Court Opinion

ID: 5220114
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:31:55.725588+00
Date Added: 2024-06-11T08:27:30.306092
License: Public Domain

Houghton, J. (dissenting):
I think the complaint does not state facts sufficient to constitute a cause "of action against the defendant, and that the interlocutory judgment sustaining the defendant’s demurrer should be affirmed’ ...
I do not understand the decision of this court in Davidge v. Guardian Trust Co. (136 App. Div. 78) to be controlling upon the question presented upon this appeal. The only question decided in that case was whether or not an officer of the defendant falsely represented, to the damage of a bondholder, that the mortgage in question was a first lien when in fact it was not. In the course of the opinion-it was stated that it was the duty of the defendant as trustee under the mortgage, when three or more installments on the bonds had been paid, to begin to apply the subsequent installments to the liquidation of the first mortgages upon the property. This statement was by way of argument and obiter, so far as the precise question presented for decision was involved, and, therefore, it seems to me, should not be regarded as controlling our decision in the present case.
Treating the obligation of the defendant as trustee under the mortgage as an open question, I do not think the defendant was under the express or implied obligation to liquidate and satisfy any of the prior mortgages upon the real property, except as the money was paid to it by the Metropolitan Beal Estate Improvement Company • for that particular purpose. There is no allegation in the complaint that moneys were paid by the real estate company to the defendant for such purpose. The burden of the complaint is that the defendant knew, actually,. or in law, that the real estate company was selling bonds upon which the ten full installments had been paid without paying over to the defendant any of the money so received for the purpose of liquidating and satisfying the first mortgages upon the property j and that in some ■ way not pointed out it was the duty of the defendant to stop such procedure.
*869' The mortgage is made a part of the complaint, and although there is an allegation that it was the duty of the defendant to see to it that moneys were applied for the satisfaction of the prior mortgages, this allegation is controlled and limited by the provisions of the mortgage itself. Looking to the mortgage to ascertain the duties of the defendant, we find in the recitals that it is the intention of the real estate company in giving the mortgage to the defendant to issue bonds payable in ten annual installments. There is nothing in the instrument, however, prohibiting a purchaser from paying all the installments at one time. All moneys paid for bonds were to be paid to the real estate company at its place of business. The only prescribed duty of the defendant with respect to the bonds is tó certify . that each was one of a series of bpnds described in the trust deed, and after certifying it was compelled to deliver the bonds, not to the purchaser, but only to the treasurer of the real estate company upon an order signed by the president and attested by its secretary with its-corporate seal. The defendant as trustee, therefore, had no control over the sale of the bonds or the receipt of any proceeds from such sale, and the allegation of the complaint that such proceeds were deposited with the defendant, and the claim that it should have withheld from such deposit made with it, not as trustee but as banker, sufficient to pay the prior mortgages upon the. real property, seems to me wholly untenable in view of the particular provision of the mortgage, made a part of the complaint and by which we must be guided with respect to the defendant’s duty as trustee in regard to paying the existing mortgages upon the property. Such provision reads as follows:
“ Twentieth. Whereas there are now existing mortgages which are lien upon the property. or. a portion thereof herein-before described and upon which this mortgage is given and intended to become a lien before the maturity of the said existing mortgages, which said mortgages are as follows: [describing them]. Whereas, it is desired and intended to pay off the said mortgages and each of them out of the proceeds of the sale of the bonds herein described, now, Therefore, it is hereby agreed by the said company [real estate company] that during the third year of the life of this trust mortgage it will pay to the *870Guardian Trust Company as Trustee the sum of $60,000, and during the fourth year of the life of this mortgage the sum of $100,000, and such further sum or sums as may he necessary to pay the principal and interest due on said mortgage and to procure the discharge and satisfaction thereof, and the said Guardian Trust Company as Trustee hereby agrees to apply such payments when so made to the payment and satisfaction of the said mortgages. That it will make such applicátion of such payments pro rata, unless' the order of such application shall be differently directed by said company [real estate company], in which, case it will make such application of such payments as directed by such company.”
There is no allegation or claim that any part of the $60,000 or of the- $100,000 above mentioned was ever paid to the-defendant for the purpose of liquidating the • first mortgages upon the property. . If such moneys had been paid to it and it had failed to apply them of course ‘it would he liable. The ground of complaint is that the defendant trustee having on deposit moneys belonging to the- real estate company as banker, knowing or having reason to know that inore than three-tenths payments on the bonds had. been paid, and that in fact • all installments had been paid, did not in some way throttle the real estate company and compel it to pay over to the defendant as trustee the $60,000 and the $100,000 .for the purpose of satisfying the prior mortgages. The duty of the defendant as specifically stated certainly required it only .to pay over moneys in satisfaction of the prior' mortgages when such moneys were paid to it for that purpose. This duty is* so explicitly stated that to my mind there is no room' for implying any further duty. By' the trust mortgage the defendant did not agree to watch out for bondholders and see that the real estate company , did its duty toward the purchasers of its bonds by liquidating and .satisfying- the prior hens upon the property.. The obligation which it assumed was the ordinary one of trustee of .a trust mortgage. It had no control over the proceeds derived from sale of the bonds. The fact that such proceeds were’deposited with it as hanker gave the defendant no right to confiscate súch proceeds for the purpose of paying prior mortgages, . If had no more right to do that than *871it would have had if the money had been deposited in any other bank. It could only pay the first mortgages when the money was paid by the real estate company to it for that purpose, and having no right to make any such payment from general funds on deposit it violated no duty by not doing so.
In addition, if it ever was the duty of the defendant to confiscate any money it could get hold of for the purpose of satisfying the prior mortgages, still the time never arrived when it became its duty so to do. ■ Clearly no such duty arose until some time during the third year of the life of the trust mortgage. The term “third year,”-as used in the mortgage, cannot mean “third installment.” The mortgage was executed the 24th day of November, 1905. If the defendant was under any obligation to see to it that the first mortgages were satisfied, it manifestly had the whole of the year beginning November 24, 1908. The complaint alleges that the bonds. in controversy were sold in 1906 and 1907 and that the real estate company was insolvent ever since the year 1907, and that in or about the year 1908 the prior mortgages were foreclosed and the property sold for less than the amount of the prior mortgages, thereby wholly cutting off the trust mortgage.. The date of such sale in 1908 is not stated, but it is fair to assume from the other allegations of the complaint that it was prior to the twenty-fourth of November, and in any event the defendant had more than ten months of the year beginning November 24, 1908, in which to perform its obligation of paying off the prior mortgages, if any such obligation existed. The allegations of the complaint show that it was powerless to do this because the real estate company was insolvent the year previous, and, therefore, could not have had on deposit any •money which the defendant could appropriate for the paying of such prior mortgages.
For these reasons I think the interlocutory judgment was right and should be affirmed.
Interlocutory judgment reversed, with costs, and demurrer overruled, with costs, with leave to defendant to withdraw demurrer and answer upon payment of costs of demurrer and of this appeal.