United States Trust Co. v. . Roche

Follett, Ch. J. The sole defense interposed as a bar to this action is that the loan and mortgage are prohibited and rendered absolutely void by the following statutory provision. “ § 65. Where the trust shall be expressed in the instrument creating the estate, every sale, conveyance or other act of the trustees, in contravention of the trust, shall be absolutely void.” (1 R. S. 730.) This trust was established and the mortgage was executed before section 65 was amended by chapter 275, Laws of 1882; chapter 26 of the Laws of 1884, and chapter 257, of the Laws of 1886. Were the loan and mortgage in contravention of the trust ? Assuming that the failure of the trustee to pay the taxes assessed upon the subject of the trust out of its income was a devastavit, his wrong has no legal connection with the primary question involved in this case and above stated. The plaintiff in no way contributed to the wrong committed by the trustee, which had been fully accomplished before the loan was applied for. The money was not borrowed and applied in payment of a debt illegally contracted by the trustee; but was borrowed and actually applied to pay a debt owing to the state, which, by virtue of the power of taxation, was a lien upon the subject of the trust prior and superior to all of the rights arising out of it. The loan in no wise increased (except by the sum incurred in obtaining it) the burden upon the estate, but prevented its total loss, which, but for this, or a like loan, would have been the inevitable consequence of the non-payment of the taxes. Had this trustee been removed because of his devastavit and a new one substituted while the sale for taxes was impending, the new trustee would not have been without power, having the consent of the court, to have borrowed money upon the credit of the *128 estate for the purpose of saving it from being wholly lost. A mortgage given by a trustee so situated, and for such a purpose, would not have been in contravention, but in aid of, the trust. There is no difference in principle between the case supposed and the one in hand. Neither borrowing the money for this purpose, nor securing its repayment by mortgage, was an act in contravention of the trust. The act being lawful, the expenses incidental to doing it (the items are not questioned) were a charge upon the estate, and the sum of the expenses was properly included in the mortgage. Neither the question above discussed, nor the principle underlying it was' involved in either of the cases cited in the opinion of the learned General Term, nor in any of the eases relied on by the learned counsel for the respondent. In Cruger v. Jones (18 Barb. 467), a beneficiary, entitled during his life to the rents and profits of realty held in trust, expended, without authority from the court or trustees, considerable sums in repairing buildings destroyed by fire, and in building a new, but necessary pier. Subsequently lie brought an action against the trustees asking, among other things that they should unite with the plaintiff and his son, who, in case he survived the plaintiff, would become entitled to the whole estate, in the execution of a mortgage for a sufficient sum to repay the amount expended. The son, who was.of full age, was one of the parties plaintiff. The court refused the judgment sought upon the ground that a mortgage given for such a purpose would contravene the trust. The case is quite dif, ferent from the one at bar. The expenditures were voluntarily made by the beneficiary without authority from the trustee or court, and no lien existed which would destroy the trust unless it was paid. What was said about the want of power to authorize such a mortgage was said with reference to the facts of that case, and it ivas not held that under no circumstances could a valid lien be created upon realty held in trust. In Douglas v. Cruger (80 N. Y. 15), a husband before the passage of the act for the protection of the property of married women (Chap. 200, Laws of 1848), conveyed his marital rights *129 in the realty owned by his wife to a trustee “ in trust to receive the rents and profits of such real estate and apply them to her separate use during their joint lives, and if she should die before him, then the remainder thereof on her death to go to her children and descendants by him in such manner as she should by will appoint, and in default of such appointment, then to them in such manner as they would take the real estate as heirs-at-law, if she should survive her husband.” After the passage of the act above referred to, but before the passage of chapter 375, Laws of 1849, the trustees assumed to convey to the wife the estate which he acquired under the trust deed. Subsequently the husband and wife united in mortgaging this realty, but the report of the case does not show the purpose for which the mortgage was given. An action for the foreclosm-e of the mortgage was defended by the wife on the ground that the trust was not extinguished by the deed executed to her by the trustee, and that neither her interest nor the interest of the children of the marriage, covered by the trust deed, were subject to the mortgage. It was held that the trust, which related simply to the husband’s life estate in the realty, his marital right, was not extinguished by the conveyance of the trustee to the wife, and that the mortgage was not a lien as against the wife or children upon that life estate, but that it was a lien upon the fee, subject to the life estate. The power of the trustee to mortgage the subject of the trust, pursuant to an order of the Supreme Court, under given or any circumstances, was not before the Court of Appeals, and was not passed upon. The trustee had not executed a mortgage, and the Supreme Court had not authorized the execution of a mortgage. The deed from the trustee to the wife in that case was clearly in contravention of the trust created by the husband for the benefit of the wife and the children that might be born of the marriage. In Lent v. Howard (89 N. Y. 169, 181), it was said: “ The beneficiaries of trusts for the receipt of the rents and profits of land are prohibited from assigning or disposing of their *130 interest (1 R. S. 729, § 63), and this provision is held to apply, by force of other sections of the statute, to the interest of beneficiaries in similar trusts of personalty. (Graff v. Bonnett, 31 N. Y. 9.) This legislative policy cannot, we think, be ■defeated by the action of the court permitting such alienation, or abrogating the trust.” This case does not touch the question under consideration. The statute does not provide that a trustee, with the consent -of the Supreme Court, cannot, under any circumstances, -execute a valid mortgage upon the subject of the trust; but that any act or conveyance by the.trustee in contravention of -.the trust shall be absolutely void. Our attention has not been -called to a case decided by any court in this state, holding that :a valid mortgage cannot be given by a trustee, with the ■sanction of the court, upon realty held in trust, for any purpose, or under any circumstances, unless authorized by the instrument creating the trust. Whether a particular mortgage upon the subject of a trust, executed by a trustee in accordance with an order of the Supreme Court, is in contravention, or in furtherance of the trust, is a question which must be decided by the court, and when the facts are conceded it is a question of law. The execution of this mortgage was wisely authorized by the Special Term for the preservation of the interests of the beneficiaries, and they cannot, under the evidence in this case, defeat a foreclosure. The plea in abatement is not valid. No legal estate in remainder, vested or contingent, was -created by the trust deed, but the entire legal estate was vested in the trustee, where it now remains, and James 0. Foster has no legal estate of any kind to protect. It has been several times held that when specific realty, which is subject to a mortgage, is devised or conveyed to a trustee to be converted into money at a future day and divided between specified persons, that they have a vested equitable interest in the subject of the trust, and are necessary parties to an action for the foreclosure of the mortgage. (Calverley v. Phelp, 6 Mad. 329; Osbourn v. Fallows, 1 Russ. & M. 741; Anderson v. *131 Stather, 2 Coll. 209.) For a stronger reason, a person having such a vested equitable interest in the avails of realty when it shall be converted into personalty, is a necessary party to a suit for the foreclosure of a mortgage executed by the trustee. But James C. Foster has not a vested interest in the subject of the trust, nor in its avails. His interest is contingent upon his surviving his mother. Hot having a vested legal estate in or lien upon the mortgaged premises, nor a vested interest in the avails of them when converted into money, he is not a necessary party to this action. The judgment of the General Term should be reversed, and the judgment of the Special Term affirmed, with costs, payable out of the fund realized upon the sale of the premises under the foreclosure. All concur. Judgment reversed.