Benton v. Safe Deposit Bank of Pottsville, Pennsylvania

• Decision Date: 06 January 1931
• Citation: 255 N.Y. 260
• Court: New York Court of Appeals Court of Appeals
• Parties: CHARLES A. BENTON, Respondent, v. SAFE DEPOSIT BANK OF POTTSVILLE, PENNSYLVANIA, Appellant.

255 N.Y. 260

174 N.E. 648

BENTON

v.SAFE DEPOSIT BANK OF POTTSVILLE, PA.

Court of Appeals of New York.

Jan. 6, 1931.

Action by Charles A. Benton against Safe Deposit Bank of Pottsville, Pa.From a judgment of the Appellate Division(229 App. Div. 851, 243 N. Y. S. 806), affirming a judgment of the Trial Term, on a verdict directed for plaintiff, a jury being waived, defendant appeals.

Reversed, and complaint dismissed.

Appeal from Supreme Court, Appellate Division, First Department.

George N. Hamlin, of New York City, for appellant.

Karl R. Miner, of New York City, for respondent.

CRANE, J.

The liability to bondholders of a trustee under a trust mortgage for failure to record the mortgage is the question brought up for review by this appeal.The plaintiff is the holder of two first and collateral trust mortgage 6 per cent. gold notes of the Kresge Coal Company,payable November 1, 1923.The coal company is a corporation organized and existing under the laws of the state of Delaware, and the Safe Deposit Bank of Pottsville, Pa., is a corporation existing under and by virtue of the laws of that state, having its principal office and place of business at Pottsville.The notes held by the plaintiff are part of a total authorized issue of notes numbered from 1 to 100, inclusive, made by the said Kresge Coal Company, aggregating the total principal sum of $100,000, and containing on their face the recital: ‘Which notes have been issued under and are equally and ratably secured without privilege, priority or distinction by a Collateral Trust Agreement made by the Company to the Safe Deposit Bank of Pottsville, Trustee, dated April 16, 1923, to which reference is hereby made with the same effect as if herein fully set forth, which Collateral Trust Agreement is duly recorded and is a lien on all the property, plant, equipment, and other assets of the Company, and subject to all of the terms of which Collateral Trust Agreement this note is issued and held.’The note is signed by the officers of the Kresge Coal Company, and contains the indorsement of the trustee as follows:

‘Trustee's Certificate

‘This note is one of the notes secured by the within mentioned Collateral Trust Agreement.

‘Safe Deposit Bank of Pottsville, Trustee.’

Turning to the mortgage to determine the duties and obligations assumed by the trustee, we find it the usual lengthy instrument containing the following pertinent paragraphs:

‘First.No note issued hereunder shall have any validity or be binding in any manner whatsoever unless the certificate of the Trustee shall have been endorsed thereon, which certificate shall be as above recited.

‘Twenty-first. * * *

‘(b) * * * The Trustee, save for its gross negligence or wilful default, shall not be personally liable for any loss or damage. * * *

‘(e) Only such notes as shall have endorsed thereon a certificate in substantially the form hereinbefore recited duly signed by the Trustee, shall be of the said series of notes.Such certificate shall be only for the purpose of identification of the said notes as of said series, payment whereof is intended to be secured by this mortgage, and Trustee shall not be responsible for the execution of said notes or of this mortgage, or for the title of Coal Company to the property, premises or rights described herein, or for the validity or priority of the lien or charge purporting to be hereby created, or for the sufficiency of the security provided herein, or for the genuineness, validity or value of any property or securities which may at any time become subject to this Indenture. * * *

‘(h) It shall be no part of the duty of the Trustee to record this instrument as a mortgage or conveyance of real or personal estate, or to file or record the same as a chattel mortgage, to re-file or renew the same, or to procure any further, other a additional instruments or further assurance, or to do any other act for the continuance of the lien of this Indenture. * * *’

The mortgage was not recorded, and the notes, not having been paid, the plaintiff has sued the trustee for its negligence in failing to have the mortgage placed on record, and has recovered the face value of his notes, with interest.In purchasing the notes, the plaintiff relied upon no false or fraudulent representations made by the trustee which would present an entirely different case.Doyle v. Chatham & Phenix Nat. Bank, 253 N. Y. 369, 171 N. E. 574.Neither does the plaintiff claim to have been misled or deceived by the form or wording of the trustee's certificate, indorsed on the notes.That merely stated that the note was one of the series secured by the collateral trust agreement mentioned on the face of the note.A reference to that agreement shows that the trustee undertook to certify to identification only, and not to the validity or security of the note.The judgment which the plaintiff has recovered rests entirely upon the theory that it was a duty of the trustee which it owed to the noteholders to see that the mortgage was recorded, and that the failure to record the mortgage was the neglect and carelessness of the trustee, for which it is liable to those noteholders, including the plaintiff, who have suffered damage thereby.

The duty of the trustee is measured and limited by its agreement.This, as we see by the above quotations, exempted it from liability except for gross negligence or willful default, and stated that the trustee was under no duty to record the instrument.Such agreements are legal and binding, unless they are contrary to some statute or against the public policy of the state.We can see no reason why such an agreement is not binding upon the mortgagor and the trustee, and those who have purchased the notes with notice of the mortgage and opportunity to fully examine its terms and conditions.

This mortgage was made and executed in Pennsylvania.The notes were issued and payable in Pottsville Pa.The law of Pennsylvania applies to these contracts: ‘* * * The general rule that a contract made in one State and to be performed there is governed by...