Opinion
Decided April 25th, 1940.
1. Complainant seeks to compel defendant, as trustee under a trust indenture, to account, alleging, among other things, that the purpose of the trust had been accomplished, and that distribution of the assets should be made. Held, the object of the trust was not accomplished and, consequently, there should be no distribution of the assets.
2. The trustee's rate of compensation was expressly set forth in a plan which was accepted by the Commissioner of Banking and Insurance of the State of New Jersey, and approved by this court after a hearing, and assented to by all the trust receipt holders. Complainant alleges that the trustee's duties have diminished since the trust was set up and, in consequence, claims a reduction of the rate of the amount of compensation to the trustee, held, that the amount of compensation is fixed by the trust instrument and that there is no warrant for changing it.
On appeal from a decree of the Court of Chancery advised by Vice-Chancellor Egan, who filed the following opinion:
"Prior to May, 1933, the Steneck Trust Company was a closed institution in possession of the Commissioner of Banking and Insurance of New Jersey. At about that time the Seaboard Trust Company submitted an offer to the commissioner to purchase substantially all of the assets of the Steneck Trust Company in the hands of the commissioner, in consideration whereof the Seaboard Trust Company agreed to assume substantially all of the liabilities of the Steneck Trust Company.
"The provisions made by the said plan or offer for depositors and other creditors were as follows (article III, section 1):
"(a) Preferred creditors were to be paid in full in cash;
"(b) Depositors and other creditors whose claims did not exceed $100 were to be paid in full in cash;
"(c) Depositors and other creditors whose claims exceeded $100 were to be satisfied as follows:
"(aa) Cash, thirty per cent.;
"(bb) Pro rata share of the bonds and obligations of the township of North Bergen, fifty-five per cent.;
"(cc) Pro rata share of notes, bills purchased and trade acceptances formerly held by the Steneck Trust Company, five per cent.;
(dd) Subscription to capital stock of the Seaboard Trust Company, ten per cent.
"Among the assets of the Steneck Trust Company were bonds and other obligations of the township of North Bergen in the principal sum in excess of $5,000,000.
"By article IV, section 1, of the Seaboard plan, the bonds and obligations of the township of North Bergen were to be held in trust for the benefit of the depositors and other creditors (above $100) against which interest bearing trust receipts were to be issued in an amount equal to fifty-five per cent. of their claims. The obligations of the township which were to be the subject-matter of this trust bore interest at varying rates and payable on varying dates. Interest was provided to be paid on the trust receipts to be issued to the depositors and other creditors on uniform dates, to wit, January 1st and July 1st in each year, at such rates as the income from the trust would warrant (article IV, section 5). The trustee was required to distribute income on January 1st and July 1st in each year after deducting its fees (article IV, section 6). If payments were received on account of principal, the trustee, in its discretion, was authorized to call for tenders (article IV, section 7). For its fees the trustee was authorized to retain out of the interest received by it semi-annually a sum equal to one-fourth of one per cent. of the principal amount remaining due on the obligations of the township, such fees to be collected January 1st and July 1st of each year and to be computed on the principal amount of such obligations on the first day of the preceding six months (article IV, section 8). The trustee was not to reinvest the undistributed cash in the trust (article IV, section 9). The trustee was given the right to sell all or any part of the trust property for not less than par and accrued interest (article IV, section 11). The trust to be created was to continue until all the bonds and obligations of the township should have been converted into cash, and upon the termination of the trust the cash and other assets constituting the trust property was to be paid to and distributed among the holders of the trust receipts to the extent of the amounts remaining due thereon (article IV, section 12). The trustee, in its discretion, was given full power to fund and refund, to extend the time for payment, and to substitute other bonds of the township for those in the trust.
"The plan provided for the execution of a trust indenture, in form to be approved by the Commissioner of Banking and Insurance.
"Under the plan the depositors and creditors of the Steneck Trust Company whose claims exceeded $100, were to receive stock in the Seaboard Trust Company to the extent of ten per cent. of their claims, and such stock, constituting all of the outstanding stock of the Seaboard Trust Company, has to be held by voting trustees in trust for their benefit.
"The said plan and offer was submitted by the Commissioner of Banking and Insurance, as required by the terms of the offer, to this court for approval, upon notice to all persons in interest, and after a hearing the court, by its decree, directed the Commissioner of Banking and Insurance to accept the said offer and to carry out its terms.
