Riedinger v. Mack Mach. Co. of Harrison, Inc.

• Decision Date: 13 December 1934
• Citation: 175 A. 790
• Parties: RIEDINGER v. MACK MACHINE CO. OF HARRISON, Inc.
• Court: New Jersey Court of Chancery

175 A. 790

RIEDINGER

v. MACK MACHINE CO. OF HARRISON, Inc.

Court of Chancery of New Jersey.

Dec. 13, 1934.

Syllabus by the Court.

1. Disputed liens on and titles to property in the possession of the receiver of an insolvent corporation are usually determined in the cause in which the receiver was appointed and in as summary a manner as the nature of the controversy permits.

2. The court of chancery has jurisdiction not dependent on section 81 of the Corporation Act, 2 Comp. St. 1910, p. 1649, § 81, on a petition of its receiver to determine the validity of a mortgage on chattels in his possession.

3. The affidavit to a chattel mortgage that the consideration is a certain amount of refrigerating fittings and supplies, automobiles, trucks, office fixtures, tools, and equipment is sufficient to meet the requirements of section 4 of the Chattel Mortgage Act, 1 Comp. St. 1910, p. 463, § 4, as amended by P. L. 1928, p. 131 (Comp. St. Supp. 1930, § 36—4).

4. When there was an unexplained delay of nine days in recording the chattel mortgage, there was not the immediate recording required by section 4 of the Chattel Mortgage Act, 1 Comp. St. 1910, p. 463, § 4, as amended P. L. 1928, p. 131 (Comp. St. Supp. 1930, § 36—4).

5. A receiver who does not allege that he represents any creditor whose claim antedates the recording of the mortgage, cannot take advantage of the delay.

6. On the question whether a certain contract is an agreement of sale or whether it was an agreement of bailment and operated to make one party the sales agent of another, the contract as a whole must be weighed.

7. If the contract operated to vest in the alleged purchaser the principal incidents of title, then it passed title itself and the stipulation found in the contract that title shall remain in the other party until the goods are fully paid for is inconsistent with the main purpose of the contract and must be disregarded.

8. When the other terms of the contract indicate a bailment for sale, the compensation of the consignee may be the excess over a stipulated price and still the contract be not one of sale.

Suit by Doris Riedinger against the Mack Machine Company of Harrison, Inc., wherein a receiver was appointed for the defendant and wherein the receiver filed petition seeking determination of legality of the claims of the Frick Company.

Decree in accordance with opinion.

Tumarkin & Kasen, of Newark, for receiver.

Lichtenstein, Schwartz & Friedenberg, of Hoboken, for petitioner Frick Co.

BIGELOW, Vice Chancellor.

The defendant corporation was adjudged insolvent and a receiver appointed under section 66 of the Corporation Act, 2 Comp. St. 1910, p. 1643, § 66. The receiver took possession of the chattels which he supposed to belong to the company, mostly refrigerating machinery and supplies. He ascertained that there was a chattel mortgage made by defendant and held by the Frick Company, purporting to secure a debt of $5,000. Furthermore, he learned that the Frick Company claimed to own the refrigerating machinery that had come into his possession. He then filed a petition under section 81 of the Corporation Act (2 Comp. St. 1910, p. 1649, § 81) in which he set forth the claims of the Frick Company, and that he questioned their legality and stated that the property involved was of a character materially to deteriorate in value pending litigation. Therefore he prayed leave to sell the chattels free from the liens of the Frick Company, the proceeds of sale to remain subject to the same liens and equities. On the hearing, it appeared that the chattels were not of a perishable nature and the petition was dismissed.

The Frick Company presents a petition praying that the receiver be directed to surrender to it the machinery and other chattels on which it claims a lien, or absolute title. The receiver has answered and Hied a cross-petition in which he again attacks the claims of the Frick Company and prays that these claims be adjudged null and void as against him.

