United States Trust Co. v. Roche — 26 N.Y. St. Rep. 394

Majority

p. 394

United States Trust Company, App’lt, v. Theodore M. Roche, Individually, and as Trustee, Resp’t.^[1]

(Court of Appeals, Second Division,

Filed October 8, 1889.)

Headnote

Trustee — Of express trust — May give mortgage for money to pat taxes.

The borrowing of money by the trustee of an express trust in order to prevent the estate from being sold for taxes, and the giving of a mortgage for the same and to secure the expenses incidental to it, are not in contravention of IK. S., 730, § 65, but in aid of the trust.

Reported below 41 Hun, 549 ; 4 N. Y. State Rep., 39.

Appeal from a judgment of the general term of the first department, which reversed a judgment entered on the decision of a special term, adjudging the foreclosure of a mortgage, with costs.

On the 10th day of November, 1858, James A. Foster was the owner in fee of an undivided half of five lots, Nos. 40, 42 and 44 Bond street and Nos. 43 and 47 Great Jones street, in the city of New York. At that date he, Anna S. Stagg and Charles H. Town, in consideration of the then intended marriage of said Foster and said Anna S., entered into a tripartite contract under seal, whereby Foster conveyed said undivided half of the real estate to Charles H. Town: “ Upon trust to receive the rents and profits of the said moiety and share of the said premises, from time to time, during the life of the said party of the third part (Anna S.), and apply the same to the benefit of, or pay the same into the hands of her, the said party of the third part (Anna S.), for her own use and benefit, free from the debts, control and engagements of the said party of the first part (James A. Foster), and so that her receipt alone shall be a discharge for the same, and from and after the decease of the party of the third part (Anna S.), and in case there shall, at any time, be any living issue of such marriage, then upon trust to sell all and every such moiety and share of the said premises, * * * and pay and divide the purchase moneys to and among all such issue equally, if more than one child, and if only one child, then to that one child, with power to invest the share of each child during minority on bonds and mort- „ gages of improved real estate or government or state stocks, and

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apply the income and interest towards the comfort, maintenance and advancement of such child or children until they respectively come of age, and as and when that respectively happens, then each child is to take its share of such invested property, with benefit of survivorship in the meantime between them; but if there be no living issue of such marriage at the time of the decease of the said party of the third part (Anna S.), then upon trust to convey the said moiety and share of the said premises, with the appurtenances, back unto, and to the use of, the said party of the first part (James A. Foster), his heirs and assigns forever.

“And also if there should be such issue, and. they should all die in the life-time of the party of the third part (Anna S.), or ever afterwards without attaining the age of twenty-one years, then upon trust to convey the said moiety and share of the said premises, with the said appurtenances, unto and to the use of the said party of the first part (James A. Foster), his heirs and assigns, or, n sold, then transfer and pay over the avails (whether invested or not) unto and to the use of the said party of the first part (James A. Foster), his executors, administrators and assigns; but if the said party of the first part (James A. Foster) shall die in the lifetime of the said party of the third part (Anna S.), and no issue of such marriage shall survive her, the said party of the third part (Anna S.), then upon trust to convey the said moiety or share of the said premises unto and to the use of the said party of the third part (Anna S.), her heirs and assigns, or, if the same shall have been turned into money, then pay such avails unto her absolutely for her own use and benefit forever. * * *

“Also, it is hereby declared and agreed that if the said party of the second part (the trustee) shall die or become incapable from any other cause, or desire to withdraw from the trusts herein, -then the party of the first part (James A. Foster), if alive, or the party of the third part (Anna S.), in case of his death, shall have power, in writing, to nominate and appoint another trustee, who shall thereupon be vested with all the unperformed trusts and powers of the original trustee. * * *

“And that the present and any future trustee may from time to time deduct and retain in his hands and reimburse himself out of all or any of the moneys which by virtue of these presents, or any of the trusts aforesaid, shall come to his hands, all such costs, charges and expenses as he may pay, expend or be put to, unto, in or about, or relating to any of the trusts aforesaid, or otherwise relating to or in consequence of these presents.”

ISTovember 17, 1858, said Foster and Anna S. intermarried, and on the same day the marriage settlement was recorded in the office of the register of deeds of the city and county of New York. From 1871 to 1880, inclusive, Charles H. Town was the agent for the owner of the half of said real.estate not held by him under trust, and he omitted to pay the taxes assessed on the whole property during those years, and also omitted to pay the water rates assessed thereon in 1870, 1871, 1872, 1875 and 1876, which taxes and water rates amounted, inclusive of interest, to $19,382.97, one-half of which ($9,691.48) was equitably chargeable to each

