principal and “ accretions ” thereto. It will be noted that there is iio 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, large dividends had been paid from time to time, which went to the holder’s of the intermediate estates so far as. the trust shares were concerned. Other earnings of the company were used to purchase additionahmaterials and to maleé additional, betterments, And there was, moreover,, a large general increase in the value of the property itself,, iñeluding-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 for1 ten 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; affd. on opinion below, 173 N. Y. 621).
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 spurn reason to question the correctness of the surrogate’s conclusion as to the other two 'items of material's and betterments. Thosei were the product of the surplus of yearly “ income or earnings.” The betterments had1 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 stock*779holders, 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 or earnings ? ”
In Matter of Rogers (22 App. Div. 428; 161 N. Y. 108) 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 company paid ten per cent- dividends semi-annually. 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 pulpóse 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 *780in this case a part of the.capital or principal, rather than “income or earnings,”, so far as these trusts are. concerned.'
We Rave carefully examined the surrogate’s opinion (46 Misc. Rep. 623) and the briefs of counsel, and the various cases- referred to by them,.'.and must refrain from malting 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 (supra), 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 its. ■ '
The question as' to a sinking futid, 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; Matter of Hoyt, 160 id. 607; New York Life Ins. & Trust Co. v. Baker, 165 id. 484.)
The -'surrogate considered" the question under this rule, and cqficluded- that no sinking fund was required as to these bonds in q'uesr tion.' 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 ño .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 seem rities 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.
*781The decree should be affirmed, with' costs, as hereinbefore suggested, payable from the fund.
All concurred.
Decree of Surrogate’s Court affirmed, with separate bills of costs to the trustees, special guardian and Jessie Brooks Tyler payable» out of the fund. '