In re the Judicial Settlement of the Account of Proceedings of Olmstead

Ingraham, J.: The respondent presented to the Surrogate’s Court a petition praying that his accounts as trustee under paragraph Y of the last will and testament of Yoah 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 were approved and confirmed, and the petition granted permitting the trustee to resign the trust held by him, under paragraph Y of the last will and testament of the said Pike, deceased, and appointing the United States Mortgage and Trust Company of the city of Yew 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 Gr. 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 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. [192] It is not necessary at this stage of the proceeding to pass upon that question. It is sufficient for us to 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. It is there provided that a testamentary trustee may present to the surrogate a written petition praying that liis 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. “ If 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 sufficient reasons exist for granting the prayer of the petition; and 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 new trustee the securities in his hands, excepting, however, from such transfer and assignment the bond and mortgage of John Gr. 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 [193] 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 estate vested in the new trustee appointed to execute the trust. The trustee who 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 t-rust 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 [194] 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. Nor do we think that the 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), and 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 to the 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 appellant to be paid out of the estate in the hands of the trustee. Van Brunt, P. J., and Patterson, J., concurred; Williams and O’Brien, JJ., dissented.