The interesting and important question presented for our consideration is that raised by the appeal of the objector, Albert Schaefer.
Frederick Schaefer, the testator, died in May, 1897, leaving a last will and testament and a codicil thereto, all of which were duly admitted to probate. By the terms of the will his executors, the present accountants, were directed to divide the estate into a number of shares, one of which was to be held in trust for the benefit of Albert Schaefer during his life,'the remainder, in case he died without children, going to the two accountants and two other children of .the testator.
One of the principal assets of the estate consisted of 2,499 shares of the capital stock of the F. & M. Schaefer Brewing Company, a corporation organized with a capital stock of $650,000, represented by 6,500 shares. At the time of the testator’s death one-half of the stock of the brewing company was held by him and the members of his family. The testator’s stock was held by the accountants as executors until 1902, when it was distributed among the parties in interest, 500 shares being allotted to the trust required to be set up for Albert Schaefer. These shares were held by the accountants as trustees of said trust until September, 1912, when they were sold, together with all the other stock held by the trustees, for the benefit of other beneficiaries under the will or owned individually by the trustees and others, the total number of shares sold being 3,250, or one-half of the capital stock. The purchaser was the brewing company itself, and the agreed price was paid in cash or its equivalent. During the time the accountants held the stock as trustees Albert Schaefer received his proportionate share of all the dividends declared and paid by the brewing company.
The stock was carried by the trustees at a valuation of $200 per share. It was sold for $415 per share. These prices may be assumed to represent with accuracy the respective values of the stock at the time the trust fund was established, and at the time the stock was sold. The trustees were respectively president and treasurer of the company and necessarily cognizant of the value of its assets and consequently of its capital stock.
*120It is conceded that during the years that the trustees held this stock the company did not distribute all of its profits by way of dividends, hut prudently retained each year a portion of the net earnings or profits as a surplus. These profits thus retained went to the enhancement of the assets, and it is to the retention and investment of this surplus that at least some of the increased value of the stock is to be attributed. The trustees have credited to the capital of the trust the whole proceeds of the 500 shares of stock which they held for the benefit of Albert Schaefer. He claims that he is entitled to be paid so much of that sum as represents the income and profits earned, but not distributed by way of dividends.
This presents in a somewhat new phase the question, much discussed in recent years, as to the distribution of the profits of corporations between life tenants and remaindermen, but although that question does not appear to have heretofore arisen under precisely the same circumstances as are here present, I am of the opinion that the principles which have been enunciated by our courts of highest authority afford a sure guide to the determination of the present question.
The whole subject was discussed with.much thoroughness by Judge Chase in Matter of Osborne (209 N. Y. 450), in an opinion in which he traced the development of the law upon the subject, citing many cases in England and in this State. The consensus of all the decisions upon the general subject is:
First. That ordinary cash dividends belong to the life tenant or beneficiary of the estate.
Second. That extraordinary dividends representing accumulated profits, whether distributed in cash or in the form of stock, are to be apportioned between the corpus of the trust and the income, in the proportion in which the surplus thus distributed has been earned before or after the creation of the trust fund. This apportionment is made in order to preserve the integrity of the trust fund and at the same time conserve the rights of the life beneficiary. (Matter of Osborne, supra, 477.)
Third. When a corporation is liquidated, its assets sold,"and the proceeds distributed among its stockholders, an apportionment must be made between the capital of the trust fund and the income, and so much of the sum received by the trustee as *121represents profits accumulated since the creation of the trust must be attributed to income and paid to the fife tenant; otherwise, there would result an increase in the corpus of the fund by accumulations of income, which, except for the benefit of infants, is against public policy and expressly condemned by statute. (Matter of Rogers, 22 App. Div. 428, 436.)
These general rules are not questioned by the trustees, but they say that they are inapplicable here because there had been no payment by way of dividend and no liquidation of the company, which still remains a going concern. This does not, in my opinion, answer the life tenant’s claim. It is true that there has been no general liquidation of the company, but there has been a liquidation so far as concerns one-half of its capital stock. The company has bought and holds in its treasury one-half of its capital stock, thus reducing by one-half its outstanding share capital. For that stock it has paid, in cash or its equivalent, what we may assume to represent the value of one-half of its assets. ' What it may do with that stock hereafter is no concern of the trustees or of their cestui que trust. The trustees have at least liquidated, that is to say, have turned into money, their interest in the company which was formerly represented by shares of stock. What does this money in their hands represent % Concededly it represents in part accumulated profits earned during the lifetime of the trust, for the stock they sold represented and stood for one-half of the assets of the company, and those assets in part represented accumulated profits. The reason for the rule which requires, in case of a complete liquidation of a corporation, that an apportionment be made between capital and income, seems to me inevitably to require that a like apportionment be made in the present case. Otherwise, as pointed out by Cullen, J., in Matter of Rogers (supra), the accumulated profits will go to the unlawful increase of the corpus of the estate and the enrichment of the remaindermen at the expense of the life beneficiary. As is said by Thompson on Corporations (2d ed., § 5414) in a section quoted with approval in Matter of Osborne (supra, 476): u The object of the inquiry in every case should be to do justice to the life tenant and remainderman and at the same time effectuate the intention of the creator of the trust.” *122Justice to the remainderman and to the life tenant requires that the trust fund shall be kept intact, but not enhanced by adding to it any part of the income, and that the life tenant shall receive all of the income whenever that comes into the hands of the trustee. Where the trust fund consists of corporate stock the life tenant will ordinarily be limited to receiving only so much of the profits as the corporation sees fit to distribute in dividends, but when the accumulated profits come into the hands of the trustee in any form or manner the life tenant is entitled to receive them. So far then as the price received by the trustees on the sale of the stock to the corporation represented accumulated, undistributed profits earned since the creation of the trust, the life tenant is entitled to an apportionment. We need not now consider whether or not the application of this just and reasonable rule in the present case will result in compelling trustees to make nice discriminations and apportionments whenever they sell a stock for more than it cost them. As suggested in Matter of Rogers (supra), the inconvenience and inherent difficulty in so doing may serve to prevent any such extension of the rule. In the present case, however, there will be no inconvenience and should be no difficulty in making a just apportionment. Of course, any increase in the value of the company’s property not caused by the expenditure upon it of a part of the accumulated profits, and any increase in the value of the good will are legitimate and proper accretions of the corpus of the trust fund and, so far as represented by the price received from the sale of the stock, are properly to be accredited to capital.
There should be no difficulty in ascertaining from the books of the brewing company just how much of the net earnings in each year has been retained and accumulated. Just how the company invested or used its accumulated profits is immaterial. In one form or another it is represented in the assets, and when the company liquidated the trustees’ stock by paying for it in cash, it retained all of the assets representing in part the accumulated, undistributed profits.
Unless the parties are able to agree as to the proper apportionment . to be made in accordance with the views herein expressed, a further reference will probably be necessary. On *123the other question, raised by the appeal of the trustees, I entirely concur with Mr. Justice Shearh.
To the extent indicated, the decree should be modified with costs to the objector, appellant, payable out of the corpus of the trust fund, and the matter remitted to the Surrogate’s Court to be dealt with in accordance with this opinion.
Clarke, P. J., and Laughlin, J., concurred; Davis and Shearn, JJ., dissented.