Opinion
03-22-1897
McCARTER v. FINCH et al.
F. W. Ward, for petitioner. James B. Vredenburgh, for respondents.
(Syllabus by the Court.)
Petition by Robert H. McCarter, receiver, against Edward L. Finch and Henry Finch, trading as L. R. Finch's Sons, for an order to show cause. Granted.
F. W. Ward, for petitioner.
James B. Vredenburgh, for respondents.
PITNEY, V. C. The petitioner is a receiver appointed by this court of the assets of a corporation named the Sherman & Lyon Company, upon proceedings in insolvency, and, as such receiver, made a written contract with the respondents for the sale to them, at a price named, of all the assets of the insolvent company. The contract declared that it was subject to the approval of the court, and such approval was had. The time fixed by the terms of the contract for payment having passed, the receiver applied, by petition, for an order on the respondents to show cause why they should not be ordered to pay the purchase money. In proper season, the respondents objected to the jurisdiction, and the question was reserved for consideration after the taking of evidence upon final hearing. The objection, which was urged with spirit and earnestness, was twofold: First, because a suit in equity cannot be prosecuted by petition, but must be by English bill and subpoena; second, because the damages are unliquidated, and this court has no jurisdiction, even by bill, to ascertain the same against the protest of the respondents,—in other words, that the suit lacks any equitable element.
In regard to the first objection: It seems to be settled by a long course of practice that a person who makes a contract with an officer of a court of equity respecting the subject-matter of a suit in that court thereby becomes so far a party to the suit as to render him liable to be proceeded against in a summary manner by motion as to all matters arising out of such contract. Lansdown v. Elderton (1808) 14 Ves. 512, where are cited Young's Case, in the court of exchequer, and Andre v. Kaye, in chancery (November, 1791), in each of which an order was made upon a purchaser from a master of the court to complete his purchase or be committed; and Lord Eldon, on their authority, made a like order in the reported case. This authority was followed by Chancellor Kent in Brasher's Ex'rs v. Cortland, 2 Johns. Ch. 505. In Requa v. Rea, 2 Paige, 339, Chancellor Walworth acted upon the same principle in summarily setting aside a master's sale in foreclosure, at the instance of the complainant, and against the protest of the purchaser. The doctrine of the New York cases just cited was approved by the court of appeals of New York in the case of Cazet v. Hubbell, 36 N. Y. 677, and the purchaser at a sale under foreclosure was compelled, by summary proceedings, to complete his purchase, and pay over the balance of unpaid purchase money. Mr. Justice Story, in Wood v. Mann, 3 Sumn. 318, Fed. Cas. No. 17,954, sanctioned the same practice. There, under a decretal order of the court, lands were sold by the master, and the purchaser, in conformity with a further decretal order, gave security to the master in the shape of a covenant, with a surety, to pay the purchase money within 15 days. The money was not paid, and summary proceedings were taken against the purchaser and his surety. And it was held that "whoever makes himself a party to the proceedings of a court of equity, and undertakes to do a particular act under its decretal orders, may be compelled to perform what he has undertaken; that a court of equity may, by attachment, compel a purchaser at a sale by the master to complete his purchase by paying the purchase money: and that a surety who has made himself a party to the proceedings is in the same predicament with the purchaser, and may be proceeded against by attachment; and that it made no difference that the surety was not aware that, in becoming so, he subjected himself to the summary process of the court." In Shann v. Jones, 19 N. J. Eq. 251, the same doctrine was asserted by Chancellor Runyon, using this language: "A purchaser at a sheriff's sale, when not a party to the original suit, is held to be made a party by the purchase, so far as to be subject to the jurisdiction of the court on questions arising from the sale. Upon the same principle, he may be held to have a standing in court sufficient to be heard upon the subject of the disposition of the purchase money while still in court, when a part has been paid by him, and he claims a right to have it restored." The same doctrine was applied in Silver v. Campbell, 25 N. J. Eq. 465, where a purchaser at sheriff's sale was compelled, upon a simple order to show cause, to complete his purchase. And again in Bowne v. Ritter, 26 N. J. Eq. 457, where Chancellor Runyon says: "The ordinary method of compelling a purchaser, under circumstances such as are presented by this case [purchase from a master] on a sale in partition, to complete his purchase, is by order to show cause why an attachment should not issue against him as for contempt,"—citing authorities. Vice Chancellor Van Fleet reiterated it in Snyder v. Blair, 33 N. J. Eq. 208, 210. And JusticeDepue, speaking for the supreme court in Townshend v. Simon, 38 N. J. Law, at page 241, says: "It may be assumed, as an established doctrine of the court of chancery, that a purchaser under a decree, by the act of purchase, submits himself to the jurisdiction of the court as to all matters