89 N.J. Eq. 433 | New York Court of Chancery | 1918
Defendant, a New York corporation, on or about August 28th, 1917, made and delivered in New York to one Tolman two sixty-day collateral notes, one for $1,700 and the other for $2,700, payable in New York. At or about the same time it delivered to Tolman, as collateral, two negotiable warehouse receipts covering approximately forty-five thousand pounds of steel. It received from Tolman upon the notes a total of $4,134.65. Shortly thereafter, on or about September 11th, the corporation gave Tolman a sixty-day chattel mortgage for $5,000, on its machinery and equipment at its plant at Hawthorne, N. J., securing a note for $5,000. There was advanced upon this loan approximately $4,300. When the two collateral notes became due, on or about October 27th, 1917, a new note dated October 27th, 1917, for $5,800, payable in ninety days, was made and delivered by the corporation to Tolman, in New York. The two notes made in August were canceled. Three thousand pounds of steel in storage were released. As a part of the same transaction a new chattel mortgage for $6,000 was made and executed by defendant and delivered to Tolman and the chattel mortgage for $5,000 was canceled. This $6,000 chattel mortgage was payable at the rate of $500 per month. Tolman at this time advanced $300 in cash and subsequently a sum which has been stated to be either $500 or $700, making the aggregate additional advance $800 or $1,000. There was
First. The' sixty-fourth section of the Corporation act (2 Comp. Stat. p. 1638) applies to a foreign corporation doing business in this state. It was so held by Vice-Chancellor Stevenson in Agnew Co. v. Paterson Board of Education, 83 N. J. Eq. 49 (at p. 55), and his determination upon this branch of the case was affirmed by the court of errors and appeals for the reasons he stated in 83 N. J. Eq. (at p. 339). And see Boehme v. Rall, 51 N. J. Eq. 541. All of the assets of the corporation were in this state; its entire business was in this state; the pledge was of property within this state. The fact that the notes were delivered in New York, payable in New York, does not, I think, differentiate this case from those cited.
The facts were present which would have warranted the court in appointing a receiver under section 65, but it does not necessarily follow that the words “actually suspended its ordinary business” in section 64 contemplate the same sort of suspension of business as indicated by the words “resumption of business” in section 65. The legislature was dealing in section 64 with the validity of transfers, &c., an entirety different subject-matter than that dealt with in section 65. Transfers, &c., are void if made (a) when the corporation is insolvent, or (b) after it has suspended its ordinary business for want of funds to carry on the same, or (c) if the transfer be made in contemplation of insolvency. A bona fide purchaser for value is saved if the transfer, &c., be made when the corporation be insolvent or if the transfer be made in contemplation of insolvency, if he have no notice, in the first instance, of the insolvency, and in the second instance, of the sale being made in contemplation of insolvency, provided always the sale shall have been made before the company shall have actually suspended its ordinary business. If the sale be made before the company has actually suspended its ordinary business then want of notice is material; if after, want of notice is immaterial. Actual suspension of business as used in this section imports more than a mere failure to meet maturing obligations as they accrue. The reasoning which in
Third. Was the company insolvent at the time the pledge was given and did Tolman have notice of such insolvency? “Insolvent” as used in the sixty-fourth section must be defined the same as “insolvent” as used in the sixty-fifth section, that is, a corporation is insolvent when there is a general inability to meet pecuniary liabilities as they mature, by means of either available assets or an honest use of credit. Trust Co. v. Trustees of Wm. F. Fisher & Co., 67 N. J. Eq. 602; Wright v. American Finance and Securities Co., 84 N. J. Eq. 415; 85 N. J. Eq. 181. Nevertheless, a corporation may, if temporarily in need of funds, pledge its assets if, by the pledge of such assets, moneys may be raised which will relieve it of its embarrassment and permit it to continue. Reed v. Helois Carbide Specialty Co., 64 N. J. Eq. 231; Miller v. Gourley, 65 N. J. Eq. 237; Regina Music Box Co. v. Otto & Sons, 65 N. J. Eq. 582; affirmed, 68 N. J. Eq. 802. But it seems to me on the authority of Cope v. Walton, 77 N. J. Eq. 512; 79 N. J. Eq. 165, that at least it must appear, before a corporation insolvent, in the sense of laboring under a
At the time of the original transaction with Tolman in August, 1917, the company had past-due indebtedness in excess of $10,000; it actually owed more than $30,000; much of the past-due indebtedness existing in August, September and October, 1917, was in existence at the time of the appointment of the receiver on May '24th, 1918; it was not manufacturing; it was only experimenting; it had exhausted the ordinary means for raising money; its creditors were pressing; it needed money “for working capital.” Through an advertisement through the medium of a broker its officers came in contact with Tolman, a money lender in New York. It arranged with Tolman for an advance of approximately $4,000 upon two sixty-day collateral notes to secure which there was pledged some forty-five thousand pounds of steel. Shortly thereafter it procured another loan from Tolman, approximately $4,300, for which it gave him a chattel mortgage to secure the sum of $5,000 upon its plant and machinery. Both the note and chattel mortgage were payable in sixty days. There was no scheme worked out by which provision was made for the payment either of the past-due indebtedness or of the notes and chattel mortgage when they should become due; there is no evidence that there was any expectation that the company could possibly be put in financial condition where it might meet either the amounts due upon the past-due indebtedness or the amounts due on the chattel mortgage and notes, nor do I think it was contemplated that either should be met. If it was so contemplated, then such contemplation was not based, so far as the evidence is concerned, upon any facts which would appeal to reasonable men. When the notes became due the company was unable to pay and thereupon another trans
My conclusion is that the corporation at the time the pledge was made was insolvent to the knowledge of Tolman and that the pledge is void as against the receiver.
I will advise an order so declaring and directing that the moneys be considered as a part of the estate, subject to distribution among creditors.