Republic Factors, Inc. v. Carteret Work Uniforms

• Decision Date: 24 June 1957
• Docket Number: No. A--135,A--135
• Citation: 133 A.2d 6,24 N.J. 525
• Parties: REPUBLIC FACTORS, Inc., a New York corporation, Plaintiff-Respondent, v. CARTERET WORK UNIFORMS, a New Jersey corporation, Defendant-Respondent. COASTAL COMMERCIAL CORPORATION, a New York corporation, Claimant-Appellant, v. Hyman D. LEHRICH, Creditor-Respondent.
• Court: New Jersey Supreme Court

Page 525

24 N.J. 525

133 A.2d 6

REPUBLIC FACTORS, Inc., a New York corporation, Plaintiff-Respondent, v. CARTERET WORK UNIFORMS, a New Jersey corporation,

Defendant-Respondent.

COASTAL COMMERCIAL CORPORATION, a New York corporation, Claimant-Appellant, v. Hyman D. LEHRICH, Creditor-Respondent.

No. A--135.

Supreme Court of New Jersey.

Argued June 10, 1957.

Decided June 24, 1957.

James E. Masterson, Newark, argued the cause for appellant Coastal Commercial Corp. (Kleinberg, Moroney & Masterson, Newark, attorneys).

Maurice Schapira, Newark, argued the cause for respondent Hyman D. Lehrich (Schapira & Farkas, Newark, attorneys).

The opinion of the court was delivered by

HEHER, J.

The issue joined here concerns an attorney's contractual right to compensation for professional services in realizing a creditor's intangible security given by an insolvent corporation.

March 6, 1952, the respondent Lehrich, an attorney-at-law of the State of New York, was engaged by the defendant Carteret Work Uniforms to prosecute in its behalf a claim for breach of contract against the United States before the Armed Services Board of Contract Appeals; and Carteret agreed to pay him for the service a retainer of $1,500 (reduced to $1,000, one week later) and 20% Of the recovery. Lehrich performed the undertaking; and the result was a determination by the Board, July 25, 1952, that the United States had breached its contract with Carteret (for the manufacture of overcoats) made March 19, 1951 and Carteret was entitled to damages. There was a reference to the New York Quartermaster Procurement Agency for an assessment of the damages; and the finding there was that Carteret had sustained no actual monetary loss, even though there had been a 'technical breach' of the contract. An appeal from this determination was taken to the Armed Services Board; and the Board awarded damages of $22,441.86, August 20, 1954.

Meanwhile, August 19, 1952, Coastal Commercial Corporation loaned Carteret $10,000, evidenced by a promissory note providing for the payment of interest thereon at 2% Per month and counsel fees 'of up to 15% In the event that the claim was placed with an attorney for collection,' and secured by an assignment of Carteret's action for damages against the United States. The plaintiff here, Republic Factors, Inc., recovered a judgment against Carteret; and a receiver of Carteret's assets was appointed June 23, 1953 under R.S. 14:14--3, N.J.S.A.

August 24, 1953, Carteret's receiver petitioned for an order authorizing him to retain the respondent Lehrich for the prosecution of Carteret's claim against the United States before the Armed Services Board; and an Ex parte order was made forthwith permitting the receiver to retain Lehrich to that end 'under the agreement' that Lehrich's 'fees * * * shall be 20% Of the amount recovered thereby, but not in excess of $6,500,' and that the attorney for the receiver, Leo Yanoff, 'shall be named as co-counsel in said appeal.'

December 30, 1954, Carteret's receiver presented a petition in the cause reciting the making of the award and the receiver's agreement with Lehrich made August 24, 1953, according to the authority thus given, and alleging that the receiver had been advised by the Philadelphia Quartermaster Depot, United States Army, of the assignment of the claim against the United States to secure the stated loan and the procedure for the adjustment of the 'conflicting claims of Receiver and Coastal'; that the receiver had questioned the validity of the assignment 'under 31 U.S.C., section 203;' that Coastal 'claims interest on (the) loan of approximately 57%,' 'which makes the claim of Coastal against said fund approximately $15,700,' plus an additional sum for counsel fees under the terms of the note; that by the order entered in the cause, Lehrich is entitled to counsel fees of $4,488.37, 20% Of the recovery, and 'If the said sums were paid, the interest of the receiver in (the) fund of $22,441.86' would be $2,253.49 (sic); that the receiver and Coastal had negotiated a settlement of the 'controversy between them respecting the validity of (the) assignment,' whereby the receiver would receive $4,703.49, an agreement in writing made December 23, 1954, subject to the approval of the court; and praying that the contract be approved on notice to the creditors, stockholders and officers of Carteret.

A rule to show cause was allowed; and an order was entered March 7, 1955 approving the contract and authorizing performance by the receiver.

September 28, 1956, Coastal gave notice of a motion to vacate the order of March 7, 1955, approving the agreement of December 23, 1954 between the receiver and Coastal, on the ground that although the amount which would have remained for Coastal under that agreement 'was substantially less than the claim it asserted as assignee,' and it entered into the agreement 'solely to expedite payment of the award and disposition of the pending dispute,' the United States had refused payment of the 'full amount of the award to Coastal because it asserted offsets against the same' for unpaid taxes owing by Carteret to the Government, the contention of the Government being that although it could not offset such taxes against Coastal 'by reason of the provisions of the Assignment of Claims Act, 31 U.S.C.A. § 203,' it could 'withhold all moneys which Coastal was committed, under the order, to pay to the Receiver or to' Lehrich, and that Coastal had received from the Government 'only $13,250 which it accepted and retained under appropriate protest and without prejudice to its rights to pursue the balance of the award,' and the 'balance, if collected, would not be sufficient to pay, in full, the remainder of Coastal's claims and the amount claimed by Lehrich,' and 'In order to eliminate the problems which arose from the entry of the Court's order upon the said agreement,' it was 'requested' that the order be vacated, thus eliminating, it was said, 'to that extent, the alleged defense of the Government against payment to Coastal.' And it was suggested that this course would 'not result in any loss, damage or injury to the Receiver or the defendant since neither of them could recover any part of said award from the Government in any event,' and the 'existence of the said order merely penalizes Coastal for the fact that it was willing to waive a portion of its claim in order to satisfy the demands of the Receiver, which it had disputed from the beginning.'

The receiver interposed a petition and answer referring to the recital in the contract that he, as receiver, disputed the validity of the assignment to Coastal and the contract was made 'for the purpose of settling the dispute,' and alleging that 'from the course of events' it is 'apparent' that Coastal 'negotiated with the Governmental authorities for payment to it of $13,500 without regard to the interest of the receiver in the fund and without giving receiver an opportunity to protect his interest therein,' and the sum was 'collected' by Coastal 'without the knowledge of receiver,' and praying that the motion to vacate the order be denied and that Coastal be directed to pay to the receiver 'the same proportion of $13,500 as $4,703.49 bore to $22,441.86, on the ground that it was the intention of the parties by the contract approved by the Court that the fund received from the Government be divided in those proportions.'

And the respondent Lehrich moved for a revision of the order of March 7, 1955 to direct Coastal to pay to him $4,488.37, as provided in that order, 'out of $13,500' received by Coastal from the Government or, in the alternative, to pay to him 'the same proportion of $13,500 as $4,488.37 bore to $22,441.86,' and '20% Of any amounts received by it subsequent to the date of (the) order on account of the aforesaid award of $22,441.86.'

Coastal submitted a supplementary affidavit made by its president to this effect: Coastal received $13,250 from the Government 'on or about January 1, 1956,' and there is 'therefore due an additional $3,950 and...