connected with the sale which relate to him in the character of purchaser. The sale may be set aside by an order in the original cause, without a new bill being filed; and the purchaser may appeal from such order, though he be not a party to the cause. It has also been held that the purchaser may be compelled to complete the purchase by a summary order in the original cause,"—citing authorities for each proposition. The latest illustration of the doctrine in New Jersey is the case of Boorum v. Tucker, 51 N. J. Eq. 135, 26 Atl. 456, where a petition was filed by the complainant in a foreclosure suit against purchasers at sheriff's sale, praying that they should be compelled to complete their purchase by paying the amount bid. The answer set up that the title was imperfect, and the question of title was elaborately discussed, and a decree for payment was made, which was affirmed on appeal in Hartshorne v. Boorum, 52 N. J. Eq. 587, 33 Atl. 50. The first point must be overruled.
The second point is that the nature of the right to be enforced is such that an English bill would not lie, and that the receiver must proceed by action at law. The argument in support of this position is that there is no equitable element in the receiver's cause of action, or other reason why the questions in litigation should be tried in this court, and hence that the receiver should be relegated to the proper jurisdiction, namely, a court of law. The only distinction between the present case and the cases already cited is that the present is a proceeding to compel payment for the purchase price of personal property while those cited are for the price of real property. I am unable to find in either of the authorities above cited that the jurisdiction of the court was put upon the ground that the action was equitable in its nature, and therefore fit for the court of chancery. On the other hand, the language used by the judge is that power to deal summarily with the purchaser from an officer of the court arises out of the nature of the case and the situation of the parties; and the order in each case was simply that the defendant pay the money which by his contract he had agreed to pay. The defendant relied mainly upon two cases,—one decided in the court of errors and appeals, and the other in this court. The first is Palys v. Jewett, 32 N. J. Eq. 302. The petitioner there had been injured by collision with a railway train oferated by the receiver, and petitioned the court for relief. The case was tried upon its merits, and the relief denied for lack of merit. The petitioner appealed, and the court of errors and appeals differed from the court below upon the merits, and granted him relief, but accompanied it with a protest against the exercise of such jurisdiction by the court of chancery, and based its action, in finally giving relief, upon the ground that there had been no appeal by the petitioner from the order of the court below in refusing him permission to sue at law. I have always understood that the court was mistaken in supposing that there had been such an application for leave to sue at law, and a refusal by the court below. Be that as it may, the ground upon which the court based its opinion that this court ought not to have entertained jurisdiction was that this court could not, by reason of defective machinery, properly ascertain the damages. On page 305, the learned chief justice says: "The general rule undoubtedly is that damages, as such, will not be ascertained in equity. Chief Baron Gilbert, in his Forum Romanum, thus expresses this inability: His words are: 'And it is a general rule that, whenever the matter of the bill is merely damages, there the remedy is at law, because the damages cannot be ascertained by the conscience of the chancellor.' This is the language of the decisions, both ancient and modern. It is true that there are exceptions to this rule, but those exceptions plainly show its generality and force. Such exceptions rest on the ground of a convenience very nearly akin to necessity." He then cites instances in which the court ascertained unliquidated damages in cases for specific performance of contracts, and then, at page 311, sums up the result thus: "It will therefore be observed from this brief review of the more important of the authorities that, even when a contract has been broken, it was a general rule of equity, as it existed originally in England and at all times in this state, that, where damages were of an intangible character, they could not be admeasured under the authority of the chancellor. Nor am I aware that, with respect to torts to the person, it was ever so much as suggested, within such jurisdictions, that the compensation to be awarded in consequence of such malfeasance could, by force of any conjuncture of circumstances, be ascertained by a court of equity." Then, at page 312, he again refers to the question of damages. "The damages," he says, "are not susceptible of any exact estimation, their only measure being an experienced judgment. It is universally admitted that, according to the theory in which our jurisprudence is founded, such questions are not adapted to the judicial methods of a court of equity. Such questions are universally, with this exception, if such exception exists, confided to the courts of common law. Such damages as these have always been assessed by a jury." It is evident from this review of the decision in that case that it