Shepard v. N.J. Consol. Water & Light Co.

• Decision Date: 26 December 1907
• Citation: 74 A. 140,73 N.J.E. 578
• Parties: SHEPARD v. NEW JERSEY CONSOLIDATED WATER & LIGHT CO.
• Court: New Jersey Court of Chancery

74 A. 140

73 N.J.E. 578

SHEPARD

v. NEW JERSEY CONSOLIDATED WATER & LIGHT CO.

Court of Chancery of New Jersey.

Dec. 26, 1907.

Suit by John Shepard against the New Jersey Consolidated Water & Light Company. On petition of C. E. Hewitt & Co. to be admitted as a defendant. Denied.

The petition is filed by C. E. Hewitt & Co. praying to be admitted as a defendant in this suit, with leave to answer.

The Elberon Water & Light Company made a mortgage to the Colonial Trust Company of New York as trustee to secure an issue of bonds. The company defaulted in its payments thereon, and suit was begun in this court to foreclose the mortgage. In that proceeding receivers were appointed. They had authority conferred upon them to finish the works, which were in an incomplete state, and to this end to borrow money on receivers' certificates. This they did in the aggregate sum of $130,000. These certificates were made a first lien on all property of the company, and they are all now held by John Shepard, the complainant in this suit. Meanwhile the foreclosure suit went to a final decree, which was entered on December 12, 1900, and under it the property was sold on March 23, 1907. The sale was made subject to the prior lien of the receivers' certificates on account of which there has never been any payment made. The property was purchased by Mr. Ludlow, and was shortly afterwards conveyed by him to a new corporation, the New Jersey Consolidated Water & Light Company, which had been organized for the purpose of taking over the property. Pending the foreclosure suit, a voluntary reorganization committee was made up, who on October 30, 1906, put out a plan for reorganization of the company. It contemplated a transfer to the committee of all the claims of all the creditors, to be used by the committee in its discretion in the purchase of the property at the foreclosure sale, and placing the plant in good condition. The petitioner accepted this plan on December 12, 1900, and about the same time transferred its claims to the committee and deposited its bonds with the Columbia Trust Company. The scheme of reorganization put out by the committee and contemplated by this plan included the acceptance by the holders of the receivers' certificates of bonds of the reorganized company in lieu thereof; the statement in the plan being this: "The purchaser of more than two-thirds of the receivers' certificates issued and outstanding has agreed with the committee to furnish sufficient funds to liquidate and pay the outstanding receivers' certificates due December 1, 1906, with interest thereon, together with the amount required to liquidate the indebtedness of the receivers connected with the increased work completed and contracted for amounting in the aggregate to about $130,000, and to accept on account of the amount so advanced bonds of the corporation to be issued as in this plan provided at 80 per cent, of their par value." It does not appear whether this agreement was in writing nor by whom it was made. The committee learned later on that the certificate holders refused to carry out this agreement, and on January 28, 1907, they sent out to the creditors a modified plan of the reorganization, which was likewise accepted by the petitioner on February 28, 1907. The petitioner's claim was then liquidated at $14,000, to secure which it held $20,000 of the bonds of the Elberon Company which had already been deposited with the Columbia Trust Company. In the modified plan which was sent out by the committee occurs this notice: "All the receivers' certificates authorized by the court and mentioned in the plan have been sold, the money has been paid to the receivers, and a part or all thereof disbursed by them. The purchasers of the receivers' certificates, however, notwithstanding their agreement to exchange the same for bonds to be issued under the plan, have recently notified the committee that they will not make the exchange on the basis set forth in the plan, one of the grounds alleged being that the bonded issue should be materially reduced. While the holders of the receivers' certificates in the judgment of the committee are responsible, an attempt to compel an exchange by such holders would involve long litigation and would naturally interfere with the proposed reorganization. The holders of the certificates, however, have agreed to extend the time of payment from December 1, 1906, to June 1, 1907. And your committee in conformity with the provisions of the plan heretofore submitted recommends" certain modifications thereinafter mentioned, at the end of which occurs the following sentence: "Sufficient bonds are to be reserved by the company to be used in liquidating and paying the outstanding receivers' certificates." At the time the original organization plan was sent out, the receivers of the Elberon Company had issued certificates aggregating $90,000. On November 20, 1906, they received authority to issue $40,000 more, and these were all issued before the modified plan was sent out. The sale of the property of the Elberon Company made in March, 1907, was made subject to the prior Hen of the receivers' certificates, then aggregating $130,000 of principal. By August 13, 1907, the complainant herein, John Shepard, had become the holder and owner of all the certificates, and on that day he filed his bill in this court to foreclose the lien created by them as against the New Jersey Consolidated Water & Light Company and the Columbia Trust Company, the latter being made a party defendant for the reason that it is the trustee of a new bond issue made by the New Jersey Consolidated Company. The Colonial Trust Company is not a party.

John Griffin, for petitioner. Robert H. McCarter, Atty. Gen., for complainant.

HOWELL, V. C. (after stating the facts as above). The petitioner now applies to the court to be made a defendant in order that it may set up as a defense to Mr. Shepard's foreclosure proceedings the allegation that he as the holder of the receivers' certificates agreed with the reorganization committee that he would accept bonds of the new company under the modified plan of reorganization in lieu of the receivers' certificates, and so defeat the present suit. The motion is resisted on the following grounds: (1) Because it appears by the moving papers that while the petitioner deposited its bonds under the plan of reorganization with the Columbia Trust Company, and agreed to accept bonds of the new company for the amount of its claim, as a matter of fact it has not so accepted the new bonds, and therefore cannot be said to be either the owner or holder of bonds of the old company, or of bonds of the new company. (2) That as a bondholder of the old company, if it is to occupy that position, it is represented by the Colonial Trust Company under the terms of the trust mortgage, and that its only remedy is to seek relief through the right of the Colonial Trust Company, if any it has. (3) That it does not appear that there was ever any binding agreement made by Mr. Shepard, the...