In re Schinasi's Will

• Decision Date: 08 March 1938
• Citation: 277 N.Y. 252,14 N.E.2d 58
• Court: New York Court of Appeals Court of Appeals
• Parties: In re SCHINASI'S WILL. In re CHEMICAL BANK & TRUST CO.

277 N.Y. 252

14 N.E.2d 58

In re SCHINASI'S WILL. In re CHEMICAL BANK & TRUST CO.

Court of Appeals of New York.

March 8, 1938.

Proceeding in the matter of the judicial settlement of the intermediate account of proceedings of the Chemical Bank & Trust Company, as trustee of the residuary estate under article tenth of the last will and testament of Morris Schinasi, deceased, for the benefit of Laurette Schinasi and others, covering the period from March 1, 1929, to July 31, 1935. From an order of the Appellate Division, First Department, 252 App.Div. 82, 297 N.Y.S. 243, modifying a decree of the Surrogate's Court, New York County, the trustee and other parties in interest other than Raymond D. Sanders and others, infants, by their special guardian, John G. Saxe, cross-appeal.

Modified in accordance with opinion, and matter remitted to the Surrogate's Court for entry of appropriate decree.

LOUGHRAN and RIPPEY, JJ., dissenting in part. Appeal from Supreme Court, Appellate Division, First Department.

Alfred McCormick and George B. Turner, both of New York City, for Chemical Bank & Trust Company.

Maxwell Brandwen, S. Sheldon Meyers, and Ambrose Doskow, all of New York City, for Laurette Schinasi and others.

John Godfrey Saxe, of New York City, as special guardian for respondents Raymond D. Sanders and others.

Thomas B. Fenlon, Herbert Carter, Albert B. Maginnes, John E. Lockwood, Edwin W. Cooney, and H. Vincent Smart, all of New York City, amici curiae for Bank of New York & Trust Company and others.

LEHMAN, Judge.

The testator, Morris Schinasi, died on September 10, 1928. By his last will and testament he devised all his residuary estate to Chemical National Bank of the City of New York in trust to pay the income to his wife and daughters. Three parcels of real property became part of the trust fund. The trustee managed the real property, collected the rentals, and paid out the expense of carrying and maintaining it. In 1935 the trustee filed an intermediate account as trustee for the period from March 1, 1929, to July 31, 1935. A dispute has arisen concerning the amount of the commissions and allowance to which the trustee is entitled.

The account shows that, during the six years of its management, the trustee has collected rentals from the real property in the amount of $342,186.75. It has during the same period paid out for taxes, insurance, repairs, and other expenses the sum of $231,503.43. The trustee claims commissions on the gross rentals received. The courts below have held that the trustee is entitled to commissions computed only upon net rentals.

The statute, Surrogate's Court Act, § 285, fixes the commissions and compensation to which a trustee is entitled. Until 1817, no statute or court rule provided for such compensation, and a trustee could not demand ‘compensation beyond what may be founded on the positive agreement of the party.’ Green v. Winter, 1 Johns. Ch. 26, 37, 7 Am.Dec.475. Then the Legislature provided by statute, ‘That it shall be lawful for the court of chancery, in the settlement of the accounts of guardians, executors and administrators, on petition or otherwise, to make a reasonable allowance to them for their services as such guardians, executors and administrators, over and above their expenses; and that when the rate of such allowance shall have been settled by the chancellor; it shall be conformed to in all cases of the settlement of such accounts.’ Laws 1817, c. 251. Pursuant to the statute, Chancellor Kent on October 16th, 1817, made an order: ‘That the allowance settled by the chancellor as a compensation for guardians, executors and administrators, in the settlement of their accounts under the act of the legislature, for receiving and paying money, shall be five per cent. on all sums not exceeding one thousand dollars, for receiving and paying out the same; two and a half per cent. on any excess between one and five thousand, and one per cent. for all above five thousand dollars (3 Johns.Ch. 630).’ For more than a century the chancery rule has been embodied in a statute. The statute, now in force in this state, provides somewhat different rates, but in formulating the rates it uses substantially the same language. ‘On the settlement of the account of any executor, administrator, guardian or testamentary trustee * * * the surrogate must allow to such executor, administrator, guardian or testamentary trustee for his services in such official capacity. * * 1. For receiving and paying out all sums of money not exceeding two thousand dollars, at the rate of five per centum. 2. For receiving and paying out any additional sums not amounting to more than twenty thousand dollars, at the rate of two and one-half per centum. 3. For receiving and paying out any additional sums not exceeding twenty-eight thousand dollars at the rate of one and one-half per centum. 4. For all sums above fifty thousand dollars, at the rate of two per centum.’ Surrogate's Court Act, § 285, subds. 1-4.

