Lembeck v. Jarvis Terminal Cold Storage Co.

• Decision Date: 19 December 1904
• Citation: 59 A. 565,68 N.J.E. 352
• Parties: LEMBECK v. JARVIS TERMINAL COLD STORAGE CO.
• Court: New Jersey Court of Chancery

59 A. 565

68 N.J.E. 352

LEMBECK

v. JARVIS TERMINAL COLD STORAGE CO.

Court of Chancery of New Jersey.

Dec. 19, 1904.

Suit by Gustav W. Lembeck against the Jarvis Terminal Cold Storage Company. On application for allowance for receivers' and counsel fees.

See 59 Atl. 360.

Willard C. Fisk, for receivers.

Gilbert Collins, for Erie R. Co., mortgagee.

John M. Enright, for creditors.

William Brinkerhoff, for Commercial Trust Co. of N. J., trustee.

Pierre P. Cooke, for bondholders, etc.

STEVENSON, V. C. (orally). It is difficult to do exact justice in a case of this sort, in awarding compensation to the receivers and to counsel, but I shall endeavor to make the best approximation that I can.

The case is peculiar. The case was start ed on behalf, undoubtedly, of the stockhold ers and creditors of this corporation; and, if the cause had proceeded as such causes generally do, these questions would not have been before the court. The receiver would have taken the property subject to the liens that were upon it, and would have sold that property, and what he got would have been the fund out of which primarily he would receive his compensation. If he did not get any fund, he might not get any compensation it would be what has been termed a "dry receivership"; and it is proper in such cases for the complainant to be compelled oftentimes to put up a bond to secure the fees of the receiver, whom the court appoints at his instance. But in this case I think I may rely on my memory to say that practically from the start it was apparent to all parties interested that there was no equity to administer for the general creditors at all, and that the proper course to take was to have the property sold under this statute, and have all the proceeds brought into court by the receiver, to await the same sort of adjudication in regard to the title to the fund which would be made upon a suit or suits of foreclosure—suits to foreclose mortgage liens. From the time when that situation was declared, and I think it was apparent at the start, this whole proceeding was practically converted into a mortgagees' suit—lienors' suit to foreclose their liens, have their priorities adjusted, to have the property sold to the best advantage, and meanwhile have the property preserved for them, not preserved for the general creditors. The general creditors practically disappeared from view at the very start.

Every person who accepts a mortgage or a bond secured by a mortgage from a corporation, or in any way acquires a lien upon the property of a New Jersey corporation, takes subject to the effect of insolvency proceedings which may subsequently be commenced, and in which a receiver may be appointed of all the corporate assets, including the property upon which the incumbrance has been so acquired. This mortgagee—these bondholders—accepted their securities, knowing that in future insolvency proceedings against this cold storage company the legality of their incumbrances might be called in question, the whole property might be administered by the receiver, and not the equity only, and their liens, if found valid, would attach to the proceeds which would result from the receiver's sale. Where, under our statute, the receiver sells, not the equity, but the property itself, he is acting, not for the stockholders or unsecured creditors, necessarily, but for whatever class of creditors may finally be adjudged entitled to the fund in his hands. Where this kind of a sale is had under our statute, the proceedings amount to a foreclosure suit for the benefit of the incumbrancer in case the validity of the incumbrance is established. In this case not one dollar of compensation is allowed out of the fund to the receiver or to his counsel which was not earned in the care and sale of the mortgaged property. If, instead of taking advantage of the insolvency proceedings to realize upon their pledge, these bondholders, or, rather, their trustee, the mortgagee, nad filed a bill, is it not perfectly plain that precisely this same receivership, with its attendant expenses, including compensation to counsel, would have been incurred? My recollection is that the mortgage covered the whole plant, practically as a going concern; but, if it did not, then the incumbrancers may have secured a more valuable receivership in insolvency proceedings than they would have been able to get in their own suit to foreclose.

The rule upon which I have acted in cases of this class a number of times is to allow to the receiver and his counsel at least the same compensation which they would have been entitled to receive if they had been appointed in a suit to foreclose the mortgage or other incumbrance which received the benefits of the receiver's care and the receiver's sale. Where the incumbrance is...