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Plaintiff Moves to Set Aside Assignment of Mortgage

This is an action against defendant and others to set aside an assignment of a mortgage made to cancel a certificate and record of the satisfaction of such mortgage, to declare said mortgage a lien on the mortgaged premises, to reinstate it on the record, and to foreclose it.
The purpose of this action was to set aside an assignment of a mortgage made by the defendant, as trustee; to cancel a certificate and the record of the satisfaction of such mortgage made by the assignee, and recorded in the office of the register of Kings county; to declare the mortgage thus assigned, which was made by the defendant to the co-defendant, a lien upon the mortgaged premises; to reinstate it upon the record; and to foreclose it when thus reinstated.
The decedent died October 28, 1877, leaving a last will and testament, which was admitted to probate in January, 1878. It, in effect, provided that his executors should, out of his estate, invest $6,000 in bonds and mortgages on unincumbered real estate of twice the value of the amount loaned, at interest at the rate of 7 per cent. per annum, payable semiannually, for the benefit of his two minor children; the income, however, to be paid, a certain proportion to his mother, and the remainder to his sister, during their lives. Upon their death, or the death of either of them, the legacy given to her was to cease, and the interest upon the $6,000 was to be from time to time collected, controlled, managed, and held in trust by a trustee named, for the benefit of such children, until they should respectively reach their majority, and in such manner as to yield the greatest aggregate increase.
He also bequeathed the principal sum of $6,000 so invested, and the income thereof, after the death of his mother and sister, to his two children, and directed that said investments should remain intact and invested until his eldest child should arrive at full age, when a moiety of the principal, with a moiety of the interest and increase thereon, should be paid to her, and that the remaining moiety of the principal and interest should remain intact and on interest until his youngest child should arrive at full age, when the principal and interest were to be paid to him.
The executors subsequently collected that sum, and invested it in two bonds and mortgages. A loan and trust company, which was named as trustee in the will, having refused to accept the trust, the defendant was duly appointed as a substituted trustee in its place. On September 22, 1882, the executors, in compliance with the provisions of the will, assigned and delivered to such trustee, the two bonds and mortgages mentioned.
At the maturity of the mortgage, July 2, 1886, defendant paid the whole amount of principal and interest secured by the mortgage, obtained a certificate of satisfaction from him, procured it to be recorded in the office of the register of Kings county, where the assignment was also recorded, and the record of the mortgage was marked, ‘Canceled of record.
The question presented in this case is whether the substituted trustee under the testator’s will, possessed authority to assign or transfer the securities in which the trust fund was invested so as to protest the motgagor in paying the interest and principal of his bond and mortgage to such assignee as it became due, when acting in good faith, and without notice, actual or constructive, of any fact relating to the trust or the mortgage, except that he was a trustee, and held the mortgage as such. The contention of the appellants is that the trustee had no power to assign the mortgage in question. As sustaining this contention, much stress is laid upon the language of the will directing the investment of the fund in bonds and mortgages, and that such investment should remain intact and invested until his children should arrive at the age of 21 years. This leads to the inquiry whether the provision of the will that such investment should remain intact and invested as aforesaid until his children should arrive at the age of 21 years is to be construed as requiring the executors or trustee to invest the fund in a mortgage or mortgages to run during the minority of his children, and which could under no circumstances be discharged and the fund reinvested by the trustee, or whether that direction is to be construed as requiring the fund to be invested in bonds and mortgages, and that the fund should remain intact, in that it could not be properly diverted from the purpose to which it was dedicated by the testator. If the language of the will does not expressly confer upon the trustee authority to reinvest the fund when it should come into his hands, and vary the securities to the extent of taking other bonds and mortgages, it is clearly implied from its terms. As to the character of the investments to be made, either by the executors or trustee, it is clear that the testator intended the fund to be invested in bonds and mortgages upon unincumbered real estate.
So long as the trustee kept this fund invested in that class of securities, he was acting within the power conferred upon him by the will. When the mortgage which was transferred to him by the executors became due, it seems plain that it was his duty to reinvest the money received upon its payment in other bonds and mortgages upon unincumbered real property. The executors had not invested this fund in mortgages which became due at the time of the majority of the infants, but had obtained such as in the ordinary course of business could be obtained, and transfered them to the trustee.
