Collins & Corbin, for Greenville Banking & Trust Co. George Holmes, for Greenville Coal & Ice Co. and Thomas Cogan. J. Merritt Lane, for receiver.
Action by Thomas Cogan and others against the Conover Manufacturing Company, under the corporation act, for an injunction and a receiver on the ground of defendant's insolvency. Appeals by the Greenville Banking & Trust Company, by the Greenville Coal & Ice Company, and by Thomas Cogan from an adjudication of the receiver on their claims against the corporation. Confirmed.
Collins & Corbin, for Greenville Banking & Trust Co. George Holmes, for Greenville Coal & Ice Co. and Thomas Cogan. J. Merritt Lane, for receiver.
GARRISON, V. C. These are appeals by certain creditors from the adjudication of the receiver of the defendant company upon their claims. The main case was an action under the corporation act for an injunction and a receiver upon the ground of the defendant's insolvency. The Greenville Banking & Trust Company, the Greenville Coal & Ice Company, and Thomas Cogan each filed claims asserting preference with respect to certain moneys, which claims for preference the receiver in each instance disallowed. Each of the claimants has appealed to this court, and after order of reference a hearing was accorded each. The appeals were heard upon the testimony taken before the receiver. The receiver was appointed on the 1st day of August, 1904. The Conover Manufacturing Company was engaged in the business of manufacturing condensers and other machines at Greenville, in Jersey City. About July, 1903, the Conover Company contracted to build six condensers for the Public Service Corporation. Prior to January 1, 1904, the company had completed these machines, and had delivered all but two of them. Upon those two there was due the sum of $6,300. Of this $6,300 the Public Service Corporation had, prior to the appointment of the receiver, paid all excepting $2,100. This sum of money is one of those in controversy. The Conover Company, by an exchange of letters (the final one being dated April 18, 1904), agreed to manufacture two No. 29 condensers for the Public Service Corporation for the total sum of $16,500, of which one-half was to be paid on bill of lading, or when condensers were ready to be shipped, 30 per cent. in 30 days thereafter, and the final payment on erection and test. At the time of the appointment of the receiver some work had been done upon these two No. 29 condensers. On the 1st of August, 1904, the receiver obtained an order from this court permitting him to issue receiver's certificates for a sum not exceeding $5,000. The receiver obtained money upon these certificates, and completed the machines, and delivered them to the Public Service Corporation. Under an order dated the 13th day of October, 1904, the receiver collected from the Public Service Corporation the $2,100, balance due on the first order, and the $8,250, the first payment due under the second order, and holds the same pending the determination of this matter, when distribution is to be made in accordance with the order of this court. The three claimants above named assert their preference against these sums of money. The appeals will be taken up separately, and the particular facts of each, so far as they are necessary to be considered, will be detailed in their proper connection.
Claim of Greenville Banking & Trust Company.
The trust company claims preference with respect to two several sums of money—one of $2,100, and the other of $8,250. It claims in each instance to have an assignment from the Conover Manufacturing Company. With respect to the $2,100 item it produces writings as follows:
"We hereby assign to the Greenville Banking & Trust Company, as collateral security, the sum of Ten thousand dollars, out of our order for six condensers for the North Jersey Street Railway Company of Newark, N. J. through the Brown Engine Co. of Corliss. Wis., amounting to $25,200.00.
"Our terms of payment are one-half on delivery and balance on sixty days thereafter.
"We hereby agree to collect the above money, acting as agent of the Greenville Banking and Trust Company, and immediately on receipt of same to turn over to them such proportion of amount collected as the above assignment of $10,000 is in proportion to $25,200.00 the total amount of the order.
"Jersey City, N. J., Mar. 30, 1903.
"The Conover Mfg. Co.,
"E. K. Conover, Prest."
"January 5th, 1904.
"In accordance with a resolution passed by the Board of Directors at a meeting held this date, we hereby assign to the Greenville Banking & Trust Company as collateral security the sum of thirty-seven hundred and eighty ($3,780) dollars out of an order from the Public Service Corporation of New Jersey.
"We agree to act as the agent of said Greenville Banking and Trust Company, in collecting this money and agree to turn it over to them immediately on receipt of same, in such sums as it may be received.
"This $3,780 is the balance remaining of our final payment of $6,300 after deducting $2,520 which has already been assigned to said Greenville Banking & Trust Company.
"Very truly yours,
"The Conover Mfg. Co.,
"E. K. Conover, Prest."
"January 1st, 1904.
"Sold to Public Service Corporation of N. J.
"Newark, N. J.
To Balance due on Condenser #5 Shipped October 12/03..........
Condenser #6. Held in our shop, for shipping instructions.....
"January 7th, 1904."
For value received we hereby assign to the Greenville Banking and Trust Company, the above account.
"The Conover Manufacturing Co.
"E. K. Conover, Prest."
The minutes of the directors of the Conover Company with respect to the matter are as follows:
"Meeting of Directors, July 20th, 1903, page 72.
"The following resolution was offered by Mr. Holmes:
"Resolved that the Directors of the Company hereby ratify the action of the President in making an assignment to the Greenville Banking & Trust Co., of part of the account for Newark Condenser, which assignment reads as follows:
"'March 30th, 1903. We hereby assign to The Greenville Banking & Trust Co., as collateral security, the sum of $10,000, out of our order from The North Jersey Street Railway Co., through the Brown Corliss Engine Co. amounting to $25,200.
"'Terms are one-half on delivery and balance in sixty days.
"'We also agree to act as their agent in collecting this money and agree to turn over to them immediately upon receipt of same in the proportion as $10,000 bears to $25,200, the total amount of contract'
"The above resolution was seconded by Mr. Cogan and unanimously carried."
"Meeting of Directors, January 5th, 1904, page 77.
