(112 Misc. Rep. 340)

(184 N.Y.S.)

LOWENTHAL v. BARNETT.

(Supreme Court, Special Term, New York County. June, 1920.) Subrogation ~17-Second mortgagee held subrogated to claim for interest and principal paid by owner to first mortgagee.

The holder of a second mortgage in terms allowing interest paid by the second mortgagee on the first mortgage on default of the mortgagor, to be added to the second mortgage and collected from the mortgagor, as title holder has an action against the then owner of the title under a claim of subrogation to the rights of the principal creditor for the interest and an installment of principal paid by him to the first mortgagee, though defendant was not a party to the second mortgage.

Action by Rachel Lowenthal against Arnold H. Barnett. Plaintiff's motion for judgment on the pleadings granted. Demurrer overruled. Stone & Schleimer, of New York City (Max Schleimer, of New York City, of counsel), for plaintiff.

Jerome C. Jackson, of New York City, for defendant.

MCAVOY, J. The plaintiff, a subordinate lienor by mortgage, paid the prior mortgagee the interest due on that mortgage and an installment of the principal sum, which was also due under the terms of the mortgage and the bond. He now sues the then owner of the title under claim of subrogation to the rights of the principal creditor in so far as he has made the payments then due from the owner of the title. The former second mortgagor was a party signatory to a mortgage clause allowing interest paid on the first mortgage (when the mortgagor failed to pay) by the second mortgagee to be added to his mortgage and collected thereunder from him as title holder.

The present defendant was not a party to that mortgage and consequently is not bound thereby. He may be held, if at all, by plaintiff in an action at law based on the subrogation in equity of plaintiff to the right to recover a money judgment residing in the first mortgagee at the time of payment to him by plaintiff of moneys due by defendant. As plaintiff was not a mere volunteer, but had his interest in the second mortgage to protect, he was even without agreement entitled to make the payment and rely on a recovery over against the original debtor. This equitable claim is clothed in the legal garb of the contract discharged. If the first mortgagee had a right to sue on the bond for the money due, then the payer of the debt has the subrogated right descended upon him. Obviously he might bring this action upon the bond debt, and I conclude that an action lies as outlined in the complaint.

Motion for judgment on pleadings granted. Demurrer overruled, with $10 costs, with leave to answer on payment thereof 20 days hereafter.

Ordered accordingly.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

(112 Misc. Rep. 226)

VELDERS v. GAINES et al.

(Supreme Court, Special Term, New York County. June, 1920.)

1. Wills 865 (1)-Where remainder fails for lack of issue, intestacy as to the property is assumed.

When a trust estate is created by will, with income to life beneficiary, and remainder to his issue, and the beneficiary dies with no issue, the testator is assumed to have died intestate as to the part of the estate embraced within the trust.

2. Wills

866-Next of kin take on failure of remainder in trust estate.

If life tenant dies intestate and without issue, so that remainder fails, trust estate falls to testator's next of kin as of the time of his death, and must be distributed under the statute of distribution.

3. Wills 866-Will of surviving life tenant under her father's will held to defeat the statute of distributions to her father's next of kin.

Where a will divided an estate into four equal parts, the income from which was to go to his wife, son, and two daughters for life, and at the death of each the children of the life tenant were to take the residuary estate absolutely, and the wife and a son and a daughter died without issue, and the surviving daughter, as sole heir at law and only next of kin, took three-fourths of the estate, and continued to receive an income of the remaining quarter, and died childless, the corpus of the trust estate vested in her as of the time of her father's death, and her will disposing thereof was effective.

Action by Emma J. Velders as administratrix of Anna M. Haley, deceased, against Henry W. Gaines and others, as executors of Anna M. Haley, deceased, and others. Demurrer to complaint sustained.

Percy L. Klock, of New York City, for plaintiff.

Thomas P. Hall, of New York City, for executors Gaines and Benjamin.

Larkin & Perry, of New York City, for Central Union Trust Co. of New York.

