In Re Fidelity Union Title & Mortgage Guaranty Co.

• Decision Date: 07 March 1945
• Docket Number: 99/590.
• Parties: In re FIDELITY UNION TITLE & MORTGAGE GUARANTY CO.
• Court: New Jersey Court of Chancery

41 A.2d 392

In re FIDELITY UNION TITLE & MORTGAGE GUARANTY CO.

99/590.

Court of Chancery of New Jersey.

March 7, 1945.

Proceedings under the Mortgage Guaranty Corporations' Rehabilitation Act affecting the Fidelity Union Title and Mortgage Guaranty Company. On objections by the estate of Louis Elleau, deceased, to a proposal by the Fidelity Union Trust Company, as trustee under a trust to liquidate investments in guaranteed mortgage certificates issued by the Mortgage Guaranty Company, to sell a purchase money mortgage acquired by the trustee and deduct from the proceeds two per cent of the principal collected by the trustee as commissions on the corpus.

Proposal approved.

Syllabus by the Court

1. Fidelity Union Trust Company, trustee, petitioned the Court for leave to sell a purchase-money mortgage and to deduct from the proceeds of such sale 2% of the principal collected by the trustee during the course of the administration as and for its commissions on corpus, to which an investor objects.

2. The purposes for which these trusts were established, together with the Court's views heretofore expressed during the course of these proceedings on the question of the trustees' compensation, recalled, for the guidance of all trustees appointed in this cause, and their beneficiaries.

Hood, Lafferty & Emerson and Charles Danzig, all of Newark, for Fidelity Union Trust Co., trustee.

Lehlbach & Ormond and Archie H. Ormond, all of Newark, for estate of Louis Elleau.

STEIN, Vice Chancellor.

This matter comes before this Court by reason of objections made to the proposal of the Fidelity Union Trust Company, as trustee appointed by an order of this Court dated December 10, 1935, to sell a purchase money mortgage it acquired under the circumstances hereinafter related for the full balance remaining due thereon and to deduct from the proceeds of such sale 2% on the principal collected by the trustee during the course of the administration as and for its commissions on corpus. The estate of Louis Elleau, deceased, holding 15,000/48,750ths in interest, is the only investor objecting to the trustee's proposals; the objection to the sale is based on the alleged inability of the Elleau estate to reinvest the proceeds at as good a rate of interest as the mortgage yields. A further proposal by the trustee to distribute the proceeds of such assignment without filing a final account in this Court, but to render to each investor at the time distribution is made a statement of the moneys received by the trustee from the time of the establishment of the trust in order to save the expense of such an account, has not met with any opposition from any investor. Inasmuch as the other investors have not objected to any of the trustee's proposals, it is presumed that their silence bespeaks consent.

The issues raised by the objections of the Elleau estate affect every trust established by orders of this Court in the within cause. Many of these trusts have not yet been terminated, and it will be helpful in the guidance of all trustees appointed by this Court in this cause, and their beneficiaries, for this Court to recall to them the purposes for which these trusts were established, as well as this Court's views heretofore expressed during the course of these proceedings on the question of the trustees' compensation.

The trust established by the order of December 10, 1935, has already continued for nine years; if not liquidated now the trust will continue until maturity of the mortgage in 1951. The purpose of the trust, when established, was to liquidate investments made in guaranteed mortgage certificates issued by Fidelity Union Title and Mortgage Guaranty Company. The duration of a trust is dependent upon and determined by its purpose. Warranty B. and L. Ass'n Liquidating Corporation v. Bloch, 131 N.J.Eq. 414, 25 A.2d 871. Liquidation in the manner proposed accomplishes the purpose for which the trust was established and averts the risks inherent in this type of security without violating the terms of the trust.

The right of the trustee to a commission of 2% on principal collected (in view of the objection of the Elleau estate), also depends upon the order of December 10, 1935, and the circumstances attendant upon the entry thereof. A review of the proceedings had in this cause demonstrates that the trustee's final compensation was to be determined by this Court upon a final accounting. Inasmuch as no objection is made to the trustee's proposal not to file a final account, the question of the trustee's right to 2% of the principal passing through its hands during the course of the administration in addition to the commissions already authorized to be deducted and retained by it will therefore be considered as if the matter arose on a final accounting. It is now appropriate to consider the circumstances leading to the entry of the order of December 10, 1935, which created this trust and appointed the Fidelity Union Trust Company trustee.