"The following resolution was offered by Mr. Cogan and seconded by Mr. Holmes:
"'Resolved, that we hereby assign to the Greenville Banking & Trust Company as collateral security the sum of Thirty-seven hundred and eighty ($3,780) dollars out of an order from the Public Service Corporation of New Jersey. We agree to act as the agent of said Greenville Banking & Trust Company in collecting this money and agree to turn it over to them immediately on receipt of same in such sums as it may be received. This $3,780 is the balance remaining of our final payment of $0,300, after deducting $2,520 which has already been assigned to said Greenville Banking & Trust Company.
"'Also a copy of this assignment and a copy of this resolution be given to the Bank.'"
The only one of these writings which is a clear, absolute assignment is that dated January 7, 1904, written upon the bill dated January 1, 1904, and this assignment lacks any authorization by the directors of the Conover Company.
The action of the directors, as shown by the minutes quoted above, was correctly set forth in the paper dated January 5, 1904.
There is no evidence whatever to show any power lodged in the president of the Conover Company to make any such assignment as the one he did make under date of January 7, 1904. Without such authority lodged in him by the directors, a president of a corporation is without power to make any such assignment, pledge, Or disposition of the company's property. Stokes v. N. J. Pottery Co. (Sup. Ct. 1884) 46 N. J. Law, 237; Raub v. Blairstown Creamery Ass'n (Sup. Ct. 1893) 56 N. J. Law, 262, 28 Atl. 384; Bennett v. Keen (Ct. of Err. 1899) 59 N. J. Eq. 634, 43 Atl. 1070.
The reason the president of the Conover Company, after having given to the trust company a writing exactly in accordance with the resolution of the directors, which is the paper dated January 5, 1904, subsequently gave the absolute assignment dated January 7, 1904, is explained by both the president of the trust company and the president of the Conover Company. Their explanation is that, since under the writing of January 5th, the money from the Public Service Corporation was to be collected by the Conover Company, and not by the trust company, and, since the trust company desired to have it so that it could itself collect the money, the president of the Conover Company made and delivered the paper of January 7, 1904.
The only contract between the two companies, as has been before pointed out is that evidenced by the writing of January 5, 1904, and the rights of the trust company must be determined with respect to that paper, since they must rest upon it. The subject-matter being a portion of money to be earned in the future by the assignor, the assignment is an equitable one, and must be ruled by the principles applicable to such assignments. It has been held that equity disregards form and searches for intention with respect to equitable assignments. Bower v. Haddon Bluestone Co., 30 N. J. Eq. 171 (Van Fleet, V. C., 1878); affirmed sub nom. Lyon v. Bower, 30 N. J. Eq. 340; Shannon v. TheMayor of Hoboken, 37 N. J. Eq. 123 (Van Fleet, V. C., 1883); affirmed 37 N. J. Eq. 318; Seyfried v. atoll, 56 N. J. Eq. 187, at page 189, 38 Atl. 955, at page 956 (Emery, V. C, 1897); Weaver v. Atlantic Roofing Co., 57 N. J. Eq. 547, 40 Atl. 858 (Grey, V. C., 1898).
The first source from which to gather the intention of the parties to this instrument is, of course, the instrument itself. This instrument, dated January 5, 1904, exactly conforms to the language of the resolution adopted by the directors who authorized its execution. The first paragraph of this writing is undoubtedly a clear assignment of the sum of $3,780 out of the money to become due from the Public Service Corporation when the Conover Company should have filled its order. The second paragraph reflects seriously upon the effect of the first paragraph. By this second paragraph the Conover Company still retains the right to collect the money, and agrees, when it shall have collected it, to turn it over in such sums as it may receive it. The distinction between an equitable assignment of a sum of money which is effective, and an agreement to pay out of a particular fund, which is ineffective as an assignment, has been variously expressed, but, of course, always to the same common intent. The Supreme Court of the United States, in the case of Christmas v. Gains, 14 Wall. 69, 20 L. Ed. 762, said: "An agreement to pay out of a particular fund, however clear in its terms, is not an equitable assignment. A covenant in the most solemn form has no greater effect. * * * The assignor must not retain any control over the fund, any authority to collect, or any power of revocation. If he do, it is fatal to the claim of the assignee. The transfer must be of such a character that the fund holder can safely pay, and is compellable to do so, though forbidden by the assignor. [Citing cases.]" Burke v. Child, 21 Wall. 441, 22 L. Ed. 623. In the case of American Pin Company v. Wright, 60 N. J. Eq. 150, 46 Atl. 217, Vice Chancellor Pitney said: "The distinction, when dealing with pure personalty, is between a promise to pay out of the fund after it comes to the hands of the promisor, and a direction to the present holder of the fund to pay it, or a part of it, to another person. The first is a mere promise. The latter is an assignment."
Applying these tests, I should have grave doubt in determining whether this should be held to be an equitable assignment, or only an agreement to pay out of a particular fund. The strength of my doubt is increased by the testimony heretofore alluded to of the presidents of the two companies, which shows that, in their view, this paper left it with the Conover Company to collect the money, and then, under its agreement, turn it over. But by reason of a finding of fact next to be alluded to, I do not find it necessary to determine the question of law just suggested.
