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Mack v. Passaic National Bank & Trust Co.

decided.: April 27, 1955.

RUTH P. MACK AND LUCY P. ELIAS, EXECUTRICES OF THE ESTATE OF CLARA B. PRINCE, DECEASED, PLAINTIFFS-RESPONDENTS, SAMUEL F. SLAFF, KAY HOLDING CO., H. JEROME SISSELMAN, ADAM FRANK, PLAINTIFFS-INTERVENORS-RESPONDENTS,
v.
PASSAIC NATIONAL BANK & TRUST CO., DEFENDANT-RESPONDENT, ERNEST KURZROK, PLAINTIFF-INTERVENOR-APPELLANT.



Author: Mclaughlin

Before McLAUGHLIN, STALEY and HASTIE, Circuit Judges.

McLAUGHLIN, Circuit Judge.

In 1907, Passaic Trust & Safe Deposit Co., of Passaic, New Jersey, the predecessor of Passaic National Bank & Trust Co., conveyed approximately 250 acres of land to two newly incorporated New Jersey cemetery associations, East Ridgelawn Cemetery and West Ridgelawn Cemetery.*fn1 The land thus conveyed was to be used solely for cemetery purposes. The arrangement for paying for the land was as follows: As the cemetery plots were sold the cemeteries were to pay to the Trust Company (1) an amount not less than 6› per square foot which would be set aside and administered by the Trust Company as a Perpetual Care Fund; and (2) one-half of the balance of the sale proceeds plus whatever remained of the other half after the operating expenses of the cemeteries were deducted. The second amount was to be set aside and administered by the Trust Company in a so-called "Dividend Fund." The two cemeteries jointly were to issue 13,500 certificates of interest to the Trust Company which in turn was to sell them to the general public, and the holders of these certificates were to be entitled to trust interest from the dividend fund being administered by the Trust Company.

This plan was proceeded with. Years passed, and the cemeteries fell far behind in their payments. Despite a decree entered by the New Jersey Court of Chancery against East Ridgelawn Cemetery in 1933 in the sum of $205,973.63, neither the original nor the successor trustee collected said amount from the cemetery. Consequently in 1942, Mack and Elias, plaintiffs below, brought suit as holders of Certificates of Interest for the appointment of substitute trustees and for an accounting.

Ernest Kurzrok, appellant here, a lot holder in West Ridgelawn Cemetery, but not a certificate holder,*fn2 was permitted to intervene by order of this court on the theory that any fund which the certificate holders would be entitled to share in might be subject to paramount equitable liens which could be asserted by the lot holders of either cemetery for the perpetual care funds. See Mack v. Passaic Nat. Bank & Trust Co., 3 Cir., 1945, 150 F.2d 474. See also Mack v. Passaic Nat. Bank & Trust Co., 3 Cir., 1946, 154 F.2d 907.

On April 19, 1946, Kurzrok filed an "amended complaint" which read in part as follows:

"20-A. That the defendant, Passaic National Bank and Trust Company, has failed to comply with paragraph '2' of the Deed of Trust dated December 21, 1906, between the said defendant's predecessor, Passaic Trust and Safe Deposit Company, and Herbert B. Gruber, in that it has failed to collect and set aside in a special fund known as the Perpetual Care Fund, the sum of six cents per square foot, for each and every square foot of the 94 acres of the West Ridgelawn Cemetery, or approximately the sum of $245,678.40, which sum is now due and owing to the Perpetual Care Fund of the West Ridgelawn Cemetery.

"Wherefore, Plaintiff-Intervenor, Ernest Kurzrok, demands that:

"2. That the lot owners of the West Ridgelawn Cemetery shall have a prior claim to any and all funds derived from the East and West Ridgelawn Cemeteries, which accrued under the Declaration of Trust, to the benefit of the shareholders, to satisfy the deficiency now existing in the Perpetual Care Fund for the benefit of the lot owners of the West Ridgelawn Cemetery; and that the 13,500 certificates of stock of the East and West Ridgelawn Cemeteries shall be a lien for the benefit of the lot owners of the West Ridgelawn Cemetery, until such time as the rightful sum due the Perpetual Care Fund shall have been paid into the said fund."

On May 8, 1946, the Passaic National Bank & Trust Company filed its answer in which it said:

"This defendant denies that it has failed to comply with paragraph 2 of the Deed of Trust dated December 21, 1906 between The Passaic Trust and Safe Deposit Company and Herbert B. Gruber, and further denies that there is due and owing the Perpetual Care Fund of the West Ridgelawn Cemetery from this defendant the sum of $245,678.40 or any other sum."

Walter G. Winne and Toby Furst, now deceased, were later substituted as permanent trustees. They instituted proceedings to collect the moneys allegedly due from East Ridgelawn Cemetery. After much litigation, the New Jersey Supreme Court decided that the original method of payment set up in the Deed of Trust was illegal. Since cemetery associations were in the nature of charitable trusts, the state Supreme Court reasoned that any scheme to make extraordinary profits through a dividend fund was contrary to the policy of the controlling legislation. The New Jersey Supreme Court did hold, however, that the cemetery owed the substituted trustees an amount representing the fair market value of the land at the time of the conveyance. The amount owed was there set at $102,115.59 plus interest.

Winne, the surviving substituted trustee, was barred by statute from moving against the cemetery for execution of the judgment. In view of the protracted nature of the remedy of sequestration, he entered instead into negotiations with the cemetery, and an agreement was reached whereby the cemetery was to convey 34.389 acres of its unimproved land to the trustee in full satisfaction of the judgment. As a part of the agreement, the deed was to provide that the land being transferred could be used only for non-cemetery purposes. The agreement was in all respects subject to the approval of the New Jersey Superior Court which had entered the judgment against the cemetery, and was also "executed on condition that the costs and allowances heretofore made by the Court to the Cemetery, for its costs and counsel in the sum of $6,871.58, shall be a first charge against the Trustee on the moneys realized by him in the sale of the aforesaid lands * * *." Paragraph 10 of the same agreement provided:

"The Trustee shall, as a charge against the proceeds from the resale of the lands, and prior to distribution to participants in the judgment, pay $1,200.00 to Fred W. Gardner in ...


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