Reiner v. Fid. Union Trust Co.

• Decision Date: 31 July 1939
• Parties: REINER et al. v. FIDELITY UNION TRUST CO. et al.
• Court: New Jersey Court of Chancery

8 A.2d 175

126 N.J.Eq. 78

REINER et al.

v. FIDELITY UNION TRUST CO. et al.

Court of Chancery of New Jersey.

July 31, 1939.

[Copyrighted material omitted.]

Syllabus by the Court.

1. Where the situs of a trust of personalty created inter vivos is located in this State, the right of the Court of. Chancery to proceed upon constructive service and the binding force of a decree based upon such service is well established.

2. It is not the privilege of a trustee to rely upon alleged constitutional rights of beneficiaries. The trustee is not the trustee of the rights of beneficiaries; it is the trustee only of the property. It is fundamental that one seeking to rely upon constitutional rights must rely upon those which he himself possesses not upon those of others and he must show that he is injured.

3. The Court of Chancery may in cases of emergency, for the preservation of the trust estate and the protection of the cestuis, authorize and direct the trustee to do acts which under the terms of the trust under ordinary circumstances it would have no power to do.

4. By the enactment of R.S. (1937) 3:16-18, N.J.S.A. 3:16-18, the Legislature undoubtedly desired to make it clear that it recognized not only that the Court of Chancery had jurisdiction to act but that conditions were such, in the opinion of the Legislature, as that the court, in proper cases, should act and that in order to maintain the integrity of a trust fund, it might be necessary to invest in common stocks and it intended to limit the power of the court in this respect (the inherent power of the court being unlimited) and so inserted the provision that the court might not authorize or direct the purchase of common or preferred stock of any corporation "unless such corporation shall have been organized and engaged in the conduct of its business for five calendar years immediately preceding the purchase of the stock of such corporation."

5. R.S. (1937) 3:16-18, N.J.S.A. 3:16-18, expressly confers upon the Court of Chancery the power to authorize or direct the trustee of a trust to invest the whole, or such part thereof as it shall designate, in any class or classes of investments, including common or preferred stocks of corporations of this state or of any other state or country which in its judgment will promote the objects and purposes of the trust and the interest of all the beneficiaries thereof.

Proceeding between Margaret Guenther Osgood Reiner and others, complainants, and the Fidelity Union Trust Company, etc., and others, wherein complainants filed a bill asking the court to authorize a trustee to invest portions of trust funds in common stock selected from a list of stocks annexed to the bill. The proceeding was referred to a special master who reported that the prayers of bill should be granted, and the Fidelity Union Trust Company, etc., brings exceptions.

Exceptions dismissed and master's report confirmed.

Louis Stein, of Union City, for complainants.

Hood, Lafferty & Campbell and Charles Danzig, all of Newark, for defendant Fidelity Union Trust Co., as trustee, etc.

Merritt Lane, of Newark, amicus curiae.

STEIN, Vice Chancellor.

Complainant, Margaret Guenther Osgood Reiner, is the only child of Paul Guenther, deceased, and Virginia Guenther Osgood, the other complainant, is the only child of Margaret Guenther Osgood Reiner. Olga Guenther is the widow of Paul Guenther.

Paul Guenther in his lifetime delivered to the Fidelity Union Trust Company a corporation of this State, 12,500 shares seven per cent cumulative preferred stock of Paul Guenther, Inc., a New York corporation, to be held by it upon certain trusts set forth in a written declaration of trust bearing date December 28, 1922. Paul Guenther died January 17, 1932.

In paragraph "f" of the trust agreement, the donor directed the trustee to set up a trust fund, and pay the net income of the trust fund to the complainant Margaret Guenther Osgood Reiner. The principal of the trust fund he directed to be paid and distributed one-tenth to Margaret Guenther Osgood Reiner on January 2, 1934, and biennially thereafter until the principal is exhausted. In the event of the death of Margaret Guenther Osgood Reiner before she became entitled to the whole of said principal the unpaid portion thereof was to be paid or distributed to such persons as she may by her last will and testament appoint and designate to take and receive the same, and in default of the exercise of such power of appointment said unpaid portion was to be paid or distributed to and among her issue, if any, per stirpes, and in default of both, such designation and appointment and such issue, said unpaid portion was to be paid to the estate of Margaret Guenther Osgood Reiner.