It appears from the proofs that on the 7th day of January, 1904, the $3,780 mentioned in the writing of January 5, 1904, was borrowed by the Conover Company from the trust company upon a note of the Conover Company indorsed by itself and its president. This note was No. 701. On April 6, 1904, a note was given in renewal thereof which was numbered 746. On July 6, 1904, a note was given in renewal thereof which was numbered 801. On July 12, 1904, three of the directors of the Conover Manufacturing Company gave to the trust company their notes for $10,000, divided into three notes, of $3,333.33 each. These three notes were given to take up notes of the Conover Company of various numbers, including No. 801. Subsequently, it appears from the proofs, the directors paid these notes. It seems to me, therefore, to be indisputable that the advance by the trust company which this writing was given to secure has been paid, and hence the trust company has no claim under this writing against the Conover Company or its receiver. The only suggestion made by the counsel for the trust company against the effect of the obvious facts was that the writing of January 5th did not specifically mention the note given or to be given for the loan of that money, and that therefore the trust company had a right to hold it as general collateral security for any sums due by the Conover Company to the trust company. I do not think that this is an answer, or that any contention based thereon can be sustained. It is perfectly clear from all of the proofs that what took place was this: On the 30th of March, 1903, the Conover Company was indebted in a large sum of money to the trust company. On that date the president of the Conover Company, without any authority, gave the paper writing of that date heretofore quoted. Subsequently, and on the 20th day of July, 1903, the directors of the Conover Company ratified the action of the president in making this paper. The Public Service Corporation had paid to the Conover Company, up to January 5, 1904, $18,900 out of the $25,200, leaving a balance due from the Public Service Corporation of $6,300. Of this $18,900 so received by the Conover Company up to January 5, 1904, it had paid to the trust company, under the agreement of March 30, 1903, its proportion, amounting to $7,500. Under the terms of the agreement of March 30, 1903, the amount that would be payable to the trust company out of the $6,300 balance due from the Public Service Corporation would be $2,500. The proportion, under the agreement of March 30, 1903, was as $10,000 is to $25,200. It is obvious that in dealing with the situation at that time the parties used the figure "2.52," and got it confused, so that, instead of making the balance that would be payable to the trust company out of the $6,300, $2,500, as it should have been, they made it $2,520. From these figures it is clear that when theparties, on the 5th of January, 1904, came to deal with the matter, they figured that, out of the $6,300 still due from the Public Service Corporation, $2,520 would be payable to the trust company under the agreement of March 30, 1903, and the balance would be retained by the Conover Company; that balance being $3,780. The parties thereupon agreed that, if the trust company would advance this $3,780 to the Conover Company, the Conover Company would give its note for this advance, and would, as collateral security for the payment thereof, assign this sum out of the money due from the Public Service Corporation to the trust company. Since, under the terms of the agreement of March 30, 1903, they figured that the trust company would receive $2,520, they provided by the resolution of January 5, 1904, the transfer of the $3,780; making together the whole sum of $6,300 due from the Public Service Corporation. As has already been pointed out, the note given by the Conover Company to the trust company for this $3,780 was subsequently paid, so that the collateral security, as evidenced by the writing of January 5, 1904, is of no avail to the trust company. The trust company is therefore forced to fall back upon the agreement of March 30, 1903. Of course, the same doubt exists as to whether this paper is an equitable assignment, or whether it is a mere agreement to pay out of a fund, as was expressed and discussed heretofore with respect to the writing of January 5, 1904. I do not find it necessary to decide this question, because of my findings of fact as next stated.
At the time of the giving of the paper of March 30, 1903, the Conover Company was indebted to the trust company in a larger sum of money than the $10,000 mentioned in that paper. By the terms of that paper the Conover Company was to receive out of the $25,200 to be paid by the Public Service Corporation the sum of $10,000. It is quite clear from the evidence that it has received much more than this sum. From what has already been detailed of the facts, it is clear that on the 5th of January, 1904, the Public Service Corporation had paid all of the $25,200 excepting $6,300. It therefore had paid $18,900. Of this $18,900 the trust company had received, in accordance with the proportions mentioned in the agreement of March 30, 1903, $7,500, so that upon that date, namely, January 5, 1904, it had received all except $2,500 of the $10,000 that it was agreed it should receive. Since January 5, 1904, the Public Service Corporation has paid all of the $6,300 except $2,100. Therefore it has paid $4,200. All of this $4,200 has been turned over by the Conover Company, as it received it from the Public Service Corporation, to the trust company. The trust company has therefore received, under the paper of March 30, 1903, out of the $25,200 payable by the Public Service Corporation, $7,500 up to January 5, 1904, plus $4,200 since received, or a total of $11,700. If its insistment was allowed in this case, and it were paid this $2,100, it would have received $13,800, which, as will be observed, is the original $10,000 mentioned in the writing of March 30, 1903, plus the $3,780 advanced and mentioned in the paper of January 5, 1904; the error of $20 arising by some mistake of calculation made at the time that the paper of January 5, 1904, was written, as has been heretofore explained. In view of these facts, I do not see in what aspect the trust company can claim anything under the paper dated March 30, 1903.
These findings dispose of the claim of the trust company for preference with respect to the $2,100 item, and result in the dismissal of its appeal from the adjudication of the receiver, and a finding that the receiver's adjudication was correct, and I will so advise.
I will next deal with the claim for preference with respect to the $8,250. The trust company bases its claim for preference with respect to this sum of money upon the following papers:
"April 20th, 1904.
"We hereby assign to the Greenville Banking & Trust Company the sum of eighty-two hundred and fifty ($8,250.00) dollars same being first payment, due on delivery, of one-half of contract price amounting to sixteen thousand five hundred ($16,500.00) dollars for two #29 Condensers for Public Service Corporation of New Jersey, ordered April 13th, 1904.
"We also agree to act as agent for said Greenville Banking & Trust Company in collecting above money and agree to turn above mentioned eighty-two hundred and fifty ($8,250.00) dollars over to them immediately upon receipt of same from The Public Service Corporation of New Jersey.
"The Conover Mfg. Co.,
"E. K. Conover, Prest."
"April 26th, 1904.
"We hereby assign and transfer to the Greenville Banking and Trust Company the first payment of Eight Thousand two hundred and fifty dollars ($8,250) on contract with The Public Service Corporation of New Jersey, amounting to Sixteen thousand five Hundred dollars ($16,500) and we authorize The Public Service Corporation of New Jersey, to make above payment, when due direct to the Greenville Banking and Trust Co.,
"The Conover Mfg. Co.,
"E. K. Conover, Prest."
The resolution of the directors with respect thereto is as follows:
"Meeting of Directors, April 26th, 1904-page 80.
