Gallagher v. Asphalt Co. of Am.

• Decision Date: 22 June 1903
• Citation: 65 N.J.E. 258,55 A. 259
• Parties: GALLAGHER et al. v. ASPHALT CO. OF AMERICA.
• Court: New Jersey Court of Chancery

55 A. 259

65 N.J.E. 258

GALLAGHER et al.

v. ASPHALT CO. OF AMERICA.

Court of Chancery of New Jersey.

June 22, 1903.

Bill by Hannah V. Gallagher and others against the Asphalt Company of America to enjoin defendant from exercising its franchise. Motion to dismiss bill denied.

Carrick & Wortendyke, Julien T. Davies, and A. H. Wintersteen, for the motion.

Charles E. Hendrickson, Jr., John Griffin, and James W. M. Newlin, opposed.

STEVENSON, V. C. There are two grounds specified as the basis of the motion to dismiss the bill. The first ground is that the complainants have not the necessary qualification under our statute to maintain this suit. The bill is filed under our insolvent corporation act—the old act, first passed in 1829, entitled "An act to prevent fraud by incorporated companies" (P. L. p. 58). It sets forth, as I recall it now, with sufficient distinctness, the two jurisdictional facta, namely, that the defendant corporation, the Asphalt Company of America, is insolvent, and that it is not about to resume its business with advantage to the stockholders and safety to the public. It prays for a decree or decretal order that the corporation be enjoined from the exercise of its franchises; and the bill also contains the usual prayer in such cases, which may or may not be granted, that a receiver be appointed to collect and administer the assets of the corporation. The bill contains other important allegations, which constitute an independent ground, the second ground upon which the defendants base their motion to dismiss the bill; but I shall refer to those allegations further on.

Now, the first objection, as I have said, is that the complainants are not shown by the bill to have the necessary capacity under our statute to institute the suit—to maintain the suit. It is claimed that the bill fails to show that they are what they call themselves, namely, creditors of the Asphalt Company of America. Without the documents before me, and without having looked at them for several weeks now, I shall not undertake to deal minutely with the arguments and reasons which have led me to the conclusion that this objection is not well taken. I think that the bill does disclose that the complainants, who invoke this jurisdiction of the court, stand as creditors of the Asphalt Company of America, according to their own showing in their bill. The meaning of the word "creditor," as used in our statute in defining the classes of persons who are authorized to maintain this statutory proceeding, has been discussed in several cases. Rosenbaum v. U. S. Credit System Co., 61 N. J. Law, 543, 40 Atl. 591; Fort Wayne Electric Co. v. Franklin Electric Light Co., 57 N. J. Eq. 16, 41 Atl. 217; Spader v. Mural Decoration Mfg. Co., 47 N. J. Eq. 18, 20 Atl. 378; Bolles v. Crescent Drug Co., 53 N. J. Eq. 615, 32 Atl. 1061. See, also, N. J. Ins, Co. v. Meeker, 37 N. J. Law, 282. It is settled that the word "creditor" is not used in our statute in a narrow, technical sense. It is used in a broad sense; and I think it is safe to say that the general intention is that, if a party is so related to the corporation and its assets as to be entitled to a share of what is divided among creditors—if the party can come into the proceedings as a claimant, and prove his claim, so as to be entitled to a dividend—it must be generally true that he is qualified as a creditor to institute the proceedings which result in the distribution of the assets in part to himself.

