Beach v. Beach Hotel Corp.

• Decision Date: 24 October 1933
• Citation: 168 A. 785,117 Conn. 445
• Court: Connecticut Supreme Court
• Parties: BEACH et al. v. BEACH Hotel Corporation.

168 A. 785

117 Conn. 445

BEACH et al. v. BEACH Hotel Corporation.

Supreme Court of Errors of Connecticut.

October 24, 1933

Appeal from Superior Court, Fairfield County; Frank P. McEvoy Judge.

Action by Francis E. Beach and others against the Beach Hotel Corporation, in which a receiver was appointed for defendant the Wark Company field an adjudicated mechanic's lien claim against the receiver, and the latter filed a cross-complaint against the Wark Company for the balance due on the latter's subscription to defendant's stock. From a judgment for the receiver against the Wark Company the latter appeals.

No error.

See also, 115 Conn. 708, 163 A. 416.

Joseph G. Shapiro, of Bridgeport, and Yale L. Schekter, of Philadelphia, Pa., for appellant.

Paul L. Miller, of Bridgeport (William H. Comley, of Bridgeport, on the brief), for appellee.

Argued before MALTBIE, C.J., and HAINES, HINMAN, BANKS, and AVERY, JJ.

HAINES, Judge.

Many of the facts leading up to this action are recited in the reports of this court, 113 Conn. 119, 154 A. 252, and 113 Conn. 716, 156 A. 865, and 115 Conn. 708, 163 A. 416. The plaintiff Beach contracted with the Development Service Corporation to erect and finance a hotel upon his property in the city of Bridgeport. Pursuant thereto the defendant corporation was organized under the laws of this state; and on September 23, 1927, the service corporation made a contract with the Wark Company-a Pennsylvania corporation engaged in construction work-providing that the latter, upon the execution of a contract by it with the defendant corporation, would subscribe for seventeen hundred and fifty shares of the preferred and a like number of shares of the common stock of the defendant Hotel Corporation; and that the first payment of 10 per cent. on the subscription, being $18,375, should be made by the Wark Company in cash. This was in fact paid. The balance was to be paid in installments as called for by the Service Corporation not oftener than once each month, and no payment to be required for more than two-sevenths of the amount of the architects' certificate of approval of the construction work; the whole subscription to be paid on or before the receipt of the architects' final certificate. No calls were ever made until that of the receiver in this action. Further, it was agreed that the service corporation would maintain a sales organization for the sale of the capital stock, and also to sell the stock subscribed for by the Wark Company for the account of the latter with the purpose of eventually reimbursing that company in cash for the full amount of its subscription. The service corporation thereafter sold seven hundred and thirty-one shares of preferred and a like amount of the common stock to other parties, and the full amount of these subscriptions was collected and turned over to the Hotel Corporation.

The contract also contained the following language: " 3. As and when cash payments are received from subscribers to said preferred and common stock so obtained by such sales organization, the amounts so received shall be credited against the current or next succeeding subscription instalments payable by the contractor. 4. The sales organization shall be at liberty to sell the balance of the authorized issue of preferred and common stock of said Beach Hotel Corporation provided, however, that the first 1750 shares of preferred and common stock sold by it shall be the stock hereby subscribed for by the contractor."

It was further provided that " this agreement is collateral to the building contract to be entered into by the contractor and the Beach Hotel Corporation." It was signed and sealed by the service corporation and the Wark Company and the following indorsement made thereon: " Approved and agreed to, Beach Hotel Corporation, By Francis E. Beach, Pres." And the seal of the corporation was attached.

The Wark Company completed the erection of the hotel in May, 1929, in accordance with its contract, and has received on account $428,155.11, leaving a balance due, with interest, of $324,741.64. As part of the plan for financing the enterprise, a first mortgage of $500.000 was placed upon the property. Thereafter both the plaintiff Beach and the defendant Hotel Corporation became insolvent, and in the action now before us a receiver was appointed for the latter. The Wark Company filed a mechanic's lien for the $324,741.64, and in an action to foreclose that lien the amount was contested by the receiver, who sought to set off against it the balance of 90 per cent., or $165,375, due on the stock subscription of the Wark Company. Upon a reservation, however, this court held that the building and subscription contracts were " obligations independent of each other and there is no basis upon which, in this action at least, the latter could be applied as a credit in reduction of the former." The demand of the Wark Company was found correct and allowed in full and a foreclosure judgment in favor of the Wark Company granted. Wark Co. v. Beach Hotel Corporation, 113 Conn. 119, 127, 154 A. 252.

Upon the foreclosure of the first mortgage, however-to which the mechanic's lien was subordinate-neither the Wark Company nor any other party redeemed and the title to the property passed to the mortgagee. The Wark Company then filed the adjudicated claim of $324,741.64 against the receiver in the present receivership action, and the court, over objection of the Wark Company, permitted the receiver to file a cross-complaint against the Wark Company for the balance claimed to be due on the latter's stock subscription. Its motion to strike out this cross-complaint having been overruled, the Wark Company filed an appeal to this court; but it was disallowed, as not based upon a final judgment. Beach v. Beach Hotel Corporation, 115 Conn. 708, 709, 163 A. 416.

Issue was joined, and a motion of the Wark Company for a jury trial being overruled, the court, after hearing, gave judgment against the Wark Company in favor of the receiver for the 90 per cent. due on the stock subscription ($165,375) and interest. The appellant, Wark Company, in brief and argument makes five main claims in support of its appeal from that judgment: (1) That it was error to permit the cross-complaint to be filed in this receivership action; (2) that the appellant was entitled to a jury trial; (3) that the opinion in 113 Conn. 119, 154 A. 252, above referred to, does not deny the Wark Company the right to have its claim on the construction contract credited against the amount due, if any, upon its subscription contract; (4) that the entire 90 per cent. balance on the subscription contract was in fact and law paid by crediting the balance of the construction account against it under an oral agreement made by authorized representatives of the two corporations while the Hotel Corporation was yet solvent; and (5) that, in any event, the Wark Company is entitled, under its contract with the service corporation, to have the proceeds of stock sold thereafter by the latter, $76,745, credited on its subscription indebtedness.

As to the first claim, it is contended by the Wark Company that it was not a party to the receivership action and that the subject-matter of the cross-complaint was not so related to the controversy in that action that it was necessary for the court to consider it in order to fully determine the rights of the parties in the original controversy, within the requirements of Harral v. Leverty, 50 Conn. 46, 63, 64, 47 Am.Rep. 608; Downing v. Wilcox, 84 Conn. 437, 440, 80 A. 288; Practice Book, p. 286, § 188.

This proceeding for the appointment of a receiver to take possession of all the assets and for the dissolution of the Hotel Corporation is an action in equity. Barber v. International Co. of Mexico, 73 Conn. 587, 48 A. 758. It was brought to the superior court, which has plenary jurisdiction, both legal and equitable. The Wark Company, claiming to be a creditor of the Hotel Corporation, voluntarily entered an appearance in the receivership action by counsel and thereafter filed its claim for $324,741.64. The record shows, however, that in the claim itself it is explained in detail, in connection therewith, that the amount due as it appeared on the books of the Hotel Corporation was a different amount; that there was a question as to a claimed agreement regarding the payment of the Wark Company's stock subscription, and a further question as to the right of the claimant to interest on the amount due it, and it was suggested that these questions must be determined in order to fix the sum, if any, due the Wark Company. The record further shows that upon a claim being made in the original action, by the plaintiff, Beach, for certain moneys in the hands of the receiver-proceeds of the sale of hotel furniture which he claimed to have owned-the Wark Company opposed the claim and, upon the granting of the demand, took an appeal as " defendant" and further contested the matter in this court. Beach v. Beach Hotel Corporation, 113 Conn. 716, 156 A. 865.

The Wark Company has been permitted to enter our courts for the purpose of establishing its rights under this receivership. It has not only filed its own claim but entered a general appearance and actively contested the claim of another in the trial court. It cannot now be heard to say that it is not a party to the action. It has brought itself within the ruling of Receivers Middlesex Banking Co. v Realty Investment Co., 104 Conn. 206, 132 A. 390, wherein it is said: " Where the defendant, after his plea is overruled, seeks affirmative and distinctive relief beyond the scope of the issues presented upon the complaint, he must be held to have subjected himself voluntarily to the...