Opinion
07-17-1899
In re MARX.
Francis J. Swayze and John De Witt Warner, for applying creditors. R. V. Lindabury and Louis Marshall, for defendants Heppenheimer, Naumberg, Kraus, Lummis, Herman, Lauer, and others.
In the matter of the petition of Solomon Marx for the appointment of a receiver for the Columbia Straw-Paper Company. Application by the receiver for instructions as to claims presented after expiration of time fixed by order of court. Claims ordered to be treated as filed in time.
The original petition of Solomon Marx, asking that the Columbia Straw-Paper Company be declared insolvent, and a receiver for it appointed, was filed April 3, 1895, and an order to show cause, in the usual form, was made returnable April 22, 1895. On that day the application was postponed to April 29th, and again to May 6th. On that day a supplemental affidavit of insolvency was presented, and an order appointing Mr. See receiver was made, directing him to give bond in the sum of $2,000. The oath of the receiver was filed May 13, 1895. On the 11th of December, 1895, the receiver made a report that he had been unable to find any assets or to obtain possession of the books and papers of the company. On the same day the First National Bank of Chicago presented a petition claiming to be a creditor of the insolvent corporation, and asking for an order on the receiver to sue certain of the directors of the company to recover certain funds which it is alleged they owed the company, or had improperly disposed of as the funds of the company, and should repay to it. On the presentation of that petition an order was made permitting the receiver to bring suit in pursuance of such petition. On the 17th of December, 1895, an order limiting creditors was made, directing them to present their claims and prove them before the receiver "within two months from the date of this order, or that they be excluded from the benefit of such dividends as may hereafter be made and declared by this court upon the proceeds of the effects of such corporation." The order contains directions to publish the same in one newspaper in New Jersey, one in New York, and one in Chicago, and also that the receiver mail a notice to the post-office address of each of the creditors, if it could be ascertained. No notice was sent to any of the creditors by mail, because the receiver at that time did not have their names or addresses, except that of the First National Bank of Chicago, but the order was published according to its direction. On the 14th of March, 1896, the receiver made a report of the claims theretofore presented to him, by which it appears that they were three in number, namely, the First National Bank of Chicago, $35,000; the Rock Island National Bank of Rock Island, Ill., $5,000; and the First National Bank of Fort Madison, Iowa, $10,000; in all, $50,000. No suit had as yet been brought by the receiver under the leave granted to him on December 11, 1895; but on the 14th of March, 1896, by order of that date, further leave was granted to the receiver to bring a suit against the stockholders of the corporation for unpaid subscriptions to the capital stock, and leave was granted for the First National Bank of Chicago to intervene in the name of the receiver in a foreclosure suit in the federal court of Illinois brought against the insolvent corporation, upon the terms therein mentioned. In pursuance of that leave the receiver filed a bill in this court on the 18th of August, 1896, making all the stockholders and certain bondholders and creditors of the company parties defendant. Process of subpoena was issued upon that bill, and a few—some half a dozen or so—of the defendants were found in this state, and served with process. It was entitled, "See, Receiver, v. Heppenheimer and Others." Six of the defendants demurred on the 30th of November, 1896. That demurrer was argued and overruled on the 29th of March, 1897. 55 N. J. Eq. 240, 36 Atl. 966. From the order overruling the demurrer the six defendants who had been served and appeared appealed to the court of errors and appeals, and the appeal was disposed of by an affirmance of the order at the March term, 1898. 56 N. J. Eq. 453, 41 Atl. 1116. In the summer of 1897, and pending the appeal, several of the defendants, who were named in the bill, but had not been served with process by reason of their absence from this state, came voluntarily into the state to spend the summer, or a portion of it, at their country places, and a fresh process was issued and served upon them. After the demurrer was overruled, the defendants thus recently served joined with those previously served in an answer. The issue was made up, and the cause set down for hearing, and partly heard. On the 21st of June, 1899, the receiver presented his petition in the insolvency proceeding to the court, setting forth that since the expiration of the time limited in the order of December 17, 1895, a large number of claims had been presented to him, properly verified (giving a list of them), showing an aggregate of some one hundred or one hundred and fifty thousand dollars; stating objections to some of them; showing that he had no assets in his hands, except five hundred dollars received by him for joining in a conveyance of some mortgaged premises in the state of Illinois; setting forth the suit pending against the stockholders, and its situation; stating that no order, other than that above recited, had been made limiting creditors; and praying that the creditors who had sopresented their claims since the expiration of the time limited in the order might be admitted, subject to certain objections to some of them, as creditors in the distribution of the assets of the estate. On the presentation of that petition an order to show cause, returnable June 28th, was made against the three original applying creditors, and against all the defendants in See v. Heppenheimer who had been served and appeared. On the return of that order the three original creditors consented to the coming in of the new creditors; but their admission was strenuously opposed by the defendants in the suit of See v. Heppenheimer, on the ground that those creditors did not present their claims within the time limited by the order, and that many of the defendants, and among them those who, if liable at all, are liable for a majority of the aggregate of liability, had voluntarily come into the state and submitted themselves to the jurisdiction of the court upon the supposition and belief that the total amount of claims of creditors to be satisfied was only $50,000, which would be the limit of their liability.
