*

with the surviving partner. The court, in considering the question of res adjudicata, said (page 442): “We think, where no objections were interposed and no specific ruling had thereon by the court, and the decree upon the accounting merely approved the accounts as rendered and fixed the amounts in the hands of the trustees, that this, while sufficient to bar inquiry as to past transactions, was not such an approval of the mode of investment as to preclude the court upon a subsequent accounting from disapproving of the continued contribution to the capital of a going concern * *. As it does not appear that this matter was specifically passed upon on the former accountings, as no attempt is made to charge the trustees with any funds distributed or paid out by them which had been approved upon the former accounting, as the fund remains in their hands and under their control, and as, even if there was an approval of the original transaction, the membership and capital of the copartnership has materially changed since the last accounting, we discover no bar to the present consideration of the question whether this trust fund should remain subject to the hazards of the general partnership in a mercantile concern.” (See also Matter of Hoyt, 160 N. Y. 607; Matter of Elting, 93 App. Div. 516; Bowditch v. Ayrault, 138 N. Y. 222; Matter of Leask, 159 App. Div. 102.)

It, therefore, becomes necessary to examine the provisions of the will which define the powers of the trustees. By the eighth paragraph the testator provided as follows: "I authorize and empower my said Trustees and their successors and the survivors and survivor of them to invest said trust funds in such manner as they or he in their or his unrestricted discretion shall deem best, without being limited to such forms of investment as are authorized by law for the investment of trust funds. And in case any part of such trust funds shall at any time be invested in bonds or other securities payable at a fixed or determinable date, the value of which shall be more

than par, I direct that the whole of the interest and other income therefrom be paid to the beneficiary, without making any deduction therefrom for the preservation of the principal."

The trust provision with regard to the two-thirds of the residuary estate hereinbefore referred to provides for the collection of the rents, issues, income, etc., of each share and the payment of the same over semiannually or oftener to the beneficiary of said share and then follows this provision: "Except that during the minority of any beneficiary my said Trustees or their successors or the survivors or survivor of them may in their discretion accumulate the income from said share, or may pay over to, or use for the benefit of, such beneficiary, at any time or times during his or her minority, the whole or any part of such income, the accumulations of income, if any, to be paid over to such beneficiary upon his or her reaching the age of twenty-one years." Under this provision, I am of the opinion that any income which has accumulated in the hands of the trustees as indicated may be invested by them in the same manner and on the same securities upon which they were authorized to invest the principal. (Matter of Stewart, 30 App. Div. 368, affd. on opinion below, 163 N. Y. 593.) Hence, if it is proper for the trustees to permit the amount which was due to the testator to remain on deposit with, or as a loan to, the corporation under the powers with which they were vested by the will, it was also proper for them to leave the shares of the income, namely, of the item of balance of dividend, $1,314.92, and the item of $1,000 for rent, to remain on deposit in the

same way.

That the trustees could not treat the amounts referred to as legal investments in the absence of special authority conferred upon them by the testator there can no longer be any doubt in this State. (Underhill Wills, § 790; Thomas, Laws of Estates, 741 et seq.; Perry Trusts, §§ 452, 456; King v. Talbot, 40 N. Y. 76; Matter of Wotton, 59 App. Div. 584, affd., no opinion,

167 N. Y. 629; Toronto Gen. Trust Co. v. Chicago, B. & Q. R. R. Co., 64 Hun, 1, 9, affd. on opinion below, 138 N. Y. 657; Matter of Avery, 45 Misc. Rep. 529, 549; Decedent Estate Law, 111, being Laws of 1909, ch. 18, and constituting Consol. Laws, ch. 13; Pers. Prop. Law, § 21, being Laws of 1909, ch. 45, and constituting Consol. Laws, ch. 41; Banking Law, §§ 239, 239-a, being Laws of 1914, ch. 369, as amended by Laws of 1915, ch. 269, and constituting Consol. Laws, ch. 2.) And it is equally well settled that the creator of a trust may prescribe how the investments shall be made and what security shall be taken for moneys invested. (Denike v. Harris, 84 N. Y. 89; Thorn v. De Breteuil, 86 App. Div. 405, 424, modified, 179 N. Y. 64; Matter of Stewart, supra.)

