Case Name: In re Olmstead
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1897-12-31
Citations: 49 N.Y.S. 104
Docket Number: 
Parties: In re OLMSTEAD.
Judges: 
Reporter: West's New York Supplement
Volume: 49
Pages: 104–109

Head Matter:
(24 App. Div. 190.)
In re OLMSTEAD.
(Supreme Court, Appellate Division, First Department.
December 31, 1897.)
1. Testamentary Trustee—Resionation.
Under Code Civ. Proc. § 2814, the surrogate is not authorized to permit a testamentary trustee to resign his trust, and be discharged as trustee, and at the same time permit him to retain- in his possession a portion of the trust property for any purpose.
3. Same—Settlement oe Accounts.
Where it is clear that until the termination of a pending action the accounts of a trustee cannot be settled, his application for leave to resign should be denied until the action is terminated.
Williams and O’Brien, J.J., dissenting.
Appeal from surrogate’s court.
In the matter of the judicial settlement of the accounts of Dwight H. Olmstead, trustee under the will of Noah T. Pike. From a decree accepting the resignation of the trustee, and. settling his accounts, certain beneficiaries appeal.
Modified.
Argued before VAN BRUNT, P. J., and WILLIAMS, PATTERSON, O’BRIEN, and INGRAHAM, JJ.
Henry H. Man, for appellants.
Charles D. Ridgway, for respondent.-

Opinion:
INGRAHAM, J.
The respondent presented to the surrogate's court a petition praying that his accounts as trustee under paragraph 7 of the last will and testament of Noah T. Pike, deceased, might be judicially settled, and that a decree thereupon be made, allowing him to resign his trust, and discharging him accordingly. Certain of the beneficiaries under that trust appeared, and filed objections to -the accounts of the trustee, which were overruled, the accounts approved and confirmed, and the petition granted, permitting the trustee to resign the trust held by him under paragraph 7 of .the last will and testament of the said Pike, deceased, .and appointing the United States Mortgage & Trust Company of the City of New York as substituted trustee, and directing the said trustee to assign and transfer to the said trust company all of the trust property (excepting, however, from such transfer, the bond and mortgage of one John G. Latimer, to secure the payment of $18,000, which said bond and mortgage the said trustee was ordered and directed to retain in his possession until the determination of the appeal now before the court in the suit brought by the said trustee to foreclose said mortgage), and providing that, upon his making such payments and transfer, he shall be forever relieved, exonerated, and discharged as trustee under the said will. The appellants insisted before the surrogate that the said trustee should be charged with the full amount due upon this bond and mortgage, as by the act of the trustee the responsibility of the heirs at law of the mortgagor had been released from liability, and that the trustee, by his negligence, had failed to enforce the bond and mortgage, whereby a large portion of the amount due thereon had been lost to the estate. The surrogate decided, as a fact, that the trustee had not been negligent, and that he was not chargeable with the loss upon this bond and mortgage. It is not necessary, at this stage of the proceeding, to pass upon that question. It is sufficient for us to say that we are not satisfied with the decision of the surrogate upon the facts before him. We do not think, however, that the surrogate should have, permitted the trustee to resign his trust, and be discharged as trustee, and at the same time permit him to retain in his possession a portion of the trust property for any purpose. The proceeding was instituted under section 2814 of the Code of Civil Procedure. It is there provided that a testamentary trustee may present to the surrogate a written petition, praying that his accounts may be judicially settled; that a decree may thereupon be made, allowing him to resign his trust, and discharging him accordingly; that the surrogate may, in his discretion, entertain or decline to entertain the petition.
"Ii he entertains it, the proceedings must be, in all respects, the same as upon a petition for a judicial settlement of the petitioner's account, except that, upon the hearing, the surrogate must first determine, whether such sufficient reasons exist for granting the prayer of the petition; if he determines that they exist, he must make an order accordingly, and allowing the petitioner to account for the purpose of being discharged. Upon the petitioner's fully accounting, and paying all money belonging to the trust, and delivering all books, papers and other property of the trust, in his hands, either into the surrogate's court, or as the surrogate directs, a decree may be made accepting his resignation and discharging him accordingly."