During the course of its operations the Fidelity Union Title and Mortgage Guaranty Company (hereinafter called ‘Title Company’) had issued participating certificates against specific mortgages. At the time of the appointment of William H. Kelly and J. Ashley Brown as trustees of said Company in January, 1934, $66,202,361.13 worth of mortgages had been assigned to various investors in the form of participation certificates, each containing a guaranty by said Company of payment of principal and interest upon maturity of the mortgage or at the option of the Title Company eighteen months thereafter. There were about 8,000 holders of such certificates, and the certificates were issued in denominations as low as $50 and up to $315,000. The mortgages themselves were of short maturity, ranging from three to five years. The participation certificates were not issued against a pool of mortgages; rather, each certificate assigned to the extent of the investor's investment therein an aliquot part of a particular mortgage which was expressly identified in the certificate.

Shortly after the appointment of the trustees, this Court, by its order dated April 24, 1934, extended to investors the privilege of withdrawing their investments from the control of the trustees of the Title Company by surrendering their guaranties and paying the charges specified in said order. Where an investor had a whole mortgage assigned to him, the process of terminating the trustees' control was simple, but where a mortgage had been divided into fractional parts and assigned in the form of participation certificates concerted action by the investors was necessary in order to comply with the conditions established by the order of April 24, 1934. The conditions imposed by this order required all investors having an assigned interest in a mortgage to join in an application to the trustees for the withdrawal of their investment from the control of the trustees; failing such unanimity, the order of April 24, 1934, extended the privilege to investors holding 25% or more in interest to apply to the Court for leave to withdraw their mortgage from the trustees on the conditions imposed by said order ‘and upon such other terms and conditions as the Court may prescribe’. Many were the instances when investors in a particular mortgage sought their co-investors to join in an application directly to the trustees but failed and were therefore compelled to apply to this Court for leave to withdraw the mortgage under a plan approved by this Court as against non-cooperating or objecting investors.

In 1934, when these proceedings began, Mortgage Investment No. M-67832 consisted of a mortgage in the sum of $48,750, encumbering premises known as 425-427 Hudson Avenue, West New York, New Jersey. Fidelity Union Trust Company (hereinafter called ‘Trust Company’), as the holder of a participation certificate in said mortgage, attempted to obtain the consent of all other investors therein to withdraw it from the trustees of the Title Company pursuant to the order of April 24, 1934. To accomplish this, the Trust Company submitted to each investor a Trust Agreement appointing the Trust Company as trustee for all investors holding participation interests in this mortgage, aughorizing it to comply with the conditions of the order of April 24, 1934, specifying the terms of the trust for the future administration of the investment and defining the trustee's powers. Under the trust agreement, the trustee had the power to employ agents to manage or sell the property if it acquired title to the mortgaged premises and pay the usual agent's commissions. The trustee's compensation was fixed as follows: ‘12. That the Trustee may deduct and retain as and for its commissions five per cent. of the interest collected upon such mortgage; or if the Trustee be in possession of the mortgaged property as the holder of the legal title thereto, then it may deduct and retain as and for its commissions five per cent. of the rentals received by it.’

It is to be noted that while this provision clearly defines the quantum of the trustee's commissions on income, it is silent as to the trustee's commissions on principal which, under the terms of the agreement, it was under a duty to collect. It is clear, however, that as to commissions on income the trustee was to receive 5% of interest collected, or if it be in possession of the mortgaged property it was to receive 5% of the gross rentals received, even though the property was managed by an agent. That this was the common understanding of the trustee's rate of commission on income is evidenced by the views expressed in these proceedings by persons who received this from of trust agreement.

The trust agreement, however, was not signed by the estate of Louis Elleau and the estate of Ludwig Zimmer, which together held $17,000 in participation certificates in this mortgage, nor did the trustees of the Title Company, holding...