
    S. Richard Davidge, Respondent, v. Guardian Trust Company of New York, Appellant.
    Third Department,
    December 30, 1909.
    Principal and agent—when corporation holding trust mortgage liable for false representations of officer — purchase of bonds induced by representation that mortgage was first lien—party — suit by trustee of express trust — measure of damages.
    A corporation which is trustee of a mortgage securing bonds which upon their face refer to the mortgage for a statement of the nature of the security, is liable for the act of its vice-president in inducing a person to purchase bonds by falsely-stating that the mortgage was a first lien when in fact there was a prior mortgage under which the property was subsequently sold, leaving, no surplus subject to the lien of the second mortgage.
    Where bonds purchased with partnership funds are registered in the name of one partner, he becomes a trustee of an express trust within the meaning of section 449 of the Code of Civil Procedure and may maintain an action thereon without joining his copartner as a party plaintiff.
    The measure of damages in such action must be determined by treating the representation that the mortgage was- a first lien as, true, and where the actual value of the property supposed to be .covered by the mortgage was less than the face value of the bonds issued, the purchaser is entitled to recover only that portion of the actual value of the property represented by the number of bonds purchased by him, with interest.
    Appeal by tbe defendant, the Guardian Trust Company of R ew York, from a judgment, of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Broome on the 19th day of July, 1909, upon the verdict of a jury, and also from an order entered in said clerk’s office on the 9th day of September, 1909, denying the defendant’s motion for a new trial made upon the minutes. '
    
      Hotchkiss c& Barber [Harvey B. Hinman of counsel], for the appellant.
    
      S. Mack Smith, for the respondent.
   Smith, P. J. :

The action is brought to recover damages caused, by the false representation of one of the officers" -of defendant company, which induced the purchase by the plaintiff of. ten certain bonds of the Metropolitan Beal Estate Improvement Company. The representation claimed to have been falsely and fraudulently made was that the mortgage executed to secure said bonds was a first mortgage upon the property upon which it was a lien. ■ The face value of the bonds was $5,000; the verdict of the jury was $4,500. By stipulation that was afterwards reduced to $4,265.40, being the amount actually paid for said bonds with interest.

■ On November 24, 1905, the Metropolitan Beal Estate Improvement Company executed and delivered to this defendant a trust mortgage covering a large tract of land in the city of Yonkers, to secure the payment of a series of bonds to be issued by said improvement company. The total issue contemplated was two thousand bonds, of the par value of $500 each. The mortgage itself, recited the existence of prior liens upon the premises covered thereby to the extent of $263,400, and contained this provision : “Whereas, there are now existing mortgages which are lien upon the property or a portion thereof hereinbefore described' and upon which this mortgage is given and intended to become a lien before the maturity of the said existing mortgages which said mortgages are as follows: A mortgage held by the Metropolitan Life Insurance Company for $120,000. A mortgage held by the Valley Farms Company for $55,000. A mortgage held by the Valley Farms Company for $8,400. Two mortgages held by the Connecticut Building and Loan Association for $30,000 and $50,000 respectively, all of which mortgages amount in the aggregate to the sum of $263,400. Whereas it is desired and intended to pay off the said mortgages and each of them out of the proceeds of the sale of the bonds herein described now therefore it is hereby agreed by the said Company that dúring the third year of the life of this trust mortgage it will pay to the Guardian Trust Company as trustee the sum of $60,000 and during the fourth year of the life of this mortgage the sum of $100,000 and such further sum or sums as may be necessary to pay the principal and interest due on the said mortgage and to procure the discharge and satisfaction thereof and the said Guardian Trust Company as trustee hereby agrees to apply such payments when so made to the payment and satisfaction of the said mortgages, that it will make such application of" such payments pro rata unless the order of such application shall be differently directed by said Company in which case it will make such application of such payments as directed by such Company.” Each of the bonds contained the following statement: “This bond is one of a series of two thousand bonds of the denomination of Five Hundred Dollars ($500) each, numbered consecutively from one to two thousand inclusive, amounting in the aggregate to One Million Dollars, all of which are equally secured by an. Indenture of Mortgage bearing date the 24th day of November, A. D., 1905, whereby certain property now owned by this Company has been mortgaged to the Guardian Trust Company of .Hew York City as Trustee, and pledged for the benefit of the holders of the said bonds. For- a statement, of the property pledged, the nature of the security, the rights of the holders of the said bonds, and conditions upon which bonds are secured and issued, reference is hereby made to said Indenture of Mortgage.” The.trustee’s certificate was also in the form usually employed and was as follows : “ Trustee’s Certificate. The Guardian'Trust Company, as Trustee, hereby certifies that the within bond is one of the series of bonds described in the Trust Deed' or Mortgage therein described. Guardian Trust Co., Hew York, Trustee. L. C. Haynes, Secretary.” The property was thereafter sold under the prior mortgages, thereby entirely divesting the property of the lien of this mortgage. Upon such sale there was no surplus-to which the lien of this mortgage-could attach.