"The following resolution was offered by Mr. Cogan and seconded by Mr. Holmes:
"Resolved, that the Board of Directors of this Company be, and they are hereby authorized and empowered to proceed forthwithto secure a loan of Five thousand four hundred and seventy ($5,470) dollars of the Greenville Banking & Trust Company, at a rate of interest not to exceed six per cent. per annum, and for such period as such Directors may be able to arrange, and that such directors and the proper officers of the company make and give such proper promissory note or notes on the part of the company as may be required to secure payment of such loan, together with an assignment of such contract or contracts of this Company as may be necessary to further secure such loan.
"Jersey City, N. J., April 26th, 1904.
"The Conover Manufacturing Company,
"E. K. Conover, Prest.
"H. H. Holmes, Secty."
I think it doubtful whether a president authorized to assign contracts has the power to assign money to come due to his corporation when and if it fulfills a contract. The two things are radically different. When one assigns a contract, the assignee takes upon himself the burden of doing the work, supplying the materials, and completing the contract. When one assigns money to be earned by him under a contract, he undertakes to do the work, supply the materials, and permit that part of the consideration which he has assigned to go to the assignee. If there was no other evidence in the case excepting the assignment and the resolution, I seriously doubt whether a finding would be proper which held that the assignment was authorized by the resolution. There are, however, other facts which I think make it clear that the directors intended by the language they used to authorize the president to do that he did, so far as the form of the assignment is concerned, but not what he did as to the amount, the question with respect to which will be dealt with later. As the resolution shows, the directors desired to borrow $5,470 from the trust company, and to give the Conover Company's note therefor, and to secure the payment of the note by assigning to the trust company money to be earned by the Conover Company by the filling of certain contracts. The Conover Company certainly intended to do the work, and when, in the resolution, they used the words "assign contracts," they must mean the consideration to be received under certain contracts. The question whether one has made an equitable assignment, as has been heretofore shown, is to be determined by the intention proven; and I think it sufficiently appears that, with respect to this matter, the directors intended to assign the money to be earned under the contracts. I do not find, however, any warrant for the assignment being for any greater sum than $5,470. This is the amount which is set forth in the authorizing resolution, and the amount of cash advanced at that time to the Conover Company by the trust company, and the assignment must therefore be treated as if for that sum.
The Trust Company urges that since at the time it advanced this $5,470 its previous unsecured advances, added thereto, made a total exceeding $8,250, it has the right to hold the assignment for the full amount expressed therein. I fail to find any good reason sustaining this contention. Whether it might be so if the Conover Company had authorized such an assignment is another and totally different question. The questions discussed at the hearing before me concerning the insolvency of the company at the time, and the validity of an assignment to secure past-due indebtedness under the circumstances claimed to exist in this case, would all arise if I should find that the Conover Company had ever authorized this assignment for $8,250. I do find that it authorized an assignment for $5,470, and that it is proper to treat this assignment for $8,250 as if it were for $5,470; and since this sum was, at the time of the assignment, advanced by the trust company to the Conover Company, none of the other questions are present. Under the cases heretofore cited, it seems to me to be settled law that a president of a corporation may not bind the same by acts in excess of his authority, and it clearly appears in excess of his authority in this case to have given any assignment to the trust company for any greater sum than $5,470. It is scarcely necessary to point out, but it is very important that it should be constantly borne in mind. that this is not an assignment of the contract existing between the Conover Company and the Public Service Corporation. Keefe v. Flynn, 116 Mass. 563. If it had been an as signment of the contract, the questions raised would have been entirely different from those that must be determined in this case. It is an equitable assignment of moneys to be earned in the future by the assignor, if and when he carries out a contract with a third party. Such assignments have been frequently dealt with in our courts, and in the following cases many of the principles applicable thereto are laid down: Superintendent, etc., v. Heath, 15 N. J. Eq. 22 (Green, Ch., 1862); Bower v. Haddon Blue Stone Co., supra; Burnett v. Jersey City (Ct. of Err. 1879) 31 N. J. Eq. 341; Terney v. Wilson (Sup. Ct., 1883) 45 N. J. Law, 282; Shannon v. The Mayor of Hoboken, supra; Kirtland v. Moore, 40 N. J. Eq. 106, 2 Atl. 269 (Van Fleet, V. C, 1885); Brokaw v. Brokaw's Ex'rs, 41 N. J. Eq. 215, 4 Atl. 66 (Van Fleet, V. C, 1886); Brown v. Dunn (Sup. Ct. 1887) 50 N. J. Law, 111, 11 Atl. 149; Bank v. Bayonne, 48 N. J. Eq. 246, 21 Atl. 478 (Green, V. C, 1891); affirmed 48 N. J. Eq. 646, 25 Atl. 20; Lanigan's Adm'r v. Bradley & Currier Co., 50 N. J. Eq. 201, 24 Atl. 505 (Pitney, V. C, 1892); Board of Education v. Duparquet, 50 N. J. Eq. 234, 24 Atl. 922 (Pitney, V. C, 1892); Bernz v. Marcus Sayre Co. (Ct. of Err. 1894) 52 N. J. Eq. 275, 30 Atl. 21; Bradley & Currier Co. v. Bernz, 55 N. J. Eq. 10, 35 Atl. 832 (McGill, Ch., 1896); Weaver v.Atlantic Roofing Co., 57 N. J. Eq. 547, 40 Atl. 858 (Grey, V. C, 1898); Miller v. Stockton (Ct. of Err. 1900) 64 N. J. Law, 614, 46 Atl. 619.
It will be observed that, in every case in which the right of the assignee is upheld, the money had been actually earned by the assignor, and was due.
