[17 NJSuper Page 602] In March of 1933, following a presidential proclamation declaring a "bank holiday," the Franklin
Trust Company of Paterson, in company with the other banking institutions of the country, suspended business operations. When the "holiday" ended, the trust company resumed operations on a severely restricted basis. This restricted operation continued until January 15, 1935. Then, after a plan of reorganization had been approved by the Commissioner of Banking and Insurance, the stockholders and the depositors of record when the bank closed in 1933, the bank resumed normal operations.
Under the terms of the plan of reorganization, a contract was executed on December 26, 1934, between the trust company and Harry Behrman, Charles A. Bergen, Hugo Huettig, Amos H. Radcliffe and Charles H. Roemer.
The trustees named in the contract were the directors of the bank. Since the execution of the trust indenture Charles A. Bergen and Hugo Huettig have died. Their places have been taken by Aloysius J. O'Brien and John J. Hall, both of whom are directors of the trust company. Amos H. Radcliffe has died since the filing of the complaint herein. His place has not been filled.
On January 15, 1935, in accordance with the provisions of the trust agreement, there were turned over to the trustees, notes, mortgages, securities and real property, having a book value of $1,598,059.63. In addition, the trustees received the entire capital stock of the trust company which had a book value of $181,635.03. The trustees also took over the entire capital stock of Benlin Securities Company, a real estate and securities holding company which had been formed in 1931 by the bank directors. This stock had no value since at the time of the transfer its liabilities exceeded its assets by $18,554.70.
Against these assets the trustees issued 3,315 Class "A" certificates in the amount of $1,444,469.32, representing 80 per cent of the deposits frozen when the bank was closed. Also issued were 229 Class "B" certificates to the holders of the 1,000 shares of the capital stock of the bank.
On April 11, 1949, the trustees filed a complaint in this court seeking approval of the account of their administration of the trust estate. Also sought was judicial approval of a plan for the distribution of the stock of the trust company, held in the trust estate. This plan which was at variance with the provisions of the trust indenture was abandoned during the course of the hearings. And the trustees now propose the disposition of the remaining assets, including the stock, at public auction as provided by the trust agreement.
Upon the filing of the complaint the plaintiffs sought and obtained an order designating the named defendants as representatives of their respective classes under the authority of Rule 3:23-1, relating to class actions. Thereafter the other defendants were permitted to intervene.
The defendants complain generally against the administration of the trust estate. In particular, their attack is directed against the transfer to the trust company of the banking house and its contents; the approval by the trustees of the increase in the capital of the bank; the permitted use by debtors of the trust estate of "A" certificates as setoffs against obligations due to the trustees and the payment of legal fees.
Among the assets transferred to the trustees upon the execution of the trust indenture, were the bank building and its fixtures. These assets at that time had a book value of $395,760 for the building and $87,100 for the fixtures. Under the terms of the trust agreement the trustees were directed to lease these assets to the trust company for a term of five years at a monthly rental of $100, with an option to the trust company for a renewal for a further term of five years at the same monthly rate. The rent was merely nominal since the cost of the upkeep of the building, paid by the trustees, was in excess of $10,000 a year.
In 1939 the bank took over the fixtures for which it paid the trustees the sum of $12,000. In 1945, upon the expiration of the second five-year term, the trustees transferred the bank building to the trust ...