Opinion
No. 41/371.
01-30-1917
FEICK v. HILL BREAD CO. et al.
Pitney, Hardin & Skinner, of Newark (Waldron M. Ward, of Newark, on the brief), for complainant. Frank E. Bradner, of Newark, for defendant. Hill Bread Co. McCarter & English, of Newark, for defendant Union Nat. Bank.
Bill by Bertha E. Feick, executrix, against the Hill Bread Company and others. Decree for plaintiff.
Pitney, Hardin & Skinner, of Newark (Waldron M. Ward, of Newark, on the brief), for complainant. Frank E. Bradner, of Newark, for defendant. Hill Bread Co. McCarter & English, of Newark, for defendant Union Nat. Bank.
FOSTER, V. C. The bill is filed to restrain the prosecution of an action pending in the Supreme Court, in so far as it relates to an indebtedness claimed to be due the defendant Hill Bread Company from the estate of Charles A. Feick, on a note for $10,000 and on a current book account for $89.91, and for the determination of the liability of these parties on certain other promissory notes held by the defendant Union National Bank.
Complainant is the executrix of the last will and testament of Charles A. Feick, who died September 30, 1911. At the time of Mr. Feick's death, the Union National Bank held three unmatured notes made by him, amounting to $65,000, and at this time the bank also held four other unmatured notes for $5,000, $2,000, $3,500, and $3,000, respectively, made by the Hill Bread Company to the order of Mr. Feick, and indorsed and discounted by him with the bank. These notes carried interest, and were renewals of other notes for like amounts, which had been given by the Hill Bread Company to Mr. Feick for money borrowed "from him from time to time. At the time of Mr. Feick's death there was on deposit to his credit with the Union National Bank $23,500.01, which amount the bank applied in part payment of his personal note for $25,000, being one of the three, making the abovementioned total of $65,000 indebtedness, the other two being for $20,000 each. The bank also held at this time, as collateral for the payment of any indebtedness owing to it by Mr. Feick, 30 shares of the stock of the Fidelity Trust Company of Newark, and this stock was sold by complainant, as executrix, and the bank for $26,730. This amount was applied in part payment of the balance of Mr. Feick's personal indebtedness to the bank, leaving due the bank, after the rebate and adjustment of interest, a balance on the three notes of Mr. Feick's of $19,073.33.
By a decree of the Essex county orphans' court made on March 26, 1915, the Feick estate was adjudged insolvent, and the claim of the bank duly filed against the estate was allowed to the amount of $29,573.33, this amount being made up of the balance above mentioned and of the total of three of the notes made by the Hill Bread Company, indorsed and discounted by Mr. Feick, and amounting to $10,500; the fourth note for $3,000 having been charged to the company's account at its maturity.
Under an order of the orphans' court made on April 23, 1915, complainant, as executrix, was directed to pay a dividend of 45 per cent. on all claims filed with her, and in conformity with this order she paid the bank $13,307.99, being a dividend of 45 per cent. on the above amount for which its claim had been allowed. Of the amount so paid, $4,725 represents the 45 per cent. dividend due on the three notes of the Hill Bread Company. In addition to the notes mentioned, the Hill Bread Company admits being indebted to the estate for a note of $2,500 and interest, made by the company to Mr. Feick for rent due to him, and complainant admits the estate is indebted to the company on a note for $10,000, with interest, for money complainant claims was loaned by the company to Mr. Feick, and also for the sum of $89.91 due on a current book account.
It was under section 69, 3 Comp. St. p. 3834, and section 101, 3 Comp. St. p. 3850, which permits claims to be filed against an estate for debts due and payable in the future, upon a rebate of interest being made, that the bank and company filed their respective claims against the estate; and it seems clear, under the terms of the agreement respecting the collateral held by the bank, that it properly applied the proceeds of the sale thereof to the reduction of the indebtedness owing by Mr. Feick to the bank; and I think, under the doctrine of the case of Camden National Bank v. Green, 45N. J. Eq. 546, 17 Atl. 689, affirming the opinion of the court below, reported in Green v. Camden National Bank, 46 N. J. Eq. 607, 22 Atl. 56, it is equally clear that the bank had the right to apply the money on deposit with it to the credit of Mr. Feick, at the time of his death, to the payment of his indebtedness to it pro tanto; and this was particularly the right of the bank, because the estate has been formally adjudged insolvent, and this insolvency gave to the bank the right to equitable relief. In Crisp v. Dunn, 56 N. J. Law, 355, 29 Atl. 166, it was said:
"That one who is indebted to an insolvent estate may set off his own debt against claims of such an estate upon him, but cannot purchase or acquire the debts of others to the estate to set off against such claims, was conceded in the argument to be the law, and the doctrine accords with reason and the deliverances of our courts."
I consider that the bank's claim was properly allowed for the amount named. The claim of the company on the $10,000 note and on the book account of $89.91 was also allowed, but no dividend was paid by the complainant thereon, because she contended that until the claim of the bank was satisfied, the company was indebted to the estate for more than the amount for which it filed its claim. She bases this contention on the ground that the company, as maker, was primarily liable to pay the bank the three notes, aggregating $10,500, indorsed by Mr. Feick, that these notes had been given him by the company for a valuable consideration, and that the company should also credit the estate with the note for $2,500 given by the company to Mr. Feick. In other words, she contends that the company is indebted to the bank and to the estate on these four notes to the amount of $13,000, with interest to be added, and that the estate is indebted to the company on the note and book account to the amount of $10,089.91, with interest to be added.
