account for increase in surplus. The rise in value of the stock in this case as found as a fact by the Auditor is attributable to earnings and not to appreciation. The question then remains as to how much of the rise in value is attributable to earnings before and earnings after the inception of the trust.

The criterion for the Auditor therefore is to find the intrinsic value of the corpus of the trust fund at the time of its inception and its value after the declaration of the dividends. Since the Auditor has found that any increase is due to earnings the life tenant would be entitled to such increase.

An element in fixing the intrinsic value of stock is the market value of the same, provided, that market value reflects the true value.

The Auditor is of the opinion that in this case the market value is not a true criterion. The evidence shows that this corporation whose surplus was greater than its capital was paying only 6% or 8% in dividends and that this practice had been continued for several years with no prospect of an increase; That no statements of the financial condition of the corporation were ever published or were available. These conditions would reduce the market value of the stock below the actual value by limiting the demand for the stock.

Of greater weight in fixing the value of the stock is the testimony of Col. Edward M. Young who was himself the purchaser of stock and testified that he considered the value of the stock before the declaration of the dividend as Seventy-five ($75.) Dollars per share. However, he also states in his testimony that an element in fixing this value was the market value of the shares after the declaration of the dividend. There is further no testimony by this witness as to the value of the shares on June 20, 1915, when the surplus was three million dollars less than it was in February, 1917. The Auditor therefore has found it impracticable to base his findings as to the value of the stock on the testimony of Col. Young. A third element in ascertaining the value of stocks is the book value thereof as shown by a statement of the corporation as to the relation between its capital and surplus. shown by the findings of fact the capital stock of the Lehigh Portland Cement Company in June 1915, was

As

$9,942,850 and its surplus $7,514,523.54 with shares at a par value of $50. The total of the capital and surplus of the Lehigh Portland Cement Company in June, 1915 was owned by holders of 198,867 shares of stock. The book value of each share at that rate was $87.7885. After the declaration of the stock dividend the capital of the Lehigh Portland Cement Company was $14,560,250 and the surplus $5,815,807.40. These assets, divided into 291,205 shares make the value of each share $69.9715. There is a slight inaccuracy in these values due to the fact that in June, 1915, certain shares of stock were held in the treasury of the corporation and these shares were used in the payment of the stock dividend. The value of the stock therefore in June, 1915, would be a few cents higher than the amount shown above, but the Auditor has been unable to determine the exact number of shares so held. The difference however is so trifling that it cannot affect the result in this case to any great extent and therefore has been disregarded by the Auditor. Since in this case the market value is not accurate and the testimony of one familiar with the affairs of the corporation is not exhaustive on the subject the Auditor has had to resort to the book value as the most accurate means of determining the intrinsic value of the stock. Since, however, the corporation has been consistently accumulating a surplus the Auditor believes that the book value is an accurate estimate of the actual value of the stock. Applying the figures above determined, to the trust estate held by the Lehigh Valley Trust Company, the Auditor finds that the 3200 shares which the Trustee received as the corpus of the trust estate on June 21, 1915 at the value of $87.7885 per share were worth $280,923.20 which amount constitutes the corpus of the trust fund. The said 3200 shares with the 1600 shares declared as a dividend, each share being, immediately after the declaration of the dividend, worth $69.9715 were worth $335,863.20. Since the Auditor has found that the increase represents earnings accumulated during the continuance of the trust the beneficiaries are entitled to the sum of $54,940.

In support of the principles above set forth the Auditor cites the following cases:

Moss's Appeal-Supra, in which Justice Paxson on page 270, discusses the importance of the market value

of stock in determining the intrinsic value.

"The fallacy of this theory consist in the fact of estimating the one hundred and forty shares, not at their actual value at the time of the transaction, but at their market value, three years afterwards. A more uncertain rule could not well be imagined. It would make the rights of the parties depend upon the condition of the stock market, which is as variable as the tides, without their regularity. Market values are well enough upon a question of distribution, where the parties are about to realize; but upon a question of values between life-tenants and remaindermen, a judicial decree should go down through the shifting sands of the stock market until it reaches the solid rock of actual values. The application of any other rules might work serious injustice. It is well known that within the last year the stock of more than one large corporation has varied in price over one hundred per cent. Even if the market value were a proper test, why take it three years after the transaction oc curred? Why not one year, two years, or any other time? The tenant for life and remaindermen might well differ as to the precise day which should fix the market value as the bulls or the bears might happen to be in the ascendant. It often happens that stocks that are intrinsically worthless are kept up at high prices by the ways that are peculiar to Third street and Wall street. In such a case as this, the solemn judgment of a court upon a question of values, defining the rights of parties in the future, must have a more secure foundation. The date at which the value of this stock must be estimated is the time when the transaction took place. Its actual value then was $170 per share. This valuation is based, not upon the caprice of the market, but upon actual assets in the hands of the company. If it was worth $225 per share in 1876, when this account was audited, the increase is the result of the gains of the business of the company during the preceding three years; as such it forms a portion of the capital of the company, and so must remain until such time as said company shall declare it to be profit and in some manner provide for its distribution. When such event shall occur, the one hundred and forty shares will be entitled to their proportion thereof."

