Laudan v. ABC Travel System, Inc., C--2166

• Decision Date: 23 November 1960
• Docket Number: No. C--2166,C--2166
• Parties: Philip LAUDAN, Emmy C. Laudan and Mariene Laudan, Plaintiffs, v. ABC TRAVEL SYSTEM, INC., a corporation of New Jersey, and Mary Passannante, Anthony Passannante and Carmela Passannante, Defendants.
• Court: New Jersey Superior Court

Page 204

64 N.J.Super. 204

165 A.2d 568

Philip LAUDAN, Emmy C. Laudan and Mariene Laudan, Plaintiffs, v. ABC TRAVEL SYSTEM, INC., a corporation of New Jersey, and Mary Passannante, Anthony Passannante and Carmela Passannante, Defendants.

No. C--2166.

Superior Court of New Jersey Chancery Division.

Nov. 23, 1960.

Jack L. Cohen, Newark, for plaintiffs.

Bruce F. Banta, Hackensack, for defendants Mary Passannante, Anthony Passannante and Carmela Passannante (Winne & Banta, Hackensack, attorneys).

Max J. Mareiniss, Newark, receiver, pro se.

George S. Fischler, Newark, for British Overseas Airways Corp. (Clapp & Eisenberg, Newark, attorneys).

MINTZ, J.S.C.

The receiver of the defendant insolvent corporation seeks the allowance of his final report, confirmation of his determination and classification of claims filed, an allowance as compensation for his services, and an allowance as compensation to plaintiffs' attorney for his services rendered. The receiver further asks for a Pro rata apportionment of the administration expenses between the funds arising out of trust agreements and the general funds in this estate.

British Overseas Airways Corporation (herein referred to as 'BOAC') moves for an order directing the receiver to pay it $1,155.06 which the receiver holds as a trust fund, without any deductions for administration expenses. The individual defendants, stockholders in the defendant corporation, urge that the amounts due each of the airlines and ship lines listed in Schedule 'C' of the receiver's report, constitute trust funds, and should be turned over intact to the respective companies without any deduction for administration expenses.

Defendant ABC Travel System, Inc. was engaged in the travel agency business. It made various conference or sales agency agreements with airlines, hotels and shipping lines which specifically provided:

'All moneys collected by the Agent for transportation sold hereunder * * * are the property of the Carrier and shall be retained by the Agent as the property of the Carrier until satisfactorily accounted for to the Carrier.'

The parties agree the funds so collected constitute trust funds. The receiver presently has on hand the sum of $10,868.81, of which $8,708.86 constitutes trust funds due BOAC and 12 other airlines and ship lines.

It is settled that the general expenses of a receivership may be paid out of the funds in a receiver's hands before the payment of debts whether the latter be secured or unsecured. Albert & Kernahan v. Franklin Arms, 107 N.J.Eq. 468, 470, 153 A. 598 (E. & A. 1931). Such expenses are entitled to priority not only by virtue of the statute, N.J.S.A. 14:14--22, but under general principles of equity even where a lienholder is not benefited by the receivership. As a matter of policy, to hold otherwise would deprive the courts of the services in many cases of competent administrators and be subversive of the administration of this important branch of equity jurisdiction. Seidler v. Branford Restaurant, 97 N.J.Eq. 531, 128 A. 166 (E. & A. 1925); Bankers Trust Co. v. Maxson, 100 N.J.Eq. 1, 14, 134 A. 875 (Ch.1926). In Attorney-General ex rel. Bliss v. Linden Cemetery Association, 90 N.J.Eq. 404, 408, 107 A. 594, 596, (Ch.1919), affirmed 91 N.J.Eq. 329, 109 A. 500 (E. & A. 1920), the court stated:

'The rule is thoroughly settled that when a court of equity takes possession of property for the purpose of protecting and preserving it for the benefit of the parties interested, the costs of administration are entitled to priority of payment regardless of the nature of the liens and claims thereon of the litigants * * *.'

N.J.S.A. 14:14--22 provides:

'Before distribution of the assets of an insolvent corporation among the creditors or stockholders, the Superior Court shall allow a reasonable compensation to the receiver for his services and the costs and expenses of the administration of his trust, and the costs of the proceedings in the court, to be first paid out of the assets.'

It is urged that the cited statute clearly provides for the priority of payment of receiver's compensation and costs out of the assets of the insolvent corporation, that trust funds in the hands of the receiver do not constitute such 'assets,' and hence they cannot be charged with any part of the receiver's compensation. Our courts have consistently afforded priority to the expenses of a receivership over a mortgage or other lien where it was equitable to do so. Seidler v. Branford Restaurant, supra; Pemberton Lumber & Millwork Industries, Inc. v. Wm. G. Ridgway Construction Co., 38 N.J.Super. 383, 118 A.2d 873 (Ch.Div.1955). I perceive no valid reason why the same principle should not apply to trust funds.

Under general equitable principles and aside from the cited statute, Bankers Trust Co. v. Maxson, supra, 100 N.J.Eq. at page 14, 134 A. at page 881, the trust funds should bear an equitable share of the receivership expenses where they have benefited by the receiver's administration. The receiver represents the court and acts for the interests of all concerned. Seidler v. Branford Restaurant, supra, 97 N.J.Eq. at page 534, 128 A. at page 167.

In Decorative Utilities Corp. v. National Motors Trucking Corp., 123 N.J.Eq. 48, 196 A. 381 (Ch.1938), the defendant insolvent corporation had been a common carrier. It procured a fire insurance policy covering the property of its customers. Goods of bailors were destroyed in a fire, and the receiver collected the proceeds from the insurance policy which he placed in one fund. He also had in his hands a fund derived from the general assets of the corporation. The court held that the insurance money belongs in equity to the bailors whose goods were destroyed, subject to the payment of reasonable expenses of the bailee incurred in the transaction. The receiver succeeded in freeing the insurance fund that had been attached by a creditor and conducted hearings to ascertain who were the bailors interested in the fund and the proportionate amount due each. The court there said 123 N.J.Eq. at page 50, 196 A. at page 382:

'* * * When a receiver has in his hands two funds arising from different sources, and which are held for separate groups of claimants, the administration expenses, including the compensation of the receiver, should be equitably apportioned between the two funds. Meister v....