In Re Rothenberg's Trust.

• Decision Date: 01 June 1945
• Docket Number: 96/69
• Citation: 42 A.2d 767
• Parties: In re ROTHENBERG'S TRUST.
• Court: New Jersey Court of Chancery

42 A.2d 767

In re ROTHENBERG'S TRUST.

96/69

Court of Chancery of New Jersey.

June 1, 1945.

Proceeding in the matter of the Samuel A. Rothenberg trust. On petition of the Franklin-Washington Trust Company for an audit of its second and third account and for instruction and for its discharge from office of trustee.

Decree advised in accordance with opinion.

Syllabus by the Court.

1. The amounts due on a mortgage bond and on a guarantee of the mortgage are definitely fixed by the foreclosure sale and are not affected or reduced by a subsequent resale of the mortgaged premises.

2. A purchaser at the foreclosure sale takes title free of equities of mortgagor or guarantor. They have no interest in the price which the purchaser receives on a resale.

3. Chancery has no jurisdiction over taxation, or to determine whether a trust fund is a part of decedent's estate within the contemplation of the tax statutes. Even if some equitable ground be found for interfering with the subject, as sometimes happens, the court will not act in a proceeding in which the taxing authorities have no opportunity to be heard.

4. An agreement between the donor of a trust fund and the trustee fixing the rate of the trustee's compensation, is binding upon the parties and the beneficiaries and controls the court.

5. The court may award adequate compensation to a substituted trustee notwithstanding the agreement of the original trustee.

6. In a proceeding to settle the account of a trustee, no fee will be allowed counsel of a beneficiary for services in another suit relating to the trust.

7. A next friend who prosecutes, or a guardian ad litem who defends on behalf of an infant, is entitled to no compensation for his services unless he is a lawyer and personally conducts the litigation; but he has a right to reimbursement for his reasonable expenses.

8. Counsel employed by him has a right to a reasonable fee, assuming that the services of counsel were necessary. If the next friend or guardian acts as counsel himself, he is entitled to the fee.

9. The estate of an infant who sues by next friend is liable for the latter's expenses. In a suit against an infant, quaere as to who must prima facie pay his expenses.

10. The guardian is the officer of the court for the particular cause only and should have the amount due him and the source of payment definitely fixed by order made in that cause. An allowance in a trustee's accounting should not be made to the guardian ad litem of an infant beneficiary appointed in another cause for his services therein.

Milton M. Unger, of Newark, for Trustee.

Philip F. Fannan, of Newark, for Franklin Mortgage & Title Guaranty co.

Bernard Mindes, of Newark, for Esther Rothenberg and another.

William H. Parry, of Newark, for Clara E. Rothenberg and others.

Harry Schaffer, of Newark, pro se.

BIGELOW, Vice Chancellor.

This trust, which was created inter vivos June 23, 1930, has been the subject of prolonged litigation over certain mortgage investments. Rothenberg v. Franklin Washington Trust Co., 127 N.J.Eq. 406, 13 A.2d 667; Id., 129 N.J.Eq. 361, 19 A.2d 640; Id., 131 N.J.Eq. 463, 25 A.2d 879; Id., 133 N.J.Eq. 261, 31 A.2d 831; Id., 135 N.J.Eq. 562, 39 A.2d 434. In 1940, the trustee presented its second intermediate account and immediately its right to account was challenged and, of course, upheld. 129 N.J.Eq. 377, 19 A.2d 639. By stipulation, the accounting proceeding was stayed until the mortgage suit, as I will call Rothenberg v. Franklin Washington Trust Co., was disposed of. Now the second account and also a third account and a petition of the Trust Company for instructions and for its discharge from the office of trustee, are brought before the court.

A. Exceptions are taken to the allowance of $462 paid by the trustee to Nicholas W. Bindseil for transcript of testimony ($809, less reimbursement by mortgage company, $347) and $375 paid Joel Schlesinger for expert testimony in the mortgage suit. When counsel for the Trust Company applied in 1940 for the final decree in Rothenberg v. Franklin Washington Trust Company, he asked for counsel fee, costs and certain disbursements which included these items. But the Trust Company was not allowed even costs.

It may be that there was no direct adjudication that the disbursements of the Trust Company in the litigation should or should not be paid out of the trust fund. But from the opinions rendered in the Court of Errors and Appeals, and from the remittiturs, the sense of that court appears that all expenses of the trustee in the mortgage suit, as well as a large part of the expenses of the other parties, should be borne by the trustee individually. The Trust Company, indeed, acknowledges this, so far as taxable costs and counsel's bill are concerned, and does not pray allowance of these expenses. No reason appears why the items now in question should be handled in a different manner. The exceptions are sustained.

