Neafie's Estate ( 1937 )

Sinkler, J.,

Both exceptions relate to the award by the auditing judge of the balance shown by the account pro rata between principal and income of the trust estate created by the will of testator. The balance for distribution was derived from rentals of the mortgaged premises, Fifty-second and Walnut Streets, entered upon by the corporate trustee under the authority conferred upon the trustee by section 5, art. IV, of the mortgage or deed of trust secured upon the premises in question. The auditing judge cannot reconcile the decision of Finletter, P. J., in In re 52d and Walnut Streets, 27 D. & C. 587, with the decision of this court in Robb’s Estate, 26 D. & C. 376, and considers that the court in banc and not he should reconsider Robb’s Estate and modify the decision therein rendered, if it should be so determined.

Upon consideration of the two cases cited we are of the opinion that the decision in Robb’s Estate is correct. We had there to consider the meaning of the phrase “apply the moneys arising as aforesaid as herein before provided”, contained in article V, which is headed “Remedies of Trustees and Bondholders”. Section 5 of this article provides that the trustee may enter upon the mortgaged premises, collect the rentals and, after deducting the expenses of operating the building and other items therein specified, apply the money in the manner above quoted. The first three sections of article V provide for the steps to be taken to effect a foreclosure sale of the mortgaged premises. Section 4 provides that the proceeds of the foreclosure sale, if insufficient to pay the interest and principal of the outstanding bonds in full, shall be applied pro rata without preference as to interest over principal or principal over interest. We held that the words quoted can only be construed to mean as provided in the section immediately foregoing.

In the mortgage or deed of trust now before us article IV has the caption “Remedies of Trustee and Bondholders.” Section 4 thereof contains provisions for application of the proceeds of sale under foreclosure of mortgaged premises to the payment of interest and principal of the unpaid bonds in full, if the money received be sufficient, “or if not, then pro rata without preference as to interest over principal or principal over interest.” Section 5 of the same article creates an additional remedy in the event of default, to wit, the right to enter upon the mortgaged premises to collect the rents, issues, and profits, and after making specified deductions to “apply the moneys arising as aforesaid as herein before provided”. The decision of Finletter, P. J., in In re 52d and Walnut Streets, supra, interprets these words as referring “to all provisions preceding the clause in question and may as consistently refer to the first provision for regular payment of interest as to the second contained in Clause IV”. The covenants for the payment of interest preceding the clause in question are found in article II, having the caption “Particular Covenants of the Mortgagor.”

The construction placed by Finletter, P. J., upon the words in question is, in our opinion, not correct. The words should not be construed as referring to a section in the article preceding that antecedent to the one containing the section which includes the words to be construed, but rather to the section of the same article immediately preceding the section in which the words occur.

The argument in behalf of exceptant is based in part upon the contention that the decision of Finletter, J., is the correct one, and this contention is not sustained for the reason just recited. An additional ground is that the decision of Finletter, J., is conclusive because not appealed from and, therefore, binding upon this court. His decision refers to the identical mortgage now before us. The guardian ad litem and trustee ad litem argues in behalf of his wards and cestui que trust that the decision in question is not conclusive as to the remaindermen. These remaindermen, he continues, were minors and not represented or notified of the audit before Finletter, P. J. The guardian ad litem and trustee ad litem further contends that, at most, the decision is a direction to the trustee under the trust indenture, but does not affect awards to be made by the auditing judge respecting the balance shown by an account stated by the testamentary trustee. Further, we say this court is not bound to follow a decision of a court of common pleas of this county as having like authority to a decision of an appellate court of this State.

In behalf of exceptant it is also argued that this court in Robb’s Estate, supra, having held that the provisions of the mortgage transformed income into principal, was compelled to disregard these provisions insofar as they violated testator’s intentions on the one hand and the statute prohibiting accumulations on the other, citing Nirdlinger’s Estate, 290 Pa. 457, and Maris’ Estate, 301 Pa. 20. In reply to this it is argued by the guardian ad litem and trustee ad litem that in Robb’s Estate we did not determine that the provision of the trust indenture transformed income into principal. We held that funds arising from operation were partly principal and partly income, as provided in the trust indenture. It is further argued that the cases cited therefore have no application. The argument presented by the guardian ad litem and trustee ad litem prevails.

The exceptions are dismissed and the adjudication is confirmed absolutely.