Sokol v. Nattans

Orth, C. J., delivered the opinion of the Court. This appeal concerns the trust under the Last Will and Testament of Arthur Nattans I, deceased. It presents two issues for decision. The first is raised on appeal by two of the three current trustees, Max Sokol and Louis Eliasberg. 1 The second is raised on cross-appeal by certain of the beneficiaries. 2 The issues stem from the matter of compensation to be allowed the trustees for the performance of their services.

We set them out as presented to us: I. “Are the trustees entitled to the statutory termination commission of one half of one percent of the value of the corpus of the trust provided by Section 14-103 (e) upon final distribution of the corpus of the Nattans trust?” II. “Whether trustees under a testamentary trust should be allowed a counsel fee out of the income of the trust estate for services and expenses incurred in connection with an unsuccessful claim against the trust assets for a termination commission based on the value of the corpus of the trust.” *? Our answer to the first issue is no. Our answer to the second issue is that, in the unique posture of this case, the grant of the allowance by the chancellor will not be disturbed. STATEMENT OF THE CASE The trust was created by Item Sixth of the will of Arthur Nattans I executed in 1903.

It came into being in 1905 upon the admission to probate of the will and two codicils thereto. 3 About 1913 the administration of the trust was placed under the jurisdiction of the Circuit Court of Baltimore City, and remains there to this day. See Docket 53A (1913), folio 169, et sequentia. The will was twice judicially construed. Ryan v. Herbert, 186 Md. 453 , decided 15 May 1946, and Weller v. Sokol, 271 Md. 420 , decided 15 April 1974.

By Item Tenth of the will, the trust ceased on 24 September 1972 upon the death of Arthur Nattans II as the last survivor of the testator’s eight children. The matter of compensation and allowances to the trustees appears to be the last impediment to a closing of the trust estate, and, hopefully, when it is finally resolved, the trust will be laid to rest once and for all. The sole asset of the trust created by Item Sixth of the will consisted of all of the stock owned by the testator of the Read Drug and Chemical Company of Baltimore City, now Read’s Inc., consisting of 396 shares of the 400 shares outstanding. 4 The stock was bequeathed to three named trustees. 5 The will assured that there would be three trustees during the life of the trust by providing for the appointment of a successor trustee to take the place of any one of the trustees named or of any one of their successors who died or resigned. On 3 June 1974 the trustees filed a petition praying the passage of an order allowing them commissions for their services from' 24 September 1972 to final distribution and compensation for making final ⁶⁹ distribution.

On 12 June 1974 the chancellor sent counsel a letter opinion giving his views as to the compensation to be paid and allowances made. He directed counsel for the trustees to prepare an order in accordance therewith, to send a copy to counsel for all parties and to those parties not represented, and to submit the order to the court for execution after reasonable notice had been given. On 3 July Forrest F. Bramble, Jr., Esq. and Delverne A. Dressel, Esq. filed a petition for the passage of an order authorizing the trustees to pay them a reasonable counsel fee. The petition set out that they were employed by the trustees to assist and advise the trustees with respect to the proper distribution of the trust estate.

On the same date Sokol and Eliasberg, as two of the trustees, filed a petition for the passage of an order allowing counsel fees out of the proceeds of the trust estate to be paid to Dressel and Paul E. Burke, Jr., Esq. The petition stated that Bramble, one of the counsel for the three trustees, was unable to fully represent the interest of all of them in connection with the allowance of proper compensation for their services as trustees because Solomon, the third trustee and also a beneficiary under the trust, although agreeing to accept such compensation for his services as the court determined to be reasonable and proper, unlike Sokol and Eliasberg, had not suggested any measure of compensation, declined to participate actively in any hearing in connection with commissions, and refused to testify on behalf of the trustees. Therefore, Eliasberg engaged the services of Burke, and Sokol engaged the services of Dressel to represent them with respect to allowance of commissions. On 5 July 1974 the chancellor issued an order.

