The opinion of the court was delivered by: FORMAN
The trustee herein, Albert B. Kahn, instituted an action in the Court of Chancery of New Jersey to set aside as fraudulent, conveyances made to the wife of the bankrupt, Marion L. Rockhill. The bankrupt and his wife asserted in their defense that the said properties were purchased with funds which did not belong to the bankrupt, but were her property. On the eve of the trial of the case in the Court of Chancery and after considerable negotiation the trustee reported an offer of $ 700 from the bankrupt and his wife in full settlement of the trustee's claim against them. By petition, filed with the Referee in Bankruptcy, he reported such a settlement to be, in his belief, in the best interests of the estate and recommended that the compromise offer should be accepted. He petitioned for a meeting of the creditors to consider the compromise on the terms expressed above.
Accordingly, a meeting was called pursuant to appropriate notice given by the Referee. The offer was presented and no objection was made to it. In consequence an order was entered by the Referee in which the trustee 'was authorized to settle and compromise said controversy with the bankrupt and Marion L. Rockhill, his wife, for the sum of $ 700 * * * '.
The money was not paid and the trustee petitioned that an order be made directing the bankrupt and his wife to pay it within a specified period of time. This was granted and the Referee made an order directing them to pay the money within ten days from the date of service upon them of the order. They continued to decline payment and the trustee further petitioned the Referee to order the bankrupt and his wife to show cause why they should not be adjudged in contempt. Such an order to show cause was granted and argued in full before the Referee. The respondents, represented by Samuel D. Lenox, gave the following specific reasons for justifying their refusal to comply with the Referee's order:
1. That before the meeting of the creditors to consider the offer it was withdrawn.
2. That the bankrupt under no circumstances can be said to be in contempt because he did not make the offer.
It appears that the bankrupt was defendant in a suit brought by Julia and Mathew Horvath against him in 1940 in which a judgment was taken in the sum of $ 6,375 and costs. This suit was begun by a capias and James R. Rockhihl and Edward I. Rockhill gave a recognizance for the appearance of the bankrupt in that cause. The attorneys for the trustee, Perlman and Lerner, represented the plaintiffs in this action. This bankruptcy proceeding was commenced some years later in 1944 and the judgment and bond are listed in the bankrupt's schedules in this cause by his then attorney, Kenneth J. Dawes, who also represented them in the Chancery Court action.
It is represented by the respondents that they were called to the office of Mr. Dawes, when the trial of the trustee's action was imminent. It is their contention that Mr. Dawes, in their presence, called the trustee, Mr. Kahn, who is represented by Mr. Perlman of the firm of Perlman and Lerner, the same counsel who represented the plaintiffs in the Horvath case. This telephone conversation resulted in a negotiation of the proposal to settle the Chancery Court action upon the payment of $ 750 by Mrs. Rockhill, $ 700 of which was to be paid to the trustee and $ 50 was to be a counsel fee for Mr. Dawes.
Mr. Dawes testified that he talked with both Mr. Kahn, the trustee, and with Mr. Perlman concerning this settlement. His testimony is confusing as to what was said by him to them but he told either one or both that he wanted to 'buy peace' for his clients and to exchange releases, by which he said that he meant releases of the Horvath judgment. These, of course, could only come by way of Mr. Perlman, who represented the plaintiffs in that case.
Apparently the respondents were not particularly satisfied with the services of Mr. Dawes in this direction for some time afterwards, having consulted Mr. Lenox about some of Mrs. Rockhill's personal legal affairs, they also consulted him about the settlement then pending. It was the advice of Mr. Lenox that Mrs. Rockhill should write the following letter to Mr. Dawes:
'535 Willoh Street Bordentown, N.J. May 10, 1944