#### Matter of the Intermediate Judicial Settlement of the Accounts of Clark A. Stevens, as Acting Executor of the Estate of Franklin Stevens, Deceased.

(Surrogate’s Court, Washington County,

June, 1905.)

Executors or administrators — Intermediate accounting — Bank stock — When “ surplus and undivided profits ” properly credited to income — Commissions — Costs and expenses of accounting.

Where after twenty shares of one hundred dollars each of a certain bank stock which had been, without knowing their value, inventoried as of uncertain value, the executor and trustee, who was also one of the life tenants in a part of the estate, disposed of the entire interest of the estate in the bank for $3,500, to-wit, twenty shares of stock at one hundred dollars each, and $1,500 “ surplus and undivided profits ” and upon an intermediate accounting it appears that said $1,500 was neither a part of the stock nor working capital of the bank and no part, thereof represented premium on the bank stock, nor any increase in its market value, it belongs to the life tenants and not the remaindermen and is properly credited to income

*561In such case, the accounting executor is entitled to commissions upon the income only, payable therefrom, and where there is nothing in the account nor the testimony showing such mismanagement, or lack of honesty, or diligence, on the part of the executor as to require the court to hold that any part of the costs or expenses of the accounting should be paid by him personally, one-lialf thereof should be paid out of the corpus of the estate and one-half out of the income.

Pkoceediegs for an intermediate accounting of an executor.

Abner Robertson (E. H. Peters, of counsel), for executor.

Westfall & Hill, for contesting remaindermen.

Davis, S.

This is a proceeding for an intermediate accounting of an executor. While it is technically a voluntary accounting, made upon the executor’s own petition, it is virtually a compulsory accounting, called for by the remaindermen and residuary legatees, as it appears upon the trial of the objections.'

By the last will and testament of Franklin Stevens, deceased, the accountant, Clark A. Stevens, was made the executor, and the terms and the language of the will sccin to have given him all the powers and functions of a testamentary trustee. Though not named in the will as such, he has, without objection, acted as such trustee.

The executor, Clark A. Stevens, is also named in the will as one of the life tenants in a part of the estate.

The account in this proceeding was filed May 9, 1904, and rendered an account of the executor’s proceedings from June 13,1901, to April 4, 1904.

The written objections that were filed to the account were general in their language, and did not specify any particular item or items that were erroneous and that should be corrected, and not until the examination of the executor on the trial was it developed what the real objections to the account were. The main and principal objection, however, appears to be that the accountant has credited to the income of the estate *“*the surplus and undivided profits ” of certain *562bank stock of the Albion County Bank, of Nebraska. It appears that the appraisers of the estate found twenty shares of $100 each of bank stock in the Albion County Bank of Nebraska, and not knowing what its value was at the time of the appraisal (which was several years ago), if it had any value at all, it was carried out in the inventory as of *“*uncertain value.” Later on it was ascertained by the executor that the bank stock was valuable, and he disposed of the entire interest of the estate in the bank for $3,500, to’ wit, twenty shares of stock at $100 each, and $1,500 “ surplus and undivided profits.”

It does not appear that the officers of the bank had declared any dividends, but had allowed the earnings of the bank to remain as *“*surplus and undivided profits,” and it was so regarded by all interested in the fund. The $1,500 was no part of the stock, and formed no part of the working capital of the bank.

The question before us for decision is, to whom does this $1,500 belong. To the life tenants or the remaindermen? Should it be credited to income, and go to the life tenants; or to the corpus of the estate, and go to the remaindermen ?

It appears clearly from the evidence in the case that no part of the $1,500 represented premium on the bank stock nor any increase in its market value. If that were the case a different question would be presented and the contention of the contestants might be sustained, but the proof shows unmistakably that there had been no increase nor accretions to the capital stock. The $1,500 was. surplus and undivided profits.

The principle or doctrine that the earnings of bank stock in trust estates, under conditions like those in the case at bar, should be regarded as income and not corpus, and should go to the life tenant and not to the remainderman, seems to have reached the stage of elementary law.

Berry on Trusts lays down the rule as follows: “ The question is, to whom stock dividends, so called, belong. Are they income, and belong to the tenant for life; or capital, and belong to the remainderman? By the early English rule, they went with all extra-cash dividends of bonuses to the *563remainderman. This rule has been so far changed, that dividends in money which come from the earnings of the capital invested belong to the tenant for life.” § 545.

We find no decision which conflicts with this elementary rule. The examination of a few cases will show that suclt earnings of stock belong to the life tenant and not the remainderman.

In the Matter of Rogers, 161 N. Y. 108, a corporation with a capital stock of $300,000, with a business immensely profitable,went into liquidation and sold out its business and plant for $2,750,000 and organized a new corporation with a capital of $3,000,000, and after reorganizing there was $3,000,000 in cash, bank stock and other property of the old corporation still on hand as earnings of the old corporation. The Court of Appeals held that these earnings belonged to the life tenant in the Rogers will and not to the remaindermen.

In McLouth v. Hunt, 154 N. Y. 180, an action to procure a judicial construction of a will and for an accounting of a testamentary trustee, the Court of Appeals held: “ When a stock dividend, declared by a corporation and allotted to shares of its original capital stock belonging to a testamentary trust estate, constitutes, as a matter of fact, a distribution of accumulated earnings or profits, it represents income and belongs to the life tenant of the trust estate as between him and the remainderman.”

