Bunn v. Kuta

EYLER, Judge. Edward DeV. Bunn, appellant, challenges a 5% trustee’s commission, provided for in a deed of trust, awarded to Jerome A. Kuta, appellee, who foreclosed and sold by auction ⁵⁶ for $800,000 “Independency,” real property owned by Bunn located in Charles County. I. The Circuit Court for Charles County ratified, without exception, the foreclosure sale that Kuta conducted on February 17, 1995.

The auditor’s report filed on April 7, 1995 allowed Kuta to receive $40,000 or 5% of the $800,000 auction sales price. Bunn filed exceptions to the auditor’s report. In an order filed on April 26, 1995, the circuit court ratified the auditor’s report save for the $40,000 trustee’s commission. The circuit court set that matter for a hearing on May 19, 1995.

Judge Richard J. Clark, who conducted the hearing, entered an order overruling Bunn’s exceptions. Bunn then timely noted an appeal to this Court.

II

The issues presented to us, as paraphrased, are: 1. Was the amount of the compensation awarded to the trustee proper? 2. Did Judge Clark err in relying on the terms of the deed of trust that was not admitted into evidence?

III

Kuta filed a foreclosure suit on October 14, 1994, pursuant to Maryland Rule W77(a), against Bunn. The pleadings included a certified deed of trust and a deed of appointment of substitute trustee, in which the noteholder appointed Kuta as substitute trustee. At the time Kuta filed for foreclosure, the second trust holder’s foreclosure suit on the property was pending. Kuta filed a petition to intervene in the second trust holder’s foreclosure suit, which the circuit court granted.

As noted above, the circuit court scheduled an exceptions hearing, at which it heard testimony from Bunn and Kuta. The circuit court also reviewed the auditor’s report, which read in part: ⁵⁷ The Auditor [Thomas C. Hayden, Jr.] reports to the Court that he has examined the proceedings in the above-entitled cause, and from them has stated the annexed account. This is a Deed of Trust foreclosure. After allowance of the usual expenses of sale, the proceeds are distributed to the noteholder in full settlement of debt.

Surplus proceeds are paid to a junior lienholder. The Suggested Audit in this case requests that the Trustee be allowed a 5% commission in the amount of $40,000.00. In addition, a $750.00 attorney’s fee for the foreclosure case is requested. The Auditor is of the opinion that it is unconscionable to allow a $750.00 attorney’s fee for the foreclosure case in addition to the $40,000.00 Trustee’s commission (5% of the sale price).

Therefore, the claim for a $750.00 attorney’s fee has been disallowed. Later that day, after reviewing the deed of trust, sua sponte, the circuit court issued its decision. In part, the circuit court stated: There is case law in the State of Maryland that is pretty clear that when parties agree under a contract as a deed of trust is to certain terms and conditions that this court should, unless there is some ambiguity as to those terms and conditions, enforce them. In my opinion the parties in this case agreed in the deed of trust instrument that if Mr. Bunn defaulted, and there [sic] was necessary for this matter to go to sale, that the trustee would proceed at 5 per cent commission.

It is my opinion that the suggested audit, dated by Mr. Hayden, the auditor for this court, appropriately allowed Mr. Kuta that trustee’s commission. It is my opinion that it is neither [Unequitable or unfair to Mr. Bunn, who agreed that Mr. Kuta would be paid that commission to allow that commission and I accordingly deny this exception or overrule I guess would be the appropriate ⁵⁸ way, the exceptions to the auditor’s report to have them filed by Mr. Bunn.... The deed of trust provided, in relevant part, that [u]pon any default in the performance of any of the terms or conditions of said note or of any of the terms, conditions, agreements and covenants herein contained, the said trustees shall have the power to sell and shall at the request of said Lender [Bank], sell said land and premises, or any part thereof at public auction, at such time and place, upon such terms and conditions, in such parcels, and after such previous public advertisement, as said trustees in the execution of this trust shall deem advantageous and proper; and convey the same in fee simple, upon compliance with the terms of sale, to; and at the cost of the purchase or purchasers thereof, who shall not be required to see to the application of the purchase money; and of the proceeds of said sale or sales; Firstly, to pay all proper costs, charges and expenses, including all fees and costs herein provided for, including reasonable counsel fees, and all money’s advanced for taxes, insurance, and assessments, with interest thereon as provided herein, and all taxes, general and special, due upon said land and premises at time of sale, and all moneys advanced and expanded [sic] by the Lender on any other account in accordance with the terms, conditions and covenants of this deed of trust and the note secured hereby, and to retain compensation as trustee a commission of five per centum of the amount of said sale or sales____ IV. Bunn argues that the $40,000 trustee’s commission is excessive and inequitable, when compared to the time and effort expended by Kuta in his role as substitute trustee.

