We will recite from the submission only those facts which we deem to be essential for the purpose of indicating our reasons for reaching the conclusion that plaintiffs are entitled to have judgment rendered in their favor against the defendant.
On or about the 4th day of October, 1924, Leo Feist duly executed a trust agreement with The Fifth Avenue Bank of New York, as trustee, which thereupon entered upon its duties as trasteó, and is still acting in that capacity. The plaintiff Milton Feist is the life beneficiary under the terms of the agreement. He is the son of Leo Feist. The plaintiffs Nathan and Leonard Feist are remainder-*325men. They also are sons of the settlor. The plaintiff Marilyn B. Feist is a contingent remainderman. She is a granddaughter. Plaintiffs Bessie Feist and Abraham S. Gilbert and the defendant The Fifth Avenue Bank of New York are the executors and trustees under the last will and testament of Leo Feist. Bessie Feist and Abraham S. Gilbert, two of the executors, have joined with the plaintiffs but the defendant bank, because of its conflict of interests, has been made a party defendant in the action.
It is conceded that at the time the instrument was drawn and the trust created, the plaintiff Milton Feist was an invalid and has continued to be an invalid, “ all of which has at all times been known to the defendant, The Fifth Avenue Bank of New York.”
The income from the trust was to be used for the maintenance, medical attention, education and support of the beneficiary during his lifetime. Pursuant to the terms of the trust agreement, the trustee was authorized to invest the funds only in “ bonds of the United States, State of New York, City of New York, or guaranteed mortgages on improved real estate in the City of New York.” The submission is silent as to whether or not investments were made by the trustee in Federal, State or city bonds. However, on or about June 3, 1931, the defendant bank invested $60,000 in a first mortgage of $90,000 covering premises 319-323 East Forty-fifth street in the city of New York. Interest was paid on the mortgage to December 1, 1933. Interest due June 1, 1934, was not paid. “ At that time a default occurred in the payment of such interest and no interest has since been paid on said mortgage.”
On or about the 1st day of February, 1935, the defendant bank instituted an action to foreclose the mortgage. The owner failed to appear. At the sale the bank, in its individual capacity, bought the property in and still owns it. The result is that the trust fund in the sum of $60,000 is now invested in the property which the defendant owns.
It appears from the stipulation that in September, 1937, at the direction of the defendant, the buildings were demolished since the trustee felt that with the decline in rentals it would be imprudent to invest any additional sums in the property in order to comply with the provisions of the Multiple Dwelling Law as recently enacted.
The buildings, which were erected prior to 1902, were of the type known as cold water flats. The rents ranged from $20 to $25 a month for each apartment of six rooms. The net income of the three buildings from February, 1931, up to and including June, 1932, was at the rate of $1,400 per annum, after payment of taxes and other carrying charges, “ but before allowing for the payment of interest on the $90,000 mortgage, which amounted to $5,400 *326per annum, making an annual deficit of $4,000.” In other words, at the time the trust fund was invested in the mortgage the trustee knew that the buildings were being operated at a loss of $4,000 per year.
We do not consider that the investment was made prudently by the trustee either within the spirit and intent of the agreement or the norm which should govern where the property of beneficiaries of trust funds is involved. The purpose of the settlor was to provide an income for his invalid son. In fact the trust agreement dated October 4, 1924, states unequivocally: “It is the desire of Leo Feist, during his lifetime, to make suitable provision for the maintenance and comfort of his invalid son, Milton Feist.” The settlor limited the investments to Federal, State and city bonds, or guaranteed mortgages on improved real estate. It is quite apparent that, in referring to “ improved real estate,” he had in •mind buildings which could be classified as adequate and of the type which would earn income sufficient to net a return to cover not only taxes and other expenses but also payment of interest on the mortgage debt. The settlor was interested only in seeing that the object of his bounty should receive a sum, as income, from the investment which could be used for maintenance and support. Surely he did not intend to have the fund used in any manner which he deemed speculative.
While it is argued that the buildings located on the property constituted improvements within the meaning of the agreement, we do not believe that is so. One might just as well contend that dilapidated dwellings which had become uninhabitable, run down stables or garages and antiquated loft or factory buildings from which there was little or no return might come within the purview of improved real estate as used within the meaning of the trust indenture.
According to the submission the three buildings on the premises were not adequate improvements for the land. If that is true, and if the basic value of the property lay in its availability for high class improvements such as apartment houses, large stores and loft buildings, then, from a practical standpoint, the property upon which the loan was made was not “ improved ” within the meaning of the term as employed in the agreement.
Professor Bogert in his work entitled, “ Trusts and Trustees ” (Vol. 3, p. 2022), makes the following statement which is basically sound: “ Loans on unproductive property should rarely be made. Normally the income from the mortgaged land should be sufficient to meet carrying charges, interest on the mortgage, and payments of installments of the principal as they come due, if the investment is to be reasonably prudent.”
*327Before the loan was made one of the largest and best known real estate concerns valued the land at $135,000 and the three buildings at $15,000. It is asserted that the value of $150,000 was sufficient to justify a legal loan of $100,000, whereas, the loan made by the bank was only $90,000. Therefore, it is argued by the bank that the investment was a proper one. That argument would be sound if the bank in making the investment was using its own funds and not those of this particular beneficiary. This is not a case of hindsight being better than foresight. All the facts were known to the bank at the time it invested the funds in the mortgage under consideration. The result of the transaction has been that the plaintiff Milton Feist has been deprived of income to which he is justly entitled.
Pursuant to the terms of the stipulation, judgment is directed in favor of the plaintiffs and against the defendant, directing the latter to return to the trust created by Leo Feist under an agreement of trust dated October 4, 1924, the sum of $60,000 with interest at four per cent from June 3,1931, and that The Fifth Avenue Bank of New York be permitted to credit against such amounts all sums paid by it to the life beneficiary in connection with said investment.
Martin, P. J., and Townley, J., concur; Untermyer and Dore, JJ., dissent and vote for judgment for the defendants.