But in this case it is not necessary to lay down so broad a rule as that in order to find that the complainants are qualified as creditors. The Asphalt Company of America entered into direct contract obligations with the Laud Title & Trust Company of Philadelphia, a corporation under the laws of Pennsylvania—the company which issued 130,000,000 of trustee certificates based upon the assets of the Asphalt Company of America pledged to it. I say the Asphalt Company of America entered into direct contract obligations with the Trust Company, for the benefit of these certificate holders, and the complainants are certificate holders. I recall one of these pecuniary obligations, which of itself alone seems to me is sufficient to make it clear that the status of the certificate holders is that of creditors within the purview of this act. The Asphalt Company of America, in their contract with the Trust Company, in which provision is made for the pledging of these stocks and bonds and securities of the Asphalt Company, and the issuing by the Trust Company of certificates to the extent of $30,000,000, secured by these stocks and bonds, covenants with the Trust Company to pay an amount of money, which is about $750,000, semiannually, to the Trust Company, for distribution among the certificate holders. Here is a contract made by the Asphalt Company with the Trust Company solely for the benefit of the certificate holders, and the Trust Company agrees, on its part, that it will send out checks semiannually distributing this fund. The Asphalt Company has broken this covenant. The money due to the complainants is unpaid. Here we have, therefore, the certificate holders not only holding a claim Which is plainly provable by them in the insolvency proceedings, so as to entitle them to a dividend from the assets of the Asphalt Company, but we have that claim based directly upon a contract obligation of the corporation made solely for their benefit with their trustee.

Now, an examination of the decisions to which I have referred, I think, will establish beyond question that these certificate holders, holding this sort of a claim, based upon this sort of a contract of the corporation, are creditors within the meaning of the act. and have a right to institute this proceeding. I may add, in concluding this part of the case, that technicalities are disregarded in dealing with the relation of the assets of an insolvent corporation to the persons who are entitled thereto. As a rule, the persons entitled can come into the court in their own names and take possession, and have control, rather, of their own property, and receive directly the dividend that is due. The objection under consideration may, I think, be disposed of briefly by the proposition that the complainants, as equitable creditors of the corporation, are as safely within the meaning of the term "creditor," as used in our statute, as if their debts were recoverable in an action at law.

The second objection made to this bill is that it sets forth proceedings in the United States Circuit Court for the District of New Jersey, instituted by the Land Title & Trust Company of Pennsylvania against the Asphalt Company of America, the suit being based upon diversity of citizenship, in which suit the Circuit Court of the United States has taken full jurisdiction of the parties, and full jurisdiction and control over all the assets of the Asphalt Company of America, and has placed those assets for distribution among the creditors of the Asphalt Company of America in the hands of a receiver appointed by it, the United States Circuit Court.

The objection is made that the entire jurisdiction of the court of chancery of New Jersey, which is exercisable under our statute, has already been exercised by the United States Circuit Court, and that, therefore, this court is as powerless to act as if a month ago, or three months ago, this corporation had been found by this court to be insolvent, and not about to resume its business with advantage to the stockholders and safety to the public, and thereupon a decree had been made for this very same statutory injunction.

The question is whether the United States Circuit Court has, in fact, undertaken to exercise the jurisdiction of the court of chancery under this particular statute, basing its power to exercise such jurisdiction upon diversity of citizenship. This subject has been argued at great length, with great learning and acuteness on both sides. The subject, perhaps, can be considered under two headings: First, whether the United States Circuit Court in fact is clothed with jurisdiction under our statute, where there is diversity of citizenship; and, second, whether in fact the United States Circuit Court has undertaken to exercise our statutory jurisdiction in this particular case.

It is argued on behalf of the complainants that the United States Circuit Court has no jurisdiction—can acquire none—based upon diversity of citizenship, to administer the relief provided for in our act. I regret that I have no notes, and that my grasp of the details of this argument has been now so much relaxed; but I think I can indicate for present purposes the main reasons for the conclusion which I have reached on this very important question. I call it an important question, although I do not think it has the practical importance in this particular case which counsel on each side have supposed.

The record from the United States Circuit Court, which is exhibited by the amended bill, shows that the complainant in that case, the Land Title & Trust Company, came into that court as a creditor of the Asphalt Company of America, the defendant corporation. The bill contains the necessary allegations under our act to found the jurisdiction of the court of chancery. It prays for an injunction restraining the corporation from the exercise of its franchises. It also prays for a receiver. The record shows that upon the presentation of that bill the corporation voluntarily appeared in the United States Circuit Court and presented an answer, admitting the allegations of the bill, and that the corporation consented to the appointment of a receiver. The record further shows that a decree was made by the United States Circuit Court upon this bill and answer and this consent—a decree which is wholly by consent, and which may have derived all its force from "the consent of the defendant corporation—adjudging the corporation insolvent,...