
    Benigno S. Suarez, as Executor, etc., of Hyacinth S. Suarez, Deceased, Appellant, v. Isabella de Montigny and Others, Respondents.
    
      2rusts-—one dealing with a trustee must ascertain the limitation of his powers — where the written consent of the beneficiary is necessm'y to the assignment of a moi'tgage — subsequent knowledge by the cestui que trust of its assignment is
    
    In an action brought to foreclose a mortgage given by the defendant Isabella de Montigny to Daniel Morison, as substituted trustee of the separate.estate of the defendant Isabel von Linden, it appeared that by a marriage settlement made November 29, 1876, .at Stuttgart, in ther kingdom of Wurtemberg, a trust was created which, after providing that all of the property of Isabel von Linden should, after her marriage, be and remain her own, for her sole and separate use, conveyed to her mother, Blandina B. Andrews, all her property, in trust to collect .and pay over the income to the said Isabel von Linden, with full power to the trustee to sell, transfer, convey, invest and reinvest the property, hut not without the consent of the said Isabel von Linden expressed in writing under her proper hand, and it was further provided that unless the beneficiary made a will disposing of the property it should at her death pass to the persons who would he entitled to it under the laws of distribution and descent which existed in the kingdom of Wurtemberg.
    It further appeared that Morison took the mortgage in question, he having been substituted as trustee in the place and stead of Blandina B. Andrews about October 18,1883; that on August 27,1889, Francis H. Weeks was substituted as trustee in place of Morison, and thereupon the mortgage was assigned to him as such trustee; that on December 22,1890, the mortgage was assigned to the plaintiff for $25,000 by Francis H. Weeks, who upon the next day purchased in his own name a mortgage made by D. 0. Weeks for $25,000.
    Shortly prior to this time Isabel von Linden had written to Francis H. Weeks that she would like her income increased if possible. On May 6, 1890, he wrote her that he had made some changes in her investment with that view, and on April 6, 1891, he wrote to her that he would send to her banker in Stuttgart $30,000 tobe invested for him as trustee, the income to be paid over to her; that he had arranged to get cash on a mortgage for §25,000, and that until he got the cash on some other mortgage he would advance the remaining §5,000 himself.
    In the same letter he sent her an agreement, to be signed by her and returned, to the effect that she requested and consented that he should convert into money enough of the property in his hands as trustee to produce §30,000, and should remit this to her banker in Stuttgart for investment by him, the income to be paid to her, and that she, upon her part, agreed that the trustee should not be liable for the loss of the money so remitted or of its income. This paper was returned by Isabel von Linden executed April 21, 1891, and on May 7, 1891, Francis H. Weeks transferred the D. O. Weeks mortgage to a third person for ■§25,000, and deposited the proceeds to his own credit, and on May 12, 1891, he wrote Isabel von Linden that he had received the request and consent for the §30,000, and would send her a remittance, which he did on July 8, 1891, sending §25,000. On September 18, 1891, she wrote to Francis H. Weeks, thanking him for the remittance. About January 1, 1892, Francis H. Weeks furnished Isabel von Linden a list of mortgages which did not include the mortgage in question, but at the bottom of the list there was an item for the cash cost of a draft for £5,000 sterling remitted to her banker in' Stuttgart. On April 11, 1892, Isabel von Linden acknowledged to the trustee the receipt of the list of mortgages, and referred to the item relative to the draft. On July 1, 1892, Francis H. Weelts rendered her an account, in which, under the date of July 1, 1891, there was a credit of §625 for interest on the mortgage in suit, which was there stated to have been sold and its proceeds remitted to her banker in Stuttgart July 8, 1891.
    It further appeared that the Stuttgart banker attempted to apply the remittance to the payment of overdrafts made by Isabel von Linden, but that she never consented to this application, nor did Francis H. Weeks, the trustee.
    