The trustees were (a) “allowed a commission payable out of income in an amount equal to 5% of the income of the trust from September 24, 1972 through July 15, 1974 as compensation for their labor and responsibility during such period”; (b) denied additional commissions; and (c) “authorized to pay out of income the sums of $10,075 and $8,686.32 to their counsel for services rendered as set forth in the petitions for payment of counsel fees.” All parties were content with the ⁷⁰ commissions allowed, at least to the extent that no challenge was made to them. Sokol and Eliasberg, however, were aggrieved by the denial of additional commissions and noted an appeal seeking to set aside that part of the order. Certain of the beneficiaries under the trust, although not questioning the payment of $10,075 as counsel fees, were unhappy with that part of the order with respect to the authorization to pay additional counsel fees of $8,686.32 to Burke and Dressel and filed a cross-appeal to have the order in that regard reversed. Thus, there is before us the propriety of the denial of the trustees’ request for additional commissions and of the allowance of $8,686.32 as counsel fees as reflected in the issues for decision.

I THE FIRST ISSUE The Will The will expressly fixed the compensation of the trustees originally named and their successors from time to time. Item Seventh read in its entirety: “The said trustees shall receive for their services as such the usual commission of five per cent upon the annual income of said trust estate.” By Item Ninth, successor trustees were given “all the powers and duties together with the compensation as above provided in reference to the three trustees appointed by this will.” The will was otherwise silent regarding compensation of the trustees. Considering the provisions in the will with respect to compensation to the trustees under the firmly established principles controlling in the construction of wills, see Veditz v. Athey, 239 Md. 435, 448 , and cases cited therein, and bearing in mind that what the testator meant must be gathered from what he said in his will, as viewed from the standpoint he occupied at the time of its execution, see Boyd v. Boyd, 24 Md. App. 497, 502 . We think that the testator intended that 5% upon the ⁷¹ annual income of the trust estate was to be all the compensation the trustees were to receive.

In so construing the will we look to the status of the law at the time it was executed. Compensation Allowed by Custom and Law Prior to 1939 Prior to 1939 there was no statutory provision for compensation to conventional trustees. The question as to commissions to be allowed testamentary trustees for services rendered was presented in Abell v. Brady, 79 Md. 94 (1894). The Court said, at 97-98: “It can hardly be necessary to say that in England no allowance is made, by way of compensation, to one holding a fiduciary relation for services rendered by him in the discharge of his duty as trustee, unless the instrument creating the trust provides for the payment of compensation.

The principle on which the rule is founded, it has been said, is that he shall not make a profit out of his trust; and the reason of the principle is that he shall not be placed in a position where his interest may be opposed to his duty. The office of a trustee was considered as being one of honor and conscience, and having been selected by reason of some special confidence arising from the ties of kindred or friendship, he was presumed to have accepted it voluntarily from a sense of duty, and not with a view to pecuniary gain or profit.” Sanderson v. Pearson, 45 Md. 483, 484 ; Northern Central R. Co. v. Keighler, 29 Md. 572, 579 ; Ringgold v. Ringgold, 1 H. & G. 11, 83-84 . The Court in Abell pointed out, however, that this rule, with the exception of two or three States, had never been adopted in this county. 79 Md. at 98 . Maryland had not adopted it.

In Ringgold it was contended that the court was not competent to allow commissions as compensation to a trustee for his trouble. The court thought otherwise. It believed that upon an equitable construction of the statutes allowing commissions to executors, ⁷² administrators and guardians and the principles on which those statutes were based, compensation ought to be allowed to a conventional trustee as a reasonable and just indemnity for services rendered by him in the discharge of his duties as trustee. 1 H. & G. at 84 . 6 The Court stated in Abell , at 99, that as to conventional trustees, “the rule ordinarily is to allow 5 per cent upon the income.” The Court added: “But this rule is by no means an inflexible rule. In prescribing the rate of commissions, courts will take into consideration the nature and character of the trust estate, and the time and labor required of the trustee in the execution of the trust.

The estate in some cases may be of little value, and yielding but a small income, but involving at the same time, a good deal of labor in its care and supervision, and in such cases five per cent, might not be a just and reasonable compensation. On the other hand, where the income is very large, that rate might be considered as excessive. After all, it is a matter resting largely in the discretion of the court, its reason and judgment, taking into consideration all the facts and circumstances surrounding the trust.” Id. 7 E. Miller, Equity Procedure § 558 (1897) was in full accord: “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, although other rates are sometimes fixed.” Thus, when the will here was executed, commissions were allowed a conventional trustee, as a general rule, by judicial ⁷³ fiat, as a reasonable indemnity for services rendered by him in the discharge of his duties, although no provision for such compensation was made in the instrument creating the trust. “Such commissions will ordinarily be allowed where the trustee has performed his duty, unless its performance has imposed no labor or trouble which justly entitles him to compensation, or unless there is something in the nature of the trust itself, or in the terms of the trust instrument to show that no commissions were intended to be allowed or charged.” Miller, supra, § 557. The commissions were based on income received, and the usual rate was 5% of such income, just as the testator here indicated.