The following general principles are deduced from the cases: In equity, one may assign his right to that which is not yet in existence. To the extent that the assignor ever obtains a right in the thing assigned, his previous assignment is effective against him. It is also effective against his creditors and his subsequent assignees and pledgees. The English rule required notice to be given by the assignee to the third party, holding that personal property passes by delivery, and that, when actual delivery is not possible, the nearest approach to it that is possible must be had. When, therefore, the subject-matter of the assignment is money to be earned in the future by the assignor, it was held that the assignee, to perfect the transfer of it to himself, must notify the third party of the assignment. This doctrine has been discarded in certain jurisdictions in this country, including New York and our own. Kennedy v. Parke, 17 N. J. Eq. 415 (Green, Ch., 1864); Terney v. Wilson, supra; Board of Education v. Duparquet, supra; Miller v. Stockton, supra; Muir v. Schenck, 3 Hill, 228, 38 Am. Dec. 633; McCorkle v. Herrmann (Sup.) 5 N. T. Supp. 881; Kamena v. Huelbig, 23 N. J. Eq. 78; Williams v. Ingersoll, 89 N. T. 508; Coates v. First Nat. Bank of Emporia, 91 N. Y. 20; Fairbanks v. Sargent, 104 N. Y. 108, 9 N. E. 870, 6 L. R. A. 475, 58 Am. Rep. 490; Stevens v. Ogden, 130 N. Y. 182, 29 N. E. 229; Fortunata v. Patten, 147 N. Y. 277, 41 N. E. 572. Such an assignment does not change or effect the contractual relations between the assignor and the third party. Bernz v. Marcus Sayre Co., supra. The latter is protected if, without notice, he pays the assignor, or if, with notice, he pays that one who, so far as he is charged with notice, appears entitled to the money. The equitable assignee therefore is secure in his right whenever the assignor has filled his contract with the third party; and the latter would owe the money to the assignor, were it not for the assignment, and does, by virtue of the assignment, owe it to the assignee. He is insecure until this happens. Until that time he has only a contingency, which is subject to all the risks which inhere in the situation. It is extremely difficult, if not impossible, to sum up in a single definition the interest of an equitable assignee with respect to money to be earned by the assignor. Courts sometimes described the situation in terms of a trust; holding that the debtor is, with respect to the money earned by the assignee, and which he has assigned, a trustee for the assignee, and that, when the money has been earned, the assignee may call him to account for it. Bank v. Bayonne, supra. Again, it is described as a contract to give a lien, and is referred to as if it were itself a lien. Bernz v. Marcus Sayre Co., supra; Central Trust Co. v. West India Imp. Co., 169 N. Y. 314, at page 323, 62 N. E. 387, at page 389.
In my view, the legal situation of the parties to an equitable assignment with respect to money to be earned in the future by the assignor is as follows: The assignor has by the assignment divested himself of any right to demand and receive that portion of the money which he has assigned, and the assignee is vested with the right to demand and receive the money if it is ever earned by the assignor. Although the courts do not require more than one contract, it must, it seems to me, in the nature of things, be considered as if there were two contracts—one by which the assignor contracts that when the money is due him he will assign and transfer his right to it to the assignee; the other is the actual transfer of the thing when it is in existence. Otis v. Sill, 8 Barb. 102; Cooper v. Douglass, 44 Barb. 409; Faulkner v. Swart (Sup.) 8 N. Y. Supp. 239; Tailby v. Official Receiver, 13 App. Cas. 532, 10 Eng. Rul. Cas. 445. I fail to see how, at law or in equity, there can, properly speaking, be said to be a lien upon something which is not in existence, and which may never exist. In equity there may be an agreement that there shall be a lien upon a thing if and when it exists, but that agreement is not itself a lien. A lien, from the legal standpoint, embodies the idea of a tie or bond, and it necessarily implies that there is something in existence to which it attaches—to which it is tied or bound. If I am correct in my conclusion as to the nature of the interest of the equitable assignee, it follows that he has no lien unless and until the assignor has earned the money under the contract with the third party. If the subject-matter of the assignment be left within the power, and under the control of the assignor, the risk of its being impaired or destroyed is assumed by the assignee. James v. R. Co., 2 Disn. (Ohio) 261. If, after the assignment, the assignor, in the course of his dealings with the other contracting party, does that which disentitles him to the money, the effect is that the assignee takes nothing under his assignment. Bradley & Currier Co. v. Brenz, 55 N. J. Eq. 10, 35 Atl. 832 (McGill, Ch., 1896); Cooper v. Douglass, supra; McCubbin v. City of Atchison, 12 Kan. 166 (1873); Faulkner v. Swart, supra; Spicer v. Snyder (Sup.) 12 N. Y. Supp. 744 (1890); Conselyea v. Blanchard, 103 N. Y. 222, 8 N. E. 490; Mechanics' & Tradesmen's National Bank v. Winant, 123 N. Y. 265, 25 N. E. 262; Holmes v. Evans, 129 N. Y. 140, 29 N. E. 233. If the assignor fails to carry out his part of the contract with the other contracting party, the rights of the assignee must necessarily fail.
In the suit in hand the Conover Company was enjoined by this court from the further carrying on of its business, and hence it never did fill its contract with the Public Service Corporation; and therefore the trust company, as assignee of money to be earned by the Conover Company by that contract, can take nothing by virtue of its assignment. The trust company, however, claims that it is entitled to preference on the ground that its assignment is good, and that the adjudication of insolvency against the company, the injunction against the same, and the appointment of the receiver do not affect its rights. It will therefore be necessary to consider the effect of the proceedings in insolvency, and the position of the receiver thereunder, as applied to this case.