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moiety of said property. In July, 1881, the city advertised that the whole property would be sold for the purpose of collecting: said arrears; and thereupon said trustee, James A. Foster, and Anna S. jointly petitioned the supreme court for leave to borrow sufficient money on mortgage to pay said arrears, interest and expenses, together with the expenses of obtaining the loan. At this date James A. Foster and Anna S. had two infant children, for whom a guardian ad litem was appointed to take charge of their interests in the matter of said petition. A reference was ordered to ascertain and report the facts, and on the coming in of the report an order was entered, September 9, 1881, granting the prayer of the petition, and directing that a mortg an amount sufficient to pay the following sums ■ be given for

For the services of the attorneys for the petitioners.. . $400 00'

For their disbursements...................... 42 97

For the services of the guardian ad litem........ „ 200 OO

For the principal sum due the city for taxes and water rates........................................ 9,691 9,691 48

For interest on $9,691.48 and expenses of advertising, , 3,836 88

For the charges of trust company for examining title,' ,' 297 25.

Total................................ $14,468 58

On the 5th of October, 1881, the plaintiff loaned $14,450, taking the bond of the trustee conditioned for the payment of the sum November 1, 1884, with interest -at five per cent, payable semi-annually, and as collateral thereto said trustee, James A. Foster, and Anna S. Foster executed a mortgage upon the trust estate, conditioned for the payment of said sum, as provided in the bond. July 2, 1883, the trustee having resigned his trust, Theodore M. Roche was, pursuant to the provision of the marriage settlement, above quoted, appointed trustee in his stead, and entered upon the discharge of his duties.

No part of the sum secured by the bond and mortgage has been paid, except the interest to November 1, 1884, and March 5,. 1885, this action was begun to foreclose the mortgage. James C. Foster, the only surviving child of James A. and Anna S. Foster, is of full age, resides in the city of New York, but is not a party to this action. Theodore M. Roche (the trustee), James A. Foster, Anna S. Foster, and Clinton and Margaret Foster, the owners of the other half of the real estate, answered: (1) That the mortgage is in contravention of 1 R.j3., 730, § 65, and void: (2) That said James 0. Foster is a necessary party to the action.

The case was tried at special term, which overruled both defenses and ordered a judgment of foreclosure, with costs against the trustee, James A. Foster and Amia S. Foster. Upon the appeal of the trustee (the other defendants not appealing), the j udgment entered upon the decision of the special term was reversed and the complaint dismissed, with costs, and the plaintiff brought this appeal.

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Edward W. Sheldon, for pl’ff, app’lt; Edward C. Perkins, for def't, resp’t.

The sole defense interposed as a bar to this-action is that the loan and mortgage are prohibited and rendered absolutely void by the following statutory provision:

“ Section 65. Where the trust shall be expressed in the instrument creating the estate, every sale, conveyance or other act of the trustees, in contravention of the trust, shall be absolutely void.” 1 R. S., 730.

This trust was established and the mortgage executed before- § 65 was amended by chap. 275, Laws 1882; chap. 26, Laws 1884, and chap. 257, Laws 1886.

Were the loan and mortgage in contravention of the trust ?

Assuming that the failure of the trustee to pay the taxes-assessed upon the subject of the trust out of its income was a devastavit, his wrong has no legal connection with the primary question involved in this case and above stated. The plaintiff in no way contributed to the wrong committed by the trustee, which' had been fully accomplished before the loan was applied for. The money was not borrowed and applied in payment of a. debt illegally contracted by the trustee; but was borrowed and actually applied to pay a debt owing to the state, which, by virtue of the power of taxation, was a lien upon the subject of the trust prior and superior to all of the rights arising out of it. The loan in no wise increased (except by the sum incurred in obtaining it) the burden upon the estate, but prevented its total loss; which, but for this, or a like loan, would have been the inevitable consequence of the non-payment of the taxes. Had this trustee been removed because of his devastavit and a new one substituted while the sale for taxes was impending, the new trustee would not have been without power, having the consent of the court, to have borrowed money upon the credit of the estate for the purpose of saving it from being wholly lost. A mortgage given by a trustee so situated, and for such a purpose, would not have been in contravention, but in aid of the trust There is no difference in principle between the case supposed and the one in hand. Neither borrowing the money for this purpose, nor securing its repayment by mortgage, was an act in contravention of the trust. The act being lawful, the expenses incidental to doing it (the items are not questioned) were a charge upon the estate, and the sum of the expenses was properly included in the mortgage.

Neither the question above discussed, nor the principle underlying it, was involved in either of the cases cited in the opinion of the learned general term, nor in any of the cases relied on by the learned counsel for the respondent.