According to Bunn, the foreclosure was routine and required no more than eight hours of labor. Although Bunn asserts that Kuta was difficult to reach and was at times uncooperative, he does not suggest that Kuta otherwise failed to fulfill his duties. Bunn points to § 14—103(a)(1) and (d) of the Estates & Trusts ⁵⁹ Article for the proposition that a court has the authority to alter a trustee’s commission for “sufficient cause.” Section 14—103(a)(1) states: A testamentary trustee and trustee of any other trust whose duties comprise the collection and distribution of income from property held under a trust agreement or the preservation and distribution of the property are entitled to commissions provided for in this section for their services in administering the trusts. The amount and source of payment of commissions are subject to the provisions of any valid agreement.

Any court having jurisdiction over the administration of the trust may increase or diminish commissions for sufficient cause or may allow special commissions or compensation for services of an unusual nature. Section 14-103(d) states: For selling real or leasehold property, a commission upon the proceeds of the sale is payable at the rate allowed by rule of court or statute to trustees appointed to make sales under decrees or orders of the circuit court for the county where the real or leasehold property is situated, or if the property is located outside Maryland, for selling similar property in the county where the trust is being administered. The commission is payable from the proceeds of the sale when collected. Alternatively, Bunn asserts that Kuta, acting as trustee, was a fiduciary, and that the trustee’s commission was subject to the court’s inherent power to supervise the award of compensation to fiduciaries.

With respect to the deed of trust, Bunn argues that it was not admitted into evidence and should not have been considered by the circuit court; if properly before the circuit court, the circuit court incorrectly construed the terms of the deed of trust to require a 5% commission; and that the amount of commission provided for in the deed was renewable, in any event, pursuant to the above statute or the general power of the court. In response, Kuta asserts that the foreclosure was not routine but, rather, involved extraordinary work that required ⁶⁰ many hours and that he properly fulfilled his duties as trustee. He asserts that the totality of the circumstances controls when reviewing an award of compensation for reasonableness and that the amount of time spent is only one factor. If the amount is determined by agreement, as in this case, it should be given effect.

Kuta points out that both the auditor and the circuit court reviewed the parties’ filings before rendering their respective decisions. The auditor did not approve a separate attorney’s fee. The auditor reported to the circuit court that to allow Kuta to receive $750 in attorney fees, separate and distinct from the $40,000 trustee’s commission, would be “unconscionable.” The circuit court received evidence and heard argument with respect to disputed commissions. Finally, Kuta points to Seventh Circuit Local Rule BR7 to support his position.

Local Rule BR7, reproduced in the appendix to Kuta’s brief, provides, in part: Compensation of Trustee or Other Fiduciary. a. Generally. In all sales of real, leasehold and tangible personal property made pursuant to an order of Court or subject to ratification by the Court, the compensation, unless fixed by the instrument pursuant to which the sale is conducted, allowed to the trustee or other fiduciary, shall be as follows: (i) 10% on the first $3,000; (ii) 5% on the next $50,000; and (in) 1% on the remainder. b. Increase or Decrease in Allowance by Court.

The above allowances may be increased by order of the Court in a situation of extraordinary difficulty and may in like manner be diminished in the event of negligence, or other default on the part of the trustee or other fiduciary. V. We begin our discussion by recognizing that courts have the inherent power to review compensation paid to trustees from trust assets, whether testamentary or created by inter vivos instrument, and the power to review compensa ⁶¹ tion and expenses paid in connection with forced sales including judicial sales and sales requiring ratification by a court. In exercising the general power of supervision, courts generally have deferred to the terms of a contractual agreement relating to compensation. We shall examine trustee’s commissions from two different perspectives.

The first involves trusts created to hold and administer assets, including testamentary trusts. See Schloss v. Rives, 162 Md. 346 , 159 A. 745 (1932); Madden v. Mercantile Safe-Deposit & Trust Co., 27 Md.App. 17 , 339 A.2d 340 (1975); and Sokol v. Nattans, 26 Md.App. 65 , 337 A.2d 460 , cert. denied, 275 Md. 755 (1975). The second involves mortgages and deeds of trust. See Gaither v. Tolson, 84 Md. 637 , 36 A. 449 (1897); Arundel Asphalt Prods., Inc. v. Morrison-Johnson, Inc., 256 Md. 170 , 259 A.2d 789 (1969); Hersh v. Allnutt, 252 Md. 513 , 250 A.2d 629 (1969); and Schneider v. Scarborough, 198 Md. 303 , 83 A.2d 860 (1951).

