In re the Empire Trust Co. ( 1944 )

Hooley, J.

Motion to compel payment of $1,581.99, the alleged surplus income, toward the reduction of the past due principal of the mortgage held by movant. Respondent opposes the motion on the ground that the true surplus is $170.70, and that such latter named sum should he retained for immediate repairs. The controversy turns upon the propriety of two items, namely $1,418.29 for management fees and $63 for commissions paid for rental of an apartment. The management fee in question represents 5% of the gross rents. There is no doubt that payments were made to the persons managing the property. The mere fact that the books called the payments salaries instead of management fees does not affect the situation. "The court will go behind the books and in this case it has determined that the disbursements were management fees. The question is whether such fees in this case are allowable. This was an apartment house containing approximately thirty apartments according to the oral argument. Such a building does not run itself. It has to be managed. If the fees were paid to real estate men not connected with the corporation, there would be no question as to its being a legal deduction from income. Emanuel Halperin and Louis Halperin who received the management fees are actively engaged in the management of the premises. They are also the sole stockholders of the corporation owner. Emanuel Halperin is in the real estate business. With such a state of facts, there was no obligation on the corporation to go out and hire strangers to do the work that the Halperins themselves could do. The corporation is not entitled to any return on its equity before discharging its contractual obligation to pay the mortgage debt, but the Halperins are entitled to receive from the corporation fair compensation for their services in the management of the premises. The $63 in question, paid as commission to an outside broker for procuring a tenant, was also a proper deduction. The balance remaining, namely $170.70, should be applied toward reduction of past due principal and to that extent the motion is granted, otherwise denied.

Settle order on notice.