"Thereafter the Seaboard Trust Company took over the business and assets of the Steneck Trust Company, made the thirty per cent. in cash available, and set up the trusts required to be set up by its offer. Formal trust indentures were prepared and executed by the Seaboard Trust Company with the approval of the Commissioner of Banking and Insurance, and the trust receipts required by the plan and offer and by the said trust indenture were duly issued and delivered to the persons in interest. A copy of the trust receipt is as follows:
"`No. TR. $ _____________
SEABOARD TRUST COMPANY Hoboken, N.J. Trust Receipt(Issued in accordance with the proposal annexed to and forming part of a certain petition filed by William H. Kelly, as Commissioner of Banking and Insurance of the State of New Jersey, filed in the office of the Clerk in Chancery of the State of N.J. on May 1st, 1933.)
The Seaboard Trust Company, a corporation of the State of New Jersey, acknowledges that it has received from William H. Kelly, as Commissioner of Banking and Insurance of the State of New Jersey, bonds and obligations issued by the Township of North Bergen in the County of Hudson, State of New Jersey, aggregating $5,074,704.37 to be held by said Seaboard Trust Company in trust for the holders of the trust receipts under the terms of a certain indenture or declaration of trust now on file in the office of the said Seaboard Trust Company and in the office of the Commissioner of Banking and Insurance, at Trenton, New Jersey, bearing date the third day of July, 1933.
This is to certify that ____ is entitled to an interest in said bonds and obligations to the extent of ____ Dollars.
Interest will be paid on the face of this certificate semi-annually on the first days of January and July of each year at such rate, as the interest collected by the Trustee on said bonds and obligations and on any deposit balances of trust funds will warrant in accordance with the terms and under the conditions set forth in said indenture or declaration of trust.
This trust receipt is subject to all of the terms and conditions set forth in said indenture or declaration of trust.
This trust receipt may be paid either in whole or in part, at the times and in the manner set forth in said indenture or declaration of trust.
This trust receipt and all rights hereunder are transferable on the books of the Trustee at its principal office in the City of Hoboken, New Jersey, by the holder hereof in person, or by the duly authorized attorney, and upon surrender of this trust receipt properly endorsed, with such guarantees of signature as may be required by the Trustee.
The holder hereof and every successive holder accepting the same, assents and agrees to all the terms and conditions contained herein and in said indenture or declaration of trust.
Witness the seal of the said Seaboard Trust Company, as Trustee, and the signatures of its duly authorized officers.
Dated _______________________________ Seaboard Trust Company, Trustee.
__________________________ Authorized Signature
__________________________ Authorized Signature.'
"At about the time that this offer was accepted, or shortly thereafter, the township of North Bergen became insolvent and defaulted on all of its obligations and it was beset by protracted litigation in efforts to compel it to meet its obligations. The Municipal Finance Commission of the State of New Jersey entered the picture and has since continued to function in the said municipality. After much negotiation all of the township's obligations were refunded. The trustee received the refunding bonds in exchange for the bonds and obligations which it theretofore held. Unlike the old bonds and obligations, the refunding bonds bore interest at uniform rates and the interest was payable uniformly at fixed dates and the bonds all had the same maturities. The refunding plan and the refunding bonds issued thereunder provided that in the event of default by the municipality all of the rights which attached to the old obligations shall be revived.
"The refunding bonds of the township of North Bergen and the trust receipts issued by the Seaboard Trust Company are traded in by brokers in the unlisted or over-the-counter market, and there has been a spread between the price of the bonds and that of the trust receipts, which at times has been as much as twenty points. If one could purchase trust receipts, present them to the trustee and receive bonds in their place, under these conditions he could readily make a handsome profit. And so the trust receipts became attractive as a speculation, and when the trustee refused to surrender bonds which it held in trust in exchange for trust receipts, it gave rise to this litigation in an effort to dissolve the trust.
"Those proceedings were instituted by Leon S. Moissieff who filed a petition for himself and all other trust receipt holders against the Seaboard Trust Company, as trustee, the Commissioner of Banking and Insurance, the holders of trust receipts issued by the Seaboard Trust Company, as trustee, by virtue of the trust indenture or those designated by the court as representatives, and praying for an accounting and a decree; that the purpose of the trust had been accomplished; that no benefit could inure to the cestuis from its continuance, and that the assets should be distributed.
"Thereafter, Leslie Handler, who also acquired his trust receipts in the market, filed his bill of complaint for and on behalf of himself and other receipt holders against the Seaboard Trust Company seeking a discovery, praying for an accounting and a decree amending the terms of the trust, and reducing and adjusting the fees of the trustee.
"This cause was consolidated with the Moissieff suit. The Seaboard Trust Company filed its answer and counter-claim against Moissieff, Handler, and all other receipt holders and seeking a determination that its said offer and the acceptance thereof by the commissioner, pursuant to the decree in this court, should be held and constituted a binding contract on all trust receipt holders; that the trust should continue for the duration fixed by the terms of the offer and proposal; that it was entitled to the compensation provided to be paid therein; that the trust receipt holders were not entitled to participate in any distribution of the trust property, except in the manner set forth in the said offer or proposal; and that its account, as trustee, might be filed in this cause and approved and allowed.
