In re the Judicial Settlement of the Accounts of Ithaca Trust Co.

H. T. Kellogg, Acting P. J. (dissenting):

The will of Frank J. Enz, a resident of Elmira, N. Y., who died on the 27th day of May, 1906, contained the following clause: I will, devise -and bequeath to my wife Martha Enz the use and income during the term of her natural life of the rest, residue and remainder of my property, both real and personal.” It then made disposition of the remainder in such residue in a manner not now important.

The Ithaca Trust Company was appointed executor of the will of the testator, and assumed to act in the capacity of testamentary trustee to carry out the terms of the will in respect to the residuary estate. It so acted until the' 12th day of August, 1919, when Martha J. Enz, the life beneficiary, died. One of the assets of the estate received by it was a certificate for forty-six shares of the capital stock of a corporation known as the Dwight Farm and Land Company. This certificate was retained by it for trust purposes throughout the term of the life tenancy. During such period the trustee received from the Dwight Farm and Land Company, in payment of dividends upon the forty-six shares, seventeen separate dividend checks amounting in the aggregate to $10,288.36. Each check received by it was accompanied by a statement from the corporation dividing the amount made payable thereby into payments from corporate income and payments from corporate capital. According to these statements the total amount paid consisted of $4,271.05 paid from income and $6,017.31 paid from capital. Acting upon the information thus given the trustee apportioned the sums so received to trust fund income and trust fund principal. Accordingly it paid out to the life beneficiary as trust fund income the sum of $4,271.05 and retained the balance, or $6,017.31, as trust fund principal to be distributed among remaindermen after the death of the life beneficiary.

In the year 1908 the trustee filed an account in Surrogate’s *639Court wherein it made statement of the receipt from the Dwight, Farm and Land Company in the year 1907 of a dividend check for $460, its apportionment of the sum of $104.65 thereof to income and $355.35 to principal, and the payment of the former sum to the life beneficiary. Its account was not objected to, and a decree settling the account as rendered was granted.

After the death of the life beneficiary the trustee filed the account now under consideration. It therein reported its payment to the fife beneficiary of the sum of $4,271 as income received from the Dwight Farm and Land Company, and its retention of the sum of $6,017.31 received from such company as principal to be distributed to the remaindermen. It was conceded that $355.35 of the latter sum must be treated as principal under the decree previously made. The Surrogate’s Court ordered the payment of the balance, or $5,661.96, to the executrix of the estate of Martha J. Enz, the life beneficiary, as income upon the residuary estate of Frank J. Enz, which under the terms of the will of the latter was payable to her.

The Dwight Farm and Land Company was incorporated under the laws of the State of New York in the year 1880, with a capital stock of $125,000 divided into 1,250 shares of the par value of $100. Its expressed corporate purposes were the buying, selling, locating and owning lands in the Territory of Dakota, and working, cultivating and managing the same and marketing their products.” It purchased approximately 60,000 acres of land in that Territory prior to the year 1894. It made no purchases of consequence thereafter. It was continuously thereafter engaged in the farming and leasing of its purchased lands remaining unsold and in the disposition of the extensive crops grown therefrom. It was so engaged throughout the period between .the death of the testator and the death of the life beneficiary. Substantial profits were made from the business so conducted during the period, and such profits were the source of the dividends which were paid to the trustee and classed as dividends from income.

The corporation sold approximately 40,000 acres of its land between the years 1894 and 1906, so that at the date of the death of the testator its holdings had been reduced to 11,700 áeres. In the year 1919, the year of the death of the fife beneficiary, it had further reduced its holdings to 6,653 acres. The price received for the 5,047 acres sold during this period was $169,575.48. There can be little doubt that substantially all of the moneys so received were disposed of in dividends to stockholders, and that they were the source of the payments made to the trustee as dividends from capital. In the first place the retention by the corporation of *640the moneys thus received is not reflected in its books. The annual statement of the corporation for January 1, 1907, shows that the resources of the corporation, other than lands sold by it, were then $44,469.75. Its annual statement for January 1, 1920, shows that its resources, other than lands held by it and less notes owed by it, were $76,071.84. A comparison between these statements, therefore, fails to show that the sales moneys received amounting to $169,575.48 were at the death of the life beneficiary still on hand either in the form of cash or in the form of other capital assets. In the second place, the amount distributable to the forty-six shares from such moneys was $6,270.48. The amount actually distributed to such shares, and classed as dividends from capital, was, as stated, $6,071.31. The approximate agreement between these figures indicates that the sum so paid consisted of a distribution of the sales moneys.

The respondent contends that the dividend checks indicate upon their face that they were given in satisfaction of ordinary dividends declared, and that they must, therefore, be presumed to represent dividends from income. The difficulty with this argument is that every dividend check was accompanied by a corporate statement refuting the presumption. If it was a corporate act to declare the dividend and send the check it was a corporate act to make and send the accompanying statement.

The respondent contends that, even though the dividends were declared out of the sales moneys, the capital assets remained as large after the dividend payments as before, and, therefore, the payments did not deplete the corporate capital. The respondent is without proof to support her contention. It is true that the lands held by the corporation were carried upon its books in 1907 at a valuation of three hundred thousand dollars, and that in 1920 they were still carried at the same sum. The proof is undisputed, however, that in making these book figures no genuine valuation was ever attempted to be given. The moneys received from the sales indicate an average price per acre of approximately thirty-three dollars and sixty cents. Extensive sales of corporate lands were made as early as the year 1908 at an average price ■of thirty dollars per acre. There is no evidence as to sales or values in the years 1906 and 1907 and, therefore, no evidence that the lands were not worth at the beginning of the trust period the sum of thirty-three dollars and sixty cents per acre, or the average sum received upon sales afterwards made.

Even assuming, however, that the entire sum of $169,575.48 received upon sales represents no more than a natural appreciation of capital, assets between the years 1906 and 1919, nevertheless *641the life" beneficiary would not have been entitled to share in this sum. Where a trust estate holds corporate stock on which it has received bonds and scrip in the nature of a dividend representing in part earnings and in part an increase in the value of the investments of the company, the life tenant is entitled only to such portion of the bonds as represent earnings. The portion representing increased value of the corporate securities is a distribution of capital and belongs to the remainderman.” (Thayer v. Burr, 201 N. Y. 155.) I think the proof clearly discloses that the dividend payments reserved by the trustee were made out of capital assets and conclude, therefore, that the fife beneficiary was not entitled to have such sums distributed to her. (Matter of Osborne, 209 N. Y. 450.)

Van Kirk, J., concurs.

Decree affirmed, with costs to the respondent Carrie Enz Elliott, as executrix, etc., payable out of the estate of Frank J. Enz, deceased.