On certified appeal to the Appellate Division from the Chancery Division of the Superior Court.
For affirmance -- Justices Heher, Oliphant, Wachenfeld, Burling and Jacobs. For reversal -- None. The opinion of the court was delivered by Heher, J.
The issue joined here concerns an attorney's contractual right to compensation for professional services in realizing a creditor's intangible security given by an insolvent corporation.
March 6, 1952, the respondent Lehrich, an attorney-at-law of the State of New York, was engaged by the defendant Carteret Work Uniforms to prosecute in its behalf a claim for breach of contract against the United States before the Armed Services Board of Contract Appeals; and Carteret
agreed to pay him for the service a retainer of $1,500 (reduced to $1,000, one week later) and 20% of the recovery. Lehrich performed the undertaking; and the result was a determination by the Board, July 25, 1952, that the United States had breached its contract with Carteret (for the manufacture of overcoats) made March 19, 1951 and Carteret was entitled to damages. There was a reference to the New York Quartermaster Procurement Agency for an assessment of the damages; and the finding there was that Carteret had sustained no actual monetary loss, even though there had been a "technical breach" of the contract. An appeal from this determination was taken to the Armed Services Board; and the Board awarded damages of $22,441.86, August 20, 1954.
Meanwhile, August 19, 1952, Coastal Commercial Corporation loaned Carteret $10,000, evidenced by a promissory note providing for the payment of interest thereon at 2% per month and counsel fees "of up to 15% in the event that the claim was placed with an attorney for collection," and secured by an assignment of Carteret's action for damages against the United States. The plaintiff here, Republic Factors, Inc., recovered a judgment against Carteret; and a receiver of Carteret's assets was appointed June 23, 1953 under R.S. 14:14-3.
August 24, 1953, Carteret's receiver petitioned for an order authorizing him to retain the respondent Lehrich for the prosecution of Carteret's claim against the United States before the Armed Services Board; and an ex parte order was made forthwith permitting the receiver to retain Lehrich to that end "under the agreement" that Lehrich's "fees * * * shall be 20% of the amount recovered thereby, but not in excess of $6,500," and that the attorney for the receiver, Leo Yanoff, "shall be named as co-counsel in said appeal."
December 30, 1954, Carteret's receiver presented a petition in the cause reciting the making of the award and the receiver's agreement with Lehrich made August 24, 1953, according to the authority thus given, and alleging that the receiver had been advised by the Philadelphia Quartermaster
Depot, United States Army, of the assignment of the claim against the United States to secure the stated loan and the procedure for the adjustment of the "conflicting claims of Receiver and Coastal"; that the receiver had questioned the validity of the assignment "under 31 U.S.C., section 203"; that Coastal "claims interest on [the] loan of approximately 57%," "which makes the claim of Coastal against said fund approximately $15,700," plus an additional sum for counsel fees under the terms of the note; that by the order entered in the cause, Lehrich is entitled to counsel fees of $4,488.37, 20% of the recovery, and "If the said sums were paid, the interest of the receiver in [the] fund of $22,441.86" would be $2,253.49 (sic); that the receiver and Coastal had negotiated a settlement of the "controversy between them respecting the validity of [the] assignment," whereby the receiver would receive $4,703.49, an agreement in writing made December 23, 1954, subject to the approval of the court; and praying that the contract be approved on notice to the creditors, stockholders and officers of Carteret.
A rule to show cause was allowed; and an order was entered March 7, 1955 approving the contract and authorizing performance by the receiver.
September 28, 1956, Coastal gave notice of a motion to vacate the order of March 7, 1955, approving the agreement of December 23, 1954 between the receiver and Coastal, on the ground that although the amount which would have remained for Coastal under that agreement "was substantially less than the claim it asserted as assignee," and it entered into the agreement "solely to expedite payment of the award and disposition of the pending dispute," the United States had refused payment of the "full amount of the award to Coastal because it asserted offsets against the same" for unpaid taxes owing by Carteret to the Government, the contention of the Government being that although it could not offset such taxes against Coastal "by reason of ...