22 Haw. 715 | Haw. | 1915
OPINION OP THE JUSTICES BY
Under the will of Maria King, late of Honolulu, deceased, the defendant, A. M. Brown, holds as trustee, certain parcels of land situate on the Island of Molokai, upon which are running one hundred head of cattle; in trust, with power to sell and
As is frequently the case in submissions upon agreed statements, the facts are not stated as fully and satisfactorily as they might have been, but we are justified in inferring from what is stated that though that indebtedness is not now due and payable, or, if due, that there is no threat of foreclosure, yet the trustee has no funds or other property with which to pay the indebtedness when it does mature, and that the indebtedness could not be paid off during the continuance of the trust except through a sale of a portion of the lands.
It also appears that Sarah E. Brown owns several pieces of land in the same vicinity in her own right, upon which she runs cattle, and intends to purchase, for $5000, the ahupuaa of Onoulimaloo, containing 753 acres, which, it is stated, “cuts through the entire center of said lands for a long distance,” and she desires to .buy from the trustee the lands of the King estate, with the purpose of combining the whole into a cattle ranch, which with proper development would have a promising future. An offer was made to the trustee by Sarah E. Brown by letter dated July 22, 1915, to purchase the lands of the estate for $20,000, upon the following plan for financing the proposed undertaking: To borrow, upon a first mortgage, the sum of $30,000 (payable in five years), and to give the trustee a second mortgage for $20,000, the amount of the proposed purchase
The general question presented for consideration is as to when, if at all, may a trustee invest trust funds upon a second mortgage upon real estate. In this jurisdiction the rule as to the Investment of trust funds is that the trustee must act with "honesty, prudence and faithfulness, and exercise such sound discretion as prudent business men exercise in the investment of their own moneys, having regard not only to the income, but to fhe security of the principal and to the permanency of the investment. In re Estate of Banning, 9 Haw. 453; In re Guardianship of Parker, 14 Haw. 347; Estate of Cummins, 16 Haw. 185. The application of this rule to an investment of trust funds in a second mortgage upon real estate, assuming the existence of the requisite honesty and good faith, would involve the question whether, under all the circumstances, it could be regarded as a sound and prudent business transaction. This, in the absence of statute or special direction, is the ultimate test as to the making of any investment by a trustee, and it is obvious that under some circumstances a second mortgage might offer a •.safer and better investment than, under other circumstances,
The two principal matters ordinarily to be considered with reference to the safety and soundness of an investment of this kind are, (1) the value of the security, and (2) the ability of the trustee to protect the investment in the event of the foreclosure of the senior mortgage. In regard to the value of the proposed security, $35,000 over and above the amount of the first mortgage, we deem it sufficient, though not more than sufficient. The amount- of the two mortgages, $13,300, would be about two-thirds of the present value of the property to be covered by the mortgages. As to the second point referred to, it is manifest that, as all the property of the estate is proposed to be put into the second mortgage, the trustee would he unable to protect the investment, in case the mortgagor should fail to meet the conditions of the first mortgage, by taking over the senior security. ' Were it not for the fact about to be adverted to again we should not hesitate to hold that the proposed transaction is not a safe and prudent one for the trustee to consummate. In Whitney v. Martine, 88 N. T. 535, 539, a case of an investment upon second mortgage by an agent of funds of his principal, the court said, “Perhaps it might not he sufficient to charge the defendant for neglect of duty on the last evidence referred to, and there would be ground for hesitation, independent of the fact that the mortgages of the plaintiff were second mortgages, taken after others of a large amount had been given, and thus would render it necessary for the plaintiff, on an emergency, to raise a large amount to protect a comparatively small sum loaned by her upon the property. Loans under such circumstances are always hazardous and doubtful, * * * And, as a general rule, it may properly be laid down that it is not prudent or safe to advance moneys on second mortgages when
After careful consideration, though with some hesitation, we have reached the conclusion that the proposed transaction is a prudent one for the trustee to effect under the circumstances stated, and that there is no lack of power on his part to make the investment in question. And as the supposed, want of power is the only ground upon which the trustee has based his refusal to perform his agreement, a decree requiring him to perform it may be entered.