Smiths Estate, 140 Pa. 334;

Attention is called to the words of Justice Clark on page 357,

"It is true the market value of the shares was not greatly, if any, impaired by the increase, but the question of value is to be determined, not by the fluctuations of the stock market, but by the actual assets held by the corporation; Moss's Appeal, supra; Biddle's Appeal, supra. It is the intrinsic value of the assets at the death of the testator, and at the time of the increase of the stock, which governs in the apportionment of the surplus profits. The market value may aid in the ascertainment of the actual value, and is therefore properly received in evidence on that issue: Earp's Appeal, supra; Moss's Appeal, supra. In the latter case, however, it was said that the market value represented the actual cash assets in the hands of the company."

Eisner's Estate-175 Pa. 143, which is an instance of the dividend declared out of appreciation in the value of property which dividend, the Court held belonged to the remaindermen and not to the life tenant.

A very important case on the subject and which reviews the entire subject is,

Stoke's Estate, 24, Pa. 277;

Special attention is called to the language at the bottom of page 284 and at the bottom of page 285.

The attention of the Auditor has been called to a recent case decided by the Supreme Court of the United Ststes in which a stock dividend was declared to be corpus and not income. The United States Supreme Court has more or less consistently followed the Massachusetts Rule which is contrary to the Rule adopted in Pennsyl vania and firmly fixed in this State. The Auditor has not taken into consideration the case decided by the Supreme Court of the United States in this matter for it could only be valuable for its reasoning if the Auditor were in doubt which of two rules he should adopt. There can be no doubt in this case, the subject having been fully covered and clearly and finally decided by the Pennsylvania Courts. The language of McLouth v. Hunt, supra, on the obligation of a State Court to follow the decision of the United States Supreme Court on matters wholly and entirely within the jurisdiction of the State Courts is here quoted:

"The Supreme Court of the United States laid down the same rule in Gibbons v. Mahan (136 U. S. 549), evidently following the doctrine of the English and Massachusetts cases. Mr. Justice Gray, who delivered the opinion, was a member of the Supreme Court of Massachusetts when the rule was established in that state. It cannot be doubted that these cases are authority in support of the appellant's contention, and yet, notwithstanding the exalted character of the courts from which they proceed, they are not binding upon us, except in so far as they appear to be founded upon reason and justice.

The declaration of the Lehigh Portland Cement Company that 93.72% of earnings subsequent to March 1, 1913, cannot affect the relations between the life tenant and the remaindermen in these shares of stock. The Auditor believes that he has already demonstrated that no action on the part of conflicting shareholders can af fect the relation between the shareholder and the corporation and that the corporation cannot by its own action change the relations established by law between the life tenant and the remaindermen in the trust. Any other rule would be unfair to the life tenant because the remaindermen must ultimately get the full benefit of any accumulations on the stock not belonging to a life tenant. While a life tenant, as shown above, can only get the benefit of such earnings as are earned and paid during his life tenancy. Therefore, the life tenant is entitled to stock dividends provided it is of earnings accumulated while he was beneficiary despite the fact that the corporation may have accumulated earnings before he became beneficiary.

3. The exceptions of Mary Ann McLaine are sustaind in so far as they relate to her claim as legatee under the will of George Ormrod, entitling her to such proportion of the stock dividend of the Lehigh Portland Cement Company as represents earnings of the said corporation after the death of George Ormrod. In so far as the said Mary Ann McLaine claims part of the stock dividend as cestui que trust under certain deeds of trust, her exceptions are not sustained.

4. Fannie M. Saeger, exceptant, is entitled to such proportion of the stock dividend of the Lehigh Portland Cement Company as represents earnings of the said