Wasmuth-Endicott Co. v. Wash. Towers, Inc.

• Decision Date: 05 January 1932
• Citation: 158 A. 836
• Parties: WASMUTH-ENDICOTT CO. v. WASHINGTON TOWERS, Inc.
• Court: New Jersey Court of Chancery

158 A. 836

WASMUTH-ENDICOTT CO.

v. WASHINGTON TOWERS, Inc.

Court of Chancery of New Jersey.

Jan. 5, 1932.

Syllabus by the Court.

1. After an assignment by a mortgagor of moneys in the hands of an advance money mortgagee and notice thereof to the mortgagee, the moneys are charged with a trust in favor of the assignee who is entitled to a preference on distribution.

2. A creditor of an insolvent corporation cannot both participate in the benefits of a receivership and challenge its legality.

3. There is no rule of thumb by which compensation for services of a receiver and his counsel may be measured. Each case must be controlled by its own circumstances. Among the factors to be considered in fixing such compensation are the amount of cash and other assets coming into the receiver's hands; the time occupied by the receiver and his counsel in the performance of their respective duties and their ability and efficiency as officers of the court reflected in the results obtained; the difficulties of conserving and administering the insolvent estate and the care and fidelity with which those difficulties have been met and surmounted. The fixing of such compensation lies largely in the court's discretion, which should be judiciously exercised, and not abused, but bearing in mind that officers of the court occupying positions of trust and confidence are entitled to just compensation, and with due regard to the claims of creditors and others interested in the assets of the insolvent estate.

Suit by the Wasmuth-Endicott Company against the Washington Towers, Incorporated. On exceptions to allowance of plaintiff's claim as a preferred claim, and on objections to allowances asked for by receiver and his counsel.

Decree in accordance with opinion.

Maurice S. Maurer, of Newark, for exceptant Eastern Sash & Door Co.

Herman J. Harris, of Newark, for exceptant Herman Lippin.

John J. Fallon, Jr., of Hoboken, for exceptant Nathan Strauss & Sons, Inc.

Irving M. Goldberg, of Newark, for exceptants Herman Lustig and Irving M. Goldberg, assignee of G. & G. Lighting Fixture Co.

Harry Green, of Newark, for receiver David M. Litwin.

BERRY, Vice Chancellor.

The exceptions, four in number, are by five general creditors and are all to the same effect.

The first challenges the allowance of complainant's claim of $3,464.16 as a preferred claim.

The second, third, and fourth so-called exceptions are not exceptions at all, but are objections to allowances asked for by the receiver and his counsel as compensation for their services.

They will be considered in their order.

All exceptants rely upon the brief of counsel for the exceptant Eastern Sash & Door Company, who also argued the matter orally.

I. The unfamiliarity of exceptants' counsel with the various transactions of the receiver and his counsel and the facts furnishing the basis for the allowance of complainant's claim as a preferred claim is equally as apparent from the argument contained in his brief as it was from his oral argument on the return of the order to show cause and which prompted comment by the court at that time.

The complainant furnished certain kitchen equipment for an apartment house under construction by the defendant company upon which the Eleventh Ward Building & Loan Association had taken an advance money mortgage of $260,000. Before this equipment was installed, the complainant was requested to postpone its claim as conditional vendor to the building and loan association mortgage, and in consideration for such postponement the defendant assigned to the complainant the proceeds of the mortgage in the hands of the mortgagee to the extent of $5,829, representing the purchase price of such equipment and of which sum the building and loan association paid $2,500 on or about April 5, 1929. Thereupon the complainant executed the postponement agreement and thereafter furnished and installed the balance of the kitchen equipment. At the time of said assignment the building and loan association had in its hands $70,000 of the amount to be advanced on the mortgage. Before the full amount was advanced the defendant company was declared insolvent and Mr. Litwin appointed as receiver. Thereafter foreclosure proceedings were instituted by Commerce Mortgage Company, a second mortgagee, the insolvency receiver filed an answer and counterclaim therein and made the Eleventh Ward Building & Loan Association a defendant to such counterclaim. In that proceeding [Commerce Mortgage Co. v. Washington Towers, Inc., et al. (Docket 76, page 134¹)], as a result of the counterclaim, the building and loan association was directed to pay to the receiver the sum of $13,382.70, representing the unadvanced portion of said mortgage loan and the final decree, dated May 13, 1930, provided "that the Eleventh Ward Building and Loan Association of Newark, shall forthwith pay to the * * * receiver of Washington Towers, Inc. the sum of $13,382.70 and the liens claimed by the defendants, Wasmuth-Endicott Company, The Newark Dumbwaiter Co., G. & G. Lighting Fixture Company, and G. M. Ketcham Manufacturing Corporation be, and the same are hereby transferred from the lands and building involved in this foreclosure to said moneys, the same to remain subject to the same liens and equities of said parties as was the property at the time of the filing of the foreclosure bill, and counterclaims herein, to be disposed of as the Court shall direct." In the argument of exceptants' counsel it is assumed that complainant's claim to preference rests upon the quoted provision of the final decree in that foreclosure suit, but that is not so. It has a firmer foundation, namely, its assignment, and irrespective of the provisions of the decree, the complainant is entitled to be first paid out of the funds which thus came into the hands of the receiver. After the execution of that assignment, and notice thereof to the building and loan association, that association held the mortgage moneys, to the extent of the assignment, in trust for the assignee, and when its moneys were paid over to the receiver in this proceeding they remained charged with the trust thereby created. Structural Gypsum Corp. v. National Commercial Title & Mortgage Guaranty Co., 107 N. J. Eq. 32, 151 A. 839 (Errors and Appeals). The first exception is overruled.

The exceptant Lippin also included in his first exception, arguendo, that if complainant's claim is entitled to preference, the complainant had no standing to file this bill, suggesting, inferentially, that the entire proceedings should be dismissed. In the event of such action it is not suggested what disposition the court should make of the assets now in the receiver's hands; but it is rather late for this creditor to challenge the right of the complainant to file the bill, when, as a result thereof, the receiver has substantial funds in his hands for distribution amongst the creditors; now available only because of the filing of the bill of complaint and the ferret-like activities of receiver and counsel; and, further, this exceptant has filed his claim with the receiver and seeks to participate in the distribution about to be made. He cannot both participate in the benefits of the receivership and challenge its legality.

II. It is quite apparent that the second so-called exception must also be overruled. The argument in support of it is based upon a false premise.

Exceptants claim that the receiver is seeking an allowance of $2,500 out of the avails of this receivership for services rendered in another and prior action in which he was appointed rent receiver. That is not correct, although the facts are somewhat confusing. Mr. Litwin, the receiver in this cause, was also appointed as rent receiver in the foreclosure action of Commerce Mortgage Co. v. Washington Towers (Docket 76, p. 134)¹ which was instituted after his appointment as insolvency receiver. In that suit, as already stated, he, as insolvency receiver, interposed an answer and counterclaim which resulted in the payment to him of the sum of $13,382.70. This was a compromise amount, approved by the court, and was arrived at through an understanding that the receiver, as rent receiver, should be paid for his services out of the funds so paid to him instead of out of rents which he collected. This arrangement was approved by Vice Chancellor Backes before whom that cause was heard and who advised the final decree. Therefore, when that fund came into this receiver's hands it was charged with the liability for payment for his services as rent receiver. It would, perhaps, have been more appropriate and less confusing had the rent receiver's fees been fixed and determined at that time, but it was not done. Had it been done, the insolvency receiver would have received only what remained of the $13,382.70 after deducting the rent receiver's fees and the insolvency receiver would have charged himself in his account with the net, instead of the gross, amount so received. But this is a mere...