The Duties of a Trustee with Respect to Defaulted Mortgage Investments: An Addendum
Parker Bailey, Charles Keating Rice
1936
University of Pennsylvania Law Review and American Law Register
Since the two installments of this article appeared in this REVIEW, the New York Court of Appeals has rendered a decision in Matter of Chapal 1 which removes much of the previous uncertainty in the New York law concerning foreclosure of trust mortgages. In this case it will be recalled 2 that the Appellate Division, in modifying the decree of the surrogate, had held that the entire proceeds of sale of the foreclosed real estate should be allocated to principal. It added, by way of dictum, that
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... he income account should bear carrying charges which accrued during the carrying period. Dissatisfaction with the results of this decision was expressed by the present authors in the previous discussion of these problems. 3 Upon appeal from the decision of the Appellate Division, the Court of Appeals unanimously reversed the order and reinstated the decree of the surrogate in so far as it directed an apportionment of the proceeds of the final sale between the respective accounts. The remarks of the Appellate Division regarding carrying charges were treated as dicta, not to be followed in the final accountings in the distribution of the estate. The Court of Appeals stated that carrying charges should initially be paid out of principal, and thereafter deducted from the proceeds of sale and returned to principal before apportionment of the residue. There are several significant points to be noted in this case. In the first place the court appears not to have regarded equitable conversion as a controlling factor, and it expressly repudiated the analogy of the cases in the field of trusts of unproductive real estate with an imperative power of sale in the trustee. The court seems to have looked upon the trust mortgage cases as sui generis, not to be governed by analogous precedents. As far as apportionment of the proceeds of ultimate sale is concerned, it is of little practical importance whether the apportionment is said to be brought about by equitable conversion, the investment theory, or some other equitable * The first installment of this article, containing footnotes 1-7I, appeared in the December issue of the REvImw (935) 84 U. OF PA. L. REv. 178. The second installment, containing footnotes 72-129, appeared in the January issue (1936) 84 U. oF PA. L. REv. 327. References thereto will be without title.
doi:10.2307/3308357
fatcat:bl5juoepgrerjgnp3xtrxuk76a