The company's answer to this is that in September, 1910, not knowing its notes to Mr. Feick were under discount in the bank, it paid him $10,000 on account of its indebtedness to him, which at that time amounted to $16,000; that it made this payment to him on his promise to surrender or return to the company its notes to the amount of this payment of $10,000, when such payment was made; that at the time of payment Mr. Feick was very busy, and instead of giving up $10,000 of the notes of the company, he gave to Mr. Hill, the president of the company, his personal note for $10,000, with interest At this time Mr. Feick and Mr. Hill were the principal owners of the company's stock, and whatever the original arrangement may have been about this $10,000, it was afterwards apparently treated as a loan by the parties, a loan which the company had no legal right to make to one of its stockholders. Mr. Feick renewed his note for $10,000 from time to time and paid interest on it, and Mr. Hill kept the note in the company's safe; the company continued to renew its notes to Mr. Feick, including those which it claims he was to surrender, and continued to pay interest thereon, and received the old notes when the renewals were delivered. Although Mr. Hill claims he did not know these notes were under discount, he continued to voluntarily renew them and to pay the interest due thereon, for no apparent reason, even during the absence of Mr. Feick in Europe in the summer of 1911. The company's contention now is that by reason of its payment to and arrangement with Mr. Feick, his estate is now primarily liable for the payment of these notes to the bank. If the payment and arrangement were ever made as Mr. Hill claims, I find it was voluntarily abandoned; that the company treated the payment of $10,000 to Mr. Feick as a loan, and by the renewals of its notes to him it continued the relation of debtor and creditor, and it has filed its claim with the estate, treating the matter of the $10,000 note as an ordinary debt. As between it and the estate, the company is primarily liable to the bank, as maker, for the payment of its notes, and until it satisfies this liability it should not be permitted to assert its claim on the note it holds against the estate; or if, in order to give effect to the order of the orphans' court in allowing it, its claim is to be regarded as a valid one against the estate, then its action at law on this claim should be restrained in order that the complainant may, in this cause, avail herself of an equitable set-off of the amount of the dividend paid by her to the bank on account of the company's notes, against the dividend due on the company's claim. At the time of Mr. Feick's death, and ever since, the company has had on deposit with the bank sufficient funds to pay its three notes.
In the interest of the other creditors of this insolvent estate, it seems clear that complainant should not be required or allowed to pay dividends to both the bank and to the company on the same claim. $10,000 of the company's claim is represented by a like amount included in the bank's claim against the estate, on Mr. Feick's liability as an indorser on the three notes of the company amounting to $10,500. The total amount of the combined claims filed by the bank for $29,573.33 and by the company for $10,089.91 is $39,663.24, on which at the time of filing there was due only $29,063.24. On this amount there has been paid to the bank a dividend of 45 per cent., amounting to $13,307.99, and of this amount $4,725 represents the amount paid by the estate as an indorser on the company's notes.
The company admits, if the estate paid the bank the $10,500 on the three notes of the company, with interest, that it would have no further claim against the estate for the payment of the $10,000 note, and it also admits that it would then be indebted to the estatefor the excess of $500 paid on these notes, and in the further sum of $2,500 on its note for rent which the estate holds.
The dividends from the estate are not expected to be sufficient to satisfy the liability of Mr. Feick as an indorser on the company's notes, and no equitable ground has been suggested on which the court could direct complainant, as executrix, to treat the claim therefor as preferred, and direct its payment in full, to the detriment of other creditors of the estate, in order to relieve the company from possible liability, as the maker of these notes, for the payment to the bank of any deficiency that may be due thereon.
The company on paying the bank the amount due on the notes would be entitled to be subrogated to the rights of the bank, on its claim filed thereon against the estate, and the company would be entitled in making such payment to be credited with the amount of the dividends paid thereon by the complainant to the bank, and to any other dividend directed to be paid. The company's claim against the estate on the $10,000 note is based on a contingency, depending as it does on the company being compelled to pay the bank the amount of its notes on account of which it claims to have already paid Mr. Feick this $10,000. And this view is not altered whether we consider this $10,000 as a payment on account of these notes, or as a loan by the company to Mr. Feick on his note; nor does the fact that the company could not legally loan its money to a stockholder change the situation.
If the company insists on the payment of dividends on its claims, then it must indemnify complainant for the amount of dividends paid the bank on account of the company's notes, and also relieve the estate from further liability for the payment thereof, and if such insistment is not made and the company permits the bank to receive from complainant further dividends on account of these notes, then complainant is entitled, in order to protect her and the other creditors of the estate from having double dividends paid on the same claims, to set off the dividends paid, and to be paid the bank on account of the company's notes, against the dividend due the company, which is unpaid, and against any further dividend that may be payable on the company's claim.
In order that complainant may be indemnified for the dividends paid and relieved from further liability on the company's notes as stated, or that she may be able to equitably set off the dividends paid and to be paid the bank, against the dividends due and to become due the company on its claim, a decree will be advised, restraining the action at law brought by the company against complainant so far as this action relates to the claim on the $10,000 note and on the current book account.