Baldwin v. Isham

Headnote

Trust fund — right of a cestui que trust to agree to accept possession of land, on which the trustee holds a mortgage, instead of the interest on such mortgage — how fa/r such an agreement can be rescinded, so as to prejudice rights acquired by thvrd persons as judgment creditors of the cestui que trust.

Appeal from a judgment in favor of tlie defendants, entered upon the report of a referee.

The action was brought to foreclose a mortgage.

The plaintiffs held $3,000 in trust to pay the interest to Myra E. Wilson during her life; the principal to go to her heirs, at- her death. She desired to buy a farm. Accordingly an arrangement was made, by which she bought the farm, paying some $500 of her own money, and the plaintiffs lent to her the $3,000, taking from her a bond and mortgage on the farm. The condition of the bond and mortgage was, in substance, that the use and occupation of the farm should be taken as the payment of interest on the mortgage, during her life; that at her death the heirs might accept a discharge of the mortgage as payment of the principal; or the trustees would foreclose and make the principal by sale of the premises. She entered into, and still remains in, possession of the farm. Her equity of redemption in the land, however, has since been sold on execution by judgment-creditors. The plaintiffs now bring-this action to foreclose the mortgage. „

The court at General Term said: “ It is evident that nothing is yet payable on the bond and mortgage. The interest has been paid by the occupation of the land by Myra E. Wilson. She is the only person interested in the income of the trust, and she has consented to accept the occupation of the land as an equivalent for the payment of the income. So long as she has the occupation of the land therefor, the interest on the mortgage is paid.

“Nor is the principal payable. That was not payable until her death. The plaintiffs insist that they are foreclosing by her wish. That is very possible. But others have acquired rights in the equity of redemption. And they are parties here and defend.

“ The plaintiffs fall into the error of supposing that the land is the trust property, and therefore that these judgment creditors can have acquired no right to it. But the plaintiffs do not hold the land at all.. They only hold a mortgage thereon. The equity of redemption '(as it is usually called) or, to speak more accurately, the fee subject to the mortgage, is in Myra E. Wilson, and not in the plaintiffs. She can dispose of that, and it can be sold for her debts; leaving, however, the bond and mortgage, which is all that the plaintiffs have, untouched. The eases therefore do not apply, which are cited by the plaintiffs’ counsel, as to the rights of a cestm que trust, and as to the inability of a cestui que trust to assign or transfer his interests.

“We have no need to inquire as to what the rights of the parties would be should Myra E. Wilson ever cease during her life to occupy the premises.”

The judgment should be affirmed, with costs against plaintiffs personally.