No commissions based on the value of the trust assets were allowed. Miller said, § 561, citing Jenkins v. Whyte, 62 Md. 427, 434, 437 ; “When commissions are allowed on ‘receipts and collections’ the meaning is the receipts of income from the estate, not forming part of the principal; upon the principal, no commissions can be given.” We observe that the testator here did not contemplate a sale of the trust corpus and reinvestment of the proceeds. There was no power given the trustees to sell the stock. Weller v. Sokol, supra, at 432.

It was neither the custom nor the law to allow compensation for terminating a trust. Although a trustee may have been allowed a commission on his disbursements, this meant expenditures during the existence of the trust, as distinguished from payments over to the cestuis que trust. See Jenkins v. Whyte, supra, at 436-437; Whyte v. Dimmock, 55 Md. 452, 454-456 . The case of Bash v. Bash, in the Circuit Court of Baltimore City, decided 27 April 1905, and reported in 2 Baltimore City Reports 349, is persuasive on the point.

Testamentary trusts were being administered under the jurisdiction of that court. The cestuis que trust became entitled to receive the corpus, which included securities which could readily be divided among them. The auditor stating the account for final distribution allowed the corporate trustee “the usual commission of 5 per cent on the income collected” since the last report. He also gave an allowance of $250 to it as “compensation for its services in ⁷⁴ distributing and dividing the estate.” There was objection to the latter.

The question before the court was whether the trustee was entitled to this compensation. The chancellor, Harlan, C. J., held that it was not. He declared that the 5% allowed the trustee on the income was its “compensation for the general care and supervision of the trust estate” or, in other words, it was the commission “allowed for the general management and settlement of the estate.” The chancellor noted, at 351: “The five per cent commission does not cover special and unusual services, and it is quite customary to allow extra compensation therefor among which are commissions on sales and original investments. But”, he added, “I cannot find that it has been customary to allow extra compensation for distributing the trust estate to the parties entitled thereto at the termination of the trust, unless' there were special circumstances justifying the same.” He found no such special circumstances. “No decision has been produced wherein a trustee has ever been allowed special compensation for distributing an estate consisting of cash or securities, and the general understanding of the profession has been that such a service is included in the duties for which the usual commission is allowed trustees, and is not the subject of any extra allowance.” Id. 8 See Abell v. Abell, 2 Balto.

City Repts. 174. 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 the commissions provided for by the will. . . .” Miller, supra, § 559. Comment f to § 242, Restatement (Second) of Trusts (1959) 9 at 607, is in accord: “If by the ⁷⁵ 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. . . .” 10 But it goes further, adding “and, unless it is otherwise provided, he is ordinarily entitled only to that amount.” 11 Comment f to the effect that a trustee is ordinarily entitled only to the compensation provided for in the terms of the trust, is discussed in Annot., 19 A.L.R.3d 520 , 523-524 (1968): “The larger portion of the decisions on this point, however, have limited the fiduciary to the compensation fixed in the will, trust instrument, or other agreement on the basis of a contractual theory that by accepting the office and qualifying as such fiduciary, he accepted the provision fixing his compensation and is bound thereby.

It is also evident that if the services for which extra compensation is claimed are only such services as are incident to the duties of the office, or are such as were contemplated by the testator, or fiduciary, the latter will be limited to the compensation provided by the instrument on the theory that the fees so fixed were intended as full compensation for the rendition of such services. However, where it appears that the fiduciary has performed extraordinary services for the trust or estate, beyond those contemplated by the parties or ordinarily incident to the duties of such fiduciary the court may award such additional fees as are reasonable compensation for those services.” ⁷⁶ This was all summed up in Schloss v. Rives, 162 Md. 346, 350-352 (1932). The Court set out certain propositions which it found from its many decisions dealing with the allowance of commissions to executors, administrators, and trustees to be established as the settled law of Maryland. We give an abstract of the Court’s summary, which it deduced from its previous decisions, with respect to conventional trustees: (1) “[T]he early English rule in respect to the non-allowance of commissions to conventional trustees, unless the instrument creating the trust provided for compensation, is not the rule that has prevailed in Maryland; . . . compensation should be allowed to a conventional trustee as a reasonable indemnity for services rendered by him in the discharge of his duties, although no provision for such compensation is made in the instrument creating the trust.” (2) “[W]here the compensation of a conventional trustee is fixed in the instrument making the appointment, the same will ordinarily and generally be allowed.” (3) “[T]he allowance of commissions to trustees, when the trust is administered under the control and supervision of the court, is largely within the discretion and judgment of the court, and is to be determined from all the circumstances of the particular case, taking into consideration the amount of labor required, the amount of risk incurred, the character of the duty to be performed, the time and attention necessary to be bestowed upon it, and the amount of the estate which is the subject of the trust; in other words, the compensation is upon the basis of a quantum meruit, and is to be such an amount as will fairly and justly compensate the trustee for the services rendered. . .

