SECOND DEPARTMENT, JULY TERM, 1903. [Vol. 86. therein. In Downing v. Marshall (23 N. Y. 366) the court says: "I am clearly of opinion that a trust to receive the rents and profits of real estate, and apply them to the use of the beneficiaries named, was marked out in these provisions. The mills were to be carried on by the executors, to whom, as trustees, the legal estate was expressly devised. It is true that the annual income of the business would be a complex result flowing from the use of the water power, the machinery and the mills; from the profit of capital and the employment of labor. The material consideration is, that the use or profit of land would be one of the constituents in producing that result; and it might be the principal one. The executors were to have the possession of these establishments, and to operate them for the benefit of the institutions or societies which were the objects of the testator's benevolence. In this manner the profit of land was to be received, and, in combination with other elements, it was to be paid over to the beneficiaries. In a trust to receive the rents and profits of real estate, it is not implied that the trustee must lease the estate, because that is not the only or the most usual mode of perception. As the owner of land may lease or occupy it, so, in creating a trust, he may provide for receiving the use or income in either of these modes." A further reason which appears to have warranted the conclusion of the referee is that the profits of a business, added to the capital and thereby increasing the income of the life tenants, does not present an instance of what Lord Justice LOPES, in Vine v. Raleigh (L. R. [1891] 2 Ch. Div. 13, 24), calls a "dry, unproductive cumulus." In Vine v. Raleigh (supra) a trust was created and authority given to expend the surplus income in the improvement of the estate, and in maintaining in good habitable repair houses and tenements on the property, and the court allowed charges of sums expended from the surplus income for putting up buildings, setting out fruit trees, buying the fixtures of a public house, saying that the will did not offend the Thellusson Act. But the "dry, unproductive cumulus” theory, as applied to this case, presents this proposition: If annual profits of a fund be added annually to that fund, then there is no accumulation of such profits, provided a part of the profits of that fund, as thus constituted, be annually paid out to the beneficiary. But the answer is that the beneficiary is deprived of the annual App. Div.] SECOND DEPARTMENT, JULY TERM, 1903. profits rolled up in the fund, and is not compensated by merely a part of the income of the fund, even though the fund's earning power be thus increased. The excess is surplus profits is incomeand as such it belongs to the beneficiary. Investment for her by adding it to the fund and thereby increasing its earning power is not equivalent to a payment of such profits to the beneficiary. The beneficial enjoyment of such excess profits is thereby postponed, and, if postponed beyond minority, offends the statute. Vine v. Raleigh (supra) is akin to Matter of Nesmith (140 N. Y. 609). The discrimination between this case and Matter of Nesmith (supra) is found in the fact that there is a radical difference between an absolute direction after the payment of $70,000 annually to the widow and the sum necessary to the maintenance of the children, and advancements, to add all of the profits to the fund, and (in the words of GRAY, J., in the Nesmith case) "a discretionary power to make a disbursement of income, in the course of the management of the trust property, * * restricted to such matters as tend * to preserve it, or to make it efficient for earning purposes." I think that the mere fact that the money to be accumulated is the result of a continuance of a business is not material. As I have said, the statute is not aimed at the manner of the gain, but at the accumulation thereof. I can see no reason for that policy which should exclude accumulations of the gains of trade. Certainly the statute itself does not require or even warrant any such limitation of construction or interpretation. But after a long and exhaustive discussion of authorities, the learned referee states that the American cases which he cites seem to hold that a beneficiary can prevent a business from being carried on by an executor, and that, on principle, it would seem that a testator who creates a trust for a long term and directs his executors to continue to employ his assets in his business during the trust simply directs that the trust funds be subjected to extreme hazard, and that any beneficiary should have the right to object. And thereupon he concludes in effect that the business as to the beneficiaries was carried on as if by their consent, and so the property was not held in dead hand. In the first place, I do not read the American decisions to the effect that when the testator directs the continuance of his business, the beneficiaries can arrest the directions of the SECOND DEPARTMENT, JULY TERM, 1903. [Vol. 86. will. Willis v. Sharp (113 N. Y. 586) does not warrant the position of the learned referee. It is true that the court says that the executor is not bound to carry on the trade, and that existing creditors might interpose, but the reasons for the rule do not apply to beneficiaries. The particular executor named is not bound, because there enters in the element of personal contract at least in the first instance; and the creditors may object because their right is payment from present assets and not payment on the contingencies of a business enterprise. Obviously the beneficiary cannot range himself behind either of these reasons. Moreover, in the same case, the court said: "The courts, while they have sustained with substantial unanimity the validity of a direction of a testator in his will that his trade should be continued, whether his business was that of a sole trader or of a firm of which he was a member, have applied stringent rules of construction in ascertaining both the existence and extent of the authority of the executor." The learned referee cites from Stewart v. Robinson (48 Hun, 327, 329; 21 Abb. N. C. 63, 69) the expression of the