Sullivan v. James Leo Co.

Decision Date10 September 1938
Docket NumberNo. 222.,222.
Citation124 N.J.Eq. 317,1 A.2d 400
PartiesSULLIVAN et al. v. JAMES LEO CO. JERSEY CITY v. O'REGAN et al.
CourtNew Jersey Supreme Court

HETFIELD and RAFFERTY, JJ., dissenting.

Appeal from Court of Chancery.

Suit by Agnes Leo Sullivan and James Leo, Jr., for and on behalf of themselves and all other stockholders of the James Leo Company, against the James Leo Company to have it adjudged insolvent. From an order of the Court of Chancery adjudging the fees of the receivers, Daniel T. O'Regan and Edward P. Stout, their counsel, and costs of administration to be a lien on the proceeds from the sale of the corporation's assets prior to the claim of the City, of Jersey City for unpaid taxes, the City appeals.

Remanded.

James A. Hamill, of Jersey City (Charles

A. Rooney, of Jersey City, of counsel), for appellant.

Edward P. Stout, of Jersey City, for respondents.

PERSKIE, Justice.

Two questions require decision in this cause.

1. Are the fees of the receivers, of their counsel and costs of administration entitled to priority to the proceeds resulting from the sale, by the receivers, of certain of the property and assets of the insolvent defendant corporation, or are the taxes due to the City of Jersey City thereon entitled to priority when, as here, those taxes were assessed and became due during the administration of the insolvent corporation by the receivers but subsequent to the time when the court of chancery had already impressed the property to be sold with a prior lien for the fees of the receivers, their counsel and costs of administration?

2. Was the order of the court, authorizing the sale free from liens, including municipal taxes, as it is claimed, improvidently made?

The facts which give rise to these questions are not in dispute. James Leo Co., a corporation of this state, was engaged in the business of manufacturing paper boxes in Jersey City. At the instance of stockholders and creditors, who alleged that the business was being operated at a great loss and to their prejudice, the company was, on August 6, 1930, adjudged insolvent. Respondents were appointed statutory receivers. They promptly qualified and took immediate possession of the business and holdings of the company. With leave of the court, they operated the business. Notwithstanding their best efforts (their ability is unquestioned), they, too, soon learned that the business could not be operated without great loss. Whereupon, they set out to find a buyer.

The receivers bargained for and received a bid for the greater portion of the holdings of the insolvent corporation, as a going concern. This bid was made by the president and two stockholders of the insolvent corporation, representing 610 shares or 61% of its issued and outstanding capital stock. These holdings consisted chiefly of the real property known as the main factory building and the mill building immediately adjoining; all machinery, furniture, equipment, merchandise on hand, accounts receivable, etc. The purchase price was to be a sum equal to the sum necessary fully to pay and satisfy all debts of the insolvent corporation, and all liens upon its property, as of November 17, 1930. This sum totalled $74,938.34. It was made up as follows :

Due on first mortgage on part of the factory property

$36,800.00

Due Jersey City for taxes for 1929 and 1930, including taxes on personalty for 1930

11,391.40

Due for wages and. commissions

1, 181.44

Due on notes

8,262.44

Due on accounts payable

17,302.64

Total

$74,938.34

To pay these claims the buyers proposed to advance $71,000 in cash; permit the receivers to set aside accounts receivable to the extent of $10,000 and to use so much thereof as was necessary to make up the difference. In addition thereto, the buyers offered to deliver up to the receivers their 610 shares of stock and further consented to a fee of $20,000 for the receivers, their counsel and administration costs. This sum, so they agreed, was to be made a charge or lien upon the remaining property and assets of the insolvent corporation.

The receivers formally presented this bid to the court. They strongly recommended the approval thereof. In support of their recommendation they pointed out, inter alia, that neither the insolvent corporation before the receivership, nor they, as receivers, had been able to operate without heavy losses; that the mortgagee as threatening foreclosure because of defaults in principal, interest, and taxes; that the purchase price was sufficient (exclusive of their fees and those of their counsel and costs of administration) to pay all indebtedness of (including liens against) the insolvent corporation; that the remaining property and assets in their hands (inventoried and appraised for $105,000) had, in their opinion, an equity for the remaining 39% of the stockholders which was "relatively as high as the equity of the stockholders representing 61% of the capital stock * * *" in the property and assets which they agreed to purchase.

Accordingly, the court, on November 17, 1930, approved the offer of purchase; authorized and ordered the receivers to consummate the sale. In so doing, however, the court ordered, in pursuance of the agreement between the buyers and the receivers that the fees of the receivers, of their counsel, and costs of administration be made a paramount charge and lien upon the remaining property and assets in the hands of the receivers to the amount of $20,000 as the buyers' share of the said fees and costs. The sale was consummated and all the debts and liens of the insolvent corporation as of November 17, 1930, save fees and costs of administration, were fully paid and satisfied.

Since that day the receivers have continued in possession of the remaining property and assets because of their inability to sell same any sooner. Finally, however, they did procure a bid of $12,000, free of all liens, for the property remaining in their hands. They formally presented that bid, on June 21, 1937, to the court for its approval. In their petition they stated, generally, that they had received from rentals for the property proposed to be sold, including other sources (they received an advance of $800 from one of the receivers), the sum of $4,652.33; that they had expended the sum of $4,293.37 for the payment of insurance premiums, repairs, improvements, etc., and which expenses they characterized as necessary for the preservation of the res. But during all this time (1931 to 1937, inclusive) the receivers paid nothing to the City of Jersey City on account of the taxes ($10,926.73) due it. The receivers again recommended to the court that the offer be accepted and that the sale be free of all liens. The court on August 4, 1937, approved the sale and ordered that it be free from liens with exceptions not here material.

The City of Jersey City appealed from that order. But it did not further prosecute the appeal because the receivers notified the City of Jersey City that they would apply to the court for an order modifying the order of August 4, 1937, so as to eliminate therefrom the provisions that the proposed sale be free from all liens. The receivers made such an application. In their petition to the court they clearly stated the sharp issue between the City of Jersey City and themselves on the question of the priority of their respective claims. They stressed the binding force of the order of November 17, 1930, which gave them priority; and prayed that the court adjudicate chat their claim was prior to the claim of the City of Jersey City; that the court permit them to sell the property free of liens, and that the proceeds of the sale be disbursed by the court pursuant to such determination.

The court, on February 18, 1938, made the order modifying the order of August 4, 1937. The modified order now provides, substantially, that the fees of the receivers, of their counsel, and costs of administration are a paramount lien upon the property ordered sold; that these fees and costs are especially a prior lien to the taxes due to the City of Jersey City for the years of 1931 to 1937, inclusive, since same accrued subsequent to the order of the court of November 17, 1930 by which they were made a prior lien on the same property. Finally, this order provides that the sale be free from the lien claim for taxes.

Appellant challenges the propriety of the several stated provisions of this order. That challenge is rested upon the grounds that the fees of the receivers, their counsel, and administration costs are not a prior lien, on the property to be sold, to that of the City of Jersey City for the taxes due it for the years 1931 to 1937, inclusive, and the provision that the sale of the property be free from liens was improvidently made.

1. Our act concerning general property taxes provides that: "All unpaid taxes on lands, with interest, penalties, and costs of collection shall be a lien on the land on which they are assessed on and after December first of the year in which they fall due." Rev.Stat. 54:5-6.

And it further provides that: "Every municipal lien shall be a first lien on such land and paramount to all prior or subsequent alienations and descents of such lands or encumbrances thereon, except subsequent municipal liens." Rev.Stat. 54:5-9.

Notwithstanding these statutory provisions it has become a settled principle in equity jurisprudence that fees of receivers, of their counsel and costs of...

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    ...of all creditors who seek to reclaim from the insolvent's solvent's estate that which is their just due. Sullivan v. James Leo Co., 124 N.J.Eq. 317, 1 A.2d 400 (E. & A.1938); Seidler v. Branford Restaurant Co., 97 N.J.Eq. 153, 127 A. 36 (E. & A.1925); Lerman v. Lincoln Novelty Co., 130 N.J.......
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    ...102 N.J.Eq. 331, 140 A. 918; Smith v. National Commercial Title and Mortgage Co., 120 N.J.L. 75, 198 A. 407; Sullivan v. James Leo Co., 124 N.J.Eq. 317, 1 A.2d 400.' We rest our determination on the existence of waiver by estoppel and therefore do not deal with the question of necessity for......
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    ...102 N.J.Eq. 331, 140 A. 918; Smith v. National Commercial Title and Mortgage Co., 120 N.J.L. 75, 198 A. 407; Sullivan v. James Leo Co., 124 N.J.Eq. 317, 1 A.2d 400. [McCue v. Silcox, 122 N.J.L. 12, 13-14, 3 A.2d 437 (E. & A. 1938) See Long v. Bd. of Chosen Freeholders, Hudson County, 10 N.J......
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