Where rules of court or ⁷⁷ established practice fix the rate of commission, [as would be the case where compensation to be allowed is provided in the instrument creating the trust], they should be followed and enforced; but, even in such cases, keeping in mind that the character, quality, and extent of the service is what is being allowed for, the chancellor in extraordinary cases has the authority to diminish or increase the usual allowance.” We see nothing in the will to indicate that the trustees would be called upon to perform services which were not incident to the duties of their office as contemplated by the testator. 12 The testator unequivocally declared that the compensation he set out was to be received by the trustees “for their services as such.” It was the posture of the law then that when the instrument creating the trust fixed the compensation for the services of the trustee, a person accepting the trust was entitled only to that compensation, except, perhaps, as to extraordinary services not within the contemplation of the parties. Here the trust estate consisted of practically all the shares of stock in one corporation. The trustees were given no power to sell the shares. It had to be within the contemplation of the parties that the trustees would make distribution of the stock at the termination of the trust as a service incident to the duties of their office, and not as an extraordinary service.

It is, therefore, that we conclude that the compensation fixed by the testator was intended to be all the compensation to which the trustees were entitled. The compensation so fixed was in full accord with that allowed by custom and law when the instrument creating the trust was silent as to compensation. ⁷⁸ Statutory Provisions We have indicated that compensation allowed conventional trustees is now covered by legislative enactment. The first such statute was enacted by ch. 100, Acts 1939, effective 1 June 1939. It was amended by ch. 36, Acts 1951; ch. 216, Acts 1963; ch. 269, Acts 1972.

It was revised by ch. 11, Acts 1974, § 2. It has appeared under the “Chancery” title of Art. 16 of the various codes — as § 268B, Code 1924; § 280, Code 1939; § 297, Code 1951; § 199, Code 1957. It is now § 14-103 of the Estates and Trusts Article. The scheme for payment of compensation has remained the same since the initial statute.

That is, from the first, commissions were payable at certain percentages on designated amounts of income collected in each year, on the fair value of the corpus held in trust at the end of each year, and on the sale qf real or leasehold property. Upon final distribution there was “an allowance commensurate with the labor and responsibility involved in making such distribution”, which “in the absence of special circumstances” was to be equal to one-half of one per cent upon the value of the corpus so distributed. The amendments, for the most part, simply increased the percentages authorized and established new amounts to which the percentages applied, and changed accordingly the date from which the new rates were accountable as to trusts already begun before the enactment of the amendment. From 1939 on, the various statutory authorizations for payment of commissions to trustees were “subject to the provisions of any valid agreement determining their compensation.” It was also expressly stated, until the stylistic revision in 1974, that the statutory commissions were “in lieu of such commissions as have been heretofore allowed for such services by custom or by law.” It was made manifest in the original statute and preserved in the amending statutes from time to time that the allowance of compensation as authorized was in the sound discretion of the court.

The commissions were “subject to be increased or diminished for sufficient cause by any Court having jurisdiction over the administration of such trust, and the ⁷⁹ allowance of special commissions or compensation for services of an unusual nature. . . The allowances upon final distribution were “subject to revision or determination by any court of equity having jurisdiction. . . .” We set out Estates & Trusts Art. § 14-103, which, according to the Revisor’s Note formerly appeared as Art. 16, § 199. “The subsections remain in their former order but are rewritten for the purpose of making each a complete sentence. The only other changes are in style and language.” The statute as revised reflects the statutory scheme as it has existed since 1939. Section 14-103 (a) states the general rule: “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.” Subsection (b) concerns “income commissions”: “Accounting from July 1, 1972, whether or not the trust was in existe'nce at that time, income commissions are (1) 6 percent upon all income from real estate, ground rents, and mortgages collected in each year. (2) 6 percent upon the first $10,000 of all other income collected in each year, 5 percent upon the next $10,000, 4 percent upon the next $10,000, and 3 percent upon any remainder. Income commissions shall be paid from and chargeable against income.

