Opinion
Decided January 3d 1941.
The Court of Chancery would have jurisdiction to try and determine in summary proceedings in this cause questions as to liens, rights and interest with regard to property actually or constructively in the ownership, possession, custody or control of the trustee, the court already having taken jurisdiction over the trust estate in question under the original bill filed herein. But unless and until property has become in custodia legis, such questions can only be entertained by plenary suit commenced by bill.
On appeal from an order of the Court of Chancery advised by Vice-Chancellor Buchanan, who filed the following opinion:
"Under the original bill in this cause, filed February 5th, 1932, and the subsequent proceedings, this court took jurisdiction over a certain trust estate, and the administration and liquidation thereof. That trust estate consisted of assets pledged by Seacoast Trust Co. with the original trustees, as security for the benefit of the holders of certain bonds or obligations made and issued by Seacoast Trust Co.
"Prior to the filing of that bill, the Commissioner of Banking and Insurance had taken possession and control of Seacoast Trust Co., on December 22d 1931, (and so continued until October 15th, 1934, when that company resumed business under its original charter). Seacoast Trust Company, and the said commissioner, were, inter alia, defendants to the original bill aforesaid; and by the final decree entered September 20th, 1932, the Banking Commissioner and the former trustees of the trust were ordered to `convey, transfer, deliver and surrender to' Mr. Mathis, appointed as substituted trustee of the trust aforesaid, `all the assets, property and estate in their possession that pertains to the trust agreement referred to in the bill of complaint,' — ( i.e., the agreement creating the trust fund and setting forth the terms and conditions of the trust).
"By order of this court, in this proceeding, entered on petition filed February 3d 1933, by the substituted trustee, six persons who were prior trustees of the trust, were directed to account before a special master `for their acts and conduct relating to the trust estate and their administration thereof; and such proceedings were had on such accounting that money decrees were entered May 25th, 1938, against five of said six former trustees, for losses occasioned to the trust estate as the result of negligent conduct by said former trustees, — including the wrongful permitting of the Seacoast Trust Co. to withdraw from the trust assets some $57,900 of securities. Payment of this decree has not yet been made, — except in part.
"No accounting proceeding against Seacoast Trust Co., or the Banking and Insurance Commissioner, has heretofore been had.
"By order of this court, on January 18th, 1940, three of the former trustees against whom money decree was entered as aforesaid, were given leave to institute proceedings in the name of the substituted trustee, for the recovery from Seacoast Trust Co., Secoda Holding Co., and others, of the $57,900 of securities so found as aforesaid to have been wrongfully withdrawn from the trust assets by Seacoast Trust Co. Accordingly, the present petition was filed January 29th, 1940, and order to show cause issued thereon, against the Seacoast Trust Co. and the Banking and Insurance Commissioner, requiring them to show cause why the said $57,900 of securities were not transferred and delivered to the substituted trustee pursuant to the order of September 12th, 1932, and why an order should not be made requiring them to transfer and restore the said securities to the said trust estate or account for the same or the value thereof.
"This petition alleges, inter alia, that a certain bond and mortgage for $50,000 on a hotel known as the Babchin Hotel, made to Seacoast Trust Co., and by it assigned to the trust estate aforesaid, was later foreclosed by the Seacoast Trust Co. in its own name, without joining any of the trustees or beneficiaries of the trust; and the property purchased by Seacoast Trust Co. for the nominal sum of $1,000 at the foreclosure sale; and that the said property was later conveyed by Seacoast Trust Co. to Secoda Holding Co., a subsidiary or agent of Seacoast Trust Co., — the Secoda Co., taking without consideration and with full knowledge. The Secoda Co., however, is not made a respondent to the petition and order to show cause.
"On the return of the order to show cause, objection to the jurisdiction was made by Seacoast Trust Co., orally in open court, — the ground of the objection being that this court was without jurisdiction to entertain and determine in summary proceedings on petition and order to show cause, the matters aforesaid sought by petitioner so to be adjudicated, but that petitioner must seek such relief by bill and subpoena in a plenary suit. Determination of this issue has been submitted to, and undertaken by, the court prior to going into the merits of the allegations of the petition.
