TRUST MORTGAGES - EFFECT OF FORECLOSURE OF SUBSEQUENT MORTGAGE AS PRIOR LIEN UNDER SUBORDINATION AGREEMENT OF WHICH BONDHOLDERS HAD NO KNOWLEDGE

Plaintiff held bonds secured by a trust mortgage. The trustee, Moore, without the consent of all the bondholders, had agreed to subordinate the trust mortgage to a subsequent mortgage. Defendant, the assignee of the subsequent mortgagee, foreclosed its mortgage as a prior lien. Moore was properly served but did not appear, as no bondholder agreed to pay the costs of the litigation.

In the present suit to invalidate the subordinating agreement and reinstate the trust mortgage as the prior lien, held, the judgment in the foreclosure action determined the issue of priority and was conclusive against all the bondholders. King v. Franmor Equity Corp., 260 App. Div. 303, 20 N. Y. S. (2d) 909 (1940).