      Meld, that a valid trust was created by the marriage settlement agreement, and that this trust, being not only for the benefit of Isabel von Linden, but also for that of her appointees or descendants, was irrevocable;
    That the trustee could not transfer the mortgage to the plaintiff without the cestui que trust’s written consent, and that as the plaintiff: knew that the mortgage was part of the trust estate, he was bound to ascertain what powers of disposition the trustee had under the terms of the marriage settlement;
    That he was chargeable with notice that the written consent of Isabel von Linden was necessary to the transfer of the mortgage;
    That the letters of Isabel von Linden did not amount to a written consent to the transfer, having been written after the transfer was made, and after Francis H. Weeks purchased another mortgage, which he took in his own name and as an individual;
    That it did not appear that the §25,000 which Francis H. Weeks received from the plaintiff for the mortgage in suit was the same money which he remitted to the Stuttgart banker six months later; and as the trust estate had never in fact received the avails oí the mortgage in question, its equities were greater than those of the plaintiff, who had lost his money hy his negligence in failing to examine the provisions of the trust which was created by the marriage settlement.
    Appeal by the plaintiff, Benigno S. Suarez, as executor, etc., of Hyacinth S. Suarez, from a judgment of the Supreme Court in favor of the defendants, upon the decision of the court rendered after a trial at Special Term.
    The action was brought to foreclose a mortgage given by the defendant Isabella de Montigny to Daniel Morison, substituted trustee of the separate estate of the defendant Isabel von Linden. Originally the mortgage was for $40,000, but was paid down to $25,000. It was thereafter assigned to Francis-H. Weeks, who had been substituted as trustee of such estate, and by such substituted trustee, assigned to plaintiff, who paid $25,000 therefor.
    Subsequently the defendant, the Central Trust Company, was substituted as trustee of the estate in place of Weeks.
    The mortgagor, de Montigny, the trust company as trustee, and the cestui que trust, von Linden, defend the action on the ground that the plaintiff is not the owner of the mortgage and has no right to foreclose it.
    The trust was created by a marriage settlement agreement made November 29, 1876, at Stuttgart, in the Kingdom of Wurternberg. By the agreement it was provided that all of Madame von Linden’s property of every kind, from the date of her marriage, should be and remain her own, for her sole and separate use and free from the control of her husband, the same as though she remained single. In and by such agreement she conveyed to her mother, Blandina B. Andrews, all her property in trust, to collect and pay over to her during her natural life the income therefrom, and after her death to transfer, convey and deliver the property to such persons as she should designate by her will, or in the absence of a will to such persons as should be entitled to the same under the laws governing the distribution and descent of intestates’ property in the Kingdom of Wurtemberg. It was further provided by the agreement that the trustee should have full power, for the purposes of the trust, to sell, transfer, convey, invest and reinvest such property, but not without the consent of the cestui que trust expressed in writing under her proper hand, and that the trustee should hold the property for the sole use of' the cestui que trust, and keep the same as then invested, or with her (the cestui que trust’s) written consent, and not otherwise, change the investment from time to time.
    Morison was substituted as trustee in the place of Mis. Andrews about October 18, 1883.
    The mortgage in question was given June 24, 1884. Weeks was substituted as trustee in the place of Morison, August 27, 1889, and the mortgage was thereupon assigned to him as such trustee. Weeks assigned the mortgage to the plaintiff December 22,1890, and received the $25,000 therefor. The next day, December 23, 1890, Weeks took in his own name and not as trustee a mortgage made by D. O. Weeks for $25,000 and paid the money therefore.
    There was some correspondence between the trustee Weeks and Madame von Linden which it may be well to consider. December 2, 1889, Madame von Linden wrote to the trustee that it would be pleasant if he could increase her income. March 13, 1890, she wrote that the idea of an increase of her income through his kindness was pleasant. May 6, 1890, the trustee wrote to her that he had been making a few changes in investments to increase the rate of interest, the income on which would come in soon. In November, 1890, she wrote thanking him for the proposed increase of income. These letters were written before the transfer of the mortgage December 22, 1890.
    After the transfer of the mortgage, and on April 6,1891, the trustee wrote her that, pursuant to her request, he would send to her banker in Stuttgart $30,000 to be invested for him as trustee and the income to be paid over to her; that he had arranged to get cash o.i a mortgage for $25,000, and that until he got the cash on some other mortgage he would advance the remaining $5,000 himself. In this letter he sent her a writing to be signed by her and returned to him to the effect that she requested and consented that he should convert into money enough of the property in his hands as trustee to produce $30,000 and remit the amount to her banker in Stuttgart to be invested by him and the income paid to her and wherein she agreed that the trustee should not be liable for any loss of the money so remitted or the income therefrom. This paper was executed by Madame yon Linden and returned to the trustee April ."21,1891.
    May 7, 1891, the trustee sold and transferred the D. 0. Weeks mortgage to Morgan Dix, executor, etc., of John A. Dix,for $25,000, -and received the money, which he deposited to his credit in his own [private account. May 12, 1891, he wrote Madame von Linden that lie had received the request and consent for the $30,000, and Would arrange in a few days to make the remittance to her banker.
    Thereafter, and on July 8, 1891, the trustee remitted to Madame von Linden’s banker in Stuttgart $25,000, and September 18,1891, she wrote thanking him for the remittance.
    In the list of mortgages furnished by the trustee to Madame von Linden, January 1, 1892, the mortgage in suit was not included, but at the bottom of such list was an item, “ cash — cost of draft for £5,000 remitted to B. Vellnagel” (the Stuttgart banker). April 11, 1892, Madame von Linden wrote to the trustee acknowledging 4lie receipt of the list of mortgages and referred to this item, and -■said that the list was interesting and that she noticed that there had been many changes. July 1, 1892, the trustee rendered an account to Madame von Linden in which, under the date of July 1, 1891, "■'there was a credit of $625 for interest on the mortgage in suit, "which it was there said had been sold, and the proceeds remitted to "-the Stuttgart banker July 8,1891, and there was no credit in any" ■<of the subsequent accounts for interest on this mortgage. It seems ".that the $25,000 remitted to Stuttgart was attempted to be applied •¡by the banker to the payment of overdrafts by Madame von Linden, Ibut the trustee never consented to this application nor did Madame '•won Linden.
    < Chase Mellen and John E. Parsons, for the appellant.
    