In Stewart v. Phelps, 71 App. Div. 92, cited by the contestant (but we think so far as it may be applied to the case at bar it favors the life tenant) the question seems to have been what constituted dividend, and what accretions to the capital or corpus. It was held: “ That the life beneficiary was entitled to the stock dividend declared by the telegraph company, but that the other mentioned increase in the estate was an accretion to the principal of the trust fund, to which the life beneficiary was not entitled.”

In the case of Monson v. New York Sec. & Trust Co., 140 N. Y. 498, the court went further than in some of the other cases where a similar question was presented, and held: “ That as between the daughters (who were virtually life ten*564ants) and those entitled in remainder, the former were entitled to the benefit of the increase in income and princi pal.”

In Clarkson v. Clarkson, 18 Barb. 646, 647, decided in 1855, the court held in a case where the gains, profits and income, and proceeds of corporate stock had been invested in new and other stock, that such new stock belonged to the life tenants and not to the remainderman, and the trustees were decreed to deliver the stock to the life tenants.

In Simpson v. Moore, 30 Barb. 638 (1859), the case of Clarkson v. Clarkson, *supra,*was followed, and furthermore it was held that upon the expiration of the bank’s charter the dividend of eighteen per cent, which the trustees had the option of taking in cash, or the same amount in stock in the new bank -—- that such cash or new stock belonged to the life tenant and not to the remainderman.

In the Matter of Woodruff, 1 Tuck. 58, decided in 1865, the surrogate held that extraordinary dividends belonged to the party holding the life interest in the stock upon which such dividends were earned.

The same principle was applied in Cogswell v. Cogswell, 2 Edw. Ch. 230, decided in 1834.

In all the cases cited by the counsel of the respective par- • ties that it has been practicable to examine, there seems to be only one case where there has been an attempted departure from the elementary rule as laid down in Perry on Trusts, *supra,*and as uniformly held in numerous cases. In Lowry v. Farmers’ Loan & Trust Co., 30 Misc. Rep. 334, it was held at Special Term that “ Stock dividends must be added to the corpus, and cannot be paid to the life beneficiary.” That decision was reversed by the Appellate Division, reported in 56 App. Div. 408, and the reversal was unanimously sustained by the Court of Appeals in 172 N. Y. 137-142. In that case it appeared that the Pullman Palace Car Company *“*by a capitalization of accumulated earnings made and retained in its hands, from time to time, increased its capital stock from $86,200,000 to $100,000,000 and, predicated thereon, made a stock dividend of ten per cent, to its stockholders,” and the distribution was made in the form of stock certificates instead of money. The court held *565“ that the stock certificates belonged to the life tenant, and not to the remaindermen.”

In view of the long line of authorities that might be cited, in addition to those already cited, I do not see how the contention of the contestants can be sustained, and we, therefore, hold and decide that the $1,500 of undivided profits and surplus of the Albion County Bank stock belongs to the life tenants, and that the acting executor was right in so stating it in his account; excepting, of course, the sum of $161.08 which had accrued on the stock at the time of the testator’s death.

Some of the other objections to the account will now be considered. The item of thirty-six dollars for postage and stationery is objected to. It does not seem possible that the correspondence necessary for the estate should require twelve dollars for postage and stationery each year. I think five dollars should be ample. The item of thirty-six dollars should be changed to fifteen dollars.

The item of fifteen dollars for work and services of the executor is allowed. While such charges are not favored by the courts, and are not to be encouraged, still in this particular instance the amount charged is reasonable, and the work was necessary for the preservation of the corpus of the estate, and the charge will be allowed to stand, although without intending to fix a precedent in relation to such items.

In schedule G fhe item of seventy-two dollars and twenty-six cents should be changed to seventy dollars and seventy-six cents; the error was an inadvertence.

In the matter of commissions to the executor we do not think that in this case there has Been such a separation of the functions of executor and trustee as to entitle him to double commissions, as was held in the Matter of Union Trust Company, 70 App. Div. 5, nor that commissions should be allowed on the corpus of the estate as well as income, as was done in the case of Drake v. Price, 5 N. Y. 430. If this practice were allowed in several successive annual accountings the commissions would very perceptibly reduce the corpus of the estate and in time eventually consume the whole of it

*566The executor will be allowed commissions on the income only (Matter of Kellogg, 7 Paige, 265) and payable out of the income. On the final accounting at the termination of the trust no doubt commissions would be allowed on the corpus of the estate.

We have carefully examined the account of the executor as filed, which embraces about 350 items, and also the several objections thereto, and except as above noted, we do not think that any of the objections requires special consideration, and the account will be decreed to stand, except as to said corrections.

As to the expense of this accounting, I do not think that there is anything in the account, .nor in the testimony, showing such mismanagement or lack of honesty or diligence on the part of the executor as to require us to hold that any part of the costs or expenses of this proceeding should be paid by him personally.

In the case of Lowry v. Farmers’ Loan & Trust Co., 172 N. Y. 145, the court decided that the costs of all parties should be paid out of the principal fund. In McLouth v. Hunt, 154 N. Y. 198, it was decreed that costs of all parties ’should be paid out of the income. As stated at the outset, while this is a voluntary accounting, and instituted by the executor’s own petition, it is virtually a compulsory accounting, at the instance of the remaindermen. There is nothing in the case, however, to indicate that the executor desired to either avoid or resist an accounting, but as nearly three years have elapsed since there was an accounting, it was proper that another one should be had.

I think that the expenses of this accounting should be borne equally by the accountant and contestants — that is to say, one-half to be paid out of the corpus of the estate and one-half out of the income.

A decree will be entered in accordance with this opinion.

Decreed accordingly.