"Consideration leads to the conclusion that the objection aforesaid is well founded and that this court may not entertain and determine the matters set forth in said petition — at any rate against the consent of the respondents — except in a plenary suit commenced by bill and subpoena.
"Petitioner in this proceeding seeks to obtain from the respondents, Seacoast Trust Co. and the Banking Commissioner (or one of them) certain property — or the value thereof — alleged to be, or to have been, in the legal ownership or possession, custody and control of the said respondents and alleged to be equitably the property of the trust estate. These respondents were not, and never had been, trustees of the trust property. According to the facts appearing by the petition, the property sought to be recovered, was not at the time of the filing of the original bill in this cause, nor at any time since, in the legal ownership, custody, possession or control of either the former trustees or the substituted trustee. Hence this property cannot be deemed to be in custodia legis in this cause; this court did not, and had not, acquired jurisdiction over it, under the original bill and the final decree entered thereon.
"This court would have jurisdiction to try and determine in summary proceedings in this cause, questions as to liens, rights and interest with regard to property actually or constructively in the ownership, possession or control of the trustee — Cf. Riedinger v. Mack Machine Company of Harrison, Inc., 117 N.J. Eq. 334; National Newark, c., Co. v. Durant Motor Company of New Jersey, 124 N.J. Eq. 213, affirmed, * 125 N.J. Eq. 435; Sullivan v. James Leo Co., * 124 N.J. Eq. 317; In re Interstate B. L. Ass'n., 126 N.J. Eq. 469. But unless, and until, property has become in custodia legis, — has come under the jurisdiction of the court, — such questions can only be entertained and determined by plenary suit commenced by bill. Grobholz v. Merdel Mortgage Investment Co., * 115 N.J. Eq. 411; In re Interstate B. L. Ass'n., supra; First National Bank, Princeton, v. Garden B. L. Ass'n, 108 N.J. Eq. 143.
"Apparently the theory of petitioner's counsel is that the present petition is simply in aid of, and supplemental to, the provision in the decree of September 20th, 1932, — wherein and whereby the Banking and Insurance Commissioner, together with certain former trustees, were ordered and directed to convey, transfer and deliver to the substituted trustee all of the assets in their possession belonging to or forming a part of the trust estate; that this order and direction is, by implication, applicable to, and enforceable against Seacoast Trust Co. because that company has subsequently resumed operation and control of its assets and affairs which at the time of that decree were in the custody and control of the Banking Commissioner.
"The soundness of the contention as to this latter implication may well be doubted; but passing that, and assuming that that order had been expressly directed to Seacoast Trust Co., it is clear that the intent and meaning of that order was simply that Seacoast Trust Co. should turn over to the new trustee any assets in its possession or control which were legally a part of the trust estate and as to which the ownership and right to possession of the new trustee was not in dispute. That order did not, and did not purport to, adjudicate any conflicting claims to ownership; and no such matters were alleged in, or in issue under, the pleadings. It cannot afford any basis for the present proceeding by petitioner.
"The order to show cause must be discharged; and the present petition must be dismissed, unless petitioner shall apply for order to amend the petition into a bill."
Mr. Lester C. Leonard, for the appellant.
Mr. Ward Kremer, for the respondents.
The order appealed from will be affirmed, for the reasons stated in the opinion delivered by Vice-Chancellor Buchanan in the Court of Chancery.
For affirmance — THE CHIEF-JUSTICE, CASE, BODINE, DONGES, HEHER, PERSKIE, PORTER, DEAR, WELLS, WOLFSKEIL, RAFFERTY, HAGUE, JJ. 12.
For reversal — None.
For counsel fees and costs — THE CHIEF-JUSTICE, HEHER, WELLS, JJ. 3.