The surrogate entertained the petition, and he determined that sufficient reasons existed for granting the prayer of the petitioner. He had no authority, however, to make a decree accepting his resignation, and discharging him from all liability, until he had fully accounted, and paid all money belonging to the trust, and delivered all the books, papers, and other property of the trust in his hands, either into the surrogate's court, or as the surrogate directed. This decree assumes to accept the resignation, and discharges the trustee, upon his paying the money and transferring to the neu trustee the securities in his hands; excepting, however, from such transfer and assignment, the bond and mortgage of John G-. Latimer to secure the payment of $18,000 and interest, which said bond and mortgage the said trustee was ordered and directed to retain in his possession. He was not discharged upon his final accounting for such bond and mortgage, but was discharged upon making such payment and transfer provided for in the decree, from which there was expressly excepted the transfer and assignment of this bond and mortgage. The Code evidently contemplates an accounting for all the property in the hands of the trustee, and its delivery over before the making of the decree accepting the resignation of the trustee; and no authority existed for releasing the trustee until he had actually accounted for all the trust estate, and paid over all money, and delivered all property of the trust, as the surrogate directed. Upon the acceptance of the resignation of the trustee by the surrogate, his title to the trust estate ceased, and the trust estae vested in the new trustee ap pointed to execute the trust. The trustee that had resigned would have no title to any part of the trust estate, and would not be authorized to maintain or continue any suit in relation to it. If it were proper, under the circumstances, to continue the trustee, as to his control of this mortgage and the existing litigation to enforce it, his application for leave to resign the trust should have been denied until the determination of this litigation; and it is clear that, until the action to enforce the mortgage is terminated, the accounts of the trustee cannot be settled. The provision of the Code above cited allowed the decree only upon the trustee's fully accounting, and paying all money and delivering all property as the surrogate should direct. We think, therefore, that the portion of the decree of the surrogate permitting the trustee to resign should be reversed, and his application for leave to resign denied. .
Upon the question of the settlement of the trustee's accounts; the decree can stand, except so far as it relates to this mortgage in question. The beneficiaries under the trust sought to charge the trustee with the full amount of this bond and mortgage. Such a charge would have been improper, because it does not appear that there will be any loss at all in consequence of the acts of the trustee. It may be that upon the sale of the mortgaged premises the property will bring a sum sufficient to pay the amount of the mortgage, interest, and costs, or that by a reversal of the judgment as-to the liability of the heirs at law of the mortgagor a sufficient sum would be recovered from them to pay any deficiency which-may arise upon the sale of the property. It is only the amount of any deficiency over and above that which would have been recovered, but for the acts of the trustee, for which he is liable, if liable at all; and it is quite clear that that amount cannot be ascertained until the end of the litigation, and the sale of the property under judgment of foreclosure. The question as to the responsibility of the trustee for any deficiency should await the result of these proceedings. It is quite possible that no such deficiency will exist upon the final determination of the proceedings-, to enforce the mortgage, and that amount should be left open, to-be determined in case any necessity is presented; and the trustee has voluntarily refrained from selling the mortgaged property under the judgment of foreclosure and sale, and until such sale, and the amount of every deficiency is ascertained, it is impossible to settle his accounts, and he should not be allowed to resign as trustee, and thus be relieved from all liability. Uor do we think thatthe payment by. the trustee of a counsel fee to the trustee's attorney for the proceedings brought by the trustee for leave to resign should be allowed. Whatever amount should be allowed to the attorney for the trustee in this proceeding should be fixed in the final decree as costs in that proceeding (Code, § 2561, 2562), andi not as a payment to counsel as a proper sum chargeable to the principal of the estate.
The decree should therefore be reversed, so far as it allows the trustee to resign, and discharges him from liability to the estate; sustaining the exceptions of the beneficiaries to the allowance ttithe trustee of the costs and expenses of the proceedings to foreclose the mortgage, and the sum of $350 to the trustee's counsel; as retaining fee upon this proceeding, and confirming the decree in other respects, with costs of this appeal to the appellants, to fee-paid out of the estate in the hands of the trustee.
VAN BRUNT, P. J., and PATTERSON, J., concur.