In Schloss the Court stated that when a trust is administered under the supervision of a court, the trustee’s compensation is within the discretion of the court, determined from all of the circumstances. Schloss, 162 Md. at 351-52 , 159 A. 745 . Where the compensation of a conventional trustee is fixed by instrument, it is ordinarily allowed. Id. at 350 , 159 A. 745 .

Where rules of court or established procedure fix a rate, they should be followed, but the chancellor has authority to increase or decrease the compensation in extraordinary cases. Id. at 352 , 159 A. 745 . In Madden, the Court stated that a trust is a contract and the intent of the parties is binding, citing Sokol. Madden, 27 Md.App. at 50 , 339 A.2d 340 .

The Madden Court discussed Maryland Annotated Code (1957), Article 16, § 199(d), the predecessor to § 14-103(d) of the Estates & Trusts Article, and stated, “[i]f a commission taken by a conventional trustee without court approval is challenged ... the court must determine whether the commission taken was authorized by the instrument, or was within the limits allowed by statute, or ⁶² was within the customary limits allowed by courts at the time.” Madden, 27 Md.App. at 51 , 339 A.2d 340 . In Sokol , the Court stated that a trustee’s commission is subject to agreement between the parties and to review by a court for sufficient cause. Sokol, 26 Md.App. at 82 , 337 A.2d 460 . Before stating that conclusion, the Court performed an historical review.

It noted that there was no statutory provision providing for compensation to conventional trustees prior to 1939. Id. at 71 , 337 A.2d 460 . It recited the English rule to the effect that no compensation was permitted unless stated in the relevant instrument because trustees were selected because of a special relationship and it was presumed that they accepted the office out of a sense of duty. This rule was never followed in the United States; the rule in this country was to allow a fair amount in the discretion of the court.

The Court quoted E. Miller, Equity Procedure § 558 (1897) as follows: In trusts under a will or deed, where the instrument does not fix a rate, the usual rule is to allow a commission of five per cent, upon the income.... Continuing, the Court noted that Miller, at § 557, states that a commission is ordinarily allowed where the trustee performed his duty unless performance imposed no labor or trouble or there was something in the instrument to show that no commission was intended. Sokol, 26 Md.App. at 73 , 337 A.2d 460 . Commissions were generally only allowed on the income, not the corpus.

Id. It was neither the custom nor the law to allow commissions for terminating a trust. Id. The Court in Sokol stated that, if the instrument creating the trust provided for a certain rate of compensation, the rate in general would be allowed.

We have been discussing the custom and law which prevailed when no compensation for services rendered by a conventional trustee was provided in the instrument creating the trust. ‘If the instrument creating the trust provides for a certain rate of compensation, that rate will in general be allowed. Thus a trustee appointed by a will is entitled to ⁶³ the commissions provided for by the will----’ Miller, supra, 559. Comment f to § 242, Restatement (Second) of Trusts (1959) at 607, is in accord: ‘If by the terms of the trust it is provided that the trustee shall receive a certain amount as compensation for his services as trustee, he is ordinarily entitled to that amount.... ’ But it goes further, adding ‘and, unless it is otherwise provided, he is ordinarily entitled only to that amount.’ Id. at 74, 337 A.2d 460 (footnotes omitted). The Court, noting that the above principles were summed up in Schloss , made it clear that, historically, commissions provided for in an instrument were generally allowed except in extraordinary cases.

The Court in Sokol then turned its attention to the effect of § 14-103 of the Estates & Trusts Article and, at least implicitly, assumed that it did not significantly change the rules as they existed prior to enactment, i.e., deference is given to the terms of an agreement absent extraordinary circumstances or, in the language of the statute, absent “sufficient cause.” The statutory scheme now set forth in § 14-103 has remained the same since its predecessor was first enacted in 1939, although subject to amendment in the interim. Id. at 79, 337 A.2d 460 . The scheme is that commissions are payable at certain percentages on a designated amount of income collected each year; on the fair value of the corpus at the end of each year; on the sale of real or leasehold property and an allowance on final distribution. The various forms of this statute governing payment of commissions to trustees were “subject to the provisions of any valid agreement determining their compensation,” and the allowance was subject to increase or decrease in the discretion of the court for “sufficient cause.” The Court in Sokol held that the will was a valid agreement and the Drovision governing commissions was contractually binding when the trustee accepted his office.

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