Opinion
05-17-1937
In re TOMS RIVER TRUST CO. OF TOMS RIVER.
Ewart & Bennett, of Toms River, for appellant Ocean County Trust Co. Child, Riker, Marsh & Shipman, of Newark, for receiver Harry E. Newman. Albert S. Larrabee, of Lakewood, for Commissioner of Banking and Insurance.
On appeal from determination of the Commissioner of Banking and Insurance.
Proceeding in the matter of the Toms River Trust Company of Toms River, in the charge of Carl K. Withers, State Commissioner of Banking and Insurance, under the provisions of the Trust Companies Act, 4 Comp.St.1910, p. 5654 et seq., § 1 et seq., as amended Comp.St.Supps. § 221—1 et seq. From a determination of the Commissioner of Banking and Insurance rejecting claim for preference filed by the Ocean County Trust Company, administrator cum testamento annexo of the estate of James D. Halton, deceased, the Ocean County Trust Company, as such administrator, appeals.
Appeal from Commissioner's determination dismissed in part and allowed in part and decree ordered entered.
Ewart & Bennett, of Toms River, for appellant Ocean County Trust Co. Child, Riker, Marsh & Shipman, of Newark, for receiver Harry E. Newman. Albert S. Larrabee, of Lakewood, for Commissioner of Banking and Insurance.
BERRY, Vice-Chancellor.
This is an appeal from a determination of the commissioner of banking and insurance in charge of liquidation of Toms River Trust Company of Toms River, N. J., rejecting a preference claimed by the appellant, Ocean County Trust Company, administrator c.t.a. of the estate of James D. Halton, deceased, on a claim filed by said appellant with the commissioner. The facts involved in this controversy are the subject of a written stipulation. The pertinent facts, shortly recited, are that prior to October 14, 1931, when the commissioner of banking and insurance took possession of the property and assets of the Toms River Trust Company, that company was appointed administrator pendente lite of the estate of James D. Halton, deceased; in December, 1931, the then commissioner filed his accounting as such administrator pendente lite in the Ocean county orphans' court, and, as a result of exceptions filed to that accounting, the Toms River Trust Company, by a decree of the Ocean county orphans' court, was surcharged with the sum of $76,272.55, because of embezzlement of funds of the Halton estate by the former president and a former director of said trust company. State V. Then, 118 N.J. Law, 31, 190 A. 495. In and by said decree of the Ocean county orphans' court certain costs and counsel fees aggregating the sum of approximately $15,000 were allowed and directed to be paid by said Toms River Trust Company, and on appeal to the Prerogative Court this decree was affirmed. In due course the Ocean County Trust Company, administrator c.t.a., filed its claim for the amount of said surcharge, costs, and counsel fees with the commissioner of banking and insurance in charge of Toms River Trust Company and claimed a prefrence thereon. The commissioner refused to allow the claim or any part thereof as a preferred claim, but allowed it as a general claim against the assets in his hands. The present appeal is from that determination of the commissioner.
The appeal is divided into two parts, first, as to the surcharge of $76,272.55; and second, as to the costs and counsel fees.
As to the surcharge of $76,272.55 arising from the embezzlement by the officers of the trust company, all counsel appearing in this cause now concede that under the law of this state, and on the stipulated facts, the appellant administrator c.t.a. is not entitled to preferential payment out of the funds of the Toms River Trust Companyin liquidation, etc., and this concession seems to be entirely supported by the authorities. Pierson v. Phillips, 85 N.J.Eq. 60, 95 A. 622; Fidelity Trust Company v. Federal Trust Company, 87 N.J.Eq. 550, 100 A. 615; Stokes v. Burlington County Trust Company, 91 N.J.Eq. 39, 108 A. 863; Acuntius v. Steneck Trust Company, 111 N.J.Eq. 81, 161 A. 349; Braver on Liquidation of Financial Institutions, p. 985, § 854; 65 Corpus Juris, p. 952.
It is obvious from the stipulation of facts that it is impossible to trace any of the missing trust property into the hands of the commissioner or to identify any of the assets now in his hands with the embezzled assets.
In connection with the disposition of this portion of the appeal, it should be noted that counsel for some of the heirs of the Halton estate do not join in the concession of counsel above named. This matter was heard some time last February and, although dissenting counsel did not then appear, the court was informed of such dissent and of such counsel's desire to file a memorandum, and leave to file such memorandum was accordingly granted. As almost three months have elapsed since the date of the final hearing and no brief has been filed, it is assumed that the contention of counsel for the Halton heirs has now been abandoned. In any event, however, the authorities above cited are controlling.
The remaining portion of the appeal relates to the costs and counsel fees allowed by the Ocean county orphans' court and its direction that they be paid by the accountant, Toms River Trust Company. The applicable rule is thus stated in High on Receivers, p. 218, § 339, as follows: "When receivers of a corporation institute an action for the collection of money demands alleged to be due, the proceeding being carried on for the enhancement of the fund in the receivers' hands and for the benefit of those who may be finally determined to be entitled thereto, if they are unsuccessful in such suit the defendant is entitled to costs out of the fund in the receivers' hands. And in such case, the defendant will not be required to await the final distribution of the assets of the corporation, and then share with other creditors or parties in interest pro rata, but is entitled to an immediate order for payment of the costs out of any funds in the receivers' hands."
This rule has been adopted in this state by this court. In re New Jersey Refrigerating Company, 105 N.J.Eq. 305, 147 A. 780; Albert & Kernahan, Inc. v. Franklin Arms, Inc., 107 N.J.Eq. 468, 153 A. 598; Bankers' Trust Company v. Maxson, 100 N.J.Eq. 1, at page 14, 134 A. 875. See also 53 Corpus Juris, p. 261, § 434; p. 364, § 592. Bearing in mind that the costs and counsel fees involved in this controversy arose out of an accounting proceeding in which the commissioner, acting in a capacity analogous to that of a receiver and governed by the same rules so far as this issue is concerned, sought to enhance the funds in his hands for the benefit of all creditors by maintaining the bona fides of the criminal conduct of two officers of the insolvent trust company (State v. Then, supra), and that the proceedings on exceptions to the trust company's account filed by the commissioner were necessary to establish the present appellant's claim, the orphans' court having' full jurisdiction in the premises, the application of the rule stated is obvious. I am, therefore, of the opinion that the appellant's claim for costs and counsel fees assessed against the Toms River Trust Company by the decree of the Ocean county orphans' court is entitled to a preference. The appeal from the commissioner's determination, in so far as it applies to the main surcharge of the $76,272.55, will be dismissed; as applied to the costs and counsel fees, it is allowed, and a decree may be entered accordingly.