turned entirely upon the nature of the inquiry, viz. unliquidated damages. The respondentsfurther rely upon the case of Barkalow v. Totten, 53 N. J. Eq. 573, 32 Atl. 2, in which a bill was filed by a receiver against several of the stockholders to recover the whole amount of unpaid subscriptions to stock of the insolvent company; and it was held by Vice Chancellor Emery that a suit in equity would not lie, and the ground of his decision is that the contract to be enforced was one between the subscribers and the company itself, and not a contract made between the subscribers and the receiver as such. To the same effect is the case of Freeman v. Winchester, 10 Smedes & M. 577. The case of Receiver of State Bank of New Brunswick v. First Nat. Bank of Somerville, 34 N. J. Eq. 458, also cited by defendants, is distinguishable on the same ground. There was there no contract between the petitioner and the respondent bank, and the decision went on the ground that the respondent bank had not become a party to the suit by any contract with the receiver, and that it was not a proper case for a petition as to one of the principal branches of the case. As to the other branch, it was a simple case of a debt from the respondent bank to the insolvent bank, which existed at the time of the appointment of the receiver, and contained no element of equity. None of these cases apply to or govern the case in hand. The element of unliquidated damages is not present. The amount to be recovered is a matter of computation upon a statement of accounts. I therefore think that the court has jurisdiction to enforce this contract in the way proposed. But, if I had any doubt upon that question, the case as actually made shows that it is one that would have been a proper basis for an English bill in equity, by reason of the complicated accounts which were developed.
Next as to the merits. The facts were these: The insolvent company was formed for the purpose of trading in South Africa, and, with that view, purchased goods of divers parties, shipped them to various ports in South Africa, and sent a young gentleman by the name of Wilson D. Lyon out there to sell them. Being unable to meet their engagements, the receiver was appointed on the 18th of September, 1894. In the meantime some of the goods had arrived in Africa, and Lyon was engaged in disposing of them, but owing to the expense of cabling, and the great length of time required for communication by mail, the exact status at any particular time could not be known. At the same time, the respondents Finch were engaged in the same trade, and had a selling agent in South Africa named Audsley. The president of the insolvent company was a Mr. Polhemus Lyon, a brother of Wilson D. Lyon, and he, on behalf of the receiver, opened negotiations with the Messrs. Finch to sell to them the goods unsold and the proceeds of those already sold, sent out by the insolvent company to South Africa, with the result that what may be called an oral contract or arrangement for such sale was made as early as the latter part of September, 1894, between the receiver and the Messrs. Finch. The verbal arrangement so made was committed to writing in the shape of a letter by the receiver to the Messrs. Finch, dated the 2d of October, 1894. The gist of the letter is that all the goods were to be paid for at their cost price to the insolvent company, with all expenses added, and the Messrs. Finch were to assume all the office, clerical, and other expenses attendant upon the care of the goods or the carrying on of the business from that date in South Africa; and provision is further made for the payment with this added clause: "It is understood that the terms of this agreement thus informally expressed are to be incorporated in an agreement between you and me, which will receive the sanction of the court. I agree to hand over to you at once all original invoices of these shipments." Advices were sent to Mr. W. D. Lyon that he was to turn everything over to the Messrs. Finch. The receipt of this letter was acknowledged by the Messrs. Finch on October 4th, and in that letter the Messrs. Finch speak of Mr. Polhemus Lyon as "our Mr. Lyon." The receiver applied to the court in October for leave to conclude a contract with the Messrs. Finch in accordance with the terms of his letter; and such leave was granted by order signed on the 7th day of October, as of the 2d of October. Some time prior to October 2d, however, the Messrs. Finch had themselves, at the instance of Mr. Polhemus Lyon, opened correspondence with Mr. Wilson D. Lyon in South Africa, and shipped him goods for sale on their own account, and continued so to do for several months thereafter. From 30 to 40 days were required to land goods in South Africa from New York, and the same length of time for the transmission of correspondence by mail. The receiver did all that was necessary or that could be required of him in order to transfer to the Messrs. Finch all the goods that had been shipped to South Africa, and all the proceeds thereof. In the meantime, for some reason not distinctly disclosed, but, inferentially, because the ventures in South Africa did not prove so profitable as had been anticipated, the Messrs. Finch had declined to enter into any further agreement, and seemed inclined to repudiate the whole transaction. This prompted the receiver to exercise his power of examination, under the statute, against the Messrs. Finch, and he pressed them so sharply that they finally (January 21, 1895) entered into a written contract, which is the basis of this proceeding, in these words: "Memoranda of agreement made this twenty-first day of January, A. D. 1895, between L. R. Finch's Sons, of New York City, party of the first part, and Robert H. McCarter, receiver of Sherman