Breed, Abbott & Morgan, of New York City, for Irving Trust Co.

FORD, J. At his death in 1853 Thomas Haley left a will which divided his estate, consisting of real and personal property, into four equal parts, the income from which was to go to the use during life of his wife, his son, and two daughters, respectively. At the death of each, the children of the life tenant were to take the residuary estate absolutely.

The wife, the son, and one of the daughters died, the two latter without issue, so that the other daughter, Anna M. Haley, took as sole heir at law and only next of kin the three-quarters of the estate enjoyed during their lives by her predeceased relatives. She, of course, continued to take the income from the remaining quarter of her father's estate, pursuant to the terms of the will.

She, too, died childless in 1919. This action has to do with the ownership of the fourth part of her father's estate left in trust for her benefit during life. That she has left a will purporting to dispose of it sufficiently appears from the complaint, although the terms of the will are not set out. The executors under her will have taken pos

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

(184 N.Y.S.)

session of the property, and the plaintiff disputes their right to do so, on the contention that the residuary estate must go to the next of kin of Anna M. Haley under the statute of distribution, and that she could not dispose of it by will.

An administratrix has been appointed by a surrogate in New York county in the interest of herself and two sisters, all cousins of Anna M. Haley, but children of a maternal uncle. The suit is between the administratrix as plaintiff and the executors. The defendants demur to the complaint as not stating a cause of action. There are joined two nominal defendants, who need not be considered.

[1, 2] Since the decision in the case of Simonson v. Waller, 9 App. Div. 503, 41 N. Y. Supp. 662, which was followed in Brown v. Richter, 25 App. Div. 239, 49 N. Y. Supp. 368, and approved in part, by the Court of Appeals in Doane v. Mercantile Trust Co., 160 N. Y. 494, 55 N. E. 296, it has been settled that when a trust estate is created by will, with income to the use of a life beneficiary and remainder to the issue of the cestui que trust, and the life beneficiary dies without issue, the testator who created the trust estate is assumed to have died intestate as to the part of his estate embraced within the trust, and, further, that if the life tenant dies intestate and without issue, the trust estate falls to the next of kin of the testator as of the time of his death, and must be distributed under the statute of distribution. This is so even when the life tenant is the only one answering the description of next of kin.

Consequently Anna M. Haley, as such sole surviving next of kin, succeeded to the residuary estate, and, had she died intestate, her next of kin, presumably the three cousins before mentioned, would be entitled to receive it.

[3] But Anna M. Haley did not die intestate. She left a will disposing of the trust estate. Does the will defeat the operation of the statute of distribution? If so, the plaintiffs have no cause of action.

The Simonson Case, supra, was one decided under the law of England. The principles involved are strikingly similar to those here. The testator's only daughter, for whose benefit a trust estate was created for life, with remainder to her children, died without issue, although married. Her husband claimed the trust estate under her will. The court held that, under the law of England, the estate was not subject to disposition by will, but must be disposed of under the statute of distribution.

It is worth noting that the Court of Appeals, in citing the Simonson Case with both praise and approval (Doane v. Mercantile Trust Co., supra), did not indorse that part of the opinion which held that the principal of a trust estate could not be disposed of by will under such circumstances, but distinctly confined its approval to the rule there declared for determining who should be considered the next of kin, and including the left tenant in the description, even when that person happened to be the only next of kin of the testator creating the trust estate.

The reasoning of the court in the Simonson Case, upon which the conclusion is based that the trust estate was not subject to disposition

by the will of the life tenant, was that the corpus of the trust never vested in the life tenant. "The trustees take the whole title and estate for the purposes of the trust," is the language of the opinion. The conclusion was that the trustees were charged with a resulting trust, to hold the residuary estate for the benefit of those who would be entitled to it by the law of England.

It is interesting to note that in a later and similar case (Brown v. Richter, supra), the same eminent jurist who wrote in the Simonson Case argues against the contention that the trust estate there in question vested in the trustees, and holds that they took only such an interest in the residuary estate as would enable them to adequately execute the trust, even though the trustees in that case were empowered to draw upon the principal of the estate so far as the necessities of the cestui que trust might require.