In Cruger v. Jones, 18 Barb., 467 , a beneficiary entitled during his life to the rents and profits of realty held in trust, expended without authority from the court or trustees considerable sums in repairing buildings destroyed by fire, and in building a new, but necessary pier. Subsequently he brought an action against the

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trustees, asking, among other things, that they should unite with the plaintiff and his son, who, in case he survived the plaintiff, would become entitled to the whole estate, in the execution of a mortgage for a sufficient sum to repay the amount expended. The son, who was of full age, was one of the parties plaintiff. The court refused the judgment sought, upon the ground that a mortgage given for such a purpose would contravene the trust. The case is quite different from the one at bar. The expenditures were voluntarily made by the beneficiary without authority from the trustee or court, and no lien existed which would destroy the trust unless it was paid. What was said about the want of power to authorize such a mortgage, was said with reference to the facts of that case, and it was not held that under no circumstances could a valid lien be created upon realty held in trust.

In Douglas v. Cruger, 80 N. Y., 15 , a husband, before the passage of the act for the protection of the property of married women, chap. 200, Laws 1848, conveyed his marital rights in the realty owned by his wife to a trustee, “in trust to receive the rents and profits of such real estate, and apply them to her separate use during their joint lives; and if she should die before him, then the remainder thereof, on her death, to go to her children and descendants by him, in such manner as she should by will appoint, and in default of such appointment, then to them in such manner as they would take the real estate as heirs at law if she should survive her husband.”

After the passage of the act above referred to, but before the passage of chap. 375, Laws 1849, the trustee assumed to convey to the wife the estate which he acquired under the trust deed. Subsequently the husband and wife united in mortgaging this realty, but the report of the case does not show the purpose for which the mortgage was given. An action for the foreclosure of the mortgage was defended by the wife on the ground that the trust was not extinguished by the deed executed to her by the trustee, and that neither her interest nor the interest of the children of the marriage covered by the trust deed were subject to the mortgage. It was held that the trust, which related simply to the husband’s life estate in the realty, his marital right, was not extinguished by the conveyance of the trustee to the wife, and that the mortgage was not a lien as against the wife or children upon that life estate, but that it was a lien upon the fee subject to the life estate. The power of the trustee to mortgage the subject of the trust, pursuant to an order of the supreme court, under given, or any circumstances, was not before the court of appeals, and was not passed upon. The trustee had not executed a mortgage, and the supreme court had not authorized the execution of a mortgage. The deed from the trustee to the wife in that case, was clearly in contravention of the trust created by the husband for the benefit of the wife and the children that might be born of the marriage.

In Lent v. Howard, 89 N. Y., 169 , 181, it was said: “The beneficiaries of trusts for the receipt of the rents and profits of land are prohibited from assigning or disposing of their interest, 1

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R. S., 729, § 63, and this provision is held to apply, by forc.e of other sections of the statute, to the interest of beneficiaries in similar trusts of personally. Graff v. Bonnett, 31 N. Y., 9 . This-legislative policy cannot we think be defeated by the action of the court permitting such alienation, or abrogating the trust.”' This case does not touch the question under consideration.

The statute does not provide that a trustee, with the consent of the supreme court, cannot, under any circumstances, execute a valid mortgage upon the subject of the trust; but that any act or conveyance by the trustee in contravention of the trust shall be absolutely void. Our attention has not been called to a case decided by any court in this state holding that a valid mortgage cannot be given by a trustee, with the sanction of the court, upon realty held in trust, for any purpose, or under any circumstances, unless authorized by the instrument creating the trust.

Whether a particular mortgage upon the subject of a trust executed by a trustee in accordance with an order of the supreme court is in contravention, or in furtherance of the trust, is a question which must be decided by the court, and when the facts are conceded, it is a question of law. The execution of this mortgage was wisely authorized by the special term for the preservation of the interests of the beneficiaries, and they cannot, under the evidence in this case, defeat a foreclosure. The plea in abatement is not valid.

Ho legal estate in remainder, vested or contingent, was created by the trust deed, but the entire legal estate was vested in the trustee, where it now remains, and James C. Foster has no legal estate of any kind to protect. It has been several times held that when specific realty which is subject to a mortgage is devised or conveyed to a trustee to be converted into money at a future day, and divided between specified persons, that they have a vested equitable interest in the subject of the trust, and are necessary parties to an action for the foreclosure of a mortgage. Calverley v. Phelps, 6 Mad., 229; Osbourn v. Fallows, 1 Russ. & M., 741; Anderson v. Slather, 2 Collyer, 209. For a stronger reason, a person having such a vested equitable interest in the avails of realty when it shall be converted into personalty is a necessary party to a suit for the foreclosure of a mortgage executed by the trustee. But James C. Foster has not a vested interest in the subject of the trust, nor in its avails. His interest is contingent upon his surviving his mother. Hot having a vested legal estate in, or lien upon the mortgaged premises, nor a vested interest in the avails of them when converted into money, he is not a necessary party to this action.

The judgment of the general term should be reversed, and the judgment of the special term affirmed, with costs payable out of the fund realized upon the sale of the premises under the ’foreclosure.

All concur.