& Lyon Company, party of the second part: The party of the first part agrees to purchase and take, and the party of the second part to sell, all and singular the business heretofore carried on by the Sherman & Lyon Company in the country of South Africa, including all the goods, chattels, merchandise, moneys, credits, and effects belonging to the said receiver in the said country, upon the terms and for the price following, that is to say: First. The party of the first part agrees to pay to the party of the second part therefor the sum of four thousand five hundred and sixty 66/100 dollars, within four months from the date hereof, as follows: That they will forthwith collect and pay over to the party of the second part all moneys which may be turned over or received by them or their representatives in South Africa, as fast as the same shall be so received from the said business, whether by the sale of property or otherwise. And in case they shall not pay the whole of the said sum so to be paid as aforesaid, within said four months, then that they will, at the expiration of said time, pay to the said party of the second part the balance of the said sum in full. Second. The party of the first part, in consideration hereof, also agrees to bear and pay all the regular and ordinary expenses incurred in the management and conduct of the said business in South Africa from the 7th day of August, 1894, and shall be entitled to have and receive all profits arising therefrom since that date. Third. It is understood and agreed that this agreement relates to the property contained in the schedule hereto annexed, or the proceeds derived from the sale thereof; and that in case any of the said goods, or the proceeds thereof, less the expenses and charges against the same, shall not be turned over to G. C. Audsley, the representative of the said party of the first part in South Africa, the amount to be paid hereunder shall abate accordingly; and, in case it shall appear that any other property belonging to the party of the second part in South Africa shall have been turned over to said party of the first part or their representative, then the amount so to be paid shall be increased proportionately. Fourth. It is expressly understood and agreed that this agreement was made subject to the approval thereof by the court of chancery of New Jersey." Annexed to that contract was a schedule of merchandise shipped, amounting to $6,394.38. Then there were certain credits and allowances stated in the schedule, amounting to $1,833.72, leaving a balance of $4,560.66. That represents the claim of the petitioner, with an addition of some shipments of goods not contained in the schedule annexed to the petition, but which were, as is alleged by the petitioner, turned over to Mr. Audsley, and payment for which the petitioner claims under the last part of the third clause of the agreement. The additional goods so turned over were an invoice shipped by Landers, Frary & Clark, amounting to $307.67, and another, shipped by Hoyland & Smith, amounting to $275.12, which, added to the $4,560.66, makes $5,143.45. The petitioner, however, in a statement handed up at the argument, credits certain items which he has agreed to deduct therefrom, amounting to $1, 194.08, leaving a total claim of $3,949.37. By the petition itself, however, the claim, made up very much in the same way, allowing credits of only $816.02, is put at the sum of $3,744.64. This is a clear error in arithmetic, as it actually amounts to over $4,000. Mr. Wilson D. Lyon sailed from New York for Cape Town direct on the 4th of July, 1894, on a steamer upon which was a large consignment of goods to Cape Town. At about the same time, another consignment was made to Port Elizabeth, by another ship. In the month of August, further shipments were made to Durban, King Williamstown, and Johannesburg. Mr. Lyon arrived at Cape Town on the 7th of August, and unloaded his goods, and, according to the usual course of the trade, proceeded at once to hire rooms to display and sell his goods. The enterprise was mainly to build up a trade in American goods in South Africa, and the actual goods displayed and sold were called "samples"; and it would seem that it was not expected that much, if any, profit would be realized on the first shipments. Mr. Lyon had, when he arrived there, quite a large sum of money at his disposal, which stood in one of the banks to the credit of Sherman & Lyon Company; and, as he received pay for the goods sold, he put it all to the same bank account. After having sold the greater part of the goods at Cape Town, he proceeded to another city, unloaded the goods consigned to that place, and proceeded in the same way to sell out those, or as many of them as he could. He paid his expenses out of the funds in bank, those that were already there as well as those that he deposited from time to time as proceeds of sales; and finally, after the signing of the contract in January, he, in pursuance of orders from New York, turned over all the unsold goods and the balance of cash on hand to Mr. Audsley, as agent for the Finches.