The Court think it is manifest, from the nature of this trust and the power conferred upon the trustee by the terms of the will, that he had authority to satisfy or transfer the securities in which this fund was invested, or to vary the investment thereof from time to time, and was limited by the provisions of the will only by the character of the securities to be taken, which were such bonds and mortgages as were described in the will. If such was his power under the will, then the trustee had authority to assign the second bond and mortgage taken by him upon the premises in question; and, although he may not have acted properly or honestly, yet when the mortgagor in good faith paid the principal and interest due upon them to the assignee, who had them in his possession under an assignment which contained a general authority to collect, with no knowledge of the existence of any trust except that the bond and mortgage were given to a trustee, it is clear that the payment discharged the liability of the mortgagor upon the bond and mortgage, and he was entitled to have them satisfied and discharged of record.
The appellants, however, claim that the doctrine of the cases cited in several jurisprudence is adverse to this conclusion. We do not think so. Those cases are essentially unlike the case at bar. It is there said: ‘It has frequently been held that a person dealing with an executor, administrator, or trustee, who, from the nature of his office, or by the terms of the trust, has power to satisfy or transfer the securities of the estate, or to vary the investment from time to time, is not bound to go further and ascertain whether in fact the act of the executor or trustee is justified, and that no breach of trust was intended. It is sufficient for his protection that he acts in good faith, and, if the act of the executor or trustee is justified by the terms of the power, the party dealing with him is protected.’ The court then proceeded to distinguish that case from a case like the one at bar, and placed great stress upon the fact that the trustee had no power to accept the payment of the mortgage before it became due, or to vary the trust securities, and held that such power could not be implied from the mere fact that the party was a trustee of the security.
Moreover, in that case the security which the trustee sought to discharge was a lien held by him as trustee upon his own land, thus showing upon the face of the transaction that in giving a satisfaction the trustee was dealing with himself, that the act was in his own interest, and that, acting in such double capacity, the transaction was unusual and special; and [163 N.Y. 502]the bank, with a knowledge that the trustee was the owner of the land upon which the security was a lien, and that it was not due, was held bound to inquire by what authority he acted, and that, not having inquired as to the authority of the trustee to discharge the prior mortgage, it was not entitled to protection as a bona fide purchaser. Both of these case are radically different from the case at bar, and neither involves any principle which is at war with the conclusion we have reached.
‘A trustee may generally sell the personal property belonging to his trust estate, especially if he have authority to change the securities or vary the investments. * * * If it appears to the purchaser that he is purchasing trust property he will be put upon no inquiry, except to ascertain whether the trustee has power to change or vary the securities. If the instrument of trust is silent upon the power of varying the securities, it is to be determined upon the whole scope and purpose of the trust whether the trustee has in fact the power to dispose of the property.’
Where a purchaser dealt fairly with a guardian who had power to dispose of the personal property of his ward, he had the right to presume that the guardian acted for the ward’s benefit, was not bound to inquire into the state of the trust, and was not responsible for the faithful application of the money unless he knew or had sufficient information at the time that the guardian contemplated a breach of trust and intended to misapply the funds, or was in fact by the very transaction applying it to his private purpose.
The court think the authorities cited, to which many others might be added, justify the conclusion reached by the courts below that Alston, as trustee under the will of the testator, had power to satisfy, transfer, or vary the securities in which the fund was invested as he might deem proper or necessary, and consequently had the power to assign the bond and mortgage in question. Therefore the payment by the defendant Weber to the assignee was valid, and the discharge of the mortgage was proper as to the former. The appellants, however, contend that the transfer by the trustee to his attorney was presumptively a breach of trust; that it transferred no title as against the plaintiffs, and was notice to the mortgagor that no title to the securities was thereby conveyed. The most that can be said is that, as between them, the transaction will be closely scrutinized, with a view of ascertaining if the attorney has obtained any undue advantage of his client. But we are aware of no principle which required or would have justified the mortgagor in declining to pay his mortgage when it became due for the sole reason that it had been transferred by the trustee to his attorney. If such a transfer were prohibited by law, a different question might arise.
But the court was unable to conceive any principle upon which it can be properly held that the mortgagor was bound to make any additional inquiries in relation to the transaction because the relation of attorney and client existed between the assignor and assignee. Nor do we perceive that, if such an inquiry had been made, he would have learned anything which would have justified him in refusing to pay his mortgage debt when it became due. The mortgagor had no direct or implied connection with the transaction between he trustee and his attorney, and was not, we think, bound to inquire into the circumstances to ascertain the character or effect of the dealings between them.
These conclusions render it unnecessary to examine the question of the statute of limitations, insisted upon by the respondents, or any other of the questions presented upon the argument of this appeal. The decisions of the courts below were correct, and that the judgment and order should be affirmed, with costs.
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