The Corporation Act contains no express provisions relating to disputed liens on, or titles to, property in the possession of the receiver, except when the property subject to an alleged lien is of a character materially to deteriorate in value before the validity of the lien can be determined; then a sale pendente lite is authorized and the controversy is transferred to the proceeds of sale. Section 81. This section does not detract from the power of the court to adjudge disputed liens and titles; it merely authorizes sale pendente lite and impliedly requires, when the property is not peculiarly subject to depreciation, that the validity of the lien should be determined before sale. Regardless of the character of the property, the dispute is usually determined by this court, in the cause in which the receiver was appointed, and in as summary a manner as the nature of the controversy permits. The general principle was expressed in Murphy v. John Hofman Co., 211 U. S. 562, 29 S. Ct. 154, 156, 53 L. Ed. 327: "But, where the property in dispute is in the actual possession of the court of bankruptcy, there comes into play another principle, not peculiar to courts of bankruptcy, but applicable to all courts, Federal or state. Where a court of competent jurisdiction has taken property into its possession, through its officers, the property is thereby withdrawn from the jurisdiction of all other courts. The court, having possession of the property, has an ancillary jurisdiction to hear and determine all questions respecting the title, possession, or control of the property. In the courts of the United States this ancillary jurisdiction may be exercised, though it is not authorized by any statute. The jurisdiction in such cases arises out of the possession of the property, and is exclusive of the jurisdiction of all other courts, although otherwise the controversy would be cognizable in them." To the same effect, although not in a bankruptcy case but in an equity receivership, is Wabash R. Co. v. Adelbert College, 208 U. S. 38, 28 S. Ct. 182, 52 L. Ed. 379. The jurisdiction is exercised in a summary manner. In re City Bank, 3 How. 292, 11 L. Ed. 603; Clay v. Waters, 178 F. 385, 101 C. C. A. 645, 21 Ann. Cas. 897; Priest v. Weaver (C. C. A.) 43 F. (2d) 57. A recent case reiterating the power of the bankruptcy court to adjudicate liens is Isaacs v. Hobbs, etc., Co., 282 U. S. 734, 51 S. Ct. 270, 75 L. Ed. 645.

It is settled law that in the decision of questions arising in the administration of the assets of an insolvent corporation, our statute must be regarded as essentially a bankrupt act and the rules to be applied are those which control in bankruptcy proceedings. Butler v. Commonwealth Tobacco Co., 74 N. J. Eq. 423, 70 A. 310; Nutz v. Murray-Nutz, 109 N. J. Eq. 95, 156 A. 668; Grobholz v. Merdel Mortgage Investment Co., 115 N. J. Eq. 411, 170 A. 815; Jersey City Welding & Machine Works, Inc., v. Hudson County White Co., 116 N. J. Eq. 548, 174 A, 516. The last two cases are not opposed to the rule that this court should decide questions relative to property in the hands of its receiver; they hold, in conformity with the federal statute, that a money claim of a receiver against a third party should not be decided in a summary manner in the receivership cause.

Our statute, like the federal act, imposes on the court and to its agent, the receiver, broad duties and powers. To perform the duties cast upon it, the court necessarily has power to determine the title to and liens on the estate which it administers. Chancery has jurisdiction of the controversy stated in the receiver's cross-petition.

The chattel mortgage is attacked on several grounds, and first that the affidavit annexed is insufficient on its face to meet the requirements of section 4 of the Chattel Mortgage Act, 1 Comp. St. 1910, p. 463, § 4, as amended by P. L. 1928, p. 131 (Comp. St Supp. 1930, § 36—4). The mortgage recites that the mortgagor is indebted to the mortgagee in the sum of $5,000 evidenced by a promissory note dated June 1, 1932, and that the mortgage is given to secure payment thereof; it covers motor vehicles and other articles listed separately as well as groups of articles, such as "tools and equipment"; to each article or group a figure is added, the whole totaling $5,000. Extrinsic evidence proves that the mortgage was given to secure the purchase price of the chattels, sold by the mortgagee to the mortgagor. The affidavit states that the consideration is "a certain amount of refrigerating fittings and supplies, automobiles, trucks, office fixtures, tools and equipment, and deponent further says that there is due on said mortgage the sum of $5,000, besides lawful interest thereon from the first day of June, 1932." The affidavit, while indefinite, is sufficient within the rules laid down in American Soda Fountain Co. v. Stolzenbach, 75 N. J. Law 721, 68 A. 1078, 16 L. R. A. (N. S.) 703, 127 Am. St. Rep. 822, Shupe v. Taggart, 93 N. J. Law, 123, 107 A. 50, Howell v. Stone & Downey, 75 N. J. Eq. 289, ...