Francis J. Swayze and John De Witt Warner, for applying creditors.
R. V. Lindabury and Louis Marshall, for defendants Heppenheimer, Naumberg, Kraus, Lummis, Herman, Lauer, and others.
PITNEY, V. C. (after stating the facts). Upon reflection and due consideration, I am of the opinion that this court has no right to reject these claims. At the time that the order limiting creditors was made,—December, 1895,—no statutory authority was vested in the chancellor to limit the distribution of assets of insolvent corporations to any particular class of creditors. The jurisdiction is wholly statutory. It had been usual, in order to promote the speedy winding up of the affairs of the corporation, to make orders limiting creditors, but such orders had never been held to be binding until after the assets had been actually distributed. The subject was discussed by Chancellor Green in Grinnell v. Insurance Co., 16 N. J. Eq. 283, and by me in Pattberg v. Lewis Pattberg & Bros., 55 N. J. Eq. 604, 38 Atl. 205. The only mode in which it was in the statutory power of the court to limit the number of creditors who should join in the distribution of the assets was by actually distributing the assets among the creditors applying up to the date of the distribution. When once distributed, after reasonable notice being given to the creditors to present their claims, of course those who did not present them were cut off by the logic of facts, namely, that the money had already been distributed. So that, until the passage of the new corporation act of 1896, there was no statutory authority on the part of the receiver to refuse to receive these claims. But if the case had come under the act of 1896, which, by section 75, empowers the court to limit the time within which creditors shall present and make proof of their claims, and prevent creditors failing to do so from participating in the distribution of the assets of the corporation, and if this court had already made such an order, I should be of the opinion that in this case, the diligent creditors consenting, it should open that order, and permit other creditors to come in. That section of the statute, and the whole procedure under it, was devised for the benefit of the diligent creditors who first come in; and, if they consent that other creditors come in, nobody else can object. The policy of limitation acts of this character points in that direction. In the settling up of the estates of decedents, the personal representatives may obtain an order absolutely barring the presentation of any claim or the bringing of any suit against him after a certain time. But such a limitation in favor of the personal representative does not discharge the liability of the next of kin or heir at law, and provision is made for dilatory creditors to be paid out of any funds left in the hands of the personal representative after satisfying the more diligent creditors; and he is required to take refunding bonds from the next of kin or legatee, to which resort may be had for payment by the dilatory creditor, and, besides, he has his action at law against the heir at law. The object of the statute is to promote the convenience of the personal representative in settling up the estate, and to encourage the diligence of creditors in presenting their claims. The same remark may be made of the statute concerning assignments for the benefit of creditors. There the creditor who fails to present his claim within the time limited may still be paid out of any new assets which he shall discover which had not been previously known or seized by the assignee; and the absolute bar in favor of the insolvent assignor arises, not out of the order limiting creditors, but out of the actual presentation to the assignee of his claim. If he chooses not to present his claim, it is still preserved to him against the assignor. In no ease is the order limiting creditors made to work an absolute discharge of the debt.
But there is a further consideration that comes in here, which seems to me to be an answer to the insistment of the defendants in the suit of See v. Heppenheimer, and that is this: Their liability, if there be any such, has two limits: One is the whole amount of the debts,—it cannot exceed that,—and the other is the amount of their unpaid subscrip tions. And the cases of Wetherbee v. Baker, 35 N. J. Eq. 501, and Cumberland Lumber Co. v. Clinton Hill Lumber Co. (N. J. Err. & App.) 42 Atl. 585, show that it will probably be proper, if not necessary, after the liability of the defendants is established, if it shall be established, to make an independent inquiry as to the amount of the debts of thecorporation which they should make up. In fact, the order limiting creditors in this cause, if it had been made under the act of 1896, could not in any sense have been for the benefit of the defendants in the case of See v. Heppenheimer. They are not parties to the proceeding under which the receiver is acting, and were not even entitled to notice of the present application. The giving of such notice was quite ex gratia. The liability, so far as it goes, if established, is an asset in the hands of the receiver; and, to its extent, every creditor should have the benefit of it, precisely as a creditor of a decedent has the benefit of the estate of the decedent as long as it lasts.
I will advise an order that the claims shall be considered and treated as filed in time, and that they shall be subject to the same exception and criticism as other claims, and no more. Such order will, of course, give them the right to prove their claims as the other creditors have in the case of See v. Heppenheimer. I do not think the result is varied by the question whether or not they had actual notice of the original order limiting creditors.