People v. Merchants' Bank

42 N.Y. Sup. Ct. 97

• Court: New York Supreme Court
• Decided: January 15, 1885
• Status: Published

Opinion

Hakdin, P. J.:

When the sale of the mortgaged property took place, under the decree of foreclosure of the mortgage executed by Wooster Sherman to Lord and Moffett, as trustees, Moffett was acting as the trustee for the bondholders under the mortgage. It was Lis duty to protect and secure the rights and interests of the bondholders. • He was not at liberty to so conduct the sale as to endanger or impair their rights. When he, in effect, became purchaser of the mortgaged property, at a sum much less than was due'upon the mortgage, he was liable to account in equity for the value of the property, or such benefits as should arise from the transaction. The fact that' he allowed the title to be taken in Kenyon, director of the bank, and subsequently transferred by Kenyon to Pawling, a teller of the bank, and from Pawling to the bank, and a sale by the receiver of the bank,and the profits of the transaction to pass to the hands of the receiver, does not defeat the rights of the beneficiaries to have equity interfere to secure to the bondholders the benefits or profits ’ of the sale thus arising.

The profits of the transaction are clearly traceable to and are found in the hands of the receiver. Equitably they belong to the beneficiaries under the mortgage and can be reached, notwithstanding the attempted breach of trust on the part of Moffett, one of the trustees, who assumed to become á purchaser at the foreclosure sale and to have the title transferred to the bank of which he was cashier. It was not competent for Moffett to cast the loss arising from such speculative transaction on the trust fund or the beneficiaries thereof. (Van Epps v. Van Epps, 9 Paige, 241.)

The provision in the decree of foreclosure that any party to the action might become purchaser at the sale is no protection to Moffett or his appointee the bank, or its receiver. (Fulton v. Whitney, 66 N. Y., 556.) Nor does the order of confirmation stand in the way of the equitable rights of the trustee or the bondholders. (Terwilliger v. Brown, 44 N. Y., 237; Fulton v. Whitney, 5 Hun, 20; S. C., 66 N. Y., 548; Colburn v. Morton, 3 Keyes, 305; Conger v. Ring, 11 Barb., 356.)

The bank or its receiver stand in no better situation in respect to the benefits arising out of the sale than Moffett would had he taken title to himself. The bank was chargeable with notice of the trust duties of Moffett in the premises ; he was cashier of the bank and through him the bank derived notice of the equities and rights of the bondholders. (Cumberland Coal Company v. Sherman, 30 Barb., 570; Terwilliger v. Brown, 59 id., 9; Hawley v. Cramer, 4 Cow., 735; Davoue v. Fanning, 2 Johns. Ch., 257; Abbot v. American Hard Rubber Company, 33 Barb., 575.)

We think the proceeding to reach the profits was maintainable in the name of the bondholders or of the co-trustee. (Hill on Trustees, 761; Merrill v. Farmers' L. and T. Co., 24 Hun, 297.)

It is no answer to this proceeding to say the trustee attempting to violate his duties, might be made personally responsible to the bondholders suffering from his dereliction of duty. (Merrill v. Farmers' Loan and Trust Co , 24 Hun, 297.)

It appears that, the bank was a holder of some of the bonds entitled to participate in the profits derived out of the transaction. To the extent of such ownership it is entitled to participate in a ratable division of the profits arising out of the transaction, to that extent the receiver has an equitable interest in the funds, and may retain such sum out of the profits. Such seems to have been the opinion of the learned judge who made the order at Special Term. As we understand that order the rights of the receiver in that regard are protected. The opinion delivered at Special Term meets with our approval. We think the order accords with the principles of equity laid down in the cases to which we have already referred and therefore the order should be affirmed.

Order affirmed, with ten dollars costs and disbursements, payable out of the fund.

Boardman and Follett, JJ., concurred.

Order affirmed, with ten dollars costs and disbursements, payable out of the funds in the hands of the receiver.