In re the Judicial Settlement of the Account of Proceedings of Olmstead , 49 N.Y.S. 104 ( 1897 )

Williams, J.

(dissenting):

The trustee petitioned for a settlement of his accounts and for leave to resign his trust and be discharged. The proceeding thus began resulted in the decree appealed from. The cestuis que trust objected to certain portions of this decree, and the exceptions with reference thereto raise the questions presented upon this appeal.

Among the securities that came into the hands of the trustee were a bond and mortgage for $18,000, given by one John G. Latimer, the mortgage covering real property in the city of Brooklyn, ¡N. Y.

The bond and mortgage were given in 1878, payable five years from date. The mortgagor died in 1884, after the mortgage became due, leaving a widow and four brothers, his heirs at law, and leaving an estate, which was inherited by the four brothers, of $50,000, aside from the property mortgaged. After the mortgagor’s death one of the brothers acquired the interest of the widow and the remaining three brothers in the mortgaged property, and in 1891 the trustee, at the request of the brother owning the equity of redempttion in the mortgaged property, extended the time for payment of the bond and mortgage until May 1, 1895, without the consent of the remaining three brothers of the deceased mortgagor, and without requiring from the brother who owned the equity of redemption an agreement to pay the whole amount of the bond and mortgage.

In April, 1894, the buildings upon the mortgaged property were damaged by fire. The trustee held policies of insurance upon the buildings aggregating $10,000, and the owner of the equity of redemption held policies thereon aggregating $11,000. The loss was adjusted at $3,400 of which $1,619.04 was payable to the trastee, and the remainder to the owner of the equity of redemption. The trustee permitted the owner of the equity of redemption to receive the $1,619.04 from the insurance companies to be used in repairing the buildings upon the mortgaged property.

The insurance moneys were paid by the companies May 19,1894, and on May 27, 1894, the buildings collapsed and became a total loss. The interest upon the bond and mortgage had theretofore been paid as it became due, but on ¡November 1, 1894, there was default in the payment of the interest then becoming due, and in April, 1895, the trustee commenced an action of foreclosure in Kings county. The heirs of John G. Latimer, deceased, were made parties to the action, and a judgment was demanded against them for deficiency. The three brothers who had parted with their interest in the mortgaged property interposed the defense that the extension of the time for payment of the bond and mortgage had discharged them from liability. The trial court held this defense good, and the Appellate Division in the second department affirmed the decision. The latter court also held that the brother who was the owner of the equity of redemption was liable for one-fourth of the deficiency. (9 App. Div. 163.) An appeal has been taken by the trustee from the decision by the Appellate Division to the Court of Appeals, and the appeal is still pending and undetermined. A sale of the mortgaged premises has not been had, but is held to await the decision of the appeal.

The cestuis que trust, the appellants from the surrogate’s decree, requested the surrogate to find, among other things, that the trustee was guilty of gross negligence and willful misfeasance in extending the time for the payment of the bond and mortgage, and thus releasing the three brothers of the deceased mortgagor from liability upon the bond for deficiency, and in not securing a larger amount from the insurance companies in settlement of the loss by fire in the buildings upon the mortgaged property, and in allowing the owner of the equity of redemption to take the share of the insurance moneys payable to the trustee ; and that a substantial loss to the trust estate had resulted from such negligence and misfeasance, and that it was incumbent upon the trustee to make the trust estate good, to the full extent of the bond and mortgage, with interest, and to reimburse the estate for the expenses of the foreclosure action, and of his efforts to enforce the bond paid by him from the trust funds.

The surrogate refused to make these findings, and held and decided that the trustee was not guilty of any negligence or misfeasance, nor chargeable with any loss resulting from negligence or misfeasance with reference to the bond and mortgage, in view of the clause in the will under which he acted as trustee. By the decree .the account of the trustee was settled and the trustee was permitted to resign his trust, a new trustee was appointed and the old trustee was directed to transfer to the new trustee the trust estate, except that he was allowed to retain the bond and mortgage pending the appeal to the Court of Appeals and a sale of the mortgaged property, and was directed after such sale to pay over to the new trustee the proceeds of the sale and any deficiency collected upon the bond, less the costs and disbursements ordered to be paid therefrom by the court, and such other expenses as might be allowed by the Surrogate’s Court upon the foot of the decree; and upon making such payment and filing receipt therefor the decree provided that he should be discharged from the trust. The trustee was allowed, in settling his account, credit for costs paid • to liis attorney in the action for foreclosure, and he was also allowed a credit,for §350 for services in this accounting and another proceeding against him for an accounting.

We do not see how it could be determined by the surrogate at the time of the making of the decree, or how it can now be determined, whether the trust estate has suffered any loss upon the bond and mortgage in question. It cannot be known until the sale of the mortgaged premises takes place how much will be realized from such sale, or whether there will be any. deficiency to be paid by any of the parties liable upon the bond, nor can it be determined until the decision of the Court of Appeals whether all the heirs of the mortgagor will be liable upon the bond for such deficiency. It is possible, therefore, that the whole amount due upon the bond and mortgage and costs and expenses of the action will be recovered and that there will be no loss whatever to the trust estate.

We are not prepared to assent to the correctness of the decision of the surrogate, that the trustee is not liable for the loss to the trust estate if any shall finally be found to have been suffered. It will be time to settle that question, however, when it shall appear that loss has been sustained. We think the surrogate should have reserved decision as to this question until the termination of the foreclosure suit and the sale of the mortgaged property and the collection of such part of the deficiency, if any, as could be collected; and should have provided by the decree for a supplemental accounting with reference to this bond and mortgage, and the costs and expenses of the suit to foreclose the same and enforce the liability upon the bond. ¡Nor do we see why the old trustee should have been permitted to retain the bond and mortgage and to conduct the proceedings to enforce collection of the same. The decree should have provided for the transfer of these to the new trustee, with the other assets of the trust estate, and the new trustee should have been directed to prosecute the action and appeal to a termination, and collect and receive such moneys as he could upon the bond and mortgage. There is no reason apparent to us why the trustee, after his resignation and after the appointment of a new trustee, should be allowed to retain any portion of the assets of the trust estate.

We are not inclined to disturb the allowance by the surrogate of the 8350 to the trustee for services of his attorney in this and other proceedings for an accounting.

The decree made by the surrogate should be modified, in the respects referred to, and as modified should be affirmed, without costs of this appeal.

O’Brien, J., concurred.

Decree reversed so far as it allows the trustee to resign and discharges him from liability, sustaining exceptions to • allowance to trustee of costs, etc., and counsel fee, and confirming decree in other respects, with costs to appellant.