The sun. [volume] (New York [N.Y.]) 1833-1916, 1899-06-23
THE DUTIES OF A TRUSTEE.
DECISION or JUDGE WALLACE Az
FEC7IRG Trust COMPdNIES

FEC7IRG Trust COMPANIES
They Must Protect tho Bondhoiders as Well
as Those for whom the Bonds Are Ia
susd-Other Obligations Besides Those
Defined by tho Terms of the Mortgage.
Judge william j. Wallace Of the United States
Circuit Court handed down Yesterday q de-
oision dwelling upon tho duties and obligations
OF trustee toward the holders OF tho bonds
representing the mortgage issued to the trus-
tee. The decision 10 rendered upon n de-
murrer filed by the Farmers Loan and Trust
Company In a suit brought by William ID.
Frishmuth and Benoni Frishmuth. trustees Of
the will Of william b. Frishmuth. The plain
tits began suit last January. alleging breach
OF duty on the part Of the trust company
which was trustee Of mortgage given in Oc-
tober. 1880. by the Oregon and Pacific Railroad
Company and the willamette Valley and Coast
Railroad Company TO secure fl5.OOO.O00 in
bonds issued by the trustee. The plaintiffs
alleged that they lost the amount represented
by the bonds purchased from the trustee and
asked for an accounting. Judge Wallace sus-
taips the demurrer. but gives the plaintiffs the
right to submit an amended bill framed In the
agreement with the opinion expressed on the
contentious Of the demurrer
The decision reviews the allegations con-
tanned In the bill of com plant. The willamette
Valley Company was formed to build rail-
road from Corralis TO Yaauna Bay. on the Pa
cihc Coast. to acquire lands In Benton county.
Ore. and also to acquire, by payment OF $780,
600. a grant OF land from the State OF Oregon
to the Willamette Valley and Cascade Noun
tain Wagon Road Company. aggregating $780,
900 acres. The Oregon Pacific Company was
Incorporated to build railroad from Va
quina bay to Boise City. and to construct
the railroad OF the Willamette Valley Com
A,
execution OF the mortgage. neither had any
property except their franchises, land grant
belonging to the Willamette Company and the
right to acquire the Wagon Road Companys
grant for 100000 According to the covenants.
the trustee was to issue So. 25ODO0 in bonds. to
be used in payment OF the $GOO.0UO oppor-
ocean eastward. and. il any surplus remained.
with the proceeds o! any subsequent issues.
conditions Of the franchises. It was Stipulated
that the issue was not TO exceed $4,000
mile FOR ia 6s was be
deposit $3OOOO each year with the trustee for
investment for the general purposes Of sink
According to the decision. still citing from
the bill OF complaint, In May. 1881. when the
chase Chase Of 1T the - Wagon Road Gomn Y had ex-
sy Rf' %haS road ac%o4ns to
The complaint. the defendant with knowl-
sass n' h 9S%"sS %t the ssneG a
The o% mortSSsor TIE Board Of directors Of
@ & ' G"nds Wspe issued
by tho trustee; although the 1870 miles OF road.
constructed out OF the frst issue OF bonds. were
but barely completed. In october tho mort
snd IL the Premises es wePe sold
under foreclosure to persons other than the
bondholders. who thereby lost. the complaint
lion hav md nnHn hn FAR If ha
The demurrer filed by the Farmers Loan
tits even conceding the facts stated in the bill
Of complaint to be true. have no cause for
iorth 10 the covenant have been fully per.
formed; that the complaint il defective In re-
speet to the parties named as neiendants: the
companies should have been so named: that
the com plant Ia defective also, because bond
mtted ' to come in pthtfs that the suit t. is
barred by the statute Of limitations. that the
set forth. preclude any recovery. Other tech
nical objections declaring the suit not cogniza-
The eomtsntioa nth that ' The compliments have
bill OF complaint is overruied: likewise the
should have been named as defendants. The
decision sustains the contention that the suit
the right to come in as eomplainants. The con:
tention that the suit Is barred BY the statute OF
Who says that hat whiIe the iursdicto o"V Of
United States courts is not subject to
ises 5TS Of 6e yet the
Of JUDICIAL opinion bearing upon such restric:
ton The varying dates , II the succession OF
ever. he ,said. lead to the presentation Of an
amended bill Of complaint that will overcome
point as well as on the contention that tho
lacbes OF the complainants preclude any suit to
Judge Wallace says further that if the facts
stated in the bill OF COMP Amt are true it would
seem that good cause for action exists.
sponsoility upon the theory that a mortgage
does not contain conditions nrcseri6ing his
does not protect trustee in delivering bonds.
the proceeds Of which he knows. or believes.
the decision declares. would refuse to enlargs
:he debt that was being improperly managed
The decision is In part as follows:
- The duties assumed by one to whom rail-
road mortgage Is made for the benefit Of bond
holders are not those only which are defined
by the terms OF the instrument. Others are
supcrimposcd upon the trustee created by tho
relation Of the parties aud the situation of tho
Gagor, he trustee 10 sci cted to represent as
well all those who may become the holders OF
covenants and conditions Of the mortgage or
take proper measures TO protect the interests
OF Hq he The nSs mot
When tho mortgage debt is amply secured
the i!uties o. a trustee are ordinarily merely
nominal. until default occurs in complying
with the conditions Of the mortgage. In this
case the security was practically m nubiLus at
the inception ~ thetrust. and was to hs created
by the co-operation OF the defendant and the
Oregon Pacific Company it was to be consti-
tuted an adequate security by the acquisition
81 properly by the Oregon Pacific Company
through the proceeds OF bonds to be issued by
the trustee
THE mortgage was sedulously framed aud
expressed TO induce Investors to purchase tho
bonds upon the faith that such property would
he acquired with the proceeds. and that. as the
bonds werr issued by the trustee the proceeds
would be devoted by tho Oregon Pacific Com
pany. under supervision OF the trustee. to
feed the security and satisfy the premises set
forth in the bonds and mortgage covenants"