The 12,500 shares seven per cent cumulative preferred stock of Paul Guenther, Inc., were converted into money, and the trustee came into possession of the sum of $1,250,000 in cash, representing the principal of said main trust fund.

Pursuant to the terms of paragraph "f" the trust fund has been set up by the trustee and the principal and income invested and reinvested from time to time in various interest bearing securities.

Except as set forth above in paragraph "f" of said trust agreement, Virginia Guenther Osgood is presently vested with the remainder interest and estate in the fund created, subject to the payment of the income of said main trust fund, to the complainant Margaret Guenther Osgood Reiner, and to the defendant Olga Guenther, during their respective lives, subject to certain deductions in the event of the exercise of the power of appointment therein provided and also subject to be divested, in whole or in part by the happening of certain contingencies therein mentioned (none of which contingencies have yet occurred), certain interests in the main trust fund pass to the defendant Bruno and Theresa Trust Fund, Geithain, Saxony, Germany, and defendants Dover Hospital of Dover, New Jersey, and Lenox Hospital of New York City.

The trust agreement also provided that "Should the above described stock, or any stock or securities issued and or held in lieu thereof, be redeemed then and in that event to invest the proceeds derived therefrom in such securities as are by the laws of the State of New Jersey designated as legal investments for trust funds."

Complainants bring this bill of complaint praying the court to authorize the trustee to invest such portion of the main trust fund and of the trust fund set up under paragraph "f" as it deems advisable not in excess of 20% of each of said funds in common stock selected from those included in a list of common stocks annexed to the bill of complaint, alleging that economic conditions now existing and which have existed for sometime past and which complainants believe will continue to exist in the future, represent such a change in conditions occurring since the making of the trust which could not have been foreseen by the creator of the trust, that the objects and purposes of the trust may be defeated, in whole or in part by the continued investment of the entire funds of the trust in the kinds or classes of securities to which the trustee believes it is limited by the trust, and alleges that the interest of all of the beneficiaries vested and contingent, will be promoted by the investment of portions of said trust fund, not exceeding 20% of each of said funds, in investments in common stocks, and other than those specified by the trust agreement.

The matter was referred by the court to a special master to hear the same and report thereon whether or not the prayers of the bill should be granted and what order or decree should be made thereon, and for that purpose to take proofs and other evidence which may be submitted by the parties before said special master.

The master reported that in his judgment the prayers of the bill of complaint should be granted under the inherent jurisdiction of this court, as well as under R.S.(1937) 3:16-17, N.J.S.A. 3:16-17, and found that the objects and purposes of the trust, and the interests of all the beneficiaries thereof, whether vested or contingent, will be promoted by the investment of not more than twenty per centum in present values of the corpus of the trust in the common stocks of the corporations listed in the schedule attached to his report and made a part thereof.

The matter is now before me on exceptions filed by the trustee to the master's report. In substance the trustee excepts to the master's report upon the ground (A) that there was not sufficient evidence before the master to support his findings that the objects and purposes of the trust would be defeated by compliance with the donor's directions; (B) that the court has no inherent jurisdiction or authority to authorize investment of trust funds in "speculative stocks"; (C) that R.S.(1937) 3:16-17, N.J.S.A. 3:16-17, "to the extent that this section seeks to add to the powers and jurisdiction of the Court of Chancery with regard to trusts established prior to the passage of said section, it is unconstitutional as an impairment of a contract obligation in contravention of Article I, Section 10 of the United States Constitution, U.S.C.A., and Article IV, Section VII, Paragraph 3 of the New Jersey Constitution", N.J.S.A., and (D) that the Court of Chancery "does not have personal jurisdiction over all of the cestuis que trustent having vested and contingent interests in the trust res which would be affected thereby."

D. It seems to me proper to first dispose of the exception under (D).

The attack on the jurisdiction of the court is rested upon the fact that service upon the defendants Olga Guenther, Bruno and Theresa Guenther Trust Fund and Lenox Hospital (absent defendants) was made by publication.

The instant trust has its situs in this State and the right of the court to proceed upon constructive service and the binding force of a decree based upon such service is well...