New York Security & Trust Co. v. Lombard Inv. Co.
| Decision Date | 01 July 1896 |
| Citation | 75 F. 172 |
| Parties | NEW YORK SECURITY & TRUST CO. v. LOMBARD INV. CO. |
| Court | U.S. District Court — Western District of Missouri |
Edward C. Wright, for Hyatt & Bright.
Graves & Clark, for Montana Sav. Bank.
Frank Hagerman, for receiver.
The questions to be decided on the agreed statement of facts and the record evidence submitted depend mainly upon the construction to be given to the contract entered into between the Lombard Investment Company and the Montana Savings Bank of date May 27, 1891. The plain reading of this instrument is that the company was to furnish the money, and the bank was to furnish the borrower at its own expense. When the application of the borrower, on the recommendation of the bank, was accepted by the company, the bond and the mortgage were to be executed to the company, and then turned over by the bank to the company. The money was to be paid to the borrower through the bank. The company was to receive the undivided interest to the extent of 6 per cent., and the excess of interest and any commission received from the borrower was to be divided between the company and the bank, in the proportion and manner specified in the contract. As an earnest of the good faith of the bank in selecting borrowers and recommending loans to them, the contract provides that:
'It (the bank) will, to the extent only of 2 per cent. on moneys loaned by said first party, on application sent to it by said party of the second part, guaranty and save the said party of the first part harmless from all losses on principal or interest, and all moneys loaned by it upon applications which said party of the second part shall have recommended, and all costs and expenses that shall accrue upon any matter relating to the same; and, for the purpose of securing to the said party of the first part, the true and faithful performance of the agreement by the party of the second part, it is hereby agreed by and between the said parties that the party of the second part shall, on or before the third day of each month, pay over to the Lombard Investment Company, as trustee, a sum equal to two per cent. on all moneys loaned during the preceding month by said party of the first part, upon applications that said party of the second part shall have recommended.'
The contract then, in express terms, affixes to this fund, when placed in the hands of the company, the character of an express trust. It designates the company 'as trustee,' and the fund 'as a trust fund for the protection of the loans made for the party of the second part by the party of the first part; that the sum so paid over with the income from the same, shall be held in trust for the uses and purposes' which are set out. It then proceeds to direct and define the duties of the trustee in respect of the use and management of the trust fund. It leaves no place for the application of the doctrine of a power, coupled with an interest, from which the authority to sell and dispose of property so as to pass the absolute title might be inferred. But even if it were admissible to say that inasmuch as possession of the trust fund was given, by the instrument creating the trust, to the trustee, whose power is coupled with an interest, so that the trustee might transfer the possession, yet, the trustee being an insolvent corporation which has ceased to be a going concern, and the property yet remaining in the trustee's possession, a court of equity, after acquiring jurisdiction over the parties and the subject-matter, ought not to permit the delivery of the trust fund to a purchaser at a judicial sale of the estate of the insolvent corporation. In such condition, it is the clear duty of the court to designate a new trustee to execute and carry out the provisions of the trust, preserving intact the rights and interests of both parties to the contract. The written instrument specifically directs that said fund shall be reserved by the trustee as a special deposit until the same shall accumulate to as much as $1,000, when it shall be invested, at the discretion of the trustee, in such bonds or...
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