Income collected ⁸⁰ includes any portion of income payable to a trustee but withheld by the payor in compliance with any revenue law.” Subsection (c) provides for “corpus commissions”: “Accounting from July 1, 1972, whether or not the trust was in existence at that time, commissions are payable at the end of each year upon the fair value of the corpus or principal held in trust at the end of each year as follows: (1) One third of one percent on the first $250,000, (2) One fifth of one percent on the next $250,000, (3) One eighth of one percent on the next $500,000, and (4) One twelfth of one percent upon any excess. Corpus commissions shall be paid out of and chargeable against the corpus. If a trust terminates, with respect to all or any part of the corpus held in trust in the course of any year, the commission for that year shall be reduced or prorated according to the part of the year elapsed and the amount of corpus as to which the trust terminates, and be chargeable, for such part of a year (and with respect to any such part of the corpus) at such termination of the trust, upon the then value of the corpus.” Subsection (e) deals with “final distribution”: “Upon the final distribution of any trust estate, or portion of it, an allowance is payable commensurate with the labor and responsibility involved in making the distribution, including the making of any division, the ascertainment of the parties entitled, the ascertainment and payment of taxes, and any necessary transfer of assets. The allowance is subject to revision or determination by any court of equity having jurisdiction.

In the absence of special circumstances the allowance ⁸¹ shall be equal to one half of one percent upon the fair value of the corpus distributed.” 13 The Decision A trustee does not automatically get the commissions and allowances authorized by the statutes. He is “entitled” to them, and for the statutory provisions to apply, he must duly claim them “in lieu of such commissions as have been heretofore allowed for such services by custom or by law.” It appears that the trustees from time to time under the Nattans’ will did not invoke the statute to obtain compensation for their services rendered prior to 24 September 1972 when the trust terminated. Thus, they were recompensed as designated by the will and effectively waived, as to the periods for which they were paid, any rights they may have had to the statutory rates. As we have seen, the statute was last amended as to substance effective 1 July 1972 whereby the commissions and allowances now in effect were established.

The amendment entitled the trustees to commissions as therein authorized in lieu of such commissions as had been theretofore allowed for such services by custom or by law, accounting from 1 July 1972. The commissions authorized were at certain percentages on designated amounts of income collected in each year and upon the fair value of the corpus held in trust at the end of each year. The statute also authorized an allowance upon final distribution of the trust estate. When the trustees filed their petition for compensation on 3 June 1974, Sokol and Eliasberg 14 suggested three alternatives to recompense them for their services from 24 September 1972 to final distribution.

The first was that they be paid as provided in the will, that is at the rate of 5% on the annual income. Under this alternative the provisions of the statute with respect to commissions were waived. The second was that they be paid at the rates set out in the statute with respect ⁸² to income received and with respect to the fair value of the corpus. This alternative invoked the commissions provisions of the statute and waived the provisions as to commissions set out in the will.

The third alternative was that they be paid at the rate of 5% on the income as provided in the will and a commission on the fair value of the corpus held in trust at the end of each year. This alternative waived the statutory commissions on income received but invoked the statutory provision as to commission on corpus. They sought, in addition, to invoke the statute with respect to allowances upon termination of the trust, asserting that they were “willing to accept an allowance equal to one-half (V2) of one per cent (1%) of the value of the corpus of the trust estate being distributed as is set forth in Article 16, § 199 (e), of the Annotated Code of Maryland, or such additional amounts” as the court deemed reasonable and proper. As we have indicated, a testamentary trustee is not absolutely entitled to the commissions and allowances set out in the statute.

The designated rates on commissions are subject (1) “to the provisions of any valid agreement” and (2) “to be increased or diminished for sufficient cause by any court having jurisdiction over the administration of such trust.” The allowance on final distribution of the trust, which “[i]n the absence of special circumstances . . . shall be equal to one-half of one percent upon the value of the corpus so distributed”, is “subject to revision or determination by any court of equity having jurisdiction in the premises.” As we have also indicated, the chancellor allowed the trustees a