The history of that portion of our present corporation act which vests jurisdiction in the Court of Chancery, and which provides for the issuance of an injunction and the appointment of a receiver of a corporation found to be insolvent, is traced and set forth in the clear and thoughtful opinion of Vice Chancellor Stevenson in Gallagher v. Asphalt Company of America, 65 N. J. Eq. 258, 55 Atl. 259 (1903). As he shows therein, this legislative scheme amounts practically to an equitable quo warranto. The idea embodied in the New York legislation, from which ours was copied, was to vest in the court power to stop the further operations of insolvent corporations at the instance of the Attorney General. Our act, copied almost literally from the New York act, preserving all the features of it, changed the applicant from the Attorney General to any stockholder or any creditor. It did not, however, it seems to me, in any wise change the legislative purpose as disclosed in the act. It is in no sense a creditors' bill, and to but a very limited extent is it an action inter partes. Its primary purpose is to enable the court, upon a proper case shown, to forbid the further prosecution of business by an insolvent corporation. It vests power in the Court of Chancery with respect to corporations which the court did not theretofore have, and which could only proceed from a legislative grant; it not being among the inherent prerogatives or powers of the court. Decker v. Gardner, 124 N. Y. 334, 26 N. E. 814, 11 L. R. A. 480, 25 Lawy. Ed. 754. It vested the court, after it had stopped the operations of the corporation by means of an injunction, with power to name an officer whose duties, rights, and powers are defined by the Legislature. This officer, namely, a receiver, is vested by our present corporation act with title to all of the real and personal property of the corporation, and all of its franchises, rights, privileges, and effects. P. L. 1896, p. 299, § 68. The act provides that, with respect to the distribution of the assets in the hands of the receiver "after payment of all allowances, expenses and costs, and the satisfaction of all special and general liens upon the funds of the corporation to the extent of their lawful priority, the creditors shall be paid proportionately to the amount of their respective debts, excepting mortgage and judgment creditors when the judgment has not been by confession for the purpose of preferring creditors." P. L. 1896, p. 304, § 86.
One of the insistments of the trust company is that, by virtue of the assignment being dealt with, it was vested with a lien upon funds of the corporation, and that it is entitled to preference with respect thereto, and such rights are enforceable against the receiver. This insistment is based upon a theory with respect to equitable assignments which I have heretofore discussed, and which I discard. I do not think that by virtue of such an assignment there is constituted a lien. The utmost that can be said is that there is an agreement to give a lien. If at the time when the money is earned the assignor could not give a lien, the assignee cannot have one. If at the time the money is earned the assignor would not be entitled to it, were it not for the assignment, the assignee is not entitled to it. I conclude, therefore, that since this money had not been earned by the Conover Company, at the time this corporation was adjudged insolvent and placed in the hands of the receiver, there was no lien in favor of the trust company.
The next insistment of the trust company is that, since the receiver completed the machines specified in the contract between the Conover Company and the Public Service Corporation, and earned the money due from the Public Service Corporation therefor, the right of the trust company with respect to the assignment is just as it would have been if the Conover Company had completed the machines. In endeavoring to arrive at a proper legal conception of the position of a receiver under our present corporation act, the study of the opinions of the courts dealing with receivers is not practically helpful, and must be, in any event, attended with great discrimination and care. I say it is not particularly helpful because the existing legislation is of recent enactment, and has not as yet received much, if any, consideration at the hands of our courts. It is also true that, by reason of the different kind and character of receiverships, much that our own court has said concerning this subject, and almost all that is said by courts of other jurisdiction, does not apply to the character of receiver with which we are dealing. A receiver, considered as an arm of the court —usually termed an "equitable receiver"— is a mere custodian, without title and without any power saving that conferred upon him by the order appointing him. Decisions dealing with the acts and presumptions arising from the acts of such a receiver are not applicable, in my view, to a statutory receiver. A receiver, under our corporation act, is a statutory receiver. He is the legislative agency to be named by the court, andto have such powers as the Legislature has vested in him. He is a separate entity. The act provides that, after he has done those things which the Legislature prescribes that he shall do, he shall hold and distribute the money under the order of the Court of Chancery, and as it directs. It seems to me quite clear that after the court has exercised the power vested in it, and has decreed that the corporation shall stop all activity and do no more business, and exercise none of its franchises, and has followed that by naming a receiver in whom, by the operation of the statute, all of the property, franchises, and effects of the corporation are vested, it cannot be said that the corporation continues, or that any act done by the receiver is as if done by the corporation. I think it more reasonable to hold that the assets, when they come to the hands of the receiver by virtue of the statute, are burdened, as the act says they shall be, by general and special liens, and by bona fide judgments and mortgages. To hold that they are burdened by any other obligations than those which the statute mentions would be, as I think, to defeat the very purpose of the proceeding. The purpose is to have that corporation wound up, and its assets distributed to those entitled to them. The priorities existing at the time of the receiver's appointment are to continue as against the assets in his hands, but no new priorities are to be created by reason of anything that he does; nor are his actions to be construed as if they were the actions of the corporation. It is, of course, true, and does not militate against the suggestions I am making, that a receiver has the right, in the> exercise of the powers vested in him, to do what the corporation might have done in the way of collecting unpaid subscriptions, debts due the corporation, and in many other ways to enforce its obligations. It is likewise true that, with respect to the property held by him, he must respond to taxing authorities as the corporation would have been required to respond. But with respect to creditors against the funds in his hands, I think that their rights are fixed as of the time of his appointment, and that those who had priorities then must be first paid, and the others must be paid equally. Linn v. Dixon Crucible Co. (Sup. Ct. 1806) 59 N. J. Law, 33, 35 Atl. 2; United States Car Co. Case, 57 N. J. Eq. 357, 42 Atl. 272 (McGill, Ch., 1898); 60 N. J. Eq. 516, 43 Atl. 673 (Ct. of Err. 1900): Hollins v. Brierfield, 150 U. S. 371, 14 Sup. Ct. 127, 37 L. Ed. 1113. While the Court of Errors in the United States Car Company case reversed the chancellor, its opinion does not, I think, militate at all against the view I am expressing, because it held that, since the act vested the thing the state taxed in the receiver, he must, while he had possession of that thing, pay the tax. This is consistent with, and not opposed to, the view I hold. And with respect to the assets vested in him by the statute, I am of opinion that, subject to the qualifications just mentioned, the receiver takes such assets free from other obligations. I mean by this that he has the right (subject always, of course, to honesty and good faith) to sell the assets as they are; to make up that which has not been made up, and then sell; and, in a great variety of ways, to deal with the assets practically as if they were free from any obligation (subject, of course, to the disposition of the proceeds therefrom in accordance with the terms of the act, under the direction of the court). To hold otherwise, and to insist that a receiver is continuing the corporation, and is, in effect, the corporation, is practically to dispense with any beneficial effect of the very proceeding in which he was appointed. If, after the assets have passed to his hands, he must deal with them exactly as the corporation would have been required to deal with them, the effect would be to defeat the very legislative purpose which provided that there should be a receiver. Those things which the receiver does with respect to the assets of the company, and those acts of his which are held to amount to contracts, seem to me to be his individual acts and contracts, and are not properly to be construed as acts and contracts of the insolvent corporation.
