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Midlantic National Bank v. Frank G. Thompson Foundation

June 18, 1979


Dwyer, J.s.c.


[170 NJSuper Page 130] The successor trustees of the Frank G. Thompson Foundation, a nonprofit corporation organized under the laws of New Jersey, (Foundation) petitioned the court for advice as to whether the Foundation could: (1) award scholarships to young women as well as young men, and (2) enter into a contract with the Midlantic National Bank (bank) or (executor) for custodial and investment advice concerning the securities it was about to receive from the executor. The petition was filed in the same action as the bank's final accounting as executor. The Attorney General was made a party defendant pursuant to his responsibility

to oversee the public interest in the administration of charities. Passaic Nat'l Bank & Tr. Co. v. East Ridgelawn Cemetery , 137 N.J. Eq. 603, 607-608 (E. & A.1946); 6 N.J. Practice § 1121.

The Attorney General did not oppose the first request. The court approved it in a letter opinion. He opposed the latter. A hearing was held and briefs submitted.

The Foundation was created pursuant to the provisions of the will of Frank G. Thompson, who died on June 13, 1960. A predecessor of the bank was the named executor and the bank has finished the administration as the executor. Paragraph FIFTEENTH of the will provided that the residue was to be held in trust, the income was to be paid to his widow and mother-in-law, and upon the death of the last to survive, certain bequests were to be paid and the remainder to be paid to the Foundation.

Paragraph FIFTEENTH stated the general objects of the Foundation to be to use the income for college scholarships for needy young men, preferably from Livingston Township, but left to the executor the duty to state the details of the certificate of incorporation and appoint five persons to the initial board of trustees, one of whom was to be the Superintendent of Schools of Livingston. The certificate of incorporation gives Foundation the power to employ investment advisers. The trustees were to appoint their own successors. Before the life income beneficiaries died, two of the five original trustees died, one had retired as Superintendent of Schools and moved to Florida, one had been appointed to the judiciary and one indicated that he no longer wished to serve. All submitted resignations. The executor was advised it had no power to appoint successor trustees.

Upon application of the executor and notice to the Attorney General the court appointed the present Superintendent of Schools of Livingston, the Town Administrator, an attorney-at-law, a business man with considerable experience in civic, charitable and athletic work, including that for teenagers, and a

vice-president of the Educational Testing Service, Princeton, New Jersey. All have agreed to serve without compensation.

Pending resolution of this matter they have worked out of the offices of the local officials. They have established criteria for awarding scholarships. They have distributed announcements and reviewed applications. This is a time-consuming process. The executor has custody of the securities awaiting this decision.

At the time of the hearing there was $11,400 of accumulated income and about $100,000 of corpus. A representative of the bank testified that for keeping the securities, collecting and disbursing the income, assisting with the tax return, and giving investment advice, the charge would be $300 minimum plus an amount equal to 1/3 of 1% of the market value of the securities held, or an estimated $333 on $100,000. The total would be $633 less a 20% charity discount or $506.40.

The Attorney General objects on two grounds. First, the bank intends to keep the securities registered in the name of its nominee and hence the Foundation's securities would not be "earmarked." See Bogart, Trusts and Trustees (2 ed.), § 596. He contends that N.J.S.A. 3A:15-31 cited by petitioners is not applicable. Second, the fee is higher than 6% of the income and hence is in excess of what the Legislature has authorized, 6% on $7,000 estimated annual income, or $420. Cf. Donaldson v. Madison , 88 N.J. Super. 574 (Ch.Div.1965). He further urges that one of the duties of trustees is to invest the corpus, to produce an income, and to deduct their expenses against commissions. The size of the corpus is such that outside help is not needed.

The court agrees that N.J.S.A. 3A:15-30 et seq. does not apply on the facts of this case. The bank is not a "clearing corporation" as defined in N.J.S.A. 12A:8-102 for present purposes, N.J.S.A. 3A:15-30(d); hence N.J.S.A. 3A:15-31 does not apply.

The Foundation is authorized to hold securities in trust for charitable or benevolent purposes. N.J.S.A. 15:14-6; Smith v.

Pond , 92 N.J. Eq. 211 (E. & A.1920), rev'g 90 N.J. Eq. 445 (Ch.1919). The transfer of securities to the Foundation will be to it as a charitable corporation and not to the individual members of its board of directors as trustees.

In Brigham v. Peter Bent Brigham Hospital , 134 F. 513 (1 Cir.1904), the court said:

We should observe that the [charitable] corporation contemplated by the will was not to hold in trust, in the technical sense of the word, the property which it might receive. It was to hold it for its own purposes in the usual way in which charitable institutions hold their assets. Such a holding is sometimes called a quasi trust, and an institution like the one in question is subject to visitation by the state; but the holding does not constitute a true trust. ...

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