Warranty Bldg. & Loan Ass'n Liquidating Corp. v. Bloch

• Decision Date: 23 April 1942
• Docket Number: 139/556.
• Parties: WARRANTY BUILDING & LOAN ASS'N LIQUIDATING CORPORATION v. BLOCH et al.
• Court: New Jersey Court of Chancery

25 A.2d 871

131 N.J.Eq. 414

WARRANTY BUILDING & LOAN ASS'N LIQUIDATING CORPORATION

v. BLOCH et al.

139/556.

Court of Chancery of New Jersey.

April 23, 1942.

Syllabus by the Court.

1. The duration of a trust is dependent upon and determined by its purpose.

2. Where building and loan funds are segregated into a separate trust account "until the further order of the Commissioner of Banking and Insurance", the trust is terminable and revocable under the terms of such further order.

Petition by the Warranty Building & Loan Association Liquidating Corporation for instructions concerning payment of a certain fund, opposed by Leon Bloch and others.

Order in accordance with opinion.

Samuel Kaufman, of Newark, for petitioner.

Sandmeyer & Meisner, of Newark (William E. Sandmeyer, of Newark, appearing), for respondent Leon Bloch.

Isadore H. Colton, of Newark, for respondents Howard Dimond and Millie Krimke.

STEIN, Vice Chancellor.

The Warranty Building and Loan Association Liquidating Corporation is in liquidation pursuant to the provsions of R.S. 17:12-115, as amended, N.J.S.A. 17:12-115. It was organized in 1910 as a normal building and loan association. In 1933 it met the same financial reverses as affected similar institutions. Shareholders withdrew their payments on account of dues, real estate was acquired as a result of foreclosures and it shortly became a "frozen" association. Legislation was enacted to save the State's entire Building and Loan structure. The history of that legislation, its constitutionality, interpretation and application, have been fully discussed in many cases. Bucsi v. Longworth B. & L. Ass'n, 119 N.J.L. 120, 194 A. 857; Rocker v. Cardinal B. & L. Ass'n, 119 N.J. L. 134, 194 A. 865; Veix v. Sixth Ward Building & Loan Association, 310 U.S. 32, 60 S.Ct. 792, 84 L.Ed. 1061.

A liquidating corporation, such as petitioner, is in the nature of a true trust, managed by a Board of Directors with the sole object of liquidating its assets into cash and distributing the same among its shareholders. In re Lawyers & Home-Makers B. & L. Ass'n, 128 N.J.Eq. 22, 15 A.2d 137. This application by which petitioner seeks the instruction of this court was made pursuant to R.S. 17:12-115.7, enacted December 27, 1941, N.J.S.A. 17:12-115.7, to enable liquidating corporations to obtain the instruction of this court "in any matters touching upon the liquidation and dissolution of the affairs of such corporation * * *."

In order to enable the Commissioner of Banking and Insurance more effectively to conserve the assets of the Building and Loan Associations of this State, the Legislature has endowed him with the power to make orders affecting such assets which have the force and effect of law. R.S.App. A:7-3, N.J.S.A.App. A:7-3. The validity and legal effect of these orders have already been considered and approved by this court. Newark Twenty-One, etc., Ass'n, v. Zukerberg, 115 N.J.Eq. 579, 171 A. 804; Schwarz v. Orion B. & L. Ass'n, 129 N.J.Eq. 297, 19 A.2d 443. As part of the authority granted to the Commissioner by this statute, he was empowered to issue orders "(e) to regulate, allocate, prohibit or postpone the receipt and/or disbursement of funds by any such associations."

Pursuant thereto, the Commissioner promulgated Order No. One-A, which became effective on March 14, 1933, and which provided, among other things: "2. (a) Dues and/or premiums received by your Association from members either on pledged or unpledged shares shall be segregated from all other receipts and held in a separate trust account for the benefit of such members. Such funds so held in trust shall not be disbursed or credited to the share accounts until the further order of the Commissioner of Banking and Insurance." Shortly thereafter the Commissioner promulgated Order No. Three-A, which became effective on May 23, 1933, and which provided, among other things: "1. (4) If your Association has established the reserves required by this Department, your Association may then release to the general funds of the Association the dues and premium receipts which have been held in a separate trust account under the provision of Section 2(a) of Order Number One-A; and may credit to the respective shareholders accounts entitled thereto, such payments of dues and premiums so held in such separate trust account."

In 1933 the petitioner was unable to establish the reserves required by the Department of Banking and Insurance in order to bring it within Order No. Three-A. Accordingly, petitioner complied with Order No. One-A and segregated all share dues thereafter collected and held them in a separate "trust account" for the benefit of its members making such payments, and subject "to the further order of the Commissioner of Banking and Insurance." Respondent Bloch made such payments of share dues during the years 1933, 1937, 1938 and 1939, totaling $2,800; one hundred and fifty other shareholders made similar payments totaling $17,040.03. Petitioner has upwards of three thousand shareholders who made no such payments and who are here termed "general" shareholders.

By August 1, 1934, adequate reserves had been established by the...