Hamilton v. Hood

• Decision Date: 13 September 1946
• Docket Number: No. 220.,220.
• Citation: 48 A.2d 819,138 N.J.Eq. 485
• Court: New Jersey Supreme Court
• Parties: ROBERT W. HAMILTON, complainant-respondent, v. THEODORE W. HOOD, defendant-appellant

48 A.2d 819

HAMILTON

v.HOOD.

No. 220.

Court of Errors and Appeals of New Jersey.

Sept. 13, 1946.

Appeal from Court of Chancery.

Suit by Robert W. Hamilton against Theodore W. Hood.From two interlocutory orders appointing a temporary receiver of a partnership theretofore existing between the parties and directing defendant to show cause why he should not be required to answer the bill of complaint, etc., defendant appeals.

Reversed and record remitted in accordance with opinion.

Syllabus by the Court

1.The general rule is that while Chancery has jurisdiction to appoint, ex parte, a temporary receiver of partnership assets in cases of great emergency made manifest by the moving party, the appointment in cases that are not of grave emergency should, with certain exceptions, be made on notice to the party to be affected and with opportunity to him to appear.

2.The application of that rule to the facts of the instant case leads to the conclusion that the ex parte appointment of a temporary receiver for the litigated partnership should not have been made, no notice and no opportunity to appear having been given to the defendant operating partner.

3. R.S. 42:4-7, N.J.S.A., providing for the appointment of a temporary receiver of partnership assets, is merely declaratory of the theretofore existing law.

4.Chancery has jurisdiction, on grounds shown, to issue an appropriate ad interim restraint to preserve the status of the business and property of a partnership pending the early return of an order to show cause.

WACHENFELD, Justice, dissenting.

Andrew B. Crummy, of Newark, for complainant-respondent.

Abram A. Golden, of Newark, for defendant-appellant.

CASE, Chief Justice.

The appeal is from two interlocutory orders made contemporaneously on March 19, 1946, on bill and ex parte affidavit, without notice.One of the orders appointed a temporary receiver of a partnership theretofore existing between the parties.The other directed the defendant Hood to show cause one week thereafter why he should not be required to answer the bill of complaint, etc., and included an ad interim restraint enjoining all persons, including the defendant, from interfering with the assets and business of the partnership and from taking any action against the partnership without leave of the court first obtained.The orders premise no findings upon which their mandates rest.The question is whether the orders, having issued under those circumstances, may stand.

The bill of complaint was filed March 19, 1946.It alleges that a partnership between the complainant and defendant had been formed by oral agreement on February 18, 1939, to conduct a business of repairing trailer truck bodies and automobile truck bodies; that the business was conducted in a rented shop, the lease for which was taken in complainant's name and the rental for which was paid by complainant's checks and refunded by the partnership; that the rental checks for November and December, 1945, were not banked by the landlord but were returned on January 10, 1946, with the information that the rent had been paid by Hood and that the complainant was notified to vacate; that Hood, in January, 1946, told complainant that he, Hood, was going into another business and that the men then employed by the partnership should be dismissed; that defendant Hood did discharge the employees and that the business was closed from January 31st to February 18th, on which last mentioned date defendant rehired the employees, started in the same business at the same location under a lease newly negotiated between defendant and the landlord, locked the premises against complainant and proceeded to carry on, and still carries on, the business, using the partnership machinery, equipment, inventory and supplies under the name of ‘Truck Trailer Equipment Corp.,’ a name not theretofore used; that defendant had persistently, since June 1, 1945, committed breaches of the partnership in such fashion that it was not reasonably practicable to carry on the partnership business and, furthermore, that defendant had refused to account to complainant and to pay him his interest in the partnership.The bill prays for an accounting, that the defendant be decreed to pay complainant the amount so shown to be due, that the defendant be restrained from receiving partnership moneys, that the partnership be dissolved with ‘a view to a distribution of assets amongst creditors and others entitled thereto,’ that the court appoint a temporary receiver to take charge of the partnership property with power to carry on the business pending the further order of the court, that the defendant answer, etc., and that the defendant be ordered to show cause why the temporary receiver should not be made permanent, why the receiver should not carry on the business and complete the orders then on hand and why the partnership assets should not be eventually sold, the creditors paid and the remaining assets, if any, distributed to the partners.

The bill of complaint has other incidental contents but is substantially as above set forth.It is not a creditors' bill; it does not allege that there are creditors and, except as stated above, does not mention creditors.It has no resemblance to an insolvency or a bankruptcy proceeding.It does not charge waste or financial instability.It does not set up an emergency.It does not allege fraud.It presents a disturbed relationship which had existed to greater or less extent for eight months.The precise situation which was said to exist at the time of the filing of the bill had existed for a full month prior to that time; and no prospective change of conditions was alleged.In its allegations and intent the bill was by one partner against another for an accounting, a winding up of the partnership and a distribution of the assets.The averments of the affidavit conform to the allegations of the bill.

Respondent, without pointing to any particular urgency, argues broadly for an unrestrained jurisdiction in Chancery, under general equity powers and also under the Uniform Partnership act, R.S. 42:4-1 et seq., to appoint a temporary receiver.That Chancery has the jurisdiction in proper case to appoint a temporary receiver is beyond question; but courts are loath to exercise that power, except in an emergency, without notice to the defendant and without an opportunity for him to appear.

In Tibbals v. Sargeant, 14 N.J.Eq. 449, a matter of partnership accounting, Chancellor Green held that an application for the appointment of a receiver was a special motion of which the opposite party was entitled to notice.The reluctance of our courts to appoint a receiver without notice is further demonstrated by the observation of Chancellor Zabriskie in Leddel's Executor v. Starr, 19 N.J.Eq. 159, 163, that a receiver is rarely appointed before answer, by the consistent action of Chancellor Runyon in Probasco v. Probasco, 30 N.J.Eq. 108, and by the restatement of the rule, citing exceptions, in Warker v. Warker, 102 N.J.Eq. 382, 140 A. 889, affirmed (on the opinion below)103 N.J.Eq. 379, 143 A. 921.Nathan v. Bacon, 75 N.J.Eq. 401, 72 A. 359, 360, had points of similarity to the instant case in that certain of the partners were in possession of all the partnership assets and were conducting the business under claim of sole ownership and not for the purpose of winding up the partnership affairs.The bill by the excluded parties sought the appointment of a receiver and the issuance of an injunction against further acts by the operating partners, but the court did not act until the return of the order to show cause.Even at that stage the court, although it appointed a receiver, said:

‘It has been held in some states that on a bill for closing the affairs of a partnership, when it is admitted that the firm has been dissolved, the appointment of a receiver follows as a matter of course; but in this state that rule has not been adopted.It has here been repeatedly held that in such case a receiver will be appointed only when it appears necessary to protect the interests of the parties.’

See also the procedure followed in the cases cited therein, viz., Renton v. Chaplain, 9 N.J.Eq. 62;Birdsall v. Colie, 10 N.J.Eq. 63;Cox v. Peters, 13 N.J.Eq. 39;Randall v. Morrell, 17 N.J.Eq. 343;Warwick v. Stockton, 55 N.J.Eq. 61, 67, 36 A. 488; also the procedure in Sobernheimer v. Wheeler, 45 N.J.Eq. 614, 18 A. 234, and in Rhodes v. Wilson, N.J.Ch.19 A. 732, (not officially reported.)

In Sieghortner v. Weissenborn, 20 N.J.Eq. 172, a leading case in this state on dissolution of partnership, the procedure was that an injunction issued upon the filing of the bill, whereupon ...