Trustee Must Act With Loyalty to the Trust's Beneficiaries In the Event of Default
In Beck v. Manufacturers Hanover Trust Co.,(218 AD2d 1,11 -13, 632 N.Y.S.2d 520 [1st Dept 1995]), the First Department stated that in the event of default, the trustee must act with undivided loyalty to the trust's beneficiaries and must exercise its rights and powers under the indenture using the same degree of care and skill as a prudent man would exercise under the circumstances in the conduct of his own affairs.
The court noted that:
The trustee must in the post default context act prudently, but only in the exercise of those rights and powers granted in the indenture.
The scope of the trustee's obligation then is still circumscribed by the indenture -- the trustee is not required to act beyond his contractually conferred rights and powers, but must, as prudence dictates, exercise those singularly conferred prerogatives in order to secure the basic purpose of any trust indenture, the repayment of the underlying obligation (id. at 13).
The Trust Indenture Act, "Duties and responsibilities of the trustee," 15 USC 77ooo (c), states that upon the event of default, "the indenture trustee shall exercise . . . such of the rights and powers vested in it by such indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs."