Hernig v. Harris

• Decision Date: 17 October 1934
• Citation: 175 A. 169
• Parties: HERNIG v. HARRIS et al.
• Court: New Jersey Court of Chancery

175 A. 169

HERNIG

v. HARRIS et al.

Court of Chancery of New Jersey.

Oct. 17, 1934.

Syllabus by the Court.

1. Complainant had a judgment at law against a motor coach company. This judgment was settled by the payment of an amount less than the face of the judgment. Complainant accepted settlement at a reduced amount, basing her action on the ability of defendant to pay and upon a representation that there had been a full disclosure of all indemnity insurance held by the defendant. Subsequently, it developed that there was an undisclosed insurance policy held by the defendant, upon which defendant, through receivers, has collected.

Held, that the agreement under which settlement was made be set aside, to the end and extent that complainant have advantage of the undisclosed asset.

2. Constructive fraud has been evolved to designate what is, in its essence, nothing more than a receipt and retention of unmerited benefits.

3. A return, or offer to return, a consideration received under an agreement sought to be set aside on the ground of fraud in the procurement thereof is not always necessary, but, like other rules of justice, must be so applied in the practical administration of justice as shall best subserve in each particular case the undoing of wrong and the vindication of right.

4. Where a judgment creditor is induced to satisfy his judgment for a much smaller amount than is due thereon by reason of the concealment of assets belonging to the defendant, neither the return or offer to return the amount accepted is essential to maintain the bill.

Suit by Genevieve Hernig against Theodore T. Harris and others.

Decree for complainant.

John B. Baratta, of Atlantic City, for complainant.

S. Rusling Leap, of Camden, for defendants.

SOOT, Vice Chancellor.

Complainant secured a judgment against the Quaker City Motor Coach Lines, Inc., in the sum of $37,500, by reason of serious injury sustained by her while riding as a passenger for hire in one of that company's motorbusses.

Complainant collected from the motor coach company's insurer $10,115 on account of her judgment and costs, and issued execution against the company for the balance. The execution was returned wholly unsatisfied, whereupon complainant sought to have a receiver appointed by this court, with the result that a custodial receiver was, in fact, appointed, pending the return of the order to show cause.

After the rendition of the verdict against the motor coach company, that company obtained a rule to show cause why the verdict should not be set aside or reduced in amount. Thus matters stood when a settlement was effected.

Under the terms of the settlement, complainant discontinued her receivership proceedings, and the motor coach company abandoned its application for a new trial or reduction of damages. Complainant received $10,000 additional in cash, and executed a release and satisfaction of the judgment.

The agreement for settlement was executed May 4, 1931, and was joined in not only by the motor coach company but by the defendants Theodore T. Harris and Emily C. Harris, his wife, and, as a matter of fact, the moneys which were eventually paid by virtue of the agreement of settlement were secured by notes indorsed by the Harris defendants and further secured by a chattel mortgage on the busses operated by the motor coach company, under lease from Harris.

Complainant alleges that the settlement above mentioned was procured through representations made by the defendant Theodore T. Harris and his attorney, a Mr. Stern, that the motor coach company was insolvent and had no assets. It is admitted that it was and still is insolvent, and that at the time of the settlement the basis thereof was the ability of the motor coach company to pay, plus the willingness of Harris, the president of the company, to secure the payment of the additional $10,000 in cash, but complainant avers that there was one asset of the company not disclosed at the time of settlement.

Thus matters stood until January of 1932, when the United States District Court, at the suit of creditors, declared the motor coach company insolvent and appointed two receivers, who are made defendants in this action. These receivers discovered amongst the papers of the motor coach company an insurance policy in favor of the company, insuring it against the payment of judgments arising through personal injury or death resulting therefrom, arising out of the operation of its motor coaches. The receivers brought suit against the insurance company on this policy to establish liability against the company by reason of complainant's judgment. This litigation was compromised by the payment to the receivers of $1,200, in consideration of which payment the receivers executed a release to the insurance company. This was done without the consent of complainant.

On September 22, 1933, the following order was entered by the United States District Court:

"That petitioner, Genevieve Hernig, be granted leave to institute suit in the Court of Chancery of the State of New Jersey, or in any other proper court against Robert K. Bell and Oswald M. Grotty, Esq., Receivers for Quaker City Motor Coach Lines, Inc., defendant herein, and to set aside the agreement and settlement of May 4th, 1931, by and between said petitioner, Genevieve Hernig and the defendant herein, Quaker City Motor Coach Lines, Inc., and.

"That the sum of twelve hundred dollars ($1,200.00) received by the said Robert K. Bell and Oswald M. Grotty, Esq., Receivers for the Quaker City Motor Coach Lines, Inc., defendant herein, and in authorized settlement with Excess Insurance Company of America, and arising out of the contract of insurance by and between the defendant herein, Quaker City Motor Coach Lines, Inc., and the said Excess Insurance Company of America, by reason of injuries received and damages recovered by the said Genevieve Hernig and the payments on account of the said damages made by the said defendant herein, Quaker City Motor Coach Lines, Inc., be withheld by the said Receivers, Robert K. Bell and Oswald M. Grotty, Esqs., to await the outcome of the suit to set aside the agreement and settlement of May 4th, 1931 aforesaid, and for the further disposition of the said sum thereafter by this Court."

It will be observed that the disposition of the $1,200 settlement moneys is reserved to the United States District Court, and that the question before this court is, Shall the agreement and settlement of May 4, 1931, between complainant and the motor coach company and Harris be set aside? If it is to be set aside, it must be because of fraud, as equity views fraud.

The facts, as I find them on this phase of the case, are as above set forth, plus the following:

Prior to the actual settlement consummated on May 4, 1931, complainant's attorney was pursuing every available means of forcing the motor coach company to satisfy the complainant's judgment They had secured what to them seemed to be all of the available insurance moneys, to wit, $10,115, from an insurance company other than the Excess Insurance Company. They had started receivership proceedings which would have resulted in the winding up of the motor coach company's business. Mr. Harris desiring the good will of the motor coach company, consisting of busses, franchises, name, etc., he and his attorney induced the settlement by truthful representation that the company itself was insolvent, and by his willingness to secure, by his own indorsement, coupled with that of his wife, and a chattel mortgage, a further sum of $10,000. They also represented that there were no other assets of the motor coach company and that there was no other insurance than that upon which complainant had realized.

I find that this representation as to there being no other insurance was, in fact, made by both Mr. Harris and Mr. Stern, notwithstanding the fact that both Harris and his attorney deny it. They both testified that they were fully aware of the policy issued by the Excess Insurance Company, had it in their control, and had discussed the question as to whether the motor coach company was covered by it; that they concluded that the policy did not cover, and I am satisfied that they were asked by the attorney for the complainant as to the existence of any additional insurance, and that their reply was that there was none. I believe, however, that, having concluded that the insurance did not cover, they had dismissed the existence of the policy from their minds, and did not intentionally deceive the attorney for the complainant. The result, however, is that that which turned out to be an asset of the motor coach company is now held by it, through its receivers, and complainant is deprived thereof.

It is apparent that this court is not called upon to determine the question as to whether Harris and his attorney were legally correct in arriving at the conclusion that the policy did not cover the motor coach company as to the judgment of the complainant. The result of their failure to fully advise the complainant as to the existence of the policy has inured to the benefit of the creditors of the motor coach company and to the...