On April 11, 1904 Hudson Trust Company, hereinafter called the trustee, and Leonor F. Loree, hereinafter called the settlor, entered into an agreement under the terms of which the trustee was to collect the sum of $500,000, invest the same from time to time, pay the income thereon to the settlor in his lifetime and thereafter to certain named persons of whom three still survive, namely his children, James T. Loree, Robert F. Loree and Louis L. Collins. The settlor died on September 6, 1940. The trustee is to continue the payment of income to said children or their issue until the death of the last survivor of the three, when the principal will be distributed among the issue of the settlor in the manner set forth in the agreement. If at that time any of the issue is under 21 years of age, the trustee is to pay the income only of his share until he reaches the age of 21 years. The agreement makes no provision for the resignation of the trustee. A supplement to the agreement, dated the same date, contains this provision for the compensation of the trustee:
"The party of the second part as such trustee shall be entitled to charge and receive in full for all services rendered by it in the execution of the trusts assumed by it under said deed of trust two per centum of any and all sums collected and received by it as such trustee, to be paid out of such collections from time to time as the same are received."
The trust res consisting of securities and cash was received by the trustee in October 1904.
During his lifetime the settlor consulted frequently with the trustee regarding the investment of the fund and informal accountings were made to him by the trustee from time to time. The trustee's account has never been allowed in any formal proceeding, nor has there ever been any criticism of the administration of the trust except in recent years and then only with respect to the purchase of certain bonds and certificates of the United States of America.
The basic question presented is whether plaintiff may receive compensation at a greater rate than that provided in the agreement, and if not, whether it may resign and be discharged from further obligations under the agreement.
It is clearly the feeling of all interested persons that if the trustee were allowed to resign it would be difficult, if not impossible, to get a suitable substituted trustee to serve for the compensation stipulated in the agreement. The only evidence with respect to a proper rate of compensation was that it should be five per centum on the income collected. It is to be noted that N.J.S. 3 A:10-2 provides that the fiduciaries therein mentioned may retain five per centum on all income that comes into their hands without allowance by the court.
The rule is well settled that when a trust agreement fixes the trustee's compensation it will be binding upon the parties and the beneficiaries and will control the action of the court. Commercial Trust Company v. Spiegelberg , 117 N.J. Eq. 171 (Ch. 1934), affirmed Commercial Trust Co. v. Mason , 119 N.J. Eq. 376 (E. & A. 1936); In re Rothenberg , 136 N.J. Eq. 530 (Ch. 1945). In the latter case it was pointed out that the court may award adequate compensation to a substituted trustee notwithstanding the agreement of the original trustee. The trustee cites In re Battin , 89 N.J. Eq. 144 (Ch. 1916), as authority for the proposition that the court may in certain circumstances increase the agreed rate of compensation. In that case there were three trustees and the trust deed provided that the court should appoint a successor for any one dying, refusing
to serve or becoming unable to discharge his duty. Upon the death of one of the trustees, a petition was filed requesting the court to appoint a trust company as sole trustee. The two surviving trustees expressed a desire to resign and in the course of the proceeding all parties in interest agreed to the appointment of a trust company as sole trustee. The court permitted the resignation of the trustees and appointed a trust company as sole trustee. It asserted its clear power to appoint a trustee where there is none and stated that where it appoints a trustee it may, if it be necessary in order to secure a proper one, award compensation that will be fairly adequate regardless of the provisions for compensation in the deed. It is to be observed that in this, as in the Rothenberg case, there was no award of greater compensation to the original trustee. There was merely a recognition that it might be necessary to pay greater compensation than that fixed in the trust agreement to a substituted trustee.
The trustee quotes the following language from the opinion of the court in the case of In re Fidelity Union Title & Mortgage Guaranty Co. , 136 N.J. Eq. 294, at 301 (Ch. 1945):
"As to trusts inter vivos , this court by virtue of its inherent powers in the field of trusts can relieve a trustee from serving for an inadequate compensation by increasing the compensation ...