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Mahoney v. Nitroform Co.

January 30, 1956


On appeals from Superior Court, Appellate Division.

For reversal -- Chief Justice Vanderbilt, and Justices Wachenfeld, Burling, Jacobs and Brennan. For affirmance -- None. The opinion of the court was delivered by William J. Brennan, Jr., J.


The Appellate Division reversed judgments of the Essex County Court sustaining workmen's compensation awards for the dependents of Richard W. Mahoney and Edward C. Kraemer, respectively the president and the secretary-treasurer of Nitroform Company, Inc. Mahoney and Kraemer were killed on February 21, 1953 in an explosion and fire at the company's Newark plant at 444 Frelinghuysen Avenue. 36 N.J. Super. 116 (1955). We granted certification, 19 N.J. 336 and 337 (1955).

Each decedent held 25% of the company's issued stock, and a like percentage was held by Thomas J. Tully, vice-president in charge of research, and Leon I. Ross, vice-president in charge of sales.

There were separate trials of the two cases in the Division before different Deputy Directors. Tully testified at both trials and supplied the only proofs as to the corporate history and methods of operation and the arrangements with and among the incorporators. No corporate books or records were available at the trials because, according to Tully, minimum attention was given to record keeping and such records as were kept had either been destroyed in the explosion or had been seized by the authorities investigating the mishap.

Tully testified that he and his fellow officers organized Nitroform in 1952 to manufacture chemicals. The company's modest manufacturing quarters were leased at a rental of $100 per month. All work was done by the incorporators, primarily by Mahoney and Kraemer, except as on infrequent occasions casual labor was employed, usually relatives of the incorporators. For the purposes of this case, it is of especial importance that Mahoney and Kraemer did all the work incident to the production of the chemicals manufactured by the concern.

The four men gave only spare time to the business, as each held regular employment elsewhere. Mahoney was a production chemist at Merck & Company, Rahway, working a 44-hour week at an annual salary of $4,944, or $95.08 per week. Kraemer was custodian of the chemical stockroom at the Newark College of Engineering, receiving $4,088 per year, or approximately $80 per week. Tully was an associate professor of chemistry at the Newark College of Engineering and, while not too clear from the record, it appears that Ross was in the investment business. Neither Tully nor Ross spent much time at the Nitroform plant, but Mahoney and Kraemer averaged 20 hours per week, working nights, Saturdays, Sundays and holidays.

At the time of the accident only one product was being manufactured, a highly explosive compound called tetranitromethane, a very profitable item, produced at a cost of 90 cents per pound and selling at from $15 to $30 per pound,

depending upon quantity. The company's customers for the compound were armed service contractors.

None of the four incorporators drew any money from the company as salary, wages, dividends or otherwise. The corporation, however, had $1,087.73 in the bank at the time of the accident and also an unspecified amount of accounts receivable.

Tully testified, in substance, that the four incorporators agreed that none would draw anything until the enterprise prospered more substantially but that when that time arrived each would be paid from corporate funds the reasonable value of his services, that value in the cases of Mahoney and Kraemer to be measured at the rate of their respective earnings in their regular employments.

The Mahoney petition was heard before Deputy Director Medinets in December 1953, and the Kraemer petition before Deputy Director Umberger in April 1954. The workmen's compensation risk for Nitroform was an assigned risk to the carrier providing the insurance. The assignment was made pursuant to the "New Jersey Plan for the Granting of Workmen's Compensation Insurance to Employers Unable to Secure it for Themselves," approved by the Commissioner of Banking and Insurance and administered by the Compensation Rating and Inspections Bureau of New Jersey. The carrier, on behalf of Nitroform, filed answers to the widows' petitions which, under oath, admitted that the decedents were in the "employ" of Nitroform at the time of the accident. A like admission as to Kraemer particularly was made in the Kraemer case in a pretrial order entered in that case before the trial in the Division. At both trials, however, leave was sought to withdraw the admissions of employment and such leave was granted, formally in the Kraemer case, and substantially, if informally, in the Mahoney case. No proofs of any kind ...

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