180 A.D. 196 | N.Y. App. Div. | 1917
By judgment of thé Supreme Court, May 16, 1896, the accountant was appointed trustee and directed to receive from his predecessor the property of the trust as it then was, among which was the Wayside Inn mortgage and other mortgages here in controversy. There was past due and unpaid on the Wayside Inn mortgage $15,000 of principal and $412.50 of interest. By the judgment appealed from the trustee is required to substitute cash for that mortgage and all interest thereon and thereupon becomes the owner of it. The value of the mortgaged property at the time it was received by the trustee does not appear. We have, therefore, the result that by the judgment and this decree the trustee is required, in substance, to take a mortgage of speculative and unknown value, paying therefor its nominal value, with interest. The result is unfair to the trustee, and arises from the fact that the surrogate found that the Wayside Inn property was a large frame structure with adjoining buildings, and conducted as a hotel during the summer season, and “ that an important part of the value of said property consisted in the good will of the hotel business conducted on said property and the security of said mortgage rested largely on the success of said business and the investment was speculative and hazardous.” And concluded, in the opinion, that the trustee “ accepted this mortgage as so much cash from his predecessor, and by continuing the mortgage and neglecting to make proper investigation of it, he must be held responsible for its validity as a legal trust investment.”
This determination was clearly erroneous. The court placed the securities in the trustee’s hands and he is accountable for their value when received, with the increase thereon. If they were speculative and of uncertain value and perhaps unsalable, he is only required to account for them as securities of that class and to show that he acted in good faith in dealing with them after they came to his hands and used his best
The prevailing opinion recognizes that the decision of the surrogate is wrong in this respect, but overlooks the fact that his conclusion in that respect necessarily influences and controls the decision of the entire case. If the trustee took cash and loaned it upon a summer hotel, he well might be held responsible. But he only received the mortgage for what it was, and is only responsible for good faith and reasonable care.
The surrogate finds that the value of the Wayside Inn mortgage depended upon the good will of the hotel business and the success of the business. The executor, by various expedients, continued the business; the result was not profitable. But there is nothing to indicate that any greater sum could have been obtained from this mortgage at any time than can now be obtained. It does not appear that any opportunity to sell it ever occurred, and there is not such a finding of bad faith and negligence with reference to this security that can properly justify the decree with reference to it.
The trustee thinks that at the time of the first default, November, 1899, the hotel property could not have realized $10,000 on foreclosure — perhaps not over $5,000; that the property is in better condition now than then, and has been well maintained, and could sell for a better price, perhaps $25,000 to $30,000. We do not find any evidence to the contrary. Apparently it would require about $32,000 to save the estate from loss. If the trustee had, upon the default, foreclosed the mortgage and sold the property at the best price offered, realizing from $5,000 to $7,000 on the debt, he would then be here facing the objection that he had sold the
At the time of the default the mortgagor was willing to turn the property over to the trustee on the mortgage. He, through his attorney, investigated her circumstances, and found that she owned several pieces of unincumbered real estate which were used with and were necessary for the successful operation of the hotel property. He valued those properties at over $11,000, and the valuation is not disputed. He arranged with the mortgagor that the estate would advance her $5,000 and take a mortgage upon this unincumbered property therefor, and as additional security for the hotel mortgage, and she was to carry on the hotel for a year under a manager selected by him. This was done with the idea of improving the security and to present a forced sale, which he felt would be ruinous. This arrangement was carried out. The situation was a difficult one. The mortgaged property was of uncertain value and its substantial value depended upon the continued operation of the hotel. It is not clear that this was an unwise transaction. The trustee evidently acted in good faith. As an original loan it could not well be defended in case of loss; but here was an emergency in which the funds of the estate were in jeopardy. Possibly the trustee did not do the wisest thing. The question is — did he act in good faith' and were there reasonable grounds for his action?
If the surrogate believed that the trustee was guilty of a breach of trust in talking the hotel mortgage, he could not approve of this transaction. The fundamental error permeates the whole case, and in order that justice may be done a new
Many other of the securities which result in a charge against the trustee were received by him when he took the trust, and the same questions, to a greater or less degree, are involved with reference to them. We have not discussed them separately but feel that justice requires a new trial. I favor reversal and a new trial.
All concurred.
Decree reversed upon the law and facts, with costs to abide the final award of costs, and the matter remitted to the surrogate for further consideration, as per opinion.