It is first to be determined, therefore, whether they were given the authority to invest in other than the usual securities. As to this the language of the paragraph of the will quoted above leaves no doubt in my mind. (Matter of Hall, 164 N. Y. 196; Matter of vom Saal, 82 Misc. Rep. 531; Matter of Keteltas, 1 Conn. 468; Lawton v. Lawton, 35 App. Div. 389.)

But notwithstanding the fact that the trustees have the authority stated and however large the discretion in them may be, the court nevertheless does not lose its power to review the use of this discretion and, if need be, to correct any abuse in its exercise. In Matter of Hall (supra), the language of the will was as follows: "I hereby give my said executors and trustees herein before named full power to reinvest *** in any security real or person which they may deem for the benefit of my estate and calculated to carry out the intention of this my last will."

Here the testator had been in the business of manufacturing umbrellas, and by his will he directed that his interest in the business be closed on the first day of January or the first day of July immediately following his decease. The executors invested in the stock of a corporation in the same line of business.

The Court of Appeals, in discussing the power granted to the trustees and their exercise of it in the manner indicated, said: "We concede that under the terms of the will the trustees were given a discretion as to the character of the investments they might make, and that they were not limited to the investments required by a court of equity in the absence of any directions from a testator. The trusts of this will are to provide the testator's children with income during their lives, and on their deaths the principal is to go to their issue. The very object of the creation of the trust was, therefore, the security of the principal, otherwise the testator might better have given the property outright to his children who were the primary objects of his bounty;" and then disapproved of the investment made.

In Matter of vom Saal (supra), the will contained a provision very much similar to the one under consideration, empowering the executors "to invest and reinvest the proceeds, in such amounts and in such manner as may to them in their absolute discretion seem advisable, although the said investments may not be of the character permitted for the investment of trust funds by the ordinary rules of law." And the learned surrogate said: "It seems to me that a proper construction of the clause under consideration permits the executors to invest the trust fund in securities other than so-called court securities, or those mentioned in section 111 of the Decedent Estate Law, using such diligence and such prudence in the care and management of the trust funds as prudent men of discretion and intelligence in such matters employ in their own like business concerns. If the executors and trustees in their discretion do not invest the funds in such securities as are mentioned in said section 111, known generally as court securities, in case of the depreciation of the investments their conduct as to good faith, diligence and prudence may be inquired into on a settlement of their accounts. If, in the investment of the funds, they should take securities which diligent and prudent

men, acting in good faith, would not take, they would be held liable for the loss, but if they should act with the good faith, prudence and diligence which would characterize a good, careful business man under the circumstances in the investment of funds, they would not be held liable, although there might be a loss." (See also Clark v. Clark, 23 Misc. Rep. 272, 286, and cases cited; Matter of Hirsch, No. 1, 116 App. Div. 367, affd. without opinion, 188 N. Y. 584.)

In the pending matter it appears that all of the trustees are directors, one of them is the president and two of them are stockholders of the corporation with which the items in question are deposited and which uses them as a part of its working capital. Without in the slightest degree impugning the good faith of trustees, or even inquiring into it, the courts have always looked with disfavor upon the investment of trust funds in enterprises where the interests of the trustees as individuals may come in conflict with their interests in the fiduciary relation. (Deobold v. Oppermann, 111 N. Y. 531; Matter of Hirsch, No. 1, supra; Matter of Stallo, 82 Misc. Rep. 135; Pyle v. Pyle, 137 App. Div. 568, affd. without opinion, 199 N. Y. 538; Munson v. Syracuse, G. & C. R. R. Co., 103 N. Y. · 59.)

Nor does the fact that the testator allowed the moneys due him for balances of unpaid profit to remain in the treasury of the corporation as a part of the working capital, of itself justify the exercise of the discretion of the trustees in continuing the same as an investment. If under the will and the power given them as trustees it would have been an improper exercise of discretion to invest trust funds by loaning them to the corporation to be used by it as part of the working capital, then it is an equally improper exercise of such discretion to treat such a loan already made as an investment of trust funds and continue it as such. (Perry Trusts, §§ 454, 465; Matter of New