
    Fanny McComb Herzog and Lillie McComb Garth, Respondents, v. The Title Guarantee and Trust Company, Individually and as Trustee, Appellant, Impleaded with Mary Alice McComb Coxe and Others, Respondents.
    First Department,
    December 29, 1911.
    Trust — when trustee not chargeable with legal interest — mingling funds — penalty.
    A trust company which is acting as trustee under a deed of trust is not chargeable with six per cent interest on accumulations of income on the ground that it used such funds in its own business simply because it deposited the incomeJn its ordinary bank accounts in other institutions and kept no separate account of the earnings thereof, but merely credited the account with the regular trust company rate of interest upon similar funds where it affirmatively appears that the bank accounts of the trustee with the other institutions at all times showed a balance exceeding the amount of the trust funds in the trustee’s hands.
    Evidence examined, and held, that interest at six per cent should not be charged against the trustee as a penalty upon the theory that it had unreasonably delayed in paying over the trust funds.
    Where it appears that there is a community of interest between plaintiff and the codefendant of the trust company an extra allowance should be so divided that the trust company will get the larger share.
    Appeal by the defendant, The Title Guarantee and Trust Company, individually and as trustee, from parts of a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Hew York on the 8th day of April, 1910, upon the report of a referee.
    
      George A. Strong, for the appellant.
    
      Robert L. Harrison, for the- respondents.
   Dowling, J.:

On June 16, 1892, James J. McComb and wife conveyed to the Title Guarantee and Trust Company certain property situate at Fifty-ninth street and Seventh avenue, Hew York city, in trust, to receive the rents, income and proceeds thereof and to apply the same, after the deduction of certain expenses, to said McComb during his lifetime and upon his death to apply the same to paying off the principal of certain mortgages then upon the property, with the further direction that then “ all the net income shall be paid over from time to time as often as twice a year and quarterly, if practicable, to and among such persons as shall he thereunto designated in and by the last will and testament of said James Jennings McOomh, or if he shall die intestate, then such net income shall he paid to his widow and next of kin in the proportions provided by the laws of the State of Hew York governing the distribution of the personal property of an intestate.” McOomh died March 31, 1901, leaving a last will and testament whereby, among other provisions, the 14th clause gave, devised and bequeathed unto his executors and trustees, subject to the deed of trust hereinbefore referred to, the property in question in trust, to hold, rent, maintain and manage the same and to apply the net income toward the payment of the mortgages then existing until the same were paid and discharged, when the net income was to be disposed of as provided in respect to his residuary estate.

The 15th clause provided for the distribution of his residuary estate and it was given, devised and bequeathed to his executors and trustees to he held upon certain trusts and purposes, including the division of the net income among his children.

In the action brought for the construction of this will it was adjudged, December 9, 1901, that the provisions in the will for accumulating income to pay the mortgages upon the property were invalid and that the property included in the trust deed and also in the will fell into and became part of the residuary estate and was lawfully disposed of by the trust deed and by the 15th clause of the will. (McComb v. Title Guarantee & Trust Co., 36 Misc. Rep. 370; 70 App. Div. 618.)

The present action is brought for an accounting by the trustee under the trust deed, and the sole question involved in this appeal is whether or not the trustee should be charged with interest at the rate of six per cent per annum, computed quarterly, upon certain balances in its hands, being accumulations of the income from said property. The learned referee has held the trustee so chargeable upon the ground that it had used the trust funds in its own business, limiting such use to the facts found by him. Those facts are that beginning with October 1, 1902, the trustee opened an account with itself and began the deposit therein of the income accumulated by it from the property in question. . Upon these funds so deposited the company allowed itself, as trustee, interest upon balances varying from two and one-half to three per cent, which it is not questioned was a fair rate to be paid by a trust company for deposits made with it. The income so accumulated was mingled with the ordinary funds of the Title Guarantee and Trust Company, and no separate account was kept of the earnings of the income. This mingling of the trust income with the trustee’s own money, consisted solely in depositing for collection the checks received for rent in one or more banks in which the trustee kept an ordinary deposit account in its own corporate name, and by checks on which accounts it made payments of the said trust income as well as payments for its general purposes. In other words, the claimed use of the funds consisted solely in this, that the trustee allowed the estate the regular trust company rate of interest, depositing its receipts as trustee in its ordinary bank accounts. But it affirmatively appears that such bank accounts continually showed.a large balance to the credit of the title company and what is more important still, it is affirmatively established that that balance at all times'exceeded the balance of the trust funds belonging to the McComb estate and that at no time was any draft made upon the account which required the use of any part of those funds to meet/it.

It, therefore, is clear that the judgment appealed from cannot be sustained upon the theory that the trustee had made use of the trust funds, had' failed to separate the profits therefrom from its ordinary profits and, therefore, should be charged with the full legal rate of interest. Nor do we believe that the trustee is so chargeable upon the other theory which is urged in support of the judgment although not relied upon by the referee, namely, that interest should be charged against- the trustee as a penalty for its delay in paying over the trust income. We cannot find any evidence justifying a.limitation of the balance to be earned by the trustee to $10,000, in view of the fact that the income from the property exceeds $400,000 per year, and that the taxes and interest on the mortgage amount to nearly $65,000 per annum. We do not believe that any ground has been shown for so charging the trustee. While there was a period when no income whatever was paid to the beneficiaries, that has been explained by the pendency of judicial proceedings in which, for the first time, questions were raised as to the proper person to whom the trust income should be paid, whether to the executors or to the beneficiaries direct.

During all this time no complaint was made of the actions of the trustee, nor is anything now shown attacking its good faith in so delaying. For a long period of years the action of the trustee in retaining parts of the income was acquiesced in by the beneficiaries to the extent, at least, that they made no complaint of its doings, suggested no change in its methods and made no demand for a larger payment to them. There is no good reason why the trustee should now refuse to make quarterly payments to the beneficiaries, as they have now protested against being paid semi-annually. If the trustee is in doubt as to the amount which it can safely retain for the defraying of fixed charges or for other contingencies it may apply to the court for special instructions.

In so far as the judgment appealed from imposes upon the trustee interest amounting to $5,495.58 upon moneys claimed to be used or retained improperly by it, it must be modified and the provisions surcharging the trustee with said amount with interest thereon stricken from the judgment. Furthermore, in view of the community of interest between the plaintiffs and the codefendant Jennings Scott McOomb and of the final success of the trustee in upholding the accuracy of its statement of accounts, the division of extra allowance as between the defendants should be reversed, so that the defendant Jennings Scott McOomb shall be granted an allowance of $750, and the defends ant the Title Guarantee and Trust Company an .allowance of $1,250. As thus modified, the judgment will be affirmed, with costs to all parties upon this appeal payable out of the income of the trust funds.

Ingraham, P. J., Laughlin, Scott and Miller, JJ., concurred.

Judgment modified as directed in opinion and as modified affirmed, with costs to all parties on appeal payable out of the income of the fund. Order to be settled on notice.  