court that "a direction by the testator to apply his estate to a partnership for five years, would have been clearly illegal as against his creditors, and even his next of kin and devisees." But the court was plainly referring to the period of five years, as one of the points made by the counsel for the respondent was that such provision was a suspension of absolute ownership not limited on life. I find in this statement no authority for the proposition that a beneficiary could arrest a direction for a continuance of the business otherwise valid. The learned referee also cites the expression in Bell v. Hepworth (134 N, Y. 442) that a statement in Stewart v. Robinson (supra) was "based upon the assumption that the continuance of the business was lawful as to those interested in it, either as lienors or actors so long as they assented to it." I assume that he draws the inference that the continuance of the business was not lawful if they objected to it; i. e., they could arrest it. But the "lienors or actors" referred to were clearly either the executors or the creditors, as reference to the context will show. I can have no quarrel with the proposition that the executors or the creditors might have arrested the execution of the contract in view of the doctrine of Willis v. Sharp (supra). But I App. Div.] SECOND DEPARTMENT, JULY TERM, 1903. repeat that there is a material difference in the status of an executor who might decline to continue the business or a creditor who might insist that his debt be not thus imperilled on the one hand and a beneficiary on the other. In Bell's Case (supra) the court also said: "The court in Stewart's case assumed that a provision for the continuance of the partnership business, if made in the will of the deceased partner, would be valid, and held that if the like provision in the contract of partnership was also valid, its terms must necessarily be construed as strictly as in case of a will." Moreover in Stewart's case (Stewart v. Robinson, 115 N. Y. 328, at p. 336), the court say: "The general subject of the construction of language giving power or authority for the continuance of a trade, after the death of one member of a firm, has also been under consideration in this court, and its conclusion expressed in the decision of Willis v. Sharp (113 N. Y. 586). Among other cases referred to was Burwell v. Mandeville's Executors (supra)* and the general proposition there laid down was restated. It was assumed that the courts with reasonable unanimity sustained as valid a direction in the will of a testator that his trade should be continued whether his business was that of a sole trader or of a firm of which he was a member, but it was held that a mere power to carry on the testator's trade will be construed as an authority simply to carry on the trade or business with the fund already invested in it at the time of the testator's death," etc. In Saperstein v. U Ulman (49 App. Div. 446), after speaking of the general rule that the death of a trader ends his business, the court say: "There are instances, however, in which this rule has no application, as for example, where the testator directs the executor to continue in business and to devote the assets of the estate to that purpose. Such testamentary directions are often made and when expressed in unequivocal language they will be upheld and enforced by the courts." * The learned referee says that the general rule, of course, is that a person who receives a bounty from a testator is bound by the conditions which he imposes, and he cites Dowse v. Gorton (1 App. Cas. [1891] 190, 204) and Brooke v. Brooke (L. R. 2 Ch. Div. [1894] 606) to sustain this view. And he notes in the former case Lord MACNAGHTEN said: "It was a just observation on behalf of *2 How. (U. S.) 560.- [REP. SECOND DEPARTMENT, JULY TERM, 1903. [Vol. 86. the appellants that an executor may be liable to creditors for conduct which no beneficiary could question, for beneficiaries are bound by the terms of the will while creditors are not," while in Brooke v. Brooke (supra) KEKEWICH, J., says: "No doubt in Dowse v. Gorton there was a power in the will to carry on the testator's business, but as was pointed out by Lord MACNAGHTEN that direction, though binding on the beneficiaries, was not binding on the creditors." But the learned referee seems to think that the rule is different with us, or at least that it is not definitely settled. His citation from Parsons on Partnership (4th ed. § 346) refers to cases wherein the trustees chose to continue, and has, I think, no reference to cases where the testator directs that there shall be a continuance. None of the American decisions cited by the learned author in his note to the section presents the case of a direction for the continuance of a business. There is authority to the effect that such a direction to continue the business created a trust. (Perry Trusts [4th ed.] § 121; Ferry v. Laible, 31 N. J. Eq. 566.) In this case the court say: "A testator by a direction to continue his trade or business creates a trust estate which the court will keep separate and apply exclusively to the purposes of the trust. (Owen v. Delamere, 15 Eq. Cas. 139.) This is the foundation doctrine of all the cases. (Ex parte Richardson, 3 Madd. 138; Thompson v. Andrews, 1 Myl. & K. 116; Cutbush v. Cutbush, 1 Beav. 185; M'Neillie v. Acton, 4 DeG., M. & G. 744.)" Johnson v. Lawrence (95 N. Y. 154) arose upon this will. FINCH, J., evidently regards the duties imposed upon the executors as arising from a trust. Thus he writes: "On the contrary, the ordinary duty of an executor to turn the estate into money was suspended at the outset, and in its room was put the duty of carrying on the business with all the assets on hand. That duty began at once. As a trust duty it sprang into life at the same instant with the executorship and inextricably blended with it. To make a division at the death of Florence was a clear duty put upon the executors. To enable them to effect that purpose they were empowered as executors to sell the real estate and close up the business. Until then the duties blended at the beginning were to remain united, and the trust was not separate and distinct, but characterized and modified the duty of * * * |