      ■ Alfred J. Taylor and Robert Kelly Prentice, for the respondents.
   Williams, J.:

' There seems to be no doubt that a valid trust was created by the "■¡marriage settlement agreement, and that such trust being for the ¡benefit not only of Madame von Linden, but her appointees or descendants, was irrevocable. The trustee had no power to transfer the mortgage without the written consent of Madame von Linden. The agreement so provided, and the trustee had no power to dis'pose of the trust estate or any part of it except such power as he derived from the instrument creating the trust. While in some cases such power might he implied from the nature of the trust and the provisions of the trust agreement, yet where, as in this case, it was provided .that there should be no disposition of the trust estate except with the written consent of Madame von Linden, no such power can be implied, and no transfer can be made unless there was a compliance with the conditions prescribed in the trust agreement. The provision in the agreement necessarily excludes all other powers. (Kissam v. Dierkes, 49 N. Y. 602; O’Connor v. Waldo, 83 Hun, 489.)

When the plaintiff took the assignment of the mortgage from the trustee, he knew that the mortgage was part of the trust estate, the assignment being executed in the name of Weeks ás substituted trustee. And, this being so, he was bound to inquire and ascertain what the terms of the trust agreement were, and what powers the trustee had as to the disposition of the trust estate.

It is said that the plaintiff was only bound to inquire whether the trustee, under the agreement, had a general power to change the securities, to vary the investments, and, if he had, that the plaintiff would be protected in taking the assignment, if he acted in good faith. (Perry on Trusts, §§ 225, 814.)

That might be true in a case where the agreement merely provided for a change of securities, or the varying of investments, in general terms, but where, as in this case, the power to so change securities and vary investments was limited by the condition requiring the consent of the cestui que trust, the inquiry to ascertain whether the power existed at all would also disclose the limitation.

It was said by Andrews, Ch. J. (Kirsch v. Tozier, 143 N. Y. 395), that “ persons dealing with a trustee must take notice of the scope of his authority. An act within his authority will bind the trust estate or the beneficiaries as to third persons acting in good faith, and without notice, although the trustee intended to defraud the-estate and actually did accomplish his purpose by means of the act in question. It has frequently been held that a person dealing with an executor, administrator or trustee who, from the nature of his office or by the terms of the trust,'has power to satisfy or transfer the securities of the estate, or to vary the investment from time to time, is not bound to go further and ascertain whether, in fact, the act of the executor or trustee is justified, and that no breach of trust was intended. It is sufficient for his protection that he acts in good faith, and if the act of the executor or trustee is justified by the terms of the power, the party dealing with him is protected.”