I am of opinion, therefore, that when the receiver in this case completed the machines in question, and delivered them to the Public Service Corporation, the contract was his own contract, and must not hold to be the contract of the corporation. But it is not necessary to go to this extent in order to find the invalidity of the claim for preference on behalf of the trust company now being dealt with. With respect to those receivers who are merely the arms of the court, it has been held that contracts of the corporation which they adopt are binding upon them and must be conformed to in their exact terms. The cases hold that when a receiver is appointed (I am not now differentiating between different kinds of receivers), and he finds contracts of the insolvent corporation, he has an election to carry out or not to carry out such contracts. Suydam v. Receivers of Bank, 3 N. J. Eq. 114 (Vroom, Ch., 1834); Bolles v. Crescent Drug & Chemical Co., 53 N. J. Eq. 614, at page 618 et seq., 32 Atl. 1061, at page 1062 (Reed, V. C, 1895); United Elec. Sec. Co. v. Louisiana Elec. Light Co. (C. C.) 71 Fed. 615; affirmed 74 Fed. 664, 20 C. C. A. 674; Sunflower Oil Co. v. Wilson, 112 U. S. 313, 12 Sup. Ct. 235, 35 L. Ed. 1025; Ames v. U. P. R. R. Co. (C. C.) 60 Fed. 966; In re Seattle R. Co. (C. C.) 61 Fed. 541; Hyde v. Lynde, 4 N. Y. 387; Kansas Pac. R. Co. v. Bayles, 19 Colo. 348, 35 Pac. 744; Scott v. Rainier Power & R. Co., 13 Wash. 108, 42 Pac. 531.
The utmost, therefore, that can be contended for by the trust company, is that, when this receiver found a contract of the Public Service Corporation, he was put to anelection to carry it out or not to carry it out. Thus far it is a matter of no consequence whether this contention be sound or not, because, if it be held that the receiver in this case elected to carry out the contract between the Conover Company and the Public Service Corporation, the consequences are that upon doing so he would receive the full consideration thereof, namely, $16,500. It is necessary, therefore, in order that the trust company should succeed in its contention, that it make good a further insistment. This further insistment is that, in electing to fulfill the contract with the Public Service Corporation, the receiver made good their assignment of a portion of the consideration to be received for that contract.
I do not think, in the first place, that it can be successfully contended that, because a receiver elects to fulfill a contract, he thereby is obligated to incidental and collateral claimants concerning that contract which obtained in favor of third parties, and which are no part of the contract concerning which he is held to have made his election. United Elec. Sec. Co. v. Louisiana Elec. Light Co. (C. C.) 71 Fed. 615; affirmed by Cir. Ct. of Appeals, sub nom. General Electric Co. v. Whitney, 74 Fed. 664, 20 C. C. A. 674. This case is much stronger than the case at bar, because the electric light company, which had a contract with the city, had assigned a portion of its money to come due from the city to a bank, and the bank had given notice to the city. The receiver was found to have elected to fulfil] the contract with the city with full knowledge of the assignment, but it was held that he did not thereby elect to fulfill the contract of assignment. They seem to have taken the theory heretofore suggested by me, that an assignment is really two contracts—one agreeing to give the lien, and the other giving the lien—and this case holds that this latter branch of the assigning contract is executory.
But there is another reason which is equally strong, if not stronger, against the contention of the trust company. It seems to me that it is elemental that, where one is put to an election with respect to a matter, he can only be held to the extent that he had notice, or will be charged in law to have had notice, concerning the subject-matter of his election. In this case the trust company had given no notice to the Public Service Corporation of its assignment of April, 1904, and the receiver had received no notice thereof. When, therefore, the receiver, in the view of the trust company, was called upon to make election as to whether he would fulfill the contract of the Conover Company with the Public Service Corporation, he is only charged with notice of that contract. If he had gone, as it is presumed he did go, to the Public Service Corporation, he would only have learned that it was prepared to fulfill its part of that contract, and that, upon his delivering the machines to it, It would pay to him $16,500.
I have heretofore cited the cases in which it is held that notice to the third party is not necessary to make an equitable assignment good. But I do not think that those cases apply to this situation. As has been heretofore said, I think it clear that an equitable assignee of money to become due in the future, under a contract between the assignor and a third party, takes all the risks that inhere in the situation. One of these risks inhering in this situation was that the assignor might become insolvent.
If the conclusion be not correct, which I have heretofore reached and stated, that such insolvency results in the nonfulfillment of the contract by the assignor, and therefore the equitable assignee takes nothing, and if I be also incorrect in my further conclusion that the action of the receiver in this case may not be construed as a fulfilling of the contract by the Conover Company, I think it sound that, in view of the reasons heretofore stated, the trust company, having neglected to give notice of its assignment to the Public Service Corporation, cannot now assert the same against the receiver. It is only by holding that the receiver elected to carry out the contract to which their right is alleged to attach that the trust company can succeed at all, and I am clear that he must not be held to have elected to do that of which he had no knowledge, and of which he cannot be charged with knowledge. The disastrous consequences of a contrary decision upon this point are so obvious as only to require mention.