There can be no doubt, under the evidence, that the Messrs. Finch received the whole proceeds of the venture, less the items allowed by the petitioner, and less the traveling expenses, etc., incurred by Mr. Lyon. The defense mainly relied upon on the merits was as to the allowance of these expenses and the salary of Mr. Lyon. He says that while here in New York, waiting to take ship, and while on ship board, he was to receive $15 a week (he had his passage paid, of course); and that, after he arrived in South Africa, he was to have $100 a month, besides expenses. A faint attempt was made to show that he was to have only $15 a week after he arrived, besides his expenses;but I think that the weight of the evidence is in favor of the salary mentioned. The principal objection to his traveling expenses is that he produced no vouchers for them. He was sworn at the hearing, and said with regard to his expenses that it was impracticable and unusual to keep a detailed account of them, or to produce vouchers; and he showed to my satisfaction that the total for which he claimed allowance was not more than would be reasonably necessary for his traveling expenses and board. Mr. Lyon and Mr. Audsley, after the goods were turned over to the latter, as before stated, continued to work together for the Messrs. Finch up to about the middle of February, when some trouble arose between them, with the result that Mr. Audsley took proceedings in a local English court against Mr. Lyon, and obtained an interdict against his going upon the premises of the Messrs. Finch. Mr. Lyon then made his way to Cape Town, and came home. Objection was made to his traveling expenses from the city where the dispute arose to Cape Town, but Mr. Lyon explained to my satisfaction that he was really working for the Messrs. Finch on that trip, and procured orders and made sales for them, which were afterwards accepted by them, and that there were various matters at Cape Town, in the way of settling up their affairs at that place, which it was necessary for him to look after personally before sailing. He seems to have rendered accounts regularly to the Messrs. Finch, some of which are produced, and some seem to have been mislaid. He also explained to my satisfaction several complicated transactions which he was obliged to enter into, and which on their face are rather confusing. For instance, a large bill of goods had been shipped by the Messrs. Finch to a house in Cape Town, and a bill of exchange drawn on the house against the bill of lading. The house there refused to accept for the whole amount, but were willing to take a part of the goods, and pay for them. Mr. Lyon was obliged to go through the formality of repurchasing part of the goods, and selling them to another party on time, and drawing against the goods sold to the new party on time, in order to raise money to honor the draft of the Messrs. Finch. This transaction and others which arose in the course of the business tended to complicate the accounts. Mr. Audsley was also sworn, and he made up a statement by which he largely reduced the petitioner's claim; but a careful examination of it shows that he, in effect, claimed credit twice for the same items, and refused credit for items which I find were properly chargeable against the Messrs. Finch. Upon this part of the case, I find, in point of fact, that the whole dispute is narrowed down to whether or not the Messrs. Finch should be charged with the amount received by Mr. Wilson D. Lyon on the sale of goods made before the 1st of October, the proceeds of which were carried forward, and mixed in with the sales made after the transfer on October 1st, and, further, whether he should be allowed his expenses. As to the goods which were sold before the transfer was made, they were the very goods which are mentioned in the schedule annexed to the written contract of January 21, 1895; and, at the time that contract was entered into, the fact that those goods had been sold prior to October 1, 1894, was well known to the Messrs. Finch. They are accomplished business men, and must have known what they were about; and, with regard to the traveling expenses, I think those are part of the expenses, the burden of which they assumed with the purchase. I will advise a decree accordingly.