Case ID: ad_110/html/0329-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Clarke, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of the Trusteeship under a Certain Indenture of Mortgage, Made, Executed and Delivered by the Wm. Radam Microbe Killer Company to Joseph A. Morris, Trustee. In the Matter of the Application of Walter W. Bostwick, Respondent, for the Appointment of a Person to Execute the Trust under a Mortgage, Made and Delivered by the Wm. Radam Microbe Killer Company, a Corporation, Appellant.
    First Department,
    December 30, 1905.
    Trust mortgage — chief bondholder not eligible as substituted trustee.
    The owner of. all the bonds issued by a corporation secured by a trust mortgage should not be appointed substituted trustee when such trustee is vested with discretionary powers and the corporation contests the validity of the bonds. The office of trustee and beneficiary may not be vested in the same person.
    A-ppeal by the Wm. Badam Microbe Killer Company from so much of an order of the Supreme Court, made at the New York Special Term, bearing date the 27th day of November, 1905, add entered in the office of the clerk of the county of New York, as appoints Walter W. Bostwick as substituted trustee under an agreement of trust made between the appellant and Joseph A. Morris, the original trustee.
    
      A. H. Parkchurst, for the appellant.
    
      Terry Smith, for the respondent.
   Clarke, J.:

The Wm. Badam Microbe Killer Company, a domestic corporation, on or about Bo’vember 30, 1903, executed, acknowledged and delivered to Joseph A. Morris, as trustee, its certain indenture of • mortgage,, which mortgage was filed' in the office of the-register of the county of Bew York on October.- 21, 1905. .Said Morris accepted the trust and appointment as said trustee and continued to act down to Bovember 8> 1905, when in writing lie resigned his trust and now declines to act. Walter W. Bostwick, alleging the foregoing facts and that, by assignment, he is sthe owner of all the outstanding bonds of said company, and that default, was made in the payment of interest on the coupons of said bonds due and payable on July 1, 1905, and that the said'bonds and indenture of mortgage provide for foreclosure sale of the property set forth in said mortgage, six months after the default, and that by reason of the resignation of said Morris it is necessary that some one be substituted in the place and stead of said trustee, petitioned the Supreme Court for his.own appointment as such substituted trustee. The' court granted such petition and the company brings this appeal from so much only of said order as appointed the petitioner trustee. .It appears that there is some question as to the validity of a considerable number of the bonds, the company alleging that,they liad íeen delivered under a misrepresentation of fact and that, by resolution, the board of directors had rescinded the contract and sale upon which they had been delivered, and repudiated any liability under said bonds. It also appears that under the indenture of mortgage the trustee' had certain: discretionary powers conferred upon him. It seems clear; therefore, that it would ,not be proper to' appoint the owner and holder of the bonds the trustee under the mortgager It would make the eest/ui que trust the trustee, and such is obnoxious to well-settled principle. If there b.e necessity for any trustee, obviously said trustee, as between the company, which denies the validity of the bonds; and the holder-of the bonds, who demands, foreclosure of the mortgage and payment of the bonds, should be disinterested.

It is a general and well-settled provision of law that the office of trustee and beneficiary may riot be united in the same person, as the I two interests are incompatible. (Rankine v. Metzger, 69 App. Div. 269, and cases cited.)

So much of the order as appoints Walter W. Bostwick trustee is reversed, with costs against the petitioner, and the matter remanded to the Special Term' with instructions to appoint tome disinterested person trustee. ,

O’Brien, P. J., Ingraham, McLaughlin and Houghton, JJ., concurred.

Order reversed, with costs, so far as it appoints petitioner trustee, and matter remanded to Special Term.