There is another feature of this case which makes against the claim of the trust company. The receiver, who was appointed under the statute on the 1st of August, 1904, had been previously appointed temporary receiver pending the suit. Prior to the 1st of August. 1904, he had presented a petition, and obtained an order to show cause, returnable on the 1st of August, 1904, of which notice was given to all of the stockholders and creditors of the insolvent corporation, including the trust company. That petition was for leave to Issue receiver's certificates to obtain money with which to complete the unmanufactured product of the company. Upon the return of that order no one made any objection thereto, and leave was given to the receiver to issue receiver's certificates up to $5,000. The trust company bought some of those receiver's certificates. Here, again, it seems to me, it was the duty of the trust company to have acquainted the receiver of its claim to preference, or to take the consequence of not doing so. By not informing the receiver, I think the trust company estopped itself to now claim preference. If the receiver, upon taking possession of the assets of the company, had sold them in the condition in which they then were, the trustcompany would have taken nothing under its assignment. If the receiver had manufactured the machines in question and sold them to some other vendee than the Public Service Corporation, the trust company would have had no preference. The utmost extent to which I think the trust company can claim the law to be in its favor (and I do not concede that this is the law) is that a receiver informed of a contract made by the corporation, and informed that a portion of the contract price to be received by the corporation had been assigned, will be held to have elected to fulfill the contract, and thereby made good the assignment. But the very strength of this contention rests upon the information had by the receiver; and, since it appears in this case that they refrained from informing the receiver, and had refrained from informing the other contracting party, of the assignment, I hold that they have no preference thereunder.
My conclusions, therefore, are that, in any event, the assignment for $8,250 can only stand for $5,470; that, under such assignment, the trust company did not obtain a lien at the time thereof, and there cannot be a lien thereunder until the money is earned by the assignor; that, since the money was not earned by the assignor, the Conover Company, the trust company never acquired a lien; that whatever the rights of the trust company might have been if it had given notice of its assignment to the Public Service Corporation, it cannot, in default of having given such notice, maintain its priority against the receiver; that, having received notice of the intention of the receiver to borrow money, etc., it was the duty of the trust company to give notice of its assignment, or be estopped from asserting its priority thereunder.
The result is that the appeal with respect to this assignment is dismissed, and it is adjudged that the trust company is a general creditor to the extent of $0,470 on this account, and I will so advise.
Claim of Greenville Coal & Ice Company.
The Greenville Coal & Ice Company claims preference upon five assignments. The form of these assignments is practically identical, and one will serve as a model:
"May 28th, 1904.
"We hereby assign to the Greenville Coal & Ice Co. the sum of Three hundred and ten ($310) dollars out of our bill to The Public Service Corporation amounting to $433.69, and dated Jan. 28th, 1904.
"The above money is to be used for pay roll.
The Conover Mfg. Co.,
"E. K. Conover, Prest."
The assignment of June 18, 1904, is for $380 out of second payment on Public Service Corporation contract amounting to $4,950. The assignment of June 11, 1904, is for $207.29 out of balance due from Allis-Chalmers Company, amounting to $840, and also $164.33 Public Service repair bill, dated April 26, 1904. The assignment of June 6, 1904, is for $300, out of "our balance of account due from Allis-Chalmers Company, amounting to $840." The assignment of June 4, 1904, is of "our bill to Public Service Corporation amounting to $433.69, dated January 28, 1904." It will be observed that the assignments of May 28th and of June 4th cover the same fund, and, as the June 4th assignment deals with it all, that of May 28th must be disregarded.
The only authority shown to bind the corporation is the following extract from its minutes: "Resolved, That the President and Treasurer be hereby authorized to borrow money for pay rolls or other necessary payments from the Greenville Coal & Ice Co., and same is to be returned to them out of the first collections following such loans." Mr. Cogan was the treasurer of each of the corporations, and was a director of the Conover Company. He testifies, in exact accordance with the provisions of the resolution above quoted, that the understanding was that the Conover Company was to collect its moneys, and, out of the funds collected, pay to the Greenville Coal & Ice Company. The authorities are collected and cited in the Greenville Banking & Trust Company's appeal which hold that a president may not bind his corporation by any act in excess of his authority, and also those cases which establish the principle that whether an equitable assignment has been made is to be determined by the intention as proved. It is entirely clear in this case that there was no authority given the president by the corporation to make the assignments to the Greenville Coal & Ice Company which he made. The resolution and the testimony both show that the intention of the parties was an agreement to pay out of a particular fund. The cases which establish that this is not an equitable assignment are referred to in my conclusions in the Greenville Banking & Trust Company's appeal. No notice of these assignments was given to the third party, and the Greenville Coal & Ice Company also took some of the receiver's certificates. The same conclusions making against the validity of their assignments as are stated in disposing of the appeal of the Greenville Banking & Trust Company must be here applied.
The result is that the adjudication of the receiver is sustained, and the appeal is dismissed.
Claim of Thomas Cogan.
This claim is based upon the provisions of a paper signed by various employés of the Conover Manufacturing Company, reading as follows: "Jersey City, N. J., July 16, 1904. We the undersigned, employees of the Conover Manufacturing Company, hereby separately and collectively assign toThomas Cogan the amounts respectively set opposite our names, same amounts being our respective pay for the week ending July 14th, 1904." The aggregate of the amounts is $216. The employés are given a first lien, under section 83 of the statute. But it has been held that, if the employé assigns his claim before the insolvency is decreed, there is at that time no lien in his favor, and his assignee therefore acquires no lien. D., L. & W. R. Co. v. Oxford Iron Co., 33 N. J. Eq. 192, at pages 196, 197 (Van Fleet, V. C, 1880). Since at the time this assignment was made to Mr. Cogan, July 16, 1904, the defendant company had not been decreed to be insolvent, the amounts assigned to him by the employés were merely unsecured debts, and he can only prove them as such.
The result is that the adjudication of the receiver is confirmed, and the appeal is dismissed.