Albert & Kernahan, Inc. v. Franklin Arms, Inc., 47.

• Decision Date: 02 February 1931
• Docket Number: No. 47.,47.
• Citation: 153 A. 598
• Parties: ALBERT & KERNAHAN, Inc. v. FRANKLIN ARMS, Inc.
• Court: New Jersey Supreme Court

153 A. 598

ALBERT & KERNAHAN, Inc.

v. FRANKLIN ARMS, Inc.

No. 47.

Court of Errors and Appeals of New Jersey.

Feb. 2, 1931.

Appeal from Court of Chancery.

Suit by Albert & Kernahan, Inc., against the Franklin Arms, Inc. From the decree, complainant appeals.

Modified and affirmed.

Arthur T. Vanderbilt, of Newark, for Savings Investment & Trust Co.

Gross & Gross, of Jersey City (Isaac Gross, of Jersey City, on the brief), for Hudson & Essex Bldg. & Const. Co.

Edward R. McGlynn, of Newark, for receivers of Franklin Arms, Inc.

Stein, McGlynn & Hannoch, of Newark, for mechanics' lien claimants.

CASE, J.

The preliminary facts appear in our opinion on an earlier appeal under the same title reported in 146 A. 213. A final decree thereafter made by the Court of Chancery is now appealed from in three respects. The Savings Investment & Trust Company, substituted trustee, appeals upon the grounds that the decree (1) directs that 39 per centum of the receivership expenses be deducted from appellant's allowed claim; and (2) further charges that claim with an allowance of $1,000 to Messrs. Wall, Haight, Carey & Hartpence as counsel fee in their representation of Roland J. Francis, who, as trustee, had been succeeded by the Savings Investment & Trust Company. Hudson and Essex Building & Construction Company appeals upon the ground that the decree does not carry an allowance of costs to this appellant and a counsel fee to its solicitors, taxable either against the remaining claimants or against the general funds in the hands of the receiver.

The Savings Investment & Trust Company, substituted trustee, was, by the master's report, the chancery decree confirming that report, and the decision of this court, placed in priority above all other creditors as to its claim of $44,700. The moneys in the receivers' hands are adequate to pay that amount, with interest, as well as all receivership expenses, the claim of Hudson & Essex Building & Construction Company, with interest and a part of the mechanics' lien claims. There are no funds with which to pay any part of the trustee's further claim amounting to approximately $55,485, which is subsequent to the foregoing priorities. The effect of the imposition for administration expenses is to reduce by some thousands of dollars the amount already determined, both here and below, to be payable to the appellant above all other claims. That of itself would be sufficient ground for granting the relief sought under this point.

But there is also a more generally applicable reason. The Corporation act (2 Comp. St. 1910, p. 1652) provides in section 85: "Before distribution of the assets of an insolvent corporation among the creditors or stockholders the court of chancery shall allow a reasonable compensation to the receiver for his services and the costs and expenses of the administration of his trust, and the costs of the proceedings in said court, to be first paid out of said assets," and in section 86: "After payment of all allowances, expenses and costs, and the satisfaction of all special and general liens upon the funds of the corporation to the extent of their lawful priority, the creditors shall be paid proportionally to the amount of their respective debts." It was therefore within the authority of the statute first to pay the administration expenses and then to disburse the balance of the funds amongst the creditors according to their priorities and respective debts. It is settled that the general expenses of a receivership may be paid out of the funds in a receiver's bands before the payment of debts, whether the latter be by way of mortgage or. otherwise. Seidler v. Branford Restaurant, Incorporated, 97 N. J. Eq. 153, 127 A. 36; Id. 97 N. J. Eq. 531, 128 A. 166. That such has been the prevailing practice appears from the cases. Lyle v. Staten Island Terra Cotta Lumber Company, 62 N. J. Eq. 797, 48 A. 783; Bankers' Trust Company v. Maxson, 100 N. J. Eq. 1, 134 A. 875. The Vice Chancellor was actuated by the apprehension, undoubtedly well founded, that, if the fees and costs of the receiver are to be first paid from the funds in hand, and then the respective claims in order, the practical effect will be to place upon the mechanics' lien claimants the entire burden of the expense of the receivership. He considered that the prorating of the expenses would effect a fairer and more equitable solution, and cited in support thereof Lembeck v. Jarvis Cold Storage Company, 68 N. J. Eq. 352, 59 A. 565; Meister v. J. Meister, Inc., 103 N. J. Eq. 78, 142 A. 312; and Franklin v. Harold Anderson, Inc. (N. J. Ch.) 145 A. 477. Those cases, to the extent that they...