The second account shows among the assets the sum of $1,521, carried in a suspense account pending final decision whether it belongs to the trustee or to the Franklin Mortgage & Title Guaranty Company. The item arises from two mortgages, part of the trust fund. One of the mortgages, covering 5 Woodbine Avenue, Newark, was made by High Towers, Inc., to the mortgage company, to secure $8,000 with interest at 6 percent. The mortgage company assigned to the trustee a $7,900 interest in the mortgage and retained a subordinate $100 interest itself. At the same time, it guaranteed payment of principal to the extent of $7,900 with interest at 5 1/2 percent. Thereafter, on July 1, 1934, the mortgagor and its grantee defaulted in the payment of six months' interest then due. But meanwhile, in March, 1933, the Commissioner of Banking and Insurance, by General Order No. 1, by authority of P.L.1933, p. 133, Ch. 71, forbade mortgage companies, including the Franklin Mortgage & Title Guaranty Company, to make payments of principal or interest, pursuant to their guarantees. Accordingly, the mortgage company did not pay, and has never paid, to the trustee any of the interest which fell due in 1934, or thereafter, or any of the principal.

In 1935, the trustee foreclosed and bought in the property at the sheriff's sale for $100. On September 24, 1935, the trustee sold the property to Donald McNaughton and wife for $950 in cash and a purchase money mortgage of $8,500. The mortgage was paid off in 1938. The mortgage company says that $947 received on the resale was profit and belongs to it.

The foreclosure sale left a deficiency of $8,217 on the bond of High Towers, Inc. The amount due on the bond was definitely fixed by the sale and was not affected by any subsequent resale. Berman v. One Forty-Five Belmont Ave. Corporation, 109 N.J.Eq. 256, 156 A. 830; Id., 112 N.J.Eq. 171, 163 A. 893. At the same time, there was due to the trustee by the mortgage company on its guarantee only part of the whole sum owing on the mortgage bond, namely, for principal $7,400, and interest at 5 1/2 per cent, instead of 6 per cent. The exact amount of the debt of the mortgage company on its guarantee, like the debt on the mortgage bond, was fixed by the foreclosure sale and was not subject to reduction by the creditor's resale of the mortgaged premises. Wyckoff v. Holmes, 82 N.J.Eq. 536, 88 A. 832; Ramsden v. Keene, etc., Bank, 8 Cir., 198 F. 807, 117 C.C.A. 449. A purchaser at the foreclosure sale, whether the mortgagee or a stranger, takes title free of equities of mortgagor or guarantor. The mortgage company had no more interest or concern in 5 Woodbine Avenue after the trustee had bought it, than it had in any other part of the trust fund. It follows immediately that the mortgage company has no interest in the price which the trustee received on the resale.

To avoid this conclusion, the mortgage company argues that, except for the order of the Commissioner of Banking and Insurance, it would have paid what was due on the guarantee, taken an assignment of the mortgage, foreclosed and bought the property itself, and so made the profit. Perhaps. More likely the mortgage company would have gone into bankruptcy and paid a small dividend to creditors. But we need not speculate on what might have been. The Commissioner's order, assuming its validity, excused the mortgage company from fulfilling its contract, and doubtless for this reason, the trustee did not bring an action against it on the guarantee. Williston on Contracts, sec. 1938. But on no principle of law or equity did the order operate to vest in the mortgage company any right or title in the mortgaged premises when bought by the trustee at the foreclosure sale.

The rest of the money in the suspense account arose from the Sherwood Parkway mortgage. The essential facts are the same as those above recited. The money is part of the trust corpus.

B. The trustee sets forth in its mortgage. The essential facts are the fund is subject to the New Jersey inheritance and estate taxes and the Federal estate tax, which might be levied on the theory that the creation of the trust was a transfer to take effect at the death of the donor of the trust, the late Samuel A. Rothenberg. The trustee prays that the court instruct it whether these taxes are to be assessed against the trust and what part, if any, are payable out of the trust fund. No representative of the State or of the Federal government is a party to, or has been notified of, this petition. Although Mr. Rothenberg died in 1932, no taxes of the kind mentioned have been levied on his estate, inasmuch as he died insolvent. Chancery has no jurisdiction over taxation, or to determine whether the trust fund is a part of the decedent's estate within the contemplation of the tax statutes. Even if some equitable ground...