"Other trust receipt holders have intervened. Some of these are holders of the original issue of trust receipts. However, all of them expressly assented to the Seaboard plan and the trust indenture.
"The claim advanced by the complainants is that distribution of the North Bergen obligations could not be made among the depositors and creditors of the Steneck Trust Company because they bore different interest rates, different dates of payment of interest, and different maturities, and that this was the reason for creating the trust; that when the bonds were refunded new bonds were issued with uniform rates, dates of payment and maturity; that the purpose of the trust is accomplished and the bonds should be distributed; that it should not be continued for the benefit of the trustee; that the trustee's compensation is excessive.
"Two questions are presented: First, should the trust be terminated because the purpose of its creation has been accomplished; secondly, should the court reduce the amount of the compensation payable to the trustee which is expressly provided for in the plan and indenture?
"Both questions must be answered in the negative. The number of trust receipts originally issued was approximately 7,900, representing $5,198,456.26 in amount. The number of holders at the present time is 5,844. Of the 5,844, 5,015 represent amounts under $1,000. There are 779 holders of 814 receipts of an amount over $1,000 in odd amounts. There are fifty holders of 261 receipts of principal amounts of $1,000 or multiples thereof. Obviously, a division of bonds which are each in the sum of $1,000, among all of the trust receipt holders, is impossible. To give bonds to those receipt holders whose receipts are in multiples of $1,000 would be to accord them an unfair advantage over the others. To sell all of the bonds at this time would afford the receipt holders no benefit. On the contrary, it would presently destroy the market for this municipality's securities, would result in further and greater speculation therein, and would be the worst thing that could happen to the numerous people who have interests in small amounts in the trust.
"The object of the trust was to realize for the depositors and creditors substantially the face amount of the bonds in money. That object was not accomplished by the refunding by North Bergen of its obligations, nor will it be accomplished by giving to the persons interested another piece of paper in exchange for the one that they now have. By the express terms of the plan and of the trust indenture, the trust is to continue "until all the bonds and obligations of the township should have been converted into cash." Moreover, if a distribution of the refunding bonds, or pro rata interests therein, were now attempted, and the municipality should default, since under the terms of the refunding the priorities and preferences of the refunded obligations would be revived, advantage would be given to some over others.
"As to the second question which is the amount of the compensation paid to the trustee: All of the stock of the Seaboard Trust Company is held under the terms of the plan in trust for the benefit of the depositors and creditors of the Steneck Trust Company under a voting trust. These depositors and creditors are the same depositors and creditors who are the beneficiaries of the trust of the North Bergen bonds. There are no outside stockholders. So that no matter what compensation is paid to the Seaboard Trust Company for its services as trustee, it merely amounts to taking it from one pocket and putting it into another so far as those persons are concerned. Certainly, they are not injured by the amount of the compensation. But even if this were not so, it is difficult to perceive upon what theory this court may now intervene to change the rate of compensation. The rate was expressly set forth in the plan which was accepted by the commissioner with the approval of this court after a hearing, and with the full assent of all trust receipt holders. There is no charge of fraud, accident or mistake. The claim is merely that the duties of the trustee have somewhat diminished since the trust was set up. I do not feel warranted, under the circumstances existing here, in interfering with the amount of compensation expressly fixed by the instrument.
"As to those receipt holders who acquired their receipts in the market, they stand in the shoes of their predecessors in interest, they assented to the plan, and they purchased the receipts with their eyes open and with notice on the face of the receipt of the rights of the trustee. They show no equity which would move this court to reduce the amount of the compensation."
Mr. Bernard S. Glick and Messrs. Pitney, Hardin Skinner ( Mr. James D. Carpenter, Jr., of counsel), for the appellants.
Messrs. Burke, Sheridan Hourigan, Messrs. Furst Furst, Mr. Samuel J. Rich, Messrs. Lichtenstein, Schwartz Friedenberg, Mr. Albert J. Homan, Messrs. Isaacs Gunther and Mr. William L. Bivona, for the respondents.
The decree appealed from will be affirmed, for the reasons stated in the opinion filed in the Court of Chancery by Vice-Chancellor Egan. For affirmance — CASE, BODINE, DONGES, HEHER, PERSKIE, PORTER, HETFIELD, DEAR, WELLS, WOLFSKEIL, RAFFERTY, HAGUE, JJ. 12.
For reversal — None.