Court Opinion

ID: 6251811
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:17:32.528361+00
Date Added: 2024-06-11T08:59:26.419712
License: Public Domain

Opinion by
Mr. Justice Potter,
This is an appeal from the affirmance by the court below of the report of an auditor appointed to pass upon exceptions to the account of the Colonial Trust Company, trustee under a mortgage given by the Continental Hotel and Cafe Company to secure an issue of bonds. The account showed the receipt of $22,533.32, and the distribution of the whole of it, leaving no balance on hand. Under the terms of the mortgage, the proceeds of the securities were to be held for the equal pro rata benefit of the holders of any of the bonds issued under the mortgage, “without preference or priority of one bond over another.” The trustee used the fund in its hands for the redemption of forty-four bonds outstanding, and apparently overlooked the claims of other persons who were the holders of outstanding bonds to the extent of $15,500. The auditor concluded as matter of law, “1. That the accountant was not authorized by the terms of the mortgage referred to, to apply the proceeds of the life and fire insurance policies to the redemption of any bonds to the exclusion of others, or in any other manner than for the equal benefit of all bonds. 2. That neither good faith nor the advice of counsel will relieve the accountant from liability for the misapplication of these funds.” Accordingly, he surcharged the accountant with the sum of $6,157.28, with interest. This amount, it appears, was the sum left in the hands of the trustee after the payment of a loan to itself for which certain bonds were pledged with it as collateral. Having paid the debt due to itself, the trust company turned over the balance of the fund to the mortgagor. The auditor finds as a fact that the trustee knew that bonds to the amount of $15,500 were outstanding and in the hands of other bondholders to whom it gave no notice of this transaction. It apparently acted upon the theory that it had a right to use the remainder of the fund for the purpose of cancelling bonds unissued and in the treasury of the mortgagor. We are unable, however, to' *559see any justification for this action. Clearly it was the duty of the trustee to use the fund in its bands for tbe pro rata protection of all tbe bondholders who were entitled to tbe security of tbe mortgage, and it was bound to ascertain bow many of sucb bonds were issued and outstanding in tbe bands of tbe holders for value at tbe time.
Counsel for appellant does not seek to justify tbe payment to which exception was taken, and which was disallowed by tbe auditor; but be contends that tbe mistake of tbe trustee was one of judgment or was “a mistake of law in construing an ambiguous writing,” and that it was guilty neither of gross neglect nor of wilful default, and that it should not be surcharged for sucb a mistake. Tbe excuse is not sufficient. Tbe lawful claims of tbe bondholders are not to be refused on account of a mistake of tbis nature by tbe trustee. If it was in doubt as to tbe manner in which distribution of tbe funds was to be made, it might have made application to tbe court and secured a judicial order of distribution. Having made voluntary distribution without application to tbe court, it did so at its own risk. More especially should tbis principle be enforced where, as in tbis case, payment was made, not to tbe bondholders, whom tbe accountant represented as trustee, but to tbe obligor in tbe bonds, tbe debtor itself.
We do not see that appellant has any reason to complain of tbe ratio of distribution adopted by tbe auditor. Tbe full amount due upon tbe loan made by it, $16,000, was allowed, and after that was done it could have no interest in tbe distribution of tbe amount realized from tbe surcharge. Tbe auditor was right in bolding that distribution should be made only to such bondholders as appeared and made proof of their claims. It is a fair inference that when after full notice, bonds are not presented, they are not outstanding for value. Particularly where the issue is small, as here, and was in tbe bands of *560few persons having apparently full knowledge of the situation.
We see no merit in any of the assignments of error. They are all dismissed, and the decree of the court below is affirmed.