National Iron Bank v. Flint (In re Cent. Hanover Bank & Trust Co.)

• Decision Date: 26 February 1935
• Citation: 266 N.Y. 607,195 N.E. 221
• Parties: In the Matter of the Accounting of CENTRAL HANOVER BANK & TRUST COMPANY, as Trustee under the WILL of Adele E. FLINT, Deceased, et al., Respondents. National Iron Bank et al., as Trustees under a Deed of Trust Executed by William H. Flint et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

266 N.Y. 607

195 N.E. 221

In the Matter of the Accounting of CENTRAL HANOVER BANK & TRUST COMPANY, as Trustee under the WILL of Adele E. FLINT, Deceased, et al., Respondents. National Iron Bank et al., as Trustees under a Deed of Trust Executed by William H. Flint et al., Appellants.

Court of Appeals of New York.

Feb. 26, 1935.

Appeal from an order of the Appellate Division of the Supreme Court in the Second Judicial Department (240 App. Div. 217, 269 N. Y. S. 470), entered February 9, 1934, which reversed on the law and facts a decree of the Westchester County Surrogate's Court sustaining objections to the account of the respondent Central Hanover Bank & Trust Company, as trustee under the will of Adele E. Flint, deceased, and remitted the matter to that court to dismiss the objections and to settle the account as filed. In the accounting proceedings in the Surrogate's Court, the surrogate surcharged the respondent trustee which the face value of certain mortgage participations issued by the trustee and with defaulted interest and accrued income. The decree required the trustee to redeem the mortgage participations in cash, at par and accrued interest. The principal ground on which the surrogate based his decree was that the trustee was improvident in investing the trust money in the mortgage participations, that such investments were imprudent and speculative, and that under subdivision 7 of section 188 of the Banking Law (Consol. Laws, c. 2) the trustee held the funds ‘at its sole risk,’ and was, in effect, a guarantor of such investments. 148 Misc. 474, 266 N. Y. S. 392. In reversing the decree of the surrogate, the Appellate Division held that the legislative purpose was not to make a corporate fiduciary an insurer and guarantor of its investments where, as in the present case, it invested in securities permitted by the trust instrument or in securities in which an individual trustee might lawfully invest, and that, as the corporate trustee was free to invest in mortgage participations under the trust instrument, it was authorized to deal with itself, in a limited way, in good faith, under subdivision 7 of section 188 of the Banking Law (as amended by Laws 1917, c. 385).John A. V. Murphy and Herbert P. Queal, both of New York City, for appellants.

John M. Perry, Albert Stickney, William G. Barr, and Albert B. Maginnes, all of New York City, for respondent Central Hanover Bank & Trust Co.

Mervin C. Pollak, of Jamaica, as amicus...