In the statute above quoted the Legislature authorized an allowance to fiduciaries only at a rate ‘settled’ by the chancellor, which ‘shall be conformed to in all cases.’ The rate was to be definitely fixed and no room left for variation in particular cases. ‘The advantages of a fixed rate of allowance, are obvious. Such a rate has the effect of law; it is known and uniform; it governs all cases; and it renders litigation unnecessary.’ McWhorter v. Benson, 1823, Hopk.Ch. 28, 37, 38, 2d Ed. Time has mocked the conclusion of the learned chancellor that a fixed rate of allowance ‘renders litigation unnecessary.’ After the lapse of more than a century there is still litigation and difference of opinion as to the basis upon which the rate shall be computed. The courts early perceived that the words ‘receiving and paying out,’ if literally construed, are comprehensive enough to include receipts and payments of every kind and description, and that in some cases such a construction would produce a result which would be unreasonable and evidently unintended by the chancellor or the Legislature. In such cases the courts have rejected a literal construction, and have adopted a construction less unreasonable and more consonant with common sense. Even so, in each case the quest has been for the intention of the Legislature as formulated by it in the language of the statute and the courts may not reject a literal construction unless it is evident that a literal construction does not correctly reflect the legislative intent as indicated by the general purpose and history of the statute and its language read as a whole, and not word by word.

Under a literal construction, a trustee would be entitled to commissions on moneys received by him upon every sale of a capital investment and upon moneys paid out by him when that money is reinvested. If the investments of a trust fund were changed every year a trustee would then be entitled to commissions every year. Such a construction might make a trustee the principal beneficiary of the trust. In Matter of Kellogg, 1838, 7 Paige 265, 267, Chancellor Walworth pointed out that this was not the intent of the statute, saying: ‘The investment or reinvestment of the fund, from time to time, upon new securities for the purpose of producing an income therefrom, is not such a paying out of the trust moneys as entitles the guardian or trustee to commissions for paying out the same, within the intent and meaning of the statute on this subject; unless such securities are finally turned over to the cestui que trust as money, or otherwise applied in payment on account of the estate. Neither is the guardian or trustee entitled to charge a new commission for the collecting or receiving back of the principal of the fund which he has not invested. But he will be entitled to commissions upon the interest or income of the fund produced by such investments, and received and paid over by him.’

The rule of that case has been followed in all subsequent cases. Cf. Valentine v. Valentine, 2 Barb.Ch. 430. The rule was expressly approved by this court in Drake v. Price, 5 N.Y. 430, and has not been challenged since. It has been extended by analogy to cases where the fund includes property which is subject to a lien; e. g., stock bounght by a decedent on margin. Matter of Mercantil Trust Co., 210 N.Y. 83, 103 N.E. 884; real property, subject to a mortgage, Farmers' Loan & Trust Co. v. Turner, 242 N.Y. 240, 151 N.E. 439; securities pledged by a decedent as collateral for a loan, Matter of Mills' Estate, 149 Misc. 389, 266 N.Y.S. 702, affirmed 239 App.Div. 817, 263 N.Y.S. 982, affirmed 263 N.Y. 574, 189 N.E. 703. In such cases the fiduciary receives commissions only upon the moneys realized for the property and received by the fiduciary after the lien has been satisfied. The rule of these cases was applied, however, only to moneys received for property which constitutes the corpus of a fund. Only by analogy can it be applied to income or profits of a fund. In three cases in the appellate courts of this state the courts have had occasion to consider the manner in which commissions should be computed upon income or profits; and it is upon the authority of these three cases that the courts below have determined in this case that commissions may be allowed only upon the net income of the estate.

In Matter of Hayden, 54 Hun 197, 7 N.Y.S. 313, 316, affirmed 125 N.Y. 776, 27 N.E. 409, executors authorized by a testator to carry on his furniture business for a year claimed commissions on the amount received and disbursed in the business, though the business made no profit. In rejecting this claim, the General Term said: ‘The buying and selling incident to the conduct of a manufacture or other business is, at best, a species of reinvestment of the trust funds. If commissions were to be allowed each time a stock in trade were purchased or sold, it is quite probable, as well as possible, for a case to...