A party who deals with a trustee in the purchase from him of trust securities is bound to look into the trust agreement to ascertain the power of the trustee. If he finds there merely a general power to change securities or vary investments, or if such power can fairly he implied from the nature of the trust or the terms of the trust agreement, he will then be protected in taking a transfer of such securities, if he acts in good faith, whatever the result may be to the trust estate. But if the power which is found in the trust agreement is limited by a condition like the one found in this case, the party is chargeable with notice of such limitation as a part of the power itself.

There was, therefore, no legal transfer of this mortgage to the plaintiff, unless Madame von Linden consented, in writing, to such transfer. Ho consent was given by her in express terms, but it is claimed that a consent sufficient to answer the condition in the trust agreement was contained in her letters written to the trustee before and after the transfer, in view of the circumstances disclosed by the evidence. Having considered carefully all the correspondence and circumstances upon which this claim was based, we are unable to see that the claim is well founded.

Madame von Linden had no knowledge that the mortgage had been transferred Until long after the assignment had been made and the money paid therefor had been received by the trustee. Upon the receipt of the money, the trustee misappropriated the same without the knowledge or consent of Madame von Linden. The next day after he received the money he purchased another mortgage, paying $25,000 for it, and took this mortgage in his own name. And when between four or five months later he sold this new mortgage, he deposited the money received therefor to his own credit in his private account, and mingled it with other funds in his hands, and there is no claim made that this money was again separated, from such other funds in his hands until two months later, when he sent $25,000 to the Stuttgart banker. Madame von Linden was never notified by the trustee in express terms that the mortgage in suit had been sold or transferred or converted into money, and it is only sought to establish such knowledge on her part or notice to her of the transfer, by the accounts and lists of the mortgages sent to her by the trustee long after the transfer had been made. These papers would not have been likely to draw her attention to the transfer, and we do not think it can be said, under these circumstances, that she ever gave the consent to the transfer which was fairly required by the trust agreement.

The only remaining question is whether the plaintiff has any equity in the mortgage which entitles him to hold and enforce it until the money which he has paid to the trustee therefor is returned to him. This equity, if any exists, must be based upon a finding of fact that the trust estate actually received and had the benefit of the $25,000.

In the absence of this finding no such equity would exist. The trial court refused to find the fact as alleged, that the $25,000 received from the plaintiff for the mortgage in suit was the same money which was six months later remitted to the Stuttgart banker. In this we think the court was correct. The money so received from the plaintiff was at once misappropriated by the trustee, and was not returned to the trust estate. When so misappropriated it entirely lost its identity. It could no more be said that the money remitted to the Stuttgart banker was the money paid by the plaintiff to the trustee than that it was the money derived by the trustee from other trust property which he had disposed of and the ¡proceeds of which he had also misappropriated to a considerable amount.

It cannot be said that the trust estate received and had the benefit of the plaintiff’s money by reason of this remittance any more than that it received and had the benefit of other moneys derived from the disposition of the trust estate and misappropriated by the trustee.

The object of this provision in the trust agreement was to protect the estate against misconduct on the part of the trustee and misappropriation of its funds, by requiring Madame von Linden to consent to any change of securities or varying of investments, and, therefore, to know when they occurred and be able to look after and require the trustee to account for any moneys received from securities so disposed of. And its further purpose was to prevent any sale of securities and the misappropriation, by the trustee, thereof, which he might be guilty of in the absence of knowledge on the part of Madame von Linden. It is true that the plaintiff though legally chargeable with knowledge and notice of the condition in the trust agreement as to the written consent of Madame von Linden, did not in fact know of it, and had no knowledge or suspicion of any design on the part of the trustee to misappropriate the money so paid over to him. The plaintiff has lost his money and might have some equity, but for the consideration that the ! equity of the trust estate is equally strong. It has never received the moneys paid upon the transfer of the mortgage to the plaintiff, and ought not to lose the mortgage itself.

Since the loss must fall upon one of the parties, it should manifestly be borne by the plaintiff, who was guilty of negligence in not discovering the condition in the trust agreement, rather than by the trust estate, which has been free from any negligence in the matter.

The conclusion at which we arrive is that the judgment should be affirmed, with costs.

Van Brunt, P. J., Barrett and Rumsey, JJ., concurred.

Judgment affirmed, with costs.  