Prior to the purchasé-of these bonds the plaintiff, together with, one Bussell, who was selling the same either for himself or the Metropolitan Beal Estate Improvement Company, went to the defendant’s offices in Hew York city, and in.response to an inquiry by plaintiff, was there informed by Charles L. Bo.binson, the defendant’s vice-president, that the mortgage securing said bonds was a first lien upon the property covered thereby. Bobinson was the officer who executed the mortgage on defendant’s behalf and his name appears upon the bond as having signed the name of defendant to a notice of registration thereof. Upon the trial the defendant offered no evidence',, but rested after the plaintiff had finished his case.- The jury has found that the representations, were made as 'sworn to by the plaintiff; that.they were fraudulently made, and has assessed the plaintiff’s damages. ...

The defendant’s main contention is that the representation by its vice-president, Robinson, was not the representation of the defendant; that it was not made within the scope of his duties as its officer. It is true that this defendant was not selling these bonds and was not interested in their sale. ■ Such representations, therefore, could not be deemed the representations of the defendant because of an implied authority to make representations to procure a sale. But the defendant had accepted the trust created by the mortgage. The bonds issued and certified by the defendant referred to the mortgage for ascertainment as to the nature and extent of the security. That mortgage was delivered to the defendant, was in its custody and control. The defendant, therefore, was under the implied obligation to disclose the full contents of that mortgage, both to any bondholder and to any intending purchaser of said bonds. ■ If instead of showing the mortgage and thereby disclosing the nature and .extent of the security which was held for these bonds, the defendant’s officer chose to state the contents of that mortgage and the nature-and exterit of the lien'which it created, it was his duty to speak honestly. If in so disclosing its contents he fraudulently misrepresented the nature of the'lien his act was without doubt an act within the scope of the officer’s agency, and the declarations so made must be deemed the declarations of the defendant. This duty is further emphasized by the nature of the trust which the defendant assumed. These bonds were installment bonds, payable fifty dollars a year for ten years. Under the terms of the mortgage above quoted, during the third year of the life of the mortgage, the trustee was to apply $60,000 to the payment of these prior mortgages, and during the fourth year of the life of the mortgage the trustee was to apply $100,000, “ and such further sum or sums as may be necessary to pay the principal and interest due on the said mortgage” and to procure a discharge, and satisfaction thereof. These bonds were being sold as paid-up bonds, with the payment of all future installments anticipated. The trustee was not authorized to receive the full consideration of the bonds with installments anticipated and wait, three years before making payment upon the prior mortgages. The fair intent of the obligations is that after three years’- installments had been paid, the trustee must commence' to reduce the prior incumbrances and pay $60,000 thereupon, and after four installments had been paid the trustee should pay such further sum as was necessary to satisfy the mortgage. When a sufficient number of those bonds had been sold-as paid-up bonds, it became the duty of the defendant withoutwaiting- three years to apply at least part of the proceeds of the bonds to the payment of those prior mortgages. Whether a sufficient number of bonds had been sold so as to impose this duty upon the defendant, and whether the defendant had in pursuance of its duty .satisfied any part or all of the prior mortgages, could, only have been .ascertained from the defendant itself. By reason of this necessity. of inquiry of the defendant there arose a correlative obligation on the part of the defendant to disclose fully the exact nature and situation of the security.

Other objections are made to .this judgment. It seems that the bonds were purchased with moneys belonging jointly to Davidge and his. partner Smith. The answer was' amended upon the trial without objection, to allege a defect of parties plaintiff, in the failure to join the partner Smith with the plaintiff. - But the bonds were registered in the name of Davidge: He thereby became as to Smith’s interest a trustee of an express trust, and as such was authorized to bring this action. (Code Civ. Proc. § 449.) "

Another and more serious objection made by the defendant is as to the rule of damages held by the trial court. Of these 2,000 bonds 1,016 only were issued. The property is shown by the plaintiff’s witnesses to have been worth $219,000. The representation was that this was a first mortgage. These 1,016 bonds were of the face' value of $508,000. If the property had been as represented, without prior lien, the plaintiff’s bonds would have been worth five five-hundred-eighths of $219,000 or $2,155.51. This sum with interest is the amount in which the plaintiff has been damaged by the false, representation of the defendant.

The judgment should be so modified, and as modified affirmed, without costs to either party.

All concurred.

judgment and order • modified as per opinion, and as modified affirmed, without costs' to either party.  