But the Court of Appeals, in Doane v. Mercantile Trust Co., supra, although citing the Simonson Case, held that under circumstances strikingly similar to those in this case the principal of the trust estate vests in the life beneficiary at the death of the testator. In the Doane Case a trust estate was created by the testator's giving the income to his wife and daughter for life and the principal to their issue. The wife and daughter died without issue. "The principal fund of the residuary estate," declares the court, "upon the death of testator's wife and daughter, without issue, vested in the next of kin of the testator as of the time of his death. Hoes v. Van Hoesen, 1 Barb. Ch. 379; In the Matter of Kane, 2 Barb. Ch. 375; Van Nostrand v. Marvin, 16 App. Div. 28; Clark v. Cammann, 160 N. Y. 315." And again the court in the same case adds:

"A trust limited to lives is no obstacle to this vesting in the next of kin as of the time of testator's death, as the trustees took no greater title to the fund than would enable them to execute the trust."

It seems to me, therefore, to be clear that the corpus of the trust estate must be held to have vested in Anna M. Haley as of the time of the death of her father. If that be so, it follows that she could dispose of it by will, notwithstanding the contrary ruling in the Simonson Case, which was one decided under the law of a foreign country, and never declared, so far as I can discover, as the law of this state. The demurrer will be sustained, with $10 costs.

Demurrer sustained, with $10 costs.

(112 Misc. Rep. 199)

(184 N.Y.S.)

INSURANCE CO. OF PENNSYLVANIA v. PRUSSIAN NAT. INS. CO. (Supreme Court, Special Term, New York County. June 7, 1920.) War 12-Action against German company to reform insurance contract, without joining Alien Property Custodian, not prevented by Trading with the Enemy Act.

Trading with the Enemy Act, § 7, as amended (U. S. Comp. St. Ann. Supp. 1919, §. 31151⁄2d), applies only to claims for specific property in the possession of the Alien Property Custodian, and so does not prevent action in a state court to reform a German insurance company's contract of reinsurance and to recover judgment on it as reformed, or make such custodian a necessary party defendant thereto.

Action by the Insurance Company of Pennsylvania against the Prussian National Insurance Company. On demurrer to separate defenses. Demurrer sustained.

Prentice & Townsend, of New York City, for demurrant.
Rumsey & Morgan, of New York City, opposed.

GIEGERICH, J. The plaintiff has demurred to the separate defenses contained in the answer, upon the ground that such defenses are insufficient, and the issue of law thus joined has been brought on for trial upon the plaintiff's motion. The defendant is a foreign insurance company, and is sued by the plaintiff upon a contract of reinsurance alleged to have been made by the defendant with the plaintiff. The prayer for relief in the complaint is for a reformation of such contract, and for judgment for a loss measured by the contract as so reformed.

The first defense sets up the act of Congress approved October 6, 1917, known as the Trading with the Enemy Act (U. S. Comp. St. 1918, §§ 311512a-31152j), and amendments thereto, and that, pursuant to an order of the President of the United States duly made thereunder, the Alien Property Custodian, prior to the commencement of this action, took over the business, property, and assets of the defendant under the provisions of the said act, and has since had and now has the entire custody and control of the said business, property, and assets, and is a necessary party defendant, and that there is in consequence a defect of parties defendant. The second defense is that prior to the commencement of the action all the money and other property of the defendant in the United States was conveyed and delivered to the said Alien Property Custodian, or was required to be so delivered, or was seized by him, and that the sole relief and remedy of the plaintiff is that provided by the said act of Congress and amendments thereto, and that this court has no jurisdiction of the subject of the action.

The act referred to (40 Stat. 416, c. 106, § 7, as amended by Act Nov. 4, 1918, 40 Stat. 1020, c. 201, § 1, subd. [c]) provides:

"If the President shall so require any money, choses in action, and rights and claims of every character and description owing or belonging

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes