Borden v. Wolf Silk Co., Inc.

• Decision Date: 29 June 1931
• Citation: 155 A. 623
• Parties: BORDEN v. WOLF SILK CO., Inc.
• Court: New Jersey Court of Chancery

155 A. 623

BORDEN

v. WOLF SILK CO., Inc.

Court of Chancery of New Jersey.

June 29, 1931.

Syllabus by the Court.

There is no statute providing for leave to sue upon a receiver's bond; but the obligation is one at common law and leave may be given for suit in a common law tribunal.

Syllabus by the Court.

When a court is clothed by statute with jurisdiction in a given matter (as it is in the ease of administrators' bonds), and the procedure is not prescribed, it will be in conformity to the course of the court in such like cases.

Syllabus by the Court.

Although there is no statutory provision for suits on a receiver's bond, nevertheless, the bond is conditioned for the performance of duty, and if that bond be forfeited by breach of condition, a cause for action arises at common law; and the procedure in chancery to obtain leave to sue will be such as is consistent with the course of that court in the case of administrators' bonds.

Syllabus by the Court.

Creditors and stockholders of an insolvent corporation are parties aggrieved by breach of a receiver's bond; and upon the application of them, or either of them, and cause shown therefor, leave will be given to bring suit in a court of law on such bond at their expense.

Syllabus by the Court.

The power to decide when a receiver's bond may be put in suit is one of the prerogatives of the chancellor; but in no case does he decide the question of liability of the obligors, as that is always open on a trial at law, where the defendants may plead and prove any legal defense which they have to the action.

Syllabus by the Court.

Sehreiber v. Schreiber, 85 N. J. Eq. 303, 96 A. 85, distinguished. Syllabus by the Court.

As there is practically no difference in principle between an administrator's and a receiver's bond, application for leave to sue upon the latter should be made in conformity to the practice which obtains in the case of the former.

Syllabus by the Court.

The chancellor, upon proper application, may grant leave ex parte for the prosecution of a receiver's bond, if a prima facie case be made by petition and affidavit; or he may grant an order to show cause, to ascertain if there be apparent liability of the obligors to respond in a suit at law.

Syllabus by the Court.

In order that the chancellor shall grant leave to bring suit in a court of common law on a receiver's bond, the alleged breach must ho a substantial one; and it will not be ordered for a mere technical breach of the condition unaccompanied by a substantial dereliction of duty; and not only the commencement of the action, but the prosecution of it, even to the extent of ordering a stay or discontinuance of the suit, is left to the sound discretion of the chancellor.

Syllabus by the Court.

The chancellor does not assign the bond to the party aggrieved, but himself becomes plaintiff in a suit for recovery of sufficient moneys not only to pay the damages occasioned the party, but also the damages of all others, who suffer by that breach; and the judgment, if recovered, should be for the penalty of the bond; and the chancellor, on application, shall assess the damages of the party or parties aggrieved. And execution issues only to make the amount of the assessment.

Syllabus by the Court.

Although these bonds run to the chancellor by his name of office, they are actually for the benefit of creditors and stockholders of an insolvent corporation, who are the parties beneficially interested therein; the chancellor, therefore, is the nominal obligee, but for the benefit of the creditors and stockholders, who though not the actual, are substantial parties in interest in the bond.

Syllabus by the Court.

The chancellor's only duty in regard to a claim arising upon a receiver's bond is to grant leave to sue upon that bond in a court of law, upon application of a party interested therein and appearing to be aggrieved by a forfeiture thereof; which suit should be in the name of the chancellor by his title of office only, who for that purpose is a corporation sole; suit to be brought at the expense of the applicant, who must indemnify the chancellor against costs in case the judgment of the court of law should be adverse to the claim prosecuted. Syllabus by the Court.

The chancellor should require the giving of indemnity to secure him for costs in case the judgment should he in favor of the defendants; that security should be in the form of a bond to be approved either by the chancellor, or the vice chancellor advising the order for leave to sue, or by a special master to be named in the order; or in lieu of a bond, cash may be deposited, as in the case of costs on appeal.

Syllabus by the Court.

In a suit brought upon a receiver's bond there should be an averment that it is by leave of the court of chancery first had and obtained.

Syllabus by the Court.

The bond will neither be assigned nor delivered for the purpose of bringing suit, but a certified copy only. The original, if required, may be produced upon the trial under subpoena duces tecum to the clerk.

Suit by Bore Borden against the Wolf Silk Company, Inc. On application of a creditor of defendant corporation for leave to sue on the bond of Emanuel Shavick, receiver.

Decree in accordance with opinion.

Spindel & Berr, of Passaic, for petitioner.

Peter Cohn, of Paterson (Merritt Lane, of Newark, of counsel), opposed.

WALKER, Chancellor.

Application was made to Vice Chancellor Fallon for leave to sue upon the bond of Emanuel Shavick, receiver, and Fidelity & Deposit Company of Maryland, surety on his bond, in the above stated cause. The application was by William Wolf, a creditor of defendant corporation, and the vice chancellor has advised an order granting leave to institute an action at law against the receiver and his surety on the receiver's bond filed in the above stated cause, upon the usual terms that the suit be at the expense of the applicant, who shall indemnify the chancellor for costs in case the decision of the law court should be adverse to the claim prosecuted therein. Vice Chancellor Fallon filed conclusions on the motion (reported in 108 N. J. Eq. 399, 155 A. 380), expressing the view, and advising the order, just mentioned. I concur with the result reached by the vice chancellor that the case (which was heard on order to show cause) is one in which leave should be granted to sue at law. Ordinarily, I would sign the advised order without any deliverance, according to the doctrine so well enunciated by Chancellor Magie in Gregory v. Gregory, 67 N. J. Eq. 7, 58 A. 287. But the principle here involved is important. There is a paucity of reported decisions upon the subject in this court, and in signing the order advised by the vice chancellor, which I have done, I am afforded an opportunity to state the course and practice of the court in this case, and generally, on applications for leave to sue upon receivers' bonds in like cases, as follows:

The statutory provision concerning the bond of a receiver, to be found in the corporation act, is that every receiver shall, before acting, enter into such bond and comply with such terms as the court may prescribe. 2 Comp. St. 1910, p. 1644, § 67.

The form of an order appointing a receiver for an insolvent corporation is to be found in Dick. Ch. Prec. (Rev. Ed.) p. 535. It provides with reference to the bond that the receiver, naming him, before entering upon his duties, shall take the oath prescribed by law, and give a bond to the chancellor of the State of New Jersey, in the sum of (blank) dollars,, conditioned for the faithful performance of his duties, to be approved as to form and security thereof by (blank), one of the special masters of this court. This is the time-honored form, and the reference to a special master to approve the security is also of that character. Leave to sue upon such a bond, when given, should be directed to be in the name of the chancellor by his title of office only, as hereinafter stated.

There is no statute providing for leave to sue upon a receiver's bond, as there is in the orphans' court act concerning the bonds of administrators, etc., which is that in case any bond given by administrators, etc., shall become forfeited, the ordinary may cause the same to be prosecuted in any court of record, at the request and expense of any party aggrieved by such forfeiture. 3 Comp. St. 1910, p. 3882, § 187.

When a court is clothed by statute with jurisdiction in a given matter, but the procedure is not prescribed, it will be in conformity to the course of the court in such like cases. In re Foran, 85 N. J. Eq. 288, 289, 98 A. 640. Although there is no statutory provision for suit upon receiver's bond, nevertheless, the bond is conditioned for the performance of duty, and if that bond be forfeited by breach of condition, a cause for action thereon arises at common law, and in such case, the proceeding in chancery will be such as is consistent with the course of that court in like case.

Now, the statute provides that in case of the breach of an administrator's bond application may be made to the ordinary by a party interested. In the Matter of Conrad Honnass, 14 N. J. Eq. 493, it was held that a general creditor of an estate is a party grieved, in the contemplation of the statute, which provides that if an administration bond shall become forfeited, it shall be lawful for the ordinary to cause the same to be prosecuted at the request of any party grieved by such forfeiture.

In Ordinary v. Poulson, 43 N. J. Law 33, the supreme court, speaking by Chief Justice Beasley, said at page 36, that the power to decide when an administrator's bond may be put in suit is one of the prerogatives of the ordinary. The language of the act is: "In case any bond given by executors, administrators, &c, shall become forfeited, the Ordinary may cause the same to be prosecuted in any court of record, at the expense of any party grieved by such forfeiture;" and it is quite...